Fire Hydrant of Freedom
Politics, Religion, Science, Culture and Humanities => Politics & Religion => Topic started by: Crafty_Dog on October 14, 2009, 04:22:43 AM
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My doggy nose tells me it is time for the US dollar to have its own thread:
This from today's WSJ
y JUDY SHELTON
Unprecedented spending, unending fiscal deficits, unconscionable accumulations of government debt: These are the trends that are shaping America's financial future. And since loose monetary policy and a weak U.S. dollar are part of the mix, apparently, it's no wonder people around the world are searching for an alternative form of money in which to calculate and preserve their own wealth.
It may be too soon to dismiss the dollar as an utterly debauched currency. It still is the most used for international transactions and constitutes over 60% of other countries' official foreign-exchange reserves. But the reputation of our nation's money is being severely compromised.
Funny how words normally used to address issues of morality come to the fore when judging the qualities of the dollar. Perhaps it's because the U.S. has long represented the virtues of democratic capitalism. To be "sound as a dollar" is to be deemed trustworthy, dependable, and in good working condition.
It used to mean all that, anyway. But as the dollar is increasingly perceived as the default mechanism for out-of-control government spending, its role as a reliable standard of value is destined to fade. Who wants to accumulate assets denominated in a shrinking unit of account? Excess government spending leads to inflation, and inflation plays dollar savers for patsies—both at home and abroad.
A return to sound financial principles in Washington, D.C., would signal that America still believes it can restore the integrity of the dollar and provide leadership for the global economy. But for all the talk from the Obama administration about the need to exert fiscal discipline—the president's 10-year federal budget is subtitled "A New Era of Responsibility: Renewing America's Promise"—the projected budget numbers anticipate a permanent pattern of deficit spending and vastly higher levels of outstanding federal debt.
Even with the optimistic economic assumptions implicit in the Obama administration's budget, it's a mathematical impossibility to reduce debt if you continue to spend more than you take in. Mr. Obama promises to lower the deficit from its current 9.9% of gross domestic product to an average 4.8% of GDP for the years 2010-2014, and an average 4% of GDP for the years 2015-2019. All of this presupposes no unforeseen expenditures such as a second "stimulus" package or additional costs related to health-care reform. But even if the deficit shrinks as a percentage of GDP, it's still a deficit. It adds to the amount of our nation's outstanding indebtedness, which reflects the cumulative total of annual budget deficits.
By the end of 2019, according to the administration's budget numbers, our federal debt will reach $23.3 trillion—as compared to $11.9 trillion today. To put it in perspective: U.S. federal debt was equal to 61.4% of GDP in 1999; it grew to 70.2% of GDP in 2008 (under the Bush administration); it will climb to an estimated 90.4% this year and touch the 100% mark in 2011, after which the projected federal debt will continue to equal or exceed our nation's entire annual economic output through 2019.
The U.S. is thus slated to enter the ranks of those countries—Zimbabwe, Japan, Lebanon, Singapore, Jamaica, Italy—with the highest government debt-to-GDP ratio (which measures the debt burden against a nation's capacity to generate sufficient wealth to repay its creditors). In 2008, the U.S. ranked 23rd on the list—crossing the 100% threshold vaults our nation into seventh place.
If you were a foreign government, would you want to increase your holdings of Treasury securities knowing the U.S. government has no plans to balance its budget during the next decade, let alone achieve a surplus?
In the European Union, countries wishing to adopt the euro must first limit government debt to 60% of GDP. It's the reference criterion for demonstrating "soundness and sustainability of public finances." Politicians find it all too tempting to print money—something the Europeans have understood since the days of the Weimar Republic—and excessive government borrowing poses a threat to monetary stability.
Valuable lessons can also be drawn from Japan's unsuccessful experiment with quantitative easing in the aftermath of its ruptured 1980s bubble economy. The Bank of Japan's desperate efforts to fight deflation through a zero-interest rate policy aimed at bailing out zombie companies, along with massive budget deficit spending, only contributed to a lost decade of stagnant growth. Japan's government debt-to-GDP ratio escalated to more than 170% now from 65% in 1990. Over the same period, the yen's use as an international reserve currency—it clings to fourth place behind the dollar, euro and pound sterling—declined from comprising 10.2% of official foreign-exchange reserves to 3.3% today.
The U.S. has long served as the world's "indispensable nation" and the dollar's primary role in the global economy has likewise seemed to testify to American exceptionalism. But the passivity in Washington toward our dismal fiscal future, and its inevitable toll on U.S. economic influence, suggests that American global leadership is no longer a priority and that America's money cannot be trusted.
If money is a moral contract between government and its citizens, we are being violated. The rest of the world, meanwhile, simply wants to avoid being duped. That is why China and Russia—large holders of dollars—are angling to invent some new kind of global currency for denominating reserve assets. It's why oil-producing Gulf States are fretting over whether to continue pricing energy exports in depreciated dollars. It's why central banks around the world are dumping dollars in favor of alternative currencies, even as reduced global demand exacerbates the dollar's decline. Until the U.S. sends convincing signals that it believes in a strong dollar—mere rhetorical assertions ring hollow—the world has little reason to hold dollar-denominated securities.
Sadly, due to our fiscal quagmire, the Federal Reserve may be forced to raise interest rates as a sop to attract foreign capital even if it hurts our domestic economy. Unfortunately, that's the price of having already succumbed to symbiotic fiscal and monetary policy. If we could forge a genuine commitment to private-sector economic growth by reducing taxes, and at the same time significantly cut future spending, it might be possible to turn things around. Under President Reagan in the 1980s, Fed Chairman Paul Volcker slashed inflation and strengthened the dollar by dramatically tightening credit. Though it was a painful process, the economy ultimately boomed.
Whether the U.S. can once more summon the resolve to address its problems is an open question. But the world's growing dollar disdain conveys a message: Issuing more promissory notes is not the way to renew America's promise.
Ms. Shelton, an economist, is author of "Money Meltdown: Restoring Order to the Global Currency System" (Free Press, 1994).
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http://www.nypost.com/f/print/news/business/dollar_loses_reserve_status_to_yen_hFyfwvpBW1YYLykSJwTTEL
Updated: Tue., Oct. 13, 2009, 3:16 AM
Dollar loses reserve status to yen & euro
By PAUL THARP
Last Updated: 3:16 AM, October 13, 2009
Posted: 1:44 AM, October 13, 2009
Ben Bernanke's dollar crisis went into a wider mode yesterday as the greenback was shockingly upstaged by the euro and yen, both of which can lay claim to the world title as the currency favored by central banks as their reserve currency.
Over the last three months, banks put 63 percent of their new cash into euros and yen -- not the greenbacks -- a nearly complete reversal of the dollar's onetime dominance for reserves, according to Barclays Capital. The dollar's share of new cash in the central banks was down to 37 percent -- compared with two-thirds a decade ago.
Currently, dollars account for about 62 percent of the currency reserve at central banks -- the lowest on record, said the International Monetary Fund.
Bernanke could go down in economic history as the man who killed the greenback on the operating table.
After printing up trillions of new dollars and new bonds to stimulate the US economy, the Federal Reserve chief is now boxed into a corner battling two separate monsters that could devour the economy -- ravenous inflation on one hand, and a perilous recession on the other.
"He's in a crisis worse than the meltdown ever was," said Peter Schiff, president of Euro Pacific Capital. "I fear that he could be the Fed chairman who brought down the whole thing."
Investors and central banks are snubbing dollars because the greenback is kept too weak by zero interest rates and a flood of greenbacks in the global economy.
They grumble that they've loaned the US record amounts to cover its mounting debt, but are getting paid back by a currency that's worth 10 percent less in the past three months alone. In a decade, it's down nearly one-third.
Yesterday, the dollar had a mixed performance, falling slightly against the British pound to $1.5801 from $1.5846 Friday, but rising against the euro to $1.4779 from $1.4709 and against the yen to 89.85 yen from 89.78.
Economists believe the market rebellion against the dollar will spread until Bernanke starts raising interest rates from around zero to the high single digits, and pulls back the flood of currency spewed from US printing presses.
"That's a cure, but it's also going to stifle any US economic growth," said Schiff. "The economy is addicted to the cheap interest and liquidity."
Economists warn that a jump in rates will clobber stocks and cripple the already stalled housing market.
"Bernanke's other choice is to keep rates at zero, print even more money and sell more debt, but we'll see triple-digit inflation that could collapse the economy as we know it.
"The stimulus is what's toxic -- we're poisoning ourselves and the global economy with it."
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Luskin: "obviously, a currency undergoing inflation is worth less than a currency not undergoing inflation"
'Inflation' is the creation of the excess money. Price increases are a symptom likely to follow. So is devaluation. 'Decline is a choice.' Our reckless policies were enabled by our fading, privileged status as the world currency. Unlike third world countries, our debt is in our own currency. Devalue the currency and you devalue the debt. - Doug
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http://www.smartmoney.com/investing/economy/the-dollar-s-fall-deal-with-it/
The Dollar's Fall: Deal With It
The dramatic recent fall of the value of the U.S. dollar grabs headlines every day, even as the U.S. stock market surges to new recovery highs. People are talking about a "dollar crisis," and it's not just the usual rant-and-rave topic on CNBC. There are serious hints from government authorities around the globe that maybe we should think about dethroning the U.S. dollar as the "reserve currency" held by the world's central banks, and maybe global markets like oil should stop being priced in dollars.
There are some currencies that are as weak as the dollar now, such as the British pound. And there are some that are weaker, such as the Malaysian ringgit. But against a basket of the world's major currencies, the dollar has fallen 15% in just seven months. That's a big move in any market, but for a currency it's practically a crash. If it falls another 6%, it will make historic all-time lows.
You'd think with all this going on, officials at the U.S. Treasury would be running around in a flat-out panic. But they're not. This week I met in Washington with a group of the most senior men at Treasury (please forgive me if I don't name names), and I was surprised to learn that they are not terribly worried.
Here's why.
First, they think that the 15% decline in the dollar is actually a sign of economic strength. They point out, quite correctly, that the value of the dollar surged during the recent credit crisis, as investors around the world suddenly craved the safety of dollar liquidity. At the most, the dollar soared 24%, reaching its top on exactly the same day last March that the stock market made its bottom.
That puts the 15% drop in context. And it also helps to explain why foreign governments are suddenly so interested in dropping their dependency on the U.S. dollar. It's not so much because the dollar is weak. It's because the credit crisis revealed that the dollar is intolerably unique.
By that I mean that when the world economy came off the rails last year, everyone in the world needed dollars — not pounds, not euros, not yen, not yuan, not ringgits — because the U.S. dollar is the de facto unit of global trading and investment. Why should the economies of the world be so dependent on a single nation's currency?
So while it may feel like a blow to our national prestige to have the dollar be just another currency, that's probably inevitable — and probably all for the best. It's in America's interest to live in a world more resilient to credit shocks than the dollar-dominated world turned out to be.
Another reason the Treasury isn't in a twist about the dollar is that they recognize there is nothing they can do about it. Oh, sure, Secretary Tim Geithner could give a speech or two about his "strong dollar policy," for all the good it would do, which would be precisely none. By the way, when I visited Treasury, nobody even mentioned the expression "strong dollar."
The reality is -- and the Treasury knows this -- that it's the Federal Reserve that ultimately determines the value of the dollar. That's because the Fed's monetary policies are what determines inflation —and obviously, a currency undergoing inflation is worth less than a currency not undergoing inflation. So if you want a strong dollar, write a letter to Fed Chairman Ben Bernanke, not Geithner.
There is one thing that the Treasury could do to support the dollar. But what I heard this week in Washington convinces me that they aren't going to do it. They are going to do the exact opposite.
What I mean is that the Treasury is going to every diplomatic means at its disposal to get countries like China to make their currencies more valuable vs. the dollar. Rightly or wrongly, the Obama administration's Treasury believes — exactly as the Bush administration's Treasury did — that China, and other giant exporting nations manipulate their currencies, to keep them cheap so that their exports will be cheap on world markets.
U.S. consumers benefit from cheap foreign goods at Wal-Mart. But U.S. manufacturers can't compete with the foreign manufacturers that make those cheap goods. And U.S. manufacturers make bigger political contributions than U.S. consumers. So the Treasury, naturally, is committed to getting governments like China to effectively raise their prices by appreciating their currencies.
Now when Treasury officials talk about this, they don't admit that they're trying to get China to stop manipulating its currency lower and start manipulating it higher. Instead, they say they want China to stop manipulating it altogether, on the theory that when the yuan floats freely on world markets, it will inevitably move higher.
Maybe it will and maybe it won't. But there's one inescapable truth here — at least when it comes to the Chinese yuan and several other exporting nations' currencies: They want the value of the dollar to be lower. There's no way around it. If you want the yuan to be higher relative to the dollar, then you necessarily want the dollar to be lower relative to the yuan.
So let's put it all together. I'm not worried that there's going to be some kind of "dollar crisis." But all the facts do point to a lower dollar.
First, if the Fed ultimately controls the dollar's value, then the dollar is going lower — with interest rates at zero for as far as the eye can see, inflation is inevitable.
Second, if the dollar gets stronger during times of credit stress, the dollar is going lower — because global credit markets are recovering, and getting stronger every day.
Third, the Treasury will be actively pursuing diplomacy to get China and other exporters to strengthen their currencies, so the dollar is going lower.
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Doug et al:
No criticism for having posted that, but that has got to be one of the most specious and stupid pieces I have read in quite some time. :lol:
Marc
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October 16, 2009
http://www.europac.net/externalframeset.asp?from=home&id=17446&type=schiff
Ignorance Is Bliss
While all the talk at present is about economic corners turned and markets charging ahead, no one is paying much notice to an American economy deteriorating before our eyes. These myopic commentators seem to be simply moving past the now almost-universally held conclusion that before the crash of 2008, our economy was on an unsustainable course. If these imbalances had been corrected, then perhaps I too would be joining in the euphoria. But evidence abounds that we have not veered at all from that dangerous path.
Last week, the Bureau of Economic Analysis reported that consumer spending as a percentage of U.S. GDP has risen to 71%, a post-World War II record. This level is notably higher than other wealthy industrialized countries, and vastly higher than the levels sustained by China and other emerging economies. At the same time, our industrial output is contracting, our trade deficit is expanding once again (after contracting earlier in the year), and our savings rate is plummeting (after an early year surge).
The data confirms that government stimuli are worsening the structural imbalances underlying our economy. The recent ‘rebound’ in GDP is not resulting from increased economic output, but merely from the fact that we are borrowing more than ever. That is precisely how we got ourselves into this mess. An economy cannot grow indefinitely by borrowing more than it produces. Not only is such a course untenable, but the added debt ensures a deeper recession when the bills come due.
This soon-to-be-called depression will not end until the pendulum of consumer spending habits swings violently in the other direction. This will be a jarring change, but it is the splash of cold water that we need to return our economy to viability. I believe that consumer spending as a share of GDP will need to temporarily contract to roughly 50% of GDP, before eventually moving toward its historic mean of 65%. Such a move would indicate a restoration of our personal savings, a decline in borrowing and trade deficits, and an increased industrial output. That would be a real recovery.
In the meantime, the higher the spending percentage climbs, the more painful the ultimate decline becomes.
Consumers and governments must spend less so their savings can be made available to businesses for capital investments. Businesses, in turn, will produce more products and employ more people – increasing domestic prosperity. However, rather than allowing a painful cure to return our economy to health, the government prefers to numb the voting public with a toxic saline-drip of deficit spending and cheap money.
The primary factor that enables our government to peddle economic snake oil is the dollar’s unique role as the world’s reserve currency, and our creditors’ willingness to preserve its status. By buying up dollars and loaning them back to us through Treasury debt, productive countries give American politicians carte blanche to play Santa Claus.
Ironically, as foreign governments finance our spending spree, they are simultaneously scolding us for our low savings rate. At the recent G20 meeting in Pittsburgh, all agreed – including President Obama – that resolving the global economic imbalances was a top priority. By definition, this would require Americans to spend less and save more. However, with foreign central banks continuing to buy our debt, the President has shown no political will to encourage this change.
Normally, if politicians run up the government deficit, voters soon suffer the unpleasant consequences of higher inflation and rising interest rates. Yet, if foreign central banks keep supplying the funds, these consequences are indefinitely postponed. As a result, there is no need for American politicians to ever make the tough choices required to solve our problems.
Instead, the burden may fall squarely on the citizens of those governments doing all the lending. The conflict is that within the creditor states, a vocal minority actually benefits from this subsidy (owners of Chinese exporters, for example) while the overwhelming majority fails to make the connection. Thus, foreign politicians have the same incentives as ours to keep playing the game.
The bottom line is that foreign governments can lecture us all they want about the need for prudence but if they keep lending, we’ll keep spending. Any parent knows that if you give your child a curfew yet never impose any penalties when it’s violated, it will not be respected. My gut feeling is that foreign governments are tiring of our conduct and on the verge of finally imposing some discipline. That means the dollar’s days as the world’s reserve currency are numbered, and the days of American austerity are about to begin.
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BARRON’S COVER STORY OCT 17
C'mon, Ben!
By ANDREW BARY
We make our case for the Fed to increase short-term interest rates to a more normal 2% -- or risk fostering another financial bubble.
IT'S TIME FOR THE FEDERAL RESERVE TO STOP talking about an "exit strategy" and to start implementing one.
There's no need for short-term rates to remain near zero now that the economy is recovering. The call to action is clear: Gold, oil and other commodities are rising, the dollar is falling and the stock market is surging. The move in the Dow Jones industrial average above 10,000 last week underscores the renewed health of the markets. Super-low short rates are fueling financial speculation, angering our economic partners and foreign creditors, and potentially stoking inflation.
The Fed doesn't seem to be distinguishing between normal accommodative monetary policy and crisis accommodative policy. There's a huge difference.
With the crisis clearly past, the Fed ought to boost short-term rates to a more normal 2% -- still low by historical standards -- to send a signal to the markets that the U.S. is serious about supporting its beleaguered currency and that the worst is over for the global economy. Years of low short rates helped create the housing bubble, and the Fed risks fostering another financial bubble with its current policies.
The Fed also ought to consider scaling back its massive bond purchases, which have totaled more than $1 trillion this year and have artificially depressed mortgage and Treasury interest rates. The Fed has virtually cornered the mortgage-backed market, buying about 75% of newly created government-backed securities this year, and that has forced the usual institutional buyers of mortgage securities into other markets, like corporate and municipal bonds. This has contributed to the sharp rally in munis and corporates.
Better to stop the Fed's bond-buying program sooner rather than later, and end artificially low, sub-5% mortgage rates. The more securities the Fed purchases, the greater the ultimate losses on its holdings when rates do rise. Banks also have bulked up on low-yielding Treasuries, buying over $200 billion in the past year.
It's also time for the Fed to consider the plight of the country's savers, who now are getting less than 1% yields on money market funds and who are being forced to take substantial interest-rate or credit risk if they want higher yields. "The Fed is punishing prudent people and rewarding profligate people," one veteran investor tells Barron's. Many unemployed and underemployed Americans may be deserving of some mortgage relief, but there also are millions of Americans -- most of them elderly -- who diligently saved and now have little income to show for a lifetime of effort.
WHILE SAVERS ARE SUFFERING AND MAIN STREET is hurting from still-tight bank lending policies, Wall Street is having one of its best years ever -- and rock-bottom short-term rates are a key reason. Goldman Sachs (GS) and JP Morgan (JPM) last week reported strong third-quarter profits, stemming in large part from trading activities. A flush Goldman is on course to pay $20 billion to its employees in 2009 -- or nearly $700,000 per person -- just a year after the wobbling firm got a critical government financial safety net. Goldman generated over 80% of its revenues from trading in the third quarter.
A quick move up to 2% -- or even 1% -- in the key Federal funds rate, now at just 0.15%, might shock global markets, where big investors have come to see the dollar, commodities and stocks as one-way bets. Major global equity indexes probably would fall, while commodities likely would fall and the dollar would rally.
Ultimately, higher short-term rates could help by suppressing incipient inflation while doing little to dampen a mending U.S. economy. Real GDP growth could top 3% in the second half of this year.
Our view unquestionably is an outlier. With unemployment near 10%, few see a need for higher rates. And Fed chairman Ben Bernanke, while acknowledging that the Fed will need to pursue an "exit strategy" and tighten monetary policy, clearly wants to act later rather than sooner.
"My colleagues at the Federal Reserve and I believe that accommodative policies will likely be warranted for an extended period," he said recently. Financial markets expect the pace of Fed tightening to be very slow, with short-term rates not hitting 1% until October of 2010.
But some central-bank officials, such as St. Louis Fed President James Bullard, have been warning about inflation. And they have a point: Inflation is back, with prices rising 0.2% in September after increasing 0.4% in August. The CPI index could be up 2% in the next year, versus a 1.3% decline in the 12 months through September.
THE STOCK MARKET HAS BECOME A WEAK-DOLLAR constituency because a declining greenback boosts profits of multinational companies like Coca-Cola (KO) and Intel (INTC). Overall, companies in the S&P 500 get 30% of their revenues from abroad.
But maintaining the status quo could be short-sighted, since overseas investors are likely critical to the long-term health of the U.S. stock market. They've been burned by U.S. stocks in the past decade; the market's decline and a weaker dollar have meant 50% losses for European holders. If the U.S. wants to continue to attract overseas capital, it's going to need to support its currency.
Speculators, meanwhile, have been borrowing in dollars to buy a range of financial assets because of near-zero borrowing costs and the prospect of repaying those loans with a depreciated currency.
Low U.S. interest rates aren't the only problem for the dollar. Many foreign investors have been spooked by the record budget deficit and a perception that the Obama administration wants a lower dollar to boost exports and the economy.
The chances of the Fed moving away soon from a crisis-accommodative stance and near-zero short-term rates probably are small, because doves like Bernanke have the upper hand. There isn't apt to be any political pressure to raise rates.
That's a shame. The Fed and the administration are playing a dangerous financial and fiscal game because ours is a debtor nation that depends on the confidence of overseas creditors. If a resilient U.S. economy can't tolerate 1% or 2% short rates, this country really is in bad shape.
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By JUDY SHELTON
This past Sunday, at the American Economic Association's annual meeting in Atlanta, Ga., Federal Reserve Chairman Ben Bernanke offered up a lengthy, professorial defense of U.S. monetary policy over the last decade, focusing on its role in the financial crisis that has gripped the world economy.
It doesn't quite rise to the level of Homeland Security Secretary Janet Napolitano's claim after a barely foiled attempt to blow up a U.S.-bound airliner on Christmas Day that "the system worked really smoothly." But Mr. Bernanke's calm observation that "monetary policy from 2002 to 2006 appears to have been reasonably consistent with the Federal Reserve's mandated goals of maximum sustainable employment and price stability" is nevertheless disturbing.
If the integrity of the dollar is not the Fed's primary concern, or if its notion of "price stability" is restricted to some narrow core inflation index that does not include escalating costs for food and energy, let alone runaway prices for financial market assets and commodities, then the Fed is woefully inadequate to the task of safeguarding the value of our nation's money.
Mr. Bernanke is not oblivious to criticism of the Fed's role in the crisis. His assertion that "regulatory and supervisory policies, rather than monetary policies, would have been more effective means of addressing the run-up in house prices" hints at a possible scapegoat for the housing bubble that presaged financial calamity.
Yet nowhere in his 34-page apologia does the Fed chairman fault Congress for inflicting Fannie Mae and Freddie Mac on the home mortgage industry; nowhere does he attempt to analyze the damaging influence of government intervention in the private sector, or its distorting impact on market assessments of risk-and-return tradeoffs.
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.Instead of trying to shift blame away from the easy-money policies of the Fed that accommodated such ill-considered government intrusion into the mortgage-lending business—spawning a treacherous boom in exotic derivative instruments structured against seemingly endless supplies of securitized U.S. debt—Mr. Bernanke should strive to better explain why the Fed ignored troubling indications of a growing bubble.
According to U.S. Census Bureau statistics, the average sales price of a new home in 2000 was $207,000; the average price in 2007 was $313,600, more than 50% higher in just seven years. During the same period, based on Consumer Price Index (CPI) numbers for the interim years provided by the Bureau of Labor Statistics, the average sales price of a new home should have been $250,625 in 2007—that is, if the CPI fully captured the impact of excessive monetary issuance.
In other words, if you assume stable demand and supply, the government's official CPI calculation only accounts for a 21% gain in the average sales price of a new home from the beginning of the decade to the start of the subprime collapse.
Mr. Bernanke glosses over this significant anomaly. He notes breezily in last Sunday's speech that the most rapid price gains in housing occurred in 2004 and 2005. But it's worth reminding the chairman that the Fed kept the federal-funds rate at a then-record low of 1% from June 2003 to June 2004. The most Mr. Bernanke concedes is a begrudging admission that "the timing of the housing bubble does not rule out some contribution from monetary policy."
OpinionJournal Related Stories:
Review & Outlook: The Bernanke Record
Review & Outlook: Dear Chairman Bernanke
Review & Outlook: Bernanke's Second Chance
.When it comes to evaluating Fed performance, the Fed itself always seems to get back to using core inflation measures. What about changes in the value of the dollar against other major currencies during the last decade? Shouldn't a decline in global purchasing power for all Americans qualify for consideration in Fed deliberations over appropriate monetary policy?
If price stability constitutes one of the Fed's key objectives, the fact that the dollar went from being worth 1.17 euros in October 2000 to a mere .63 euros in April 2008—roughly half as much—would seem to matter. Should the value of U.S. money really be subject to swings of such magnitude? The dollar's current exchange rate of .69 euros no doubt reflects the "safe haven" status of U.S. investment at times of shaky global finances; it's a residual privilege we seem poised to lose as fiscal imbalances mount.
And what about gold? The price of gold has soared to $1,128 today from $282 at the beginning of the decade, a fourfold increase. During the critical 2002-2006 period—when Mr. Bernanke insists monetary policy was consistent with the Fed's price-stability goals—the dollar price of gold climbed steadily to $700 from below $300. Did the governors of our nation's central bank not notice? Given that the U.S. government holds the largest amount of official gold reserves in the world, it would seem pertinent.
Indeed, gold is viewed by central banks the world over as a unique reserve asset. Contrary to monetary assets denominated in national currencies, its status cannot be undermined by inflation in the issuing country, nor is it subject to repudiation or default.
Which suggests that perhaps it is time to make available to the American public the sort of insurance against dollar depreciation that monetary authorities have long sought for their own portfolios. For those citizens who've become skeptical of the Fed's ability to guarantee price stability in terms more meaningful than elementary CPI statistics—or who believe the bigger threat to their personal financial security lies in a potential repeat of the last debacle—why not provide a new class of Treasury obligations that would guarantee the purchasing power of the dollar in terms of gold?
It would not necessarily be a difficult task. Congress could pass legislation authorizing a limited issuance of gold-backed Treasury notes in compliance with existing legal restrictions pertaining to U.S. savings bonds (to own U.S. savings bonds you must be a U.S. resident and have been issued a Social Security number). The five-year Treasury notes would pay no interest, but they would provide for payment of principal at maturity in either ounces of gold or the face value of the security, at the option of the holder.
In the same way that inflation-indexed Treasury obligations provide an indication to the Fed of aggregate expectations on consumer prices, gold-backed Treasury notes would offer an additional useful tool for conducting monetary policy—one more broadly reflective of potential bubbles in both financial markets and commodities.
Don't be surprised, though, if the Fed balks at the proposal. When it comes to the golden canary, it has already proven itself tone deaf.
Ms. Shelton, an economist, is author of "Money Meltdown: Restoring Order to the Global Currency System" (Free Press, 1994).
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Federal Reserve earned $45 billion in 2009
By Neil Irwin
Wall Street firms aren't the only banks that had a banner year. The Federal Reserve made record profits in 2009, as its unconventional efforts to prop up the economy created a windfall for the government.
The Fed will return about $45 billion to the U.S. Treasury for 2009, according to calculations by The Washington Post based on public documents. That reflects the highest earnings in the 96-year history of the central bank. The Fed, unlike most government agencies, funds itself from its own operations and returns its profits to the Treasury.
The numbers are good news for the federal budget and a sign that the Fed has been successful, at least so far, in protecting taxpayers as it intervenes in the economy -- though there remains a risk of significant losses in the future if the Fed sells some of its investments or loses money on its stakes in bailed-out firms.
This turn of events comes as the banks that benefited from the Fed's actions are under the microscope. Starting at the end of the week, major banks are expected to announce significant earnings and employee bonuses. Anger in Washington is at such a high boil that the Obama administration will probably propose a fee on financial firms to recoup the cost of their bailout, officials confirmed Monday.
As it happens, the Fed's earnings for the year will dwarf those of the large banks, easily topping the expected profits of Bank of America, Goldman Sachs and J.P. Morgan Chase combined.
Much of the higher earnings came about because of the Fed's aggressive program of buying bonds, aiming to push interest rates down across the economy and thus stimulate growth. By the end of 2009, the Fed owned $1.8 trillion in U.S. government debt and mortgage-related securities, up from $497 billion a year earlier. The interest income on those investments was a major source of Fed profits -- though that income comes with risks, as the central bank could lose money if it later sells those securities to reduce the money supply.
The Fed also made money on its emergency loans to banks and other firms and on special programs to prop up lending, such as one that supports credit cards, auto loans, and other consumer and business lending. Those programs impose interest and fees on participants, with the aim of ensuring that the Fed does not lose money.
And while the central bank in its most recent financial report had recorded a $3.8 billion decline in the value of loans it made in bailing out the investment bank Bear Stearns and the insurer American International Group, the Fed also logged $4.7 billion in interest payments from those loans. Further losses -- or gains -- on the two bailouts are possible as time goes by. The Fed also charges fees for operating the plumbing of the financial system, such as clearing checks and electronic payments between banks.
From its revenue, the Fed deducts operating expenses, such as employee salaries, then returns to the Treasury almost all of the earnings that remain. The largest previous refund to the Treasury was $34.6 billion, in 2007.
"This shows that central banking is a great business to be in, especially in a crisis," said Vincent Reinhart, a resident scholar at the American Enterprise Institute and a former Fed official. "You buy assets that have a nice yield, and your cost of funds is very low. The difference is profit."
The Fed plans to release its estimate of 2009 earnings Tuesday. The Post's calculation is based on combining data through September from the Fed's monthly balance sheet report with more recent data from the Treasury's daily budget statement.
Fed officials do not make policy with an eye toward maximizing profits. They are charged by law with managing the nation's money supply to keep employment high and prices stable, and earnings fluctuate depending on a wide range of factors as they pursue that goal. In the crisis, the central bank's policy has been to create money and use it to buy a wide variety of assets, which in turn pay interest.
In effect, the unprecedented range of actions taken to address the crisis has made the Fed's balance sheet more like that of a private bank. A firm such as Bank of America takes money from depositors, whom it pays little or nothing in interest, and lends it out at significantly higher rates. The Fed, similarly, takes money that banks keep on deposit, at a rate of 0.25 percent, and lends it to the U.S. government by buying Treasury securities and, lately, to home buyers and other private borrowers though more exotic investments.
While that resulted in higher earnings in 2009, it exposes the Fed to more risks down the road. "They've moved up the risk-return curve, as they have more long-term assets and more things that involve credit risk," said Diane Swonk, chief economist at Mesirow Financial.
If the price of Treasury bonds or mortgage-related securities issued by Fannie Mae and Freddie Mac were to fall in the years ahead, and Fed leaders decided they need to drain money from the financial system by selling off some of their portfolio, the central bank would lose money. "If they do enough asset sales and rates go high enough, that could eat into future profits pretty substantially," said Michael Feroli, an economist at J.P. Morgan Chase.
Even as the Fed comes to resemble private banks in terms of its balance sheet and its earnings power, there remains one big difference. The CEO of the Federal Reserve, Chairman Ben S. Bernanke, received a modest cost-of-living raise for 2010, despite the record earnings: He now makes $199,700, with no bonus at all.
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Fed conspiracists (often Libertarians, also far left anti-capitalists) seem to be able to read that headline: "Federal Reserve earned $45 billion in 2009" and not the following sentence: They returned all the profit to the U.S. Treasury. "Bernanke...now makes $199,700, with no bonus at all." - About the same as your local superintendant of schools and a fraction of the typical NCAA public university basketball coach salary.
I love to criticize and second guess the Fed's work but they aren't at least directly stealing from us.
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The HELL they are not!!! With near zero interest rates for savers (or negative if one counts, as one should, inflation and taxes) and the destruction of the currency-- they are stealing plenty from me and from every American who looks to save.
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The consensus expects the Treasury deficit to fall from $120 billion in November to $92 billion in December. The estimate is in-line with the latest Congressional Budget Office forecast.
The CBO puts together a monthly budget preview based upon daily Treasury estimates. The CBO's estimate of a $92 billion deficit is $40 billion higher than what was recorded in December 2008. When adjusted for timing changes, the deficit only increased by $11 billion.
Federal tax receipts are expected to decline by $18 billion from December 2008 to $220 billion. Half of the drop in receipts is attributed to holiday timing changes and the rest is due to tax relief provided by the American Recovery and Reinvestment Act of 2009.
Outlays are expected to increase $22 billion from December 2008 to $312 billion. Most of the increase was due to shifting of payments due to holidays and a $13 billion payment to Fannie Mae.
The market generally does not trade on the deficit numbers, but the steady decline in the value of the dollar over the last few months may accelerate if the deficit comes in much wider than expected.
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I saw something this AM to the effect that the Fed is not going to be using the Fed Funds rate as its key tool and instead will be using , , , several things. I did not fully comprehend the conversation, but it smelled highly significant. Has this crossed anyone else's radar screen?
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and I mean that quite seriously :?
Today's edition of the WSJ reports Federal Reserve Chairman Ben Bernanke will begin this week to lay out a blueprint for a credit tightening, to be followed once the Fed decides the economy has recovered sufficiently. The centerpiece will be a new tool Congress gave the central bank in October 2008: an interest rate the Fed pays banks on money they leave on reserve at the central bank. Known as "interest on excess reserves," this rate is now 0.25%.
The Fed is still at least several months away from raising interest rates or beginning to drain the flood of money it poured into the financial system in 2008 and 2009. But looking ahead to when the economy is strong enough to warrant tightening credit, officials have been discussing for months which financial levers to pull, when to start and how best to communicate their intent. When the Fed is ready to tap the brakes, it plans to raise the rate paid on excess reserves, according to Fed officials in interviews and recent speeches. The higher rate would entice banks to tie up money they otherwise might lend to customers or other banks. The Fed expects such a maneuver to pull up other key short-term rates, including the federal-funds rate at which banks lend to each other overnight—long the main tool for steering the economy.
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An interesting read:
http://www.hussmanfunds.com/wmc/wmc100119.htm
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The HELL they are not!!! With near zero interest rates for savers (or negative if one counts, as one should, inflation and taxes) and the destruction of the currency-- they are stealing plenty from me and from every American who looks to save.
which is why I am building assets and investing elsewhere......
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If one may ask, where and why?
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Tools/ Improvements for the family farm, and other things I have been putting off because they were nice to have for safety, but not critical. Moving some money into silver and a local bank without a bunch of real estate exposure. I am thinking that if we get 1970's inflation coupled with an active move to change the world standard currency, it may be better to have "things" than "paper".
The Economy is not looking good. The Health Care bill with its criminal clauses. I seem to feel a general anger expressed by people too. The way the other real estate shoe is gonna drop in March with the commercial real estate adjusting, with more of the "Fancy Mortgages" also coming due.
I am getting that "Itch" that has served me as a warning at other times, and ignoring it resulted in 1 hospital trip, I haven't ignored it since. Paying attention served to have things miss me, so......... call it superstition if you want.
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Opinion piece from Financial Times, just food for thought, and for discussion.
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New battle plan needed for a crisis-prone world
http://www.ft.com/cms/s/0/9f165de0-61bf-11df-aa80-00144feab49a.html
By Stephen Roach
Published: May 17 2010 16:40 | Last updated: May 17 2010 16:40
The pace and severity of financial crises has taken an ominous turn for the worse. Over the past 30 years, a crisis has occurred, on average, every three years. Yet, now, only 18 months after the meltdown of late 2008, Europe’s sovereign debt crisis has hit with full force. With one crisis seemingly begetting another, and the fuse between crises now getting shorter and shorter, the world economy is on a very treacherous course.
In the aftermath of the Asian financial crisis of the late 1990s, über monetary accommodation fed the equity bubble. Once that bubble burst in 2000, another dose of extraordinary monetary ease set the stage for massive property and credit bubbles. The aftershocks of that post-bubble carnage have now brought Europe to the brink.
Sadly, central banks are doing it again – policy rates near the zero bound in nominal terms and negative in real terms. And in the parlance of the Federal Reserve, this destabilizing condition is likely to persist for an “extended” period. As day follows night, this is a recipe for the next crisis. Whether that crisis is spawned by another asset bubble, a credit binge, or CPI inflation is impossible to say. But any – or all – of these options are conceivable in yet another undisciplined post-crisis climate.
Breaking this daisy chain won’t be easy. But a new approach is desperately needed. History gives us a guide as to how and where to find the answer. Think back to the late 1970s. At the time, there was a deep-rooted sense of despair and hopelessness over the seemingly intractable Great Inflation. Politicians and policy makers were convinced that the system was unwilling – or perhaps unable – to accept the pain of the cure. Sound familiar?
Paul Volcker dispelled that notion – breaking the back of inflation by pushing the federal funds rate up to 19 per cent in 1981. Just as monetary discipline was the answer nearly 30 years ago, I suspect it is the only way out today. For a world in the depths of crisis and despair, another “Volcker moment” may well be at hand.
No, I am not suggesting that central banks tighten monetary policy in the midst of a crisis. But it is high time to banish the moral hazard of macro policy – the false sense of security provided by open-ended fiscal and monetary accommodation as the world lurches from crisis to crisis. Central banks need to lead the way in regaining policy traction by laying out credible and transparent exit strategies from the unprecedented stimulus now in place.
Three things are required here: an explicit target for a “normal” policy rate; a macro forecast that would identify the conditions under which this normalization would occur; and a specific timetable of adjustments in the policy rate that would achieve this result.
As an example of how this approach might work, consider the task of the Federal Reserve.
Step One: Announce a target of restoring the real federal funds rate back to its long-term average of 2 per cent.
Step Two: Lay out a three-year macro forecast of the US economy. For the sake of argument, plug in average real GDP growth and inflation of 2.5 per cent and an unemployment rate that falls back to 6 per cent by the end of 2013.
Step Three: Conditional on that forecast coming to pass, announce a normalization plan of nine moves of 50 basis points in the federal funds rate – spread out over 18 months and commencing as soon as the dust settles on the euro crisis.
This is a hypothetical example of how a new approach might work. Admittedly, it is predicated on an imperfect forecast, and hostage to forces that might render that forecast wide or short of the mark.
But it has the advantage of identifying the parameters of a restoration of monetary discipline – something that has been sorely missing over the past 15 years. And it avoids the perils of the “asymmetrical reaction function” – the aggressive monetary easing in a crisis followed by the baby steps of post-crisis normalization that have allowed the “cure” of one crisis to sow the seeds of the next one.
Central banks are imperfect institutions – and more so in recent years as they have abdicated their political independence. They were outstanding in waging the battle against inflation. They have failed in managing the post-inflation peace. The only hope for a crisis-prone world is a new battle plan.
Stephen Roach is the Chairman of Morgan Stanley Asia and author of The Next Asia (Wiley 2009).
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Good subject for conversation, but I dunno about those prescriptions. I know I've heard Roach's name before but can't place him. I have him vaguely filed as "wrong as a usual matter" but I could be wrong about that. Regardless, what he calls for here sounds like an awful lot of forecasting and planning , , , by the very people who and institutions which didn't see all this coming. :-P
Volcker's actions (which I followed closely as a econ minor at the U of PA while taking a few courses at the Wharton Biz school) were in the context of high inflation, an economy which was running at a high % of capacity, a rapidly declining dollar, a federal government that was about 20-21% of GDP, competition between the private and public sectors to borrow money, lower entitlements with more people working and paying taxes per person taking entitlements, and a federal deficit that was, working from memory here about 3% of GDP and national debt was , , , 40%? of GDP.
It is not clear to me that our current situation tracks that situation closely. We have plenty of excess capacity, as the Euro falls, the dollar rises in relation to it, the Fed govt is about 26-28% of GDP, the banking sector is playing the carry trade, entitlements have expanded dramatically and the ratio of working people to entitled people is seriously bad and getting worse (e.g. 2.x people working for every one person on Social Security, which has already gone negative 6 years ahead of projections; and we have Federal deficits of some 10% of GDP as far as the eye can see and in a few years national debt will be 100% of GDP and we don't even think about unfunded liabilities.
Any solution that does not confront that we are spending more than we make/create is irrelevant at best.
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and, here's this:
The Worldwide Crack Up Boom, According to Ludwig Von Mises
By Bill Bonner • June 26th, 2007 • Related Articles • Filed Under
About the AuthorBest-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
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Filed Under: Market
The Worldwide Crack Up Boom, According to Ludwig Von Mises9.6108
A kiss is still a kiss. A sigh is still a sigh. And a bubble is still a bubble.
When a kiss is over, it's over. When a bubble pops...well...that's all she wrote! All kisses end - even the wettest "French" kisses. And so do all bubbles - even sloppy mega-bubbles of liquidity. This one will be no exception. But of course, it's not the certainties that make life interesting...it's the uncertainties - the known unknowns and the unknown unknowns, as Mr. Rumsfeld says. We are all born of woman and end up where all men born of women end up - dead. But that doesn't mean we can't have some fun between baptism and last rites.
You'll remember we said that this worldwide financial bubble is both worldlier, and more financial than any in history.
And, for the moment, it is very much alive. So much alive that the media can hardly keep up with it. Forbes magazine, for example, tries to estimate the wealth of the world's richest people. But the rich don't typically give out their balance sheets, telephone numbers and home addresses. So, there's a fair amount of guesswork in the calculations.
But when it came to guesstimating the net worth of Stephen Schwarzman, founder of Blackstone, the Forbes crew wandered off into fiction. They put his wealth at about $2 billion. Recent filings in connection with the new Blackstone IPO show he earned that much in a single year!
In this phase of the bubble, it is as if your neighbors were throwing a wild party - and you weren't invited. You detest them... envy them... and want to join them, all at once. A very small part of the population is having a ball; everyone else is getting restless and wondering when the noise will stop.
We wish we knew. And we've given up guessing.
Meanwhile, the experts, commentarists, kibitzers and analysts are saying that there is a whole new phase of the giant bubble about to unfold; things could get a whole lot crazier. Even many of our respected colleagues are pointing to a text by the great Austrian economist, Ludwig von Mises, for a clue. What we have here, they say, is what Mises described as a "Crack-Up Boom."
Before we go on, readers should be aware that the "Austrian school" of economics is probably the best theory about the way the world works. Like The Daily Reckoning, it is suspicious of efforts to control the natural workings of an economy, in general...and suspicious of central banking, in particular. The fact that it was a one-time "Austrian," Alan Greenspan, who became the most celebrated central banker in history, only increases our suspicions. He was able to master central banking, we imagine, because he understood what it really is - a swindle.
What is a "Crack-Up Boom?" Von Mises explains (with thanks to Ty Andros for reminding us):
"'This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.'
"But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against 'real' goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.
"It was this that happened with the Continental currency in America in 1781, with the French mandats territoriaux in 1796, and with the German mark in 1923. It will happen again whenever the same conditions appear. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds. Inflation is a policy that cannot last."
Mises is describing the lunatic phases of a classic inflationary cycle.
At first, no one can tell the difference between a real dollar - one that is earned, saved, invested or spent - and one that just came off the printing presses. They figure that the new dollar is as good as the old one. And then, prices rise...and people don't know what to make of it. Later, they begin to catch on...and all Hell breaks loose.
You see, if you could really get rich by printing more currency, Zimbabweans would all be as rich as Midas, since the Mugabe government runs the presses night and day.
Von Mises died in 1973 - long before this boom really got going - let alone cracked up. He may never have heard of a hedge fund...or even a derivative, for that matter. A world money system without gold? He probably couldn't have imagined it. People spending millions of dollars for a Warhol? Twenty million for a house in Mayfair? Chinese stocks at 40 times earnings? He would have chuckled in disbelief. He understood how national currency bubbles expand and how they pop, but he probably never would have imagined how insane things could get when you have a whole world monetary system in bubble mode.
He'd have recognised the beginning of this bubble...and he'd have recognised the end, but the middle...or the beginning of the end - that would have dumbfounded him. During his lifetime he saw a Crack Up Boom in Germany in the '20s...and a few more here...but he never saw a worldwide Crack Up Boom.
No one, anywhere, has ever seen a worldwide Crack Up Boom. We're the first, ever. Pretty exciting, huh?
Bill Bonner
The Daily Reckoning Australia
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"...I dunno about those prescriptions." - I'm not fully on board the prescriptions but the idea is to pre-announce to the markets that interest rates will not be staying at the 0% emergency levels indefinitely.
"Volcker's actions... - It is not clear to me that our current situation tracks that situation closely." - Very true, but he is talking about trying to rates up to 2% where Volcker had them up near 20%(?)
"...we have Federal deficits of some 10% of GDP...national debt will be 100% of GDP" - THAT is the heart of the matter. There is no perfect monetary policy for a fiscal policy that out of whack. Why should the deck chairs be straight as the ship sinks. This is worse than an accident at sea. We aimed for the rock that broke the hull.
Going back to Volcker, the damage there was done because the tightness of money was supposed to be coupled with the stimulus of tax cuts. In this situation, we need spending control and fiscal sanity. We need success with the political movement that says expanding government and printing play money is no way to stabilize, survive or prosper. But then the Fed needs to right-size its rates before we head back to Jimmy Carter levels of inflation.
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Said with love, but I think you have been distracted by matters that are essentially irrelevant. Fed announcements about interest rate policy and all the rest of it ultimately are not the point.
The point is this: We are living beyond our means. Government spending is out of control, and it is already in the entitlement pipeline that it will be more out of control. If we cut it back, then all will be well. If we don't, it won't.
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"Said with love, but I think you have been distracted by matters that are essentially irrelevant. Fed announcements about interest rate policy and all the rest of it ultimately are not the point. The point is this: We are living beyond our means. Government spending is out of control, and it is already in the entitlement pipeline that it will be more out of control. If we cut it back, then all will be well. If we don't, it won't."
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I agree, but those are matters of fiscal policy.
Moving on, the Rand Paul matter brings up again the 'End the Fed' question, coincidentally a book title by Ron Paul and a proposal I just heard Glen Beck make a similar proposal on the radio. Beck then backed off slightly by saying 'not just end the Fed and that's it, but I'm talking about a total transformation'.
My opinion could come right out of the Crafty quote above. The corrections we need are fiscal, the excess spending and unfunded entitlements. I would NOT end the Fed. I don't think that is realistic operationally, and I don't think proposals that won't happen are helpful politically.
What do others think about ending the Fed?
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I have a hole in my understanding. Before we came off the gold standard there were boom and bust cycles. These were caused by what? Now we have come off the gold standard and have lost 95% of the value of the dollar and we still have boom and bust cycles. It is my understanding the fed was put in place to try and stop these ups and downs. So what is the upside of the fed. A semi governmental organization which we have no real oversight. I would rather have the stability of gold and control over my destiny and ride the boom and bust cycles out than be at the mercy of unknown oligarchies. Where should I look to fill the hole in my understanding?
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Nice post Freki. This is a difficult subject. That I see it a little differently doesn't mean there is a hole in your understanding. :-) The main point I was making is that I think we are past the point of being capable of reverting back to a true gold standard where all the new dollars are convertible back to gold. For one thing I don't think most dollars are even paper much less gold. Dollars today are largely electronic entries transferred around between banks and institutions, credit card companies, employers, consumers, governments, etc.
I have also read the 95% figure. From the chart here it looks like they are getting that by going back to 1913: http://www.aier.org/research/briefs/1826-the-long-goodbye-the-declining-purchasing-power-of-the-dollar
By looking past the peaks and troughs on the chart it also looks like the rate of decline in purchasing power was similar in all the periods - before we went off true convertibility in 1933, from 1933 through 1971 when we were forced to go off the Bretton Woods link to gold, and from 1971 to the present.
The criticism that it is a semi governmental organization which we have no real oversight is valid. Congress has 'oversight' but not operational control when they haul the Fed chair in for regular questioning. But IMO that is far better than letting the politicians (spenders) have more direct control.
If true convertibility to gold isn't possible anymore, they talk instead about tracking the dollar's purchasing power with a basket of goods where the price of gold would be a strong component because of its strong reputation for holding its value. The actual tracking of purchasing power is tricky because the mix of goods and services we buy changes over time. If there was a formula instead of a Fed, I think we would still need a board (The Fed)to tweak that formula over time.
"what is the upside of the fed"(?)
It seems to me that there needs to be a human hand able to make an adjustment, a pressure relief, emergency assistance or human judgment to avoid a run, a panic or a collapse, especially in these times. We faced a deflation scare recently and we always seem to face an inflation threat. We had a country go under. We have states going under. We've had market crashes. We had one allegedly triggered by a computer glitch. I remember a near-cornering of the silver market by two brothers. We have droughts, trade imbalances and we have budget shortfalls in the trillions. We've had foreign wars and we had attacks on the homeland with our own planes that shut down entire industries. With a little discipline we could avoid some of these catastrophes, but not all of them.
Let's look at it politically. End the Fed means going back to pre-1913 policies (?) A lot has changed since then and we certainly have a lot of needs for the contingencies partly listed above. Even if that were great policy I think the idea would scare the hell out of the electorate.
More realistically, we need to give the existing Fed and the new governors appointed and confirmed the mandate or guideline that they need to minimize inflation and the loss of purchasing power and to track as close as possible to the stability of gold and other core commodities, products and services. I think that is what the Fed's mandate is already.
Problem is that, as discussed previously, we give this mandate mixed in with the reality that we are spending with no correlation to our means, we are creating future liabilities in amounts that are unfathomable, we are destroying our manufacturing sector and choosing to not produce our own energy - right as our demand for consumption increases - and so the dollars leave our economy and must find their way back in some other way. There is no way to achieve perfect balance among forces that are so far out of balance. In light of all these complexities, I actually think the Fed does a pretty good job.
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The US Treasury Department reported Monday that China's holdings of US Treasury securities rose 2 percent to $895.2 billion in March , the first increase since last September.
Total foreign holdings of Treasury securities rose 3.5 percent to $3.88 trillion.
http://www.washingtonpost.com/wp-dyn/content/article/2009/11/06/AR2009110604799.html?hpid=topnews
Aren't we sitting on a gold mine?
The price isn't right, but it doesn't matter -- all that glitters won't be sold
By Martha C. White
The Big Money
Sunday, November 8, 2009
Buried in the Treasury's International Reserve Position report is an intriguing bit of math. The document details the total amount, by weight, of the Treasury's gold reserves, plus a dollar value for said metal. But some fast division reveals something interesting: The Treasury marks the value of its gold at $42 an ounce, the price settled on in 1973, two years after the United States scrapped the Bretton Woods System, which had held gold at $35 an ounce for decades.
Wait -- what? Spot gold is heading toward $1,100 per ounce, and the Treasury is embracing a Cold War relic of a price? If the Treasury's bling were valued at the spot price, we'd be sitting on a literal gold mine of nearly $288 billion.
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WOW! That could cover nearly , , , ummm , , , something like two months of our deficit this year! :roll:
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DougMacG
This is from the article you cited.
The purchasing power of the dollar in 1913, when the chart above begins, was close to what it was in the 1830s. As long as we were still on a gold standard (up to 1933), it was almost as though an external force was drawing the value of the dollar back toward that adjusted value. The Great Depression and the policy tools used to fight it severed the domestic link of the dollar to gold. The external trade deficits of the United States during the 1960s caused the final rupture of the international link to gold in August 1971.
So it seems linking the currency to a commodity helps stabilizes it.
It seems to me that there needs to be a human hand able to make an adjustment, a pressure relief, emergency assistance or human judgment to avoid a run, a panic or a collapse, especially in these times. We faced a deflation scare recently and we always seem to face an inflation threat. We had a country go under. We have states going under. We've had market crashes. We had one allegedly triggered by a computer glitch. I remember a near-cornering of the silver market by two brothers. We have droughts, trade imbalances and we have budget shortfalls in the trillions. We've had foreign wars and we had attacks on the homeland with our own planes that shut down entire industries. With a little discipline we could avoid some of these catastrophes, but not all of them.
I am far from sure in this subject but many of these things might not have been a problem if on the gold standard. I am unsure about trade deficits. The panics and the rest would be bearable if I was unworried about the loss of value of my currency. Now days inflation punishes those who are fiscally responsible and save some money for a rainy day.
Here is an article that I ran across while searching for more info. On a cursory read it makes some good points, stable currency, inflation proof, and hard to counterfeit, but I have just skimmed it, a lesson from Obama's admin. Reader beware. http://www.nolanchart.com/article3660.html
(http://www.nolanchart.com/article3660.html)
To answer the worries of converting back to gold standard:
It seems to me if you linked the dollar to an ounce of gold it would be 1 dollar to 0.000909091ounce of gold. (1ounce/1100 dollars =0.000909091 oz to $) I guess the question would be how much gold and how many dollars are there? Maybe the solution would be to start another currency, 1 buck = 1 oz gold, then let it compete with the us dollar. The dollar would be phased out via market forces while the new currency takes over. With our electronic currency technology fractions of a "buck" would be easier to deal with and make the transactions more feasible. Many of these ideas came from this article http://www.tenthamendmentcenter.com/2010/04/11/ending-the-fed-from-the-bottom-up/ (http://www.tenthamendmentcenter.com/2010/04/11/ending-the-fed-from-the-bottom-up/)
Any time I can get control over my own business/life and remove the government I feel better.
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Marc, thanks for the invitation to join in. There is a lot of stuff posted above, and I haven't read all of it closely.
Let me just comment on this one little point "I have a hole in my understanding. Before we came off the gold standard there were boom and bust cycles. These were caused by what?"
In my opinion, the Austrian School theory of the business cycle is pretty well developed and convincing. Trouble is, there are a lot of books to read before you come to a thorough understanding. One of the least painful and least theoretical books is Meltdown by Thomas Woods, http://www.amazon.com/Meltdown-Free-Market-Collapsed-Government-Bailouts/dp/1596985879/ref=sr_1_1?ie=UTF8&s=books&qid=1274557216&sr=1-1 This book explains the current crisis in Austrian terms staying away from the highly theoretical elements.
Now, with respect to boom/bust cycles prior to the Fed's existence, I would argue that virtually all of the boom periods were made possible by inflationary monetary conditions. Charles P. Kindleberger was a Harvard economic historian and definitely not Austrian in his thinking, but he showed in Manias, Panics, and Crashes, that monetary inflation was a factor in all of his studied boom/bust cycles. Rothbard also wrote a book about the Panic of 1819 and demonstrated that over issuance of bank notes was a factor there, too. In every historical case that has been studied closely, the cause of the boom and subsequent bust was consistent with the Austrian theory.
As I am sure everybody knows, a central bank isn't the only way we can get monetary inflation. It might interest some people to know, however, that the Fed is the United State's fourth central bank. The first three failed to get their charters renewed by Congress because so many people were convinced that they were dangerous scourges.
The gold standard in the US was never absolute. In the 19th century most banks were chartered by the states and they all practiced fractional reserve banking. When the banks made big mistakes and were unable to redeem their notes in specie, state legislatures often passed laws allowing those banks to renege on their contracts without being put out of business. It was always "temporary," of course, but it happened over and over. When a boom is created by monetary inflation it must always eventually come to an end, and once it does there is absolutely nothing that can prevent a recessionary environment during the period when malinvestments are liquidated.
Tom
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To answer the worries of converting back to gold standard:
It seems to me if you linked the dollar to an ounce of gold it would be 1 dollar to 0.000909091ounce of gold. (1ounce/1100 dollars =0.000909091 oz to $) I guess the question would be how much gold and how many dollars are there? Maybe the solution would be to start another currency, 1 buck = 1 oz gold, then let it compete with the us dollar. The dollar would be phased out via market forces while the new currency takes over. With our electronic currency technology fractions of a "buck" would be easier to deal with and make the transactions more feasible.
We have a ballpark figure of 288 billion dollars worth of gold and the amount of money owed to China and others is about 3.88 TRILLION. Do we just toss China the keys to Ft. Knox and the west coast? Do we tell everyone who bought a t-bill "whoops"? What of every American who holds dollars, most of which only exist in cyberspace?
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To move the economy to a sound money system, the government only needs to get out of the way. We already have the private "GoldMoney" service that could expand into a serious payment system if the government would allow that to happen. Governments, however, jealously guard their coerced monopoly on money for a good reason: it gives them the ability to spend money they don't have.
Lots of people seem to think the small quantity of gold means that it could no longer serve as money. That idea comes from the inflationists' mindset ... the idea that an increase in the quantity of money causes economic growth. It's not true. Gold's most important monetary quality is scarcity; more gold cannot be brought into the economy without expending resources to find it, mine it, and process it. The problem with paper (or electronic) money is that it costs zero to make more. The nature of money is that people are motivated to make more of it until the value of the new money falls below its marginal cost. So in the case of paper money, the authorities will ultimately drive its value to zero.
Gold prices are arbitrary, especially with electronic record keeping. We could transfer any arbitrarily small quantity of gold from one account to another. To make gold money again, though, would require absolute rights to redeem the paper (or electronic chits) for gold and vice versa. That is the market mechanism that prevents over issue of paper.
Tom
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So if China demands it's 3.88 Trillion in gold NOW, what do we do?
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http://news.xinhuanet.com/english/2009-07/15/content_11710420.htm
It appears that China has more than 2 Trillion dollars in it's foreign currency holdings. Is there even half a trillion of gold in existance on the planet at current prices? Explain to me how this works out in practical terms.
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Thank you GM for quantifying an argument I was trying to make. Besides the amazingly large number of dollars, we don't even have any way of truly measuring them and certainly no way of promising to redeem them, on demand, in gold. Yes we could peg the dollar to the current price of gold, and that ratio would never change - except in an emergency - but as mentioned recently, everything is an emergency - a crisis. Bankruptcy of our largest state (Calif.)is an emergency. Continuous war is an emergency. Collapse of our financial sector is an emergency, 9/11 was obviously an emergency etc.
So you would still have a Board (called the Fed) but you would just issue them a stronger directive to uphold the value of the dollar, which is already their mandate. But the value of the dollar with a new mandate would still only rely on the promise of the United States government (as it does now) and in the context of a government that already moved twice in its past to decouple further from gold.
In 1971 when Bretton Woods collapsed, it wasn't by choice. It was a no-choice situation brought on by previous policies, deficits and trade imbalances. If I were a Fed Governor, I would take the new mandate and then throw it back on congress: If you want the currency in balance then you will eliminate the budget imbalance NOW and legalize industry and manufacturing up the point where trade deficits are rounding errors, not rivers of currency flow.
My main point in bringing this up is that like-minded people, conservative and/or libertarian need to get on the same page, (like CCP says) and get our collective act together, give our leaders clear direction, (or keep losing). If ending the Fed is not an immediate possibility, priority or solution, like revisiting civil rights legislation is not, then we need to move the focus to only what we CAN achieve right now in the next election cycle, in the next congress and in the next Presidential contest. (IMHO)
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But if you go carrying pictures of Congressman Paul
Your voting bloc will be really small....
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A little doom and gloom for Monday:
FABER: NATIONS WILL PRINT MONEY, GO BUST, GO TO WAR…WE ARE DOOMED
Today the leading Austrian economic think tank, the Ludwig von Mises Institute held a conference at the University Club in Manhattan in which Marc Faber, famed contrarian investor and publisher of the “Gloom, Boom and Doom Report” gave his perspective on the financial crisis and his outlook for the future.
Below are his main points and entertaining quotes:
Central banks will never tighten monetary policy again, merely print, print, print
Bubbles used to be concentrated in 1 sector or region in the 19th century, but off of the gold standard this concentration has ended
“The lifetime achievement of Greenspan and Bernanke is really that they created a bubble in everything…everywhere.”
“Central banks love to see asset prices go up,” and their policy reflects their desperation to perpetuate this
US housing bubble that Greenspan could not spot (even though he has recently spotted bubbles in Asia) stands in stark contrast to that of Hong Kong in 1997, where prices fell by 70%, yet none of the major developers went bankrupt; this was a result of a system not built on excessive debt like that of the US
“You have to ask what they were smoking at the Federal Reserve,” during the housing bubble, as prices were increasing by 18% annually when interest rates started to steadily rise in 2004
Over the last couple of years, when the gross increase in public debt has exceeded the gross decrease in private debt, markets have risen, whereas when private debt growth has outpaced public debt growth, markets have tanked
The next 3-5 years will be highly volatile
Americans must re-think what constitutes a safe asset; in a “traditional” period, one would generally rank from most to least safe assets: cash, Treasuries, corporate bonds, equities, commodities
However, last year Economist Gregory Mankiw articulated the position which according to Faber essentially echoes that of Fed #2 Janet Yellen and pervades much of the Fed generally, that “The problem is that people are saving money instead of spending, and we have to get the bastards spending to keep the economy going,” so the key is to inflate the money supply at something like 6% per annum
Thus, Faber says “As far as I’m concerned, the Federal Reserve will keep interest rates at 0, precisely 0…in real terms”
As such, cash and longterm bonds will be a bad place to hold one’s money; equities are an avenue to preserve wealth (but this is a risky proposition, given the effects of rampant currency depreciation); precious metals are a sound place for wealth preservation
As for the US being the most important economy for the world, there is a sea change going on right now; recently car sales in emerging economies (such as Brazil, China) are outpacing those of the US, Europe and Japan; oil consumption in emerging markets is increasing, while in the developed world it is contracting; the whole world does not depend on American consumption anymore – 60% of total exports are now going to the emerging world when one includes E. Europe; the US is still a large economy but it is not growing, while the growth in the emerging world is and will continue to be strong
“People still think of emerging market economies as poor cousins, but because 80% of the world’s people are here, in aggregate the consumption is huge.”; these are not saturated markets and they are growing rapidly
“Everybody should have 50% of their money in the emerging world, outside the West.”; people should also keep the custody of their assets overseas
Contrary to what the talking heads are saying, markets are not out of control, central banks are out of control printing money
The drivers of growth in the emerging world will be the urbanization of India and China; stocks won’t necessarily rise in the short term, but there will be significant growth in Asia in the long run
The shift in economic power from West to East has been remarkable in speed, largely due to the rapid industrialization of the emerging world and the speed at which information travels today
There will be a massive increase in resource-intensive industries and new export markets, met with increased volatility and tension around the world
The supply/demand characteristics of oil are great due to the need for oil in China, India, rest of Asia
Oil is the top priority for China, as they are now a net importer
US has a huge strategic advantage over China given that we have access to our own oil, and that of Mexico, Canada, the Middle East and off the western Coast of Africa, in addition to the ability to travel on the Atlantic or Pacific Ocean; meanwhile, China sources 95% of their oil from the Middle East, and while they are building pipelines throughout Eastern Europe for example, their oil supply points in terms of ports for example are limited, and the US has defense bases surrounding these areas; Chinese subs could sink our boats however; the Russians are also not happy about our forces being in the region, and tensions will grow as the need for natural resources in these nations grows
Eventually, there will be war and one will want physical commodities “not paper from UBS or JP Morgan”
In war, cities will not offer safety because one can get bombed, water may be poisoned, electricity shut off; instead, one should buy a house in the middle of nowhere/on the countryside
The tremendous economic Sophism of the day is that a nation can print its way into prosperity; “If debt and money printing equaled prosperity then Zimbabwe would be the richest country.”
“Mugabe is the economic mentor of Ben Bernanke.”
Our fiscal situation is much more horrendous than it is made out to be; total debt (public and private) as a percentage of GDP counting unfunded liabilities is an astounding 800% of GDP, more than double that during 1929
Sovereign credits in the Western world are all bankrupt, but before bankruptcy governments will print money; US government leaders will try to postpone the hour of truth, pushing the problems off till succeeding Presidents and Congressmen
If deficits didn’t matter as many like Economist James Galbraith argue today, why should citizens even pay taxes? It would make everyone happier if they didn’t
Faber is sure that the economists in academia are intelligent and they study the textbooks hard, but they study the wrong textbooks and are totally inconsistent in their philosophy
In an environment of money-printing and high volatility that exists in the US and that will be created by future policy, physical gold is the best thing to own
Once currency depreciation does take place, stocks may become very cheap, as happened when the Mexican peso depreciated by 95% in the early 80s, as the fund managers invested in Mexican equities completely undervalued them after currency collapse
In a nutshell Faber says he is essentially bearish on everything, though he favors commodities (especially physical precious metals and agriculture), owning a house in the countryside, equities in emerging markets tied to resources (especially necessities like water and oil) and healthcare, and most of Asia including especially Japanese stocks
There is no means of avoiding a total collapse in the West; at the first train station in 2008, the financial system went bust but didn’t die, at the next station nations will go bust (though this could take 5-10 years or less), but first they will print money as this is the most politically tenable option, and ultimately the world will go to war
All of us will be doomed
Bear in mind that Faber said all of this quite matter-of-factly.
Even if you disagree with his points on the trajectory of the West, it cannot hurt to understand and prepare for the worst case scenario while still hoping for the best.
http://www.conservativeblogwatch.com/2010/05/23/faber-nations-will-print-money-go-bust-go-to-war…we-are-doomed-2/
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I can tell you that due to the financial crisis, I can already see serious cracks forming in the criminal justice system.
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GM:
This is an important point. May I offer http://dogbrothers.com/phpBB2/index.php?topic=2044.new#new for you to kick things off?
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http://www.washingtonpost.com/wp-dyn/content/article/2010/05/23/AR2010052304170.html?hpid=topnews
This doesn't bode well....
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GM says,
<It appears that China has more than 2 Trillion dollars in it's foreign currency holdings. Is there even half a trillion of gold in existance on the planet at current prices? Explain to me how this works out in practical terms.>
Changing over to a new monetary system can be very painful and involve big losses to some people. We can't define the value of the dollar in terms of the current gold price, that's for sure. The number of dollars on the planet ensures that the equivalence would require an enormously higher gold price if we wanted the government to institute a new gold standard. To work out the details for this kind of transition would be a horrendous task. Jesus Heurta de Soto proposed a "banking reform" that would move a country to 100% reserve requirements, which would eliminate the monetary inflation caused by fractional reserve banking. You can read about it here: http://www.amazon.com/Money-Bank-Credit-Economic-Cycles/dp/1933550392/ref=sr_1_1?ie=UTF8&s=books&qid=1274904972&sr=1-1. I don't think it can ever happen within the US.
Instead of doing that, I would suggest we repeal the legal tender laws and let individuals within the economy use any form of indirect exchange that makes sense to them. Government's didn't invent money and governments are not necessary to define money. If the US dollar remains viable, that's what most people will continue to use. If other choices start working out better (GoldMoney, maybe?), freedom would allow people to employ those other choices and thereby keep the economy functioning. Consider Zimbabwe. Its currency collapsed and eventually the government lost its ability to dictate the definition of money. Subsequently, people in that country have used other currencies and no telling what else as expedient forms of money. The Zimbabwe economy would have been far, far better off if the government had eliminated its legal tender laws a long time ago.
The Chinese have been had; they are never going to be able to exchange all their dollars for anything with a value even close to what $2 trillion seems to represent at this moment.
Tom
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Could China have built a military capable of defeating ours for that amount of money? Think of this as economic warfare.
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"Think of this [China heavily invested in dollars] as economic warfare."
- This aspect alone of the US China relationship looks more like a business partnership (or dysfunctional codependency) than a war.
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If you end up deep enough in debt to a bank- you own the bank, but the bank also gets to nag you.
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http://www.foxbusiness.com/story/markets/economy/economic-war-poses-threat-recession/
A Dry Run for Economic Warfare
Still, the Pentagon is apparently concerned enough to hold its first ever war game focused on economic warfare, according to a person familiar with the event.
“There was good news and bad news. The good news was the game worked successfully. The bad news is China won,” the person told FOX Business.
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Nah, couldn't be. Don't they know we're the richest, mightiest nation in the world?
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US money supply plunges at 1930s pace as Obama eyes fresh stimulus
The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.
By Ambrose Evans-Pritchard
Published: 9:40PM BST 26 May 2010
Comments 298 | Comment on this article
The M3 figures - which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance - began shrinking last summer. The pace has since quickened.
The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.
"It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said.
The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015.
Larry Summers, President Barack Obama’s top economic adviser, has asked Congress to "grit its teeth" and approve a fresh fiscal boost of $200bn to keep growth on track. "We are nearly 8m jobs short of normal employment. For millions of Americans the economic emergency grinds on," he said.
David Rosenberg from Gluskin Sheff said the White House appears to have reversed course just weeks after Mr Obama vowed to rein in a budget deficit of $1.5 trillion (9.4pc of GDP) this year and set up a commission to target cuts. "You truly cannot make this stuff up. The US governnment is freaked out about the prospect of a double-dip," he said.
The White House request is a tacit admission that the economy is already losing thrust and may stall later this year as stimulus from the original $800bn package starts to fade.
Recent data have been mixed. Durable goods orders jumped 2.9pc in April but house prices have been falling for several months and mortgage applications have dropped to a 13-year low. The ECRI leading index of US economic activity has been sliding continuously since its peak in October, suffering the steepest one-week drop ever recorded in mid-May.
Mr Summers acknowledged in a speech this week that the eurozone crisis had shone a spotlight on the dangers of spiralling public debt. He said deficit spending delays the day of reckoning and leaves the US at the mercy of foreign creditors. Ultimately, "failure begets failure" in fiscal policy as the logic of compound interest does its worst.
However, Mr Summers said it would be "pennywise and pound foolish" to skimp just as the kindling wood of recovery starts to catch fire. He said fiscal policy comes into its own at at time when the economy "faces a liquidity trap" and the Fed is constrained by zero interest rates.
Mr Congdon said the Obama policy risks repeating the strategic errors of Japan, which pushed debt to dangerously high levels with one fiscal boost after another during its Lost Decade, instead of resorting to full-blown "Friedmanite" monetary stimulus.
"Fiscal policy does not work. The US has just tried the biggest fiscal experiment in history and it has failed. What matters is the quantity of money and in extremis that can be increased easily by quantititave easing. If the Fed doesn’t act, a double-dip recession is a virtual certainty," he said.
Mr Congdon said the dominant voices in US policy-making - Nobel laureates Paul Krugman and Joe Stiglitz, as well as Mr Summers and Fed chair Ben Bernanke - are all Keynesians of different stripes who "despise traditional monetary theory and have a religious aversion to any mention of the quantity of money". The great opus by Milton Friedman and Anna Schwartz - The Monetary History of the United States - has been left to gather dust.
Mr Bernanke no longer pays attention to the M3 data. The bank stopped publishing the data five years ago, deeming it too erratic to be of much use.
This may have been a serious error since double-digit growth of M3 during the US housing bubble gave clear warnings that the boom was out of control. The sudden slowdown in M3 in early to mid-2008 - just as the Fed talked of raising rates - gave a second warning that the economy was about to go into a nosedive.
Mr Bernanke built his academic reputation on the study of the credit mechanism. This model offers a radically different theory for how the financial system works. While so-called "creditism" has become the new orthodoxy in US central banking, it has not yet been tested over time and may yet prove to be a misadventure.
Paul Ashworth at Capital Economics said the decline in M3 is worrying and points to a growing risk of deflation. "Core inflation is already the lowest since 1966, so we don’t have much margin for error here. Deflation becomes a threat if it goes on long enough to become entrenched," he said.
However, Mr Ashworth warned against a mechanical interpretation of money supply figures. "You could argue that M3 has been going down because people have been taking their money out of accounts to buy stocks, property and other assets," he said.
Events may soon tell us whether this is benign or malign. It is certainly remarkable.
** While the Fed does not publish M3, it still publishes the underlying components. The indicator is reconstructed accurately for clients by Dr John Williams. See it here.
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At least we have a president with extensive experience and a solid financial background to get us through these perilous times.
Do I really have to point out that was sarcasm?
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I would doubt there is anyone in the Pentagon, or in our government anywhere, who knows enough economics to design an "economic warfare" simulation.
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Why?
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http://www.politico.com/news/stories/0409/21053.html
More on the topic.
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Scott Grannis comments on the M3 decline of my previous post:
First, I suggest you read my post from last week on the issue of growth in the money supply:
http://scottgrannis.blogspot.com/2010/05/m2-myth-money-is-not-in-scarce-supply.html
Bottom line: slow or negative growth in money today is "payback" for very rapid growth in money leading up to last year. There is no reason at all to think that there is a shortage of money in the U.S.
I would also note that M3 is no longer calculated by the Fed, but is cobbled together by various private sources. The Fed stopped publishing the M3 numbers long ago because they (correctly in my belief) concluded that M3 provided no useful information that was not contained in M1 and M2.
I have always followed M2, and I honestly do not see any cause for concern here.
I would also note that if there were a shortage of money, as the M3 alarmists are trying to argue, then how do they explain the ongoing rise in gold and commodity prices? or the abundant evidence of expanding global economic activity?
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At least we have a president with extensive experience and a solid financial background to get us through these perilous times.
Do I really have to point out that was sarcasm?
No. An accountant is a calculator/ adding machine not doing much more than adding up numbers (or in this case subtracting them) according to a rigid system. An Economist on the other hand............depending on his "school" (supply side, keynesian, austrian, socialist, comminist et al)........might be more capable of charting a path..........
I just wish we could get a little commonsense in national budgets. You do not make big purchases with out having a considereable amount of the base price already saved up. You do not commit to big new expenses in uncertain conditions. You always have a saved reserve for disasters (wars, floods, sickness, layoffs). When you help someone out you make sure they are worth/worthy of that help so you do not waste your charity. always be efficient/ frugal with your non-self sufficient needs/ resources lest someone forces a compromise of your principles in your "need".
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Answering Crafty from the Iran thread: "Tehran’s move toward the euro (2008-2009) as its preferred currency for its foreign exchange reserves, a policy that dovetailed nicely with its anti-American foreign policy posture...Iran is deciding (3020) to alter its currency policy and revert to a largely dollar-denominated foreign exchange reserve"
It was never out of love for America that OPEC, China etc. pegs, buys, holds or uses dollars, it is for lack of a better alternative. If 320 million Europeans in twenty-two countries can't make a currency better than the dollar in these times, neither can any third world conglomeration. Even gold is not more secure, transmittable and predictable in value IMO than the flawed US$.
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For 97 years the 12 regional banks of the Federal Reserve system have operated relatively free of political interference from Washington. The looming financial reform bill threatens that independence, not least through an effort to impose new presidential appointees at the regional banks.
The biggest underreported threat comes from Subtitle I, Section 1801 of the House financial reform bill titled "Inclusion of Minorities and Women; Diversity in Agency Workforce." Sponsored by California Democrat Maxine Waters, the provision requires each federal financial agency, the Fed Board of Governors and the 12 regional Fed banks to "establish an Office of Minority and Women Inclusion."
So what else is new, you say? Don't the feds already dictate racial and gender hiring? Yes, they do, through the Equal Employment Opportunity Commission and assorted other federal laws. As a matter of racial and gender diversity, the Waters provision is at best redundant.
View Full Image
Associated Press
Maxine Waters
.But Ms. Waters and the House are hunting bigger game—to wit, the political allocation of credit. They want to put a network of operatives at the highest level of government who are responsible for making sure that regulators put the hiring of, and lending to, minorities at the top of their priority list. The House provision makes that very clear by making each diversity officer a Presidential appointee who must be confirmed by the Senate. The post, says the bill, will be "comparable to that of other senior level staff."
The law says this diversity czar will "ensure equal employment opportunity and the racial, ethnic and gender diversity" of the work force and senior management of these institutions. More ominously, this creature of Congress and the White House will also be charged with "increas[ing] the participation of minority-owned and women-owned businesses in the programs and contracts" of each agency and conducting "an assessment" of stated inclusion goals.
Mull over that one for a minute. Having recently lived through a financial mania and panic caused in part by political pressure for "affordable housing," Congress will now order regulators to allocate credit by race and gender. Isn't the point of this financial reform supposed to be to make regulators better judges of systemic risks, which means focusing on financial safety and soundness? If the Waters provision passes, federal regulators will have to put racial and gender lending at the top of their watch list when they do their checks on the banks and hedge funds they are regulating.
This is especially pernicious at the Fed regional banks, which have long operated independently of political intrusion. Federal Reserve bank presidents aren't appointed by the President precisely to avoid Treasury and White House control. They are appointed by their regional bank boards.
However, in another threat to Fed independence, the Senate bill departs from that tradition by making the president of the New York Fed a Presidential appointee. Blame for this Congressional intrusion goes to Treasury Secretary Tim Geithner and former Goldman Sachs executive Stephen Friedman for orchestrating the selection of former Goldman economist William Dudley as Mr. Geithner's replacement at the New York Fed.
Mr. Friedman chaired the search committee to replace Mr. Geithner even as he increased his ownership of Goldman shares. Though this violated Fed rules, Fed Vice Chairman Donald Kohn and the Board of Governors gave Mr. Friedman a conflict-of-interest waiver. Congress has now seized on this to justify putting the New York Fed chief on a Washington political leash.
The Waters provision will also give Congress and the White House a new and powerful lever to influence the operation of the 12 regional Fed banks. Accusations of racial or gender indifference, much less outright bias, are politically deadly. With the threat of such an accusation in their holster, the Waters czars will have enormous clout to influence Fed governance and regulatory decisions, perhaps including monetary policy.
Fed regional presidents are often the main proponents of tight monetary policy. The presence of a diversity czar is one way Congress and the White House can intimidate these regional presidents to go along with the policies they favor. No Fed bank president will want to take the risk of being hauled before Congress to answer a report that the banks under his jurisdiction aren't racially or gender sensitive enough in their lending.
This political sway is already clear from how meekly the Fed as an institution is bowing to the Waters provision. The Senate bill doesn't have the same provision, so it could be removed in the House-Senate conference that begins this week. But we're told that Fed officials in Washington have told the regional banks to keep quiet because it can't be stopped and Ms. Waters and the House might punish them if they try. In other words, the political intimidation is already obvious even before the provision becomes law.
The public debate over Fed independence has focused on Congressional demands for an audit, but that's benign compared to the threat of political appointees sitting on the senior staff of the regional banks and Board of Governors. While masquerading as reform, the Waters and New York Fed provisions are the most brazen attempt to hijack central bank policy since its founding nearly a century ago.
The law will make it harder for regulators to do what ought to be their main job, which is making sure that they don't again let a credit mania run out of control. It's one more way in which this much vaunted reform will make the financial system even more politicized, and thus more vulnerable to another panic.
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By Ambrose Evans-Pritchard Economics Last updated: June 29th, 2010
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100006729/time-to-shut-down-the-us-federal-reserve/
Like a mad aunt, the Fed is slowly losing its marbles.
Kartik Athreya, senior economist for the Richmond Fed, has written a paper condemning economic bloggers as chronically stupid and a threat to public order. Matters of economic policy should be reserved to a priesthood with the correct post-doctoral credentials, which would of course have excluded David Hume, Adam Smith, and arguably John Maynard Keynes (a mathematics graduate, with a tripos foray in moral sciences).
“Writers who have not taken a year of PhD coursework in a decent economics department (and passed their PhD qualifying exams), cannot meaningfully advance the discussion on economic policy.”
Don’t you just love that throw-away line “decent”? Dr Athreya hails from the University of Iowa.
“The response of the untrained to the crisis has been startling. The real issue is that there is an extremely low likelihood that the speculations of the untrained, on a topic almost pathologically riddled by dynamic considerations and feedback effects, will offer anything new. Moreover, there is a substantial likelihood that it will instead offer something incoherent or misleading.”
You couldn’t make it up, could you?
“Economics is hard. Really hard. You just won’t believe how vastly hugely mind-boggingly hard it is. I mean you may think doing the Sunday Times crossword is difficult, but that’s just peanuts to economics. And because it is so hard, people shouldn’t blithely go shooting their mouths off about it, and pretending like it’s so easy. In fact, we would all be better off if we just ignored these clowns.”
I hold my hand up Dr Athreya and plead guilty. I am grateful to Bruce Krasting’s blog for bringing this stinging rebuke to my attention.
However, Dr Athreya’s assertions cannot be allowed to pass. The current generation of economists have led the world into a catastrophic cul de sac. And if they think we are safely on the road to recovery, they still fail to understand what they did.
Central banks were the ultimate authors of the credit crisis since it is they who set the price of credit too low, throwing the whole incentive structure of the capitalist system out of kilter, and more or less forcing banks to chase yield and engage in destructive behaviour. They ran ever-lower real interests with each cycle, allowed asset bubbles to run unchecked (Ben Bernanke was the cheerleader of that particular folly), blamed Anglo-Saxon over-consumption on excess Asian savings (half true, but still the silliest cop-out of all time), and believed in the neanderthal doctrine of “inflation targeting”. Have they all forgotten Keynes’s cautionary words on the “tyranny of the general price level” in the early 1930s? Yes they have. They allowed the M3 money supply to surge at double-digit rates (16pc in the US and 11pc in euroland), and are now allowing it to collapse (minus 5.5pc in the US over the last year). Have they all forgotten the Friedman-Schwartz lessons on the quantity theory of money? Yes, they have. Have they forgotten Irving Fisher’s “Debt Deflation causes of Great Depressions”? Yes, most of them have. And of course, they completely failed to see the 2007-2009 crisis coming, or to respond to it fast enough when it occurred.
The Fed has since made a hash of quantitative easing, largely due to Bernanke’s ideological infatuation with “creditism”. QE has been large enough to horrify everybody (especially the Chinese) by its sheer size – lifting the balance sheet to $2.4 trillion – but it has been carried out in such a way that it does not gain full traction. This is the worst of both worlds. So much geo-political capital wasted to such modest and distorting effect.
The error was for the Fed to buy the bonds from the banking system (and we all hate the banks, don’t we) rather than going straight to the non-bank private sector. How about purchasing a herd of Texas Longhorn cattle? That would do it. The inevitable result of this is a collapse of money velocity as banks allow their useless reserves to swell.
And now the Fed tells us all to shut up. Fie to you sir.
The 20th Century was a horrible litany of absurd experiments and atrocities committed by intellectuals, or by elite groupings that claimed a higher knowledge. Simple folk usually have enough common sense to avoid the worst errors. Sometimes they need to take very stern action to stop intellectuals leading us to ruin.
The root error of the modern academy is to pretend (and perhaps believe, which is even less forgiveable), that economics is a science and answers to Newtonian laws.
In any case, Newton was wrong. He neglected the fourth dimension of time, as Einstein called it, and that is exactly what the new classical school of economics has done by failing to take into account the intertemporal effects of debt – now 360pc of GDP across the OECD bloc, if properly counted.
There has been a cosy self-delusion that rising debt is largely benign because it is merely money that society owes to itself. This is a bad error of judgement, one that the intuitive man in the street can see through immediately.
Debt draws forward prosperity, which leads to powerful overhang effects that are not properly incorporated into Fed models. That is the key reason why Ben Bernanke’s Fed was caught flat-footed when the crisis hit, and kept misjudging it until the events started to spin out of control.
Economics should never be treated as a science. Its claims are not falsifiable, which is why economists can disagree so violently among themselves: a rarer spectacle in science, where disputes are usually resolved one way or another by hard data.
It is a branch of anthropology and psychology, a moral discipline if you like. Anybody who loses sight of this is a public nuisance, starting with Dr Athreya.
As for the Fed, I venture to say that a common jury of 12 American men and women placed on the Federal Open Market Committee would have done a better job of setting monetary policy over the last 20 years than Doctors Bernanke and Greenspan.
Actually, Greenspan never got a Phd. His honourary doctorate was awarded later for political reasons. (He had been a Nixon speech-writer). But never mind.
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Recently I have started thinking of "trained" and "educated" as "programmed" and "drank the Kool aid"............ If you can balance your check book, and understand want vs. need, you can figure out a budget. The want vs need part of the concept is seriously secrewed up right now. Balancing the checkbook is straight math, and applies to everything from the lowliest day laborer, to the stars themselves (if you equate hydrogen to dollars).
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Which brings us to the system of accounting fraud known as Base Line Budgeting.
BLB is legal for the government to do, but not for we the sheeple. Amongst its many wonders it allows increases lesser than previously projected increases to be called "cuts". With this system in place it is impossible to think clearly or keep track of what the fcukers are up to. :x :x :x
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We've had bad Presidents too and bad policies from certain congresses yet we never ask if it is time to shut down the Presidency or the congress. I never understand how thinking they should do a better job translates to ending that operation entirely - although I understand in journalism that authors do not write their own headlines and that headline writers are only trying to get you to pick up their paper.
I'm no fan of Greenspan from before he was appointed, during his term or since, but "Nixon speech-writer" is hardly a serious summary of his credentials when he was picked by Reagan.
The "Writers who have not taken a year of PhD coursework in a decent economics department..." remark is snobbish but came from an individual staff economist, again hardly different than the Supreme Court where Justices Alito, Sotomayor, and Thomas are Yale grads, while Scalia, Roberts, Breyer and Kennedy all went to Harvard.
"Central banks were the ultimate authors of the credit crisis since it is they who set the price of credit too low"
No. For another opinion: the congress is the author of the credit crisis because they put the volume of credit too high. When the cost of credit goes from 3% to 20%, what will that do to the federal budget and our ability to afford the public goods we require?
It was not the Fed was determined that the federal government would be the writer and guarantor of all mortgages or that required that mortgages be made based on criteria other than creditworthiness. Those decisions came from the elected officials and the dysfunctional committees that they formed.
Once again I would pose the question: is there really a correct set of policies for a Fed in the situation where we are spending 50% more than we take in, have virtually outlawed manufacturing and energy production and choose instead to send dollars out to the places in the world that supply us?
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""Central banks were the ultimate authors of the credit crisis since it is they who set the price of credit too low""
"No. For another opinion: the congress is the author of the credit crisis because they put the volume of credit too high. When the cost of credit goes from 3% to 20%, what will that do to the federal budget and our ability to afford the public goods we require? It was not the Fed was determined that the federal government would be the writer and guarantor of all mortgages or that required that mortgages be made based on criteria other than creditworthiness. Those decisions came from the elected officials and the dysfunctional committees that they formed. Once again I would pose the question: is there really a correct set of policies for a Fed in the situation where we are spending 50% more than we take in, have virtually outlawed manufacturing and energy production and choose instead to send dollars out to the places in the world that supply us?"
You posit the Fed as enabler of Congressional lunacies by artificially driving down interest rates. This I reject completely. THERE IS A PROPER POLICY/MISSION FOR THE FED: A STABLE CURRENCY. PERIOD.
This clusterfcuk in which we find ourselves is a creation of BOTH the Congress and the Fed. The Fed forced interest rates to way below market rates since the Year 2000 scare at least; then came the pump due to 911, then came the pump due to , , , whatever. As stupid and capricious as was the Congress, so too the Fed. Together, the both of them created this.
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You posit the Fed as enabler of Congressional lunacies by artificially driving down interest rates. This I reject completely. THERE IS A PROPER POLICY/MISSION FOR THE FED: A STABLE CURRENCY. PERIOD.
This clusterfcuk in which we find ourselves is a creation of BOTH the Congress and the Fed. The Fed forced interest rates to way below market rates since the Year 2000 scare at least; then came the pump due to 911, then came the pump due to , , , whatever. As stupid and capricious as was the Congress, so too the Fed. Together, the both of them created this.
While I agree together the Fed and Congress created this "clusterfcuk" I do not agree with "THERE IS A PROPER POLICY/MISSION FOR THE FED: A STABLE CURRENCY. PERIOD."
The goals of monetary policy are spelled out in the Federal Reserve Act, which specifies that the Board of Governors and the Federal Open Market Committee should seek “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”
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COMMODITIES
JULY 7, 2010
Central Banks Swap Tons of Gold to Raise Cash, Surprising Market
By CAROLN CUI And LIAM PLEVEN
Central banks are pawning their gold to the Bank for International Settlements at a record rate, taking advantage of the precious metal's historically high value to raise cash.
A little-noticed data point at the back of a 216-page report released last week by the BIS shows the international agency has taken 349 metric tons of gold since December—allowing central banks to raise a record $14 billion.
The number surprised the market, which had assumed most central banks had retained their holdings of gold. Instead, the BIS data show that they have been entering these gold swaps—exchanging their gold with the BIS in return for cash, agreeing to repurchase the gold at a later date.
The sharp increase in January, when most of the borrowing took place, coincides with a flare-up in worries about a sovereign-debt crisis in Greece spreading throughout Europe. At that time, borrowing costs soared and liquidity tightened.
Some central banks may have begun to fret, and chose to turn some of their holdings to cash as a standby, said Philip Klapwijk, executive chairman of GFMS Ltd., a London-based metals consultant.
"It suggests a bit of a last-resort measure," Mr. Klapwijk said.
The increase in the use of gold swaps is particularly surprising because central banks have rarely used them for decades, and the amount of gold at the BIS has remained stable for years.
AFP/Getty Images
Central banks of developed countries have relatively easy access to capital and capital markets, while emerging countries have generally been increasing their foreign reserves.
While the use of swaps has no practical implications for the gold market, the report helped weigh on gold prices, which have already come under pressure since reaching a peak last month.
The prospect that the gold isn't locked up in central-bank vaults as investors thought—and that it may, in an extreme case, be seized and sold on the open market by the BIS—gave some investors pause.
On Tuesday, the most actively traded gold contract, for August delivery, dropped $12.60 per troy ounce, or 1%, to $1,194.80 on the Comex division of the New York Mercantile Exchange. It is now off 5% from its record high hit on June 18.
The BIS report could change investors' perception of gold as an asset to protect against the impact of global sovereign-debt woes, said Nicholas Johnson, co-manager of Pacific Investment Management Co.'s CommodityRealReturn Strategy Fund, a mutual fund with about $16 billion in assets.
"Originally sovereign financial troubles were taken as unambiguously bullish" for gold, Mr. Johnson said in an email.
"But some are now rethinking this if the gold that sovereigns hold has been pledged as collateral to someone else who has more ability to liquidate those holdings."
If the central bank that lent the gold is for some reason unable to make good on the loan, the BIS could opt to sell the gold in order to get its money back, which would amount to flooding the market with an unexpected boost to the global supply.
The BIS annual report covers the 12-month period through March. April data show that an additional 32 tons of gold were put up as collateral that month, suggesting further loans were taken out with the BIS, said Andy Smith, senior metals strategist at Bache Commodities Group.
At this rate, the BIS holdings represent the "biggest gold swap in history," Mr. Smith said.
Central banks probably chose to swap gold for cash with the BIS—which is known as the central bank for central banks—because it is less visible to the market and probably cheaper than a syndicated loan from commercial banks, Mr. Klapwijk said.
Gold is often regarded as a protection against inflation and is thought to benefit from the inflationary impact of governments' economic stimulus packages. It has also been used as a haven against another financial meltdown.
The news of the swaps comes as the World Gold Council, a trade group backed by miners, is trying to persuade central banks to buy more gold. The group sent a 28-page report to more than 800 central bankers and fiscal policy makers around the world, laying out the argument for increasing their bullion holdings.
Many central banks in rapidly growing countries have less than 2% of their reserves in gold, including China, Brazil, South Korea and Malaysia. By contrast, the U.S. has 72.8% of its reserves in gold.
Many developing countries are reluctant to increase their gold holdings significantly. Gold's volatility and its inability to generate income have long been cited as reason why central banks don't want to enhance their gold holdings. Countries also fear that it could become difficult to liquidate their holdings in a pinch.
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Rust Discovered On Bank Of Russia Issued 999 Gold Coins
Here's a head scratcher: as everyone knows from elementary chemistry courses, gold is the most inert metal in the world - it does not rust, nor corrode. Yet this is precisely what Russian commercial precious metal trading company, International Reserve Payment System, discovered on thousands of (allegedly) 999 gold coins "St George" (pictured insert) issued by the Central Russian Bank. The serendipitous discovery occurred after various clients of the company had requested that their gold be stored not in a safe, but in a far more secure place: "buried under an oak tree." As the website of IRPS president German Sterligoff notes: once buried, "the coins began to oxidize under the influence of moisture." And hence the headscratcher: nowhere in history (that we know of) does 999, and even 925 gold, oxidize, rust, stain, spot or form patinas, under any conditions. Furthermore, as IRPS discovered, Sberbank of Russia released an internal memorandum ordering the purchase of the defective coins with the spotted appearance. Sterligoff concludes: "It should be noted that the weight and density of the rusty coins coincide with the characteristics of gold that would be expected after after conventional testing methods would reveal. We think that the experts will be interesting to determine the nature of this phenomenon." So just how "real" is 999 gold after all, either in Russia or anywhere else?
As a consequence of this discovery, IRPS decided to "rid itself of all stocks, bought up earlier from the Central Bank on behalf of investors. Investment coins "St. George The Conqueror", as well as other gold coins of the Bank of Russia, are now excluded from the company's operations until all circumstances in the case are determined." Additional, as disclosed in the interview below for Here and Now show on TVRainRu, the Russian Central Bank would buy back the coins at a price of 9,300 rubles, despite prevailing prices for the bullion at well over 10,000.
As Zero Hedge has pointed out previously, the Central Bank of Russia has been one of the biggest purchasers of gold in 2010, having bought gold every single month. It would be embarrassing if it were discovered that not only is the bank diluting the gold content once received with oxidizable materials, but subsequently passing it off for 999 proof precious metal.
And if this is happening in Russia, one wonder what trickery other Central Banks, with a far lower amount of gold in their vaults, resort to...
http://www.zerohedge.com/article/rust-discovered-bank-russia-issued-999-gold-coins?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+zerohedge/feed+(zero+hedge+-+on+a+long+enough+timeline,+the+survival+rate+for+everyone+drops+to+zero)
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Asleep at the wheel. If Bernancke's job on monetary policy was at all was to advise on fiscal policy, this advice should have been giver more than a year ago. Most of the damage of the higher rates coming has already been done IMO. Yet a little like Bush, he wants the so-called tax cuts for the wrong reasons, it seems to me.
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Bernanke Says Extending Some of Bush's Tax Cuts Would Maintain Stimulus
By Scott Lanman and Ryan J. Donmoyer - Jul 23, 2010
Ben S. Bernanke, chairman of the U.S. Federal Reserve, listens to opening statements during his semiannual monetary policy report to the House Financial Services Committee in Washington. Photographer: Joshua Roberts/Bloomberg
Federal Reserve Chairman Ben S. Bernanke said extending at least some of the tax cuts set to expire this year would help strengthen a U.S. economy still in need of stimulus and urged offsetting the move with increased revenue or lower spending.
“In the short term I would believe that we ought to maintain a reasonable degree of fiscal support, stimulus for the economy,” Bernanke said yesterday under questioning from the House Financial Services Committee’s senior Republican. “There are many ways to do that. This is one way.”
While Democrats want to keep the 2001 and 2003 tax reductions passed during former President George W. Bush’s administration for families earning as much as $250,000, Republicans aim to continue the cuts for high-income people as well. Bernanke didn’t endorse either party’s position or recommend a time period for an extension.
“In the longer term, I think we need to be taking steps to reassure the American people and the markets that our fiscal situation is going to be well controlled,” Bernanke said under questioning from Representative Spencer Bachus of Alabama, the committee’s senior Republican. “That means that if you extend the tax cuts, you need to find other ways to offset them.”
http://www.bloomberg.com/news/2010-07-23/bernanke-says-extending-bush-tax-cuts-would-maintain-stimulus-to-economy.html
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A Thomas Sowell piece that covers gold and dollars. This really is about Glibness and the ruling regime sneaking a clause into the heathcare legislation about government control of private gold ownership, but includes a good historical perspective.
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Politics Versus Gold
By Thomas Sowell
http://www.realclearpolitics.com/articles/2010/09/28/politics_versus_gold_107327.html
One of the many slick tricks of the Obama administration was to insert a provision in the massive Obamacare legislation regulating people who sell gold. This had nothing to do with medical care but everything to do with sneaking in an extension of the government's power over gold, in a bill too big for most people to read.
Gold has long been a source of frustration for politicians who want to extend their power over the economy. First of all, the gold standard cramped their style because there is only so much money you can print when every dollar bill can be turned in to the government, to be exchanged for the equivalent amount of gold.
When the amount of money the government can print is limited by how much gold the government has, politicians cannot pay off a massive national debt by just printing more money and repaying the owners of government bonds with dollars that are cheaper than the dollars with which the bonds were bought. In other words, politicians cannot cheat people as easily.
That was just one of the ways that the gold standard cramped politicians' style-- and just one of the reasons they got rid of it. One of Franklin D. Roosevelt's first acts as president was to take the United States off the gold standard in 1933.
But, even with the gold standard gone, the ability of private individuals to buy gold reduces the ability of the government to steal the value of their money by printing more money.
Inflation is a quiet but effective way for the government to transfer resources from the people to itself, without raising taxes. A hundred dollar bill would buy less in 1998 than a $20 bill would buy in the 1960s. This means that anyone who kept his money in a safe over those years would have lost 80 percent of its value, because no safe can keep your money safe from politicians who control the printing presses.
That is why some people buy gold when they lose confidence in the government's managing of its money. Usually that is when inflation is either under way or looming on the horizon. When many people start transferring their wealth from dollars into gold, that restricts the ability of politicians to steal from them through inflation.
Even though there is currently very little inflation, purchases of gold have nevertheless skyrocketed. Ordinarily, most gold is bought for producing jewelry or for various industrial purposes, more so than as an investment. But, at times within the past two years, most gold has been bought by investors.
What that suggests is that increasing numbers of people don't trust this administration's economic policies, especially their huge and growing deficits, which add up to a record-breaking national debt.
When a national debt reaches an unsustainable amount, there is always a temptation to pay it off with inflated dollars. There is the same temptation when the Social Security system starts paying out more money to baby boom retirees than it is taking in from current workers.
Whether gold is a good investment for individuals, and whether the gold standard is the right system for a country, are much more complicated questions than can be answered here. But what is clear is that the Obama administration sees people's freedom to buy and sell gold as something that can limit what the government can do.
Indeed, freedom in general cramps the government's style. Those on the left may not be against freedom in general. But, at every turn, they find the freedoms granted by the Constitution of the United States hampering the left's agenda of imposing their superior wisdom and virtue on the rest of us.
The desire to restrain or control the buying and selling of gold is just one of the many signs of the inherent conflict between the freedom of the individual and the left's attempts to control our lives.
Sneaking a provision on gold purchases and sales into massive legislation that is supposedly about medical care is just one of the many cynical tricks used to circumvent the public's right to know how they are being governed. The Constitution begins, "We the people" but, to the left, both the people and the Constitution are just things to circumvent in order to carry out their agenda.
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Specifically what does the Obamacare law say about gold? :?
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"Specifically what does the Obamacare law say about gold?"
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Section 9006 of the Patient Protection and Affordable Care Act will amend the Internal Revenue Code to expand the scope of Form 1099. Currently, 1099 forms are used to track and report the miscellaneous income associated with services rendered by independent contractors or self-employed individuals.
Starting Jan. 1, 2012, Form 1099s will become a means of reporting to the Internal Revenue Service the purchases of all goods and services by small businesses and self-employed people that exceed $600 during a calendar year. Precious metals such as coins and bullion fall into this category and coin dealers have been among those most rankled by the change.
This provision, intended to mine what the IRS deems a vast reservoir of uncollected income tax, was included in the health care legislation ostensibly as a way to pay for it. The tax code tweak is expected to raise $17 billion over the next 10 years, according to the Joint Committee on Taxation.
http://abcnews.go.com/Business/gold-coin-dealers-decry-tax-law/story?id=11211611
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People buy gold with after tax money like I buy distressed real estate, with the thought if and when everything else goes to hell they will at least still own the gold that they bought and held and could sell barter or trade portions of the holding to acquire the essentials in life to protect, house and feed their family. But in that situation, you don't really own your gold because you don't own the 'gain' on your gold. Like gun laws, the government would like to track that and track you and in the event of a 'meltdown' they will be there to find you and tax, confiscate or jail you.
There is no gain in gold. Gold is gold. An ounce is an ounce. It is the most stable of all commodities, sometimes called 'the gold standard'. If the dollar collapses to almost nothing and you lose everything you own except for your gold which is still the same quantity and quality of gold that you bought previously with after tax money and held with no return, who besides a tyrannical totalitarian leftist would categorize that experience to your family as a taxable gain??
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Are you saying that the 1099 reporting requirement includes a self-employed person buying gold? Wouldn't th requirement be limited to business expenses? Elsewise perforce food purchases would be included too, yes?
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"Are you saying that the 1099 reporting requirement includes a self-employed person buying gold? Wouldn't th requirement be limited to business expenses? Elsewise perforce food purchases would be included too, yes?"
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Crafty, I am not at all an expert on it. Your questions hint at why these types wanted it buried in a big bill and not to stand on its own merit or popularity. They are taking what steps they can take to track the buys and sells of gold for the purpose of increasing capital gains collections. Also to increase tax avoidance prosecutions which is how you improve compliance with an unjust, invasive law. As Sowell implies, they would also like to dissuade you away from gold and into dollar assets where they exert more control. The food example is also true but less likely to be purchased with the intent of making a gain. Still they might want to track your purchases of everything to try to determine how much gold you might be hiding, buying or selling.
If they can track your gold purchases, then they can later pass an asset tax (and then increase it like my property taxes until it grows like mine to exceed the cost of food, clothing and shelter for my family) or they could demand to see your gold to prove you did not sell at a gain, or they could presume it sold, impute the gain and assess the tax until you prove otherwise, as IRS logic runs in other areas of tax policy.
I remember Obama's promise for transparency but I don't recall when this issue was debated on C-SPAN.
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Doug's right, due to section 9006 of the Patient Protection and Affordable Care Act, starting on January 1, 2012, IRS tax form 1099 will be required for all purchases of goods and services that exceed $600 per calendar year. This new reporting requirement will cover precious metals. With gold at $1200 per ounce, this would make it impossible to sell a typical one-ounce bullion coin without IRS paperwork.
However, not to argue semantics, there is a potential "gain" in the value of gold. Just like (vacant land) property (gold is gold; property is property; an acre is an acre) if property goes up in value there is a gain and if sold, there is a tax.
Yet be aware that even today if you hold gold as an investment, and later sell it at a profit, you will have either a long-term or short-term taxable gain, just as you would with any other investment. Actually potentially worse since gold is taxed as a collectible.
Under federal tax law, "collectibles" include:
Works of art.
Rugs and antiques.
Metals and gems.
Stamps and coins.
Any other tangible personal property specified by the secretary of the Treasury.
Normally, when you sell a capital asset you've owned for more than one year, your tax rate is capped at 15%.
But when you sell a collectible, tax law caps your maximum rate on long-term capital gains at 28%, not 15%. In other words, on a $100,000 gain (lucky you!), that means you don't pay $15,000 to Uncle Sam, you pay $28,000 -- an extra $13,000.
If you hold the asset for less than a year, it gets worse. Your gain becomes a short-term gain, and it's taxed at regular income tax rates. That means a rate of as much as 35%. On a $100,000 gain, that's $35,000 you pay to the government.
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JDN: "However, not to argue semantics, there is a potential "gain" in the value of gold. Just like (vacant land) property (gold is gold; property is property; an acre is an acre) if property goes up in value there is a gain and if sold, there is a tax. "
You missed my point or you disagree which is fine. I don't question that the IRS deems it a gain. I'm saying they are wrong and it is unconscionable. Property is different; vacant land can change by getting closer to development for example, though you are right that most of those gains are inflationary as well and I am saying that component of the gain is no gain at all. You have no right to be taxed on the fact that they devalued our currency while you held the asset.
If you look historically at gold prices you will see it is the dollar that goes down and not gold that goes up. There is no gain when the money you bought with deteriorates and the commodity you purchased held its value. Not semantics, that a crucial difference of opinion.
In the '70s, OPEC quadrupled the dollar price of oil yet the gold price of oil remained remarkably stable. It is the dollar that devalues in times of inflation yet there is no mechanism in the tax code other than long term capital gains rates for accounting for that.
JDN: "That means a rate of as much as 35%. On a $100,000 gain, that's $35,000 you pay to the government"
More like as high as 50% if held less than a year. The top rate, in place now, for buying today with a sale after Jan. 1 is (I believe) 39.5% and that does not include STATE TAX which is roughly 10% where I live and has no mechanism whatsoever for income averaging, inflation adjusting or long term capital gains preference no matter how poor you were before or after you made the one time sale with a pretend gain of an inflated asset.
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Wednesday, September 29, 2010 02:53 AM
By Thomas Sowell
Hoover Institution on War, Revolution and Peace
One of the many slick tricks of the Obama administration was to insert a
provision in the massive Obamacare legislation regulating people who sell
gold. This had nothing to do with medical care but everything to do with
sneaking in an extension of the government's power over gold, in a bill too big
for most people to read.
Gold long has been a source of frustration for politicians who want to
extend their power over the economy. First of all, the gold standard cramped
their style because there is only so much money you can print when every
dollar bill can be turned in to the government, to be exchanged for the
equivalent amount of gold.
When the amount of money the government can print is limited by how much
gold the government has, politicians cannot pay off a massive national debt
by just printing more money and repaying the owners of government bonds with
dollars that are cheaper than the dollars with which the bonds were
bought. In other words, politicians cannot cheat people as easily.
That was just one of the ways that the gold standard cramped politicians'
style - and just one of the reasons they got rid of it. One of Franklin D.
Roosevelt's first acts as president was to take the United States off the
gold standard in 1933. But, even with the gold standard gone, the ability of
private individuals to buy gold reduces the ability of the government to
steal the value of their money by printing more money.
Inflation is a quiet but effective way for the government to transfer
resources from the people to itself, without raising taxes. A hundred-dollar
bill bought less in 1998 than a $20 bill bought in the 1960s. This means that
anyone who kept his money in a safe over those years would have lost 80
percent of its value, because no safe can keep your money safe from
politicians who control the printing presses.
That is why some people buy gold when they lose confidence in the
government's managing of its money. Usually that is when inflation is either under
way or looming on the horizon. When many people start transferring their
wealth from dollars into gold, that restricts the ability of politicians to
steal from them through inflation.
Even though there is currently very little inflation, purchases of gold
have nevertheless skyrocketed. Ordinarily, most gold is bought for producing
jewelry or for various industrial purposes, more so than as an investment.
But, at times within the past two years, most gold has been bought by
investors.
What that suggests is that increasing numbers of people don't trust this
administration's economic policies, especially the huge and growing deficits,
which add up to a record-breaking national debt.
When a national debt reaches an unsustainable amount, there is always a
temptation to pay it off with inflated dollars. There is the same temptation
when the Social Security system starts paying out more money to baby boom
retirees than it is taking in from current workers.
Whether gold is a good investment for individuals, and whether the gold
standard is the right system for a country, are much more complicated
questions than can be answered here. But what is clear is that the Obama
administration sees people's freedom to buy and sell gold as something that can limit
what the government can do.
Sneaking a provision on gold purchases and sales into massive legislation
that is supposedly about medical care is just one of the many cynical tricks
used to circumvent the public's right to know how they are being governed.
The Constitution begins, "We the people" but, to the left, both the people
and the Constitution are just things to circumvent in order to carry out
its agenda.
Thomas Sowell is a senior fellow at the Hoover Institution on War,
Revolution and Peace in Stanford, Calif.
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http://www.europac.net/commentaries/decoupling_alive_and_well
Decoupling: Alive and Well
October 21, 2010 - 6:07am — europac admin
By:
Neeraj Chaudhary
Thursday, October 21, 2010
While the US economy continues to weaken (see my recent commentary: Don’t Doubt the Double-Dip), many foreign economies continue to experience solid – even spectacular – economic growth. When the global economic crisis began in 2008, many forecasters doubted that the world economy could return to growth without the US consumer. But the world is learning what Peter Schiff has long predicted: that the US consumer is a drag on the world economy, not an engine for growth. As “decoupling” becomes more apparent, emerging economies are forming trade links among themselves, accelerating the process of decline for the United States.
To get a better understanding of how decoupling works, it helps to picture a train in motion. Together, the cars and engine travel together on the track. Now imagine that last car, the caboose, detaches from the rest of the train. At first, the caboose travels at nearly the same speed as the rest of the train. The distance between the two is hardly discernable. Over time, however, the car slows down as friction and gravity take their toll. Meanwhile, the engine powers ahead. The distance between the caboose and the train gradually becomes greater and greater, until finally the engine is gone from sight, leaving the caboose sitting idle on the track.
This process describes how many of the world’s economies are steadily pulling away from the United States. As trade links grow between countries far from our shores (such as those being solidified between Asia and South America), the distance between the United States and the rest of the world is becoming larger, and decoupling is becoming more and more pronounced.
While the US economy sputtered to a 1.6% growth rate in the 2nd quarter (Q2), many Asian countries rapidly pulled away, powered by trade with each other and the rest of the world. In Q2, China’s economy grew a startling 10.3%. Americans would be thrilled with growth half that rate. Asia’s second rising star, India, expanded by a solid 8.8%. The Four Tigers also posted excellent numbers: Hong Kong grew at a 6.5% clip, South Korea at a faster 7.1%, and Taiwan at 12.53% – while Singapore clocked an astonishing 18.8% growth rate! If that’s not decoupling, I don’t know what is.
These numbers are not likely to be a short-term phenomenon. Instead, I feel they represent a dramatic realignment in the pattern of global economic activity. Economies that have long enjoyed a trade surplus are now less likely to loan money to broke and bloated deficit economies such as the United States. Instead, they are now more inclined to consume their own production or trade with other exporting nations. Indeed, China is now the largest trading partner for several of the world’s major economies, including Japan, South Korea, India, Hong Kong, Taiwan, Australia, Russia, and Brazil. Slowed by the gravity of excess debt and the friction of increasing taxes and regulation, the American caboose is straining to keep up.
But the trend is not limited to Asia. All around the world, countries with sound economic policies are continuing to expand. In fact, despite the attention paid to the so-called PIIGS, several European economies are also showing signs of decoupling. Germany, Europe’s economic powerhouse, grew at 2.2% in Q2 – its fastest rate in over 20 years! Switzerland expanded by 3.4% in the 2nd quarter, while Sweden and Finland grew by 4.6% and 3.7% respectively. Even historically tumultuous Poland boasted a 3.5% growth rate. Predictably, this growth has whetted Europe’s appetite for imports, causing the EU to recently surpass the US as China’s largest export market.
The trend also extends to producers of the single most important commodity in the world: oil. According to the Department of Energy, the US imports over 60% of its oil consumption; however, new production is increasingly being diverted to international markets, leaving our country vulnerable to 1970s-style shortages.
In the 1st quarter of this year, Saudi Arabia exported more oil to China than it did to the US. With a new growth market for its petroleum, Saudi Arabia is estimated to grow 3.9% this year. Russia grew at a rate of 5.2% in Q2, largely for the same reason. China is now believed to be Iran’s largest trading partner, according to some sources. And although the United States remains Venezuela’s largest trading partner, China’s nearly insatiable demand for oil has catapulted it into 2nd place for trade with this oil-exporting nation.
Whether you are looking at ASEAN, OPEC, or the EU, it is clear that decoupling is the order of the day. The world economy is rebuilding itself with China as its engine and hub. This is the essence of decoupling, and until recently, it was thought by many respected figures to be impossible.
In the old days, it was said that when the United States sneezed, the rest of the world caught a cold. This time, they might just excuse themselves and move to the next car.
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License. Please feel free to repost with proper attribution and all links included.
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Unfortunately, a loaf of bread will cost 500,000US.
http://www.zerohedge.com/article/goldman-fed-needs-print-4-trillion-new-money
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http://www.cnbc.com/id/39828427
The dollar's slump could get far worse if the dollar index takes out last year's low, Robin Griffiths, technical strategist at Cazenove Capital, told CNBC Monday.
"If the (dollar index) takes out the low that was made roughly a year ago I really think that will not only encourage more sales, it will cause a little bit of minor panic," Griffiths said. "A year ago it was deemed too cheap, if it goes any lower than that it's actually become toxic waste."
resumed its recent downtrend Monday in the wake of a meeting of finance ministers from the Group of 20 nations at the weekend. The meeting failed to yield a definitive agreement on currencies, putting selling pressure on the greenback.
"The dollar is being trashed, we've actually had effectively devaluation of about 14 percent in the last two months," Griffiths said.
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The role of the dollar as "the" international currency is the only thing that distinguishes us from Greece at this point when we look at % of GDP consisting of government deficit financing is that we get to print the money in which our debt is denominated and Greece does not.
If the dollar loses its credibility, as it appears to be about to do, then the only thing that will reverse it as best as I can tell by working from my memory of the dollar's dive under Carter in the late 70s is a massive spike in interest rates. In our current debt/deficit circumstances, this will, depending on the size of interest rate increase from present levels result in a long-term increase of the cost our deficit to the tune of several hundred million dollars a year to well over one trillion dollars. The plausibly possible consequences here IMHO can be of epic proportions.
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I'll happen fast and it will rock the world.
Invest in metals. Guns, ammo and canned food.
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The thing that scares me about metals is I remember the precipitous drop in gold in the late 70s from a high in the 800s (IIRC after being $33 from '45-'71 and $35 from '71-'73 when Nixon took the dollar off of gold, the root cause of much of our current disaster IMHO). Carter-Blumenthal, building upon the fecund piles of excrement with which Nixon littered the landscape (wage and price controls, devaluing the dollar, ending the gold standard, establishing the Shah of Iran as the centerpiece of our mid-east strategy and as part of such enabling OPEC so that he would have enough money to buy the arms to build the military to offset the Russians in Egypt, Syria, and Iraq) created a stampede out of the dollar and stagflation (12% inflation?). Thus Carter was forced to appoint Volcker to the Fed and V. raised interest rates to IIRC something like 20%!
With these rates, money stampeded out of gold.
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When I say invest in metals, I literally mean guns, ammo and canned food.
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http://www.bloomberg.com/news/2010-10-29/gold-will-outlive-dollar-once-slaughter-comes-commentary-by-john-hathaway.html
The world’s monetary system is in the process of melting down. We have entered the endgame for the dollar as the dominant reserve currency, but most investors and policy makers are unaware of the implications.
The only questions are how long the denouement of the dollar reserve system will last, and how much more damage will be inflicted by new rounds of quantitative easing or more radical monetary measures to prop up the system.
Whether prolonged or sudden, the transition to a stable monetary system will become possible only when the shortcomings of the status quo become unbearable. Such a transition is, by definition, nonlinear. So central-bank soothsaying based on the extrapolation of historical data and the repetition of conventional wisdom offers no guidance on what lies ahead.
It’s amazing that there is no intelligent discourse among policy leaders on the subject of monetary rot and its implications for the future economic and political landscape. Until there is fundamental monetary reform on an international scale, most economic forecasts aren’t worth the paper on which they are written.
Telltale signs of future trouble aren’t hard to spot. Only a few months ago, Federal Reserve Chairman Ben Bernanke and a chorus of other high-ranking Fed officials were talking about exit strategies from the U.S. central bank’s bloated balance sheet and the financial system’s unprecedented excess liquidity. Now, those same officials are talking about pumping more money into the system to stimulate growth.
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Pasting GM's post on the China thread here as well for ease of research:
http://www.europac.net/commentaries/one_sided_compromise
The One-Sided Compromise
October 28, 2010 - 1:35pm — europac admin
By:
John Browne
Thursday, October 28, 2010
Last weekend, the G-20 finance ministers met in South Korea to find areas of agreement in preparation for the main G-20 gathering in November. The Chinese rebuffed renewed American pleas for them to revalue their yuan. They rejected Secretary Geithner’s suggestion of a four percent cap on current account surpluses. However, in return for accepting America’s continued dollar debasement, the Chinese did agree to “look into” a revaluation of the yuan and the management of trade surpluses. They also agreed to an international self-policing regime to curb currency manipulation. This 'one-sided' compromise was hailed in the Western media as a triumph for Mr. Geithner. The US stock markets and dollar rallied. All looked good for the election season in November.
Unfortunately, compromises are never one-sided; they are only construed as such. Though the reporting failed to emphasize it, Mr. Geithner actually agreed to a massive shift of monetary power in exchange for China's empty concessions. The shareholdings and board composition of the huge and powerful International Monetary Fund (IMF) have now been shifted. China will now become the third largest shareholder of the IMF and the developing economies will get a six percent larger voting share. Two European states will lose their seats on the IMF's board in favor of developing countries.
Meanwhile, China, supported by Russia, India, and even Brazil, continued to lobby hard for the US dollar’s privileged role as the international reserve currency to be replaced by a wide basket of currencies and gold. To this end, the IMF has recently been given additional “emergency” lending facilities. These could be used in a coming sovereign default crisis to 'bail out' Western countries, at which point they would be unable to resist global economic governance under the guise of the reformed IMF.
In short, Secretary Geithner’s “victory” at the G-20 was one only King Pyrrhus could love.
But the blame cannot be laid entirely with Mr. Geithner. The fact that he left the meeting at least saving a bit of face for his delegation is a monumental achievement, considering the dismal condition of the US economy.
Fed Chairman Bernanke appears desperate to flood the United States with another round of quantitative easing (QE-2). In a $13 trillion economy, a release of anything less than $1 trillion would not be seen as effective. Remember, the Fed already injected over $1 trillion after the credit crunch – and we are still in recession. How much will it take to right this listing ship?
When Geithner pledged to China a “gradual” debasement of the dollar, it is astonishing that they didn’t laugh him out of the room.
If he were to make good on his pledge and convince Bernanke to cut QE-2 to, say, $500 billion, the US GDP and stock markets would almost certainly begin to contract. This would threaten the banking system with a second crisis borne out of the ashes, or toxic assets, of the first.
For a frame of reference, the US home mortgage market is valued at some $10.6 trillion. Indeed, foreclosures and past-due loans amount already to some 14 percent of the market, or about $1.5 trillion. Of this staggering figure, the loans delinquent or in foreclosure to which the top three banks (Bank of America, Wells Fargo and JP Morgan) are exposed amount to more than $600 billion, an amount roughly equal to the original TARP bailout fund.
At the same time, thanks to falsely low interest rates, the banks' net interest margins, or the difference between what they earn in loan interest and what they pay to their creditors, are being squeezed severely, while their non-interest earnings are falling, due to lower economic activity and the prohibitions contained in FinReg.
Finally, there is the murky question of how exposed the banks are to the massive derivatives market, a house of cards with a shaky foundation.
As we have described for several years, the US economy is virtually locked into a long arc of decline. There are no politically palatable solutions to this quandary. Until Americans are ready to take their lumps and accept a steep drop in their standard of living, the US government will have no leverage with the creditor nations and no ability to keep its promises. Therefore, we should celebrate when China even gives our Treasury Secretary an audience.
If China does manage to topple the US dollar from its perch as the international reserve currency, our economy will very likely move into free fall as decades of inflation come pouring back into the country. We will be forced to live within our means or face hyperinflation. Losing a few votes at the IMF is a small cost to delay this eventuality, but it also puts us one step closer to it.
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http://www.cnbc.com/id/39957072
The dollar is in danger of losing 20 percent of its value over the next few years if the Federal Reserve continues unconventional monetary easing, Bill Gross, the manager of the world's largest mutual fund, said on Monday.
"Other countries and citizens are willing to work for less and willing to work harder—and we forgot the magic formula somewhere along the way," Gross said.
"I think a 20 percent decline in the dollar is possible," Gross said, adding the pace of the currency's decline was also an important consideration for investors.
"When a central bank prints trillions of dollars of checks, which is not necessarily what (a second round of quantitative easing) will do in terms of the amount, but if it gets into that territory—that is a debasement of the dollar in terms of the supply of dollars on a global basis," Gross told Reuters in an interview at his PIMCO headquarters.
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Senator-elect Ron Paul will be where he may be able to do some serious damage :mrgreen:
http://www.slate.com/blogs/blogs/weigel/archive/2010/11/03/ron-paul-to-chair-monetary-policy-subcommittee.aspx
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As much as I'm not a fan of Loon Paul, I actually am happy to hear this.
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This area I think well-suited to his talents. Hopefully it will keep him too busy for too much foreign affairs.
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"The Federal Reserve's objectives - its dual mandate, set by Congress - are to promote a high level of employment and low, stable inflation."
"there is scope for monetary policy to support further gains in employment" - Ben Bernanke, below.
- monetary policy is not the only or the correct lever to expand employment!
" lower mortgage rates will make housing more affordable and allow more homeowners to refinance"
- mortagage rates are artificially low already, and generally not available to buy foreclosures that need buying. It is the principal that is too high on these loans, not the interest.
" Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending."
- Other factors outside of the Fed's jurisdiction are destroying investment, and get the hell out of artificially stimulating stock prices and spending!
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Perhaps Ron Paul's job will be to simply the Fed's double assignment. This is a policy subcommittee Ron Paul is to head, if the report is accurate. Bernanke appears before the full committee.
Ron Paul did a nice job of staying out of the spotlight during Rand Paul's senate election; I forgot he was still in the congress. We might not need a monetary policy (IMO) if we followed Ron Paul's foreign policy. I hope he will use this role to steer, expose, oversee and influence the Fed, not as a podium to try to end the Fed.
My view of monetary policy is that there isn't a policy possible to compensate for a federal government that incurs $3 trillion in deficits in 21 months and that taxes and regulates itself out of production and into an unbalanced, import economy. The current administration and congress want a Keynesian injection of trillions without correcting structural and competitive problems. An independent Fed chair is not obligated to oblige if that destroys the purchasing power of the dollar and if the real answers to the problem lie outside of Fed policy. Strong questioning along these lines could draw the Fed Chair into revealing how these other excesses create imbalance and complicate the monetary challenge.
Here is what Bernanke says, including his meddling with private investment and target of keeping inflation ABOVE 2%.
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http://www.washingtonpost.com/wp-dyn/content/article/2010/11/03/AR2010110307372.html?hpid=topnews
What the Fed did and why: supporting the recovery and sustaining price stability
By Ben S. Bernanke
Thursday, November 4, 2010
Two years have passed since the worst financial crisis since the 1930s dealt a body blow to the world economy. Working with policymakers at home and abroad, the Federal Reserve responded with strong and creative measures to help stabilize the financial system and the economy. Among the Fed's responses was a dramatic easing of monetary policy - reducing short-term interest rates nearly to zero. The Fed also purchased more than a trillion dollars' worth of Treasury securities and U.S.-backed mortgage-related securities, which helped reduce longer-term interest rates, such as those for mortgages and corporate bonds. These steps helped end the economic free fall and set the stage for a resumption of economic growth in mid-2009.
Notwithstanding the progress that has been made, when the Fed's monetary policymaking committee - the Federal Open Market Committee (FOMC) - met this week to review the economic situation, we could hardly be satisfied. The Federal Reserve's objectives - its dual mandate, set by Congress - are to promote a high level of employment and low, stable inflation. Unfortunately, the job market remains quite weak; the national unemployment rate is nearly 10 percent, a large number of people can find only part-time work, and a substantial fraction of the unemployed have been out of work six months or longer. The heavy costs of unemployment include intense strains on family finances, more foreclosures and the loss of job skills.
Today, most measures of underlying inflation are running somewhat below 2 percent, or a bit lower than the rate most Fed policymakers see as being most consistent with healthy economic growth in the long run. Although low inflation is generally good, inflation that is too low can pose risks to the economy - especially when the economy is struggling. In the most extreme case, very low inflation can morph into deflation (falling prices and wages), which can contribute to long periods of economic stagnation.
Even absent such risks, low and falling inflation indicate that the economy has considerable spare capacity, implying that there is scope for monetary policy to support further gains in employment without risking economic overheating. The FOMC decided this week that, with unemployment high and inflation very low, further support to the economy is needed. With short-term interest rates already about as low as they can go, the FOMC agreed to deliver that support by purchasing additional longer-term securities, as it did in 2008 and 2009. The FOMC intends to buy an additional $600 billion of longer-term Treasury securities by mid-2011 and will continue to reinvest repayments of principal on its holdings of securities, as it has been doing since August.
This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.
While they have been used successfully in the United States and elsewhere, purchases of longer-term securities are a less familiar monetary policy tool than cutting short-term interest rates. That is one reason the FOMC has been cautious, balancing the costs and benefits before acting. We will review the purchase program regularly to ensure it is working as intended and to assess whether adjustments are needed as economic conditions change.
Although asset purchases are relatively unfamiliar as a tool of monetary policy, some concerns about this approach are overstated. Critics have, for example, worried that it will lead to excessive increases in the money supply and ultimately to significant increases in inflation.
Our earlier use of this policy approach had little effect on the amount of currency in circulation or on other broad measures of the money supply, such as bank deposits. Nor did it result in higher inflation. We have made all necessary preparations, and we are confident that we have the tools to unwind these policies at the appropriate time. The Fed is committed to both parts of its dual mandate and will take all measures necessary to keep inflation low and stable.
The Federal Reserve cannot solve all the economy's problems on its own. That will take time and the combined efforts of many parties, including the central bank, Congress, the administration, regulators and the private sector. But the Federal Reserve has a particular obligation to help promote increased employment and sustain price stability. Steps taken this week should help us fulfill that obligation.
The writer is chairman of the Federal Reserve Board of Governors.
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I really feel sick. It's like being in a slow motion car wreck, waiting for the final impact.
Tell me I'm wrong and these people know what they are doing.
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http://www.reuters.com/article/idUSTOE6A301Q20101104
Nov 4 (Reuters) - Unbridled printing of dollars is the biggest risk to the global economy, an adviser to the Chinese central bank said in comments published on Thursday, a day after the Federal Reserve unveiled a new round of monetary easing.
China must set up a firewall via currency policy and capital controls to cushion itself from external shocks, Xia Bin said in a commentary piece in the Financial News, a Chinese-language newspaper managed by the central bank.
"As long as the world exercises no restraint in issuing global currencies such as the dollar -- and this is not easy -- then the occurrence of another crisis is inevitable, as quite a few wise Westerners lament," he said.
As an academic adviser on the central bank's monetary policy committee, Xia does not have decision-making power but does provide input to the policy-making process.
The Federal Reserve launched a fresh effort on Wednesday to support the struggling U.S. economy, committing to buy $600 billion in government bonds despite concerns the programme could do more harm than good.
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by Andy Sullivan
WASHINGTON | Thu Nov 4, 2010 6:14pm EDT
(Reuters) - Republican Representative Ron Paul on Thursday said he will push to examine the Federal Reserve's monetary policy decisions if he takes control of the congressional subcommittee that oversees the central bank as expected in January.
"I think they're way too independent. They just shouldn't have this power," Paul, a longtime Fed critic, said in an interview with Reuters. "Up until recently it has been modest but now it's totally out of control."
Paul is currently the top Republican on the House of Representatives subcommittee that oversees domestic monetary policy, and is likely to head the panel when Republicans take control of the chamber in January.
That could create a giant headache for the Fed, which earlier this year fended off an effort headed by Paul to open up its internal deliberations on interest rates and monetary easing to congressional scrutiny.
Paul, who has written a book called "End the Fed," has been a fierce critic of the central bank's efforts to boost the economy through monetary policy.
"It's an outrage, what is happening, and the Congress more or less has not said much about it," he said.
Paul said his subcommittee would also push to examine the country's gold reserves and highlight the views of economists who believe that economic downturns are caused by bad monetary policy, not the vagaries of the free market.
Global organizations like the International Monetary Fund also will come under scrutiny, he said.
"Eventually we're going to have monetary reform. I do not believe the dollar can be the reserve standard of the world," said Paul, who has called for returning the United States to a currency backed by gold or silver.
Many economists say that the Fed's decisive actions during the 2008 financial crisis prevented the deep recession that followed from turning into a depression. But grassroots outrage over the bank bailouts and other Fed actions helped propel many Republican candidates to victory in Tuesday's congressional elections -- including Paul's son, Rand Paul, who will represent Kentucky in the Senate.
"With a lot of new members coming and the problems getting worse rather better, there's going to be a lot more people who are going to be looking for answers," Paul said.
(Editing by Cynthia Osterman)
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"It's like being in a slow motion car wreck, waiting for the final impact. Tell me I'm wrong and these people know what they are doing."
- I've been a pretty big defender of the Fed compared to others here, but reading Bernanke in his own words today he makes about as much sense to me as Krugman and I think we are exactly as you described, headed into a wreck.
It's just nuts to think the lack of jobs today comes from a lack of money considering already easy money along with everything else we know that is wrong, such as new taxes coming on capital movement scaring away new investment and locking in old investment, the new health monstrosity scaring away hiring, looming new energy taxes and regs scaring away production or factory expansion, $3 trillion in new debt hovering over the dollar and the future budgets, new individual tax rates aimed at small business owners along with the highest corporate tax in western civilization while are biggest competitor's was lower already and lowered it twice more since 2008. No, this slump isn't caused by lack of money or solved by throwing money at it, and what slump ever was?
At the center of this, the Fed's mission is not a "dual mandate" and that needs to be re-set by the new Congress. The Fed has a singular mandate, a stable dollar, and then some secondary objectives come in to play that are not at all equal to the Fed mission of protecting the value of our currency IMHO.
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http://www.ft.com/cms/s/0/03567a28-e8a3-11df-a383-00144feab49a.html#ixzz14VT3P5S8
China has curtly dismissed a US proposal to address global economic imbalances, setting the stage for a potential showdown at next week’s G20 meeting in Seoul.
Cui Tiankai, a deputy foreign minister and one of China’s lead negotiators at the G20, said on Friday that the US plan for limiting current account surpluses and deficits to 4 per cent of gross domestic product harked back “to the days of planned economies”.
“We believe a discussion about a current account target misses the whole point,” he added, in the first official comment by a senior Chinese official on the subject. “If you look at the global economy, there are many issues that merit more attention – for example, the question of quantitative easing.”
China’s opposition to the proposal, which had made some progress at a G20 finance ministers’ meeting last month, came amid a continuing rumble of protest from around the world at the US Federal Reserve’s plan to pump an extra $600bn into financial markets.
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GM: I've tried doing the "free registration" thing, but the program is being annoying. Would you be so kind as to post the whole thing please? TIA.
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China tees up G20 showdown with US
By Alan Beattie in Washington, Geoff Dyer in Beijing, Chris Giles in London
Published: November 5 2010 06:56 | Last updated: November 5 2010 19:03
China has curtly dismissed a US proposal to address global economic imbalances, setting the stage for a potential showdown at next week’s G20 meeting in Seoul.
Cui Tiankai, a deputy foreign minister and one of China’s lead negotiators at the G20, said on Friday that the US plan for limiting current account surpluses and deficits to 4 per cent of gross domestic product harked back “to the days of planned economies”.
“We believe a discussion about a current account target misses the whole point,” he added, in the first official comment by a senior Chinese official on the subject. “If you look at the global economy, there are many issues that merit more attention – for example, the question of quantitative easing.”
China’s opposition to the proposal, which had made some progress at a G20 finance ministers’ meeting last month, came amid a continuing rumble of protest from around the world at the US Federal Reserve’s plan to pump an extra $600bn into financial markets.
Officials from China, Germany and South Africa on Friday added their voices to a chorus of complaint that the Fed’s return to so-called quantitative easing would create instability and worsen imbalances by triggering surges of capital into other currencies.
Tim Geithner, the US Treasury secretary, has proposed using what the US refers to as current account “guidelines” to accelerate global rebalancing, partly as a way of changing the debate away from simply pressing China to allow faster appreciation in the renminbi.
But on Thursday and Friday, governments focused instead on the global impact of the Fed’s action. “With all due respect, US policy is clueless,” Wolfgang Schäuble, German finance minister, told reporters. “It’s not that the Americans haven’t pumped enough liquidity into the market,” he said. “Now to say let’s pump more into the market is not going to solve their problems.”
Pravin Gordhan, finance minister of South Africa, a key member of the emerging market bloc, said the decision “undermines the spirit of multilateral co-operation that G20 leaders have fought so hard to maintain during the current crisis”, and ran counter to the pledge made by G20 finance ministers to refrain from uncoordinated responses.
The US Treasury declined to comment on Friday.
Experts say the mood has soured since the G20 Toronto summit in June and worry that unless the summit can patch up differences on trade imbalances and exchange rates, the outlook for international economic agreement is poor.
Ousmène Mandeng of Ashmore Investment Management and a former senior International Monetary Fund official, said: “The G20 will also have to show [in Seoul] it can work on the issue or its very existence will be in question.”
In recent weeks, there had been some hints that China was favourable to the idea of current account targets. Yi Gang, a deputy central bank governor, said China aimed to reduce its surplus to 4 per cent of GDP in the medium-term
But Mr Cui’s comments suggest that China’s senior leaders have decided to reject Mr Geithner’s proposal. “We believe it would not be a good approach to single out this issue and focus all attention on it,” he said.
Separately, the deputy foreign minister also had a stern message for European leaders, warning them not to attend next month’s Nobel Peace Prize ceremony for Liu Xiaobo, an imprisoned Chinese democracy activist.
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The biggest economic problem we have today is that the US Federal Reserve is run by ideologues that will likely never back away from their erroneous recession-fighting ideas. This is a serious problem because QE2 isn't going to do anything positive for the real US economy, so the Fed will likely decide that yet more QE is necessary. As Noland says, below: "The dilemma for the Fed is that the financial and economic environment will dictate that their policies have minimal impact on both U.S. employment and growth, while providing a major impetus for additional global Monetary Disorder."
Even worse than that, most of the central banks in the world are operating according to the same principles. The Bank of Japan must be run by total lunatics (http://www.reuters.com/article/idUSTOE6A406520101105). I now believe that putting an end to loose money policies is a political impossibility, because the bust side of the cycle will be so severe that politicians and the monetary cranks in central banks will reverse themselves whenever they get the first glimpse of reality. Continued insanity will seem comfortable to these fools until a crisis completely beyond their control intervenes.
Tom
QE2:
The late-July arrival of St. Louis Federal Reserve President Bullard’s monetary policy white paper commenced serious discussion regarding “QE2.” From August lows, the S&P500 has gained almost 18%, the S&P400 Mid-Caps 21%, and the small cap Russell 2000 25%. Notably, many global market prices have enjoyed even more robust inflation. Gold is up 19% and silver has surged 50%. The Shanghai Composite has rallied 22%. India’s Sensex index rose 18% to a record high. Copper is up 23% from August lows. Cotton has surged 80%, sugar 82%, and corn 46%. The Goldman Sachs Commodities index has gained 21% from mid-August lows.
In Bill Gross’s latest, he posits that the Fed is “pushing on a string.” This is not the case. The current backdrop has little-to-no similarity to the 1930’s; the world is definitely not today stuck in a Credit collapse and deflationary quagmire. Instead, much of the globe is facing an unrelenting onslaught of financial inflows and heightened inflationary pressures. Faltering dollar confidence is the prevailing force behind troubling inflationary pressures and strengthening Bubble Dynamics.
Increasingly, “emerging” economy Credit systems have succumbed to overheating, while key developed economies are locked into a perilous cycle of massive non-productive government debt expansion. Our unsound debt, liquidity and currency dynamics ensure that excess flourishes throughout global Credit systems. Bubbles are today left to run uncontrolled and undisciplined by a market hopelessly distorted by liquidity overabundance. Fed policies seemingly ensure that global liquidity goes from extraordinary to extreme overabundance.
The Fed may today be alone in “quantitative easing” through the purchase of domestic government obligations. Our central bank, however, has considerable global company when it comes to monetization and liquidity creation. From Bloomberg’s tally we know that global central bank international reserve positions have inflated $1.5 TN over the past 12 months. That last thing the global financial system needs is an additional shot of liquidity and reason to believe that dollar devaluation will be accelerated.
In post-announcement analysis of the Fed’s commitment to another $600bn of Treasury purchases, Bill Gross commented on CNBC that “the biggest risk is inflation down the road.” I again disagree with Mr. Gross. The greatest risk is a destabilizing crisis of confidence for our nation’s debt obligations. Our system doubled total mortgage debt in just over six years during the mortgage/Wall Street finance Bubble. Washington is now on track to double the federal debt load in just over 4 years. Federal Reserve policy remains instrumental in accommodating a precarious Credit Bubble at the heart of our monetary system.
It seems again worth highlighting a couple key sentences from ECB President Jean-Claude Trichet’s July 22, 2010 op-ed piece in the Financial Times, “Stimulate no more – it is now time for all to tighten”: “…Given the magnitude of annual budget deficits and the ballooning of outstanding public debt, the standard linear economic models used to project the impact of fiscal restraint or fiscal stimuli may no longer be reliable. In extraordinary times, the economy may be close to non-linear phenomena such as a rapid deterioration of confidence among broad constituencies of households, enterprises, savers and investors.”
The Bernanke Fed is playing with fire here. QE1 was implemented in an environment of deleveraging, impaired global financial systems and acute economic contraction. And, importantly, the dollar was enjoying strong performance in the marketplace as global risk markets suffered from de-risking and general outflows. QE1 had a stabilizing influence, as it worked to accommodate financial sector de-leveraging.
The QE2 backdrop is altogether different. Global markets are these days demonstrating robust inflationary biases. Risk embracement is back in vogue – speculation is rife. The “emerging economies” and global risk markets have been on the receiving end of massive financial (“hot money”) flows. Meanwhile, the dollar has been under heavy selling pressure with heightened risk of a crisis of confidence. This week’s market activity supported my view that the environment would seem to dictate that QE2 will only exacerbate increasingly unwieldy financial flows and unstable global markets.
It has been critical to my analysis that current reflation dynamics are different in kind from those that for the past two decades provided the Federal Reserve the most potent mechanism for domestic monetary stimulus. In today’s post-mortgage finance Bubble and housing mania backdrop, the Fed has lost much of its capacity to inflate household net worth and spending. The robust inflationary biases – and fledgling Bubbles – are now in global markets and economies. The “Core to Periphery” financial flow dynamic has become deeply embedded.
The key dynamic today is one where deep structural U.S. impairment elicits an unprecedented monetary response from our central bank. Yet the markets anticipate that this liquidity will seek out the inflating asset classes and most robust global economies. This week, gold climbed to a record high, crude oil to a two-year high, and copper to a 28-month high. The Shanghai Composite jumped 5.1% this week and India’s Sensex was up 4.9%. So far, indications support the view that the Fed’s move will further stimulate unfolding global booms.
Whether it is Asia or the commodities/natural resources economies, QE2 will exacerbate the already powerful financial flows and Bubble fuel. The U.S. economy is poorly structured to benefit from these new global financial flows, inflation and growth dynamics. There may be some gain from inflating U.S. stock prices. Yet the struggling consumer sector is going to get smacked with higher food and energy prices.
In his Thursday op-ed in the Washington Post – “What the Fed did and why: supporting the recovery and sustaining price stability” – Chairman Bernanke argued that “the Federal Reserve has a particular obligation to help promote increased employment and sustain price stability.” The dilemma for the Fed is that the financial and economic environment will dictate that their policies have minimal impact on both U.S. employment and growth, while providing a major impetus for additional global Monetary Disorder. A strong case can be made that QE2 will only worsen already unprecedented global imbalances. Global policymakers must be at their wits’ end.
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http://www.pbs.org/wgbh/commandingheights/shared/minitext/ess_germanhyperinflation.html
Before World War I Germany was a prosperous country, with a gold-backed currency, expanding industry, and world leadership in optics, chemicals, and machinery. The German Mark, the British shilling, the French franc, and the Italian lira all had about equal value, and all were exchanged four or five to the dollar. That was in 1914. In 1923, at the most fevered moment of the German hyperinflation, the exchange rate between the dollar and the Mark was one trillion Marks to one dollar, and a wheelbarrow full of money would not even buy a newspaper. Most Germans were taken by surprise by the financial tornado.
"My father was a lawyer," says Walter Levy, an internationally known German-born oil consultant in New York, "and he had taken out an insurance policy in 1903, and every month he had made the payments faithfully. It was a 20-year policy, and when it came due, he cashed it in and bought a single loaf of bread." The Berlin publisher Leopold Ullstein wrote that an American visitor tipped their cook one dollar. The family convened, and it was decided that a trust fund should be set up in a Berlin bank with the cook as beneficiary, the bank to administer and invest the dollar.
In retrospect, you can trace the steps to hyperinflation, but some of the reasons remain cloudy. Germany abandoned the gold backing of its currency in 1914. The war was expected to be short, so it was financed by government borrowing, not by savings and taxation. In Germany prices doubled between 1914 and 1919.
After four disastrous years Germany had lost the war. Under the Treaty of Versailles it was forced to make a reparations payment in gold-backed Marks, and it was due to lose part of the production of the Ruhr and of the province of Upper Silesia. The Weimar Republic was politically fragile.
But the bourgeois habits were very strong. Ordinary citizens worked at their jobs, sent their children to school and worried about their grades, maneuvered for promotions and rejoiced when they got them, and generally expected things to get better. But the prices that had doubled from 1914 to 1919 doubled again during just five months in 1922. Milk went from 7 Marks per liter to 16; beer from 5.6 to 18. There were complaints about the high cost of living. Professors and civil servants complained of getting squeezed. Factory workers pressed for wage increases. An underground economy developed, aided by a desire to beat the tax collector.
On June 24, 1922, right-wing fanatics assassinated Walter Rathenau, the moderate, able foreign minister. Rathenau was a charismatic figure, and the idea that a popular, wealthy, and glamorous government minister could be shot in a law-abiding society shattered the faith of the Germans, who wanted to believe that things were going to be all right. Rathenau's state funeral was a national trauma. The nervous citizens of the Ruhr were already getting their money out of the currency and into real goods -- diamonds, works of art, safe real estate. Now ordinary Germans began to get out of Marks and into real goods.
Pianos, wrote the British historian Adam Fergusson, were bought even by unmusical families. Sellers held back because the Mark was worth less every day. As prices went up, the amounts of currency demanded were greater, and the German Central Bank responded to the demands. Yet the ruling authorities did not see anything wrong. A leading financial newspaper said that the amounts of money in circulation were not excessively high. Dr. Rudolf Havenstein, the president of the Reichsbank (equivalent to the Federal Reserve) told an economics professor that he needed a new suit but wasn't going to buy one until prices came down.
Why did the German government not act to halt the inflation? It was a shaky, fragile government, especially after the assassination. The vengeful French sent their army into the Ruhr to enforce their demands for reparations, and the Germans were powerless to resist. More than inflation, the Germans feared unemployment. In 1919 Communists had tried to take over, and severe unemployment might give the Communists another chance. The great German industrial combines -- Krupp, Thyssen, Farben, Stinnes -- condoned the inflation and survived it well. A cheaper Mark, they reasoned, would make German goods cheap and easy to export, and they needed the export earnings to buy raw materials abroad. Inflation kept everyone working.
So the printing presses ran, and once they began to run, they were hard to stop. The price increases began to be dizzying. Menus in cafes could not be revised quickly enough. A student at Freiburg University ordered a cup of coffee at a cafe. The price on the menu was 5,000 Marks. He had two cups. When the bill came, it was for 14,000 Marks. "If you want to save money," he was told, "and you want two cups of coffee, you should order them both at the same time."
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http://www.bloomberg.com/news/2010-10-15/fed-japan-treasury-holdings-set-to-surpass-china-chart-of-the-day.html
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http://www.bloomberg.com/news/2010-10-13/japan-will-be-forced-to-default-greek-economy-done-hayman-s-bass-says.html
Subprime Soothsayer Bass Says Japan to Default on Debt as Economy Unravels
Japan will be forced to default on its debt, Greece’s economy is “done” and Iceland is worse off than Greece, said J. Kyle Bass, the head of Dallas-based Hayman Advisors LP who made $500 million in 2007 on the U.S. subprime collapse.
Nations around the world will be unable to repay their debt and financial austerity in a country such as Ireland is “too late,” Bass said today at the Value Investing Congress in New York.
Japan’s economy may unravel in the next two to three years, and its interest payments will exceed revenue, he said. “Japan can’t fund itself internally,” Bass said.
The country’s year-over-year gross domestic product was 2.4 percent as of June 30. It has the world’s largest public debt, approaching 200 percent of its GDP amid a 5.1 percent jobless rate. Consumer price fell by one percent in September and has been negative each month since May 2009, as deflation has taken hold.
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http://www.telegraph.co.uk/finance/comment/jeremy-warner/8111918/The-age-of-the-dollar-is-drawing-to-a-close.html
As we now know, dollar hegemony was itself a major cause of both the imbalances and the crisis, for it allowed more or less unbounded borrowing by the US from the rest of the world, at very favourable rates. As long as the US remained far and away the world's dominant economy, a global system based on the dollar still made some sense. But America has squandered this advantage on credit-fuelled spending; with the developing world expected to represent more than half of the global economy within five years, dollar hegemony no longer makes any sense.
The rest of the world is now openly questioning the merits of a global currency whose value is governed by America's perceived domestic needs, while the growth that once underpinned confidence in its ability to repay its debts has never looked more fragile.
Already, there are calls for alternatives. Unwilling to wait for one, the world's central banks are beginning to diversify their currency reserves. This, in turn, will eventually exert its own form of market discipline on the US, whose ability to soak the rest of the world by issuing ever more greenbacks will be correspondingly harmed.
These are seismic changes, of a type not seen for a generation or more. I hate to end with a cliché, but we do indeed live in interesting times.
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http://www.telegraph.co.uk/finance/currency/8111920/China-leads-backlash-against-US-stimulus-as-risk-of-currency-war-protectionism-grows.html
China leads backlash against US stimulus as risk of currency war, protectionism grows
China led an Asian backlash against US measure to boost an economic recovery which has stoked concerns that a flood of 'hot money' could destabilise regional economies.
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http://www.gainspainscapital.com/index.php?view=article&catid=39:stocks&id=182:graham-summers-weekly-market-forecast&tmpl=component&print=1&layout=default&page=
Check out the charts. Outside my area of knowledge, but it doesn't look good.
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Some interesting analysis here of the accuracy of govt. data and alternative data is offered:
http://www.shadowstats.com/
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http://blog.atimes.net/?p=1607
Dave’s Top 10 Reasons Why QE Won’t Help the Economy
November 4th, 2010
By David Goldman
10. No-one to whom banks want to lend wants to borrow.
9. The kind of businesses that create jobs, namely start-ups, need equity rather than debt in any case.
8. The Fed will flatten the yield curve out to five years, competing against the banks, reducing their profitability and their capacity to lend.
7. The deflationary tendency in the US, such as it is, is mainly demographic: as the Boomers retire, they sell real assets (the US may have a 40% oversupply of large-lot family homes by 2020), and buy financial assets, just like the Japanese during their great retirement wave of 1990-2000 (which coincided with the lost decade). It has nothing to do with monetary policy which has been extremely lax throughout.
6. If you keep interest rate slow in the advent of an enormous retirement wave, then people will save more and spend less, because they expect to earn less income on their savings.
5. If you increase the inflation rate, prospective retirees will save more and spend less, because they expect to have less future purchasing power. That is the opposite of what the Keynesian short-term model predicts, namely that inflation prompts people to spend money (why keep it in the bank if its value is falling)? That’s the trouble with the Keynesian approach: it’s a blindered, short-term view of things. But some times the long-term, for example demographics and the retirement cycle, affects the short term.
4. QE has raised inflation expectations without causing much inflation: the price of insurance against inflation, e.g. TIPS and gold, has risen, while housing prices, wages, and so forth continue to fall. That’s the worst of both worlds. Rather than shift portfolios from “safe” assets like Treasury bonds into real assets, which the Fed hopes, investors may simply shift their portfolios into stores of value like gold and foreign currencies (which is precisely what I have been doing).
3. Inflation, as even the Fed will admit, helps some people and hurts others. The idea is that it will help more people than it hurts by forcing investors to buy real assets. The kind of inflation that QE is likely to cause will have an almost entirely damaging impacta on the US. In fact, the devaluation of the dollar and the rise in raw materials prices will hurt every American household and most American businesses; it will benefit Middle East oil producers, Vladimir Putin, Aussie mining companies, and all sorts of people who don’t live in the United States.
2. With 22% of the adult non-institutional population unable to find full-time work (according to the estimable Shadow Government Statistics website, no reduction in interest rates will persuade Americans to go back to the borrowing binge of the 2000s.
and Dave’s Top Reason why QE won’t work is:
1. It undermines the dollar’s world reserve currency role. That’s why gold keeps going up. If the US were Greece or Ireland, we’d be in front of the International Monetary Fund in sackcloth and ashes right now. But we’re the world’s only superpower, and the central banks of the rest of the world have to hold their reserves in dollars. Why? Because there isn’t enough of anything else (unless the price of gold were to go to $10,000 an ounce, which I doubt) and because they hate each other more than they hate us — at least for the moment. With Obama shrinking America’s strategic footprint and the Fed behaving like the neighbor whose septic tank overflows onto everyone else’s lawn, Washington is testing the world’s patience. It will have consequences.
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I'm sure about all of those specifics, but in general I agree - ten times.
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"7. The deflationary tendency in the US, such as it is, is mainly demographic: as the Boomers retire, they sell real assets (the US may have a 40% oversupply of large-lot family homes by 2020)"
This one in particular scares me. I don't know about the percentage, but the concept is true and 2020 is right around the corner.
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"unless the price of gold were to go to $10,000 an ounce"
There you have it. It didn't occur to me that there is enough gold in world the to back up the dollar - once the dollar falls to nothing.
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Doug:
While I place great importance on demographics (indeed, we have a thread here on exactly that) and recognize the role baby boomers in the US economy, I would ascribe the over-supply of large lot family homes to government intervention into the market place. We may not yet fully realize just how heavy the misallocation of resources due to this intervention has been.
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All:
It would be hard to find two more unlikely intellectual comrades than Robert Zoellick, the World Bank technocrat, and Sarah Palin, the populist conservative politician. But in separate interventions yesterday, the pair roiled the global monetary debate in complementary and timely fashion.
The former Alaskan Governor showed sound political and economic instincts by inveighing forcefully against the Federal Reserve's latest round of quantitative easing. According to the prepared text of remarks that she released to National Review online, Mrs. Palin also exhibited a more sophisticated knowledge of monetary policy than any major Republican this side of Wisconsin Representative Paul Ryan.
View Full Image
Associated Press
Former Alaska governor Sarah Palin
.Stressing the risks of Fed "pump priming," Mrs. Palin zeroed in on the connection between a "weak dollar—a direct result of the Fed's decision to dump more dollars onto the market"—and rising oil and food prices. She also noted the rising world alarm about the Fed's actions, which by now includes blunt comments by Germany, Brazil, China and most of Asia, among many others.
"We don't want temporary, artificial economic growth brought at the expense of permanently higher inflation which will erode the value of our incomes and our savings," the former GOP Vice Presidential nominee said. "We want a stable dollar combined with real economic reform. It's the only way we can get our economy back on the right track."
Mrs. Palin's remarks may have the beneficial effect of bringing the dollar back to the center of the American political debate, not to mention of the GOP economic platform. Republican economic reformers of the 1970s and 1980s—especially Ronald Reagan and Jack Kemp—understood the importance of stable money to U.S. prosperity.
On the other hand, the Bush Administration was clueless. Its succession of Treasury Secretaries promoted dollar devaluation little different from that of the current Administration, while the White House ignored or applauded an over-easy Fed policy that created the credit boom and housing bubble that led to financial panic.
Misguided monetary policy can ruin an Administration as thoroughly as higher taxes and destructive regulation, and the new GOP majority in the House and especially the next GOP President need to be alert to the dangers. Mrs. Palin is way ahead of her potential Presidential competitors on this policy point, and she shows a talent for putting a technical subject in language that average Americans can understand.
Which brings us to Mr. Zoellick, who exceeded even Mrs. Palin's daring yesterday by mentioning the word "gold" in the orthodox Keynesian company of the Financial Times. This is like mentioning the name "Palin" in the Princeton faculty lounge.
Mr. Zoellick, who worked at the Treasury under James Baker in the 1980s, laid out an agenda for a new global monetary regime to reduce currency turmoil and spur growth: "This new system is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves toward internalization and then an open capital account," he wrote, in an echo of what we've been saying for some time.
And here's Mr. Zoellick's sound-money kicker: "The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today." Mr. Zoellick's last observation will not be news to investors, who have traded gold up to $1,400 an ounce, its highest level in real terms since the 1970s, as a hedge against the risk of future inflation.
However, his point will shock many of the world's financial policy makers, who still think of gold as a barbarous relic rather than as an important price signal. Lest they faint in the halls of the International Monetary Fund, we don't think Mr. Zoellick is calling for a return to a full-fledged gold standard. His nonetheless useful point is that a system of global monetary cooperation needs a North Star to judge when it is running off course. The Bretton Woods accord used gold as such a reference until the U.S. failed to heed its discipline in the late 1960s and in 1971 revoked the pledge to sell other central banks gold at $35 an ounce.
One big problem in the world economy today is the frequent and sharp movement in exchange rates, especially between the euro and dollar. This distorts trade and investment flows and leads to a misallocation of capital and trade tensions. A second and related problem is the desire of the Obama Administration and Federal Reserve Chairman Ben Bernanke to devalue the dollar to boost exports as a way to compensate for the failed spending stimulus.
As recently as this week in India, Mr. Obama said that "We can't continue situations where some countries maintain massive [trade] surpluses, other countries have massive deficits and never is there an adjustment with respect to currency that would lead to a more balanced growth pattern."
If this isn't a plea for a weaker dollar in the name of balancing trade flows, what is it? The world knows the Fed can always win such a currency race to the bottom in the short run because it can print an unlimited supply of dollars. But the risks of currency war and economic instability are enormous.
***
In their different ways, Mrs. Palin and Mr. Zoellick are offering a better policy path: More careful monetary policy in the U.S., and more U.S. leadership abroad with a goal of greater monetary cooperation and less volatile exchange rates. If Mr. Obama is looking for advice on this beyond Mr. Zoellick, he might consult Paul Volcker or Nobel laureate Robert Mundell. A chance for monetary reform is a terrible thing to waste.
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"While I place great importance on demographics (indeed, we have a thread here on exactly that) and recognize the role baby boomers in the US economy, I would ascribe the over-supply of large lot family homes to government intervention into the market place. We may not yet fully realize just how heavy the misallocation of resources due to this intervention has been."
- I will buy that, though I would say people were building and living further out because they wanted to (distance from decaying core became a good thing), but they borrowing and spending absurd amounts for those homes because of artificially and temporarily low rates. Then of course the over-construction due to failed monetary policy is necessarily followed by total unemployment of that sector for both labor and capital, while the Fed chief claims that full employment is half of his dual mission. What else did they think would follow artificial stimulation?
Booms and busts are NOT the natural business cycle. They are the direct result of governments trying to avoid and delay the effects of constant and ongoing natural corrections.
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Palin and Zoellick (President of World Bank) may be ahead of the curve on this, but we were all over it 3 days ahead of them. Again, nice to see famous people are reading and paying attention to the Dog Brothers Public Forum. :-)
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Dispatch: Currency War and the G-20
November 10, 2010 | 2018 GMT
Click on image below to watch video:
Analyst Peter Zeihan examines the potential for currency war between the United States and China and what is expected to emerge from the G-20 summit.
Editor’s Note: Transcripts are generated using speech-recognition technology. Therefore, STRATFOR cannot guarantee their complete accuracy.
The G-20 summit begins in Seoul, South Korea on Thursday. The topic of the day is currency appreciation, manipulation in the ongoing global economic issues. Every state is coming with their own plan but really there’s only two that matter.
The first is the United States. The United States is the world’s largest importer, the holder of the global currency, it’s the largest economy by a factor of three, and that has actually been this state of affairs in now going back to at least World War II. The United States has been large and in charge for that long, and none of the tools the United States has for manipulating its economic system and therefore the globe have changed. The kicker is the United States only depends on international trade for about 15% of its GDP. So should the United States manipulate the dollar to achieve any of its economic aims, it will be the country that suffers the least as a consequence from any sort of international chaos that follows.
The last time the United States did this was in 1985. The agreement that was signed was called the Plaza Accords, and in it the United States threatened Germany and Japan with retaliatory tariffs unless they purposefully, deliberately over the course of several years steadily change the exchange rate of their currencies versus the dollar. Japan and Germany - two major global event powers - caved.
Country number two is China. China is if anything actually more vulnerable to American currency manipulation than either Germany or Japan was in 1985. It’s much more dependent on exports, its capital structure is much less flexible and more vulnerable to outside intervention. The United States could easily quite easily crush China currency war if push came to shove. However, the Chinese have influence in the international system that the U.S. needs right now. The United States is trying to prevent conflicts in Iraq and Afghanistan from spinning out of control. It needs Chinese influence in Iran in order to make sanctions there work, and it certainly doesn’t want problems in North Korea just to top everything off.
So the most likely outcome from the G-20 summit is some sort of American-Chinese partnership on currency issues that does not require the Chinese to actually do very much. To have those two powers on the same page, there is really nothing else than anyone else in the world can do about it. So it looks like the two of them are edging toward some sort of compromise that doesn’t require a lot of actual action and to revisit this issue in 6-12 months.
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http://www.gainspainscapital.com/index.php?option=com_content&view=article&id=185:emerging-market-mania-china-thanks-for-the-jobs-uncle-sam-but-well-pass-on-the-inflation-&catid=39:stocks&Itemid=70
Emerging Market Mania:
CHINA, “Thanks for the Jobs Uncle Sam, But We’ll Pass On the Inflation”
The US re-opened formal trade with China in 1971.
This, in turn, kicked off two major trends:
1. The US’s economic shift from manufacturing to services (mainly financial)
2. The dramatic rise in Chinese quality of life
In plain terms, the US began shifting manufacturing jobs offshore. Charting the full impact of this trend on US employment is difficult. However, Robert Scott, an economist at the Economic Policy Institute, estimates that between 2001 and 2008 2.4 million American jobs were lost as a result of increased trade with China alone. Bear in mind, this doesn’t account for the jobs lost in the 30 years from 1971 to 2001.
As for our shift to a financial services economy, consider that from 1970 until 2003, financials’ market capitalizations as a percentage of the S&P 500 rose from less than 5% to 22%. Over the same period, financials’ earnings as a percentage of the S&P 500’s total earnings rose from less than 10% to 31%.
Put another way, by 2003 nearly one in every three dollars of corporate profits came from the financial sector.
Meanwhile, China was experiencing an unprecedented level of growth thanks to our renewed trade: Chinese per-capita income doubled from 1978 to 1987 and again from 1987 to 1996.
In those 20 years, more than 300 million Chinese ascended out of poverty with accompanying dramatic changes in lifestyle, professions, and diet: between 1985 and 2008, average Chinese meat consumption more than doubled from 44 pounds to 110 per annum.
So here were are in 2010 and the US and China are now butting heads in a major way. The US (debtor, consumer, declining empire) wants to devalue the Dollar and export inflation to China. China (creditor, producer, rising empire) doesn’t care for this arrangement as its hurts profit margins at Chinese companies, increases food inflation (food is a higher percentage of income for the average China compared to the average American), which in turn means civil unrest.
How this situation plays out will determine the monetary and financial trends for 2011. Already we’ve begun seeing financial warning shots between the two super powers. Have a look at the timeline:
-April-October 17: Geithner vilifies China, calls it a currency manipulator
-October 17: China issues surprise interest rate hike
-October 20: Geithner says world currencies are in “alignment.”
-November 3: Bernanke announced QE 2
-November 8-9: China says QE 2 “imperils” emerging economies and calls US Dollar as reserve currency “absurd”
-November 8: Geithner backtracks from former call for balanced trade
-November 10: Fed announces QE 2 details
-November 10: China hikes bank reserve requirements
This dynamic is the, and I mean THE, key issue for ALL financial markets moving forward. The US Fed wants Dollar devaluation. China doesn’t. How this conflict is resolved will determine the fate of stocks, commodities, bonds, even the US dollar.
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http://hotair.com/archives/2010/11/12/obama-fails-to-get-g-20-to-scold-china-for-what-obama-is-doing-with-qe2/
Obama fails to get G-20 to scold China for what Obama is doing with QE2
posted at 10:12 am on November 12, 2010 by Ed Morrissey
For years, the US has protested China’s policy of keeping the value of its currency artificially low to boost exports and gain a competitive edge over domestic production throughout the West. Until recently, the US had a coalition of allies at the G-20 to stand firm against the manipulation of the yuan. However, much to Barack Obama’s shock, they’re not as interested in scolding China for manipulating its currency while the Obama administration has done the same with its second round of “quantitative easing”:
Leaders of 20 major economies on Friday refused to endorse a U.S. push to get China to let its currency rise, keeping alive a dispute that has raised the specter of a global trade war amid criticism that cheap Chinese exports are costing American jobs. …
The biggest disappointment for the United States was the pledge by the leaders to refrain from “competitive devaluation” of currencies. Such a statement is of little consequence since countries usually only devalue their currencies — making it less worth against the dollar — in extreme situations like a severe financial crisis.
The AP report takes six paragraphs to explain why the G-20 essentially laughed in Obama’s face:
The crux of the dispute is Washington’s allegations that Beijing is artificially keeping its currency, the yuan, weak to gain a trade advantage. But the U.S. position has been undermined by its own recent policy of printing money to boost a sluggish economy, which is weakening the dollar.
The G-20′s failure to adopt the U.S. stand has also underlined Washington’s reduced influence on the international stage, especially on economic matters. Obama also failed to conclude a free trade agreement this week with South Korea.
Yes, it does make it difficult to get allies in an effort to stop China from manipulating its currency to gain advantage on exports when we’re explicitly doing the same thing ourselves. The G-20 didn’t do much before now anyway to fight back against China, but at least they gave the effort lip service. With the Obama administration attempting to undermine the Eurozone on exports, even that modicum of support has evaporated.
The G-20 just delivered a big message to Obama, which is that American leadership on economics is sailing away on the QE2. Did he get the message? Not exactly. Obama tried to spin this into some sort of victory, saying that “sometimes we’re going to hit singles” rather than home runs. This was neither; it was a whiff.
As the AP makes clear, it was a bad omen, and perhaps the echoes of a larger disaster:
The dispute over whether China and the United States are manipulating their currencies is threatening to resurrect destructive protectionist policies like those that worsened the Great Depression in the 1930s. The biggest fear is that trade barriers will send the global economy back into recession. A law the United States passed in 1930 that raised tariffs on imports is widely thought to have deepened the Great Depression by stifling trade.
Instead of a Smoot-Hawley on tariffs, we may get a currency war that ends up having the same effect. The US just threw gasoline instead of water on those embers. We’ll have to rest our hopes on the equanimity and good sense of the Europeans and pray they don’t follow suit.
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http://www.europac.net/commentaries/bad_plan_poorly_disguised
A Bad Plan Poorly Disguised
November 12, 2010 - 5:28am — europac admin
By:
John Browne
Friday, November 12, 2010
With our economy sagging and our international clout waning, one of the few assets upon which the United States can rely is the confidence that the rest of the world has traditionally showered upon us. That confidence is the reason why the US dollar was elevated to global reserve status more than 65 years ago.
With so much riding on perception, Treasury Secretary Tim Geithner’s recent statements denying the existence of a dollar debasement campaign could not be seen as anything less than foolhardy.
Responding to a critique made in a Financial Times opinion piece by former Fed Chairman Alan Greenspan, Geithner asserted, " We will never seek to weaken our currency as a tool to gain competitive advantage or to grow the economy.” Instead, he attributed recent dollar weakness to the reversal of “safe haven” capital flows that had been legion during the financial crisis but which have abated as the global economy has recovered.
One must scour the earth with great care to find an individual who would agree with Mr. Geithner on this point. It’s clear from myriad other actions that the Administration sees a weaker dollar as a panacea for our economic problems. The blatant misinformation relayed by the Treasury Secretary can only serve to further increase already high tensions at the G-20 summit now underway in Seoul, South Korea.
Over at the Federal Reserve, Chairman Bernanke doesn’t talk about currency debasement. Instead, he extols the virtues of “pushing up inflation to levels consistent with our mandate.” He hopes that no one will understand that he is using different adjectives to describe the same action. With the possible exception of the New York Times editorial board, he is fooling no one.
Given that the Administration and the Fed are prepared to sacrifice precious credibility for the goal of currency debasement, many may assume that there is some benefit for America that would be derived from a weaker dollar. Unfortunately, there isn’t.
Advocates of a weaker dollar point to two claimed advantages offered by a falling currency.
First, and most obviously, proponents claim that cheap dollars would reduce the prices of US exports, making them increasingly competitive. That is partially correct. While lowering prices may help to spur sales in the short-term, it does not necessarily improve the long-term prospects of the seller.
Exporters (and all other businesses for that matter) that focus on selling on price competitiveness alone ignore other vital elements of the marketing mix, such as innovation, design, quality, delivery, and after-sales service. For example, Germany and Japan have developed world leading export volumes without relying on price as their primary advantage.
History shows that, over the medium- to long-term, a devalued currency leads to increased trade deficits. Furthermore, a currency debasement policy for the US dollar, still the world’s reserve currency, is bound to spark a climate of international competitive devaluation – a currency war – as each nation fights to protect its balance of trade. If not corrected, such currency battles lead all too easily to trade wars, and they, in turn, often result in armed conflict.
The second, and more compelling, argument for Washington to pursue currency debasement is that a devalued dollar would wipe out large amounts of dollar debt. This amounts to a huge subsidy to debtors at the expense of savers, and no one owes more than the US government.
When measured against the standard basket of currencies, the US dollar has fallen by some 30 percent over the past decade. However, most of those currencies are also depreciating in real terms. So what is real? Most likely, precious metals’ prices, discounted somewhat to allow for investor speculation, represent an absolute measure. Silver has risen by some 56 percent in the past 10 months. Gold has gained some 30 percent this year, and some 400 percent over the past decade!
So if we assume a conservative 40 percent devaluation of the US dollar over the past ten years, our current $13.4 trillion federal debt is equivalent to an only $8 trillion liability in 2001 dollars – the rest is just inflation. The $189 trillion of unfunded obligations to Social Security, Medicare, government pensions, etc. would appear as $113 trillion a decade ago!
It is clear that a debased currency suits the US government, but what of Americans? The 40 percent devaluation equates to a 40 percent tax on every holder of US dollars, rich and poor alike. It has hindered, rather than encouraged, consumer spending. It forces Americans to make do with less, purchase shoddier products, and deal with inferior service. Sometimes it’s hard to perceive slowly ebbing living standards, but take a look around and think whether you feel richer than a decade ago.
If dollar devaluation becomes too pronounced, Washington threatens to kill the goose that lays the golden eggs: namely, the dollar’s reserve status. If that were to happen, a global financial crisis of staggering intensity would surely erupt, the resolution of which would not favor the United States.
Whether or not it is openly acknowledged, the US government is pursuing a policy of great risk that offers no reward at the end of the tunnel. It’s the worst of all possible worlds. Wise investors will reduce still further their exposure to US dollars and debt, while increasing their allocations to precious metals, key commodities, hard currencies, and emerging markets. Wise governments are already doing so.
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License. Please feel free to repost with proper attribution and all links included.
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By JAMES GRANT
Published: November 13, 2010
BY disclosing a plan to conjure $600 billion to support the sagging economy, the Federal Reserve affirmed the interesting fact that dollars can be conjured. In the digital age, you don’t even need a printing press.
This was on Nov. 3. A general uproar ensued, with the dollar exchange rate weakening and the price of gold surging. And when, last Monday, the president of the World Bank suggested, almost diffidently, that there might be a place for gold in today’s international monetary arrangements, you could hear a pin drop.
Let the economists gasp: The classical gold standard, the one that was in place from 1880 to 1914, is what the world needs now. In its utility, economy and elegance, there has never been a monetary system like it.
It was simplicity itself. National currencies were backed by gold. If you didn’t like the currency you could exchange it for shiny coins (money was “sound” if it rang when dropped on a counter). Borders were open and money was footloose. It went where it was treated well. In gold-standard countries, government budgets were mainly balanced. Central banks had the single public function of exchanging gold for paper or paper for gold. The public decided which it wanted.
“You can’t go back,” today’s central bankers are wont to protest, before adding, “And you shouldn’t, anyway.” They seem to forget that we are forever going back (and forth, too), because nothing about money is really new. “Quantitative easing,” a k a money-printing, is as old as the hills. Draftsmen of the United States Constitution, well recalling the overproduction of the Continental paper dollar, defined money as “coin.” “To coin money” and “regulate the value thereof” was a Congressional power they joined in the same constitutional phrase with that of fixing “the standard of weights and measures.” For most of the next 200 years, the dollar was, in fact, defined as a weight of metal. The pure paper era did not begin until 1971.
The Federal Reserve was created in 1913 — by coincidence, the final full year of the original gold standard. (Less functional variants followed in the 1920s and ’40s; no longer could just anybody demand gold for paper, or paper for gold.) At the outset, the Fed was a gold standard central bank. It could not have conjured money even if it had wanted to, as the value of the dollar was fixed under law as one 20.67th of an ounce of gold.
Neither was the Fed concerned with managing the national economy. Fast forward 65 years or so, to the late 1970s, and the Fed would have been unrecognizable to the men who voted it into existence. It was now held responsible for ensuring full employment and stable prices alike.
Today, the Fed’s hundreds of Ph.D.’s conduct research at the frontiers of economic science. “The Two-Period Rational Inattention Model: Accelerations and Analyses” is the title of one of the treatises the monetary scholars have recently produced. “Continuous Time Extraction of a Nonstationary Signal with Illustrations in Continuous Low-pass and Band-pass Filtering” is another. You can’t blame the learned authors for preferring the life they lead to the careers they would have under a true-blue gold standard. Rather than writing monographs for each other, they would be standing behind a counter exchanging paper for gold and vice versa.
If only they gave it some thought, though, the economists — nothing if not smart — would fairly jump at the chance for counter duty. For a convertible currency is a sophisticated, self-contained information system. By choosing to hold it, or instead the gold that stands behind it, the people tell the central bank if it has issued too much money or too little. It’s democracy in money, rather than mandarin rule.
Today, it’s the mandarins at the Federal Reserve who decide what interest rate to impose, and what volume of currency to conjure.
The Bank of England once had an unhappy experience with this method of operation. To fight the Napoleonic wars of the early 19th century, Britain traded in its gold pound for a scrip, and the bank had to decide unilaterally how many pounds to print. Lacking the information encased in the gold standard, it printed too many. A great inflation bubbled.
Later, a parliamentary inquest determined that no institution should again be entrusted with such powers as the suspension of gold convertibility had dumped in the lap of those bank directors. They had meant well enough, the parliamentarians concluded, but even the most minute knowledge of the British economy, “combined with the profound science in all the principles of money and circulation,” would not enable anyone to circulate the exact amount of money needed for “the wants of trade.”
The same is true now at the Fed. The chairman, Ben Bernanke, and his minions have taken it upon themselves to decide that a lot more money should circulate. According to the Consumer Price Index, which is showing year-over-year gains of less than 1.5 percent, prices are essentially stable.
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In the inflationary 1970s, people had prayed for exactly this. But the Fed today finds it unacceptable. We need more inflation, it insists (seeming not to remember that prices showed year-over-year declines for 12 consecutive months in 1954 and ’55 or that, in the first half of the 1960s, the Consumer Price Index never registered year-over-year gains of as much as 2 percent). This is why Mr. Bernanke has set out to materialize an additional $600 billion in the next eight months.
The intended consequences of this intervention include lower interest rates, higher stock prices, a perkier Consumer Price Index and more hiring. The unintended consequences remain to be seen. A partial list of unwanted possibilities includes an overvalued stock market (followed by a crash), a collapsing dollar, an unscripted surge in consumer prices (followed by higher interest rates), a populist revolt against zero-percent savings rates and wall-to-wall European tourists on the sidewalks of Manhattan.
As for interest rates, they are already low enough to coax another cycle of imprudent lending and borrowing. It gives one pause that the Fed, with all its massed brain power, failed to anticipate even a little of the troubles of 2007-09.
At last week’s world economic summit meeting in South Korea, finance ministers and central bankers chewed over the perennial problem of “imbalances.” America consumes much more than it produces (and has done so over 25 consecutive years). Asia produces more than it consumes. Merchandise moves east across the Pacific; dollars fly west in payment. For Americans, the system could hardly be improved on, because the dollars do not remain in Asia. They rather obligingly fly eastward again in the shape of investments in United States government securities. It’s as if the money never left the 50 states.
So it is under the paper-dollar system that we Americans enjoy “deficits without tears,” in the words of the French economist Jacques Rueff. We could not have done so under the classical gold standard. Deficits then were ultimately settled in gold. We could not have printed it, but would have had to dig for it, or adjusted our economy to make ourselves more internationally competitive. Adjustments under the gold standard took place continuously and smoothly — not, like today, wrenchingly and at great intervals.
Gold is a metal made for monetary service. It is scarce (just 0.004 parts per million in the earth’s crust), pliable and easy on the eye. It has tended to hold its purchasing power over the years and centuries. You don’t consume it, as you do tin or copper. Somewhere, probably, in some coin or ingot, is the gold that adorned Cleopatra.
And because it is indestructible, no one year’s new production is of any great consequence in comparison with the store of above-ground metal. From 1900 to 2009, at much lower nominal gold prices than those prevailing today, the worldwide stock of gold grew at 1.5 percent a year, according to the United States Geological Survey and the World Gold Council.
The first time the United States abandoned the gold standard — to fight the Civil War — it took until 1879, 14 years after Appomattox, to again link the dollar to gold.
To reinstitute a modern gold standard today would take time, too. The United States would first have to call an international monetary conference. A chastened Ben Bernanke would have to announce that, in fact, he cannot see into the future and needs the information that the convertibility feature of a gold dollar would impart.
That humbling chore completed, the delegates could get down to the technical work of proposing a rate of exchange between gold and the dollar (probably it would be even higher than the current price of gold, the better to encourage new exploration and production).
Other countries, thunderstruck, would then have to follow suit. The main thing, Mr. Bernanke would emphasize, would be to create a monetary system that synchronizes national economies rather than driving them apart.
If the classical gold standard in its every Edwardian feature could not, after all, be teleported into the 21st century, there would be plenty of scope for adaptation and, perhaps, improvement. Let the author of “The Two-Period Rational Inattention Model: Accelerations and Analyses” have a crack at it.
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I can't see how we get to a gold standard without the dollar totally crashing and burning. Of course, we appear to be well into the process of doing just that.
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Not a gold standard (IMO) as in the past with dollars redeemable, putting toothpaste back in a tube, but a basket of goods where gold and commodities play a large role at telling us how we are doing with value of the dollar. They already look at that and then just choose a different path. Bernancke gave it all away in his recent explanation. His "dual mission" is dollar and employment. But the employment problem is not monetary. Re-write his mission. Bad management of the Fed is no reason to have no management or no real currency IMHO.
Elsewhere I hear hindsighters whine that Greenspan was a Republican chosen by Reagan and Bernancke was George W's choice. But Greenspan was selected for his opposition and skepticism to Reaganomics, and Bernancke was the institutional, status quo choice, not a supply sider whatsoever. His viewpoint from his last writing seems to be more from the Krugman camp, that $3 trillion in Keynesian stimulus is failing because it too small, and nothing else needs addressing.
How about selecting the best and the brightest instead and making their mission crystal clear: We want a stable currency that the whole world can count on.
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"We think improvements in tax, spending and regulatory policies must take precedence in a national growth program, not further monetary stimulus."
- I couldn't agree more
The Fed response hit the exact same note Bernancke hit earlier, referring to their dual mission, employment and currency. [The Fed]"is confident that it has the tools to unwind these policies at the appropriate time".
Right. Don't suppose anyone there remembers 10.8% unemployment of 1981-1983 while we used those 'tools' to 'unwind' the previously excessive, expansionary policies. If we have those types of increases coming on top of this type of underlying unemployment, 12.5% unemployment looks possible to me in the aftermath of this fool's game.
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http://blogs.wsj.com/economics/2010/11/15/open-letter-to-ben-bernanke/
The following is the text of an open letter to Federal Reserve Chairman Ben Bernanke:
We believe the Federal Reserve’s large-scale asset purchase plan (so-called “quantitative easing”) should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment.
We subscribe to your statement in the Washington Post on November 4 that “the Federal Reserve cannot solve all the economy’s problems on its own.” In this case, we think improvements in tax, spending and regulatory policies must take precedence in a national growth program, not further monetary stimulus.
We disagree with the view that inflation needs to be pushed higher, and worry that another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.
The Fed’s purchase program has also met broad opposition from other central banks and we share their concerns that quantitative easing by the Fed is neither warranted nor helpful in addressing either U.S. or global economic problems.
Cliff Asness
AQR Capital
Michael J. Boskin
Stanford University
Former Chairman, President’s Council of Economic Advisors (George H.W. Bush Administration)
Richard X. Bove
Rochdale Securities
Charles W. Calomiris
Columbia University Graduate School of Business
Jim Chanos
Kynikos Associates
John F. Cogan
Stanford University
Former Associate Director, U.S. Office of Management and Budget (Reagan Administration)
Niall Ferguson
Harvard University
Author, The Ascent of Money: A Financial History of the World
Nicole Gelinas
Manhattan Institute & e21
Author, After the Fall: Saving Capitalism from Wall Street—and Washington
James Grant
Grant’s Interest Rate Observer
Kevin A. Hassett
American Enterprise Institute
Former Senior Economist, Board of Governors of the Federal Reserve
Roger Hertog
The Hertog Foundation
Gregory Hess
Claremont McKenna College
Douglas Holtz-Eakin
Former Director, Congressional Budget Office
Seth Klarman
Baupost Group
William Kristol
Editor, The Weekly Standard
David Malpass
GroPac
Former Deputy Assistant Treasury Secretary (Reagan Administration)
Ronald I. McKinnon
Stanford University
Dan Senor
Council on Foreign Relations
Co-Author, Start-Up Nation: The Story of Israel’s Economic Miracle
Amity Shlaes
Council on Foreign Relations
Author, The Forgotten Man: A New History of the Great Depression
Paul E. Singer
Elliott Associates
John B. Taylor
Stanford University
Former Undersecretary of Treasury for International Affairs (George W. Bush Administration)
Peter J. Wallison
American Enterprise Institute
Former Treasury and White House Counsel (Reagan Administration)
Geoffrey Wood
Cass Business School at City University London
A spokeswoman for the Fed responded:
“As the Chairman has said, the Federal Reserve has Congressionally-mandated objectives to help promote both increased employment and price stability. In light of persistently weak job creation and declining inflation, the Federal Open Market Committee’s recent actions reflect those mandates. The Federal Reserve will regularly review its program in light of incoming information and is prepared to make adjustments as necessary. The Federal Reserve is committed to both parts of its dual mandate and will take all measures to keep inflation low and stable as well as promote growth in employment. In particular, the Fed has made all necessary preparations and is confident that it has the tools to unwind these policies at the appropriate time. The Chairman has also noted that the Federal Reserve does not believe it can solve the economy’s problems on its own. That will take time and the combined efforts of many parties, including the central bank, Congress, the administration, regulators, and the private sector.”
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Right. Don't suppose anyone there remembers 10.8% unemployment of 1981-1983 while we used those 'tools' to 'unwind' the previously excessive, expansionary policies. If we have those types of increases coming on top of this type of underlying unemployment, 12.5% unemployment looks possible to me in the aftermath of this fool's game.
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**I think that's the best case scenario. I'm expecting Weimar Germany-like effects.**
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Sometimes we get so quickly and deeply into a technical issue that no one ever slows down and backs up to explain it all in simple and direct terms. This should take care of it: http://www.youtube.com/watch?v=jiadcgYQguo
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"The Federal Reserve should focus exclusively on price stability and protecting the dollar," said House Republican Conference Chairman Mike Pence of Indiana, author of legislation to narrow the Fed's mission, which he plans to push in the next Congress when Republicans control the House.
http://www.washingtontimes.com/news/2010/nov/17/fed-chief-grilled-on-hill-over-policies/
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George Will today in the Washington Post:
"The trap of the Federal Reserve's dual mandate"
[I believe we were all over this a week ago. Another famous person caught reading the dogbrothers public forum.]
http://www.washingtonpost.com/wp-dyn/content/article/2010/11/17/AR2010111705316.html?hpid=opinionsbox1
The trap of the Federal Reserve's dual mandate
By George F. Will
Thursday, November 18, 2010
This lame-duck Congress - its mandate exhausted, many of its members repudiated - should merely fund the government for a few months at current spending levels with a "continuing resolution," then apologize for almost everything else it has done and depart. If, however, the 111th Congress wants to make amends, it should repeal something the 95th did.
In 1977, Congress gave the Federal Reserve a "dual mandate." Although the central bank is a creature of Congress, it is, in trying to fulfill this mandate, becoming a fourth branch of government.
The Fed's large, and sufficient, original mission was to maintain price stability - to preserve the currency as a store of value. "Mission creep" usually results from a metabolic urge of government agencies. The Fed, however, had institutional imperialism thrust upon it when Congress - forgetting, not for the first or last time, its core functions - directed the Fed "to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates." The last two goals are really one. In the pursuit of the first, which requires the Fed to attempt to manage short-term economic growth, the Fed has started printing $600 billion - this is the meaning of what is called, with calculated opacity, "quantitative easing."
Those running the Fed, says Rep. Paul Ryan (R-Wis.) dryly, "are really putting the fiat in fiat money" - money backed by nothing but trust in the judgment and good faith of the government creating it. The Fed is doing what the executive branch wants done but that the legislative branch will not do - creating another stimulus.
By seeming to do the president's bidding, the Fed stumbled into a diplomatic thicket. While the president was impotently accusing China of keeping the value of its currency low in order to facilitate exports, many nations were construing America's quantitative easing as similarly motivated currency manipulation. The primary purpose of quantitative easing might be to force down the yields of government bonds in order to induce investors to invest in corporate bonds and stocks. But when a predictable result of the policy is to devalue the dollar, it is a pointless parsing of words for Treasury Secretary Timothy Geithner, who serves a president who has vowed to double U.S. exports in five years, to say that America will never weaken its currency "as a tool to gain competitive advantage."
In a 2007 speech, Frederic S. Mishkin, then of the Fed's Board of Governors, lauded the dual mandate as "consistent with" the Fed's "ultimate purpose of fostering economic prosperity and social welfare." Note how easily the mandate to "maximize employment" becomes the grandiose, and certainly political, function of promoting, and therefore defining, "social welfare."
Mishkin said "the rationale for maximizing employment is fairly obvious": "The alternative situation - high unemployment - is associated with human misery, including lower living standards and increases in poverty as well as social pathologies such as loss of self-esteem, a higher incidence of divorce, increased rates of violent crime, and even suicide." Obviously, some of the central bank's governors have been encouraged by Congress to think of themselves as more than mere bankers - as wizards of social control, even regulating society's reservoirs of self-esteem.
The Fed cannot perform such a fundamentally political function and forever remain insulated from politics. Only repeal of the dual mandate can rescue the Fed from the ruinous - immediately to its reputation; eventually to its independence - role as the savior of the economy, or of any distressed sector (e.g., housing) that clamors for lower interest rates. Ryan has introduced repeal legislation before and will do so again in January.
Fed Chairman Ben Bernanke has wistfully imagined a day when economists might get "themselves thought of as humble, competent people on a level with dentists." But that day will not dawn as long as the dual mandate makes it almost mandatory for him to vow that the Fed "can assist keeping employment close to its maximum level through adroit policies." Even defining "maximum employment" is a political as well as technical act.
Ryan, incoming chairman of the House Budget Committee, says the Fed thinks it can adroitly "put the cruise missile through the goal posts." But how adroit can Fed management of the economy be? No complex economy can be both managed and efficient, meaning dynamic. To think otherwise is what Friedrich Hayek called "the fatal conceit." That conceit can be fatal to the Fed's independence.
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This is what comes of following deranged policies:
China, Russia quit dollar
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St. Petersburg, Russia - China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.
Chinese experts said the move reflected closer relations between Beijing and Moscow and is not aimed at challenging the dollar, but to protect their domestic economies.
"About trade settlement, we have decided to use our own currencies," Putin said at a joint news conference with Wen in St. Petersburg.
The two countries were accustomed to using other currencies, especially the dollar, for bilateral trade. Since the financial crisis, however, high-ranking officials on both sides began to explore other possibilities.
The yuan has now started trading against the Russian rouble in the Chinese interbank market, while the renminbi will soon be allowed to trade against the rouble in Russia, Putin said.
"That has forged an important step in bilateral trade and it is a result of the consolidated financial systems of world countries," he said.
Putin made his remarks after a meeting with Wen. They also officiated at a signing ceremony for 12 documents, including energy cooperation.
The documents covered cooperation on aviation, railroad construction, customs, protecting intellectual property, culture and a joint communiqu. Details of the documents have yet to be released.
Putin said one of the pacts between the two countries is about the purchase of two nuclear reactors from Russia by China's Tianwan nuclear power plant, the most advanced nuclear power complex in China.
Putin has called for boosting sales of natural resources - Russia's main export - to China, but price has proven to be a sticking point.
Russian Deputy Prime Minister Igor Sechin, who holds sway over Russia's energy sector, said following a meeting with Chinese representatives that Moscow and Beijing are unlikely to agree on the price of Russian gas supplies to China before the middle of next year.
Russia is looking for China to pay prices similar to those Russian gas giant Gazprom charges its European customers, but Beijing wants a discount. The two sides were about $100 per 1,000 cubic meters apart, according to Chinese officials last week.
Wen's trip follows Russian President Dmitry Medvedev's three-day visit to China in September, during which he and President Hu Jintao launched a cross-border pipeline linking the world's biggest energy producer with the largest energy consumer.
Wen said at the press conference that the partnership between Beijing and Moscow has "reached an unprecedented level" and pledged the two countries will "never become each other's enemy".
Over the past year, "our strategic cooperative partnership endured strenuous tests and reached an unprecedented level," Wen said, adding the two nations are now more confident and determined to defend their mutual interests.
"China will firmly follow the path of peaceful development and support the renaissance of Russia as a great power," he said.
"The modernization of China will not affect other countries' interests, while a solid and strong Sino-Russian relationship is in line with the fundamental interests of both countries."
Wen said Beijing is willing to boost cooperation with Moscow in Northeast Asia, Central Asia and the Asia-Pacific region, as well as in major international organizations and on mechanisms in pursuit of a "fair and reasonable new order" in international politics and the economy.
Sun Zhuangzhi, a senior researcher in Central Asian studies at the Chinese Academy of Social Sciences, said the new mode of trade settlement between China and Russia follows a global trend after the financial crisis exposed the faults of a dollar-dominated world financial system.
Pang Zhongying, who specializes in international politics at Renmin University of China, said the proposal is not challenging the dollar, but aimed at avoiding the risks the dollar represents.
Wen arrived in the northern Russian city on Monday evening for a regular meeting between Chinese and Russian heads of government.
He left St. Petersburg for Moscow late on Tuesday and is set to meet with Russian President Dmitry Medvedev on Wednesday.
http://www.chinadaily.com.cn/china/2010-11/24/content_11599087.htm
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By LIAM PLEVEN and CAROLYN CUI
The innovation that opened gold investing to the masses and helped spur this
year's record-breaking bull market was hatched in an act of desperation by a
little-known gold-mining trade group.
The World Gold Council, created to promote gold, was fighting for survival.
Its members—global gold-mining companies—were frustrated with the council's
inability to stem two decades of depressed prices and find buyers for a
growing glut of the yellow metal. Eight years ago, they were considering
withdrawing funding from the trade group, a move that would have effectively
shut it down.
Chris Thompson, the group's chairman, figured the council needed to expand
the pool of gold buyers, particularly in the U.S. The idea of trading gold
on an exchange had been floating around for years, but various hurdles had
prevented it from taking off in America.
What the council eventually managed to create in those dark days surpassed
its wildest dreams: SPDR Gold Shares, the exchange-traded fund launched in
November 2004. The fund, known by its ticker symbol GLD, has ballooned into
a $56.7 billion behemoth.
Today, GLD is the fastest-growing major investment fund ever, according to
research company Lipper Inc., and one of the most active gold traders in the
market. Its presence has helped gold—which settled down 0.33% in New York
trading Wednesday, at $1,372.90 a troy ounce—triple in price in recent years
to fresh all-time highs this month.
As the world's largest private owner of bullion, GLD is soaking up $30
million of gold daily, stored in a London vault that now holds the
equivalent of about six months' worth of the world's entire gold-mining
production.
The revolution that opened gold investing to the masses and helped spur a
record-breaking bull market was hatched in an act of desperation by an
obscure gold-mining trade group. WSJ's Emma Moody explains SPDR Gold Shares.
GLD has won fans who say it has democratized the gold market, paving the way
for investors of all stripes to get direct exposure to the precious metal.
Its nearly 1 million investors include ordinary individuals, institutions
like Northern Trust Corp. and billionaire hedge-fund managers like John
Paulson.
But skeptics argue GLD could become a Godzilla-like beast if the gold rally
reverses sharply. They say its buying has already turbo-charged gold prices,
exposing the market, and legions of small investors, to a rapid fall.
Smaller copycat funds add to the risk.
"We tell our clients to watch out for it, because it's there, and it's a
real risk," said Jeffrey Christian, founder of CPM Group, which advises
major investors worldwide on gold.
The questions come as ETFs in general are coming under heightened scrutiny
about whether they distort markets. ETFs are wildly popular and growing
fast, spanning stocks, bonds and hard assets. But they have made it possible
for far more money to rush in and out of previously illiquid markets.
GLD shares trade on the New York Stock Exchange, as well as in Tokyo, Hong
Kong, Singapore and Mexico City. Each share represents one-tenth of an ounce
of gold. That, in effect, gives shareholders the right to their share of
proceeds from selling a full bar, minus fees. Before GLD issues new shares,
it takes in the necessary gold to back them. On days when there are more
sellers than buyers of GLD shares, the fund offloads some of its gold.
Created under the auspices of the World Gold Council, the fund relies on a
number of partners. It is marketed under the banner of State Street Global
Advisors, which has fund-selling expertise. HSBC PLC stores and protects the
gold bars. Bank of New York Mellon Corp. handles daily operations, such as
calculating the fund's net asset value. For all its size and breadth, fund
managers say, it's relatively simple to operate. BNY Mellon, for instance,
needs roughly a dozen employees to run the fund day-to-day.
That has helped make it a windfall for all involved. The gold council, which
spent $14 million developing the fund, has reaped about $150 million from
its inception through Sept. 30. Its revenue is a percentage of net asset
value, set at 0.15%. State Street has the same terms and also collected
about $150 million in that time. Both are on track to bring in more than $80
million in the coming year if GLD stays at today's size.
The success owes much to timing. The council launched the fund as interest
in gold was picking up, first because of inflation worries and then as a
safe-haven against financial disasters. Since then gold prices have more
than tripled from $444.80, setting a record high—though not adjusted for
inflation—of $1,409.80 on Nov. 9.
The recent rally has been driven by many factors, of which GLD is just one.
The U.S. dollar has steadily lost value, so some investors have bought gold
as a hedge against the greenback. Tapping new ore veins is getting harder.
Gold has benefited at once from fears of economic stagnation after the
financial crisis and concern that government spending on the recovery will
trigger inflation.
GLD, though, is widely seen as amplifying those trends.
Buying fund shares is easier and cheaper than investing in gold futures or
buying coins. And GLD has now locked up nearly 1,300 metric tons of the
world's gold supply, making the market tighter. The fund's impact has won it
a following in the gold industry.
"It's got the gold price up," said Nick Holland, chief executive of Gold
Fields Ltd., a major mining company and a member of the gold council.
"That's got to be good."
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Calculating the impact of GLD and its brethren is far from an exact science.
But industry observers including Mr. Christian and Philip Klapwijk of GFMS
Ltd. estimate gold-backed ETFs have probably added about $100 to $150 an
ounce to the price of gold as a result of the incremental increase in
demand.
Translated, that would mean gold-backed ETFs have increased the value of the
bullion that gold miners will produce this year by up to $9 billion.
Many investors believe gold has much further to rise. But after a 10-year,
one-way ride, others worry there could be a violent reversal down the road.
The gold market hasn't been severely tested since GLD and similar, but far
smaller, bullion-backed funds were launched.
And many GLD investors aren't experienced in gold investing. Between 60% and
80% of GLD investors had never bought gold before, estimates Jason
Toussaint, managing director of the council. No one knows how those
newcomers might react in a sharp downturn.
If GLD shareholders get spooked by drops in the gold price and sell en
masse, the fund would have to dump metal to meet redemptions, possibly
accelerating declines by prompting others to sell even more. Because GLD
trades on an exchange, any selloff would be immediately visible, unlike
typically opaque bullion sales.
"We are more concerned about these issues than we were initially," said
Scott Malpass, chief investment officer for University of Notre Dame Asset
Management, which started buying GLD shares in 2005 and now has about $70
million invested. "It can turn on a dime. It can happen very quickly." For
now, Mr. Malpass thinks the advantages of investing in gold outweigh the
risks and the fund is properly managed.
In the fund's planning stages, the world's miners had modest ambitions.
Gold prices were just starting to stir from a 20-year bear market and many
companies were struggling to break even. Hurdles to gold abounded. It was
hard to purchase, store and insure. Some investors chose to own stocks of
gold miners.
The council had long focused on gold jewelry, which represented over 80% of
demand but exposed the industry to economic downturns. In 2002, after the
Sept. 11 terrorist attacks, jewelry demand for gold dropped 11%.
Attracting investors, the industry concluded, was the way to go. Mr.
Thompson, the chairman, wanted a CEO for the council who would have
credibility with American investors to help implement the vision. He zeroed
in on James Burton, who at the time headed the California Public Employees'
Retirement System, one of the biggest institutional investors in the world.
Calpers had no direct investments in gold.
In July 2002, Mr. Burton flew to meet Mr. Thompson in London. Mr. Burton was
skeptical, but curious. Their discussions lasted 12 hours—including talks
over a round of golf, two rounds of beers and meals. Mr. Thompson gave an
overview of the gold market, and a pitch for why the moment was ripe to
attract retail investors. By the end, Mr. Burton was hooked.
In August 2002, Mr. Burton, who had left Calpers, took over the gold council
and immediately slashed 60% of the 108-person staff, closed half of the 22
offices and set about creating what became GLD.
The gold council wanted a product that ordinary investors could buy and sell
just like a stock. The challenge was to make shares track the gold price,
much like an index fund. The eventual solution was to create a trust to
serve as the legal owner of GLD's gold bars.
Products were launched in Australia and the U.K. But getting a U.S. version
took longer than the council expected.
The mining community backed the idea, but worried it might cannibalize
demand for gold-mining stocks. Since it was to be the first U.S. fund
entirely backed by a physical commodity, regulators also sought to
understand how the concept would work. The Securities and Exchange
Commission spent months seeking information about the product and the gold
market, say Mr. Burton and Mr. Thompson.
The gold council also needed to hire assorted players—a trustee, a marketing
agent and a vault operator. That process wasn't seamless, either.
Barclays PLC worked for months on the project, then withdrew and built its
own fund, the iShares Gold Trust, which also holds bullion. Barclays sold
the iShares exchange-traded fund business to BlackRock in June 2009, and its
smaller gold fund has since become an intense competitor.
The council also wasn't sure how successful the fund would be, and paid UBS
Securities $4 million for underwriting the first 2.3 million shares of GLD,
according to regulatory filings. UBS declined to comment.
"I thought it would take a lot more marketing effort to convince people to
buy gold in a securitized form," said Mr. Burton.
But as GLD opened, the pent-up investor demand erupted. The fund hit $1
billion in assets in three trading days, and $10 billion in just over two
years.
"It grew pretty quickly," said Jim Ross, head of exchange-traded funds for
State Street. The firm manages 120 exchange-traded funds, as of Sept. 30,
and the SPDR S&P 500 fund is the only one larger than GLD. "The fact that's
our second-most successful product is still surprising to me, frankly," Mr.
Ross said.
The sniping at GLD also began early. Some gold investors questioned whether
the fund held as much bullion as it said it did, eventually prompting the
council to post on its website audit reports by an independent firm,
Inspectorate International Ltd., which conducts two counts each year of
GLD's gold bars in London.
A segment of the gold-investing community still prefers to secure a personal
stash. Some want to be able to get their hands on their bullion in a hurry,
particularly in the event of a severe crisis. Gold-vault operators are
cutting fees to lure such investors.
Rivals also highlight worst-case scenarios the fund could face. Ben Davies,
chief executive of London-based Hinde Capital, which oversees a gold fund,
noted that GLD's bullion isn't insured. If the gold "is lost, damaged,
stolen or destroyed," the trust "may not have adequate sources of recovery,"
according to the prospectus.
Mr. Toussaint said the council believes HSBC's security measures and the
bank's other liability coverage provide protection. "That's the whole reason
we put it in a vault in the first place," he said.
Despite GLD's success, even those involved in the fund acknowledge the rally
will eventually end. "We don't believe gold is always going to go up," said
State Street's Mr. Ross. "No investment does."
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In a WaPo article, the head of the FDIC writes
"With more than 70 percent of U.S. Treasury obligations held by private investors scheduled to mature in the next five years, an erosion of investor confidence would lead to sharp increases in government and private borrowing costs."
I knew that we have been doing a lot of short term stuff in financing our deficit, but this datum puts a hard number on it. 70% is one fg scary number. The FDIC agrees with what I have been saying on this point-- when interest rates begin to rise, it is going to be far faster and far more than people with cranial-rectal interface-itis imagine.
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The success of Gold as a traded stock for one thing reminds me of the Qualcomm exhuberance in Jan.2000 after it had gone up 2400% percent. How could anyone buy anything other than that stock. It is still a great company but the people who bought afterward didn't fare the same.
Investing in gold is a withdrawal of resources from the productive economy and a bet against the economy, the country and the dollar. Looks great now and during these runups, but the gold price now already reflects the current state of affairs. At the end when you want out, they will give you back dollars, not gold - and those will be devalued dollars, not the kind you started with. Then they will report that 'gain' which was 100% inflationary - not a gain, and it will also be 100% taxable at both the federal and state levels before the remainder is yours (in devalued dollars). Good luck.
From my friends betting on total collapse, I liked the idea of buying silver dimes better. Gold in paper at an investment house or a big block of it at home won't buy you a loaf of bread in an emergency unless the bakery can make change.
I write with zero confidence as I continue to buy homes at 15 cents on the dollar of most recent purchase with no idea which direction it will go from here.
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"China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday. Chinese experts said the move reflected closer relations between Beijing and Moscow and is not aimed at challenging the dollar, but to protect their domestic economies."
But the yuan 元 is pegged to the dollar $ and the ruble рубль tries to follow the $ and the euro € and the € may collapse ahead of the $ so it all looks to me a lot like rearranging the deck chairs on the titanic rather than anyone changing course to go around an iceberg.
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'when interest rates begin to rise, it is going to be far faster and far more than people... imagine."
You are correct. Remember that the Clinton budget balance was accomplished partially by financing long term debt with short term borrowings. That it worked out in that instance does not mean it was a wise bet. Recall also that China recently 'downgraded' America so we won't be selling new debt at the same risk level even if interest rates stayed the same. :-(
The parties in a worse position than the sellers of our debt are the holders of our debt.
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http://www.thedailyshow.com/watch/tue-december-7-2010/the-big-bank-theory
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No idea if this is accurate or not, but I heard a figure that we could go back to the gold standard if gold hits 49,000USD an oz. :-o
I hope we don't see anything like that.
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An internet friend wrote this:
http://lessonsfromfreemarketeconomics.blogspot.com/2009/05/trouble-with-our-banking-system.html
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I googled the quote of Alan Greenspan in Crafty's post above to verify it and found this article by Greenspan from 1967
http://www.constitution.org/mon/greenspan_gold.htm
Gold and Economic Freedom
by Alan Greenspan
Published in Ayn Rand's "Objectivist" newsletter in 1966, and reprinted in her book, Capitalism: The Unknown Ideal, in 1967.
An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense — perhaps more clearly and subtly than many consistent defenders of laissez-faire — that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.
In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.
Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.
The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.
What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term "luxury good" implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.
In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.
Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society's divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.
A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.
When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth. When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one — so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the "easy money" country, inducing tighter credit standards and a return to competitively higher interest rates again.
A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World War I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.
But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline — argued economic interventionists — why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely — it was claimed — there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks ("paper reserves") could serve as legal tender to pay depositors.
When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates. The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market, triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's.
With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain's abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed "a mixed gold standard"; yet it is gold that took the blame.) But the opposition to the gold standard in any form — from a growing number of welfare-state advocates — was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.
Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which — through a complex series of steps — the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.
Contents | Text Version
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Nice find. It is more than a little too bad for all of us that AG badly lost his way.
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Last several posts in this thread are excellent. Where else can you go and find a good conversation about monetary policy? :)
Sad, not funny, to see Jon Stewart more honest and with a better understanding of monetary affairs than ... Ben Bernanke!
GM, I don't know the number either, no one knows the exact number because our money supply has multiple measures M1, M2, M3 etc. and all are mere estimates, but the toothpaste is not going back in the tube!
Freki, amazing piece by Greenspan. Greenspan is a subject in himself. He was chosen by Reagan as an opponent of so-called Reaganomics, a 'root canal' Republican, as a check and balance on Reaganomics. (He probably wrote or inspired the voodoo line for Bush Sr.) He was always the skeptic of the Clinton- Gingrich boom he called 'irrational exuberance' which in the end did crash and then I think his friendship with Cheney tainted his expansionary policies during Bush where he should have come down harder on the Republican spending as the check and balance on that power. The immediate post-911 emergency expansionary policies perhaps made sense but not for a decade or permanent without an exit strategy. I am not surprised to find changes in his thinking, besides that the world is quite different and the 'mission' of the Fed is different than in 1967. The Peter Principle comes to mind. Greenspan and Bernanke I'm sure were very accomplished mortals whose responsibilities rose past to their level of competence - and now seem reduced to babbling idiots. (Crafty nailed that while I was typing: Greenspan 'lost his way')
It's the dual mission, that's the problem, and eliminating it is the monetary component of the solution. Paul Volcker did not let employment concerns stop him when he began tightening down monetary policy to save the nation's currency. Yes those should have coincided with the stimulative effect of the tax cuts, but that was the fault of congress for downsizing them, delaying them and implementing them piecemeal when any economist should have known the stimulative effect does not kick in during the early years when everyone knows their tax rate will be lower the next year. But Volcker's job was to stabilize a runaway dollar right then, not let another decade of inflation continue. The people through their elected officials had the power to fix the other side of the economic mess and avoid catastrophic unemployment if they wanted to or understood it. Same thing goes for today.
Bernanke admits he is working on employment in America instead of sanity for the dollar. But everything that is wrong with employment in America has NOTHING to do with monetary problems or policy so he is off winging it on his own.
The new congress needs to re-write the mission of the Fed. The sole primary mission is stability and predictability of the currency - over periods of decades and centuries, not through business cycles, election cycles, fiscal cycles, policy cycles, government failures or terms of congresses or administrations. After stability of the dollar, then the Fed can have secondary goals, first of those IMO is stability and rightsizing of interest rates across the economy, still monetary policy. Then can come a look at coordinating and cooperating with other economic concerns like employment, growth, trade, etc.
We don't need a return to a true gold standard, there isn't enough gold to do that. Re-writing the Fed mission can do exactly what is needed. They already know how to look at the price of gold, follow gold, tie policies to the price of gold, as well as to other commodities, price points and the proverbial basket of goods that includes gold front and center. They know how to do it, they are already tracking it, but then they just go off barking up the wrong tree because their mission statement put them in charge of something where they have no control. Why would printing more money improve long term employment??
We did not fire or dismantle the Supreme Court when they wrongly decided Dred Scott, Roe v. Wade or Kelo. There is no better apparatus ready to take its place if we end the Fed. We already separate it from the political branches the best we can with terms out of cycle with election cycles. We already confiscate all Fed profits to the Treasury - oops, those are now losses. We already bring these people back for oversight and re-appointment and re-confirmation. But we need to clarify and unify the mission of the Fed. (MHO)
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Bernanke Wants A $10 Three-Piece Chicken Meal
Eighteen months ago I decided to get fit and lose weight. I bought a racing bike and hit the roads. I also bought a 2hp Vitamix blender that whips up fruit and protein smoothies faster than you can say Jamba ( JMBA - news - people ) Juice. The payoff has been great. I've lost 15 pounds and with it all kinds of petty inflammations in the ankles, knees and lower back. (I'll share the details of my diet and exercise regimen if you email me at rkarlgaard@forbes.com. Put "Diet" in the subject line.)
But no one is perfect, least of all me. Every once in a while I get a powerful urge to eat greasy food. Not long ago I drove by the window of the local KFC and ordered a three-piece Kentucky Fried Chicken meal, all dark, original recipe, with coleslaw, beans and a root beer. The order came to $9.47.
Let's stop here. Nine and a half bucks for a KFC meal? Seriously? KFC is a fast-food retailer. Fast food is supposed to be cheap. But $9.47 for one ordinary meal is not cheap. What's going on?
Facts such as higher KFC prices reflect the world as it is. These facts contradict recent headlines about Consumer Price Index inflation. The October CPI rose just 0.6% at an annualized rate, the lowest since records began in 1957. Bear in mind that the official scorekeeper for CPI inflation is the U.S. Department of Labor, whose head is politically appointed. At the same time the independent Federal Reserve has its own inflation target, rumored to be 1.5% to 2%.
There you have it. The Fed thinks prices are too low. It wants higher prices--$10 for a chicken dinner at KFC; $40 for a family of four.
Where, oh where, do you start with such destructive nonsense?
For one, it boggles the mind to think the Fed goes along with the Labor Department's exclusion of food and energy prices in the CPI. Good lord, people have to eat. And go places. Gas prices are certainly not cheap. They are low only compared with the summer of 2008.
But the CPI is flawed in other ways that bear no resemblance to the way people actually live. As the always savvy Scott Grannis points out in his Calafia Beach Pundit blog: "If there is any deflation out there, it can be found mainly in the energy and housing sectors, both of which experienced a huge run-up in price in the years prior to 2008. In my book that's not deflation, it's payback. Almost anywhere else you look, prices are rising."
Are you listening, Ben Bernanke? Do you actually get out in the world? The swift backlash against Bernanke's QE2 is borne out in the fact that prices, in real life, are rising faster than most people's wages. QE2 will only take us further down the stagflation path--and will hurt the poor the hardest. There are 40 million Americans already on food stamps. Higher food prices will increase that shameful number.
Ironically, for a Democratic Administration that fancies itself a greater friend of the poor, a cheap dollar slams the working poor the hardest. The working poor--those striving to stay off unemployment and/or welfare--pay the highest percentage of their wages for food. They tend to have the longest commutes in older, gas-guzzling cars. Higher gas prices slam them. Many working poor don't have smartphones or computers or the time and know-how to bargain shop on the Internet. Finally, they have most of their meager assets in cash: paychecks, tips, checking accounts and small savings accounts.
In a misguided attempt to prop up house prices and prevent the next wave of bank failures, the Fed is destroying the value of the working poor's cash.
A crushed dollar hurts the majority of Americans and the economy in general. But the rich--especially the younger affluent--do relatively well. The majority of their assets are in things that hold their value when the dollar goes down: stocks, gold, commodities, beachfront property, etc. The rich can hold just enough cash to take advantage of bargains when they appear. They can also invest in smartphones, 4G mobility and software that facilitate price shopping for the best bargain.
You might like Ben Bernanke if you're 35 years old, made a ton of money on Wall Street and your diversified assets are inflating. You don't like him if you're 60 years old and own a KFC franchise--or eat at one.
A soft dollar will not lift America from its economic doldrums. The opposite is needed. A strong dollar would redirect capital to worthy entrepreneurs--and out of ruinous commodity speculation. For the rest of us it would restore the purchasing power we thought we'd earned in the first place.
http://www.forbes.com/forbes/2010/1220/opinions-rich-karlgaard-digital-rules-bernanke-chicken-meal.html
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The Producer Price Index (PPI) increased 0.8% in November To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 12/14/2010
The Producer Price Index (PPI) increased 0.8% in November, beating the consensus expected gain of 0.6%. Producer prices are up 3.5% versus a year ago.
The November rise in the PPI was mostly due to energy and food. Energy prices increased 2.1% while food prices rose 1.0%. The “core” PPI, which excludes food and energy, increased 0.3%, beating the consensus expected increase of 0.2%.
Consumer goods prices rose 1.0% in November and are up 4.7% versus last year. Capital equipment prices were up 0.2% in November and are up 0.3% in the past year.
Intermediate goods prices increased 1.1% in November and are up 6.3% versus a year ago. Crude prices increased 0.6% in November and are up 13.0% in the past twelve months.
Implications: Overly loose monetary policy from the Federal Reserve isn’t just going to cause more inflation down the road, it’s causing higher inflation today. Anyone still talking about a deflation threat needs to re-examine their economic models. Mostly due to increases in food and energy, producer prices increased 0.8% in November, the largest gain since March. Core prices increased 0.3%, a partial rebound from the 0.6% drop last month. What’s even more troubling is that measures of producer price inflation are more intense deeper in the production process, and that’s the case with both overall prices and core prices. In the past year, prices for intermediate goods are up 6.3% overall and 4.7% core; prices for crude goods are up 13% overall and 30.2% core. Over time, some of these increases should filter through to prices for finished goods. It’s important to note that all these inflation figures are all the result of monetary policy before the Fed embarked on its second round of quantitative easing, which implies the potential for even higher readings in the next two years.
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second post of the day
Fed Keeps Monetary Spigot Wide Open To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 12/14/2010
As widely anticipated, the Federal Reserve’s statement on monetary policy was almost a carbon copy of last month’s statement, when it embarked on a new round of “quantitative easing.”
The Fed made no direct changes to the stance of monetary policy today, leaving the target range for the federal funds rate at 0% to 0.25%. In addition, the Fed maintained its pledge to keep the funds rate at this level for an “extended period.” The Fed also reiterated its commitment – initially made in early November – to purchase $600 billion in long-term Treasury securities by mid-2011. These purchases are on top of reinvesting (into long-term Treasury securities) principal payments on its pre-existing portfolio of mortgage securities.
The Fed only made minor changes to its statement. Last month it said the recovery was “slow.” This is now changed to growth being “insufficient to bring down the rate of unemployment.” Last month the Fed said consumer spending was growing “gradually.” Now the Fed says it’s growing at a “moderate” rate. The Fed made no changes to its language on inflation.
Please click on the link above to view the entire commentary.
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Since Jan 2008 bank reserves up from 33 bil to 995. Fed not printing? So, where's the money coming from?
http://blogs.wsj.com/economics/2010/12/22/is-the-fed-printing-money/
December 22, 2010, 4:15 PM ET
Is the Fed Printing Money?
Is the Federal Reserve printing money to finance its bond buying? Or isn’t it? Ben Bernanke has given inconsistent answers, at times saying it is and at times saying it isn’t.
In an exchange with readers on Time magazine’s website this past weekend, a reader asked Mr. Bernanke why the Fed is creating dollars “out of thin air.” Mr. Bernanke said it wasn’t. “These policies are not leading to increases in the amount of currency in circulation,” he said.
He made a similar argument to CBS News’s Scott Pelley earlier this month in defense of the Fed’s plan to purchase $600 billion of U.S. Treasury bonds with money that the Fed creates. “People talk about the printing press. That’s not what this is about. This policy does not increase the amount of currency in circulation. It does not increase in any significant way the amount of money in broader terms, say, as measured by bank deposits,” he said.
Yet back in March 2009 Mr. Bernanke told Mr. Pelley that the Fed was printing money to fund an earlier bond buying program. “It’s not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed. It’s much more akin to printing money than it is to borrowing,” he said.
Comedian Jon Stewart made much of this obvious contradiction.
Here is an attempt to sort it out:
The Fed has been buying bonds since early 2009. When a private investor buys bonds, the investor uses cash or sells some existing asset to raise cash and uses that money to buy bonds. The investor might also borrow money from a bank and use the borrowed funds to buy securities on margin. The Fed can do something else. It has the power to electronically credit money to the bank accounts of sellers who in turn sell government securities or mortgage backed securities to the Fed. The banks get the money and the Fed gets the securities. The Fed isn’t literally printing $100 dollar bills when it does this. But it is creating money, electronically, that wasn’t in the financial system before. In that sense, it is printing money.
But as Mr. Bernanke has been trying to emphasize lately — perhaps clumsily — most of the money that the Fed has created isn’t circulating much through the financial system. It’s mostly sitting idly, often in deposits — also known as reserves — that banks keep with the Fed itself. Broader measures of the money supply haven’t grown that much because the money isn’t being lent on. Since January 2008, the amount of Federal Reserve notes, i.e. currency, in circulation has increased 18%, to $980 billion. During the same stretch, the reserves banks keep with the Fed has increased more than 30-fold to $995 billion from $33 billion.
Meantime, in the 12 months between November 2009 and November 2010, M2 money supply, a broad measure of money including bank deposits, retail money market fund deposits and other measures of short-term money, are up just 3.3%.
The Fed chairman seems to be trying to emphasize two points: 1) The Fed isn’t literally printing money; and 2) The money that it is creating isn’t flooding through the financial system in a way that would be inflationary.
Mr. Bernanke might be a little sensitive about the first point. Critics have called him “Helicopter Ben” ever since he cited Milton Friedman in a November 2002 speech saying that in a crisis the Fed could flood the economy with money to avoid deflation, as if it were dropping bills from helicopters. Ironically, it was Friedman, not Bernanke, who came up with the helicopter analogy. But Mr. Bernanke is the one who got stuck with the reputation as a serial money dropper.
He’s trying to shoot down the idea by saying, “Hey, I’m not actually printing money.” More broadly, the chairman is trying to dispel the worry that the Fed is sowing the seeds of an inflationary mess by flooding the system with so much cash.
The point is that there’s not as much money out there as you might think. Mr. Bernanke and his colleagues are also confident they can soak it up when needed. One way the Fed plans to do this is by paying banks interest on the reserves they keep with it. It only pays 0.25% now. If the economy heats up, it can increase that rate and keep all of those reserve from being lent too aggressively and overheating the economy. (We’re a long way from that moment.)
Reassuring the public on that point is important because if people begin to expect a lot more inflation, it could become a self-fulfilling prophecy. Unfortunately for the Fed chairman, instead of clarifying, he has confused the issue by failing to flesh out the distinction in more detail.
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http://scottgrannis.blogspot.com/2010/11/assessing-impact-of-quantitative-easing.html
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Data Watch
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The Consumer Price Index (CPI) increased 0.5% in December To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 1/14/2011
The Consumer Price Index (CPI) increased 0.5% in December, slightly above the consensus expected gain of 0.4%. The CPI is up 1.5% versus a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) was up 0.6% in December and is up 1.7% in the past year.
Most of the increase in the CPI in December can be attributed to energy prices, which increased 4.6%. Food prices were up 0.1%. Excluding food and energy, the “core” CPI increased 0.1%, matching consensus expectations. Core prices are up 0.6% versus last year.
Real average hourly earnings – the cash earnings of production workers, adjusted for inflation – fell 0.4% in December but are up 0.4% in the past year. Due to an increase in work hours, real weekly earnings are up 1.9% in the past year.
Implications: Prices have been escalating at the producer level and are now starting to show up at the consumer level. Consumer prices came in higher than expected, much due to the 4.6% increase in energy prices. Increases in the CPI are likely to persist throughout 2011 as commodity prices continue to rise and monetary policy remains easy. Although consumer prices are up only 1.5% from a year ago, they are up at a 3.1% annual rate in the past six months and up at an even faster 3.5% annual rate in the past three months. In addition, one of the factors that has held inflation down in the past year is now heading back up. Owners’ equivalent rent (OER), which is the government’s estimate of what homeowners would pay if they rented their own homes, mostly fell in late 2009 and early 2010 but is now up 0.3% versus a year ago, up at a 1.2% annual rate in the past three months and up at a 1.1% annual rate in December. This is important because OER accounts for about 25% of all the goods and services in the CPI.
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"Countries that do not have a gold standard; which, at this point in history,
includes all of them; must still back their currencies with something. "
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Crafty already posted this piece (Wesbury) on "US-China' so I will only excerpt points here about the dollar as the reserve currency that go beyond the implications specific to China.
Make no mistake, the dollar and our country itself are troubled entities that need rescuing from within, but both are better and stronger than the alternatives. Giving Wesbury credit, but this is a point I tried to make earlier in this thread. Date is Jan. 16 2011, so when he says "There is simply no other instrument issued by anyone that has the liquidity and certainty of payment of US Treasury debt", he means that in the context of all our current struggles.
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"Countries that do not have a gold standard; which, at this point in history,
includes all of them; must still back their currencies with something. These
reserves create confidence. The Federal Reserve typically uses US
Treasury securities as reserves, although it also holds many mortgage-backed
securities these days. The Fed makes a profit on these holdings and turns them over
to the government. The European Central Bank also holds the sovereign debt of its
member countries and turns their earnings over to member governments.
Emerging market central banks have a choice of what to hold as reserves, and they
will always make the one that maximizes earnings and creates the most confidence in
their currencies. That's why China links its currency to the dollar and holds
mostly US Treasury debt as reserves.
No one forces a foreign central bank to buy US Treasury debt. Each country would
prefer to have their central bank buy their own local government debt as reserves.
But who would trust these currencies if they were backed up by local government
debt? Imagine Thailand trying to encourage the use of its currency if it was backed
only by Thai government debt. And if fewer people held the currency, the central
bank would generate lower profits to hand over to the government.
In other words, the international role of the dollar is a by-product of
profit-seeking central banks pursuing their own self-interest. And that's not
going to change anytime soon. There is simply no other instrument issued by anyone
that has the liquidity and certainty of payment of US Treasury debt.
Moreover, as emerging markets keep growing, their central banks will issue more
local currency, which will continue to elevate the demand for Treasury debt. So
while other countries must learn to accept the US dollar's role, Americans
must learn to accept that, over time, the share of our debt owned by foreigners is
likely to keep rising. And, that the demand for US debt helps generate large US
trade deficits.
Many assume large foreign ownership of US debt makes the US vulnerable to foreign
governments. We think the vulnerability is the other way around. For example, the US
could protect Taiwan with its Navy. Or, instead, the US could send a message that
any attack would mean no payments on our debt to the attacking country until it
withdraws and makes reparations. The US did something similar when World War II
began. No wonder Hu Jintao told the Washington Post “the
current international currency system is a product of the past.”
China realizes it’s vulnerable. But, any major changes are
decades in the future. The dollar will remain the world's reserve currency for a long time to come."
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A couple key points: Ryan has called for the end of the 'dual mission' (again, more famous people caught reading the forum).
Bernanke said: "Bernanke said a Federal Reserve study found that the QE policy has created or saved as many as 3 million jobs." - Right out of the Krugman Obama school of economics. A Nobel Prize coming?
(Next is inspired by Clapper calling the MB secular), Bernanke said that the QE policy did not represent “a permanent increase in the money supply,” calling it a “temporary measure that will be reversed.”
Either that statement is true and a relief to know we worried for no reason, or he should be tried (and hanged) for treason. I'm not seeing middle ground here.
http://dailycaller.com/2011/02/09/ryan-confronts-bernanke-over-feds-purchases-of-u-s-debt-raises-concerns-about-the-dollar/
http://www.youtube.com/watch?v=GbbhS8zPIOU
Warning, Federal Reserve hearings aren't like seeing Allen West speeches.
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"Bernanke said a Federal Reserve study found that the QE policy has created or saved as many as 3 million jobs."
If I have my zeros correct, that is $200,000 per job?!? :-o
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"If I have my zeros correct, that is $200,000 per job?!?"
Even then, 3 million jobs saved meant unchanged 10.3% unemployment, so there is no multiple of $200,000 investments that would brings the rate down to 4-5% where it started.
I hate to one-up Bernanke but while he was saving 3 million jobs and record unemployment remained unchanged, I was helping to keep the sky blue and making sure the sun rose;I have similar proof of results. Good grief.
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http://online.wsj.com/article/SB10001424052748703843004576140762706032294.html?mod=WSJ_hpp_sections_personalfinance
'Biflation' Bernanke
By AL LEWIS * FEBRUARY 13, 2011
Ben Bernanke remarked last week on one of the few things that is still made here in America.
"Inflation made here in the U.S. is very, very low," the Federal Reserve chairman told Congress on Wednesday.
"Over the 12 months ending in December, prices for all the goods and services consumed by households increased by only 1.2%," he said.
Around the globe, people are rioting in the streets because of skyrocketing food prices. Health-care costs in the U.S. rise annually by double digits. College, insurance, utilities, the fees bailed-out banks charge their customers, various taxes from nearly bankrupt states and municipalities, basic commodities from pork bellies to gold, and, oh, gasoline -- all of this keeps going up.
But don't worry, Mr. Bernanke swears inflation -- at least as the U.S. government measures it -- will remain low because wages are stagnant. See, there's no need to worry about rising prices, because you're not getting a raise.
On the day Mr. Bernanke spoke, The Wall Street Journal's lead headline read "Inflation Worries Spread." But the story was about rampant inflation in other countries.
Mr. Bernanke swore this inflation would not spread here. But then Mr. Bernanke once predicted the subprime mortgage mess would not spread, either. I swear, if he shaved off his white beard, he would not look like an economist at all.
Mr. Bernanke defended the unprecedented actions he has taken to save us from the economic calamity he helped cause. Holding interest rates at zero to prop up the stock market, and buying up Treasurys and worthless paper from banks, seems to be working for now. But what price will we pay when the next bubble pops?
Republicans gave Mr. Bernanke a pretty hard time, challenging his boast that as soon as higher inflation inevitably rears its head, he'll guillotine it with a gentle pull of his interest-rate lever.
House Budget Committee Chairman Paul Ryan (R., Wis.), deploying a common Dairy State analogy, said he didn't think the Fed would even notice inflation until "the cow is out of the barn." But it's difficult to believe Mr. Bernanke would ever let a cow out of the barn without first allowing the bankers to milk it dry.
To Mr. Bernanke's point, though, plenty of things have either fallen in price or stayed flat to keep consumer prices from spiking: furniture, appliances, electronics, automobiles and stuff you find at all those going-out-of-business sales.
"It's cheaper to buy a new home today," notes Charles Farrell, author of "Your Money Ratio: 8 Simple Tools for Financial Security" and a principal at Northstar Investment Advisors in Denver. "You could benefit from that...if you could sell your old home."
Yeah, if.
A new form of inflation is increasingly described in the blogosphere. It better explains the pricing paradox Mr. Bernanke has failed to embrace.
It's called "biflation."
Everything you already own -- a house, a car, a stock portfolio -- has rapidly declined in value. Everything you actually need to buy -- food, gasoline, medicine, education -- is going up.
Biflation is apparently what happens when the Fed creates trillions of new dollars out of nothing, but mostly just gives it to the banks.
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http://www.nationalreview.com/exchequer/262054/first-pimco-then-opec-then
First PIMCO, Then OPEC, Then . . . ?
March 13, 2011 10:03 P.M.
By Kevin D. Williamson
Tags: Anemic Fiat Dollars, Bonds, Debt, Deficits, Despair
This remind you of anything?
March 14 (Bloomberg) — Oil exporting countries are cutting holdings of U.S. government debt as energy prices rise, helping depress the dollar, the worst performing major currency of the past six months.
Treasuries owned by oil producers and institutions such as U.K. banks that are proxies for Middle East nations fell 9 percent in the second half of 2010 to $654.6 billion, the first decline in the final six months of a year since the Treasury Department began compiling the data in 2006. The sales may continue, if history is any guide, because Barclays Plc says Middle East petroleum exporting nations have traditionally placed only 25 percent of their savings in dollar-based assets.
PIMCO, OPEC: not buying what we’re selling.
And does anybody think that the No. 3 U.S. government debt buyer, Japan, is going to be in the market for a while?
Here’s a little piece of knowledge:
“I moved my clients out of any mutual funds that held Treasuries 12 to 18 months ago, including the Pimco Total Return Fund,” said Steven Tibbitts, owner of Tibbitts Financial Consulting, a $50 million advisory firm.
In place of Treasuries, he has moved clients into floating-rate-bank-loan funds and international bonds, including emerging-markets debt.
“It’s not a matter of whether rates rise, because they will, and when they do, it will be negative for longer-term bonds, especially longer-term government bonds,” Mr. Tibbitts said.
Question: Who thinks the U.S. government will still have a AAA rating in five years? Answer in the comments and tell me why/why not.
— Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, just published by Regnery. You can buy an autographed copy through National Review Online here.
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Research Reports
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Fed Pays Lip Service to Better Economy and Higher Inflation To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 3/15/2011
The Federal Reserve made several changes to the language of its statement today, acknowledging an improving economy and higher overall inflation. However, the Fed also made it clear it does not think any of this warrants a change in the stance of monetary policy.
The Fed was more bullish on the economy, saying it was on a “firmer footing” and that the labor market was “improving gradually.” Previously the Fed had said economic growth was not enough to generate “significant improvement” in the labor market. The Fed recognized faster growth in household spending and, importantly, finally omitted long-used language that household spending was being constrained by high unemployment, modest income growth, declining housing wealth and tight credit.
On inflation, the Fed noted the rapid rise in commodity prices, such as oil, and said it would pay attention to these prices. However, the Fed also said the higher inflation related to commodity prices was likely to be “transitory” and that underlying inflation is trending downward. This is even more dovish than the prior language that said underlying inflation is “subdued.” In other words, the Fed will watch commodity prices but is not going to change policy because of them. In essence, the Fed thinks it’s a spectator of, not a participant in, commodity price changes, even though it controls the supply of the currency in which these commodities are denominated.
One subtle change in the statement was that the Fed took out a reference to “slow progress” toward its objectives of maximum employment and price stability.
Otherwise, as everyone expected, the Fed made no direct changes to the stance of monetary policy today, leaving the target range for the federal funds rate at 0% to 0.25%. In addition, the Fed maintained its pledge to keep the funds rate at this level for an “extended period.” The Fed also reiterated its commitment – initially made in early November – to purchase $600 billion in long-term Treasury securities by mid-2011. These purchases are on top of reinvesting (into long-term Treasury securities) principal payments on its pre-existing portfolio of mortgage securities.
The Fed is not going to raise rates in 2011 but continued economic improvement and gradual increases in the “core” inflation measures the Fed watches should put the Fed in the position to start raising rates early next year.
Please click the link above to view the entire commentary.
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http://www.lesjones.com/2011/03/14/normal-interest-rates-would-be-a-disaster-for-u-s-debt/
Normal Interest Rates Would be a Disaster for U.S. Debt
Monday, March 14th, 2011 | Economics | ShareThis
‘The Most Predictable Economic Crisis in History’:
If fewer people are willing to lend us money, the more we’ll have to shell out in higher interest payments. And if bond buyers lose confidence in our ability to make good on that debt, things could get really ugly, really fast.
As Sen. Tom Coburn (R., Okla.), who served on the deficit commission and supported its recommendations, pointed out at a press conference this week, the United States has, historically, paid an average of 6 percent interest on its debt. It currently pays about 2 percent. If rates were to return simply to that historical average, it would involve an increase to our overall interest bill of $640 billion — to be paid immediately. “An impossible situation,” in Coburn’s words.
And that’s why the Federal Reserve is buying U.S. Treasuries. If they didn’t, the U.S. would have to pay higher interest rates on its debt, and we can’t afford to.
None of this can go on forever. The Fed can’t print money forever. The U.S. can’t borrow huge fractions of GDP forever. Austerity is coming. The only question in my mind now is whether we’ll have a currency collapse and hyperinflation first.
Previously – Bonus 2011 Deficit FAQ: Why is the Federal Reserve buying U.S. Treasuries?
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http://www.europac.net/pentonomics/tic_data_makes_you_nervous
Pentonomics - Tic Data that Makes you Nervous
March 15, 2011 - 9:24am — mpento
Tuesday, March 15, 2011
By:
Michael Pento
One has to wonder how many more blows the U.S. Treasury market can withstand. We all are aware of the inflation created by Bernanke’s Fed. And we are also painfully cognizant about the exploding burden of U.S. debt. Those two factors alone will help usher in dramatically higher interest rates in the months and years to come. But in recent days there has been even more fuel dumped upon the pyre of burning Treasuries.
China announced last month that they posted a $7.3 billion trade deficit, which was the largest in seven years. It was the fifth consecutive month that imports outpaced exports (exports gained 2.4% while imports were up 19.4%). Without having a trade surplus, China will have less money to dump into U.S. debt.
Japan is now facing a massive increase in debt accumulation in order to reconstruct their country. The rebuilding efforts will soak up all their available savings plus whole lot more. Therefore, their participation in the U.S. debt market should diminish significantly. Excluding the Fed, Japan is the second largest holder of U.S. debt outside of China.
Evidence of the waning appetite for U.S. debt came from today’s release of Treasuries International Capital Data. Global demand for U.S. stocks, bonds and other financial assets fell in January from a month earlier on declines in purchases of U.S. Treasury securities. Net buying of long-term equities, notes and bonds totaled $51.5 billion during January compared with net buying of $62.5 billion in December, according to the TICS data released today in Washington by the Treasury Department.
China saw its portfolio fall by $5.4 billion to $1.15 trillion in January. Hong Kong, which is counted separately from China, reduced its holdings to $128.1 billion from $134.2 billion. Total foreign purchases of Treasury notes and bonds were $46.5 billion in January compared with purchases of $54.6 billion in December.
Either by choice or by an alarm clock, foreigners are waking up and losing their appetite for U.S. debt. Maybe domestic investors should set their alarms too.
Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.
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That seems rather clear to me :-P :-o :cry: I fear when the reversal in low rates comes it will be far faster and more brutal than Ben "Helicopter" Bernanke, BO, et al realize.
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The Producer Price Index (PPI) increased 1.6% in February To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 3/16/2011
The Producer Price Index (PPI) increased 1.6% in February, smashing the consensus expected gain of 0.7%. Producer prices are up 5.6% versus a year ago.
The February rise in the PPI was led by food and energy prices. Food prices increased 3.9% while energy increased 3.3%. The “core” PPI, which excludes food and energy, increased 0.2%, matching consensus expectations.
Consumer goods prices rose 2.1% in February and are up 7.3% versus last year. Capital equipment prices were up 0.1% in February and are up 0.8% in the past year.
Core intermediate goods prices increased 1.1% in February and are up 5.4% versus a year ago. Core crude prices increased 2.3% in February and are up 28.4% in the past twelve months.
Implications: The inflation problem at the producer level continues to worsen. In the past year producer prices are up 5.6%, and the data clearly show accelerating inflation. Producer prices are up at a 10% annual rate in the past six months and a 13.8% rate in the past three months. Although the Federal Reserve can still claim “core” inflation is low for consumers, they can’t say the same at the producer level. While much of the gain was due to food and energy, the core PPI, which excludes food and energy, still increased 0.2% in February and is up at a 4% annual rate in the past three months. Meanwhile, further up the production pipeline, core intermediate prices increased 1.1% in February and are up at a 10.9% annual pace in the past three months; core crude prices increased 2.3% in February and are up at a staggering 47% rate in the past three months. Based on these inflation signals and the current state of the economy, the Fed’s monetary policy is completely inappropriate. In other recent inflation news, import prices increased 1.5% in February and are up 5.3% versus a year ago. This is not all due to oil. Ex-petroleum, import prices were up 1.1% in February and up 3.2% in the past year. Export prices increased 1.2% in February and are up 6.8% versus a year ago. Excluding agriculture, export prices were up 0.9% in February and 5.3% in the past year.
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Is TurboTax-Tim trying to kill off the dollar?
http://www.telegraph.co.uk/finance/economics/5050407/US-backing-for-world-currency-stuns-markets.html
US backing for world currency stuns markets
US Treasury Secretary Tim Geithner shocked global markets by revealing that Washington is "quite open" to Chinese proposals for the gradual development of a global reserve currency run by the International Monetary Fund.
By Ambrose Evans-Pritchard 6:05PM GMT 25 Mar 2009
The dollar plunged instantly against the euro, yen, and sterling as the comments flashed across trading screens. David Bloom, currency chief at HSBC, said the apparent policy shift amounts to an earthquake in geo-finance.
"The mere fact that the US Treasury Secretary is even entertaining thoughts that the dollar may cease being the anchor of the global monetary system has caused consternation," he said.
Mr Geithner later qualified his remarks, insisting that the dollar would remain the "world's dominant reserve currency ... for a long period of time" but the seeds of doubt have been sown.
The markets appear baffled by the confused statements emanating from Washington. President Barack Obama told a new conference hours earlier that there was no threat to the reserve status of the dollar.
"I don't believe that there is a need for a global currency. The reason the dollar is strong right now is because investors consider the United States the strongest economy in the world with the most stable political system in the world," he said.
Related Articles
Gold price spikes as dollar falls
25 Mar 2009
The Chinese proposal, outlined this week by central bank governor Zhou Xiaochuan, calls for a "super-sovereign reserve currency" under IMF management, turning the Fund into a sort of world central bank.
The idea is that the IMF should activate its dormant powers to issue Special Drawing Rights. These SDRs would expand their role over time, becoming a "widely-accepted means of payments".
Mr Bloom said that any switch towards use of SDRs has direct implications for the currency markets. At the moment, 65pc of the world's $6.8 trillion stash of foreign reserves is held in dollars. But the dollar makes up just 42pc of the basket weighting of SDRs. So any SDR purchase under current rules must favour the euro, yen and sterling.
NOTE: Drudge had this link in red this A.M., turns out to be from 2009, it seems.
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Why would Drudge do that?
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Drudge has it now listed as a flashback, below this article.
http://www.reuters.com/article/2011/03/16/us-usa-treasury-geithner-debt-idUSTRE72F7WQ20110316
(Reuters) - Treasury Secretary Timothy Geithner said on Wednesday that there was no alternative except for Congress to raise the debt ceiling so that the government can keep borrowing.
"Congress has to do it. There's no alternative," he said in response to questions at a House of Representatives appropriations subcommittee.
He repeated a warning that it would be have "catastrophic" consequences for the economy if the debt ceiling was not raised and the country defaulted on its debt obligations.
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Geithner: "there was no alternative except for Congress to raise the debt ceiling so that the government can keep borrowing."
The alternative for a country that knows how to take in $2.6 Trillion in revenues, would be to argue about how to spend that $2.6 Trillion - if we aren't paying back the other 14 Trillion, not argue about spending between 3.799 and 3.8 Trillion.
It used to be that markets would flinch and panic on just body language of people like a Fed chair or Treasury Secretary. Markets today seem to know about the hoax theory. The flashback shows that for people like Geithner and Joe Biden, when their lips move, meaningless words can come out. If these people have no idea what they mean by what they say, how can the markets guess.
I wrote then that countries like China, Saudi etc. do not use the US dollar as a favor to us, it is solely from the lack of a better alternative. I wonder what an IMF currency backed by Greece, Italy and a nuclear-free Germany would look like without US backing.
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Some numbers in here that disconcert: some because they are so much cheerier than my sense of reality and some because even these numbers are starting to admit a real serious problem.
The Consumer Price Index (CPI) increased 0.5% in February To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 3/17/2011
The Consumer Price Index (CPI) increased 0.5% in February, more than the consensus expected gain of 0.4%. The CPI is up 2.1% versus a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) was up 0.7% in February and is up 2.6% in the past year.
The majority of the increase in the CPI in February was due to energy, which increased 3.4%. Food prices were up 0.6%. Excluding food and energy, the “core” CPI increased 0.2%, higher than consensus expectations. Core prices are up 1.1% versus last year.
Real average hourly earnings – the cash earnings of all employees, adjusted for inflation – fell 0.5% in February and are down 0.4% in the past year. Due to an increase in work hours, real weekly earnings are up 0.2% in the past year.
Implications: Consumer price inflation is accelerating, rising 0.5% in February. Although consumer prices are up only 2.1% in the past year, they’re up at a 3.9% annual rate in the past six months and a 5.6% rate in the past three months. We like to follow “cash inflation,” which is everything in the CPI except for owners’ equivalent rent (the government’s estimate of what homeowners would pay if they rented their own homes). Cash inflation increased 0.6% in January and is up at a 7% annual rate in the past three months. :-o :-o :-o Even “core” inflation, which excludes food and energy, is accelerating. Core prices rose 0.2% for the second straight month and are up at a 1.8% annual rate in the past three months. With easy money from the Fed, we expect persistent increases in the CPI throughout 2011 and beyond. In other news this morning, new claims for unemployment insurance declined 16,000 last week to 385,000. The four-week moving average fell to 386,000, the lowest since July 2008. Continuing claims for regular benefits declined 80,000 to 3.71 million. The labor market continues to improve and private sector payrolls will continue to move higher.
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http://www.europac.net/commentaries/japanese_fallout_may_hit_treasuries
Japanese Fallout May Hit Treasuries
March 17, 2011 - 8:28am — europac admin
By:
John Browne
Thursday, March 17, 2011
Japan is facing two meltdowns in the wake of its devastating earthquake. The first, and more critical, is the meltdown at the Fukushima I Nuclear Plant, 150 miles north of Tokyo. Surely, this is the greater near-term threat. But long-term, another threat looms, having to do with the Japanese government’s response to the former.
As the fourth largest economy in the world, behind the EU, US, and China, any major setback in Japan likely will have widespread repercussions. Japan is also the third largest holder of US Treasuries, behind the United States and China. While it is too early even to assess the Japanese damage accurately – let alone to forecast the full implications – it is possible to see the potential for a meltdown of the US Treasury market and international monetary system.
Current estimates hold that the Japanese disaster has already lowered world economic growth by a full percentage point for the year.
Leaving aside massive international aid, a complete nuclear meltdown, or other escalations, Japan already will have to spend a massive amount of money to cope with the current disaster. This raises the question: from where will such an enormous amount of money come?
Japan could borrow. However, with a debt-to-GDP ratio of some 200 percent, or twice as bad as that of the United States, and with the main credit rating agencies exercising more scrutiny than before the Credit Crunch, raising funds will be difficult at an economic rate of interest. Moreover, Japan will likely be spending a large chunk of its foreign exchange reserves to buy oil to replace its lost nuclear power generating capacity – diminishing its collateral in the eyes of creditors.
Japan could follow the US example and “paper over” its problems. But without the benefits of being the international reserve currency, the Japaneses would immediately feel the effects of domestic inflation. The Bank of Japan has already pumped out ¥8 trillion ($98 billion) in the wake of the earthquake, but it is unlikely to try to match the Fed's $600 billion printing spree this quarter.
So, if Japan is limited in its ability to borrow or print money, it may have to sell part of its vast holdings of US Treasuries.
At the end of last month, the US Treasury had outstanding debt worth some $14.19 trillion. This represents 96.8 percent of the total $14.66 trillion value of business generated within the United States for the entire year of 2010. It is just short of the $14.294 trillion debt limit set in 2010 by a profligate Democrat Congress. To put it in perspective, the US government now owes $91,400 for every working American. However, this represents only some 22 percent of Washington's $62 trillion of unfunded obligations, which include Social Security, Medicare, housing, and other guarantees.
Japan is the third largest holder of US Treasuries ($877 billion), behind China ($896 billion) and the Fed ($1.108 trillion). Should Japan start selling Treasuries in large amounts to fund the repair of its economy, it could have a serious effect on US interest rates and the market value of Treasuries the world over. US bonds are widely held by central banks, international banks, and insurance companies, which already are concerned about their funding of loss claims arising from the damage in Japan.
Thus, a Japanese selloff could trigger a liquidity crisis like the one following the collapse of Lehman Bros. and AIG. Large institutions may not be willing or able to bear with US bonds through a steep correction.
Western economies are on thin ice as it is, even without a shock in their presumed “safe” asset.
Stock markets in the EU and US are weakening, destroying large amounts of private wealth and potential consumer confidence.
Further, the EU is facing the reality that the financial rescue programs it organized to save some of its members are not working. China and Japan offered to help. Now Japan may not be able to fulfill its promises. This could reignite further speculative downward pressure on the euro.
It seems that while we are all concerned about the effects of nuclear meltdown on the residents of Japan, we should also be aware that the fallout could spread further in the financial markets than it does in the atmosphere. Just as Californians are stocking up on iodide pills as a precautionary measure, investors should be stocking up on hard assets. After health, it's vital to guard your wealth – especially in emergency times like these.
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Group of 7 Plans Intervention in Currency Markets to Stabilize Yen
The United States and other major economies will join Japan
in a highly unusual effort to stabilize the value of the yen
by intervening in currency markets, the Group of 7 nations
announced Thursday night in a joint statement.
Read More:
http://www.nytimes.com?emc=na
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So, who thinks that Japan may be the final straw?
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"So, who thinks that Japan may be the final straw?"
FWIW, I do not. I think Japan will roar back stronger for this in spite of unthinkable tsunami fatalities. I don't quite see how they replace the electric power lost to reactors permanently shutdown but somehow they will. Freighters from Russia of liquid natural gas perhaps.
The damage we are doing with trillion dollar deficits I think is a slow invisible cancer, getting harder and harder to cure, but not an immediate fatal blow. Both the rise in interest rates and the rise in energy prices come from economic strength. As economic strength falters, those increases will slow and delay we sputter until we start thinking straight and decide to fix our negligently misguided policies. MHO.
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http://www.cnbc.com/id/42130406
US Cost of Living Hits Record, Passing Pre-Crisis High
Published: Thursday, 17 Mar 2011 | 4:09 PM ET
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By: John Melloy
Executive Producer, Fast Money
One would think that after the worst financial crisis since the Great Depression, Americans could at least catch a break for a while with deflationary forces keeping the cost of living relatively low. That’s not the case.
A special index created by the Labor Department to measure the actual cost of living for Americans hit a record high in February, according to data released Thursday, surpassing the old high in July 2008. The Chained Consumer Price Index, released along with the more widely-watched CPI, increased 0.5 percent to 127.4, from 126.8 in January. In July 2008, just as the housing crisis was tightening its grip, the Chained Consumer Price Index hit its previous record of 126.9.
“The Federal Reserve continues to focus on the rate of change in inflation,” said Peter Bookvar, equity strategist at Miller Tabak. “Sure, it’s moving at a slower pace, but the absolute cost of living is now back at a record high in a country that has seven million less jobs.”
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http://www.europac.net/commentaries/quake_response_puts_yen_line
Quake Response Puts Yen on the Line
March 18, 2011 - 9:53am — europac admin
By:
Peter Schiff
Friday, March 18, 2011
One of the immediate financial consequences of the catastrophic Japanese earthquake is that Japan needs to call on its huge cache of foreign exchange reserves to rebuild its shattered infrastructure. To pay for domestic projects, Japan will require yen – not dollars, euros or Swiss francs. As a result of these conversions, the yen rallied considerably after the quake struck.
But a surging yen runs counter to the macro-economic currency plans favored by most global economists. In order to maintain Japan’s position as a net-exporter of manufactured goods and net-buyer of US debt, the yen needs to stay down. So, the G-7 group of the world’s leading economies has intervened in the foreign exchange market by selling yen holdings, thereby pushing the currency down. In the short-term, their efforts appear to have been “successful,” with the yen dropping sharply today.
Theoretically, this action is being taken to preserve export earnings, but this is only a secondary effect. Primarily, in making this move, the G7 is saying that the key to rebuilding Japan’s earthquake-ravaged economy is to raise the price of everything it needs to buy.
After all, absolute purchasing power is far more important than nominal export earnings. When the yen gains in strength, Japan earns more dollars from its exports, which could now be used to purchase the raw materials necessary to rebuild its infrastructure. However, by weakening the yen, Japan earns fewer dollars for its exports, increasing the economic burden of reconstruction.
Conventional wisdom is that a weakening currency is a boon for economic growth and exports; however, history does not support this view.
For example, during the 20-year period from 1971 to 1991 – often referred to now as an economic miracle – the Japanese yen tripled in value against the dollar, an average appreciation rate of about 10% per year. This increasing purchasing power enabled the Japanese to enjoy steady economic growth and rising living standards. Over that time, the Nikkei gained 747%, Japan’s GDP grew at an average rate of 4.5%, and net exports increased fivefold. Government debt as a percentage of GDP fell slightly to about 60%.
Over the following 20 years, from 1991 – 2011, the Japanese economy has been dead in the water. Yen appreciation slowed considerably, with the currency rising by approximately 50% against the dollar, or about 2.5% per year. Meanwhile, the Nikkei fell 60%, GDP grew by less than 1% per annum, and net exports were stagnant. Government debt exploded to over 225% of GDP.
At the end of the first period, Japan was the world's largest creditor state and was widely forecast to dominate the global economy for the following century. Now, the country is a troubled backwater among developed economies, which is being eclipsed by its neighbors across the Pacific Rim.
The real problem for Japan is that in the aftermath of the bursting of the stock and real estate bubbles, the Japanese government refused to allow market forces to repair the damage. Instead, it based its foolish approach on restricting the rise in its currency to maintain exports to the United States. In this cart-before-the-horse worldview, Japan assumed its economic growth was a function of its exports. In reality, exports flow from economic growth.
So, in order to engineer an export-led recovery, Japan embarked on an era of central government planning, Keynesian style pump-priming, and nearly endless quantitative easing. The result was disaster. The only bright spot was that the underlying strength of the Japanese economy kept a lid on consumer prices despite all the inflation deliberately created by the Bank of Japan. So even while good jobs have become harder to find, ordinary consumers have had the benefit of falling prices. It is ironic that Japan’s "deflation" is cited as the primary cause of its malaise. If Japan’s economy had been less efficient, its 20-year malaise would have been accompanied by increasing consumer prices, a.k.a. stagflation. This would have caused much more suffering to the Japanese people.
Still, as a result of its enormous economic policy errors, much of Japan’s efforts over the past 20 years have benefitted Americans rather than its own citizens. A tremendous share of their purchasing power was transferred across the Pacific, helping to inflate a bubble economy in the United States. Of course, as the Japanese economy struggled beneath the weight of this massive American subsidy, it gradually passed the baton to China, which for the same foolish reasons was happy to run with it.
The unfortunate reality is that the Japanese government is doing more economic damage to Japan than the earthquake and tsunami did. This new round of inflation will overwhelm the ability of the Japanese economy to offset upward pressure on consumer prices. Combine that with the lost output associated with the quake and the expense of reconstruction, and it becomes evident that inflation will soon become a major threat to Japan. As this realization forces interest rates higher, the cost to Japan of servicing its massive government debt will be crushing.
There is still time for Japan to rethink its self-destructive monetary policy, let its currency rise, and allow its economy to recover. If they do, the US will experience its own disaster as the dollar tanks.
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http://blogs.reuters.com/columns/2011/03/15/japan-reminds-strapped-officials-they-need-buffer/
Japan reminds strapped officials they need buffer
Mar 15, 2011 16:33 EDT
By James Pethokoukis
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
WASHINGTON — When your credit card is nearly maxed out, dealing with emergencies can be tricky. A massive rebuilding effort may stretch Japan to its financial limits. Politicians in Washington and other overspending capitals should take note of the warning.
Trying to calculate a country’s available “fiscal space” — the additional amount they can borrow before markets demand a sharply higher premium — is guesswork. The global financial crisis took the public debt of advanced economies to 75 percent of GDP in 2009 from 60 percent in late 2007. And by 2015, the International Monetary Fund reckons, the average ratio may hit 85 percent. That’s perilously close to the 90 percent level where debt seems to really hamper growth, according to economists
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Three Flawed Fed Exit Options
Mises Daily: Monday, March 14, 2011 by Robert P. Murphy
Whether giving public lectures or teaching at theMises Academy, I'm often asked whether Bernanke will be able to "pull this off." Specifically, can the Fed gracefully exit from the huge hole it has dug for itself?
Unfortunately my answer is no. In the present article I'll go over three possible exit options, and explain the flaws in each.
The Problem
Before assessing the chances of escape, let's first review what the problem is:
The monetary base
The monetary base (see here for a breakdown of the various monetary aggregates) has exploded since the onset of the financial crisis in late 2008. After a huge initial spurt, the base shot up twice more, in response to the first and second rounds of "quantitative easing."
To get a sense of just how unprecedented and enormous Bernanke's injections have been, look at the relatively insignificant blip back at the start of 2000. To calm the markets heading into the Y2K changeover, Greenspan preemptively flooded the system with liquidity. At the time, many Fed watchers blamed that spike and fall for exacerbating the bubble in the NASDAQ. But in comparison with Bernanke's moves, we can barely find Greenspan's Y2K fiddling on the chart.
Austrian economists know that the Fed's creation of new money can distort markets by pushing interest rates below their natural market level. This is a subtle point that most commentators ignore. Instead, the thing that has more and more people worrying at night is the potential for runaway price inflation.
Specifically, there are currently about $1.2 trillion in "excess reserves" in the banking system. Loosely speaking, the banks have this much money on deposit with the Fed, above and beyond their reserve requirements (needed to "back up" their existing customer checking account balances and the like), and they are free to lend it out to their own customers.
Because of the fractional-reserve banking system, the $1.2 trillion in excess reserves could ultimately translate into almost $11 trillion in new money created by the banks, as they pyramid new loans on top of the base money Bernanke has injected. The M1 measure of the money stock is currently $1.9 trillion, meaning that even if the Fed stopped inflating tomorrow, the banking system would have the potential to increase the money stock by a factor of six. Even if the demand for dollars remained constant in such an environment (which it wouldn't), that could mean oil prices above $600 a barrel.
So far, we haven't seen such massive price inflation, because the banks are reluctant to advance new loans. But at some point — because their balance sheets have sufficiently healed, or because creditworthy borrowers begin offering higher interest rates — the commercial banks will begin taking their excess reserves (currently parked at the Fed) and making new loans to their customers. At that point, the Fed will need to act quickly to prevent a self-perpetuating spiral into price inflation.
Publicly, Bernanke and other Fed officials are confident that they will be able to take the punch bowl away before the guests become too intoxicated. But their rosy predictions simply assume that severe stagflation is not possible. We'll go through three possible options for dealing with the above problem, and show the flaws in each.
Option #1: Pay Higher Interest Rates on Excess Reserves
The option that Bernanke himself frequently mentions is the Fed's ability to offer higher interest rates on excess reserves. Currently, if a commercial bank keeps its excess reserves parked at the Fed, the balance grows at an annual percentage rate (APR) of 0.25 percent, or what is called 25 "basis points."
Now suppose (either because of rising price inflation or because of a healthy recovery) that theprime rate — what commercial banks charge their best clients — rises from its current level (3.25 percent) to, say, 10 percent. (This isn't farfetched; the prime rate was higher than 10 percent in the late 1980s.)
Faced with earning a completely safe 0.25 percent by keeping their money parked at the Fed, versus earning a very (but not perfectly) safe 10 percent by lending to their most stable customers, many banks would begin drawing down their excess reserves, thus starting the inflationary spiral. To check this, the Fed could also bump up the yield it pays, to (say) 7.25 percent. By maintaining the spread between the two rates, the Fed could bribe the bankers to keep their money locked up at the Fed.
For one thing, it's important to note that Bernanke, Geithner, and other officials are trying to have it both ways with the public. On the one hand, they pat themselves on the back for saving the financial system and ensuring the smooth functioning of the credit markets so that businesses can continue to make their payroll and so forth. Yet on the other hand, Bernanke implicitly admits that right now banks are not making loans with the more than $1 trillion he's injected into the system, and that if they started to lend out that money, he would offer them even more to stop.
"Taxpayers would ultimately be the ones paying bankers to not give them loans."In any event, Bernanke's favored "tool" of raising the interest rate on excess reserves is the epitome of kicking the can down the road. In the beginning, the higher payments would simply reduce the Fed's net earnings, meaning that it would remit less money to the Treasury. Thus, the federal deficit would grow larger, meaning that taxpayers would ultimately be the ones paying bankers to not give them loans.
But at some point, if the process continued, the Fed would have exhausted its income from other sources. For example, on a balance of $1.2 trillion, if the Fed had to pay 7.5 percent interest, that would translate into $90 billion in annual payments to the banks. (The Fed earned about $81 billion in net income in 2010, of which it remitted $78 billion to the Treasury.)
To be sure, nothing would stop Bernanke from making such payments. He isn't constrained by income statements; Bernanke laughs at the shackles holding back lesser men. He could simply bump up the numbers in the Fed's computers in order to reflect the growing reserves balances of the commercial banks if they kept their funds with the Fed.
But this would hardly "solve" the problem of excess reserves. Rather than facing a $1.2 trillion problem, the next year the Fed would face a $1.21 trillion problem, and so on. The excess reserves would grow exponentially.
Option #2: Pull Reserves Out of the System
The most obvious solution to the problem would be to reverse the operations that got us into the mess. Specifically, the Fed could stop reinvesting the proceeds of its current asset holdings, so that its balance sheet would gradually shrink as its existing Treasury bonds and mortgage-backed securities matured.[1] If more drastic action were needed, the Fed could begin selling off its assets before maturity. When private-sector institutions wrote checks to purchase them, those reserves would disappear from the system.
Although this approach would work — and it is ultimately what I would recommend as part of the solution, in addition to pegging the dollar back to gold — it would not be painless. Many analysts talk as if the Fed's bloated balance sheet will "naturally unwind," as the economy grows out of the current slump.
But if the Austrian critique of Bernanke is correct, he has not built a solid foundation for recovery. Instead, he has merely pushed back the day of reckoning a few years, in the same way that Alan Greenspan staved off the dot-com crash only to serve up the housing crash.
What happens if producer prices continue rising, squeezing retailers so that eventually even consumer prices begin rising at, say, 8 percent annualized rates? And what if the real-estate market is still a mess, and unemployment is still 9 percent at that point? As yields rise in response to the price inflation, commercial banks won't be content to sit on cash. They will need to "put it to work" to keep up with the declining value of the dollar.
In that environment, if Bernanke started selling off hundreds of billions worth of Fed assets (consisting of Treasury debt, Freddie and Fannie debt, and mortgage-backed securities), it would cause a sharp spike in interest rates, and would devastate the real-estate and financial sectors. Just as Bernanke's original interventions obviously helped the major players in these fields, the reverse of those interventions would obviously hurt them. The enormous federal deficit would no longer seem so innocuous once interest rates on even short-term Treasuries began rising.
In short, shrinking the Fed's balance sheet — and thereby destroying the excess reserves just as magically as Bernanke's purchases originally created them — could "work," but in particular (plausible) scenarios it would plunge the United States back into depression. Bernanke and other optimists have not explained why these scenarios won't occur, besides the obviously false assertion that we can't have rising prices with high unemployment.
To add yet another twist, we should point out that if the price inflation or the financial crashes (or both) were severe enough, the Fed's assets might drop significantly before Bernanke could sell them back to the market. In that case, even if he wanted to, Bernanke couldn't suck out all of the $1.2 trillion in excess reserves, because he would be selling the assets for less than he originally paid to acquire them.
Option #3: Increase Reserve Requirements
Hard-money enthusiasts occasionally ask me, "Couldn't Bernanke just increase the reserve requirements?" For example, what if Bernanke ended the fractional-reserve system, and insisted that commercial banks have $100 set aside in reserves (either as cash in their vaults or as electronic deposits with the Fed) for every $100 in customer deposits?
Like the previous solution, this one too would "work" but it would devastate the financial sector even more. From the commercial banks' viewpoint, such a policy move would effectively steal $1.2 trillion in cash from them.
To see why, consider an analogy: Suppose Bill Smith has a salary of $100,00 per year. Now Smith is a very cautious man, who has carefully saved up $100,000 in his checking account. Smith is very paranoid and doesn't even trust money-market mutual funds; no, he wants his money "in the bank," in an FDIC-insured account.
But now President Obama comes along, and says that Americans ought to be saving more. To encourage this, Obama says that every adult must carry a checking account balance equal to his or her annual income. If anyone lets his checking account balance fall below that amount, he gets fined $10,000 per day.
In such a (ridiculous) scenario, it's obvious that our poor Bill Smith would be devastated. His stockpile of $100,000 — which the day before was a wonderful emergency fund that could weather all sorts of storms — would now be useless, except as a way to fend off huge fines from the government. It would no longer be savings at all. Smith would have to start from scratch, and begin building up savings of $200,000 to get back to his previous level of security.
A similar analysis holds for the commercial banks. Even though many commentators talk as if the $1.2 trillion in excess reserves aren't "real money," because they aren't "in the economy," this isn't accurate. Just ask the bankers if they consider those funds to be real money.
If the Fed were to raise reserve requirements, the money that commercial bankers currently view as a hoard of cash would lose its economic significance. It would be equivalent to the Fed simply seizing the funds. This is why raising the reserve requirements would devastate the banks even more than selling off assets: At least if the Fed destroys reserves by selling assets, the commercial banks voluntarily make the trade, and end up with something valuable.
Conclusion
No one knows the future; I am not certain how things will play out. What alarms me more than the basic facts, however, is that the people telling us we have nothing to worry about typically don't even look two steps ahead in their analysis. Bernanke has effectively gone "all in" with his successive rounds of quantitative easing, and I get the queasy feeling that he's bluffing.
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http://www.cnbc.com/id/42209447
US Approaching Insolvency, Fix To Be 'Painful': Fisher
Published: Tuesday, 22 Mar 2011 | 10:10 AM ET
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By: Reuters
The United States is on a fiscal path towards insolvency and policymakers are at a "tipping point," a Federal Reserve official said on Tuesday.
"If we continue down on the path on which the fiscal authorities put us, we will become insolvent, the question is when," Dallas Federal Reserve Bank President Richard Fisher said in a question and answer session after delivering a speech at the University of Frankfurt.
"The short-term negotiations are very important, I look at this as a tipping point."
But he added he was confident in the Americans' ability to take the right decisions and said the country would avoid insolvency.
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Not so much, anymore.
http://www.washingtonpost.com/business/economy/us-dollar-usually-worlds-safe-haven-declining-despite-plenty-of-global-turmoil/2011/03/24/ABlrFiRB_story.html
U.S. dollar, usually world’s safe haven, declining despite plenty of global turmoil
Neil Irwin, Thursday, March 24, 8:53 PM
When the world is in turmoil, investors have usually had one automatic response: Put money into dollars, viewed as the global safe harbor.
But that’s not happening in this tumultuous year. Even with the Middle East in conflict, Japan in disarray after a series of disasters and Europe facing a debt crisis, the dollar has been gradually falling in value against other major currencies. Having fallen relative to the euro, pound and yen in recent months, the dollar is down 7 percent against a basket of six major currencies since Jan. 7 and 14 percent since June.
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Not so much, anymore.
http://www.bloomberg.com/news/2011-03-25/buffett-says-avoid-long-term-bonds-tied-to-eroding-dollar-value.html
Warren Buffett, the billionaire who urged Congress in 2009 to guard against inflation, said investors should avoid long-term fixed-income bets in U.S. dollars because the currency’s purchasing power will decline.
“I would recommend against buying long-term fixed-dollar investments,” Buffett, chairman and chief executive officer of Berkshire Hathaway Inc. (BRK/A), said today in New Delhi. “If you ask me if the U.S. dollar is going to hold its purchasing power fully at the level of 2011, 5 years, 10 years or 20 years from now, I would tell you it will not.”
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12 Warning Signs of U.S. Hyperinflation
One of the most frequently asked questions we receive at the National Inflation Association (NIA) is what warning signs will there be when hyperinflation is imminent. In our opinion, the majority of the warning signs that hyperinflation is imminent are already here today, but most Americans are failing to properly recognize them. NIA believes that there is a serious risk of hyperinflation breaking out as soon as the second half of this calendar year and that hyperinflation is almost guaranteed to occur by the end of this decade.
In our estimation, the most likely time frame for a full-fledged outbreak of hyperinflation is between the years 2013 and 2015. Americans who wait until 2013 to prepare, will most likely see the majority of their purchasing power wiped out. It is essential that all Americans begin preparing for hyperinflation immediately.
Here are NIA's top 12 warning signs that hyperinflation is about to occur:
1) The Federal Reserve is Buying 70% of U.S. Treasuries. The Federal Reserve has been buying 70% of all new U.S. treasury debt. Up until this year, the U.S. has been successful at exporting most of its inflation to the rest of the world, which is hoarding huge amounts of U.S. dollar reserves due to the U.S. dollar's status as the world's reserve currency. In recent months, foreign central bank purchases of U.S. treasuries have declined from 50% down to 30%, and Federal Reserve purchases have increased from 10% up to 70%. This means U.S. government deficit spending is now directly leading to U.S. inflation that will destroy the standard of living for all Americans.
2) The Private Sector Has Stopped Purchasing U.S. Treasuries. The U.S. private sector was previously a buyer of 30% of U.S. government bonds sold. Today, the U.S. private sector has stopped buying U.S. treasuries and is dumping government debt. The Pimco Total Return Fund was recently the single largest private sector owner of U.S. government bonds, but has just reduced its U.S. treasury holdings down to zero. Although during the financial panic of 2008, investors purchased government bonds as a safe haven, during all future panics we believe precious metals will be the new safe haven.
3) China Moving Away from U.S. Dollar as Reserve Currency. The U.S. dollar became the world's reserve currency because it was backed by gold and the U.S. had the world's largest manufacturing base. Today, the U.S. dollar is no longer backed by gold and China has the world's largest manufacturing base. There is no reason for the world to continue to transact products and commodities in U.S. dollars, when most of everything the world consumes is now produced in China. China has been taking steps to position the yuan to be the world's new reserve currency.
The People's Bank of China stated earlier this month, in a story that went largely unreported by the mainstream media, that it would respond to overseas demand for the yuan to be used as a reserve currency and allow the yuan to flow back into China more easily. China hopes to allow all exporters and importers to settle their cross border transactions in yuan by the end of 2011, as part of their plan to increase the yuan's international role. NIA believes if China really wants to become the world's next superpower and see to it that the U.S. simultaneously becomes the world's next Zimbabwe, all China needs to do is use their $1.15 trillion in U.S. dollar reserves to accumulate gold and use that gold to back the yuan.
4) Japan to Begin Dumping U.S. Treasuries. Japan is the second largest holder of U.S. treasury securities with $885.9 billion in U.S. dollar reserves. Although China has reduced their U.S. treasury holdings for three straight months, Japan has increased their U.S. treasury holdings seven months in a row. Japan is the country that has been the most consistent at buying our debt for the past year, but that is about the change. Japan is likely going to have to spend $300 billion over the next year to rebuild parts of their country that were destroyed by the recent earthquake, tsunami, and nuclear disaster, and NIA believes their U.S. dollar reserves will be the most likely source of this funding. This will come at the worst possible time for the U.S., which needs Japan to increase their purchases of U.S. treasuries in order to fund our record budget deficits.
5) The Fed Funds Rate Remains Near Zero. The Federal Reserve has held the Fed Funds Rate at 0.00-0.25% since December 16th, 2008, a period of over 27 months. This is unprecedented and NIA believes the world is now flooded with excess liquidity of U.S. dollars.
When the nuclear reactors in Japan began overheating two weeks ago after their cooling systems failed due to a lack of electricity, TEPCO was forced to open relief valves to release radioactive steam into the air in order to avoid an explosion. The U.S. stock market is currently acting as a relief valve for all of the excess liquidity of U.S. dollars. The U.S. economy for all intents and purposes should currently be in a massive and extremely steep recession, but because of the Fed's money printing, stock prices are rising because people don't know what else to do with their dollars.
NIA believes gold, and especially silver, are much better hedges against inflation than U.S. equities, which is why for the past couple of years we have been predicting large declines in both the Dow/Gold and Gold/Silver ratios. These two ratios have been in free fall exactly like NIA projected.
The Dow/Gold ratio is the single most important chart all investors need to closely follow, but way too few actually do. The Dow Jones Industrial Average (DJIA) itself is meaningless because it averages together the dollar based movements of 30 U.S. stocks. With just the DJIA, it is impossible to determine whether stocks are rising due to improving fundamentals and real growing investor demand, or if prices are rising simply because the money supply is expanding.
The Dow/Gold ratio illustrates the cyclical nature of the battle between paper assets like stocks and real hard assets like gold. The Dow/Gold ratio trends upward when an economy sees real economic growth and begins to trend downward when the growth phase ends and everybody becomes concerned about preserving wealth. With interest rates at 0%, the U.S. economy is on life support and wealth preservation is the focus of most investors. NIA believes the Dow/Gold ratio will decline to 1 before the hyperinflationary crisis is over and until the Dow/Gold ratio does decline to 1, investors should keep buying precious metals.
6) Year-Over-Year CPI Growth Has Increased 92% in Three Months. In November of 2010, the Bureau of Labor and Statistics (BLS)'s consumer price index (CPI) grew by 1.1% over November of 2009. In February of 2011, the BLS's CPI grew by 2.11% over February of 2010, above the Fed's informal inflation target of 1.5% to 2%. An increase in year-over-year CPI growth from 1.1% in November of last year to 2.11% in February of this year means that the CPI's growth rate increased by approximately 92% over a period of just three months. Imagine if the year-over-year CPI growth rate continues to increase by 92% every three months. In 9 to 12 months from now we could be looking at a price inflation rate of over 15%. Even if the BLS manages to artificially hold the CPI down around 5% or 6%, NIA believes the real rate of price inflation will still rise into the double-digits within the next year.
7) Mainstream Media Denying Fed's Target Passed. You would think that year-over-year CPI growth rising from 1.1% to 2.11% over a period of three months for an increase of 92% would generate a lot of media attention, especially considering that it has now surpassed the Fed's informal inflation target of 1.5% to 2%. Instead of acknowledging that inflation is beginning to spiral out of control and encouraging Americans to prepare for hyperinflation like NIA has been doing for years, the media decided to conveniently change the way it defines the Fed's informal target.
The media is now claiming that the Fed's informal inflation target of 1.5% to 2% is based off of year-over-year changes in the BLS's core-CPI figures. Core-CPI, as most of you already know, is a meaningless number that excludes food and energy prices. Its sole purpose is to be used to mislead the public in situations like this. We guarantee that if core-CPI had just surpassed 2% and the normal CPI was still below 2%, the media would be focusing on the normal CPI number, claiming that it remains below the Fed's target and therefore inflation is low and not a problem.
The fact of the matter is, food and energy are the two most important things Americans need to live and survive. If the BLS was going to exclude something from the CPI, you would think they would exclude goods that Americans don't consume on a daily basis. The BLS claims food and energy prices are excluded because they are most volatile. However, by excluding food and energy, core-CPI numbers are primarily driven by rents. Considering that we just came out of the largest Real Estate bubble in world history, there is a glut of homes available to rent on the market. NIA has been saying for years that being a landlord will be the worst business to be in during hyperinflation, because it will be impossible for landlords to increase rents at the same rate as overall price inflation. Food and energy prices will always increase at a much faster rate than rents.
8) Record U.S. Budget Deficit in February of $222.5 Billion. The U.S. government just reported a record budget deficit for the month of February of $222.5 billion. February's budget deficit was more than the entire fiscal year of 2007. In fact, February's deficit on an annualized basis was $2.67 trillion. NIA believes this is just a preview of future annual budget deficits, and we will see annual budget deficits surpass $2.67 trillion within the next several years.
9) High Budget Deficit as Percentage of Expenditures. The projected U.S. budget deficit for fiscal year 2011 of $1.645 trillion is 43% of total projected government expenditures in 2011 of $3.819 trillion. That is almost exactly the same level of Brazil's budget deficit as a percentage of expenditures right before they experienced hyperinflation in 1993 and it is higher than Bolivia's budget deficit as a percentage of expenditures right before they experienced hyperinflation in 1985. The only way a country can survive with such a large deficit as a percentage of expenditures and not have hyperinflation, is if foreigners are lending enough money to pay for the bulk of their deficit spending. Hyperinflation broke out in Brazil and Bolivia when foreigners stopped lending and central banks began monetizing the bulk of their deficit spending, and that is exactly what is taking place today in the U.S.
10) Obama Lies About Foreign Policy. President Obama campaigned as an anti-war President who would get our troops out of Iraq. NIA believes that many Libertarian voters actually voted for Obama in 2008 over John McCain because they felt Obama was more likely to end our wars that are adding greatly to our budget deficits and making the U.S. a lot less safe as a result. Obama may have reduced troop levels in Iraq, but he increased troops levels in Afghanistan, and is now sending troops into Libya for no reason.
The U.S. is now beginning to occupy Libya, when Libya didn't do anything to the U.S. and they are no threat to the U.S. Obama has increased our overall overseas troop levels since becoming President and the U.S. is now spending $1 trillion annually on military expenses, which includes the costs to maintain over 700 military bases in 135 countries around the world. There is no way that we can continue on with our overseas military presence without seeing hyperinflation.
11) Obama Changes Definition of Balanced Budget. In the White House's budget projections for the next 10 years, they don't project that the U.S. will ever come close to achieving a real balanced budget. In fact, after projecting declining budget deficits up until the year 2015 (NIA believes we are unlikely to see any major dip in our budget deficits due to rising interest payments on our national debt), the White House projects our budget deficits to begin increasing again up until the year 2021. Obama recently signed an executive order to create the "National Commission on Fiscal Responsibility and Reform", with a mission to "propose recommendations designed to balance the budget, excluding interest payments on the debt, by 2015". Obama is redefining a balanced budget to exclude interest payments on our national debt, because he knows interest payments are about to explode and it will be impossible to truly balance the budget.
12) U.S. Faces Largest Ever Interest Payment Increases. With U.S. inflation beginning to spiral out of control, NIA believes it is 100% guaranteed that we will soon see a large spike in long-term bond yields. Not only that, but within the next couple of years, NIA believes the Federal Reserve will be forced to raise the Fed Funds Rate in a last-ditch effort to prevent hyperinflation. When both short and long-term interest rates start to rise, so will the interest payments on our national debt. With the public portion of our national debt now exceeding $10 trillion, we could see interest payments on our debt reach $500 billion within the next year or two, and over $1 trillion somewhere around mid-decade. When interest payments reach $1 trillion, they will likely be around 30% to 40% of government tax receipts, up from interest payments being only 9% of tax receipts today. No country has ever seen interest payments on their debt reach 40% of tax receipts without hyperinflation occurring in the years to come.
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"National Inflation Association (NIA)..." - I see they now have over 300 million members. (attempt at gallows humor)
"The Federal Reserve is Buying 70% of U.S. Treasuries." - That says it all. No one is buying our debt. It isn't future inflation or potential inflation, it is inflation by definition.
"...because of the Fed's money printing, stock prices are rising because people don't know what else to do with their dollars" - Translated, if and when easy money ends, stock prices will collapse.
"The Dow Jones Industrial Average (DJIA) itself is meaningless because it averages together the dollar based movements of 30 U.S. stocks." - Maybe they read the forum, I described it as more and more dollars chasing fewer and fewer companies'.
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"NIA has been saying for years that being a landlord will be the worst business to be in during hyperinflation, because it will be impossible for landlords to increase rents at the same rate as overall price inflation. Food and energy prices will always increase at a much faster rate than rents."
- How does one quit that job? :-( Actually the rent increases mostly need to pay for property taxes which (for me) are more than food, shelter, clothing and energy costs combined. These years of no home building have actually been good for landlording. Foreclosed homes have a huge delay back to market, many never make it, while the foreclosed person needs housing immediately. The rental business is highly regulated, code compliance, rental licenses, asbestos, lead paint, mold issues, city orders, tight money for repairs/improvements, licensed contractor requirements, changing laws, etc. Neither the foreclosed owner nor the bank is up on the roof or checking the foundation during the last year before possession reverts worrying about water damage for example. It was actually the boom years while everyone was buying and building that was worst time to landlords, the best renters (and a lot of mediocre ones) left the rental pool. What housing needs simply is a better economy for income and employment, which necessarily includes a smaller government burden, rightsized regulations, and a stable dollar.
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"What housing needs simply is a better economy for income and employment, which necessarily includes a smaller government burden, rightsized regulations, and a stable dollar."
Crazy talk!
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Running for the Exits
Hedge funds are dumping Treasury bonds. Do they know something?
The wisest and most successful bond investor of all time, Bill Gross, has dumped his bond fund’s $150 billion investment in U.S. bonds. One should not ignore the importance of this event. The largest bond fund in America no longer believes that Treasury bonds are a good investment. Moreover, Gross is not alone. Blackrock, the world’s largest money manager, is now underweighting Treasuries overall and reducing the duration of the bonds it still holds. That means they are dumping their long-term bonds, which are the most sensitive to interest-rate changes, in favor of Treasury instruments that mature in a year or less. Other bond funds, such as the $20 billion Loomis Sayles funds, are also forgoing Treasuries in favor of high-yield corporate bonds. Virtually everywhere you look, from great investors such as Warren Buffett to insurance companies such as Allstate, everyone is dumping their long-term U.S. debt and either buying debt that matures in less than a year or moving their money elsewhere.
So who is still buying U.S. debt? According to Bill Gross, the “old reliables” — China, Japan, and OPEC — are still in the market for 30 percent of all new debt. The rest, however, is being purchased by the Federal Reserve. There is no one in else in the market. For the first time ever, Americans are refusing to purchase their own country’s debt.
Gross estimates that the “old reliables” are still good for $500 billion a year in purchases, and will be for some time in the future. This is pretty much the amount they’ve had to buy in the past to rebalance capital flows distorted by the U.S. trade deficit. Gross, however, may be wrong this time. Japan, needing to finance its reconstruction, is much likelier to be a net seller of U.S. debt, while China’s economy is slowing and actually ran a trade deficit in the last quarter. That leaves only one buyer of consequence — the Federal Reserve.
Researchers at Gross’s firm, PIMCO, estimate that in the last quarter, the Fed purchased 70 percent of all new Treasury debt. This is a disaster in the making. By printing new money to buy debt, the Fed is both holding interest rates artificially low and flooding the world with dollars. Fed purchases have lowered rates to the point where there was no room for further decreases. With no more upside potential to holding debt, investors are fleeing on the assumption that the Fed will soon exit the market, causing rates to rise dramatically. Such a rate rise lowers the value of all current U.S. debt: Who will pay $1,000 for a bond paying 3 percent when she can get one paying 5 percent? Anyone who wants to sell a $1,000 bond they already own is therefore forced to lower the price if they wish to attract buyers. No one holding any of the almost $10 trillion in U.S. public debt is getting much sleep these days.
(http://global.nationalreview.com/dest/2011/03/21/budget_graph.jpg)
When the Fed’s $600 billion QE2 buying spree ends, there will not be enough buyers left to purchase the $1.4 trillion in debt the administration has built into this year’s budget, at least not at current interest rates. Gross believes interest rates have to rise approximately 1.5 percent (150 basis points) to attract sufficient buyers. This may be optimistic.
The Fed is not only looking to stop buying new debt, it also wants to get rid of the nearly $1.3 trillion currently on its balance sheet. Absorbing $1.4 trillion in new debt, rolling over maturing debt, and simultaneously purchasing debt the Fed bought during its quantitative-easing forays is a lot to ask of the market.
Moreover, there is a real risk that bondholders who see the value of their assets fall will stampede for the doors. There are already signs that the smart money is looking for just such an event. Short sellers — those betting on a bond sell-off — pumped over three-quarters of a billion dollars into short positions in just the last quarter. This compares with a negative flow of short funds in the same period last year. If the short sellers are right, and there is a stampede, all bets are off. The bond-market bubble that the Fed’s purchases created will explode, likely setting off a renewed financial crisis.
Come June, the Fed will be in a bind of its own making. If it stops pumping money into the system, interest rates will increase, and not just on Treasury bonds. Mortgage rates will rise and business credit will become more costly. The recovery could be strangled in its infancy. If it keeps on buying bonds, however, it risks never being able to wean the markets off the equivalent of monetary crack. Worse, the flood of dollars will continue to drive down the value of the dollar, raise commodity prices, and propel global inflation.
There are already signs that inflation, while still subdued in the United States, is looking to break out. It has begun wrecking havoc through many areas of the globe, for example providing the catalyst for much of the upheaval in the Middle East. And when it strikes here, the Fed will be out of options. It will have to turn off the money pumps, raise interest rates, and batten down the financial hatches. The resulting recession will be long and nasty.
It is time to face facts. Spending is so out of control that Treasuries are no longer a safe haven for investors. The markets are saturated with U.S. debt and increasingly unwilling to absorb more. There is only one way out of this mess — cut spending, fast and deep.
Given that the Congressional Budget Office last week stated that the administration’s budget would raise the debt by $2.3 trillion more than the White House Budget Office claims, these cuts are going to hurt. They will probably hurt a lot. That is the cost of fending off a true catastrophe.
— Jim Lacey is the professor of strategic studies at the Marine Corps War College and the author of the forthcoming book The First Clash. The views in this article are the author’s own and do not in any way represent the views or positions of the Department of Defense or any of its members.
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I can say I'm very doubtful that the pols/public is willing to seriously address this until the system actually collapses.
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"...in the last quarter, the Fed purchased 70 percent of all new Treasury debt. This is a disaster in the making. "...
"When the Fed’s $600 billion QE2 buying spree ends, there will not be enough buyers left..."
Here we go again. Temporary programs. Cash for Clunkers, foreclosure moratoriums, Stimulus 1, Stimulus 2, QE1, QE2... What do we think will happen at the end of these programs? The band aid fell off. Nothing healed. The natural consequence should be that when there is no one left to buy the debt, any rational economic player would STOP BORROWING.
You would think we were arguing over $10,000, or a million or a billion by the way most of the people and most of the elected officials seem oblivious. We are talking about over a trillion a year going into the tens of trillions in accumulation. Complete insanity. Even if it was lowering unemployment, it is complete insanity, but it has done no measurable good while setting up inevitable, catastrophic harm.
I actually think instant inflation (QE1, QE2, print money) is better than the lingering kind with more and more borrowing (like comparing the guillotine to a hanging). If we are no longer borrowing 70% of our excess spending, we at least don't accrue real interest on that portion. If we are just cheapening our dollar, we might as well know it as soon as possible.
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Not well, methinks.
http://www.reuters.com/article/2011/03/31/ecb-fed-rates-idUSLDE72S1AE20110331
* ECB hiking before Fed would be new in a tightening cycle
* Shows Asia's increased influence on euro zone
* Fed likely to narrow rate gap with ECB later
By Paul Carrel
FRANKFURT, March 31 (Reuters) - After following the Federal Reserve's lead for over a decade, the European Central Bank is poised to launch a series of interest rate hikes before the U.S. central bank for the first time in the ECB's history.
The change from the traditional pattern reflects the ECB's greater preoccupation with inflation pressures, as well as its higher level of discomfort with the emergency bond-buying programmes run by central banks.
But the "decoupling" of ECB and Fed policies is also the result of an historic shift in the global economy: the increased influence that Asia, rather than the United States, is having on the euro zone's economy.
"I think we are in a new world where global interest rate cycles are not initiated by the Fed," said Jens Sondergaard, senior European economist at Nomura.
"There has been a lot of import price inflation pushing up euro area inflation...and a lot of this is related to above-trend growth in Asia."
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http://www.cnbc.com/id/42363054
Inflation Getting Stronger than a 'Whiff'
Published: Thursday, 31 Mar 2011 | 3:48 PM ET Text Size By: Patti Domm
CNBC Executive News Editor
There's more than just a whiff of inflation in the air, especially if you're standing outside a Hershey chocolate factory or shopping in a Walmart.
Hershey [HSY 54.305 -0.045 (-0.08%) ] Wednesday announced a nearly 10 percent price increase across its line of candy products to cover rising raw material costs, fuel and transportation.
CNBC.com
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Those rising costs are impacting many other manufacturers that rely on everything from diesel fuel to corn to cotton to copper and of course, cocoa.
It will also be true if you are shopping in Walmart, or anywhere else. Wal-Mart Stores [WMT 52.23 0.18 (+0.35%) ] CEO Bill Simon told USA Today this week that inflation "is going to be serious" and price rises are already showing up in dairy and cotton products and more are coming in transportation-related products.
Moody's Economy.com economist Mark Zandi said the idea that inflation is picking up may be actually more of a reality than economists are currently forecasting. He said he attended a meeting with consumer products companies officials this week, and he heard plenty.
"They were all on the verge of jacking up their prices," he said. Price increases are not always seen as bad though. When companies have pricing power, it often means there is some traction in the economy, but it's a fine balance.
The threat of inflation is even more worrisome now that oil has crossed above $105 per barrel and looks set to stay high due to unrest in the Middle East. Some commodities have also seen shortages for other reasons and that has combined to drive prices. For instance, cocoa, trading lower Thursday, has been driven higher by civil war in Ivory Coast.
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So what happens to our nat'l debt when the rates go up?
http://www.cnbc.com/id/42363070
Fed Is Likely to Raise Rates By End of the Year: Lacker
Published: Friday, 1 Apr 2011 | 10:46 AM ET Text Size By: CNBC.com and Reuters
Richmond Federal Reserve President Jeffrey Lacker told CNBC Friday that he "wouldn't be surprised" if the central bank raised interest rates before the end of the year.
Source: Richmondfed.org
Jeffrey Lacker
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In an interview at a banking meeting hosted by the Richmond Fed, Lacker also said ending the Fed's bond-buying stimulus program also "deserves consideration."
He gave no timetable for the rate hikes and other actions. "The exact sequencing of that is something we’re hashing out and trying to think through," he said.
Raising interest rates and ending asset sales is warranted this year because of concerns about inflation and a need to "normalize interest rates" as the economy improves.
He said his greater concern is rising inflation and controlling it in the next nine months "will be critical for us."
Lacker's comments echoed those by another inflation hawk, Minneapolis Fed President Narayana Kocherlakota, told the Wall Street Journal Thursday that the Fed could raise benchmark borrowing costs, which are now close to zero, by three-quarters of a percentage point by the end of the year,
Kocherlakota, a voter on the Fed's policy-setting panel this year, also said the Fed's latest stimulus program should end as scheduled in June.
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Maybe I am being a Chicken Little here, but I can picture a lot of hot capital deciding to move elsewhere and rates rising more and faster than these clever people think will be the case.
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Call me king of the chicken littles, but I think this is where the wheels really start to come off.
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OTOH, , ,
Data Watch
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Non-farm payrolls increased 216,000 in March To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 4/1/2011
Non-farm payrolls increased 216,000 in March. Revisions to January/February added 7,000, bringing the net gain to 223,000. The consensus expected a gain of 190,000.
Private sector payrolls rose 230,000 in March. Revisions to January/February added 44,000, bringing the net gain to 274,000. March gains were led by health care (+37,000), bars/restaurants/hotels (+35,000), temps (+29,000), accounting/bookkeeping (+20.000), retail (+18,000), and manufacturing (+17,000). The largest decline was for home building (-7,000).
The unemployment rate fell to 8.8% in March from 8.9% in February.
Average weekly earnings – cash earnings, excluding benefits – were unchanged in March but up 2.3% versus a year ago.
Implications: The US labor market is clicking on almost all cylinders and we expect persistently solid payroll growth, month after month, for the foreseeable future. Including upward revisions to prior months, non-farm payrolls increased 223,000 while private sector payrolls jumped 274,000. This strength was confirmed by figures on civilian employment – an alternative measure of jobs that is better at picking up the self-employed and small start-up businesses – which increased 291,000. The increase in jobs pushed down the unemployment rate to 8.8%, the lowest in two years. The “soft” part of the report was that average hourly earnings were unchanged in March. However, these earnings are up 1.7% versus a year ago while total hours worked are up 2.1%. As a result, total cash earnings by workers are up 3.8% in the past year. So far, this is more than enough for workers, as a whole, to keep up with inflation. More timely news on the labor market shows further progress. New claims for unemployment insurance declined 6,000 last week to 388,000. Continuing claims for regular state benefits dropped 51,000 to 3.71 million. News like this is behind the recent increase in “hawkish” comments from Federal Reserve officials. The breadth of the comments suggests some degree of coordination. We believe the Fed wants to make it crystal clear to the financial markets that a third round of quantitative easing is highly unlikely.
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:roll:
Hey! There's a new flavor of Kool-aid! Wes-berry Punch!
One drink and even the darkest scenario is made bright by a slight statistical deviation.
I better order a vat from Costco while I can still afford it.
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http://www.gallup.com/poll/127091/underemployment-rises-march.aspx
Underemployment Rises to 20.3% in March
Unemployment saw a slight but insignificant decline
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http://www.gallup.com/poll/125639/Gallup-Daily-Workforce.aspx
Flatter than Kansas.
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http://finance.fortune.cnn.com/2011/03/31/gross-calls-u-s-budget-a-greek-tragedy/?section=magazines_fortune
Gross calls U.S. budget a Greek tragedy
Posted by Colin Barr
March 31, 2011 5:40 am
Bond manager Bill Gross says he is "confident" the United States will effectively default on its debt unless Congress takes an ax to retirement and healthcare spending.
Gross runs Pimco, the $1.2 trillion investment manager that has spent recent months selling Treasury bonds, citing their low yields and poor prospects. He explains in his monthly investment outlook posted Wednesday evening that U.S. government bonds "have little value" in a world of bloated budgets.
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http://www.nationalreview.com/campaign-spot/263656/our-workforce-lost-233-million-people-one-year
Our Workforce Lost 2.33 Million People in One Year?
April 1, 2011 12:38 P.M.
By Jim Geraghty
Tags: Barack Obama
My regular correspondent Number Cruncher takes a look at the latest jobs report from the Bureau of Labor Statistics, and notices:
The percentage of the overall population that is employed in March 2010 was 58.6 percent. One year later, the total percentage of overall population employed is… 58.5 percent. Conclusion: In a growing population we have produced fewer jobs than the number that the population grew. (For the record, the number of Civilian non-institutionalized population was 237.2 million in March 2010, and is 239.00 million in March 2011.)
The number of people who were “not in the labor force” In March 2010 was 83,264,000 (seasonally adjusted). In March 2011, it was 85,594,000 (seasonally adjusted). If you want to know how unemployment dropped a point, look no further than this statistic.
If you remove 2.33 million people from the labor force within one year, that will indeed help lower the unemployment rate. It is, however, not the same as helping the unemployed find jobs.
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http://www.youtube.com/watch?feature=player_embedded&v=oaoePVVhiDc
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http://pajamasmedia.com/eddriscoll/2011/04/03/scary-ass-charts-of-the-day/
Change! I'd like to see the Wesbury spin on this.
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By SEAN FIELER AND JEFFREY BELL
'I will maintain to my deathbed that we made every effort to save Lehman, but we were just unable to do so because of a lack of legal authority." So said Federal Reserve Chairman Ben Bernanke in 2009. The statement was striking—not because it was false, but because the Fed lacked explicit legal authority to do so much of what it did during the financial crisis. Drawing the line at Lehman seemed arbitrary, and it proved that the Fed has become an unaccountable power within American government.
Mr. Bernanke's insistence that the Fed is restrained by some obscure statute is central to his argument that the Fed is a body subject to the check of external forces. But it's not. The principal check on its power is the self-restraint of its chairman, a point proven by the Lehman example: Had Mr. Bernanke saved Lehman, who would have enforced the statute that he had violated? No one. That's because the Fed, as currently configured, has no opposing force to rein it in.
In the beginning, it was not so. When the Fed was created in 1913, the gold standard limited its power as did the balance between the 12 reserve banks across the country and the Federal Reserve Board in Washington. Lawmakers thought that the reserve banks would represent regional economic interests in tension with the national political agenda of the board in Washington. Moreover, the Federal Reserve Act imposed a hard constraint on the Fed's balance sheet: 40% of the Fed's notes had to be backed by gold. Finally, the Fed's charter was temporary, lasting only 20 years before requiring congressional reauthorization.
These constraining forces began unraveling almost right away. During World War I, the Wilson administration suspended and then restricted the dollar's convertibility into gold. In 1927, the Fed's charter was extended indefinitely. In 1932, the Glass-Steagall Act effectively unmoored the Fed's balance sheet from gold by allowing government bonds to serve as collateral against the issuance of Federal Reserve notes. And with the passage of the Banking Act of 1935, the Fed's newly expanded powers were concentrated in the Federal Reserve Board, at the expense of the reserve banks. Thus by the mid-1930s, the only remaining check on the Fed's power was statutory.
Statutory supervision of government bureaucracies is usually workable because Congress maintains the power of the purse. But the Fed, which can print money, has no budget constraint. Its profit and loss statement doesn't matter because, unlike every other legal entity, its liabilities are irredeemable. Not having a real budget means that the Fed doesn't have to compete with anyone for scarce resources.
Accordingly, Congress, banks and businesses—institutions that would typically be skeptical of a government bureaucracy's uncontrolled expansion—are instead interested in capturing the Fed for their own purposes. From the Long-Term Capital Management bailout in 1998 to the cleanup of 2008, Congress has come to rely on the Fed's ability to act—and thereby excuse Congress from having to vote on unpopular bailouts. What's more, the government remains dependent on the Fed to help finance its debt going forward. Similarly, banks and big corporations are potential beneficiaries of low-cost leverage and (in the wake of popped bubbles) expedient bailouts.
Thanks to the tea party, there are increased numbers of reform-minded leaders in Congress willing to take on big issues such as the Fed. But even those lawmakers who recognize the Fed's threat to liberty are advocating narrow fixes, such as imposing the "single mandate" of price stability (and removing the Fed's statutory responsibility for full employment). That alone wouldn't impose any meaningful check or balance on the Fed's power.
If the history of the Fed proves anything, it is that no mere rule will take the fiat out of fiat money. And there is no reason to believe that a single mandate would have stopped "quantitative easing." More importantly, what would happen to the single mandate of price stability if and when the Fed violated it? At worst, Congress would hold hearings and be very, very upset. Or it wouldn't do even that, because the most likely reason the Fed would allow inflation to get out of control is to finance Congress's ever-growing budget deficits.
Members of Congress seeking to restrict the Fed's power need to consider what oppositional force is truly capable of hemming it in. One answer is a revived gold standard, which would once again obligate the Fed to redeem dollars for gold at a fixed rate.
Equally effective would be to leave the Fed and the dollar system untouched, but to allow gold a level playing field on which to compete with the dollar. Utah has already taken the first step in this direction by passing a law formally recognizing gold as legal tender. But for the playing field to be truly leveled, all taxes on gold transactions need to be removed and individuals and businesses need to be permitted to report their financial accounts in gold.
While it might not seem obvious to pit the dollar against gold, which has not been used as final money in over 100 years, it would provide a significant restraint on the Fed. Simply allowing gold to be used as currency again would concentrate the minds of the Federal Reserve Board on keeping inflation under control. Competition, after all, would mean that if the Fed doesn't preserve price stability, it will lose its monopoly franchise—not just get a tough talking-to from Congress.
Mr. Fieler and Mr. Bell are chairman and policy director, respectively, of the American Principles Project.
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http://www.cnbc.com/id/42409859
Almost like the dollar is devalued or something.
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By TOM LAURICELLA And JUSTIN LAHART
After being pushed and pulled this year by tumult in the Middle East and the quake in Japan, the world's financial markets are increasingly being driven by economic fundamentals, including inflation and interest rates.
The winners in the shift have been precious metals and emerging-market currencies such as the Brazilian real and the Korean won—a sign of the growing split between healthier and still-sluggish quarters of the global economy such as Japan, the U.S. and parts of Europe.
.The shift is roiling markets around the world. Several currencies and precious metals hit all-time or multiyear highs Friday. Some Asian governments intervened in the currency markets on two different days this week, buying billions of dollars to drive down the value of their soaring currencies, traders said.
Gold hit a new record and posted its biggest weekly gain in a year. Silver closed above $40 an ounce Friday for the first time in 31 years and has more than doubled over the past year.
Rising inflation is a key factor driving the emerging market currencies and precious metals. "For the longest time, people were concerned that inflation would start to build to levels where central banks are moved into action," says Mark Enman, head of global trading at Man Investments (USA) LLC. "That point was somewhere on the horizon, and now the horizon is here."
.Investors who believe inflation can be tamed are buying currencies in countries where central banks are raising interest rates to control prices. So far this year, central banks in at least 18 developing economies have raised interest rates, according to RBC Capital Markets. That diverse list includes China, which raised rates this past week, along with Israel, Poland and Uruguay. Brazil and India were virtually alone in raising rates last year.
Those higher rates make the currencies more attractive, leading to big flows of capital into those countries. Brazil, after months of fighting the tide of money into the country, this week allowed its currency to rise sharply to help its own fight against inflation. Other central banks, especially in Asia, continue to battle investors who are bidding up the value of their currencies in order to protect the competitiveness of export industries.
The impact of rates was a focus this week when the European Central Bank raised interest rates by one-quarter of a percentage point, becoming the first central bank among the world's three major currencies to boost rates. The euro rose just over 1% against the dollar Friday, its biggest one-day gain since the start of the year, and is up 1.65% over the past week.
The U.S. currency also lost 1.4% against the Australian dollar and was even weaker against the Brazilian real, falling 2.7%.
The moves in gold and currencies come as economic officials are about to convene in Washington late next week for the annual spring meetings of the International Monetary Fund and World Bank. Officials from the Group of Seven developed economies meet Thursday, and the broader Group of 20 talks Friday.
High on the agendas is how the rest of the world will help Egypt and Tunisia revamp their economies. But currencies are always part of the conversation in these meetings, both in private and public comments. The wording of communiques is seen by officials and markets as a way for governments to send smoke signals to investors and to pressure each other.
The dollar and yen are weakening against nearly all global currencies because the relatively slow economic recoveries of America and Japan mean their central banks are unlikely to raise interest rates in coming months. After spiking to a record high after last month's Japanese earthquake, the yen has fallen more than 5% against the dollar in the past three weeks—a significant move for a major currency—and fell more against other currencies.
U.S. investors are worried about the Federal Reserve's "quantitative easing" plan of bond buying, which ends in June. In anticipation of lower demand for bonds from the Fed, they have been driving up the yields on U.S. Treasurys, which rose to their highest level in a month. The possible shutdown of the U.S. government over the budget impasse added to the anxiety.
The past few weeks have been a contrast to previous months, when worries about the European governments defaulting on their debts or of upheaval in Middle Eastern countries had assets moving in lock-step. When fear was the prevailing emotion, the dollar rose, and when investors were less worried, riskier assets ranging from the euro to oil to stocks took off.
Now, all different assets are moving based on their own fundamentals. U.S. stocks have continued to rise—even as the dollar sinks—because American corporations are profitable, strong and growing.
—Carolyn Cui and Matt Whittaker contributed to this article.
Write to Tom Lauricella at tom.lauricella@wsj.com and Justin Lahart at justin.lahart@wsj.com
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Can't wait for the Wesbury-spin on this.....
http://finance.yahoo.com/news/Rising-oil-prices-beginning-apf-1311732829.html?x=0
Rising oil prices beginning to hurt US economy
Rising oil prices beginning to hurt US economy, weakening the benefits of stronger job growth
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5 Things That Will Happen To You When America Goes Bankrupt
Written By : John Hawkins
“Madness is rare in individuals – but in groups, parties, nations, and ages it is the rule.” — Friedrich Nietzsche
Does it seem too strong to call the way America deals with its debt “madness?” If not madness, then what? Denial? An addiction? However you phrase it, we’re a country that’s in deep trouble, but so many of us seem unable to deal with it.
Liberals in this country, for the most part, will admit that we’re running up “unsustainable” deficits. Yet, these same liberals adamantly oppose any and all serious efforts to do anything about it. If you move out from liberals to the general public, once again you’ll find plenty of people who admit that this nation has a huge problem. Yet, when you leave generalities, get down to specifics, and start looking for programs to cut, then suddenly everyone gets nervous and says, “never mind.” It’s like the old saying, “Everyone wants to go to heaven, but no one wants to die.”
Sadly, this is a natural outgrowth of ladling out public funds to special interests. There is so much collective money that few people feel or appreciate it even when billions are saved. Yet, if we yank even a few million away from special interest groups like PBS, Planned Parenthood, or the unions, they squeal like pigs that are about to accidentally be put in the wolves’ pen at the zoo.
In the face of that, people have to realize that this country is on pace to go bankrupt — and it could happen relatively soon if we don’t start taking serious steps to control our spending. Mike Pence thinks we could be just ten to fifteen years away. Tom Coburn is less optimistic and thinks it could happen in as little as five years. If that happens, we’re not a tiny country like Greece — we’re the biggest economy in the world. That means there’s no cavalry coming to pay our bills for us because we ARE the cavalry.
What happens then? Well, we don’t know for sure, but we can make some educated guesses about what COULD happen and how it will impact YOUR life.
1) Your life savings could be reduced to nothing almost overnight. Inflation is a fact of life. Thomas Sowell has noted, “As of 1998, a $100 bill would not buy as much as a $20 bill would buy in the 1960′s.” That’s under normal circumstances.
However, the thing governments have traditionally done when they simply can’t pay their debts is print more money. The problem with this is the further you expand the money supply, the less the money you already have on hand is worth. This can wipe out the savings of a lifetime in a relatively short period. Imagine spending billions of dollars just to buy a loaf of bread. Sound far-fetched? Well, guess what? That has happened in the Weimar Republic, which was crushed under debts from WWI and decided to pay it off by printing more money. It could happen here, too, and all the money you’ve scrimped and saved could become worthless in a short order.
2) Your taxes will skyrocket. We’ve been conned into thinking that we can fund a massive government on the backs of the rich. This is simply not so. It’s not working today and it’s not going to happen in the future. We cannot tax the rich enough to pay off our debt or even enough to keep the government going long-term. Even if we could, the rich have the resources to flee the country for greener pastures if they’re being taxed into oblivion. The middle class? Not so much.
What that means is the more desperate the government gets, the more the average American is going to be hammered with new taxes. How much more of your income can you afford to send overseas to pay China for the money they’ve loaned us to keep PBS, Planned Parenthood, and the National Endowment of the Arts going? What about if the country goes bankrupt and your income tax rate shoots up to fifty percent? How are you going to pay your mortgage? How are you going to feed your kids? When the government runs out of cash and it can’t borrow any more money, then it will start leveling massive taxes on the American people.
3) Your life could be in danger. If the government goes bankrupt, you’ll have an extremely angry, confused, and frustrated populace that has little faith in its leaders — combined with a horrific economy and a reduced ability of the government to keep order. Under those circumstances, widespread rioting and violent crime seem entirely plausible.
When Argentina had its crisis, violence went up 142% and “young men began looting supermarkets.”
Here’s some of what happened during the German hyperinflation of the currency in Weimar Republic after it started printing money night and day,
The flight from currency that had begun with the buying of diamonds, gold, country houses, and antiques now extended to minor and almost useless items — bric-a-brac, soap, hairpins. The law-abiding country crumbled into petty thievery. Copper pipes and brass armatures weren’t safe. Gasoline was siphoned from cars. People bought things they didn’t need and used them to barter — a pair of shoes for a shirt, some crockery for coffee. Berlin had a “witches’ Sabbath” atmosphere. Prostitutes of both sexes roamed the streets. Cocaine was the fashionable drug.
4) Your payments from the government will dramatically decrease or stop altogether. Contrary to what some people believe, Medicare and Social Security are paid out of the same fund that pays for everything else. In other words, if the government goes bankrupt, there is no money set aside to pay for these programs. So, if you’re receiving Social Security, Medicare, welfare, food stamps, or any other similar programs, those checks could stop or be slashed down to nothing. That seems unthinkable to people, but if the government doesn’t have any money, then it can’t pay it out to people. As they say, “You can’t get blood out of a turnip.”
5) You will have a dramatically reduced standard of living. If taxes and inflation escalate dramatically, both of which are very likely if we go bankrupt, economic activity will slow to a crawl and we’ll go into a depression. We’re not talking about a “This is the worst economy since the Depression” situation that we hear every time there’s a mild downturn in the economy; we’re talking about a REAL depression. Businesses will close left and right, the stock market will tank, unemployment will soar to heights not seen since the thirties, and the government won’t be in a position to help very much.
If that happens in a country like America, where people have been so prosperous for so long, it’s going to produce utter misery. It’s not a lot of fun to be poor under the best of circumstances, but it’s much worse to go from having a comfortable life with a bright future to growing vegetables to eat in the backyard and wondering how you’re going to keep warm in the winter.
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http://finance.yahoo.com/news/BRICS-demand-global-monetary-rb-217782600.html?x=0&.v=3
SANYA, China (Reuters) - The BRICS group of emerging-market powers kept up the pressure on Thursday for a revamped global monetary system that relies less on the dollar and for a louder voice in international financial institutions.
The leaders of Brazil, Russia, India, China and South Africa also called for stronger regulation of commodity derivatives to dampen excessive volatility in food and energy prices, which they said posed new risks for the recovery of the world economy.
Meeting on the southern Chinese island of Hainan, they said the recent financial crisis had exposed the inadequacies of the current monetary order, which has the dollar as its linchpin.
What was needed, they said in a statement, was "a broad-based international reserve currency system providing stability and certainty" -- thinly veiled criticism of what the BRICS see as Washington's neglect of its global monetary responsibilities.
The BRICS are worried that America's large trade and budget deficits will eventually debase the dollar. They also begrudge the financial and political privileges that come with being the leading reserve currency.
"The world economy is undergoing profound and complex changes," Chinese President Hu Jintao said. "The era demands that the BRICS countries strengthen dialogue and cooperation."
In another dig at the dollar, the development banks of the five BRICS nations agreed to establish mutual credit lines denominated in their local currencies, not the U.S. currency.
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Can't say that I blame them.
The damage being done by our profoundly irrresponsible leadership is incalculable.
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Betcha QE 3 is coming soon.
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QE3 coming soon: True, what choice do they have. We spend more than we take in by 40%, ran out of buyers for new debt and just like the deepwater rig, we don't know how to turn off the spigot. Interest rates stay artificially low because the monetary circle never gets completed. We are calling something debt without finding a consenting lender.
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Good thing the green jobs will save us! :roll:
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http://www.marketwatch.com/story/gasoline-prices-up-40-this-summer-us-says-2011-04-12
WASHINGTON (MarketWatch) — Gas prices will jump 40% for the summer driving season compared with 2010, according to a federal projection released Tuesday.
Retail prices for a gallon of regular-grade gasoline will average $3.86 from April through September, up from $2.76 for the comparable period last year, said the Energy Information Administration, the statistics arm of the Department of Energy.
The national price for gasoline may average $3.86 a gallon in the driving season, the EIA says.
In some areas, monthly average prices could top the national average by at least 25 cents a gallon.
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"Retail prices for a gallon of regular-grade gasoline will average $3.86 from April through September, up from $2.76 for the comparable period last year, said the Energy Information Administration, the statistics arm of the Department of Energy."
Elsewhere: "Feb 14, 2011 ... Obama seeks to raise DOE fiscal 2012 budget 12% to $29.5 billion"
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F^ckheads, excuse me, but I don't need a $30 billion agency to tell me gas price are going up. Their job was supposed to be - DO SOMETHING ABOUT IT!
Close the department. Only the EPA with good cause or the local protection authorities should have the power to slow down production of America's energy. Energy production should be allowed up to the amount that we are using.
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http://www.businessweek.com/news/2011-04-16/texas-university-endowment-storing-about-1-billion-in-gold-bars.html
Texas University Endowment Storing About $1 Billion in Gold Bars
April 16, 2011, 4:51 PM EDT
By David Mildenberg and Pham-Duy Nguyen
April 16 (Bloomberg) -- The University of Texas Investment Management Co., the second-largest U.S. academic endowment, took delivery of almost $1 billion in gold bullion and is storing the bars in a New York vault, according to the fund’s board.
The fund, whose $19.9 billion in assets ranked it behind Harvard University’s endowment as of August, according to the National Association of College and University Business Officers, added about $500 million in gold investments to an existing stake last year, said Bruce Zimmerman, the endowment’s chief executive officer. The holdings are worth about $987 million, based on yesterday’s closing price of $1,486 an ounce for Comex futures.
The decision to turn the fund’s investment into gold bars was influenced by Kyle Bass, a Dallas hedge fund manager and member of the endowment’s board, Zimmerman said at its annual meeting on April 14. Bass made $500 million on the U.S. subprime-mortgage collapse.
“Central banks are printing more money than they ever have, so what’s the value of money in terms of purchases of goods and services,” Bass said yesterday in a telephone interview. “I look at gold as just another currency that they can’t print any more of.”
Gold reached an all-time high of $1,489.10 an ounce yesterday in New York as sovereign debt concerns boosted demand for the metal as a store of value. Gold has climbed 28 percent in the past year on Comex.
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http://www.europac.net/pentonomics/goodbye_middle_class
Pentonomics - Goodbye Middle Class
Thursday, April 14, 2011
By: Michael Pento
Surprise! Bernanke now has to make a difficult choice. Despite the Fed’s best laid plans, inflation is soaring but the housing and job markets are dead in the water. I have been warning from the start of Quantitative Counterfeiting that the economy, housing market and the unemployment would not significantly improve—however, inflation would become a significant problem.
Today we received data on Initial Claims and inflation. Producer Prices increased by .7% from February to March and jumped 5.8% YOY. Meanwhile, the number of individuals filing first time jobless claims jumped by 27k to 412k for the week ended April 9th. Significantly rising prices and an anemic job market are the products of the Fed’s desire to crumble the currency. One of the so called unintended consequences of bailing out the banks is the destruction of America’s middle class.
For example, the average price of regular gasoline at the pump rose 11 cents to $3.77 a gallon in the week ended April 10, according to AAA. It climbed to $3.81 yesterday, the highest since September 2008. Yep, the highest gas prices since the market and economy crumbled in the summer of 2008. Real incomes are falling along with consumers’ discretionary purchasing power. But please keep in mind; this is what is known as a recovery in the eyes of our government.
Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.
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http://www.cnbc.com/id/42643384
S&P Affirms US AAA Rating, Cuts Outlook to Negative
Published: Monday, 18 Apr 2011 | 9:35 AM ET Text Size By: Reuters with CNBC.com
Standard & Poor's on Monday downgraded the outlook for the United States to negative, saying it believes there's a risk U.S. policymakers may not reach agreement on how to address the country's long-term fiscal pressures.
"Because the U.S. has, relative to its 'AAA' peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable," the agency said in a statement.
The S&P said the move signals there's at least a one-in-three likelihood that it could lower its long-term rating on the United States within two years.
The U.S. dollar fell broadly on word of the revision. Gold prices, meanwhile, hit a new record above $1,496 an ounce.
"The headline has enough of a shock value. The initial reaction is that this is negative for dollar assets across the board." said Lou Brien, a market strategist with DRW Trading in Chicago.
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Certainly not a surprise to anyone around here, but WOW nontheless , , , :cry:
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Rep. Paul Ryan’s statement on S&P’s fiscal warning to the US
Just in from Rep. Paul Ryan’s office, regarding the S&P rating announcement:
“We face the most predictable economic crisis in our history — a crisis driven by the explosive growth of government spending and debt. House Republicans took action last week to chart a new course by passing a budget that lifts our crushing burden of debt and puts our economy on the path to prosperity. By contrast, the President’s budget locks in Washington’s recent spending spree, adds $13 trillion to the debt over the next decade, and accelerates our nation toward a fiscal crisis. The failure to advance solutions threatens not only the livelihoods of future generations, but also the economic security of American families today. A campaign speech is no substitute for a serious, credible budget. The President and his party’s leaders must put an end to empty promises and work with us to avert this looming economic crisis.”
To learn more about House Republicans’ plan to avert the crisis and chart a better future: http://budget.house.gov/fy2012budget
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http://finance.yahoo.com/banking-budgeting/article/112563/BRICS-move-dollar-aside-marketwatch?mod=bb-budgeting%20&sec=topStories&pos=3&asset=&ccode=
BRICS Make Move to Shove Dollar Aside
by David Marsh
Monday, April 18, 2011
China and four other leading high-growth economies have taken landmark steps toward lowering the importance of the dollar in international financial transactions — part of a seminal shift in the move towards a multicurrency reserve and trading system.
Mind you, you wouldn't get an idea of anything dramatic from reading the official Chinese press on the conclusion of a summit meeting of the so-called BRICS economies (Brazil, Russia, India, China and South Africa) in the southern resort twin of Sanya in southern China last week.
"Leaders call for peace and prosperity" was the front-page headline in the China Daily. Stirring stiff. Even more striking was the prominent story the previous day that China's President Hu Jintao and visiting Brazilian President Dilma Rousseff had agreed to quicken trade procedures for "gelatin, corn, tobacco leaf, bovine embryos and semen." At least we know there's no holding back the Chinese rhetorical flourishes on these issues.
Leave aside the whimsical acronyms. Addition of South Africa to the former BRICS format seems to have galvanized the grouping. The five countries agreed to expand use of their own currencies in trade with each other — an important step toward putting the dollar into a new downsized place. One key influence is the annual expansion of China's trade volume with other core countries by 40% in 2010 — and the buoyancy looks set to continue. The BRICS' state development banks, including the China Development Bank, agreed to use their own currencies instead of the dollar in issuing credit or grants to each other — and they will also phase out the dollar in overall settlements and lending among each other.
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http://oceanaris.wordpress.com/2011/04/18/economic-storm-warning/
Economic Storm Warning
Posted on April 18, 2011 by Matt Holzmann
Today’s Telegraph informs us that the yields on Greek, Spanish, Irish, and Portuguese debt climbed to record levels today, and that Irish bank debt has been cut to junk status. In the meantime, Finland’s political tilt rightwards in yesterday’s elections portend a possible veto of any plans by the European Central Bank to bail out these economies on terms unfavorable to the EC member countries paying the bills.
Greece is now paying 19.7% on 2 year bonds and there is a real fear of government default. This will put even more pressure on the other PIIGS, who are either on or already over the edge. The question then becomes which economies are triaged. Greece, Iceland, and Ireland are all moribund. Portugal is in the middle of a political crisis, and Spain is teetering on the edge. We are seeing the slow motion destruction of the economic and social programs that helped these economies enter the 21st century. It is hard to believe where these countries ranked economically and demographically even 25 years ago.
The Standard & Poor’s downgrade of U.S. debt is, in my opinion, similar to their downgrade of subprime debt in 2007. Too late and out of touch.
Meanwhile, our government reported that inflation remained stable last month. Core inflation, rose only 0.1% to 1.2%, we are told. The gross inflation rate was 2.7% year over year. And yet anyone who has been to the market in the past 4 months has seen the steady rise of prices. While food and oil are not calculated in the core inflation rate because of their volatility, what then explains the rise in air fares, used car prices, imports, industrial goods, etc, etc, etc.? As Churchill once said “lies; damned lies, and statistics”. Our government is not being on the up and up with us.
China’s currency has risen 25% in the past 4 years and wages are skyrocketing. Commodities prices across the board have been rising for the past 3 years and many are at or near all time highs.
All of these numbers and trends have been well documented. It just doesn’t seem as if too many of the people in charge are paying close attention. Or perhaps they are and are simply waiting for the tidal wave to hit. The discussion in Washington dithers and is hijacked by petty political agendas. And yet the warnings cannot be more clear. When S&P warns you and the ICB warns you and the IMF warns you and the Chinese are getting together with the Russians and Brazilians and Venezuelans and Iranians to create alternative global financial structures, it doesn’t get clearer.
The crisis is by no means limited to the United States, but what happens here will have a massive impact worldwide. After all, we live in a truly global economy. Almost every country in the world will face serious repercussions from any of the potential negative financial scenarios outlined above. There is no such thing as a free lunch; a fact which has been forgotten by the economists and politicians. The options are not especially palatable, but just like with castor oil we must swallow our medicine now or face a dire future.
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Dueling Fixed Income heavy hitters:
"The bonds that PIMCO’s Bill Gross sold to take a 3% short position in the Treasury market may have found a buyer in Doubleline’s Jeffrey Gundlach."
Gundlach: Treasuries will Rally When QE2 Ends
By Robert Huebscher
April 19, 2011
The bonds that PIMCO’s Bill Gross sold to take a 3% short position in the Treasury market may have found a buyer in Doubleline’s Jeffrey Gundlach. In a conference call with investors last week, Gundlach said that Treasury prices would rise in the near term, once QE2 expires on June 30.
For over a year, Gundlach has forecast a “long-term bottoming process” in government bond yields. Last week he said he remains committed to that outlook.
If you are a buy-and-hold investor with a 10-year horizon, Gundlach said, you should position your portfolio with the expectation of inflation. But he doesn’t expect inflation to unfold any time soon. “I am not in the camp that believes Treasury rates are about to rocket higher because of the end of QE2,” he said. “I think just the opposite, actually.”
The $236 billion in Gross’ Total Return fund makes him the world’s largest bond investor, dwarfing the $6.1 billion in Doubleline’s Total Return fund. But Gundlach’s performance record over the past decade, including the results at his previous employer, TCW, has surpassed Gross’. That helps explain why Doubleline’s Total Return fund just celebrated its first anniversary by establishing a new record for assets gathered in in its first year and why Gundlach’s comments are closely followed by market observers.
I’ll look at the assessment of the economic and market conditions that underlies Gundlach’s contrarian position in the Treasury market, and I’ll also discuss why another prominent bond manager, Hoisington Investment Management, reached the same conclusion as him but for different reasons.
The elephant in the kitchen
A common theme in Gundlach’s analyses over the last several years has been increasing total credit market debt as a percentage of GDP, which peaked at 365% in 2009 and had dropped only slightly to 345% as of the end of 2010. The slight dip was caused by consumer deleveraging, but the underlying trend remains.
Gundlach called this debt the “elephant in the kitchen,” because it dominates the fundamentals underlying the investment markets.
The challenge investors face, Gundlach said, is figuring how that debt will be repaid, while at the same time funding the liabilities of federal entitlement programs, without debasing the dollar.
The present level of federal borrowing will detract from future economic growth and productive investments, Gundlach said. “That is not a good framework, and this is why we are having so much trouble now in Washington, DC,” he said.
In the 1940s, federal receipts as a percentage of debt, as shown in the chart below, were as precarious as they are now, with debt equal to ten times receipts. Gundlach said that imbalance was corrected with tax increases, with tax receipts rising from 5% to 20% of GDP in the 1940s. As a result, debt decreased to merely two times receipts in 1980. But that was when consumer leveraging accelerated, putting us back where we were 70 years ago.
The problem, Gundlach said, is if interest rates go up it would cause a “really difficult fiscal situation” with interest expenses. “We really need to get this in order if we are going to be on a sound footing,” he said.
Gundlach noted that the Office of Management and Budget (OMB) has estimated that the government’s fiscal position will improve slightly over the next four years, but he said he is skeptical of those forecasts.
Slow growth ahead
The Federal Reserve, thanks to its quantitative easing policies, is now the largest purchaser of government debt, supplanting China for that distinction. The latest round, a $600 billion bond-buying program dubbed QE2, is set to end on June 30. “That is going to be a moment of truth for the US economy,” Gundlach said.
Without further monetary stimulus and with conservative fiscal policies like the $38.5 billion in budget cuts recently passed by Congress, Gundlach said the US economy will weaken substantially.
“If we are going to stop stimulating the economy to the tune of $1.65 trillion a year, it is blatantly obvious that the economy will suffer pretty dramatically if a true budget-cutting exercise were to take place,” Gundlach said.
Gundlach called the direction of proposed fiscal policies an “austerity program,” which by definition means lower economic growth. “It's a little late to be starting that, because it is going to be really painful,” he said. “My view is that it is going to be so painful that it is going to be abandoned, and that is when the inflationists might be right.”
One likely outcome will be increased taxes on individuals, particularly wealthy ones. Gundlach said that taxes would need to rise from 20% to 35% of GDP to solve federal debt problems. He considers an increase of that magnitude likely, but he said that top marginal tax rates could increase to 60%.
The market reaction to prior quantitative easing events
Turning to Gundlach’s interest rate forecast, he said it is critical to review the market’s reaction to various monetary policies over the last several years, as shown in the graph of the 10-year Treasury bond below:
QE1 was announced (the first red arrow on the left) amid and because of a global banking panic, Gundlach said. The result was a continued decline in rates that ended in December of 2008.
When the purchases actually began, though, bond yields started to rise. That was counterintuitive, Gundlach said, because government’s buying actions should have pushed prices up and yields down. His explanation was that bond investors get nervous when there is a strong inflationary-biased policy. While government buying supported the prices of newly issued securities, investors holding the other $8 trillion of Treasury bonds were unsettled and pushed yields on the 10-year from 2% to 4%.
When QE1 was extended, yields rose even further.
On March 31, 2010, purchases from QE1 ended and bond yields collapsed. Gundlach said this was probably because the stimulus that quantitative easing represented was withdrawn, and that hurt the economy. The withdrawal of QE1 may have also made bond investors feel better that inflationary policies were no longer being pursued.
“The implementation of quantitative easing has produced exactly the opposite market behavior that some people intuitively expected,” he said.
When QE2 was announced, yields bottomed, and when bond purchases began, yields rose.
“The idea that ending QE2 would necessarily mean a rate rise flies in the face of the bloodless verdict of the market,” he said, “which is that when quantitative easing was in place, bond yields rose, and when it was taken off it led to weaker economy and rates falling. I think that is going to happen again.”
Gundlach also said that the start of QE1 triggered a rally in equities, and that rally was amplified when QE1 was extended. When QE1 ended, stocks fell. Stocks rallied again when Bernanke made his speech in Jackson Hole announcing QE2 and rallied again when the buying program began. Gundlach said he expects that pattern to repeat, and that stocks will go down when QE2 ends. “The discounting for that should be starting in the relatively near term,” he said.
Gross has not spoken publicly about his decision to short the Treasury market. But in his last monthly commentary, he offered the likely explanation – his disgust with Congress’ inability to address its debt burden and, in particular, federal entitlement programs. He wrote that the inevitable outcome would be higher inflation or its equivalent, a declining dollar.
Gross also wrote that the government could manage its debt “stealthily via policy rates and Treasury yields far below historical levels – paying savers less on their money and hoping they won’t complain” – and that policy direction supports Gundlach’s position.
More support for a bond rally
Texas-based Hoisington Investment Management supervises over $4 billion in fixed-income assets. In their most recent commentary, the firm’s principals, Van Hoisington and Lacy Hunt, were sharply critical of the Fed’s quantitative easing policy. They argued that it encouraged speculation, slowed economic growth and “eviscerated” the standard of living for the average American family.
On their last point, Hoisington and Hunt cited the “misery index,” which combines the unemployment and inflation rates. This metric was less than 7% prior to the financial crisis. Since the Fed announced QE2 in the second quarter of last year, it has risen from 9.1% to an estimated 14% in the current quarter.
“The Bernanke Fed provides fresh confirmation that trying to substitute higher inflation for lower unemployment harms the economy,” they wrote.
Hoisington and Hunt concurred with Gundlach, arguing that the end of QE2 will bring about lower interest rates. It will not restore the Fed’s balance sheet to a “reasonable size,” they said, but it will reinforce the actions of the other major central banks (the ECB, the People’s Bank of China, and the Bank of England), which have all commenced raising interest rates.
“The global upturn in inflation will reverse, thereby placing the global economy on a more stable footing,” they wrote.
Hoisington and Hunt advised investors to move gradually into Treasury securities, although they warned (as did Gundlach) that the economy would slow in the second half of this year. Deflation will be the dominant theme, creating a favorable environment for holders of long-dated Treasury bonds. “Positioning for an inflation boom will prove to be disappointing,” they said.
The likelihood of QE3
What if Gundlach, Hoisington and Hunt are correct and the economy slows appreciably in the second half of this year? Tighter Fed policy, rising interest rates and higher commodity prices could combine to bring about that outcome.
In an email exchange, Gundlach wrote that slower growth could also be a consequence of “a well-intentioned attempt to rein in the out-of-control budget deficit through tax hikes and spending cuts. “
If so, then pressure will build for another round of quantitative easing.
“When a debt-logged economy experiences even a moderate growth slowdown, the deflation winds begin to blow,” Gundlach wrote. “When that happens, the population will be screaming for QE3, and so they will get it.”
For active managers like Gundlach, the challenge will be to anticipate the Fed’s moves, assess market sentiment and correctly position their portfolios on the yield curve – a challenge that Gundlach has more than met over the last decade.
In light of Gundlach’s advice, however, a long-term buy-and-hold investor should simply position his or her portfolio for inflation.
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PIMCO's take:
http://www.pimco.com/EN/insights/pages/skunked.aspx
Skunked
•Medicare, Medicaid and Social Security now account for 44% of total federal spending and are steadily rising.
•Previous Congresses (and Administrations) have relied on the assumption that we can grow our way out of this onerous debt burden.
•Unless entitlements are substantially reformed, the U.S. will likely default on its debt; not in conventional ways, but via inflation, currency devaluation and low to negative real interest rates.
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New DNC talking point: "Standard and Poor's is RaaaAAAAAaaaacist"!
http://hotair.com/archives/2011/04/20/wh-tried-to-keep-sp-from-issuing-bond-warning/
WH tried to keep S&P from issuing bond warning
posted at 11:36 am on April 20, 2011 by Ed Morrissey
In the wake of the bond warning issued by Standard & Poor’s yesterday, some have argued that the controversy helps Barack Obama in demanding adoption of his deficit-reduction plan. However, today’s report by the Washington Post shows that the White House itself disagreed, as it tried to convince S&P to stay silent on American debt. The new information gives ammunition to Republicans (via JWF):
The Obama administration privately urged Standard & Poor’s in recent weeks not to lower its outlook on the United States — a suggestion the ratings agency ignored Monday, two people familiar with the matter said. …
Treasury officials told S&P analysts that they were underestimating the ability of politicians in Washington to fashion a compromise to curb deficits, a Treasury official said. They argued a change in ratings was not needed at this time because the debt was manageable and the administration had a viable plan in the works, the official said.
But S&P analysts told Treasury officials on Friday that they were unmoved — and released a report that expressed skepticism that the political parties could come together on how to bring spending in line with revenue.
Obama’s plan certainly looks like a key component of that skepticism. What does it tell us that Treasury made the argument that the President’s “plan” would solve the problem, and that S&P still issued the warning? It sounds as if S&P doesn’t think much of the plan, nor of the White House’s ability to work with Congress to produce something more realistic.
Jim Pethokoukis at Reuters shows why S&P shouldn’t have been impressed at all with Geithner’s presentation, putting the most damning facts last in a series of points, emphases his:
5) Those savings – 2.4 percent for Obama, 3.5 percent for Ryan — are over ten years vs. cumulative GDP of $196 trillion over 2012-2021 (not counting interest expense). In dollar amounts, that works to savings of $4.7 trillion for Obama and $6.9 trillion for Ryan. So the Ryan Path saves $2.2 trillion more.
6) But that’s not all! The Obama Framework likely uses the same higher growth assumptions as Obama’s February budget. When CBO re-ran that budget using its own gloomier forecast, it found the Obama plan raised $1.7 trillion less than it claimed. Ryan uses the CBO numbers. So a back-of-the-envelope estimate — adjusted for similar economic assumptions — finds the Obama Framework would only save $3 trillion vs. $6.9 trillion for the Ryan Path over ten years. And nearly 2/3 of Obama’s savings comes from higher taxes (net interest).
Also, remember that Obama pledged to save $4 trillion off of his previous budget projections, which raised spending significantly. Ryan takes off the additional spending and starts gaining traction on the structural deficit at the same time. Using vouchers instead of a single-payer system for Medicare, Ryan’s plan controls costs for the government in a much more predictable fashion than Obama’s IPAB-driven ObamaCare plan, which is now under bipartisan assault after his proposal last week.
Obama’s plan relies more on significant and sustained economic growth rather than cuts in spending. Rasmussen’s new consumer-confidence numbers in the wake of the S&P warning puts up a big red flag on those expectations:
Consumer and Investor confidence in the economy has fallen sharply in the wake of Standard and Poor’s announcement that it shifted the U.S. credit outlook from stable to negative. Investor confidence is now at the lowest level since last September.
The Rasmussen Consumer Index, which measures the economic confidence of consumers on a daily basis, has fallen eight points since Monday morning to 74.4. This Wednesday, consumer confidence is down six points from a week ago, down two points from a month ago, and down eleven points from three months ago. It is just a single point above the lowest level of 2011.
The Rasmussen Investor Index fell six points today to a seven month low. At 81.1, the Investor index down nine points since the S&P announcement, down eight points from a week ago and down thirteen points from the beginning of the year. Investor confidence in the economy is now at the lowest level since last September 18.
If consumers retreat from the marketplace again — a distinct possibility before this because of rising prices on gas and food — then the recovery that produces all that tax revenue will never materialize. That’s why deficit reduction that relies on taxes and Pollyanna predictions of economic growth didn’t impress S&P, and won’t impress bondholders in the long run. We need to cut spending, especially on entitlements, and the economy will respond vigorously when we settle our financial disorder accordingly.
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http://keithhennessey.com/2011/04/19/sp-credit-report/
Understanding the S&P report
Posted April 19, 2011
Yesterday’s report by Standard & Poor’s on the U.S. government’s credit rating is driving headlines. You can learn a lot more from reading the primary source document than from news coverage of it.
Here is what S&P did:
On April 18, 2011, Standard & Poor’s Ratings Services affirmed its ‘AAA’ long-term and ‘A-1+’ short-term sovereign credit ratings on the United States of America and revised its outlook on the long-term rating to negative from stable.
The news is in the latter part: S&P downgraded its “outlook on the long-term [credit] rating [of the U.S. government].” This is a warning sign.
S&P told us why they downgraded their outlook:
We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.
… Despite these exceptional strengths, we note the U.S.’s fiscal profile has deteriorated steadily during the past decade and, in our view, has worsened further as a result of the recent financial crisis and ensuing recession. Moreover, more than two years after the beginning of the recent crisis, U.S. policymakers have still not agreed on a strategy to reverse recent fiscal deterioration or address longer-term fiscal pressures.
In 2003-2008, the U.S.’s general (total) government deficit fluctuated between 2% and 5% of GDP. Already noticeably larger than that of most ‘AAA’ rated sovereigns, it ballooned to more than 11% in 2009 and has yet to recover.
The S&P analysts base their outlook downgrade on a legislative assessment that I think is accurate:
We view President Obama’s and Congressman Ryan’s proposals as the starting point of a process aimed at broader engagement, which could result in substantial and lasting U.S. government fiscal consolidation. That said, we see the path to agreement as challenging because the gap between the parties remains wide. We believe there is a significant risk that Congressional negotiations could result in no agreement on a medium-term fiscal strategy until after the fall 2012 Congressional and Presidential elections. If so, the first budget proposal that could include related measures would be Budget 2014 (for the fiscal year beginning Oct. 1, 2013), and we believe a delay beyond that time is possible.
Standard & Poor’s takes no position on the mix of spending and revenue measures the Congress and the Administration might conclude are appropriate. But for any plan to be credible, we believe that it would need to secure support from a cross-section of leaders in both political parties.
If U.S. policymakers do agree on a fiscal consolidation strategy, we believe the experience of other countries highlights that implementation could take time. It could also generate significant political controversy, not just within Congress or between Congress and the Administration, but throughout the country. We therefore think that, assuming an agreement between Congress and the President, there is a reasonable chance that it would still take a number of years before the government reaches a fiscal position that stabilizes its debt burden. In addition, even if such measures are eventually put in place, the initiating policymakers or subsequently elected ones could decide to at least partially reverse fiscal consolidation.
Let’s tease this apart. S&P describes three distinct but related risks:
1.The risk of no agreement on a medium-term fiscal strategy before the 2012 election;
2.The risk that, if there is an agreement, it will be phased in too slowly;
3.The risk that delay plus a slow phase-in allows enough time for future policymakers to partially undo an agreement.
I think all three are valid concerns, and I share their skepticism.
They describe other short-term fiscal risks that worry them as well:
•the risk of further financial bailouts;
•the potential cost of “relaunching” Fannie Mae and Freddie Mac, which they estimate at “as much as 3.5% of GDP (!!!);
•the risk of losses on federal loans (they single out student loans).
The first bullet here is scary, and they emphasize it: “Most importantly, we believe the risks from the U.S. financial sector are higher than we considered them to be before 2008.”
S&P comments on three elements of recent deficit reduction proposals: income tax rates, entitlement reform, and the President’s new trigger.
On income tax rates:
Revenue [in the President’s new proposal] would be increased via both tax reform and allowing the 2001 and 2003 income and estate tax cuts to expire in 2012 as currently scheduled—though only for high-income households. We note that the President advocated the latter proposal last year before agreeing with Republicans to extend the cuts beyond their previously scheduled 2011 expiration. The compromise agreed upon in December likely provides short-term support for the economic recovery, but we believe it also weakens the U.S.’s fiscal outlook and, in our view, reduces the likelihood that Congress will allow these tax cuts to expire in the near future.
Note that they are commenting on both the fiscal effects of the deal, and how it affects their assessment of the legislative viability of the President’s recent proposal.
On the President’s new trigger proposal:
We also note that previously enacted legislative mechanisms meant to enforce budgetary discipline on future Congresses have not always succeeded.
This is a poke at the credibility of the President’s trigger mechanism.
On entitlement reform:
Beyond the short-term and medium-term fiscal challenges, we view the U.S.’s unfunded entitlement programs (Social Security, Medicare, and Medicaid) to be the main source of fiscal pressure.
Note that they agree with Chairman Ryan (and me) that entitlement spending is “the main source of fiscal pressure.”
S&P scolds American policymakers by comparing them to their counterparts in other countries. The U.K., France, Germany, and Canada have all begun implementing austerity programs, even while they suffered recessions comparable to or larger than what we had here in the U.S.
S&P concludes with a concrete probability assessment:
The negative outlook on our rating on the U.S. sovereign signals that we believe there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years. The outlook reflects our view of the increased risk that the political negotiations over when and how to address both the medium- and long-term fiscal challenges will persist until at least after national elections in 2012.
They also tell policymakers the standard against which they will be judged:
Some compromise that achieves agreement on a comprehensive budgetary consolidation program—containing deficit reduction measures in amounts near those recently proposed, and combined with meaningful steps toward implementation by 2013—is our baseline assumption and could lead us to revise the outlook back to stable. Alternatively, the lack of such an agreement or a significant further fiscal deterioration for any reason could lead us to lower the rating.
S&P is telling Washington, that to avoid a possible downgrade, they need to do a deal “in amounts near [$3-4 trillion over the next decade]” and “with meaningful steps toward implementation by 2013.”
In yesterday’s press briefing, White House Press Secretary Jay Carney disagreed with S&P’s skepticism about a deal:
As for its political analysis, we simply believe that the prospects are better. We think the political process will outperform S&P expectations. The President is committed, as he made clear in his speech on Wednesday, to moving forward in a bipartisan way to reach common ground on this important issue of fiscal reform. And he believes that the fact that Republicans — that he and the Republicans agree on a target — $4 trillion in deficit reduction over 10 to 12 years — is an enormously positive development. They also agree that the problem exists. So the third part is the hard part, which is reaching a bipartisan agreement. But two out of three is important. And it demonstrates progress.
My view
There is a high probability of incremental spending cuts being enacted this year and next as part of debt limit legislative struggles. I’ll make a wild guess of $100B – $300B over 10 year range.
There is a moderate chance (1 in 3) of an incremental, slightly bigger (maybe $300B – $500B over 10 years) deficit reduction deal before the 2012 election. The President would trumpet such a deal as a good first step, but it appears this would fall far short of what S&P says is needed.
Given the President’s apparent budget strategy, there is at the moment a vanishingly small chance of a big medium-term or long-term deal like that described by S&P as necessary to avoid a possible downgrade, ($3-4 trillion over 10 years, with even bigger long-term changes to Social Security, Medicare, and Medicaid).
The greatest obstacle to constructive negotiations is the President’s attack rhetoric, in which he today accused Congressional Republicans of “doing away with health insurance for … an autistic child” and potentially causing future bridge collapses like the one in Minnesota that killed 13 people.
Maybe the S&P report will scare the President’s team into treating the long-term problem seriously rather than using it as a campaign weapon. I’m not holding my breath.
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http://www.europac.net/commentaries/late_party%E2%80%A6once_again
Late to The Party…Once Again
By: Peter Schiff
Monday, April 18, 2011
The only thing more ridiculous than S&P’s too little too late semi-downgrade of U.S. sovereign debt was the market’s severe reaction to the announcement. Has S&P really added anything to the debate that wasn’t already widely known? In any event, S&P’s statement amounts to a wakeup call to anyone who has somehow managed to sleepwalk through the unprecedented debt explosion of the last few years.
Given S&P’s concerns that Congress will fail to address its long-term fiscal problems, on what basis can it conclude that the U.S. deserves its AAA credit rating? The highest possible rating should be reserved for fiscally responsible nations where the fiscal outlook is crystal clear. If S&P has genuine concerns that the U.S. will not deal with its out of control deficits, the AAA rating should be reduced right now.
By its own admission, S&P is unsure whether Congress will take the necessary steps to get America’s fiscal house in order. Given that uncertainty, it should immediately reduce its rating on U.S. sovereign debt several notches below AAA. Then if the U.S. does get its fiscal house in order, the AAA rating could be restored. If on the other hand, the situation deteriorates, additional downgrades would be in order.
AAA is the highest rating S&P can give. It is the Wall Street equivalent to a “strong buy.” If a stock analyst has serious concerns that a company may go bankrupt, would he maintain a “strong buy” on the assumption that there was still a possibility that bankruptcy could be averted? If the company declared bankruptcy, would the analyst reduce his rating from “strong buy” to “accumulate”?
In truth, if bankruptcy is even possible, the rating should be reduced to “hold,” at best. Only if the outlook improves to the point where bankruptcy is out of the picture should a stock be upgraded to “buy.” A “hold” rating would at least send the message to potential buyers that problems loom. Then if the company does declare bankruptcy, at least it does not do so sporting a “buy” rating.
Of course, by shifting to a negative outlook, S&P will try to have its cake and eat it too. In the unlikely event that Congress does act responsibly to restore fiscal prudence, its AAA would be validated. If on the other hand, out of control deficits lead to outright default or hyperinflation, it will hang its hat on the timely warning of its negative outlook. This is like a stock analyst putting a strong buy on a stock, but qualifying the rating as being speculative.
The bottom line is that the AAA rating on U.S. sovereign debt is pure politics. S&P simply does not have the integrity to honestly rate U.S. debt. It has too cozy a relationship with the U.S. government and Wall Street to threaten the status quo. In fact, given the culpability of the rating agencies in the financial crisis, it may well be a quid pro quo that as long as the U.S.’ AAA rating is maintained, the rating agencies will continue to enjoy their government sanctioned monopolies, and that no criminal or civil charges will be filed related to inappropriately rated mortgage-backed securities.
Remember S&P had investment grade, AAA, ratings on countless mortgage-backed securities right up until the moment the paper became worthless. Amazingly, the rating agencies somehow maintained their status, and their ability to move markets, after the dust settled.
Currently, they are making the same mistake with U.S. Treasuries. Once it becomes obvious to everyone that the U.S. will either default on its debt or inflate its obligations away, S&P might downgrade treasuries to AA+. Such a move will be of little comfort to those investors left holding the bag.
In its analysis of U.S. solvency, S&P typically factors in the government’s ability to print its way out of any fiscal jam. As a result, it applies a very different set of criteria in its analysis of investment risk than it would for a private company, or even a government whose currency has no reserve status. But the agency completely fails to consider how reckless printing will impact the value of the dollar itself. It can assure investors that they will be repaid, but the agency doesn’t spare a thought about what if anything our creditors may be able to buy with their dollars.
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http://articles.economictimes.indiatimes.com/2011-04-14/news/29417583_1_economies-food-security-local-currencies
BRICS credit: Local currencies to replace dollar
IANS, Apr 14, 2011, 01.46pm ISTTags:
US dollar|financial cooperation
SANYA: Brazil, Russia, India, China and South Africa - the BRICS group of fastest growing economies - Thursday signed an agreement to use their own currencies instead of the predominant US dollar in issuing credit or grants to each other.
The agreement, the first-of-its-kind, was signed at the 3rd BRICS summit here attended by Indian Prime Minister Manmohan Singh, China's Hu Jintao, Brazil's Dilma Rousseff, Russia's Dmitry Medvedev and South Africa's Jacob Zuma.
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http://finance.yahoo.com/news/Dollar-weakens-against-most-apf-4263890409.html?x=0&.v=8
NEW YORK (AP) -- The dollar fell against most major currencies Wednesday, hitting a 15-month low against the euro, after solid earnings from major U.S. companies and a healthier reading on the housing market fueled investors' appetite for currencies linked to higher benchmark interest rates.
Higher interest rates tend to support investor demand for a currency, since it can generate a bigger return on investments denominated in that currency. The Federal Reserve has kept its key rate near zero since December 2008, while most of the world's other central banks are raising interest rates.
The euro jumped to $1.4514 in afternoon trading Wednesday from $1.4340 late Tuesday. Earlier, the euro hit $1.4547, its highest point since January 2010.
The dollar had advanced against the euro earlier in the week as speculation mounted that Greece would need to restructure its debt, but that fear wasn't weighing on the euro Wednesday as investors turned to assets of countries where interest rates are higher.Greece's finance minister also said that the country's debt was "absolutely sustainable."
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http://www.cnbc.com/id/42683030
A dollar plumbing three-year lows is hitting Americans squarely in the gas tank, and one economist thinks it could drive prices as high as $6 a gallon or more by summertime under the right conditions.
With the greenback coming under increased pressure from Federal Reserve policies and investor appetite for more risk, there seems little direction but up for commodity prices, in particular energy and metals.
Weakness in the US currency feeds upward pressure on commodities, which are priced in dollars and thus come at a discount on the foreign markets.
One result has been a surge higher in gasoline prices to nearly $4 a gallon before the summer driving season even starts, a trend that economists say will be aggravated as demand increases and the summer storm season threatens to disrupt oil supplies.
"All we have to have is a couple badly placed hurricanes which could constrain some of the refinery output capacity in some key locations," says Richard Hastings, strategist at Global Hunter Securities in Charlotte, N.C. "If you get weakness in the dollar concurrent with the strong driving season concurrent with the impact of one or two hurricanes in the wrong place, prices could go up in a quasi-exponential manner."
Jeff Cox
Staff Writer
CNBC.com
Using a model that combines "subtle rates of change" with movements in the dollar index [.DXY 73.86 -0.50 (-0.68%) ] and commodity prices, Hastings figures the low dollar is responsible for about one-third, or $1.31, of the total gas-at-the-pump cost. Regular unleaded Wednesday was $3.84 a gallon nationwide, according to AAA.
While there's far from unanimity about the dollar's future course, the proportionate contribution that currency weakness makes to oil prices is clear.
The dollar as measured against a basket of foreign currencies has dropped 6 percent this year, while regular unleaded gasoline is up about 28 percent.
Gas prices also have been boosted from turmoil in the Middle East which in turn has triggered a wave of speculation that traders estimate has added about $15 or so to the cost of a barrel of crude [CLCV1 112.14 0.69 (+0.62%) ], which is now teetering above the $110 mark.
Hastings sees gasoline having "no problem" getting to $6.50 a gallon over the summer after increased demand and storm disruptions come into play.
Others, though, say gasoline prices haven't needed any help so far from other events—the moves by the Fed to keep interest rates in negative real terms are enough to boost energy by themselves.
Michael Pento, senior economist at Euro Pacific Capital in New York, says there is an almost perfect negative correlation between the falling dollar and oil prices—minus-0.9 to be exact.
"When you have negative correlations that strong, it's not hard to understand that the reason why we're having this price spike in commodities is primarily because of the weaker currency and not because of shortages of oil or international tensions or global growth," Pento says.
The assertion from Hastings that the weak dollar is responsible for one-third of the total cost for a gallon of gas "sounds very low," Pento says, adding that a barrel of oil should be closer to the $65 to $70 range if priced properly.
"That's exactly where it would be if we weren't crumbling our currency," he says.
Should events follow their current course, sharply higher gas prices will burden consumers further as they also cope with the rise in food costs this year.
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http://www.nationalreview.com/exchequer/265199/four-national-debts
The Four National Debts
April 20, 2011 4:00 A.M.
By Kevin D. Williamson
Tags: Four different Treasury instruments
As I have argued (repeatedly, endlessly, ad nauseam, I know!), our real national debt is not that $14.3 trillion we always hear about, but more like $140 trillion. Another thing to keep in mind: That $14.3 trillion is not just one national debt, but four of them.
There are two flavors of national debt: debt held by the public and intragovernmental debt. The first category — securities held by investors, basically — is the one we mostly worry about. (I worry about the other one, too, but that’s another story.) If I may be permitted to express it in its full glory, the debt held by the public as of April 15 amounts to $9,679,202,714,701.01. (Love, love, love that penny on the end — can’t say Treasury isn’t minding the details! Wasn’t it Ben Franklin who said, “Mind the pennies and the trillions will take care of themselves”? Or something like that?)
That debt held by the public is really four debts, because we have four main ways of financing our borrowing: Treasury bills, Treasury notes, Treasury bonds, and Treasury Inflation Protected Securities (TIPS). Bills are the shortest-term security, the attention-deficit-disorder case of the U.S. sovereign-debt world, maturing in one year or less. Notes, like liberal-arts graduates, mature in one to ten years, and bonds, like a mortgage (remember mortgages?), go from 20 to 30 years. TIPS are a mixed bag, in five-year, ten-year, and 30-year versions. TIPS are a relatively new thing, having been introduced in 1997. They’ve grown popular, from accounting for $33 billion of the national debt in their first year to $640 billion as of March 2011.
Now, when you’ve got $9,679,202,714,701.01 in debt floating around out there in the marketplace, and you’ve got S&P sort of frowning in a meaningful way at your ledger, and bond funds are wishing you the very best of British luck as they dump your debt and refuse to buy any more, but you just can’t help yourself and have to buy a shiny new windmill whenever you see one — in that sort of a situation, you might be keenly interested in how much of your debt is financed through short-term bills vs. how much is locked into 20- or 30-year rates with the long bond. We are starting to have that discussion just now. And it ain’t pretty: The average maturity is 59 months, and about $1.7 trillion of the publicly held debt is in short-term notes, which presents real, sobering risks of the standing-on-a-ledge variety should interest rates spike up.
Here’s the thing: It costs more to finance your debt with 30-year bonds than with 30-day bills. (Yeah, I know, they’re 28-day bills, but cut a poet some slack.) That’s because investors, like men with options, are commitment-shy. If you’re going to lock your investment down for 20 or 30 years, you want a pretty high rate of return. But for 28 days? Less so. But there’s a tradeoff: Interest rates change, sometimes dramatically and often unexpectedly. When the 28-day bill comes up and you still haven’t balanced the budget, you have to refinance that debt. Ben Bernanke and Ramesh Ponnuru are working hard to keep Washington’s short-term borrowing rate at basically zero right now, so there’s a lot of incentive to use short-term rather than long-term financing. Sometimes that works out well: The Clinton administration pushed a lot of our debt into shorter-term instruments back in the 1990s and helped save a bundle on borrowing costs. (The other way to save a bundle on borrowing costs: Stop borrowing.) But sometimes taking the short-term deal and leaving yourself open to unexpected changes in debt-service costs is really, really stupid: Ask somebody who signed up for one of those brilliant adjustable-rate mortgages that take you from free money to pawn-shop rates overnight. A lot of people, myself included, worry that we’ve got too much short-term debt and should use more long-term financing to protect ourselves from interest-rate risk, even if it costs more to do so. Why? Because debt service is one of those checks the government absolutely has to write, and you don’t want surprises. That’s how you get the sort of fiscal crisis that leaves you with banana-republic finances while the Canadians laugh at you.
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This point about the mix of short, middle, and long term rates is exactly right.
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http://www.washingtonpost.com/business/economy/the-dollar-less-almighty-big-investors-see-possible-long-term-currency-weakness/2011/04/19/AFxVaKLE_story.html
The dollar, less almighty: Big investors see possible long-term currency weakness
By Steven Mufson, Thursday, April 21, 8:41 PM
Last month, Warren Buffett went shopping — abroad.
He flew to South Korea for a factory opening and called the country a “hunting ground” for investments. He also pronounced post-earthquake Japan “a buying opportunity,” and then traveled on to India, where he said he was eyeing more acquisitions.
April 21 (Bloomberg) -- Greg Anderson, senior currency strategist at Citigroup Inc., talks about the outlook for the U.S. dollar and other major global currencies.
This is Buffett’s way of betting against the U.S. dollar. Armed with about $38 billion of cash at Berkshire Hathaway, he can use dollars now to buy companies that will generate profits in other currencies for years to come. (Buffett is a director on the Washington Post Co. board.)
“I would recommend against buying long-term fixed-dollar investments,” Buffett said at a public appearance in New Delhi. “If you ask me if the U.S. dollar is going to hold its purchasing power fully at the level of 2011 five years, 10 years or 20 years from now, I would tell you it will not.”
Buffett isn’t alone. Some of the most successful investors in the United States and the biggest money management funds are worried that trade deficits, big budget deficits and the possibility of renewed inflation will make the U.S. dollar a weak currency compared with others around the world. On Thursday, the dollar fell to an 181 / 2-month low against the euro.
Bill Gross, chief executive of the giant bond investment firm Pimco, said its flagship Total Return Fund has 8 percent of its assets — a historic high — in issues denominated in currencies other than the dollar. Earlier this year, the fund dumped its entire holdings of U.S. Treasury bonds, according to disclosures.
“The United States is one of the serial abusers of deficits and inappropriate budgets and finance,” Gross said in an interview. “Do the headlines in terms of debt ceilings and 10 percent budget deficits and the back-and-forth between Republican and Democratic orthodoxies, does that matter? Sure it does. It’s not confidence-inducing.”
Gross said the decline of the dollar is part of a longer-term trend Pimco calls “the new normal.”
“We are in this new-normal type of economy in which the developing world is growing at a far faster pace than the developed world,” he said. “And growth tends to be reflected in terms of currency value.”
The dollar may still have more room to decline against other currencies. Gross noted that the currencies of many Asian economies are still 50 percent or more below their levels before the Asian currency crisis of 1997.
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http://www.nypost.com/p/news/opinion/opedcolumnists/geithner_goof_undermines_the_dollar_w1Ysjcn9xJWm8vz2oPPgEM?sms_ss=facebook&at_xt=4db172776178ca87%2C0
Chicago thug-style.
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http://pajamasmedia.com/tatler/2011/04/21/its-not-just-the-s-p-chinas-dagong-credit-agency-downgraded-us-in-november/
It’s not just the S & P – China’s Dagong credit agency downgraded US in November
From the Economist Magazine:
JOSH Noble in the FT has a great piece on the views of Dagong, China’s credit rating agency. Since China is the world’s key creditor, it makes sense to focus on its views. Never mind “negative watch”; Dagong downgraded the US back in November from AA to A+, on a par with Chile. Only Switzerland, Denmark and Australia are ranked AAA; China and Germany are AA+ or three notches higher than the US.
Nor does the agency pull its punches. In its outlook for the year, published in January, it said that
the United States, as the biggest country involved in sovereign debt crisis around the world, will continue its quantitative easing policy when the country is in danger, and the world credit war will be escalated due to the overflow of US dollars. In particular, the trend of continuous depreciation of US dollar will result in haircut of international creditors’ debts dominated in US dollar. The issuance of US dollar encourages numerous speculative capitals into the global commodity market, leading to an increasing pressure on global inflation. Different countries, in order to avoid unpredictable losses on their own interests, will have to seek for adjustment of international credit relations, and the global credit war, no doubt, will become the turning point of reforming international credit relations in 2011.
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"The dollar, less almighty: Big investors see possible long-term currency weakness"
- Another theory I was reading yesterday is that at the end of QE2 interest rates will rise and the dollar will rise. We'll see. I see it all as flawed measurement. The weakness and strength of the dollar is measured against other flawed currencies from other flawed flawed places like Europe and China. I wouldn't bet in either direction, on the current direction of our country or on the others to do better.
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Bernanke is AWOL to not be out-front, obnoxiously outspoken against the excessive spending in the economy. And congress has done nothing to remove the 'dual purpose' of his job.
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http://online.wsj.com/article/SB10001424052748703789104576272983322884562.html?mod=googlenews_wsj
Fleeing the Dollar Flood
The world tries to protect itself from U.S. monetary policy.
Members of the International Monetary Fund emerged from their huddle in Washington last weekend resolved to keep every option open to slow the flood of dollars pouring into their countries, including capital controls. That's a dangerous game, given the need for investment to drive economic development. But it's also increasingly typical of the world's reaction to America's mismanagement of the dollar and its eroding financial leadership.
The dollar is the world's reserve currency, and as such the Federal Reserve is the closest thing we have to a global central bank. Yet for at least a decade, and especially since late 2008, the Fed has operated as if its only concern is the U.S. domestic economy.
The Fed's relentlessly easy monetary policy combined with Congress's reckless spending have driven investors out of the United States and into Asia, South America and elsewhere in search of higher returns and more sustainable growth. The IMF estimates that between the third quarter of 2009 and second quarter of 2010, Turkey saw a 6.9% inflow in capital as a percentage of GDP, South Africa 6.6%, Thailand 5%, and so on.
This incoming wall of money puts the central bankers in these countries in a bind. If they do nothing, the result can be asset bubbles and inflation. Brazil (6.3%) and China (5.4% officially but no doubt higher in fact) are both enduring bursts of inflation, as are many other countries. These nations can raise interest rates or let their own currencies appreciate, at the risk of slower economic growth. Rather than endure that adjustment, many countries are resorting to capital controls and other administrative measures to try to stop the inflow.
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Bloomberg News
Treasury Secretary Timothy Geithner, right, and Fed Chairman Ben Bernanke during the IMF-World Bank spring meeting in Washington, D.C., on Friday.
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Over the past year, Brazil has introduced taxes on stock and bond investment and raised bank reserve requirements; Indonesia has introduced holding periods for government bonds; South Korea has limited banks' ability to engage in foreign-currency financing, among other things; Peru and Turkey have taken action, too. Yet their currencies have in many cases continued to rise and the money keeps coming in.
So it was little surprise earlier this month when IMF chief Dominique Strauss-Kahn joined the parade and endorsed capital controls as a necessary "tool" to be used on a "temporary basis," ending the fund's long-time commitment to free flows of capital. The last time the fund did this was amid the Mexico monetary crisis of the mid-1990s.
The IMF wanted its members last weekend to endorse guidelines on when they would use such measures. Brazil's finance minister spoke for many when he refused, calling capital controls necessary "self defense" measures against "spillover effects" from other countries' policies. He meant the U.S.
As if to underscore the point, U.S. Treasury Secretary Timothy Geithner responded by pointing the finger right back at developing countries, essentially updating Treasury Secretary John Connally's famous line to a delegation of Europeans in the 1970s that the dollar is "our currency but your problem."
The larger story is that the world is starting to protect, and perhaps ultimately free, itself from America's weak dollar standard. The European Central Bank recently raised interest rates and may do so again to prevent an inflation breakout. China is allowing more trade to be conducted in yuan, a first step toward making it a global currency. At a meeting of developing countries—the so-called BRICs—in China recently, leaders called for "a broad-based international reserve currency system providing stability and certainty." They weren't referring to the dollar.
Even in the U.S., Americans are buying commodities (oil per barrel: $111) and gold ($1,500 an ounce) as a dollar hedge, and the state of Utah recently took steps to make it easier for citizens to buy and sell gold as a de facto alternative currency. Whether or not these prove to be wise investments, they are certainly signals of mistrust in Washington's economic stewardship.
At an economic town hall this week, President Obama blamed "speculators" for rising oil prices. He should have mentioned the Fed and his own Treasury, which have encouraged the world to invest in hedges against the falling dollar. Chairman Ben Bernanke and Mr. Geithner have deliberately pursued a policy of unprecedented monetary and spending stimulus to reflate the economy and boost asset prices. The bill is coming due in a weak dollar, food and energy inflation, and the decline of U.S. economic credibility.
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One obvious explanation on high gas prices is the laws against domestic production, but another is the deterioration of our currency. Gas prices, it turns out, have not increased - if you are paying with silver.
Of course these two problems are related. Our shipment of dollars overseas for energy (along with our horrendous deficits) is a contributing problem for our deteriorating currency (and to our security problems).
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By Mark Hulbert, MarketWatch
CHAPEL HILL, N.C. (MarketWatch) — The dollar’s revenge?
That possibility has many gold bugs worried, since recent strength in gold’s dollar-denominated price appears to have come at the expense of the U.S. dollar. In fact, the correlation has been particularly striking this year: The U.S. Dollar Index /quotes/comstock/11j!i:dxy0 DXY -0.23% has fallen 6.3% since the end of last year, for example, while gold bullion /quotes/comstock/21e!f:gc\j11 GCJ11 -0.50% has risen 6.1%.
The gold bugs’ concern isn’t just theoretical, either. Many expect the dollar to stage a comeback as the U.S. Federal Reserve brings its monetary-stimulus program — its second round of quantitative easing, or QE2 — to an end June 30. Indeed, some are anticipating that the rally could begin as soon as later this week, depending on the outcome of the Fed’s meeting. Read more on Fed.
Gold at record highPaul Vigna discusses why gold prices are at a fresh record and silver is flirting with $50 an ounce for the first time since 1980.
But are the gold bugs right to worry about a stronger dollar? That’s what I set out to discover for this column.
I fed into my PC’s statistical package five years’ worth of data for gold bullion and the Dow Jones FXCM Dollar Index (which represents the dollar’s value against a basket of the currencies of the U.S.’ largest trading partners). I was specifically interested in the extent to which changes in the dollar’s value led to changes in gold’s price.
As expected, I found an inverse correlation: Increases in the dollar’s value tended to correspond to decreases in gold’s U.S. dollar price, and vice versa. Crucially, however, I found that the ups and downs of the dollar were only able to explain about a quarter of gold’s gyrations.
(For the statistically minded among you: The r-squared for the correlation was never higher than 0.26, regardless of whether I focused on daily, weekly or monthly changes in the dollar index and gold.)
What this means: Assuming the future is like the past, other factors besides the dollar’s value against other currencies will explain the bulk of what happens to gold in coming sessions.
This somewhat surprising finding is confirmed by another study recently conducted by Ned Davis Research, the quantitative research firm. In that study, the firm focused on commodities generally, not just gold. Joseph Kalish, senior macro strategist for the firm, and John LaForge, Ned Davis’s commodity strategist, found that only about one-third of the S&P GSCI Commodity index’s gain over the past couple of years is due to the weak dollar.
Note carefully that my results, as well as those of Ned Davis Research, don’t mean that currency devaluations generally account for only a quarter (or a third) of the increase in the dollar-denominated price of gold. That conclusion only applies to the U.S. dollar’s value relative to other currencies.
Indeed, it is possible to imagine a hypothetical scenario in which all currencies are debased at precisely the same rate over time. In that case, gold’s U.S. dollar price would still rise, even though the U.S. dollar’s value relative to other currencies would remain more or less constant. (Marc: My understanding is that this is not a hypothetical, indeed it is precisely what is happening-- other countries debase their currencies so as to maintain some semblance of stability in the exchange rate with the dollar; bottom line is that the Fed exports inflation/currency debasement)
The bottom line? Only a minority of gold’s recent rally can be attributed to weakness in the dollar. That means that, while unexpected dollar strength will likely cause some weakness in gold, such strength is not likely, by itself, to cause gold’s bull market to come to an end.
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980. (Marc: My impression is that this is a well regarded newsletter for tracking the comparative results of other newsletters)
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By LEWIS E. LEHRMAN
No man in America is a match for House Budget Committee Chairman Paul Ryan on the federal budget. No congressman in my lifetime has been more determined to cut government spending. No one is better informed for the task he has set himself. Nor has anyone developed a more comprehensive plan to reduce, and ultimately eliminate, the federal budget deficit than the House Budget Resolution submitted by Mr. Ryan on April 5.
But experience and the operations of the Federal Reserve system compel me to predict that Mr. Ryan's heroic efforts to balance the budget by 2015 without raising taxes will not end in success—even with a Republican majority in both Houses and a Republican president in 2012.
Why? Because the House Budget Resolution fails to reform the Federal Reserve system that supplies the new money and credit to finance both the budget deficit and the balance-of-payments deficit. So long as the Treasury deficit can be financed with discretionary money and credit—newly created by the Federal Reserve, by the banking system, and by foreign central banks—the federal budget deficit will persist.
It is true that federal deficits will rise more or less with the business cycle, leading previous deficit hawks such as Sens. Phil Gramm and Warren Rudman to believe that if we just reined in federal spending and increased economic growth we'd have a balanced budget. Indeed, for two generations, fiscal conservatives and Democratic and Republican presidents alike have pledged to balance the budget and bring an end to ever-rising government spending.
They, too, were informed, determined and sincere leaders. But they did not succeed because of institutional defects in the monetary system that have never been remedied.
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Chad Crowe
.President Reagan was aware of the need to reform the monetary system in the 1980s, but circumstances and time permitted only tax-rate reform, deregulation efforts, and rebuilding a strong defense. And so the monetary problem remains.
The problem is simple. Because of the official reserve currency status of the dollar, combined with discretionary new Federal Reserve and foreign central bank credit, the federal government is always able to finance the Treasury deficit, even though net national savings are insufficient for the purpose.
What persistent debtor could resist permanent credit financing? For a government, an individual or an enterprise, "a deficit without tears" leads to the corrupt euphoria of limitless spending. For example, with new credit, the Fed will have bought $600 billion of U.S. Treasurys between November 2010 and June 2011, a rate of purchase that approximates the annualized budget deficit. Commodity, equity and emerging-market inflation are only a few of the volatile consequences of this Fed credit policy.
The solution to the problem is equally simple. First, in order to limit Fed discretion, the dollar must be made convertible to a weight unit of gold by congressional statute—at a price that preserves the level of nominal wages in order to avoid the threat of deflation. Second, the government must at the same time be prohibited from financing its deficit at the Fed or in the banks—both at home or abroad. Third, only in the free market for true savings—undisguised by inflationary new Federal Reserve money and banking system credit—will interest rates signal to voters the consequences of growing federal government deficits.
Unrestricted convertibility of the dollar to gold at the statutory price restricts Federal Reserve creation of excess dollars and the inflation caused by Fed financing of the deficit. This is so because excess dollars in the financial markets, at home or abroad, would lead to redemption of the undesired dollars into gold at the statutory parity price, thus requiring the Fed to reduce the expansion of credit in order to preserve the lawful convertibility parity of the dollar-gold relationship, thereby reducing the threat of inflation.
This monetary reform would provide an indispensable restraint, not only on the Federal Reserve, but also on the global banking system—based as the system now is on the dollar standard and foreign official dollar reserves. Establishing dollar convertibility to a weight unit of gold, and ending the dollar's reserve currency role, constitute the dual institutional mechanisms by which sustained, systemic inflation is ruled out of the integrated world trading system. It would also prevent access to unlimited Fed credit by which to finance ever-growing government.
By adding these monetary reforms to his House Budget Resolution, Mr. Ryan has a chance to succeed where previous deficit hawks have failed. As today's stalwart of a balanced budget, he must now become a monetary-reform statesman if he is to attain his admirable goal of balancing the federal budget by 2015 without raising taxes.
Mr. Lehrman is chairman of The Lehrman Institute.
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http://www.theglobeandmail.com/report-on-business/us-dollars-dizzying-drop-wreaking-economic-havoc/article2002887/
The U.S. dollar’s long decline has turned into a sudden plunge, throwing currency markets into a frenzy that is complicating life for policy makers and executives the world over.
An index that measures the value of the dollar against six major peers declined for the eighth consecutive day Thursday, the longest slump in two years.
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http://www.bloomberg.com/news/2011-04-29/china-s-yuan-strengthens-beyond-6-5-per-dollar-for-first-time-since-1993.html
Yuan Strengthens to Post-’93 High Against Dollar as China Fights Inflation
By Bloomberg News - Apr 29, 2011 2:43 AM MT
China’s yuan strengthened beyond 6.5 per dollar for the first time since 1993, supported by speculation the central bank will allow appreciation to help tame the fastest inflation in more than two years.
The currency’s seventh weekly gain, its longest winning streak since July 2008, may damp U.S. criticism of China’s exchange-rate policy before Vice Premier Wang Qishan heads to Washington next month for talks with Treasury Secretary Tim Geithner. Consumer prices in Asia’s biggest economy rose 5.4 percent from a year earlier in March, exceeding the government’s 4 percent goal for this year.
“Inflation is still higher than what the government would like to see,” said David Cohen, a Singapore-based economist at Action Economics, who previously worked for the Federal Reserve. “The central bank is tolerating faster currency appreciation to contain import costs.”
The yuan strengthened 0.16 percent to close at 6.4910 per dollar in Shanghai, earlier touching a 17-year high of 6.4892, according to the China Foreign Exchange Trade System. It rose 0.9 percent this month, the best performance of 2011. In Hong Kong’s offshore market, the currency jumped 0.28 percent to 6.4645, the biggest gain in Bloomberg data going back to Aug. 24.
The People’s Bank of China set the yuan’s reference rate at 6.4990 per dollar, the strongest level since July 2005. The currency is allowed to trade up to 0.5 percent on either side of the official rate.
Dollar Slide
Twelve-month non-deliverable forwards rose 0.22 percent to 6.3095 per dollar as of 4:40 p.m. in Hong Kong, trading at a 2.9 percent premium to the onshore spot rate, according to data compiled by Bloomberg. Local billionaire Li Ka-shing’s Hui Xian Real Estate Investment Trust, the city’s first listed shares denominated in yuan, began trading today.
The “unusually fast pace” of yuan gains confirms that the yuan is being used to fight inflation, Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong, wrote in a note to clients today. He said there may be a “sharp gain” once 6.50 is breached and recommends buying the yuan against the greenback using non-deliverable forwards.
The dollar weakened this month against all 16 major currencies monitored by Bloomberg as the Fed maintained a near- zero benchmark interest rate and boosted the supply of the U.S. currency by buying Treasuries, a policy known as quantitative easing that is set to end in June.
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Isn't that what everyone wanted, the stronger yuan? Adjusting the currency without fixing our problems leaves us with ... the same problems along with new ones. Imports, cost of living and inflation worsens while nothing significant is gained on the export side because our currency exchange rate wasn't the problem.
Just more sign of failed policies, mis-managing what was recently the greatest economy on the planet.
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http://pajamasmedia.com/blog/americas-fiscal-high-noon/?singlepage=true
America’s Fiscal High Noon
Beyond today's myriad fiscal woes, we’re just months away from a potential economic Pearl Harbor, and yet all we hear from Obama is happy talk.
April 29, 2011 - by Mary Claire Kendall
Right now, it’s 1941 all over again.
We’re just months away from another Pearl Harbor — potentially — and all we hear from President Barack Obama and company, as Governor Haley Barbour (R-MS) puts it, is “happy talk.”
According to the unclassified 2009 report “Economic Warfare: Risks and Responses” by financial analyst Kevin D. Freeman, what’s referred to as “Bear Raid II” — phase III of an economic terrorist attack against the United States — is poised to fatally hit the U.S. Treasury and the U.S. dollar, causing the collapse of America’s economy.
It was a threat former Secretary of State James A. Baker III underscored on CNN’s Fareed Zakaria GPS on April 10, noting if the dollar was replaced as the global reserve currency, it would be catastrophic for America.
Yet red flags galore signal that the train has already left the station.
Three weeks ago, George Soros hosted his Bretton Woods II summit, “CRISIS and RENEWAL: International Political Economy at the Crossroads,” focused on reordering the world’s financial architecture. At the same time, our political leaders were haggling over fiscal peanuts — Obama proudly announcing at the 11th hour, crisis averted: the Washington Monument would remain open after all.
Three weeks earlier, Obama began bombing Libya. It was the straw that broke the camel’s back energy-wise, sending gas prices soaring, OPEC countries reaping rich rewards. It’s right out of the economic terrorism playbook Freeman writes about. But wiser heads are beginning to get it. As the Financial Times reports, “The western allies are in a fine Libyan pickle. The real mission of the British and French military ‘advisers’ being dispatched to the rebel camp is to explore what the west might do to get out of it.”
Then, just as Americans were wrapping up their taxes, BRICS (Brazil, Russia, India, China, South America) met in China, and announced that, it would, in fact, like to displace the U.S. dollar as the world’s reserve currency.
At the same time, the International Monetary Fund declared, as reported in Financial Times, “The US lacks a ‘credible strategy’ to stabilize its mounting public debt posing a small but significant risk of a new global economic crisis….”
Then, Standard & Poor’s issued its “stark warning” regarding America’s debt on Tax Day, sending stocks plunging. While maintaining our triple-A rating, for the first time since it began rating U.S. debt — the same year as the Pearl Harbor attack — S&P lowered its outlook from “stable” to “negative,” threatening a downgrade within two years.
And now the dollar has slid to its lowest level in three years given disappointing growth, higher inflation, and the Fed’s cheap money.
It’s almost a perfectly executed set-up for this potential economic Pearl Harbor.
Wake up, America! It’s no longer OK to say, let’s just issue ourselves another credit card and take some happy pills — or happy spirits — and everything will be fine.
Rather, as Republican and Democratic legislators alike ponder the debt ceiling vote, hurtling down the road at a dizzying pace, it’s critical that they admit and confront the reality that, unless we sober up vis-à-vis deficit spending, the party is over.
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I heard that the margin requirement on silver has been raised. Anyone have any word on this? (Also note implications for margin requirements on oil futures)
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http://www.cnbc.com/id/42985646
'I Will Be Shorting US Bonds': Jim Rogers
Published: Wednesday, 11 May 2011 | 8:13 AM ET Text Size By: Antonia van de Velde
CNBC Associate Web Producer
Veteran investor Jim Rogers said on Wednesday he plans to short US bonds and sees more currency turmoil in the markets this fall.
"I will be shorting US bonds," Rogers told a conference in Edinburgh. "I would probably be doing it today if I weren't here," he said.
Bonds in the US have been in a bull market for 30 years, Rogers said.
"In my view that's coming to an end...the bond bulll market is coming to an end. If any of you have bonds I would urge you to go home and sell them. If any of you are bond portfolio managers I would get another job," he said.
Addressing one bond portfolio manager among conference delegates, Rogers said: "If I were you I would think about becoming a farmer. You buy land and learn how to farm."
"In my view it’s going to be a spectacular way to make money," he said, adding: "This is where the great fortunes are going to be made in the future."
Rogers also said he expected to see more currency turmoil in the markets this fall.
"One of the safest investments I see is the renminbi," he said. “Longer term the US dollar is going to be a total disaster,” Rogers said, urging investors to “think about getting out of US dollars before it’s too late.”
Many investors say the Chinese yuan is a good place to invest, but China's capital controls make it hard for foreigners to buy the currency.
Dollar in Danger
"I would expect to see some serious problems in the foreseeable future….By 2011, 2012, 2013, 2013, I don’t know when, we’re going to have an economic slowdown again," he said. "This time it’s going to be a real disaster because the US cannot quadruple its debt again. Dr Bernanke cannot print staggering amounts of money again."
"How much more can they print without a serious collapse of the US dollar?" he said.
Rogers said he owns the dollar for the moment but he may have to sell it.
"There’s been a huge amount of good news for the dollar and you think it would be strengthening by now…it hasn’t been," he said.
Rogers said the world was facing an ongoing bull market in commodities and said it hadn’t run its course yet. "Commodities are totally underowned," he said.
“This bull market in commodities has a long way to go,” he said, pointing to supply constraints. "If the world economy does not get better I’d rather own commodities than stocks.”
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Jim Rogers
From Wikipedia, the free encyclopedia
Jump to: navigation, search
For other uses, see James Rogers (disambiguation).
James Beeland Rogers, Jr.
Born October 19, 1942 (1942-10-19) (age 68)
Baltimore, Maryland, USA[1]
Alma mater Balliol College, Oxford
Yale University
Occupation Financial investor, author
Website
www.jimrogers.com
James Beeland Rogers, Jr. (born October 19, 1942) is an American investor and author based in Singapore. He is chairman of Rogers Holdings and Beeland Interests, Inc. He was the co-founder of the Quantum Fund with George Soros and creator of the Rogers International Commodities Index (RICI).
Rogers is an outspoken proponent of the free market, but he does not consider himself a member of any school of thought. Rogers acknowledges, however, that his views best fit the label of Austrian School of economics.[2]
Rogers was born in Baltimore, Maryland and raised in Demopolis, Alabama.[1][3] He started in business at the age of five by selling peanuts and by picking up empty bottles that fans left behind at baseball games. He got his first job on Wall Street, at Dominick & Dominick, after graduating with a bachelor's degree from Yale University in 1964. Rogers then acquired a second BA degree in Philosophy, Politics and Economics from Balliol College, Oxford University in 1966.
In 1970, Rogers joined Arnhold and S. Bleichroder. In 1973, Rogers co-founded the Quantum Fund with George Soros. During the following 10 years, the portfolio gained 4200% while the S&P advanced about 47%.[4] The Quantum Fund was one of the first truly international funds.
In 1980, Rogers decided to "retire", and spent some of his time traveling on a motorcycle around the world. Since then, he has been a guest professor of finance at the Columbia University Graduate School of Business.[citation needed]
In 1989 and 1990, Rogers was the moderator of WCBS' The Dreyfus Roundtable and FNN's The Profit Motive with Jim Rogers. From 1990 to 1992, he traveled through China again, as well as around the world, on motorcycle, over 100,000 miles (160,000 km) across six continents, which was picked up in the Guinness Book of World Records. He tells of his adventures and worldwide investments in Investment Biker, a bestselling investment book.
In 1998, Rogers founded the Rogers International Commodity Index. In 2007, the index and its three sub-indices were linked to exchange-traded notes under the banner ELEMENTS. The notes track the total return of the indices as an accessible way to invest in the index. Rogers is an outspoken advocate of agriculture investments and, in addition to the Rogers Commodity Index, is involved with two direct, farmland investment funds - Agrifirma,[5] based in Brazil, and Agcapita Farmland Investment Partnership,[6] based in Canada.
Between January 1, 1999 and January 5, 2002, Rogers did another Guinness World Record journey through 116 countries, covering 245,000 kilometers with his wife, Paige Parker, in a custom-made Mercedes. The trip began in Iceland, which was about to celebrate the 1000th anniversary of Leif Eriksson's first trip to America. On January 5, 2002, they were back in New York City and their home on Riverside Drive. His route around the world can be viewed on his website, jimrogers.com. He wrote Adventure Capitalist following this around-the-world adventure. It is currently his bestselling book.
On his return in 2002, Rogers became a regular guest on Fox News' Cavuto on Business which airs every Saturday.[7] In 2005, Rogers wrote Hot Commodities: How Anyone Can Invest Profitably in the World's Best Market. In this book, Rogers quotes a Financial Analysts Journal academic paper co-authored by Yale School of Management professor, Geert Rouwenhorst, entitled Facts and Fantasies about Commodity Futures. Rogers contends this paper shows that commodities investment is one of the best investments over time, which is a concept somewhat at odds with conventional investment thinking.
In December 2007, Rogers sold his mansion in New York City for about 16 million USD and moved to Singapore. Rogers claimed that he moved because now is a ground-breaking time for investment potential in Asian markets. Rogers's first daughter is now being tutored in Mandarin to prepare her for the future. He is quoted as saying: "If you were smart in 1807 you moved to London, if you were smart in 1907 you moved to New York City, and if you are smart in 2007 you move to Asia." In a CNBC interview with Maria Bartiromo broadcast on May 5, 2008, Rogers said that people in China are extremely motivated and driven, and he wants to be in that type of environment, so his daughters are motivated and driven. He also stated that this is how America and Europe used to be. He chose not to move to Chinese cities like Hong Kong or Shanghai due to the high levels of pollution causing potential health problems for his family; hence, he chose Singapore. He has also advocated investing in certain smaller Asian frontier markets such as Sri Lanka and Cambodia, and currently serves as an Advisor to Leopard Capital’s Leopard Sri Lanka Fund.[8] However, he is not fully bullish on all Asian nations, as he remains skeptical of India's future - "India as we know it will not survive another 30 or 40 years".[9] In 2008 Rogers endorsed Ron Paul.[10]
Rogers has two daughters with Paige Parker. Hilton Augusta(nicknamed Happy) was born in 2003, and their second daughter Beeland Anderson in 2008. His latest book, A Gift To My Children, contains lessons in life for his daughters as well as investment advice and was published in 2009.
On November 4, 2010, at Oxford University’s Balliol College, he urged students to scrap career plans for Wall Street or the City, London’s financial district, and to study agriculture and mining instead. “The power is shifting again from the financial centers to the producers of real goods. The place to be is in commodities, raw materials, natural resources."[11]
In February 2011 Rogers announced that he has started a new index fund which focuses on "the top companies in agriculture, mining, metals and energy sectors as well as those in the alternative energy space including solar, wind and hydro."[12] The index is called The Rogers Global Resources Equity Index and the best and most liquid companies, according to Rogers, go into the index.
[edit] Books
1995: Investment Biker: Around the World with Jim Rogers. - ISBN 1-55850-529-6
2003: Adventure Capitalist: The Ultimate Road Trip. - ISBN 0375509127
2004: Hot Commodities: How Anyone Can Invest Profitably in the World's Best Market. - ISBN 140006337X
2007: A Bull in China: Investing Profitably in the World's Greatest Market. - ISBN 1400066166
2009: A Gift to My Children: A Father's Lessons For Life And Investing. - ISBN 1400067545
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I see that fears of global recession are causing commodities to pull back (my silver holdings have been hard hit, in part due to increased margin requirements) and the problems with Greece and the Euro to strengthen the dollar and Treasuries , , ,
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Just wait..... Gold and silver are the future. Just because the EU and the Euro are circling the drain doesn't mean the dollar doesn't face the same fate.
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I remind you of what happened to the price of the dollar when Volcker had to dramatically raise interest rates in the late 70s and of what happened when the Hunt Brothers tried cornering silver in the same period. How much hot momentum money has been playing silver with its de minimis margin requirements.
What happens to US interest rates in a month when/if QE 2 comes to a close?
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I think there are different factors in play now. The dollar WAS the reserve currency in the 70's. Not so much anymore. Was the AAA rating of the US in question back then?
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If anything I think that makes my point stronger-- US interest rates will have to go up MORE due to dollar's diminished world role.
Coincidentally enough , , , see this:
http://finance.townhall.com/columnists/larrykudlow/2011/05/12/bernankes_quantitative_neutrality/page/full/
http://finance.townhall.com/columnists/mikeshedlock/2011/05/12/oil_crashes
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The 'what will happen at the end of quantitative easing' story is interesting. Of course in economics they always mean 'if all other things remained constant'.
A 'weak' dollar (now) and a 'strong' dollar later (again) are just 2 misnomers for 2 different sets of problems. I agree we probably have high interest rates coming and a 'stronger' dollar, if monetary dilution ever stops. That will hurt manufacturing, exporting and jobs, houses and tax revenues from people in those sectors even further.
My way of thinking of this is that all these problems are inextricably linked. The fiscal budget debt mess is linked to the monetary irresponsibility. Both are linked to the anti-production regulatory environment, linked to the anti-incentive productive investment environment and that is all linked to the political uncertainty of heading into another fork in the road having no idea which way this country or the global economy will turn.
In other words, this is all easier to fix than most people think.
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I agree with 95% of that. The point I don't agree with is the idea that a stronger dollar would hurt the US. I disagree on a number of levels.
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The Producer Price Index (PPI) increased 0.8% in April To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 5/12/2011
The Producer Price Index (PPI) increased 0.8% in April, beating the consensus expected rise of 0.6%. Producer prices are up 6.8% versus a year ago.
The April gain in the PPI was led by energy, which increased 2.5%. Food prices rose 0.3%. The “core” PPI, which excludes food and energy, increased 0.3%, higher than the consensus expected rise of 0.2%.
Consumer goods prices rose 0.9% in April and are up 8.7% versus last year. Capital equipment prices were up 0.3% in April and are up 1.3% in the past year.
Core intermediate goods prices increased 1.1% in April and are up 5.6% versus a year ago. Core crude prices rose 2.6% in April and are up 18.2% in the past twelve months.
Implications: Declining oil prices may temporarily tame producer price inflation in May, but, through April, inflation was roaring. Prices are up 6.8% in the past year and accelerating. In the past six months producer prices are up at an 11.5% annual rate; in the past three months they’re up at a 13.1% rate. Most of the gain in April was due to energy. But, while the Federal Reserve can still claim core inflation is low for consumers, core producer prices are accelerating, up 0.3% in April and up at a 3.2% annual rate in the past three months. Further up the production pipeline, core intermediate prices increased 1.1% in April and are up at a 13.1% annual pace in the past three months; core crude prices bounced back in April increasing 2.6%, and are up at a 10.5% rate in the past three months. Based on these inflation signals and the current state of the economy, the Fed’s monetary policy is way too loose, even if headline inflation takes a breather in May due to the drop in oil prices. In other news this morning, new claims for unemployment insurance fell 44,000 last week to 434,000. This is very close to the four-week moving average of 437,000. Continuing claims for regular state benefits increased 5,000 to 3.76 million. Claims have been roiled of late by early auto shutdowns related to the disasters in Japan as well as a brutal tornado season in much of the Midwest and South. We expect claims to generally decline over the next several weeks.
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"The point I don't agree with is the idea that a stronger dollar would hurt the US"
My point came out wrong. I only meant that along with the good effects, there will also be negatives. Neither a strong or weak dollar solves the other problems - a bloated public sector anchor and the regulations that prevent hiring or production from coming back. If we fix those other things that are wrong, the dollar find its own level of strength.
QE needs to end. Money can only increase at the same pace as production, and maybe we need to send that to them in a constitutional amendment.
The inflation we already put in motion will be extremely harmful.
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http://www.europac.net/commentaries/silver_takes_it_chin
Silver Takes it on the Chin
By:
John Browne
Friday, May 6, 2011
This week saw the type of downside volatility in the precious metals market that will be remembered for years to come. For those of us who have been long gold, and silver in particular, the memories will not be pleasant. While many had been expecting a pullback in silver, when the violence did come it was nevertheless shocking. Silver shed one third of its value in less than one week. And while gold was pulled down by the general sell off in all commodities (oil, copper, coffee, etc.) the yellow metal shed only 6.5% during the carnage. Those mild losses should remind us that gold is not just another commodity, but has monetary qualities that tend to smooth out volatility. But will silver survive the vicious downturn?
First, despite all the valid reasons that, in an era of perpetual quantitative easing, silver had become an attractive asset class, it had become clear in recent days that it was overbought. Leading up to April 28, the price of silver rose by more than 150 per cent in U.S. dollar terms over the prior year. On Wall Street momentum always attracts momentum, and as a result, the ascent accelerated in April, with silver rising 31 per cent from April 1 to April 28.
A ‘hot” commodity tends to attract leveraged speculators. As a result, the rise became more technical than fundamental. Its recent sell off should be viewed on the same terms.
After an exponential rise, supercharged by leveraged speculators, silver was bound to attract the attention of short sellers. In addition, silver speculation became more expensive as the Chicago Mercantile Exchange raised the margin requirement for buying silver futures five times in just one week! Factoring in all of these increases, the last of which becomes effective this coming Monday, the cost of owning silver futures contracts will have increased a staggering 84 per cent from the beginning of May. The rationale behind these moves requires serious inquiry…which I will leave to more informed columnists. But the results were predictably dramatic, as many leveraged players were forced to liquidate.
In addition to these technical catalysts, other factors contributed to the decline this week. Facing pressure from domestic exporters who complain about an overly strong euro, there are signs that the ECB is losing its commitment to vigilance against inflation. This has led to speculation that the U.S. dollar could strengthen for the remainder of the year. This could adversely affect the price of precious metals. In addition, with private sector unemployment rising in the United States, there is a risk that the U.S. economy could be entering a second, or double dip recession. This would lower the risks of overt inflation and dampen the industrial demand for silver.
But as far as long term fundamentals are concerned, the case for precious metals remains intact. First, as long as the Federal Reserve and other central banks around the world continue to treat fiat currencies as monopoly money, investors will be seeking alternative currencies as a hedge against inflation. But until bank lending to consumers and businesses increases dramatically, the dangers of hyperinflation will remain largely hidden from the broad swath of investors. As a result, silver’s upward price movements will be vulnerable to panic selling.
But from my perspective the biggest driver in purchases of silver and gold is likely a fear of a meltdown of the dollar and a collapse in the financial system. There are few signs that these fears have abated with the selloff in silver. The U.S. dollar is still standing close to a 3-year low against the dollar index. If more rumors spread that the dollar may lose its reserve status, the greenback could plummet. It is perhaps this perceived risk that has provided the majority of the force behind increases in precious metals over the past year. It is important to remember that the fundamental strength of metals attracted the speculators, but speculators did not create the bull market. It is my feeling that it will endure without them.
While a threatened recession and a stronger dollar should deflect inflation expectations in the short-term, the longer-term risk of a debt crisis spreading into a currency crisis remains. Indeed, the risks of a currency crisis are increasing. For investors who share this view, and who can tolerate the volatility, the reduced prices of silver may be attractive.
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http://business.financialpost.com/2011/05/10/gold-could-hit-2000-deutsche-bank/
Gold, which reached a record $1,577.57 an ounce on May 2, may surge a further 30 percent by January as investors seek to protect themselves from “economic uncertainty,” according to Deutsche Bank AG.
“I’m bullish on gold despite its current levels,” Hal Lehr, Deutsche Bank’s managing director for cross-commodity trading, said in an interview in Buenos Aires. “It could reach $2,000 dollar an ounce in the next eight months.”
Investors including George Soros and John Paulson invested in gold as the metal surged over the past year amid a sovereign debt crisis in Europe, economic turmoil in the U.S. and civil unrest in the Middle East. This month‘s record was a sixfold gain since the precious metal’s low in August 1999.
Gold fell 1.6 percent on May 4 after the Wall Street Journal reported that Soros Fund Management LLC sold precious-metal assets. Soros’ fund held shares in the SPDR Gold Trust, the biggest exchange-traded product backed by gold, and the iShares Gold Trust at the end of 2010, U.S. Securities and Exchange Commission filings show.
Gold rose for a third day in New York today as concern about Europe’s debt woes spurred demand for precious metals as a protection of wealth. Standard & Poor’s yesterday downgraded Greece’s credit rating for the fourth time since April 2010. Gold for June delivery rose $6.10, or 0.41 percent, to $1,509.3 an ounce at 9:03 a.m. on the Comex in New York.
Bullion rose for six consecutive weeks through April 29 as the metal is seen as a hedge against inflation around the globe. Central banks in China, India and the European Union, among others, have increased interest rates in recent weeks as policymakers seek to control consumer prices with tighter monetary policy.
The U.S. Federal Reserve has kept the benchmark rate between zero percent and 0.25 percent since December 2008 and pledged to purchase $600 billion in Treasuries through June to stimulate the economy. Standard & Poor’s earlier last month revised its debt outlook for the U.S. to negative from stable.
The U.S. Treasury Department projects the government could reach its debt ceiling limit of $14.3 trillion as soon as mid- May and run out of options for avoiding default by early July.
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http://online.wsj.com/article/SB10001424052748703730804576314953091790360.html
A 100-trillion-dollar bill, it turns out, is worth about $5.
Associated Press
A man in Harare, Zimbabwe, carried cash for groceries in 2008.
.That's the going rate for Zimbabwe's highest denomination note, the biggest ever produced for legal tender—and a national symbol of monetary policy run amok. At one point in 2009, a hundred-trillion-dollar bill couldn't buy a bus ticket in the capital of Harare.
But since then the value of the Zimbabwe dollar has soared. Not in Zimbabwe, where the currency has been abandoned, but on eBay.
The notes are a hot commodity among currency collectors and novelty buyers, fetching 15 times what they were officially worth in circulation. In the past decade, President Robert Mugabe and his allies attempted to prop up the economy—and their government—by printing money. Instead, the country's central bankers sparked hyperinflation by issuing bills with more zeros.
The 100-trillion-dollar note, circulated for just a few months before the Zimbabwe dollar was officially abandoned as the country's legal currency in 2009, marked the daily limit people were allowed to withdraw from their bank accounts. Prices rose, wreaking havoc.
The runaway inflation forced Zimbabweans to wait in line to buy bread, toothpaste and other essentials. They often carried bigger bags for their money than the few items they could afford with a devalued currency.
Today, all transactions are in foreign currencies, mainly the U.S. dollar and the South African rand. But Zimbabwe's worthless bills are valuable—at least outside the country. That Zimbabwe's currency happened to be denoted in dollars has amplified appeal, say currency dealers and collectors, particularly after the global financial crisis and mounting public debts sparked inflationary fears in the U.S.
"People pick them up and make jokes about when that's going to happen here," says David Laties, owner of the Educational Coin Company, a currency wholesaler based in Highland, N.Y.
.Dealers prescient enough to buy Zimbabwe's biggest notes while they were in circulation are now taking their investment to the bank. Mr. Laties spent $150,000 buying bills from people in South Africa and Tanzania with experience moving currency and other clandestine cargo, including migrants, across Zimbabwe's borders. Sensing that Zimbabwe's last dollars would be "the best notes ever" on the collector's market, he even fronted $5,000 to someone who approached him over the Internet.
"It worked out," he says. "I got my notes."
Frank Templeton, a retired Wall Street equities trader, bought "quintillions of Zimbabwe dollars" through a broker from Zimbabwe's central bank. On eBay, he now does a brisk trade in the bills from his home in the Hamptons, on New York's Long Island. "I like to say Warren Buffett made a lot of people millionaires, but I've made more people trillionaires," Mr. Templeton says. The dealer paid between $1 and $2 for each of the bills in several purchases over about a year, and now sells them for around $5-$6 apiece.
House Budget Committee Chairman Paul Ryan (R., Wis.) and Stanford economist John B. Taylor are among the new owners of Zimbabwean bills. Each keeps one in his wallet, brandishing it at opportune moments as evidence of inflation's most extreme possible ramifications. "No self-respecting monetary economist goes around without a 100-trillion-dollar note," Mr. Taylor says with a chuckle.
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The Consumer Price Index (CPI) increased 0.4% in April To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 5/13/2011
The Consumer Price Index (CPI) increased 0.4% in April, matching consensus expectations. The CPI is up 3.2% versus a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) was up 0.5% in April and is up 3.8% in the past year.
About half of the increase in the CPI in April was due to energy, which rose 2.2%. Food prices were up 0.4%. Excluding food and energy, the “core” CPI increased 0.2%, matching consensus expectations. Core prices are up 1.3% versus last year.
Real average hourly earnings – the cash earnings of all employees, adjusted for inflation – fell 0.3% in April and are down 1.2% in the past year. Real weekly earnings are down 0.6% in the past year.
Implications: The price inflation that has been evident at the producer level for some time has clearly made its way to the consumer. The CPI is up 3.2% in the past year and is accelerating. In the past six months, the CPI is up at a 5.1% annual rate and an even stronger 6.2% rate in the past three months. We like to follow “cash inflation,” which is everything in the CPI (including food and energy) but without owners’ equivalent rent (the government’s estimate of what homeowners would pay if they rented their own homes). Cash inflation increased 0.5% in April and is up at a 7.8% annual rate in the past three months. While these increases have been led by energy, which is up at a 42.8% annual rate in the past three months, the “core” CPI (which excludes food and energy) is also accelerating. Core prices are up only 1.3% versus a year ago, but up at a 2.1% annual rate in the past three months. Rising inflation is a concern now, but we fully expect the Federal Reserve to continue to justify keeping short-term interest rates near zero – through around the middle of next year – by saying that it’s “transitory.”
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Silver manipulated. Well just around the time of the crash was the word coming out that Soros had sold. Naturally he than probably took a short position so he made money on the way up, sold, then let the word out *he* is selling then makes money on the way down. He than adds to his billions pays for his liberal/business concerns and tells us how easy it is to make money.
So what else is new? Puppet master? No not him. Just a general all around philantropist/humanitarian. I just wish he wsn't Jewish.
***Silver Was 'manipulated' Down, Sprott Says
By Alistair Barr
Published May 12, 2011
|LAS VEGAS -- Silver has been manipulated down in recent weeks, Eric Sprott, head of Sprott Asset Management, said Thursday. Silver slumped by $6 in 13 minutes late on a recent Sunday, when the market was thinnest, Sprott noted during the SkyBridge Alternatives Conference in Las Vegas. That was followed by four margin increases, Sprott added. Sprott recently launched a silver fund and has been a gold bull for at least a decade. Despite the recent drop in precious metals, Sprott reckons they are a good way to protect against trouble in the banking system and a potential devaluation of the U.S. dollar and other paper currencies. "The market has judged the world's reserve currency as gold," he said on Thursday.
Copyright © 2011 MarketWatch, Inc.***
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http://www.cnbc.com/id/43074525
Demand from China and India has been healthy according to Marcus Grubb, who said central banks continue to add to their reserves.
"Central bank purchases jumped to 129 tons in the quarter, exceeding the combined total of net purchases during the first three quarters of 2010," he said.
"The resilience of gold during recent volatility in the commodities market exemplifies the strength of the global gold market and its unique demand drivers," he added.
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http://blogs.telegraph.co.uk/finance/andrewlilico/100010332/what-happens-when-greece-defaults/
Not if, when.
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This could go in the thread of very bad humor or WTF...
Via Powerline: "Our friend Seth Lipsky wasn't able to make it to the press conference, but he took to the pages of the Wall Street Journal to pose four questions for Bernanke. Here is the third of the four questions Seth served up:" (all 4 are linked below)
Mr. Chairman, last month a federal jury in North Carolina convicted a man named Bernard von NotHaus of counterfeiting U.S. coins. His medallions, which he called "Liberty Dollars," were made of silver. When he sold them he was getting about $20 for a medallion containing an ounce of silver, and now the coin is worth nearly twice that amount in U.S. dollars.
Yet the dollars you issued back when Mr. von NotHaus was in business have plunged in value to but a fraction of the silver or gold they were worth when you issued them. Mr. von NotHaus may be going to jail for years, and yet here you are. I don't mean to suggest in any way that you broke any law, but how do you feel about this situation?
http://online.wsj.com/article/SB10001424052748703778104576286813887619884.html
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A well structured question.
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Marc: I'm not sure I really follow his logic here 100%, but Mundell is deep and IMHO his thoughts deserve considerable contemplation.
By SEAN RUSHTON
Conservative economists have been raising alarms for months about the Federal Reserve's second quantitative-easing program, QE2. They argue it has lowered the dollar's value, leading to higher oil and commodity prices—a precursor to broader, more damaging inflation.
Yet the man many of them regard as their monetary guru—supply-side economics pioneer and Nobel Laureate Robert Mundell—says dollar weakness is not his main concern. Instead, he fears a return to recession later this year when QE2 ends and the dollar begins its inevitable rise. Deflation, not inflation, should be the greater concern. Avoiding the recession is simplicity itself: Just have the U.S. Treasury fix the exchange rate between the dollar and the euro.
Mr. Mundell's surprising statement came at a March 22 conference in New York sponsored by the Manhattan Institute, The Wall Street Journal and the Ronald Reagan Presidential Foundation. His economic predictions carry great weight because, unlike most economists of his generation, he is often right. His analysis of international economics has revolutionized the field, making him the euro's intellectual father and a primary adviser to China's economic policy makers.
Nevertheless, with gold around $1,500 and oil above $100 a barrel, supply-siders are scratching their heads: How can he possibly see deflation ahead? How can dollar weakness not be the problem?
The key to Mr. Mundell's view is that exchange rates transmit inflation or deflation into economies by raising or lowering prices for imported items and commodities. For example, when the dollar declines significantly against the world's second-leading currency, the euro, commodity prices rise. This creates U.S. inflationary pressure. Conversely, when the dollar appreciates significantly against the euro, commodity prices fall, which leads to deflationary pressure.
.From 2001-07, he argues, the dollar underwent a long, steady decline against the euro, tacitly encouraged by U.S. monetary authorities. In response to the dollar's decline, investors diverted capital into inflation hedges, notably real estate, leading to the subprime bubble. By mid-2007, the real-estate bubble had burst. In response, the Fed reduced short-term interest rates rapidly, which lowered the dollar further. The subprime crisis was severe, but with looser money, the economy appeared to stabilize in the second quarter of 2008.
Then, in summer 2008, the Fed committed what Mr. Mundell calls one of the worst mistakes in its history: In the middle of the subprime crunch—exacerbated by mark-to-market accounting rules that forced financial companies to cover short-term losses—the central bank paused in lowering the federal funds rate. In response, the dollar soared 30% against the euro in a matter of weeks. Dollar scarcity broke the economy's back, causing a serious economic contraction and crippling financial crisis.
In March 2009, the Fed woke up and enacted QE1, lowering the dollar against the euro, and signs of recovery soon appeared. But in November 2009, QE1 ended and the dollar soared against the euro once again, pushing the U.S. economy back toward recession. Last summer, the Fed initiated QE2, which lowered the value of the dollar, allowing a second leg of the recovery to take hold.
Nevertheless, Mr. Mundell views QE2 as the wrong solution for the problem. Instead, the U.S. and Europe simply should coordinate exchange-rate policies to maintain an upper and lower limit on the euro price, say between $1.30 and $1.40. Over time, the band would be narrowed to a given rate. Further quantitative easing would be off the table.
With a fixed exchange rate, prices could move free from the scourge of sudden deflation and inflation, allowing investment horizons and planning timelines to expand along with production levels on both sides of the Atlantic. To supercharge the U.S. recovery, he also recommends permanently extending the Bush tax rates and lowering the corporate income tax rate to 15% from 35%.
Above all, he made it clear that the volatile exchange rate is the responsibility of the U.S. Treasury, not the central bank. Without a breakthrough on exchange rates, he predicted another dollar appreciation following QE2, resulting in a return to recession and a worsening of the U.S. debt crisis. This would likely lead to a third round of quantitative easing, continuing the dysfunctional cycle.
Criticize the Fed all you like, Mr. Mundell says, but the key to recovery is to stabilize the dollar at a healthy level relative to the euro. Given his stellar track record, it's worth asking: Is anyone in Washington listening?
Mr. Rushton edits The Supply Side blog.
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How does the euro debt crisis work into this? I don't see the euro surviving.
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Good question.
Coincidentally, Scott Grannis just responded to a similar question from me as follows:
Marc, of course it's impossible to rule out a catastrophic sequence of events. If everything goes the wrong way we will be in deep sh*t. But I would note that the market does not sit still when defaults loom. As I noted in a post about commercial real estate backed securities not too long ago, a year ago the market expected gigantic defaults. Actual defaults have been much lower than expected and feared, and the prices of those securities have soared in the past year. The market has already priced in a significant restructuring (a nice word for default) of Greek debt, with 2-yr Greek govt bonds now trading at a yield of 25%. The unknowns are not whether Greece will default, they are a) when will the default occur and b) how big will it be? If the actual default is equal to or less than the market expects already, then that will be good news.
I would further note that Euro swap spreads are only mildly elevated. If the european bond market suspected that a Greek default would precipitate and end-of-the-world scenario, I can assure you that swap spreads would be trading at multiples of their current level. Swap spreads are a measure of the likelihood that big banks will be unable to honor their obligations. 2-yr euro swaps are only 50 bps or so, with 25-30 being normal. The market is telling you that a Greek default is not going to be a big deal, believe it or not.
All of the things you worry about have been front and center for the markets for over one year now. I think it's reasonable to assume that the market, in its wisdom, has by now fully analyzed the risks and has priced them in.
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I've responded to this with some probing questions about the validity of the efficient market hypothesis, which seems to inform his answer, and now await his response.
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Good. Those were my questions. The market isn't the embodiment of wisdom/perfection.
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FARR WEST, Utah — Most people who amass the pure gold and silver coins produced by the United States Mint do so for collections or investments, not to buy Slurpees at 7-Eleven.
“You’d be a fool,” Tom Jurkowsky, a spokesman for the Mint, said of the Slurpee idea, “but you could do it.”
After all, while the one-ounce American Eagle coin produced by the Mint says “One Dollar,” it is actually worth more like $38 based on the current price of silver. (An ounce of gold is worth more than $1,500.)
Now, however, Utah has passed a law intended to encourage residents to use gold or silver coins made by the Mint as cash, but with their value based on the weight of the precious metals in them, not the face value — if, that is, they can find a merchant willing to accept the coins on that basis.
The legislation, called the Legal Tender Act of 2011, was inspired in part by Tea Party supporters, some of whom believe that the dollar should be backed by gold or silver and that Obama administration policies could cause a currency collapse. The law is the first of its kind in the United States. Several other states, including Minnesota, Idaho and Georgia, have considered similar laws.
Mr. Jurkowsky said the new law “is of no real consequence,” and is purely symbolic, but supporters say it is more than political pocket change. They say that it is just a beginning, that one day soon Utah might mint its own coins, that retailers could have scales for weighing precious metals and that a state defense force could be formed to guard warehouses where the new money would be made and stored.
“This is an incremental step in the right direction,” said Lowell Nelson, the interim coordinator for the Campaign for Liberty in Utah, a libertarian group rooted in Ron Paul’s presidential campaign. “If the federal government isn’t going to do it, then we here in Utah ought to be able to establish a monetary system that would survive a crash if and when that happens.”
Utah has a strong conservative streak, but there are other reasons why it was first to pass such a law.
For many of its supporters, the new law represents an extension of the notion of preparedness that is nurtured by Utah’s powerful founding institution, the Church of Jesus Christ of Latter-day Saints. Many of the law’s supporters believe policies like stimulus spending, the bank bailout and national health care will soon bankrupt the government, sending inflation soaring. Owning gold and silver, they say, will help protect people.
“It’s kind of written into our theology that we’re supposed to be prepared for any eventuality,” said Mr. Nelson, who was involved in early meetings with state lawmakers about the law.
Wayne Scholle, the marketing director for Old Glory Mint, in Spanish Fork, Utah, showed off a commemorative silver coin the company made honoring the new law, one he said he hoped could be a model for a future state-minted coin. The front — or obverse — includes an image representing “the miracle of the gulls,” an important story in Mormon folklore in which seagulls are said to have suddenly appeared and eaten insects that were destroying the first crops Mormon settlers raised, a year after arriving in Utah in 1847.
“Their messaging is spot on with this,” Mr. Scholle said. “It’s preparedness. It’s protecting yourself.”
Old Glory is not the only company that hopes to benefit. Craig Franco, a coin dealer south of Salt Lake City, said he was finishing an arrangement with a bank to create a depository through which people will be able to spend their gold and silver indirectly, by using a Visa credit card that makes charges against the value of their holdings. Mr. Franco noted that state law, for now, left it to the private sector to figure out how conducting business with gold and silver should work.
“The regulation of the system?” Mr. Franco said. “There is no regulation of the system. We are working out the nuances of it.”
Mr. Franco is among several supporters who say the law’s most important feature may be that it eliminates state capital gains taxes on the sale of gold and silver, a move he thinks will prompt individuals and large scale investors outside the state to move their gold and silver to Utah. But federal capital gains taxes would still apply.
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2 of 2)
“I would hope the federal government would simply concede: ‘O.K., you’re right, it’s money, so we can’t tax it,’ ” said Larry Hilton, a lawyer and insurance broker who first took the idea to lawmakers. “But that may not happen.”
Article 1, Section 10 of the Constitution says no state shall coin money, though Mr. Hilton and some others argue that a phrase used later, saying no state shall “make anything but gold and silver coin a tender in payment of debts” can be read as a license for Utah’s new law and, perhaps, for a state’s right to mint its own coins.
A spokesman for the Mormon church would not comment on the Utah law, but said in a statement that the church’s teachings related to preparedness were “simply a matter of encouraging people to practice sound principles of provident living and to save for a rainy day.”
State Representative Brad Galvez, the freshman Republican who sponsored the bill at the request of party leadership, said he was “not trying to push back against the federal government” but simply to “create an alternative” to the dollar that lawmakers hoped might send a message to Washington about fiscal policy. He noted that the law does not require businesses to accept gold or silver, but only gives them a choice.
Much of the logic of the law is rooted in the belief that the dollar is at risk and that gold and silver, coined around the world for thousands of years, are enduring, stable investments. That, too, is in dispute.
“From an investment standpoint, I’ve always found that if something is heavily advertised on television, it’s not a good thing to do,” said Gary P. Brinson, a philanthropist who spent 40 years as an investment strategist. “Right now, it’s hard to find anywhere on television where you don’t see gold and silver being advertised.”
For all the excitement, so far, it is hard to find anyone who is using gold or silver to buy anything. But here in Farr West, about 40 miles north of Salt Lake City, there is at least some precedent for such transactions.
Decades ago, the rambling Smith and Edwards store, a kind of giant 7-Eleven from the Old West that sells everything from survival kits to sporting goods and copies of the Constitution, had a special sale, offering a very favorable rate if people made purchases with “junk silver” dollars and half dollars. In the 1980s, the store sold a man a $1,200 air compressor for a little less than 4 ounces of gold, recalled Bert Smith, one of the owners, who is now 91.
Mr. Smith said that he liked the new law, and that he was ready to accept silver and gold. But he does not expect to see much brought to his registers.
“I don’t suppose there’s going to be a big run on it,” Mr. Smith said, “because people are going to hang on to their gold and silver more than ever.”
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Interesting stuff here. Sorry I missed until now the followup on Robert Mundell's view in Crafty's post a week ago. That was a good catch. He makes very important, contrarian points. In all economic issues we have a multitude of different forces pushing and pulling in different directions. Mundell is far smarter than me and points out an aspect that was not previously addressed here. Nothing against him personally but to note his perspective, he is a Canadian, working in the US (Columbia) and consults with Europe and China. It was his work making the Euro possible that won his Nobel, not his previous work designing the Reagan plan.
About the Euro going away (mentioned in the thread), I don't know about that, but if it did go away we would just face the more complicated world we had before, with a separate Deutch Mark, Pound Sterling, Belgian Franc etc. etc. It seems more logical for Europe to boot out the countries not complying fiscally and economically, than to end the currency.
Former WSJ editor Bartley wrote that he and Milton Friedman used to argue publicly over fixed vs. floating currency acknowledging he took no pleasure being spanked by Milton Friedman, a mentor of his I'm sure. There are good arguments on both sides of this. Basically a fixed rate eliminates distractions and excuses and force good money supply policies, a floating rate can adjust constantly to balance the real supply and demand forces on the currencies. Mundell is taking the side of fixed exchange rate between U.S. and Euro, which is consistent with his work making the single currency in Europe possible. In other words, locking the currencies would eliminate the next quantitative expansion. In the sense that we don't trust the economic future of Europe and vice versa, I'm not sure I see that wisdom.
We had a friendly argument here recently regarding weak or strong dollar. Mundell (I think) is saying we need a neutral dollar, which is correct, the only question is how best to get there.
I intuitively disagree with linking a currency to an inferior economy, whichever way that arrow may point, Germany with Greece, etc. or even a post-2012 America with Europe. If we were Germany, we should boot out Greece, and for Greece I would strive to fixthings and link back to the Deutch Mark or new, improved Euro, like Hong Kong and others have done with the US$.
For the dollar or the U.S. in general, I think I would care less about the Euro and work directly on getting our own house in order. I can't see how there is a sound monetary policy possible in the context of our other problems: unfunded and supersized government alongside our strangulated, private former production capability.
It is good to be warned by Mundell about how forces now in play could cause deflation and also good to be warned by everything else including our lying eyes about inflation setting in. These diseases both pose risks for different reasons.
Instead of the shining city on a hill, we seem more like a teetering teeter-totter unbalanced on a two or more sided cliff, with a host of different problems that could easily cause the next fall off the precipice in any one of these directions. A dearth of energy, the highest corporate taxes on earth, Carter-like individual tax rates coming, complete uncertainty about all taxes, a budget deficit unbalanced by 60% to the tune of a trillion and a half a year, 6 trillion over 4 years?, 50% of us and growing not participating, burning off our food supply as energy but not even start to make up for the real energy production we prohibit - eliminating our biggest export and starving the third world, putting a cap on everything down to exhaling. Take all that in and devise a plan that keeps our purchasing power constant and our debts honored. To me it is just a bad joke.
Mundell alludes to these other problems requiring solutions: "To supercharge the U.S. recovery, he also recommends permanently extending the Bush tax rates and lowering the corporate income tax rate to 15% from 35%. "
That is far more aggressive than those who call for lowering rates to the OECD average. I take that to be symbolic of his larger view of economics that none of this gets fixed without restoring growth to the economy.
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Inflation means too many dollars relative to the supply of goods and services. Deflation means that demand to too weak to maintain price levels. If we leave so many things this screwed up for very much longer, how can anyone accurately predict which direction we will fall.
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http://www.cnbc.com/id/43300748
Gold [GCCV1 1549.70 3.20 (+0.21%) ] and silver [SICV1 37.215 0.433 (+1.18%) ] have outperformed the S&P 500 by 8 percentage points over the past month as traders choose precious metals over stocks to stash cash.
Boris Engelberg | Stock4B | Getty Images
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The move is fueled by a number of worries: The European Union is planning its second Greek bailout, the Federal Reserve is angling to keep interest rates low while the second round of quantitative easing runs out—and global economic growth is slowing.
“Gold is more valuable at this juncture as the flight to quality accelerates,” said Stephen Weiss of Short Hills Capital. “Global equity indices will all be in decline as multiple growth engines sputter: US, China, Eurozone and Japan. Only place is commodities, and specifically gold, because that is where perceived safety and momentum will be.”
The SPDR Gold Trust [GLD 150.48 0.26 (+0.17%) ] and the iShares Silver Trust [SLV 35.71 0.37 (+1.05%) ], the most popular ways for the retail investor to trade these commodities, are both up 4 percent in the last month. The S&P 500 is down 4 percent.
Spdr Gold Trust(GLD)
150.48 0.26 (+0.17%%)
NYSE Arca
Over the last 80 years, gold has traded, on average, about 1.5 times the S&P 500, but traded as high as six-times the S&P 500 back in 1980 when inflation damaged the value of the dollar, according to John Roque, a technical strategist for WJB Capital. Roque, who like a lot of chart analysts, studies this ratio quite closely, is seeing a bullish breakout in gold.
For the metal to get back to its average price relative to stocks, it would need to increase 23 percent to $1900 from its current level around $1540.
“Gold is a currency and its re-monetization is accelerating,” said Brian Kelly of Brian Kelly Capital. “Stocks will not perform well in a stagflationary environment. China's next export is inflation, with a slow growth global economy profit margins will get squeezed.”
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By SETH LIPSKY
'Last October, I won the Nobel Prize in economics for my work on unemployment and the labor market," Peter Diamond, an economics professor at MIT, wrote in the New York Times on Sunday. "But I am unqualified to serve on the board of the Federal Reserve—at least according to the Republican senators who have blocked my nomination. How can this be?"
Not a bad question for the Republicans to be thinking about in the wake of Mr. Diamond's decision to withdraw his name from consideration for the Fed. Announcing his decision in the Times, Mr. Diamond warned of what he called "a failure to recognize that analysis of unemployment is crucial to conducting monetary policy."
Is another Ph.D. in economics really what is needed at the Federal Reserve? Prof. Diamond's leading opponent, Sen. Richard Shelby of Alabama, wants someone who has more experience in crafting monetary policy. Yet the Fed has plenty of experts in monetary policy.
I'd suggest what the board of the Fed really needs is a sage of the Constitution. The Constitution is the only place where our government gets its monetary powers and disabilities. And the more the Fed flounders during the course of this monetary crisis—in which the value of a dollar has plunged to less than a 1,500th of an ounce of gold—the more glaring is the blitheness of its attitude toward America's foundational law. And, for that matter, toward how the Founders of America thought about money.
This became clear within moments of Ben Bernanke being sworn in as the Fed's chairman in 2006. President Bush had gone over to the Federal Reserve for the occasion, and after the constitutionally required oath was sworn, Mr. Bernanke went over to a microphone to offer thanks to the president and his colleagues. Then he made an odd statement.
"The Federal Reserve," he said, "was created by Congress in 1913, and it was entrusted with the power, granted originally to the Congress by the U.S. Constitution, to coin money and regulate the value thereof."
Yet the Federal Reserve Act that Congress passed in 1913 didn't contain a single reference to the coinage power. On the contrary, as scholar Edwin Vieira Jr., has written, "one can search the Act until his eyes fall out without finding a delegation of the '"power to coin money.'"
The Supreme Court case that vouchsafed the power of the Congress to set up a national bank—McCulloch v. Maryland (1819), one of the most famous decisions ever handed down by the court—didn't mention the coinage power either, though it did allude to the taxing and spending power and the war powers.
By claiming power under the coinage clause, Mr. Bernanke was behaving a bit like Secretary of State Alexander Haig when, after President Ronald Reagan was shot, he suggested, albeit fleetingly, that he had the constitutional authority of the president. The fact is that not long after the Constitution was ratified, Congress exercised its coinage power not by creating the Fed but, in the Coinage Act of 1792, the United States Mint.
Even if, somewhere in the mists, the Fed can trace its authority to the coinage power, who on the Fed board is going to look out for these kinds of issues? Or more basic ones—like what a dollar really is, and what is its purpose?
Back in March, when Chairman Bernanke testified before the House Financial Services Committee, Congressman Ron Paul asked him for his definition of the dollar. Mr. Bernanke made no mention of the Constitution or any law passed by Congress. Instead he replied that his definition of a dollar was what it will buy.
That isn't how the Founders thought about the dollar. They thought about it as a measure of value. They gave Congress the coinage power in the same sentence in which they also gave it the power to fix the standard of weights and measures. When they twice used the word "dollars" in the Constitution, they had something specific in mind—371¼ grains of silver. They made reference not only to silver but to gold.
My guess is that the Founders would agree with Mr. Diamond when he writes that "[w]e need to preserve the independence of the Fed from efforts to politicize monetary policy." This is why they defined money in terms of silver and gold, the latter in particular being the measure of value that is hardest to politicize. Wouldn't it be nice to have among the governors of the Fed someone who thinks about money not in terms of theories but in the constitutional terms in which the Founders thought?
Mr. Lipsky is editor of the New York Sun. An anthology of its editorials on the gold standard, "It Shines for All," has just been published by New York Sun Books.
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From an internet friend who is deep into Austrian economics:
==================
A good article, as most of "Pater Tenbrarum's" articles are -- and solidly
grounded in a good understanding of Austrian School economics, too.
In my mind we truly have an unprecedented situation in the world. Almost
every government, everywhere, is facilitating a rapid debt buildup -- mostly
unproductive debt created by issuing new money unbacked by any commodity or
even any productive activity. Whenever markets swoon and threaten to stop
some of the nonsense, these governments act to prevent any correction from
being completed. They give yet more newly created money to the entities that
have already wasted hundreds of billions of dollars of real resources -- and
then count the ensuing spending as "economic activity." It's not; it's
un-economic activity. This is not a process that can continue forever.
Given where we are now, it's pretty clear that governments around the world
will continue this craziness until some circumstance forcibly prevents them
from doing so. By definition, I would think, such a crisis will be bigger
and more difficult to endure than any previous crisis.
I will post yesterday's Doug Noland commentary immediately below. I wish he
wrote the English language better than he does, but Noland still does
understand some things about credit expansions that elude most other
analysts. He writes the weekly Credit Bubble
Bulletin<http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10541>
.
Here is one of my key take-away paragraphs from Noland's column:
"At some inevitable - if not predictable - point the markets will care
tremendously whether a Credit system is sound or not. Regrettably, the
current era’s ... unique capacity for sustaining non-productive debt booms
poses major problems. In short, the booms last too long and activist
policymaking ensures they end up afflicting the heart of Credit systems.
These protracted Bubbles are resolved through problematic crises of
confidence, debt revulsion and economic restructuring."
Tom
The King Of Non-Productive Debt:
There is important confirmation of the “bear” thesis to discuss. But, as
usual, let’s first set the backdrop:
The world is in the midst of history’s greatest Credit Bubble. A
dysfunctional global financial system essentially operates without
mechanisms to regulate the quantity and quality of debt issuance. In
response to severe banking system impairment and fiscal problems in the
early-nineties, the Greenspan Fed helped nurture a Credit system shift to
nontraditional marketable debt. The bank loan was largely replaced by
mortgage-backed securities (MBS), asset-backed securities (ABS), GSE debt
instruments, derivatives and a multitude of sophisticated “Wall Street”
Credit instruments. The Credit expansion grew exponentially, while becoming
increasingly detached from production and economic wealth-creation (the
boom, in fact, exacerbated deindustrialization).
The Fed implemented momentous changes in monetary management to bolster the
new “marketable debt” Credit system structure, including “pegging”
short-term interest rates; serial interventions to assure “liquid and
continuous markets;” and adopting an “asymmetrical” policy framework that
disregarded asset inflation/Bubbles, while guaranteeing the marketplace an
aggressive policy response to any risk of market illiquidity or
financial/economic instability. Massive expansion of marketable debt
coupled with a highly-accommodative policy backdrop incited incredible
growth in speculation and leveraging. Over time, trends in U.S. Credit,
policy and speculative excess took root around the world.
Global markets suffered a devastating crisis of confidence in 2008. The
failure of Lehman Brothers, in particular, set off a panic throughout global
markets for private-sector debt, especially Credit intermediated through
sophisticated Wall Street structures. Unprecedented government intervention
reversed the downward spiral in Credit and economic output. Especially in
the U.S., Trillions of private debt instruments were put under the umbrella
of government backing. Meanwhile, Trillions more were acquired by the Fed,
ECB and global central bankers in the greatest market intervention and debt
monetization in history. Policy making – fiscal and monetary, at home and
abroad – unleashed the “Global Government Finance Bubble”.
Currency market distortions have been instrumental in sowing financial
fragility and economic instability. Chiefly because of the dollar’s special
“reserve currency” status, U.S. Credit system excesses have been
accommodated for way too long. Global central banks have been willing to
accumulate Trillions of our I.O.U.s, providing a critical liquidity backstop
for the marketplace. Highly liquid and orderly currency markets have been
instrumental in ensuring a liquid Credit market, which has provided our
fiscal and monetary policymakers extraordinary flexibility to inflate our
Credit, our asset markets and our economy. Meanwhile, massive U.S. Current
Account Deficits and other financial flows have inundated the world,
creating liquidity excess and unfettered domestic Credit expansion
throughout the world. Global imbalances, having mounted for decades, went
“parabolic” over the past few years.
I would argue strongly that the euro currency regime owes much of its great
success to the structurally weak U.S. dollar. For all the flaws and
potential pitfalls of a common European currency, the euro has from day one
looked awfully appealing standing side-by-side with the dollar. And the
buoyant euro created powerful market distortions that promoted Credit excess
throughout the region, especially in Europe’s periphery (Greece and the
so-called “PIIGS” would never have enjoyed the capacity to push borrowing to
such extremes had they been issuing debt denominated in their own
currencies). The weak dollar and strong euro – along with the perception
that the Eurozone and ECB would never tolerate a default by one of its
sovereigns – were instrumental in promoting profligate borrowing, lending,
spending and speculating.
I have recently turned more focused on differentiating between “productive”
and “non-productive” debt. This is an important analytical distinction –
although, by nature, a challenging gray area for Macro Credit Analysis. At
the time of its creation, there might actually be little difference from a
systemic perspective whether a new financial claim is created in the process
of financing real investment or an asset purchase or, instead, to fund a
government stimulus program. In each case, new purchasing power is released
into the system. The key is that the new Credit stimulates economic
“output” through increased spending, incomes and/or asset inflation.
Especially during the halcyon Credit boom days, the markets will pay scant
attention to the assets underpinning the new debt instruments (particularly
when policymakers are actively intervening and distorting markets!).
However, don’t be fooled and don’t become too complacent. At some
inevitable - if not predictable - point the markets will care tremendously
whether a Credit system is sound or not. Regrettably, the current era’s
(unrestrained global finance, structurally-unsound dollar, “activist”
policymaking, rampant global speculation, etc.) unique capacity for
sustaining non-productive debt booms poses major problems. In short, the
booms last too long and activist policymaking ensures they end up afflicting
the heart of Credit systems. These protracted Bubbles are resolved through
problematic crises of confidence, debt revulsion and economic
restructuring.
First of all, booms create a fragile mountain of debt not supported by
underlying wealth-creating capacity. Second, Credit Bubbles inflate various
price levels throughout the economy, creating systemic dependencies
requiring ongoing debt and speculative excess. And, third, the boom in
non-productive debt will tend to foster consumption and malinvestment at the
expense of sound investment in productive capacity. When the boom
eventually falters, market revulsion to unsound debt, the economy’s
addiction to uninterrupted Credit expansion, and the lack of capacity for
real wealth creation within the (“Bubble”) real economy ensure a very severe
crisis and prolonged adjustment period. These dynamics become critically
important as soon as a government (finally) loses its capacity to perpetuate
the Bubble (i.e. Greece, Portugal, Ireland, etc.)
As a crisis unfolds, the markets eventually must come to grips with a very
harsh reality: There will be denial and it will take some time to really
sink in - but the markets will come to recognize that too little of the
existing debt is backed by real wealth. Non-productive Credit booms are,
after all, essentially “Ponzi Finance” schemes. Worse yet, only huge
additional injections of debt/purchasing power will hold economic collapse
at bay. Fundamentally, non-productive Credit booms foment deleterious
effects upon the economic structure – that only compound over time. As we
have witnessed with Greece and Ireland, “bailout” costs can quickly
skyrocket to meaningful percentages of GDP - and will keep growing.
And once stunned by the downside of “Ponzi Finance,” markets will be keen to
mitigate risk exposure to the next episode. This is the essence of
“contagion effects.” Especially in interlocking global markets dominated by
leveraged speculation and trend-following trading strategies, de-risking and
de-leveraging in one market tend to quickly translate to risk aversion and
faltering liquidity throughout the marketplace. Markets perceived as
liquidity abundant can almost overnight be transformed to
liquidity-challenged. This dynamic went to devastating extremes during the
2008 crisis – only to begin mount a resurgence with last year’s Greek debt
crisis and contagion.
It has been my thesis that last year’s aggressive market interventions –
QE2, the European fiscal and monetary “bailouts,” and massive global central
bank monetization – incited a highly speculative Bubble environment
vulnerable to negative liquidity surprises. And now we’re down to the final
few weeks of QE2. The European bailout strategy is unwinding, with little
possibility of near-term stabilization. Meanwhile, the US economy has
downshifted in spite of massive fiscal and monetary stimulus. Risk and
uncertainty abound; de-risking and de-leveraging are making a comeback.
Bloomberg went with the headline, “Fed’s Maiden Lane Sales Trigger Bank
Stampede to Dump Risk.” At The Wall Street Journal, it was “As ‘Junk’ Bonds
Fall, Some Blame the Fed.” Both articles noted the deterioration in pricing
for a broadening list of Credit market instruments, including junk bonds,
subprime mortgage securities, and various Credit derivatives. And while the
Fed’s liquidation of an old AIG portfolio is surely a drag on some prices, I
believe the rapidly changing liquidity backdrop is more indicative of global
de-risking dynamics. This is providing important confirmation of the bear
thesis.
There are fascinating dynamics at work throughout our Credit market.
Arguably, the U.S. is the King of Non-Productive Debt. In the wake of a
historic expansion of non-productive household debt comes a Bubble in
government (Treasury and related) Credit. The assets underpinning too much
of the U.S. debt mountain are of suspect quality, although this hasn’t
mattered recently. And in true Bubble fashion, the marketplace has
increasingly gravitated to Treasury debt as the “Greek” crisis escalates and
contagion effects gather momentum. The corporate debt market has enjoyed
extreme bullish sentiment – along with waves of investment and speculative
inflows. While the corporate balance sheet appears sound, I would counter
that corporate earnings and cash flows have been artificially inflated by
unsustainable federal deficits. In particular, the bubbling junk bond
market would appear vulnerable to the deteriorating liquidity backdrop.
Elsewhere, there is the murky world of subprime derivatives and such. This
bastion of speculative excess certainly enjoyed the fruits of policy-induced
reflation. But not only has housing performed dismally, there are now the
market issues of de-risking and liquidity uncertainties. Today from the
WSJ: “Since April, prices of many subprime mortgage securities have
declined between 15% and 20%... The decline in subprime mortgage bonds
accelerated in the last two weeks…” From Bloomberg this morning: “Declines
in credit-default swaps indexes used to protect against losses on subprime
housing debt and commercial mortgages accelerated this month, reaching
almost 20% in the past five weeks..” Also from Bloomberg: “Default swaps
on the six largest U.S. banks have gained an average of 19.4 bps to 137.2
bps since May 31…”
In conclusion, support seemed abundant this week for the thesis which holds
that the U.S. Credit system and economy are much more vulnerable to
contagion effects than is commonly appreciated. Treasury and dollar rallies
appear constructive for system liquidity. In reality, it is likely that
both markets are heavily impacted by speculative trading (speculators, in
various forms, have used Treasury and dollar short positions to finance
higher-returning holdings). Strength in the Treasury market and the dollar
are indicative of – and place additional pressure on – the unwind of
leveraged trades. And it is when the speculator community finds itself back
on its heels and backing away from risk that liquidity becomes a critical
market issue.
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Data Watch
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The Producer Price Index (PPI) increased 0.2% in May To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 6/14/2011
The Producer Price Index (PPI) increased 0.2% in May, higher than the consensus expected rise of 0.1%. Producer prices are up 7.3% versus a year ago.
The May gain in the PPI was led by energy, which increased 1.5%. Food prices fell 1.4%. The “core” PPI, which excludes food and energy, increased 0.2%, matching consensus expectations.
Consumer goods prices rose 0.2% in May and are up 9.4% versus last year. Capital equipment prices were up 0.2% in May and are up 1.3% in the past year.
Core intermediate goods prices increased 0.9% in May and are up 6.3% versus a year ago. Core crude prices fell 0.9% in May but are up 19.0% in the past twelve months.
Implications: Producer prices continued to move higher in May, outpacing consensus expectations, and are up 7.3% in the past year. Most of the gain in May was due to energy, but core prices (which exclude food and energy) are up at a 3.5% annual rate in the past six months. Further up the production pipeline, core intermediate prices increased 0.9% in May and are up 6.3% versus a year ago. Core crude prices, despite slipping in May, are up 19% in the past year. So while the Federal Reserve can still claim core inflation is low for consumers, core producer prices are accelerating. Based on these inflation signals and the current state of the economy, the Fed’s monetary policy is way too loose. With oil prices so volatile, producer prices are going to be volatile as well. However, we anticipate that the underlying trend in producer price inflation will remain too high. In other recent inflation news, trade prices continue to escalate. Import prices increased 0.2% in May and are up 12.5% versus a year ago. Excluding oil, import prices increased 0.4% in May and are up 4.5% in the past year. Export prices rose 0.2% in May and are up 9% versus a year ago. Excluding farm products, export prices are up 7% in the past year. Like back in the early 2000s the Fed has been too loose for too long.
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The Consumer Price Index (CPI) increased 0.2% in May To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 6/15/2011
The Consumer Price Index (CPI) increased 0.2% in May versus a consensus expected gain of 0.1%. The CPI is up 3.6% versus a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) was up 0.2% in May and is up 4.2% in the past year.
The rise in the CPI came despite a 1.0% drop in energy prices. Food prices were up 0.4%. Excluding food and energy, the “core” CPI increased 0.3% versus a consensus expected gain of 0.2%. Core prices are up 1.5% versus last year.
Real average hourly earnings – the cash earnings of all employees, adjusted for inflation – rose 0.1% in May but are down 1.6% in the past year. Real weekly earnings are down 1.0% in the past year.
Implications: The Federal Reserve is running out of room to hide. Policymakers have used low “core” consumer inflation (which excludes food and energy) to justify keeping short-term interest rates near zero. But core inflation is accelerating. Although core prices are still up only 1.5% in the past year, they increased 0.3% in May – the most for any month since 2006 – and are up at a 2.5% annual rate in the past three months. The increase in core prices in May was broad-based, led by vehicle costs, shelter (homes and hotels), and clothing. The unusually sharp increase in auto prices in May is related to supply-chain disruptions from Japan. But accelerating core inflation is evident even without autos. The surprising news in today’s report was that, despite a 1% drop in energy prices, overall consumer prices still climbed 0.2%, which was more than the consensus expected. The CPI is up 3.6% in the past year. The measure we closely follow, “cash inflation,” is everything in the CPI (including food and energy) but without owners’ equivalent rent (the government’s estimate of what homeowners would pay if they rented their own homes). Cash inflation also increased 0.2% in May and is up 4.2% versus a year ago. Inflation has been evident at the producer level for some time. Now, producers are passing some of those costs on to consumers. Rising inflation is a concern now, but we fully expect the Fed to maintain short-term interest rates near zero until mid-2012.
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http://hotair.com/archives/2011/06/14/obama-on-unemployment-dont-forget-that-those-atms-are-taking-some-jobs-too/
Our well educated president. Thanks academia!
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http://www.abc.net.au/news/stories/2011/06/17/3246239.htm
Greece on brink of economic abyss
By European correspondent Rachael Brown
Updated Fri Jun 17, 2011 10:37am AEST
Historic moment: George Papandreou says Europe faces a huge challenge. (AFP: Louisa Gouliamaki, file photo)
Related Story: CBA says Greek crisis won't affect rates Related Story: Aussie market's big slide on Greece fears Related Story: Greek PM offers to quit after mass protests Related Story: Raging Greeks stage biggest anti-austerity protest Greek prime minister George Papandreou has spent his 59th birthday trying to stop his government and the country's economy from slipping into an abyss.
Greece stands on the brink of default and needs to push through a new $38 billion austerity program to secure the next slice of its international bailout.
Mr Papandreou has deferred a parliamentary reshuffle - which was aimed at shoring up support for the austerity cuts - until later on Friday (local time).
European leaders are worried the political instability will rattle nervous investors and the Greek economy will go belly up.
In a dramatic address, Mr Papandreou told his party Greece faced a historic moment.
"The challenge before us, the moment we are facing, is historic. Either Europe will make history or history will wipe out the European Union," he said.
"The changes have been painful but the sooner we make them, the sooner we can get out of the crisis and concentrate on our strengths.
"We don't have the luxury of desertion. This is the time for battle."
Mr Papandreou's government is locked in tough negotiations with its European peers for a new bailout.
At this stage the country cannot even afford to pay its bills for this month.
After the recent violent scenes on the streets of Athens, every European market opened lower, with London, Paris and Frankfurt initially down more than 1 per cent before recovering.
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http://www.bloomberg.com/news/2011-06-16/europe-s-lehman-moment-looms-as-greek-debt-unravels-markets-euro-credit.html
Europe’s ‘Lehman Moment’ Looms as Greek Debt Unravels Markets: Euro Credit
By Mark Gilbert and Liz Capo McCormick - Jun 16, 2011 3:29 AM MT
A protester walks through tear gas outside the Greek Parliament in central Athens, during a rally against plans for new austerity measures, on Wednesday, June 15, 2011. Photographer: Lefteris Pitarakis/AP
Play Video
June 16 (Bloomberg) -- Dean Curnutt, founder and chief executive officer of Macro Risk Advisors, talks about the European sovereign debt crisis. Curnutt speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
Play Video
June 16 (Bloomberg) -- Bloomberg's Linzie Janis and Nicole Itano report on Greek Prime Minister George Papandreou's efforts to reassert his authority after a day of protests in central Athens and media reports he was in talks to step down in favor of a unity government. (Source: Bloomberg)
Play Video
June 15 (Bloomberg) -- Jim Conklin, head of investment research at FX Concepts LLC, talks about the European debt crisis and the impact on the euro. He also discusses the outlook for the dollar and emerging market currencies. Conklin speaks with Bloomberg’s Paul Dobson at a conference in London. (Source: Bloomberg)
Play Video
June 16 (Bloomberg) -- Scott Minerd, chief investment officer at Guggenheim Partners LLC, talks about Greece's debt problems. Minerd also discusses the outlook for global financial markets and the U.S. economy. He speaks from Los Angeles with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
Play Video
June 16 (Bloomberg) -- Andrew Freris, a senior investment strategist for Asia at BNP Paribas Wealth Management, talks about Greece's debt problems. The European Central Bank said yesterday the threat of the Greek debt crisis spilling over into the banking sector is the biggest risk to the region’s financial stability. Freris speaks in Hong Kong with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
Markets were roiled yesterday as Greek Prime Minister George Papandreou said he would name a new government and call a vote of confidence in Parliament. Photographer: Hannelore Foerster/Bloomberg
Protesters raise a Greek flag decorated with 'For sale' stickers outside the parliament building during a strike in Athens. Photographer: Kostas Tsironis/Bloomberg
.
The European Union’s failure to contain the Greek debt crisis is sending fresh shockwaves through currencies, money markets, equities and derivatives.
The euro lost more than 2 percent against the dollar in the past two days and the cost of protecting corporate bonds soared to the highest level since January, with credit-default swaps anticipating about a 78 percent chance that Greece won’t pay its debts. Equities declined around the world, while a measure of fear in fixed-income markets jumped the most since November.
Market moves suggest heightened concern that authorities won’t be able to keep Greece’s debt troubles from spreading after Moody’s Investors Service said it may downgrade BNP Paribas SA and two other big French banks because of their investments in the southern European nation. The collapse of Lehman Brothers Holdings Inc. in September 2008 caused credit markets worldwide to freeze as investors fled all but the safest government debt.
“The probability of a eurozone Lehman moment is increasing,” said Neil Mackinnon, an economist at VTB Capital in London and a former U.K. Treasury official. “The markets have moved from simply pricing in a high probability of a Greek debt default to looking at a scenario of it becoming disorderly and of contagion spreading to other economies like Portugal, like Ireland, and maybe Spain, Italy and Belgium.”
New Government
Lehman’s collapse contributed to $2 trillion in writedowns and losses at the world’s biggest financial institutions, data compiled by Bloomberg show, and central banks cut interest rates to record lows as economies slipped into recession.
Markets were roiled yesterday as Greek Prime Minister George Papandreou said he would name a new government and call a vote of confidence in Parliament as he seeks to pressure rebel lawmakers to back an austerity plan that would secure a new bailout. The MSCI World (MXWO) Index fell a further 1.1 percent today, while the Swiss franc rose to a record against the euro.
Papandreou needs to clinch a parliamentary vote on a 78 billion-euro ($110 billion) five-year package of budget cuts and asset sales by July to ensure the country receives a new EU aid package to avoid the euro-area’s first default.
“Our duty is to the nation, not to political parties,” Papandreou said in comments televised live on state-run NET TV. “I will form a new government and immediately afterwards seek a vote of confidence in Parliament. It is a time for responsibility.”
‘Armageddon Scenarios’
Papandreou’s options narrowed as his bid to garner support from the biggest opposition bloc failed, party allies turned against him and police deployed tear gas to break up anti- government protests in central Athens.
“This is by no means the end of the story, but based on current majority, such a motion should pass,” Charles Diebel, head of market strategy at Lloyds Bank Corporate Markets in London, wrote in a note to clients yesterday. “If not, then Armageddon scenarios come into play, which include default and potentially the whole contagion scenario plays out.”
Earlier this week, Standard & Poor’s slashed Greece to CCC from B, handing the nation the world’s lowest credit rating and noting it’s “increasingly likely” to face a debt restructuring.
Greece’s unemployment rate jumped to 15.9 percent in the first quarter from 14.2 percent in the last three months of 2010, the Hellenic Statistical Authority in Athens said today. The jobless rate, at a record 16.2 percent in March, has climbed faster than projected under last year’s 110 billion-euro bailout.
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In a speech this morning in Atlanta, I called for the repeal of the Dodd-Frank legislation and dramatic reforms in the operation of the Federal Reserve, starting with a full-scale audit of its activities.
During the 2008 financial crisis, the Federal Reserve made thousands of loans to banks and other large institutions for reasons that aren’t entirely clear. These loans totaled at least three trillion dollars and exposed the American taxpayer to potentially enormous financial liability for losses.
Because such decisions of the Federal Reserve affect the value and stability of the dollar, and therefore the life and livelihood of every American, we have every right to ask - who got the money?
If you agree, please take a moment to watch our video laying out our "Who Got the Money?" proposal
http://www.youtube.com/watch?v=4861wQcacSk&feature=player_embedded
and sign our petition in support of a full-scale audit of the Federal Reserve.
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Fed to End Stimulus Measures as Planned
The nation’s central bank said Wednesday that it would complete the planned purchase of $600 billion in Treasury securities next week as scheduled, and then suspend its three-year-old economic rescue campaign, leaving in place the aid it already is providing but doing nothing more, for now, to boost growth.
“The economic recovery is continuing at a moderate pace, though somewhat more slowly than the committee had expected,” the Fed said in a statement. “The committee expects the pace of recovery to pick up over coming quarters and the unemployment rate to resume its gradual decline.”
The Fed’s policy board, the Federal Open Market Committee, voted unanimously to maintain its two-year-old commitment to hold a benchmark interest rate near zero “for an extended period.”
Read More:
http://www.nytimes.com/2011/06/23/business/economy/23fed.html?emc=na
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The end of QE2 means interest rates go up.(?) The piece implies they won't, because the Fed will keep the overnight rate they charge banks at near zero. But that is not the rate that you and I and businesses or government will pay.
Rough numbers, let's say the Fed now needs to sell a trillion (a year) more of government debt to willing buyers than it was selling before. The US savings rate is zero and China doesn't want any more. We sell the notes by raising the (interest rate) yield until they sell. QE was the mechanism for tampering with that. When they end the intervention, rates go to market rate, which could be very high.
"The Fed’s policy board, the Federal Open Market Committee, voted unanimously to maintain its two-year-old commitment to hold a benchmark interest rate near zero for an extended period.”
Maybe so. Others would say that the Fed does not set interest rates, markets do. Only by massive monetary infusion was the Fed able to hold rates down - temporarily.
They can change their mind about no more quantitative expansion, or they will see rates go up. Is there some other outcome I am missing?
If interest rates go up... some get hurt, some are helped. Maybe savings in this country can begin again. But our current ruling crowd wants an economy built on consumption, not savings and investment.
Higher interest cost is one more burden on business investment. They already have high energy costs, high regulatory compliance costs, high healthcare costs, high litigation costs, high property taxes, now they get a higher cost of carrying debt.
I favor right-sizing everything, including interest rates. Higher interest rates could strengthen the dollar. We've had that conversation - a stronger dollar is good and bad. Problem is that fixing a flat tire when the engine is blown still leaves us unable to drive the car, (as our President might say).
Recall the mistakes made implementing the Reagan plan. Tight money preceded the delayed and phased in tax rate cuts. The result was very harmful on production and employment - a truly painful (and avoidable) recession. When those tax rate cuts finally kicked in, we grew like gangbusters.
The difference here is that we don't even have a plan for balancing out a stable money policy with pro-growth policies. We don't have delayed or phased in growth policies, even on the horizon. Maybe the Ryan plan, but its buried in the House with no chance in the Senate or executive branch. Maybe the Pawlenty plan with support of one economist and 4% of Republicans. We are still years away from any real turn to pro-growth policies. We aren't even committed to having that option on the ballot. If it was and if it won, we are still talking Jan 2013 to start debating the details and then muddyling it down to get 60 votes in the Senate. Probably need to build a hospital in Connecticut and give a break to Nebraska.
The law of the land right now is actually the opposite - higher taxes in 2 years and choking off even more investment and recovery. Absent any simultaneous shift to pro-growth policies, a shift to tighter money alone is just applying another set of the brakes to an already decelerating economy.
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Worth noting at this moment is the situation with Greece and the Euro, leading to a flight to safety. This may (temporarily?) offset the points you make , , ,
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True. Still it would be resources flowing into to the U.S. to cover excess public spending instead of productive investment, solving no underlying problems. It is looking more and more like we don't have until 2013 to fix things.
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Agreed. My only intended point is to not be fooled if the the predicted consequences of ending QE2 do not appear immediatly.
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A former Reagan administration official who worked on trade policy is warning that unless Congress can agree to a significant reduction in spending that the world may run out of money in 6-18 months. When that happens the economy could enter “a death spiral.”
“Based upon world liquidity, the amount of money available to fund sovereign debt in 2011 is between $6-9 trillion,” Marc Nuttle told Townhall Finance. Nuttle runs the site DebtWall.org. “The world’s government projections for deficit financing in 2011 is $8-10 trillion. We are bumping into the ceiling of the world’s ability to fund ongoing sovereign deficits and debt on an annual basis.”
The $2-6 trillion shortfall will have to come from other parts of the economy like small business loans, the stock market, commercial bonds and consumer spending.
Unless something is done to reign in spending, Nuttle, an attorney from Oklahoma who served on Reagan’s Industrial Policy Advisory Committee, predicts that the financing of government debt will eat into the world’s ability to invest in public and private projects.
Money that would normally be available to capital markets would have to be switched just to finance interest rate increases.
“Interest rates may well hit double digits,” he said, “forcing businesses to operate without adequate float for inventory, materials, facilities and production. Businesses will fail, jobs will be lost, salaries and wages will be reduced.”
The Republican in charge of deficit negotiations reported this week that there has been no substantial progress with Democrats on cutting the spending of the federal government and has shutdown talks in frustration.
“Deficit-reduction talks led by Vice President Joe Biden have reached an ‘impasse,’ House of Representatives Majority Leader Eric Cantor said on Thursday,” according to Reuters, “adding that he will not participate in the meeting of the bipartisan group that had been scheduled for later in the day.”
An unnamed Senate Democrat aide said that both sides need to continue talking, but Reuters says “an aide to Senator Jon Kyl, a Republican member of the Biden group, declined to comment on whether the senator would attend Thursday's scheduled meeting.”
Nuttle says that in order to avert a short-term crisis the U.S. has to take the lead by cutting $500 billion in spending immediately.
“This will not completely solve the problem but it is an adequate step in the right direction,” Nuttle said. “This is the necessary amount that will alleviate pressure on the funding of 2012 world sovereign debt projections. It is still possible to develop a four-year plan to avert hitting the debt wall, but the plan requires immediate cuts in the deficit.”
A recent Rasmussen poll shows that Americans are concerned about the government’s ability to pay its debts. The survey released June 1st, “finds that 66% of American Adults are at least somewhat worried that the U.S. government will run out of money,” while “separate surveying has found that 50% of Likely U.S. Voters think it’s more likely that the government will go bankrupt and be unable to pay its debt before the federal budget is balanced.”
With the end of the Fed’s policy of quantitative easing, financing U.S. government debt is going to present a challenge almost immediately says Peter Schiff, president of Euro Pacific Capital.
“There’s no real private demand for Treasuries,” says Schiff, pointing out that central banks have been the main buyers. “No one buys them to hold them. They flip them, just like condos in Vegas.”
As a consequence either rates will have to go up to attract real buyers or the governments around the world will have to continue to subsidize U.S. debt, which will lead to a world “awash in inflation.”
Nuttle points out that under current artificially low rates, the interest on the U.S. debt is $187 billion. If interest rates were to go back to the historic norm of 4 percent, interest on the debt would come in at $600 billion.
In fact, Schiff says the low interest rates are holding back the recovery.
“Rates are going to have to go up, if you want to put people back to work. You can make rates as low as you want, but it does no good. Because if banks can get compensated for the risk,” through higher rates, “they aren’t going to loan money.”
Rates will have to go up or the economy is going to have to change, Schiff says.
“Money will have to come from someplace to finance government debt. Consumer spending, stock market, someplace.”
Nuttle predicts that when that happens, “The economy will enter a death spiral of increasing business failures, fewer jobs, higher prices, higher taxes and stagnant growth. Liberals in government will use the ensuing economic crisis as a pretext for increasing the size and scope of government.”
If that’s what’s going to happen, it sounds kind of like we’re out of money already.
Because, really, we are.
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Invest in metals: Guns, ammo and canned food.
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We are headed for a crash. There are just too many things that can go wrong. It is just a matter of time before it catches up and the fed, the imf the euro, etc cannot bs out of it.
Don't worry be happy like Tom Hanks who will vote for Bamster again.
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"Invest in metals: Guns, ammo and canned food."
"We are headed for a crash."
Yes, but...
We make all the incentives to invest in everything that continues stagnation, employs no one and produces no product. There isn't some speech from an incumbent or minor new policy or program capable of changing things. We need a national mind change.
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Forgive me, but that sounds like the logic of Carter's malaise speech.
We need to undo the massive wave of new regulations known and unknown, we need to eliminate the massive spending by the Feds, we need to end monetizing the debt and to protect the value of the currency, we need to throw out the tax code and replace it with something simple and fair e.g. the FAIR tax, etc etc etc.
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"We need to undo the massive wave of new regulations known and unknown, we need to eliminate the massive spending by the Feds, we need to end monetizing the debt and to protect the value of the currency, we need to throw out the tax code and replace it with something simple and fair e.g. the FAIR tax, etc etc etc."
Except for the FAIR tax part, I am with you on all of that.
Kudlow makes the point I think that oil is money and we just announced the release of more and more.
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http://www.realclearpolitics.com/articles/2011/06/24/did_the_iea_just_deliver_a_qe3_quick_fix_to_save_obamas_skin_110346.html
June 24, 2011
Did the IEA Just Deliver a QE3 Quick Fix?
By Larry Kudlow
Did the International Energy Agency (IEA) just deliver the oil equivalent of Quantitative Easing 3?
The decision to release 2 million barrels per day of emergency oil reserves -- with the U.S. covering half from its strategic petroleum reserve -- is surely aimed at the sputtering economies of the U.S. and Europe following an onslaught of bad economic statistics and forecasts. This includes a gloomy Fed forecast that Ben Bernanke unveiled less than 24 hours before the energy news hit the tape.
I wonder if all this was coordinated.
The Bernanke Fed significantly downgraded its economic projections, blaming this forecast on rising energy (and food) prices as well as Japanese-disaster-related supply shocks. Of course, the Fed head takes no blame for his cheap-dollar QE2 pump-priming, which was an important source of the prior jump in energy and commodity prices. That commodity-price shock inflicted a tax on the whole economy, and it looks to be responsible for the 2 percent first-half growth rate and the near 4.5 percent inflation rate.
Bernanke acknowledged the inflation problem, but he didn't take ownership of that, either. Reading between the lines, however, the Fed's inflation worries undoubtedly kept it from applying more faux stimulus to the sagging economy with a third round of quantitative easing.
Somehow, the new Fed forecast suggests that the second-half economy will grow at 3.5 percent while it miraculously presses inflation down to 1.4 percent. But the plausibility of this forecast is low. It's almost "Alice in Wonderland"-like.
So, low and behold, the IEA and the U.S. Department of Energy come to the rescue.
Acting on the surprising news of a 60 million barrel-per-day crude-oil release from strategic reserves scheduled for July, traders slammed down prices by $5 to $6 for both West Texas crude and European Brent crude. That's about a 20 percent drop from the April highs, which followed the breakout of civil war in Libya in March. In fact, both the IEA and the U.S. DOE cited Libyan oil disruption as a reason for injecting reserves.
Of course, most folks thought Saudi Arabia would be adding a million barrels a day to cover the Libyan shortfall. The evidence strongly suggests it has. So the curious timing of the oil-reserve release -- coming in late June rather than last March or April -- strongly suggests that governments are manipulating the oil price with a temporary supply add to boost the economy.
In theory, these reserves are supposed to be held for true national emergencies. But the real U.S. national emergency seems to be a political one -- that is, President Obama's increasingly perilous re-election bid amidst high unemployment and the second-worst post-recession economic recovery since 1950.
Tall joblessness, big gasoline prices, low growth, a poor housing sector, growing mortgage foreclosures and sinking polls are probably the real reason for the strategic-petroleum-reserve shock. European Central Bank head Jean-Claude Trichet warns of a "Code Red" emergency due to Greek and other peripheral default risk. China has registered its lowest manufacturing read in 11 months. U.S. jobless claims increased again. And the U.S. debt-ceiling talks have broken down. It's almost a perfect storm for economic and stock market jitters.
So, will the government-sponsored oil-price-drop work? Will it fix the economy, by lowering inflation and speeding up growth? Well, it might, provided that the Bernanke Fed doesn't bungle the dollar.
If Bernanke keeps his balance sheet stable, applying what former Fed Governor Wayne Angell calls quantitative neutrality, it's quite possible that the greenback will rise and oil and commodity prices will slip. In fact, ever since Bernanke's first press conference in late April, when he basically said "no QE3," the dollar had been stabilizing, with oil prices slipping lower.
Bernanke is right to hold off on QE3 -- we could all be surprised with a stronger dollar. Then we could lower tax, spending, regulatory, trade and immigration barriers to growth. If we did that, we wouldn't need another short-run, so-called government fix, this time from the strategic petroleum reserve.
Lord save us from short-run government fixes. Haven't we had enough of them?
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Kudlow is a good economist and I think his point about QE3 has merit.
"If Bernanke keeps his balance sheet stable, applying what former Fed Governor Wayne Angell calls quantitative neutrality, it's quite possible that the greenback will rise and oil and commodity prices will slip."
Here I do not understand the point about keeping the balance sheet stable (worth noting is that Scott Grannis is far more sanguine than most of us here for just this sort of thing) but IMHO Kudlow misses the point about the boost to the dollar at present coming from the flight to stability due to the Greek/Euro situation/crisis. In that the price of oil in dollars is to a great extent a function of the state of the dollars purchasing parity viz other currencies, of course this makes sense. So I suppose it is possible the Baraq-Bernanke may get a bit lucky here and get away with a bit of stimulus without us seeming to pay a price for it. Also to be remembered in taking meaning from the numbers is the low margin requirement/high market price volatility dynamic.
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Good points Crafty. I would add to this "In that the price of oil in dollars is to a great extent a function of the state of the dollars purchasing parity viz other currencies" that I think the Saudis and OPEC might be the last people on earth still trying to value their product on the gold standard, independent from any of the flawed currencies:
(http://2.bp.blogspot.com/_DLIvw6mZGBU/SbWWoCt-u0I/AAAAAAAAAV4/1X22uMWkYyQ/s1600/goldvsoil.jpg)
Oil and Gold 1970 through 2009
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http://www.ft.com/cms/s/0/23183a78-a0c6-11e0-b14e-00144feabdc0.html
Dollar seen losing global reserve status
By Jack Farchy in London
The US dollar will lose its status as the global reserve currency over the next 25 years, according to a survey of central bank reserve managers who collectively control more than $8,000bn.
More than half the managers, who were polled by UBS, predicted that the dollar would be replaced by a portfolio of currencies within the next 25 years.
That marks a departure from previous years, when the central bank reserve managers have said the dollar would retain its status as the sole reserve currency.
UBS surveyed more than 80 central bank reserve managers, sovereign wealth funds and multilateral institutions with more than $8,000bn in assets at its annual seminar for sovereign institutions last week. The results were not weighted for assets under management.
The results are the latest sign of dissatisfaction with the dollar as a reserve currency, amid concerns over the US government’s inability to rein in spending and the Federal Reserve’s huge expansion of its balance sheet.
“Right now there is great concern out there around the financial trajectory that the US is on,” said Larry Hatheway, chief economist at UBS.
The US currency has slid 5 per cent so far this year, and is trading close to its lowest ever level against a basket of the world’s major currencies.
Holders of large reserves, most notably China, have been diversifying away from the dollar. In the first four months of this year, three quarters of the $200bn expansion in China’s foreign exchange reserves was invested in non-US dollar assets, Standard Chartered estimates.
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Not sure of the reliability of this source/advertisement, and not really understanding of what is going on here , , , but it smells of the government trying to make gold ownership more difficult.
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http://www.goldworth.com/townhall.html
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Sounds like a Supreme Court case in the making. As the piece points out, they are not regulating gold bullion, they are banning it - taking away an unenumerated right! (?)
"The Ban on Physical/Tangible Bullion trading is set forth by the Dodd-Frank Reform and Consumer Protection Act"
This is a different law than the one contained in ObamaCare also aimed at destroying gold ownership. That one 'raises revenue' by tracking individual purchases and ownership of gold in order to tax what by definition isn't really a gain.
In a very real sense, the government joins your ownership your gold purchase, if it is even allowed. You cannot have any part of your investment back without first settling with them. The government owns the 'gain' portion of your gold and you only own what they determine to be left after it is run through multiple levels of unknown future taxation and surcharges.
In gold, you bought an ounce, you held an ounce, and you sell an ounce. How can that be a gain? People who held a dollar or dollar-based asset over that time period took a loss. All the gold owner did was perhaps avoid that loss on that portion of a portfolio. Same goes for real estate.
I wander here, but it shows some of the big government bias toward perpetual inflation, in addition to the compounding devaluation of our debt.
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I should know by now that an opinions titled with a question don't have the answers. They are saying that the purpose was to buy time to heal, not to cause the economic healing. No mention really of the damage done to our currency or credibility by such a policy. I think they are just marking in time the news that QE2 is ending and soon we will know happens next.
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http://www.washingtonpost.com/opinions/did-the-feds-qe2-work/2011/06/30/AGmW8lsH_story.html
Did the Fed’s QE2 work?
By Editorial, Published: June 30
WITH A FEW last multibillion-dollar mouse clicks,the Federal Reserve’s bond traders have finished the $600 billion program of Treasury-bond purchases known as “QE2.” This second round of “quantitative easing” — the economist’s term for money creation by direct central bank balance-sheet expansion — began last fall and followed a previous $1 trillion round at the height of the Great Recession in 2009. Federal Reserve Chairman Ben S. Bernanke announced QE2 in late August 2010 to prevent a spate of unexpected economic weakness from spiraling into a double-dip recession or outright deflation. QE2 has been controversial from the moment Mr. Bernanke announced it. But was it a success?
Let’s start with the positive side of the ledger. A year ago, inflation was running below the Federal Reserve’s rough target of 2 percent per year, a sign, to Mr. Bernanke, of deflation risk. That’s not a problem anymore. Deutsche Bank, to cite a typical blue-chip private-sector forecast, sees 2011 inflation running at 2.1 percent. QE2 also propped up the economy by bidding up the price, and thus lowering the yield, of Treasuries and other safe debt instruments. This encouraged investors to put their money into higher-yielding investments such as stocks, which reduced the cost of capital for businesses. And the Standard & Poor’s 500-stock index is indeed up 25 percent since last August. A cheaper dollar was an unstated, but obvious, consequence of QE2, and that too has occurred, arguably boosting U.S. exports.
But the negative consequences of QE2 — all of them also foreseeable — have canceled out some of the positives. Perhaps the most important of these was a commodity price boom, caused by the fact that many investors used the Fed’s freshly printed money to speculate on grain or oil. The winnings accrued to a wealthy few, while the U.S. middle class coped with higher prices for groceries and gasoline. And for all that, it is not even clear that the Fed achieved its primary goal of depressing the interest rate on long-term U.S. debt: The 10-year bond paid 2.5 percent when Mr. Bernanke announced QE2 but pays about half a percentage more than that today.
Economic growth has hardly taken off during QE2. Unemployment still lingers above 9 percent, and the Fed has lowered its 2011 growth forecasts from just over 3 percent to a bit less than 3 percent. Yes, the deflationary wolf has been chased from the door — but avoiding future inflation will be more difficult now that the Fed has a $2.7 trillion balance sheet to unwind.
To be sure, the picture might look very different if not for the disruptions wrought in the U.S. and global economies by the tsunami in Japan. And, like all other judgments about economic policy, any evaluation of QE2 must consider that things could have been even worse without it. Growth might have gone even lower and bond rates even higher if the Fed had not bought up the U.S. government's rapidly growing debt.
Still, it is hard to avoid the conclusion that this was, in the end, a holding action. QE2 was not so much an asset-buying program as a time-buying program — time for America’s households, firms and governments to deleverage and heal as best they could. QE2 is over and unlikely to be repeated; Mr. Bernanke was not kidding last August when he said, “Central bankers alone cannot solve the world’s problems.” Meanwhile, the prospects of much more fiscal stimulus seem doubtful. For better or worse, the U.S. economy may be on its own.
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I would also submit that the 2.1% inflation number is complete and utter bull excrement.
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"I would also submit that the 2.1% inflation number is complete and utter bull excrement."
Discussing 'real growth' with friends yesterday I was just making that same point. 'Real growth' is 'inflation adjusted' but the adjuster is a phony multiplier. I can't remember the latest formula but when they subtract out the things that are going up worst like energy and food, the result is necessarily false.
The context was Romney not being able to back up a line he stole from Peggy Noonan that Obama made things worse. Breakeven growth is roughly 3.1% 'real growth' in the false way we measure it. Anything below that (all of Obama's record) is negative growth - in other words, things are getting worse and monetary tricks don't address in any way what is systemically wrong.
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http://money.cnn.com/2011/07/12/markets/gold/
NEW YORK (CNNMoney) -- Gold jumped to a record high Tuesday after the minutes from the Federal Reserve's June policy meeting indicated the central bank might be open to more monetary stimulus.
Gold futures for August delivery climbed $13.10, or 0.9%, to a record high of $1,562.30 an ounce. In after-market electronic trading, gold rose as high as $1,574.30 an ounce.
The late-afternoon surge came after the minutes from the Federal Reserve's June meeting said "a few members" of the bank's Federal Open Market Committee said the bank "might have to consider providing additional monetary policy stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run."
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http://hotair.com/archives/2011/07/14/dollar-on-the-run-in-asia/
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http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8638644/Return-of-the-Gold-Standard-as-world-order-unravels.html
Return of the Gold Standard as world order unravels
As the twin pillars of international monetary system threaten to come tumbling down in unison, gold has reclaimed its ancient status as the anchor of stability. The spot price surged to an all-time high of $1,594 an ounce in London, lifting silver to $39 in its train.
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The Consumer Price Index (CPI) fell 0.2% in June To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 7/15/2011
The Consumer Price Index (CPI) fell 0.2% in June versus a consensus expected decline of 0.1%. The CPI is up 3.6% versus a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) was down 0.3% in June but is up 4.2% in the past year.
The fall in the CPI was all due to a 4.4% drop in energy prices. Food prices were up 0.2%. Excluding food and energy, the “core” CPI increased 0.3% versus a consensus expected gain of 0.2%. Core prices are up 1.6% versus last year.
Real average hourly earnings – the cash earnings of all employees, adjusted for inflation – rose 0.2% in June but are down 1.5% in the past year. Real weekly earnings are down 0.9% in the past year.
Implications: The Federal Reserve is losing its main excuse for keeping short-term rates near zero. Although the headline inflation number fell 0.2% in June, it was all due to what now appears to have been a temporary drop in energy prices. Higher energy prices in July mean the headline CPI will start moving up again in next month’s report. Today’s news is not a reason for the Fed or investors to become complacent about inflation. Despite the drop in June, consumer prices are up 3.6% in the past year and up 4.2% if we focus on “cash” inflation, which excludes the government’s estimate of what homeowners would pay themselves in rent. Moreover, monetary policymakers have been using low “core” inflation (which excludes food and energy) to justify keeping short-term interest rates near zero. But core inflation is accelerating. Although core prices are still up only 1.6% in the past year, they increased 0.3% in June following another 0.3% increase in May. In the past two months ‘core” prices are up at a 3.3% annual rate, the fastest two-month pace since 2006. The sharp increase in auto prices in June is related to supply-chain disruptions from Japan. Vehicle prices increased 1% in June and are up at an 11.2% annual rate in the past four months, the fastest pace on record (dating back to 1993). Inflation has been evident at the producer level for some time. Now, producers are passing some of those costs on to consumers. Rising inflation is a concern now, but we fully expect the Fed to maintain short-term interest rates near zero until at least mid-2012.
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Portfolio: The Question of the Eurozone's Future
July 14, 2011 | 1336 GMT
Click on image below to watch video:
Vice President of Analysis Peter Zeihan explains the existential difficulties that lie ahead for the eurozone.
Editor’s Note: Transcripts are generated using speech-recognition technology. Therefore, STRATFOR cannot guarantee their complete accuracy.
It’s hard to be bullish on much in Europe these days. The government bonds of Ireland, Portugal and Greece have all been downgraded to junk, the Europeans been sent back to the drawing board by the markets on their new bailout regimen and now the markets are talking about Italy being the next country to suffer a default. It’s easy to see why: next to Greece, Italy has the highest debt in Europe at about 120 percent of GDP. Its government is, shall we say, eccentric, and it has the highest debt relative to GDP of any country in the world with the exception of course of Greece and Japan. The sheer size of that debt, some 2 trillion euro, is larger than the combined government debts of the three states that are currently in receivership combined. In fact, it’s more than double the total envisioned amount of the bailout fund in its grandest incarnation.
Italy certainly deserves to be under the microscope, but STRATFOR does not see it as ripe for a bailout. Unlike Ireland or Portugal or Greece, Italy has a strong and large banking system, or at least healthy as compared to say, Ireland. So while Italy’s debt load is 120 percent of GDP, only 50 percent of GDP needs to be handled by outside investors, the banks handle everything else. But let’s keep such optimism in context. It’s now been 16 months since the first bailout of Greece back in March of last year and it’s becoming ever more apparent that the fear isn’t so much that the contagion from the weak states will infect the strong ones, but there are just a lot more weak states out there than anybody gave the Europeans credit for when this all started. So long as there is no federal entity with the political and fiscal capacity of dealing with the crisis, this is just going to get worse and it’s only a matter of months before what we think of as real states such as Belgium, Austria and Spain, are to be starting to flirt with conservatorship themselves.
Ad hoc crisis management can deal, has dealt, with the small peripheral economies, but it’s not capable of dealing with the problem that is now looming: potential financial instability and multi-trillion euro economies. With the illusions of stability that have sustained the euro to this point being peeled away one by one with every revelation of new debt improprieties, it’s only a matter of time before the euro collapses. This is of course unless one of three things happens. Option one is for the stronger nations to just directly subsidize the weaker nations, basically having the North transfer wealth in large amounts to the South year after year after year. Conservatively, that’s one trillion euros a year, and it is difficult to see how that would be politically palatable in a place like Germany.
Option two is to create something called Eurobonds. Right now the markets are scared of anything that has the word Portugal or Greece attached, and Greek debt is currently selling for about 16 percent versus the 3 percent of Germany. Eurobonds would allow European states to issue debt as a collective, so the full faith and credit of the European Union would back up any debt, which means that this 13 percent premium on Greek debt would largely disappear overnight. Of course that would mean that the European whole would be ultimately responsible for those debts at the end of the day, which means after a few years we’d be back in the same situation we are right now, with the debt ultimately landing on Germany’s doorstep once again. In STRATFOR’s view, the only difference between direct subsidization in the Eurobond plan would be when the Germans pay, now or later.
The third and final option is to simply print currency to buy up the government debt directly, either via the ECB or with the ECB granting a loan to the bailout fund to purchase the debt itself. This is an option that the Europeans are sliding toward because it puts off the hard decisions on political and economic power to another day. However it comes at a cost: inflation. Printing currency is a seriously inflationary business and for Europe this would put them in a double bind. Europe already has to import most of its energy, it already has a rapidly aging labor force and it already has very little free land upon which to build. Combined, this already makes the European Union the most inflationary of the world’s major developed economies, and that’s before you figure in printing currency.
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Mehtinks this one deserves extra attention , , ,
http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10554
The Sovereign Debt Crisis Learning Curve:
During the second-half of his reign, Alan Greenspan became fond of trumpeting the U.S. economy’s newfound resiliency. This was a theme peppered throughout his “Age of Turbulence” memoir, published in the pre-crisis year 2007. Greenspan cited computer and telecommunications technologies; monumental productivity advancements; a flexible workforce; the financial system’s superior capacity to effectively invest limited savings; and, of course, enlightened policymaking.
Back when I wrote more colorfully, I was fond of saying, “Financial crisis is like Christmas.” In hindsight, it would have been more accurate to write “private-sector financial crisis is…” Whether it was banking system debt problems from the early-90s; the series of “emerging” market Credit collapses; the unwinding of LTCM leverage; the bursting of the tech Bubble; the 2002 corporate debt crisis; or the spectacular collapse of the mortgage/Wall Street finance Bubble - the Fed would reliably respond to each and every crisis with the “gift” of reflationary policymaking.
And, no doubt about it, “inflationism” was the market gift that kept on giving. Crisis, in the Age of Activist Central Banking, created momentous opportunities to harvest speculative returns. Those that best understood and exploited these dynamics (our era’s “titans of industry”) accumulated incredible fortunes – and vast AUM (assets under management).
It’s becoming increasingly apparent these days that public (government) debt problems are a whole different kettle of fish. Rather than a “gift”, they instead present extraordinary challenges for both policy making and the markets. European policymakers are today at a complete loss. In Washington, politicians are making a sad mockery out of responsible debt management – and the markets have yet to even lower the boom.
From my analytical vantage point, the U.S. economy’s “resilience” was always more about New Age Finance than it was some New Paradigm economy coupled with sagacious economic management. The Fed’s pegging of short-term interest rates, along with timely market interventions, created powerful incentives for private-sector Credit expansion - in the real economy and throughout the financial sphere. System Credit, resilient as never before, was at the heart of it all. Over years evolved a most powerful dynamic encompassing a historic private-sector Credit boom and speculative financial Bubble - both backstopped by the GSEs and aggressive fiscal and monetary management.
Wall Street finance provided the nucleus of the private sector Credit boom: asset-backed securities, mortgage-backed securities, “repos,” derivatives, CDOs, CLOs, etc. New Age risk intermediation - “Wall Street alchemy” – created seemingly endless “safe” higher-yielding and liquid securities, the perfect fodder for the mushrooming “leveraged speculating community.” The structures both of the financial architecture and policymaking incentivized aggressive leveraging by the hedge funds and proprietary trading desks. And when the markets occasionally caught the leveraged players overextended and vulnerable, Washington was quick with market bailouts. These dynamics nurtured history’s greatest expansions of “private” sector debt and system leverage.
Of course, Fed rate cuts played a pivotal role in prolonging the Credit Bubble. Greenspan’s asymmetrical approach – transparent little “baby-step” tightening moves and aggressive rate-slashing in the event of mounting systemic stress – was a godsend for leveraged speculation. The critical role played by the GSEs has never received the Credit it deserves. Beginning with the faltering bond Bubble in 1994, the GSE’s became aggressive (non-price sensitive) buyers of MBS, mortgages and miscellaneous debt instruments anytime market liquidity became an issue (when the speculators needed to deleverage). GSE assets expanded $151bn (24%) in 1994, $305bn in 1998, $317bn in 1999, $242bn in 2000, $344bn in 2001, $240bn in 2002, and another $245bn in 2003. With effectively parallel “activist” central banks backstopping the markets – the Federal Reserve and the GSEs down the road - the mortgage finance Bubble inflated to historic proportions. This dynamic will not be repeated in our lifetimes.
Sovereign debt crises are altogether different in nature to those “private” affairs that we’ve become rather comfortable with over the years. Keep in mind that crises of confidence in private debt securities are quite amenable to rate cuts, the public sector’s explicit or implicit assumption/guarantee of private obligations, and system Credit reflation through public debt issuance and central bank monetization. If sufficiently determined to do so, policymakers have the capacity to resolve about any private debt issue. And, of course, the short-term benefits can be irresistible: i.e. buoyant asset markets, reduced unemployment, bolstered confidence, economic expansion, inflating tax receipts and reelection (or, in the case of central bank chairmen, hero status).
The great longer-term costs – which can remain “long-term” as long as policymakers perpetuate Credit Bubble excess – include mispriced finance, dysfunctional markets, the misallocation of resources, increasingly fragile financial and economic structures, social disquiet, geopolitical risks, and an unmanageable accumulation of public-sector debt and obligations. Importantly, the mechanisms that work all too well in dealing with private debt crisis are not readily available come that fateful day when the markets question the creditworthiness of the government’s debt load.
There is more attention paid these days to sovereign debt ratios and such. At about 150% of GDP, Greece finances were (belatedly) recognized as an unmitigated disaster. At 120%, Italy is too vulnerable. Here at home, the National Debt Clock shows federal debt surpassing $14.3 TN. Federal borrowings have expanded at a double-digit to GDP rate for the past three years, with total debt increasing more than $5.0 TN in short order. There is today no realistic prospect for meaningful fiscal reform.
And while Europe is briskly moving up The Sovereign Debt Crisis Learning Curve, complacency still abounds here at home. And the more hideous things appear in Europe and Washington, the more confident our markets become that policymakers will soon come to their senses and resolve the ugliness. Such wishful thinking is a holdover from the good old private debt crisis days.
Avoid thinking in terms of sovereign debt in isolation. The massive accumulation of public-sector debt is almost without exception symptomatic of deep systemic problems. Whether we’re discussing Greece, Spain, Italy, the U.S. or Japan, enormous deficits and public debt loads are reflective of a post-private-sector Credit Bubble environment. This is a critical issue. Not only are governments running up huge debts, the underlying economic structure has already been heavily impaired from years of Credit abuse. And as much as policymakers hope and intend for their borrowing, spending and monetizing programs to promote sound economic and financial recoveries, the reality is that expansionary policies exacerbate deleterious Credit Bubble effects. It’s a case of aggressive monetary stimulus thrown at systems already way out of kilter.
The empirical work of Carmen Reinhart and Kenneth Rogoff demonstrates conclusively that heavy debt loads negatively impact growth dynamics (they have found 90% of GDP an important threshold). This is no earth-shaking revelation, especially if one comes from the analytical perspective that huge accumulations of public debt are generally associated with an extended period of private and public sector Credit excess. And years of Credit-related excesses will almost certainly foment acute financial fragilities and economic impairment.
It’s no coincidence that the greatest expansion of public debt comes late in the cycle when the economy’s response to additional layers of debt becomes both muted and uneven. Indeed, a precarious dynamic evolves where enormous amounts of (non-productive) government debt are required just to stabilize increasingly fragile economic structures. In the meantime, late-cycle stimulus will most certainly distort and dangerously inflate highly speculative securities markets – especially when higher market prices are the direct aim of policy.
There was a Financial Times column today that posited that Italy’s problem was that it was stuck with the ECB rather than the Federal Reserve! If only the Fed were purchasing Italian sovereign debt as it does Treasurys, Italian debt service costs and deficits would be much lower. Crisis resolved. Well, monetary policy certainly does play a critical role in sovereign debt Bubbles and crises.
Back in the autumn of 2009, Greece could finance its massive deficit spending program for two-years at less than 2%. Portuguese yields were about 125 bps and Ireland 175 bps. Spanish and Italian 2-year yields were around 1.5%. The Fed’s, ECB’s and global central bankers’ moves to slash interest rates to near zero were instrumental in the marketplace’s accommodation of unprecedented government debt issuance at artificially low yields. The European “periphery” markets were part of the expansive Global Government Finance Bubble. And the market perception that monetary policy would ensure ongoing low sovereign debt service costs was instrumental in the market disregarding – and mispricing - Credit risk throughout the eurozone. Even last spring, after the Greek crisis’ initial eruption, markets held to the assumption that policymakers would sustain low sovereign borrowing costs and insulate bondholders from significant losses.
Not only has monetary policy fostered the rapid expansion of government debt at artificially low rates, it has also set the stage for a very destabilizing change in market perceptions. Particularly after many years of interventionist policymaking (throughout the protracted private Credit boom), the markets naturally turn complacent when it comes debt crisis risks. Yet as Europe is confronting these days, there are limited available options when crisis finally arrives at sovereign debt’s doorstep. At some point, fiscal and monetary stimulus comes to the inevitable end of the road. At some point, markets say “no mas.”
Piling on additional government debt is then no longer a solution, inaugurating the debilitating and depressing “austerity” cycle. And, as we continue to witness here at home, having the central bank monetize federal debt only worsens market distortions and delays desperately-needed fiscal (and economic) reform. As much as there was an element of certainty in the marketplace with regard to the mechanics of private-sector debt crisis resolution, sovereign debt Bubbles and crises just seem to foment uncertainty. Policymakers are destined to look incompetent, while markets will appear fickle and unstable. Meanwhile, fragile recoveries will turn increasingly vulnerable. And throughout, there will be a growing disconnect between what the markets have come to expect from policymakers and what they can now realistically deliver.
As witnessed in Greece, Ireland, and Portugal, there comes a point where the market recognizes debt trap dynamics and begins to price in sovereign risk. And it is not long into this process of risk re-pricing that the marketplace comes to view huge debt loads as unmanageable albatrosses. This destabilizing process has now commenced with Spain and Italy. Once unleashed, sovereign debt crisis momentum can prove difficult to contain.
To be sure, the debt situation in these economies remains manageable only as long as the markets are content to finance sovereign borrowings at monetary policy-induced low rates. Or, stated differently, Italy’s (and others’) debt load is viable only if the marketplace disregards risk. Well, the market is today rather keen to risk and debt dynamics - and has been determined to push borrowing costs significantly higher. This not only imperils the government debt and Credit default swap (CDS) markets, but casts an immediate pall on the Italian and European banking sector with their huge exposures to increasingly problematic sovereign debt. As an analyst quoted in the Financial Times put it, “A banking sector is only as strong as its sovereign.”
European Credit and inter-bank lending markets are faltering. The resulting de-leveraging and de-risking – and tightened general finance - will likely further pressure markets, overall confidence and economic activity – adding further pressure to the unfolding debt crisis. And as China and Asian central bankers witness the spectacle of an unraveling Italy, they must view the unfolding U.S. debt debacle with heightened trepidation. Perhaps this was on ECB President Trichet’s mind this past weekend when he referred to “the global debt crisis.”
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Mehtinks this one deserves extra attention , , ,
http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10554
The Sovereign Debt Crisis Learning Curve:
Hey! Let's tax those private jets!
Problem solved. Right?
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Things are worse than I said
By:Michael Barone | Senior Political Analyst Follow Him @MichaelBarone | 07/18/11 2:53 PM.
In my Sunday Examiner column I noted that the national debt currently amounts to 62 percent of gross domestic product and I cited Kenneth Rogoff and Carmen Reinhart’s book This Time Is Different for the proposition that economic growth is impaired when debt reaches 90 percent of gross domestic product. However, it has been pointed out to me (see this paper by Senate Budget Committee Republicans) that these two measures of debt are incommensurate: the 62 percent figure refers to public debt outstanding while Rogoff and Reinhart’s 90 percent refers to total debt. This underlines rather than undermines my point, for total debt now amounts to 95 percent of gross domestic product. We may already be at the danger point, rather than heading there fast.
Read more at the Washington Examiner: http://washingtonexaminer.com/blogs/beltway-confidential/2011/07/things-are-worse-i-said
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In the US we suffer from a continuing devaluation of our weakened currency. Elsewhere they are suffering from currencies that are too strong. Both scenarios cause other economic problems, as does the volatility and uncertainty.
http://www.telegraph.co.uk/finance/currency/8680740/Japan-follows-Switzerland-by-weakening-currency.html
Japan follows Switzerland by weakening currency
Japan has intervened to halt the rise of its currency aganist the dollar, to protect its own economy as investors piled into the yen as a safe haven on heightened fears about growth in the US and Europe.
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Switzerland, Japan, and Germany (i.e. pre-Euro) had this problem in the late 70s due to the Carter-Blumenthal economic policies.
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http://www.reuters.com/article/2011/08/08/us-markets-precious-idUSTRE7592IU20110808
Reuters) - Gold vaulted above $1,700 an ounce for the first time on Monday, after the respective pledges by the G7 and the European Central Bank to quell the turbulence in the financial markets did nothing to put investors at ease.
Traders said the ECB had made good on its promise to solve the euro zone debt crisis by widening its bond-buying program to include paper from Spain and Italy, but the move was not enough to allay deep rooted concerns about Europe's spreading debt crisis.
Friday's downgrade to the quality of U.S. sovereign debt by ratings agency Standard & Poor's was widely anticipated, but its longer-term impact on anything from mortgage rates to the economy is unclear.
Spot gold was set for a second consecutive trading rally, up 2.5 percent from Friday at $1,704.19 an ounce by 7:35 a.m. EDT, having hit a record $1,715.01 earlier and having traded at all-time highs in sterling and euros.
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http://www.cnbc.com/id/44051683
Former Federal Reserve Chairman Alan Greenspan on Sunday ruled out the chance of a US default following S&P's decision to downgrade America's credit rating.
"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default" said Greenspan on NBC's Meet the Press
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I've heard several grey beards pontificating this incredibly stupid line. Just how reassuring is it to say to lenders "We are going to print money and throw it out of helicopters"? :roll:
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Is he far enough out of power now that it is safe to say this...
Alan Greenspan is a buffoon. Intelligent on some level I'm sure but loaded with confusion, inconsistency and hypocrisy.
He was Chairman of the Council of Economic Advisers under President Ford, a distinction I would leave off my resume if I were him. He was chosen Fed Chair by President Reagan in June 1987 (first sign of Alzheimer's?) for credibility in the markets because he was a (so-called) Republican opponent of Reaganomics and therefore an intentional check and balance on our tax and fiscal policies. He was considered to be from the root canal wing of the Republican party, cut spending growth but don't do anything radical to grow the economy. Had he wrote Reagan's policies, we would still be in the Carter years. His speeches were open jokes on the market, inventing his own language so no one would know what he was saying.
We had expansionary policies following the crashes starting in March 2000 and following the financial and economic crises following 9/11/2001. Why did we still have expansionary monetary policies as we were approaching 50 consecutive months of job growth /economic growth? Obviously the excesses of his time led to the 'irrational exuberance' of housing, the fall of which is still haunting us.
In his memoirs he criticizes Bush and Cheney for the excesses in spending. That makes sense. Why wasn't he screaming bloody murder about it THEN, while it was happening, when he had his own bully pulpit?
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http://jammiewearingfool.blogspot.com/2011/08/president-downgrade-braces-for-meltdown.html
Gold is above $1,700 per ounce for the first time because investors are looking for something safe.
Gold is over $1,700 an ounce? Makes you wonder how Anthony Weiner's investigation into Glenn Beck's "unholy alliance" with Goldline is coming along.
Oh, wait...
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http://jammiewearingfool.blogspot.com/2011/08/president-downgrade-braces-for-meltdown.html
Gold is above $1,700 per ounce for the first time because investors are looking for something safe.
Gold is over $1,700 an ounce? Makes you wonder how Anthony Weiner's investigation into Glenn Beck's "unholy alliance" with Goldline is coming along.
Oh, wait...
Gold now above 1800!
Hmmmmmm. I tried looking up Anthony Weiner's twitter account to see if there was any progress on the investigation of Glenn Beck and Goldline and it seems to not be working for some reason. You got any leads on this, JDN?
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Baaad Dog GM :lol: Rubbing a dog's nose in his mess is considered poor methodolgy :lol:
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Baaad Dog GM :lol: Rubbing a dog's nose in his mess is considered poor methodolgy :lol:
What? Just asking some harmless questions....
Who doesn't want to see some justice for all those poor people who bought gold when it was at 800? Darn that Glenn Beck!
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Gold now above 1800!
Hmmmmmm. I tried looking up Anthony Weiner's twitter account to see if there was any progress on the investigation of Glenn Beck and Goldline and it seems to not be working for some reason. You got any leads on this, JDN?
Nope, no leads on Weiner, but I like gold, I just regret selling my gold stocks too early a while ago. But if I was buying gold, I'ld buy it almost anywhere but Goldline.
Speaking of a pile of smelly dog's mess, the Consumer Protection Unit of Santa Monica is investigating Goldline. Be careful bfore you trip and fall and rub your nose in this mess, I'ld avoid it... like well... smelly dog pooh. :-D The LA County DA is investigating as well.
http://www.smgov.net/departments/cpu/coincomplaint.aspx
http://motherjones.com/mojo/2010/07/goldline-finally-under-investigation
http://www.coinlawfirm.com/library/fools-gold-inside-the-glenn-beck-goldline-scheme-the-voss-law-firm-coin-fraud-lawyer.cfm
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Gold now above 1800!
Hmmmmmm. I tried looking up Anthony Weiner's twitter account to see if there was any progress on the investigation of Glenn Beck and Goldline and it seems to not be working for some reason. You got any leads on this, JDN?
Nope, no leads on Weiner, but I like gold, I just regret selling my gold stocks too early a while ago. But if I was buying gold, I'ld buy it almost anywhere but Goldline.
Speaking of a pile of smelly dog's mess, the Consumer Protection Unit of Santa Monica is investigating Goldline. Be careful bfore you trip and fall and rub your nose in this mess, I'ld avoid it... like well... smelly dog pooh. :-D The LA County DA is investigating as well.
http://www.smgov.net/departments/cpu/coincomplaint.aspx
http://motherjones.com/mojo/2010/07/goldline-finally-under-investigation
http://www.coinlawfirm.com/library/fools-gold-inside-the-glenn-beck-goldline-scheme-the-voss-law-firm-coin-fraud-lawyer.cfm
Uh-huh. Where are the indictments? Arrests?
It seems that neither Santa Monica or the LA DA found anything, did they JDN?
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These things take time; but you know that .
"Still Under Investigation" by the District Attorneys in Santa Monica AND Los Angeles.
I'ld call that the kiss of death.
Whether they finally indict or arrest or not, do you want to do business with Goldline?
I don't. When I smell a pile of dog mess, I try not to step in it and fall getting my nose covered.
But up to you. :-)
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"Still Under Investigation" by the District Attorneys in Santa Monica AND Los Angeles.
Really? Where did you get that? Please cite your source.
Why does Goldline have an A+ rating from the Better Business Bureau?
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I previously referenced the Santa Monica site; they are collecting complaints. If you call over there, they say "it's still under investigation" and won't (typical) give any more information. I guess they won't come out and say it's a big pile of dog pooh! :-D
Any guy saying he's my dog groomer (I don't have a dog) could get a A+ rating from the BBB. This town is littered with fraudulent companies that were rated A+ by BBB. That's almost like saying he's in the yellow pages therefore he's legit.
Think about it. When the DA takes the trouble, like in this instance, to set up a special complaint webpage, I run. Fast. That's my advice.
But don't let me stop you. We both agree gold is a good investment. Therefore I presume you are buying all your gold and recommending to all your friends
that they buy their gold at Goldline right?
:evil:
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I previously referenced the Santa Monica site; they are collecting complaints. If you call over there, they say "it's still under investigation" and won't (typical) give any more information. I guess they won't come out and say it's a big pile of dog pooh!
How many more years are they going to take complaints? The investigation is simple, either they have a case or they don't. They obviously don't. Just typical People's Republic of Kalifornia politicking for guillible lefties. It's obviously as lacking in substance as every argument you try to push forward.
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Any guy saying he's my dog groomer (I don't have a dog) could get a A+ rating from the BBB. This town is littered with fraudulent companies that were rated A+ by BBB. That's almost like saying he's in the yellow pages therefore he's legit.
Really? That'll comes as a shock to the BBB. Of course you have to make up an imaginary dog groomer as you are lacking anything we like to call evidence.
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Therefore I presume you are buying all your gold and recommending to all your friends
that they buy their gold at Goldline right?
I invest my spare cash into tangible goods like guns, ammo, freeze dried food and medical supplies.
If selling things at a mark-up is a crime in the PRK, I'm going to call the LA DA's Office tomorrow and tip them off about Rodeo Drive. Imagine the websites and investigations they'll have to launch then.
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OK, I think we have mined this particular vein enough for right now :lol:
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M2 money supply is growing this summer at a rate of $60 billion per week.
Scott Grannis: "This is a follow up to some posts from last month, in which I noted the surprising jump in M2 growth. As this chart of the M2 measure of money supply shows, it has gone on to experience a gigantic surge in the past seven weeks. M2 has risen almost $420 billion since the week of June 13th, on average almost 60 billion per week. To put this in perspective, annual M2 growth has averaged about 6% per year since 1995, and growth at this rate would translate into about $10 billion per week. In other words, M2 normally would have grown by $10 billion a week, but instead has grown six times faster. M2 has never grown this fast in a seven week period for at least the past 50 years. No matter how you look at it, this is a major event."
(http://4.bp.blogspot.com/-MCQwhzgFf90/TkbWjJRZtkI/AAAAAAAAFTM/5jLZ5zsmSzs/s400/Screen+Shot+2011-08-13+at+12.54.24+PM.png)
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"No matter how you look at it, this is a major event" :?
Why can't the Fed just print the money and hand it out to ordinary citizens?
Can't we spend the money better than them?
It would "stimulate" consumers and of course isn't that what the US is a country of sales?
Just give all of us a mill and we all go shopping.
OTOH we are kind of doing that with the welfare state. 1 out of three New Jersians are on the dole.
That is why Brock has an approval rating of 54% in the Jersey shore Jersilicious state. :-(
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I went to Scott Grannis's blog and read the whole piece as well as some other entries-- as always, Grannis is WELL worth the time. What I took away is that a major source of the increase is inflows of money fleeing Europe.
1 in 3 in NJ? :-o Citation?
I lack citation, I think it was a FOX news piece, but the number I heard was 1 in 7 Americans is on food stamps :-o :-o :-o
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I've read but cannot find citation wherein 1 out of 3 NJ residents on public money, soc sec, medicare, medicaid, food stamps, pensions etc.
As for Brocks approval rating it is down 6% in Jersey yet still he holds 54% approval according to a poll in the Home Tribune:
***Poll shows lower approval rating from N.J. residents for Obama
10:34 AM, Aug. 10, 2011 | 10Comments
New Jerseyans are split over how President Barack Obama handled debt ceiling talks. / The prolonged battle over the nation's debt ceiling has taken a toll on President Obama's approval rating in New Jersey, with 54 percent of residents saying they like the president's job performance, a Monmouth University/NJ Press Media poll showed.
That's down six points from his all-time high of 60 percent in May, in a survey taken shortly after the U.S. killed Osama bin Laden.
Thirty-seven percent of all adults surveyed disapprove of Obama's job performance, while 39 percent of registered voters give the president low marks.***
To think that 54% of people in NJ STILL approve of Brock is incredible. They want their entitlements which continues to expand.That is why it is remarkable we could possibly have a governor with an R before his name and why he would likely commit political suicide if he was a "strict" conservative. I am not sure which is worse Kalifornia or Jersilicious.
As for the printing of money increase,
I wasn't cirticizing Scott Grannis piece what I meant was I look at it as a bad thing. I just don't understand how endlessly printing money M2 can be without any consequences. I don't know if Scott thinks it good bad or indifferent. This was my concern though I am obviously not too privy on economics. Yet I also read economists are also varied in opinions and usually cannot predict much either.
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Thanks Crafty. I didn't mean to post that without the explanation that M2 would not be the widest measure of money supply that Scott G or Brian W would use. It goes something like this, M-zero is to count up the physical money. M1 is that plus checking accounts, M2 is that plus savings accounts, M3 includes largerr money funds and MZM (money with zero maturity) includes all money market funds. M2 is going nuts right now means that people are moving resources out of riskier assets into FDIC insured savings accounts (safe but almost zero yield), at an alarming rate. Asylum in an insured savings account, like gold, is the opposite of putting your available investment money into risk-based, economy-driving factory constructions or hiring expansions that we so badly need.
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Data Watch
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The Producer Price Index (PPI) rose 0.2% in July To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 8/17/2011
The Producer Price Index (PPI) rose 0.2% in July, a larger increase than the consensus expected (0.1%). Producer prices are up 7.2% versus a year ago.
The increase in PPI in July was largely due to food prices which rose 0.6%. Energy prices fell 0.6%. The “core” PPI, which excludes food and energy, increased 0.4%, a worrisome, and large, jump.
Consumer goods prices gained 0.1% in July and are up 9.1% versus last year. Capital equipment prices were up 0.4% in July and are up 1.8% in the past year.
Core intermediate goods prices increased 0.2% in July and are up 7.8% versus a year ago. Core crude prices rose 0.7% in July and are up 27.0% in the past twelve months.
Implications: The Federal Reserve is in a bind. The overall producer price index rose a moderate 0.2% in July (7.2% year-over-year), but the "core" PPI, which excludes food and energy, increased 0.4% (2.5% YOY). At 2.5%, the 12-month increase in “core” producer prices may seem small to many, but these prices are up at a 3.9% annual rate in the past three months – a worrisome increase. Given that the Fed has used low core price inflation to justify QE2 and 0% interest rates, the acceleration in these prices during recent months creates a serious dilemma. At the least, it would seem to make a third round of quantitative easing very, very difficult, if not impossible, to justify. This is especially true because further up the production pipeline, inflation is even worse. “Core” intermediate prices – components and parts in the production pipeline – rose 0.2% in July and are up 7.8% versus a year ago. “Core” crude prices – the raw materials of production – are up 27% in the past year. As a result, it is hard to see producer or consumer prices moderating anytime soon. Inflation is a clear and present danger and the Fed is behind the curve.
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"Inflation is a clear and present danger and the Fed is behind the curve."
Inflation of the US$ already occurred and Bernancke was the architect. My 2 cents is that the inflation which was quantitative expansion of the total dollars in circulation that already occurred - big time. Price increases or what he is calling 'price inflation' are mere symptoms, unavoidable consequences, of the monetary arson that already occurred. Price increases aren't a danger, they are a certainty - assuming that normal or healthy demand ever returns to the economy.
Can anyone imagine what oil and gas prices alone would be today if not for the nearly 20% stall of idle, productive capacity of labor and capital, and what skyrocketing energy costs will do to all other prices and to our delicate recovery if it ever begins...
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The Consumer Price Index (CPI) rose 0.5% in July To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 8/18/2011
The Consumer Price Index (CPI) rose 0.5% in July versus a consensus expected increase of 0.2%. The CPI is up 3.6% versus a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) was up 0.6% in July and is up 4.3% in the past year.
The increase in the CPI was mostly due to a 2.8% rise in energy prices. Food prices were up 0.4%. Excluding food and energy, the “core” CPI increased 0.2%, matching consensus expectations. Core prices are up 1.8% versus last year.
Real average hourly earnings – the cash earnings of all employees, adjusted for inflation – fell 0.1% in July and are down 1.3% in the past year. Real weekly earnings are down 1.0% in the past year.
Implications: The Consumer Price Index roared ahead 0.5% in July, handily beating consensus estimates. While most of the increase was due to energy, which rose 2.8% for the month, it’s important to note that nearly all other major categories rose as well. “Cash” inflation, which excludes the government’s estimate of what homeowners would pay themselves in rent, rose 0.6% in July, the most since November 2008. This measure of inflation is up 4.3% in the past year. “Core” inflation (which excludes food and energy) rose 0.2%, matching expectations, and is accelerating. Over the past year, core prices are up 1.8%, but in the past six months, prices are up at a 2.6% annual rate and an even faster 3.1% rate in the last three months. This is not welcome news for Fed officials who are trying to justify QE3. Some say rising inflation is caused by “temporary factors” and will dissipate. But they can’t explain what caused the temporary factors in the first place. We believe their hopes of fading inflation will be dashed. In other news this morning, new claims for unemployment benefits rose 9,000 last week to 408,000. The four-week moving average fell to 403,000 versus 440,000 in May. Continuing claims for regular state benefits increased 14,000 to 3.70 million. We are closely watching high-frequency indicators like this to see if there is a sharp downturn in economic activity. Today’s jobless claims numbers don’t indicate there is one.
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Doug posted my internet friend Scott Grannis's blog on August 15. Three days later Larry Kudlow catches up :-D
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Scott Grannis is cited again by Larry Kudlow on National Review.
http://www.nationalreview.com/articles/274988/deflationary-m2-explosion-larry-kudlow
The Deflationary M2 Explosion
Fears over the safety and solvency of European government debt and banks are haunting the stock market.
Amidst the financial flight-wave to safety, with stocks plunging, gold soaring, and Treasury bond rates collapsing — and all the European banking fears which go with that — there’s an important sub-theme developing: An almost-forgotten monetary indicator, M2, which is mostly cash, demand-deposit checking accounts, savings deposits, and retail money-market funds, has been soaring.
According to the St. Louis Fed, M2 is up 24.2 percent at an annual rate over the past two months. Almost out of the blue, that comes to a near $500 billion increase. In rough terms, the M2 explosion breaks down to $165 billion in demand deposits and $335 billion in savings deposits.
What’s going on here? There’s a flight to government-guaranteed accounts. Some people believe Europeans are withdrawing from their own banking system and parking their money in the U.S. banking system, guaranteed by Uncle Sam. Kelly Evans reports in her Wall Street Journal column of a $30 billion outflow from equity mutual funds that has probably gone into cash.
This is a very disconcerting development. Normally, big M2 growth would signal a faster economy, and maybe even higher inflation. But as economist Michael Darda points out, the velocity, or turnover, of money seems to be plunging.
“The recent pickup in broad money in the U.S. looks like a dash for risk-free cash assets,” writes Darda. He also notes that widening corporate-credit risk spreads and shrinking government-bond rates signal a recession risk, not a coming boom.
So contrary to monetarist theory, the M2 explosion seems more closely related to a deflation/recession risk. Economist-blogger Scott Grannis writes, “The recent growth of M2 surpasses even the explosive safe-haven demand for money that accompanied 9/11 and the financial crisis of late 2008. Something big is going on, and it can only be the financial panic that is sweeping Europe as money flees a banking system that is loaded to the gills with PIIGS debt.”
Grannis concludes, “In short, it looks like there is a run on the European banks and the U.S. banking system is the safe-haven of choice.”
On the other hand, all may not be lost — at least from the standpoint of the American economy.
Economist Conrad DeQuadros, who acknowledges the precautionary demand for high cash balances in the current financial uncertainty, believes that the economic data do not yet signal recession. DeQuadros points out that jobless claims, hours worked, retail sales, and industrial production are all picking up. He also notes that profits are still rising, even though their growth is slowing. And C&I business loans have grown at an 8 percent annual rate over the past three months.
I would just add to all this: The biggest problem for the plunging stock market is coming out of Europe. Fears over the safety and solvency of European government debt and banks are haunting the stock market. I still don’t believe it’s 2008. But yes, like everyone else, I’m worried.
That said, we are awash with liquidity everywhere. U.S. banks and companies have more cash than they know what to do with. The problem is they are immobilized by fiscal policy run amok. We desperately need a regulatory rollback and flat-tax reform to boost asset prices and to get banks to loan, companies to invest, and America back to work.
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I forget whether these have been posted previously. Even if so, they are well worth the watching again:
http://www.garynorth.com/public/7261.cfm
http://www.garynorth.com/public/7261.cfm
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US News & World Report Home Money
Could QE3 Help the Economy?
Why another round of quantitative easing might not be a cure-all for the economy
By Meg Handley
Posted: August 11, 2011
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A third bond-buying program by the Federal Reserve—or quantitative easing, as it's commonly called—is likely to resume by the end of the year or in early 2012, Goldman Sachs economists said in a report Wednesday. The forecast comes on the heels of the Federal Reserve's announcement Tuesday that it would keep rates steady at near-zero levels for the next two years.
"We have changed our call because [Tuesday's] statement suggests that the committee's reaction function to incoming economic news is more dovish than we had previously thought," said the report, which also cited remarks by the Federal Open Market Committee that it would employ additional policy tools if economic conditions deteriorated further.
While this might be welcome news for jittery investors clamoring for Fed intervention to help boost market confidence, experts caution that another round of quantitative easing wouldn't be a panacea for the ailing U.S. economy. Some critics say it would likely amount to just another Band-Aid on the economy's skinned knees.
[In Pictures: 6 Numbers Every Investor Should Follow.]
For starters, the global economic landscape is drastically different than it was when the Fed launched its second quantitative easing program, QE2, in November 2010. Since then, a series of temporary shocks—a catastrophic earthquake in Japan, debt-ceiling drama in Washington, and the sovereign debt crises in the eurozone, coupled with more fundamental economic maladies—have rocked the global financial system to its core. "The old rules we judge the economy by, the old rules we tried—they may not be completely applicable anymore," says Diane Swonk, chief economist at Chicago-based Mesirow Financial.
The challenges policymakers face differ tremendously as well. Back in 2010, deflation was the crisis of the moment, with markets fearing an unavoidable downward spiral of lower prices, weak demand, and massive lay-offs. Despite the many critiques leveled at the bond-buying program, QE2 seems to have staved off deflation, preventing a vicious cycle that could have plunged the United States into an even deeper recession.
Inflation is now the enemy. Through June, the Consumer Price Index (CPI), which measures the average change in prices of goods and services over time, has increased 3.6 percent over the past 12 months, according to the Bureau of Labor Statistics. (July's CPI is due next week.) At this time last year, the CPI was increasing at an annual rate of 1.1 percent. Core inflation—the index for all items, less food and energy—edged up to 1.6 percent in June, its highest reading since January 2010. (This measure is more closely tracked by the Fed.)
[See Inflation Stands in the Way of QE3.]
"QE2 prevented deflation, which would have been really bad for the jobs situation," says Guy LeBas, chief fixed-income strategist at financial-services firm Janney Montgomery Scott. "Right now the risk of deflation is pretty slim, so there's really no need to expand the [Fed's] balance sheet."
While the economy might have sidestepped a deflation disaster for the time being, a host of other grave economic problems confront the country, the most pressing being less-than-stellar growth over the past few years. According to recent government figures, GDP grew a meager 1.3 percent in the second quarter, revised downward from initial estimates of almost 2 percent. That figure comes on the heels of a stunningly low 0.4 percent GDP growth rate in the first quarter of the year. Exacerbating a situation already rife with uncertainty and angst, the debt-ceiling drama concluded with the first-ever downgrade of U.S. debt, sending shockwaves through equity markets worldwide.
The situation across the pond doesn't look much better. With much of Europe facing rampant public debt problems and equally serious, if not worse, projections for economic growth, investors are on the defensive, fleeing to ultra-safe investments and even cash, draining global equity markets and depressing business confidence and investment.
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QE2
I find it humorous that the author writes "QE2 seems to have staved off deflation" and immediately follows that sentence with "Inflation is now the enemy." I guess it's too big of a leap to realize that QE2 actually caused all that inflation right.
I know it's too big of a leap for anyone at USNEWS to realize that deflation doesn't cause recessions. Stick to Keynes, he's done so well for us.
[report comment]
Joe of VA @ Aug 22, 2011 17:09:35 PM
QE3
What did Einstein say about the definition of Insanity
[report comment]
Mr.Wright of TX @ Aug 20, 2011 17:10:33 PM
Tell FED Infrastructure, Not QE3
The Warren Goup sent this letter to Ben Bernanke and the FED. They have not and can not rebuke the merit of it's simplicity and effectiveness. Please read this and give it traction by talking it up. It is a far more effective way to grow the economy than QE3 which just puts more money in the pockets of people who are not the least bit interested in GDP except as underlying assets for their derivatives.
http://www.themarketsvalue.com/2010/12/warren-capital-group-wealth-managers-letter-to-ben-bernanke-.html
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CCP:
What is the takeaway for you from that article?
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Well I am trying to figure out if a QE3 would be good for the country or just a poltical gimmick for Brock and or wall street:
http://finance.yahoo.com/blogs/breakout/markets-awaiting-fed-qe3-matter-153811266.html
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QE3 is the answer to the question no one should be asking: How can we avoid addressing any of the real, structural, man-made problems that are causing our current economic sickness, but postpone total economic collapse for just a few more months? Answer, print more money.
Defined in the article, quantitative expansion means the Fed buys our own bonds. With WHAT? They are already short on cash to pay bills at the rate of 120 billion dollars a month.
The one last hurdle after raising the debt ceiling to putting any reasonable limit on spending and borrowing is that in order to borrow another dollar there has to be a willing lender. QE authorizes 'printing' dollars without limit and removing the need to find and negotiate with a willing lender and borrow in a marketplace. QE means devaluing the investment of all previous people who bought our debt, making it even harder yet to sell in the future in a free marketplace. QE is a form of dis-honoring the legal obligations of the United States of America. One might even say that further quantitative expansion in light of all this is - 'almost treasonous'.
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CCP:
IMHO Doug is exactly right-- like 1 and 2, only much more so, QE3 is profoundly WRONG.
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CCP:
IMHO Doug is exactly right-- like 1 and 2, only much more so, QE3 is profoundly WRONG.
Wow, it's almost like they have nothing else left to try. :roll:
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Silver dropped sharply today too
NEW YORK—Gold waded deeper into negative territory as investors continued cashing out after recent record gains.
The most actively traded contract, for December delivery, was recently down $43, or 2.3%, at $1,818.30 a troy ounce on the Comex division of the New York Mercantile Exchange.
Thinly traded August-delivery gold fell $43.60, or 2.4%, to $1,814.70 a troy ounce.
Investors streamed out of the gold market as gold's $100 decline from Tuesday's intraday record spurred investors to lock in the gains earned on gold's fast-paced rally.
"Gold has run up $400 since the middle of July and for a long time it didn't even trade above that level," said Sterling Smith, an analyst at Country Hedging.
Gold prices rallied to a record peak of $1,917.90 this month, an 18% gain that some investors scored in just four weeks.
Bloomberg News
.The rapid rally has been a cause of concern for market watchers in recent days, with some analysts saying a pullback was overdue as gold's parabolic rise appeared overdone.
Investors are also eagerly awaiting a speech Friday by Federal Reserve Chairman Ben Bernanke, who is due to address an economic symposium in Jackson Hole, Wyo. Gold traders will be looking for hints of further monetary stimulus as last year Mr. Bernanke used the event to float the idea of a second round of quantitative easing, or QE2, which was formally launched a few months later.
Gold prices are likely to fare well in the absence of such hints, as many market participants fear the economy will slip into recession without help from the Fed.
However, further monetary stimulus would be "the more positive scenario" for gold prices, as additional liquidity tends to weaken the dollar and raise inflation expectations, said analysts at BNP Paribas. A weaker dollar makes dollar-denominated gold seem cheaper to buyers using foreign currencies, while domestic buyers who worry about inflation would want to stock up on what is widely considered an inflation hedge and a store of value.
BNP Paribas also raised its gold price forecast to average $1,635 a troy ounce this year, from a previous forecast of $1,510. The bank expects gold prices to average $2,080 a troy ounce in 2012, up from a previous forecast of $1,600. The analysts also introduced their 2013 gold price outlook, saying prices will average $2,200 a troy ounce.
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Thanks for your thoughts. It just seems like obvious common sense is that printing more money IS NO different than any Ponzi scheme - borrowing from one to pay off another until the whole thing collapses all the while praying for some miracle like winning the lottery) or in the Fed's case - economic growth to go sky high and flood revenues to cover the borrowing. (Although in the case of Democrats and Republicans trying to buy off the votes that would otherwise go to Dems - keep spending it all on entitlements anyway)
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"monetary stimulus is a very ineffective—if not useless—tool to stimulate economic growth"
"As this first chart shows, the inflation-adjusted value of the dollar against a broad basket of currencies today is as low as it's ever been. This is prima facie evidence that dollars are in abundant supply relative to the demand for dollars. Supplying more dollars to the world by buying more Treasuries or by reducing the interest rate paid on bank reserves would only weaken the dollar further, and eventually that can only stimulate inflation. Note that the first two QE programs were begun at a time when the dollar had risen in value during times of financial stress, which is a good indications that dollars at the time were in short supply. There is a legitimate reason for easing monetary policy when the dollar faces conditions of scarcity. That's not the case today."
'Our own' Scott Grannis linked through Real Clear Politics today http://www.realclearmarkets.com/ in our series of famous people who read the forum. :wink:
http://scottgrannis.blogspot.com/2011/08/why-bernankes-jackson-hole-speech-wont.html
Loaded with charts that back up his statements.
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By ALAN REYNOLDS
One year ago, on Aug. 27, 2010, Federal Reserve Chairman Ben Bernanke explained the rationale for a second round of quantitative easing. "A first option for providing additional monetary accommodation is to expand the Federal Reserve's holdings of longer-term securities," he said, thereby supposedly "bringing down term premiums and lowering the costs of borrowing."
Yet the bond market promptly reacted by raising long-term interest rates. The yield on 10-year Treasurys, which was 2.57% at the time of his Jackson Hole, Wyo., address, climbed to 3.68% by February 2011 and did not dip below 3% until late June when QE2 was coming to an end. The price of West Texas crude oil, which was $72.91 a year ago, remained above $100 from March to mid-June and did not come down until QE2 ended and the dollar stopped falling.
When Mr. Bernanke spoke, the price of a euro was less than $1.27. By the week ending June 10, 2011, 15 days before QE2 ended, the dollar was down about 15% (a euro cost $1.46). In that same week, The Economist commodity-price index was up 50.9% from a year earlier in dollars—but only 22.8% in euros. How could paying much more than Europe did for imported oil, industrial commodities, equipment and parts make U.S. industry more competitive?
The chart nearby subtracts the contribution of government purchases (such as hiring and construction) from real GDP growth to gauge the growth of the private economy. The generally negative contribution of government purchases (column two) does not mean government spending has slowed, as some contend. Instead it reflects the fact that federal and state spending has been increasingly dominated by transfer payments (such as Medicaid, food stamps and unemployment benefits) which do not contribute to GDP, and in some cases reduce GDP by discouraging work.
View Full Image
Associated Press
Federal Reserve Chairman Ben Bernanke
.The chart also shows that growth of private GDP was also much faster before QE2 than it has been since, and the increase in producer prices (i.e., U.S. business costs) was much more moderate. And that is no coincidence.
Former Obama adviser Christina Romer, writing in the New York Times in late May, said that "a weaker dollar means that our goods are cheaper relative to foreign goods. That stimulates our exports and reduces our imports. Higher net exports raise domestic production and employment. Foreign goods are more expensive, but more Americans are working."
Well, foreign goods certainly did become more expensive during the second round of quantitative easing, but it is doubtful that "more Americans are working" as a result. Industrial supplies and materials accounted for 34.5% of U.S. imported goods so far this year, according to the Census Bureau, and capital equipment and parts accounted for an additional 23%. As Fed policy pushed the dollar down, higher prices for imported inputs such as oil, metals and cotton meant higher costs (producer prices) for U.S. manufacturing and transportation.
In demand-side theorizing, monetary stimulus means the Fed buys more bonds. The Treasury has certainly been selling a lot of bonds, and the Fed has been buying (monetizing) a huge share of those bonds. That helped push the broad M2 money supply up at a 6.8% rate over the past six months. Yet the only thing we have to show for all that stimulus over the past year has been rapid inflation of producer prices and a simultaneous slowdown in the growth of the private economy. Consumer price inflation also accelerated to 5.2% in the first quarter and 4.1% in the second, from just 1.4% in the third quarter of 2010.
Imported goods did indeed become more expensive while the dollar was falling, rising at a 15.1% annual rate over the past three quarters according to the government's report on GDP. But exported U.S. goods also became more expensive, rising at an 11.4% rate over that same period.
The fourth column in the chart shows that net exports were a subtraction from GDP in early 2010 when the private economy was growing most briskly, thus raising the demand for imported materials and components. The rise of dollar commodity costs and producer prices in the wake of QE2 reduced the growth of real imports because it reduced the growth of real GDP.
View Full Image
.Many journalists credit QE2 with raising asset prices, which was certainly true of precious metals but not of housing. It is also true that stock prices generally rose over the past year, but it is implausible to link that to quantitative easing.
Operating earnings per share for the Standard & Poor's 500 companies rose to an estimated $24.86 by June 30, up from $20.40 a year earlier. Fed policy cannot possibly explain that rise in earnings because domestic output slowed and producer prices rose under QE2, while more than 46% of the sales of S&P 500 companies have come from foreign countries.
Berkeley economist Brad DeLong, writing in the Economist, suggests that, "Aggressive central banks can shift expected inflation upward and thus make households fear holding risky debt and equity less because they fear dollar devaluation more." But individual investors often react to such fears by dumping equities and speculating in gold and silver. What good does that do?
In short, the Fed's experiment with quantitative easing from November 2010 to June 2011 was accompanied by a falling dollar and inflated prices of critical industrial commodities, including oil. The net effect was to reduce the profitability of manufacturing and distributing products in the United States, and therefore to shift such activities (and jobs) to other countries which were less handicapped by the dollar's weakness.
Every postwar recession but one (1960) has been preceded by a spike in oil prices of the sort we experienced when the dollar fell and oil prices doubled from August 2007 to July 2008 (reaching $142.52), and to a lesser extent when the dollar fell and oil prices rose to $112.30 at the end of April 2011 from $72.91 in late August 2010. Conversely, during the 1997-98 Asian currency devaluations (and soaring dollar), the U.S. experienced a booming domestic economy as the dollar price of oil dropped to $11 by the end of 1998.
Those who are now looking backwards at how poorly the U.S. economy performed under QE2 in order to "forecast" the future appear to be neglecting the potentially beneficial effects of a firmer dollar in deflating the bubble in U.S. commodity costs. In the end, quantitative easing turned out to be an anti-stimulus which stimulated nothing but the cost of living and the cost of production. Good riddance.
Mr. Reynolds, a senior fellow with the Cato Institute, is the author of Income and Wealth (Greenwood Press 2006).
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Federal Reserve officials are considering three unconventional steps to revive the economic recovery and seem increasingly inclined to take at least one as they prepare to meet this month.
Worries about inflation at the Fed have receded in recent weeks and economic data have worsened, putting officials on the lookout for ways to spur economic growth and improve financial conditions.
Chairman Ben Bernanke speaks Thursday in Minneapolis, and is likely to reiterate that the central bank is studying all its options, before officials meet Sept. 20 and 21.
Other Fed officials, meanwhile, are expressing support for additional action.
"The real threat is an economy that is at risk of stalling and the prospect of many years of very high unemployment," John Williams, president of the Federal Reserve Bank of San Francisco, said in remarks Wednesday.
New measures could offer "protection against further deterioration in the patient's condition and perhaps help him get back on his feet."
.The Fed's roundup of regional economic conditions, released Wednesday, described the economy as growing modestly with pockets of weakening activity, waning price pressures and high levels of uncertainty among businesses.
In normal times the Fed moves its target for the federal-funds rate— at which banks lend to each other overnight—to influence borrowing, investment and spending. But that rate already is near zero. The Fed also has purchased $2.325 trillion of Treasury bonds and mortgage debt to push long-term interest rates down.
Though officials aren't certain to take new steps this month, they are looking at alternatives to that controversial bond-buying, known as "quantitative easing." One step getting considerable attention inside and outside the Fed would shift the central bank's portfolio of government bonds so that it holds more long-term securities and fewer short-term securities.
The move—known to some in markets as "Operation Twist" and to some inside the Fed as "maturity extension"—is meant to further push down long-term interest rates and thus encourage economic activity. The program draws its name from a similar 1960s effort by the U.S. Treasury and the Fed, in which they tried to "twist" interest rates so that long-term rates were lower relative to short-term rates.
Anticipation of the move—along with grim economic news and the Fed's public plan to keep short-term interest rates near zero through 2013—has helped push yields on 10-year Treasury notes, above 3% in late July, to around 2%.
More
Report Paints Gloomy Picture on Growth
Economic Plans Unlikely to Deliver Fix
Fed's Rosengren Willing to Consider Action if Economy Doesn't Improve
.Although some consumers and businesses are unable or unwilling to borrow more at any interest rate, several Fed officials believe pushing rates still lower can help on the margin.
"There are still some businesses that at a lower cost of funds are going to make investment decisions and hiring decisions based on an ability to lock in those funds at a lower rate," Eric Rosengren, president of the Federal Reserve Bank of Boston, said in an interview.
He lists the program as one that should be considered. "There are people that will be buying homes or refinancing homes" if long-term rates are lower.
Such a step may meet internal resistance. Mr. Rosengren is among a contingent of Fed "doves" who are less worried about inflation and believe the Fed needs to take stronger action to bring down unemployment.
Not everyone agrees, and Mr. Bernanke is striving to build consensus, which makes the decision-making fluid.
Three of the five regional bank presidents who have a vote on monetary policy dissented in August because they didn't want the Fed to pledge to keep interest rates low for another two years, as it chose to do. They seem likely to resist additional actions. "It is unlikely that the [economic] data in September will warrant adding still more accommodation," Minneapolis Fed President Narayana Kocherlakota said in a speech Tuesday.
A second step under consideration at the Fed, one getting mixed reviews internally, would reduce or eliminate a 0.25% interest rate the Fed currently is paying banks that keep cash on reserve with the central bank.
The 0.25% payment is greater than the 0.196% rate an investor can get on a two-year Treasury. Some officials believe the Fed shouldn't reward banks for holding cash instead of making loans.
"I'm not especially pleased with the way that policy tool is working at the moment," Charles Evans, president of the Federal Reserve Bank of Chicago, said in a recent interview. Mr. Rosengren said cutting that rate could give banks more incentive to lend and would further signal the Fed's determination to get the economy going.
Other Fed officials believe that reducing the rate wouldn't do much good because it is already so low, and might instead disturb short-term money markets.
A third step Fed officials are debating would involve using their words to make their economic objectives and plans for interest rates more clear.
Some officials felt the Fed's August pledge to keep rates low until 2013 wasn't specific enough about what was driving its thinking. They want the Fed to say what unemployment rate or inflation rate would trigger it to boost rates.
Mr. Bernanke has long favored a specific target for inflation. Some Fed officials, including Mr. Evans, want accompanying clarity for the Fed's unemployment objectives, recognizing the central bank's congressionally imposed mandate to pursue stable inflation and maximum employment.
Targeting unemployment is controversial inside the Fed. The central bank has control of inflation through its control of the nation's money supply.
But unemployment reflects many factors the Fed can't control, and thus some officials feel the central bank shouldn't set targets for it. Sorting out differences on this issue could take time.
The big step that tends to get a lot of attention in financial markets—a third round of bond buying by the central bank—remains an option, but doesn't have strong advocates inside the Fed now.
Some form of "Operation Twist" would be designed to accomplish some of the same objectives as more bond-buying, though most officials agree the effects would be limited.
An analysis by Goldman Sachs economists found that if the Fed replaces all its short-term holdings with long-term holdings, it would have a slightly smaller impact on financial markets than the Fed's $600 billion bond-buying program completed this year. That program seemed to boost stock prices, push down the dollar and help to hold down long-term interest rates, yet the economy stumbled not long after it was introduced. And there are risks—the program could make it harder for the Fed to tighten financial conditions later if inflation shoots higher.
Mr. Rosengren says the Fed should consider an even more radical measure, one not now among steps Mr. Bernanke has said he is evaluating: consider capping medium-term interest rates. If the economy worsens, he notes, the Fed could pledge to cap yields on Treasury bonds with maturities for as long as two years under a certain low level.
"If the economy were continuing to be weak or if we were to get an economic shock from abroad, then I think we would have to think of a variety of innovative ways to try to ensure that the economy picked up or do what we can with monetary policy to try to ensure that," Mr. Rosengren said. "You shouldn't think of us as only having one, two or three tools."
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I have some problems with this piece, but it makes some very interesting points:
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Why the Dollar May Last For Much Longer Than We Expect
BY CHARLES HUGH SMITH09/08/2011Print
The only way to value the dollar is in the context of a mercantilist, export-dependent global economy anchored by a sole "importer of last resort," the U.S., which funds these vast imports with its fiat currency, the dollar.
Yesterday I explained why a gold-backed currency cannot replace the fiat dollar without fatally disrupting global Capitalism and the political Status Quo everywhere from China to Europe: Why the U.S. Dollar "Works" and Why a Gold-Backed Currency Doesn't (September 7, 2011).
Today we look at why the fiat dollar is the one essential currency, and as a result, why it will rise in value in the Eurozone crisis ahead. I know this is heresy and sacrilege to those who believe the dollar is doomed, and soon, but if you're not yet locked into one quasi-religious faith or another just yet, then please follow along as I trace out the dynamics of trade and currency valuation.
To understand the essential role of the dollar and how its value is derived via trade flows, let's start with a simplified model of global trade.
Country A manufactures surplus goods and generates surplus services. Since its domestic demand is structurally constrained (for example, a mere 35% of China's GDP is domestic demand), the only way Country A can keep its citizens employed and politically pliable is to sell its surplus in other countries.
This is the basic mercantilist export model of growth pursued by Germany, Japan, South Korea, China et al.: growth and value are created by generating surplus goods and services, and exporting those to other nations.
In sum: Country A has stuff it has to sell to other countries to keep its economy from spiraling into depression. It can demand whatever it wants: gold, moon dust, etc., but it is not in the driver's seat: it has no alternative to dumping its surplus in whatever markets will take it. Managing its exports boils down to getting the best deal possible, but saying "no" is not an option.
There is little demand for Country A's currency, as what it is trading isn't currency, it's stuff: it trades its surplus production (stuff) for somebody else's currency.
Country B has a something called "the world's reserve currency" which is a fancy name for paper money that is universally recognized as a placeholder of value that can be traded everywhere from Burma (pristine $100 bills preferred) to Bolivia (cocaine-laced $100 bills OK) and accepted without question (even counterfeit bills are OK as long as they're the high-quality North Korean counterfeits). Let's call Country B's currency the doru.
Country B has exports, but its demand for imports far exceeds the value of its exports. For all imports over and above the value of its exports, it exchanges its paper money for the imported real goods and services.
Country C has no reserve currency and no gold-backed currency. It has paper money which it can print in unlimited quantities. Country C has exports, but its demand for imports far exceeds the value of its exports. For all imports over and above the value of its exports, it exchanges its paper money for the imported real goods and services.
Country C has a tricky problem. Since its paper money has no intrinsic value, the only value it can possibly have is scarcity value: the supply must be strictly limited so that exporting nations will accept County C's currency (let's call them quatloos) in exchange for tangible goods like oil and iPads.
In effect, Country C is asking exporters to accept a premium on the intrinsically worthless paper, a premium "earned" by scarcity: if there are relatively few quatloos floating around the world, then quatloos may well retain some scarcity value, even though their value based on other factors is basically zero.
The best way for Country C to finance its import trade is to exchange its intrinsically worthless quatloos for "the world's reserve currency," the doru, which is accepted everywhere.
Some would argue that Country C should buy gold with its quatloos, and that would certainly be an excellent trade: worthless paper for gold. But in terms of trade, shipping gold about is hazardous and costly: every nation engaged in trade needs an electronically traded currency that can be transferred, loaned, borrowed and so on, all in the blink of an eye.
Gold is a reliable store of value but it is a cumbersome means of exchange, especially globally.
Furthermore, gold's value in currency or other goods has a history of fluctuating wildly. Those managing quatloos could easily get burned, as the trade they're really managing is quatloos to gold to the reserve currency which can actually be traded globally for goods and services.
Any such commodity-based transactional chain is rife with risk from geopolitics and speculation. From the managers of the quatloo's perspective, the easiest way to lower risk is to cut out the middle step of buying and selling gold, and just buy the reserve currency (the doru) directly.
All this works until Country C succumbs to the temptation to print money to the point it is in surplus rather than scarcity. And what a temptation it is, to "increase our wealth" magically by printing quatloos.
But exporters, forced by circumstance to constantly assess the tradable value of all currencies they trade goods for, will quickly detect that the scarcity value of the quatloo--it's only real value--has rapidly declined.
The cost of imports priced in quatloos in Country C shoots up as quatloos lose scarcity value, and the residents of Country C find they can no longer afford to buy imports. The sales of imports collapses down to match Country C's exports.
These are the key dynamics of trade and currency valuation. Now let's consider Country B, owner of "the world's reserve currency," the doru.
Superficially, it might seem that the only value in dorus is also their scarcity value, and since Country B prints/creates large quantities of dorus every year, many observers make the understandable mistake of claiming the value of the doru should be zero, since it is has little to no scarcity value.
But the value of "the world's reserve currency" is not simply a matter of scarcity, as it is for other lesser fiat (paper) currencies. One factor is the nature of scarcity is different for the doru and the quatloo: the quatloo has only one use in terms of global trade: the imports and exports of Country C.
Since Country C's GDP is a thin sliver of global GDP, then demand for quatloos is limited to importers and tourists.
Compare that to "the world's reserve currency," which is in constant demand as a means of exchange in the entire $60 trillion global economy.
"The world's reserve currency" (in our example, the doru) has another unique feature: everybody eventually needs to exchange quatloos and all other currencies for doru, because that is the only universally accepted means of global exchange. Sure, Country C and its cronies can set up an exchange which only accepts gold and quatloos, but as soon as they need wheat, electronics, and everything else the cronies don't manufacture or harvest, then they will need to exchange the gold or quatloos for "the world's reserve currency."
As a result, the demand for doru ("the world's reserve currency") is stupendous and constant. Since currency is a commodity, albeit one with unique features, its ultimate value as a means of exchange is set by supply and demand. In other words, scarcity is not the only source of value: demand is the key driver of value of any commodity, good or service.
Let's say that Country B's economy is about 25% of global GDP. (In other words, like the U.S.) Let's further assume that Country B prints/creates about 10% of its GDP every year in paper doru.
Now if Country C printed 10% of its GDP every year in newly issued quatloos, the supply of quatloos would quickly overwhelm demand for quatloos, and the value of quatloos globally would crash.
Country B doesn't have that problem, because printing 10% of its GDP is a mere 2.5% of global GDP. Globally, the value of currencies exchanged daily exceeds 10% of Country B's GDP and more or less matches the total value of doru in global trade.
In other words, the demand for exchangable, tradable currency--"the world's reserve currency"-- far exceeds the supply of doru. Printing doru, even in quantity, is like adding a glass of water to a bathtub: the supply increase is not even close to the daily demand.
How did Country B get the "the world's reserve currency" instead of Country C? Most importantly, there has to be enough of the currency to grease the tremendous flows of goods, services, loans and hedges globally: the tiny quantity of quatloos is completely inadequate to the task.
Second, the "the world's reserve currency" must be relatively immune to increases in supply, i.e. money printing. For example, if global GDP is $60 trillion, and daily foreign-exchange trading is $2 trillion, then exactly how much impact can printing $1 trillion of "the world's reserve currency" generate? The answer globally is very little.
The third factor is one which few commentators recognize, sometimes called"the hidden export:" global security. All financial transactions involve trust, some more than others. In terms of currency, the primary trust being offered and accepted is that the mechanics of the currency are transparent and thus so are the risks.
The secondary trust is that the value of the currency will remain stable over the short term, which is long enough for the vast majority of trading.
A third trust is in the stability of the issuing nation. Once again, transparency is key: if that nation's problems are well-known and transparent, then the risks of that currency can be easily and accurately assessed. If its institutions are robust and its trade flows gigantic, then people recognize it's a safer bet to hold dorus than quatloos.
The key mechanism for creating surplus value in advanced Capitalism is trade, and the key mechanism for enabling that trade is a "reserve currency" of sufficient quantity and stability. The Chinese renminbi is a proxy for the U.S. dollar, the euro is unraveling, and the yen is not expansive enough to fund global trade and currency flows.
Envy is a key human trait, and the envy of all those who don't hold/print "the world's reserve currency" is understandable. But you can't create "the world's reserve currency" like some other paper money, as paper money only has two sources of value: demand and trust.
As Jesse of the always-valuable Jesse's Cafe Americain recently wrote (and I paraphrase), people often offer reasons why certain things that have happened could not happen. Conversely, they also often offer reasons why things that can't happen should happen.
At some point the trade imbalance of $600 billion a year between the mercantilist nations and the U.S. will go away, as will the notion that printing paper money is creating wealth, and debts that are unpayable will magically be paid instead of being liquidated or repudiated. The point here is that the Status Quo of all the major trading nations is committed to conserving the present system of fraying imbalances, as their own wealth and power flow from this shaky, unsustainable structure.
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This piece brings to mind some questions I have been meaning to ask for a while now about the IMF.
If I have my numbers right, the US kicks in 1/6. Thus the $1T for Greece and the $1T (do I have these numbers right?) mean the US taxpayer, WITHOUT REPRESENTATION, got knicked for $333B!!! Yet somehow this is never discussed, while a giant game of chicken between Bonehead Boener and Baraq yielded current cuts of $21B this year and $45N next year. Truly we have gone through the looking glass and partaken of the magic mushrooms there.
Worse yet, the following piece gives me the intuition that we are about to get knicked for several multiples of that.
So, why are we in the IMF? Qui bono? What happens if we withdraw?
Marc
Europe Solicits American Advice On Financial Crisis
U.S. Treasury Secretary Tim Geithner will travel to Poland on Friday to meet with eurozone finance ministers. To Stratfor’s knowledge this is the first time an American Treasury secretary has ever been invited to the table. That aloofness is no surprise; the eurozone is a political creation designed to compete with the U.S. dollar. The reason for the sudden break with precedent is equally obvious: the euro is flirting with outright failure, the consequences of which would at a minimum include a new recession. Sharing crisis-mitigation notes makes a great deal of sense for both Americans and Europeans.
Geithner’s presence is particularly useful for two reasons. First, despite the vitriol that is a hallmark of American domestic politics, American monetary policy is remarkably collegial. The transitions between Treasury secretaries are strikingly smooth. Geithner himself worked for the Federal Reserve before coming into his current job, and Geithner’s partners in managing the U.S. system — the chairmen of the Federal Reserve and the Federal Deposit Insurance Corporation — are typically apolitical. Geithner holds the United States’ institutional knowledge on economic crisis management.
“Geithner will undoubtedly point out that the European system is not capable of surviving the intensifying crisis without dramatic changes.”
Second, what Geithner doesn’t know, he can easily and quickly ascertain by calling one of the chairmen mentioned above. This is a somewhat alien concept in Europe, which counts 27 separate banking authorities, 11 different monetary authorities, and at last reckoning some 30 entities with the power to carry out bailout procedures.
Getting everyone on the same page requires weeks of planning, a conference room of not insignificant size and a small army of assistants and translators, followed by weeks of follow-on negotiations in which parliaments and perhaps even the general populace participate in ratification procedures. The last update to the European Union’s bailout program was agreed to July 22, but might not be ready for use before December. In contrast, the key policymakers in the American system can in essence gather at a two-top table for an emergency meeting and have a new policy in place in an hour.
Geithner will undoubtedly point out that the European system is not capable of surviving the intensifying crisis without dramatic changes. Those changes include, but are hardly limited to, federalizing banking regulation, radically altering the European Central Bank’s charter to grant it the tools necessary to mitigate the crisis, forming an iron fence around the endangered European economies so that they don’t crash everyone else, and above all recapitalizing the European banking sector to the tune of hundreds of billions (if not trillions) of euros — so that when trouble further intensifies, the entire European system doesn’t collapse.
All of these steps are simply illegal under existing European law. Changing that, using European rule-making procedures, would require treaty changes, which entail a minimum two years of negotiations and ratifications. Barring such structural assaults on the problem, all that remains is to discuss crisis-management tools such as those implemented by the United States during the 2008-2009 crisis. The lessons learned there may be tweaked and applied to Europe’s current dilemmas, but all of them will be temporary and marginal if the crisis’ root causes are not addressed.
The Europeans during the meeting will ask the Americans what Washington can do to help. (Technically this is a question for the Federal Reserve chairman, but Ben Bernanke and Geithner have been on each other’s speed dial for some time now.) The answer: Precisely the same thing the American government did during the last financial crisis. At that time global markets seized up due to fear, and banks became afraid to lend to one another. Lending and credit specifically, and economic activity in general, ground to a halt. So the U.S. Federal Reserve granted unlimited low-interest dollar-denominated loans to nearly anyone who wanted them and could provide reasonable collateral. Due to the depth of the crisis, even foreign entities qualified. That bought time for investors, lenders and consumers to recover from their shock. After a few nervous months, normalcy returned and the Fed dialed back the liquidity.
The key words in that summary are “bought time.” While the American economic model comes in for a good amount of criticism — warranted and otherwise — it is a singular, unified system with relatively clear rules and modes of behavior. The European crisis is a crisis precisely because there is no single authority, no single set of enforced rules, and no arbiter besides another summit. When the American system suffered a crisis, the Fed and Treasury could buy time for a broadly functional system to fix itself. The structures that could carry Europe through a crisis have yet to be built.
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The Producer Price Index (PPI) was unchanged in August To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 9/14/2011
The Producer Price Index (PPI) was unchanged in August, matching consensus expectations. Producer prices are up 6.5% versus a year ago.
The lack of change in the overall PPI was largely due to a 1% drop in energy prices offsetting a 1.1% gain in food prices. The “core” PPI, which excludes food and energy, increased 0.1%.
Consumer goods prices were flat in August but are up 8.2% versus last year. Capital equipment prices were down 0.1% in August but are up 1.6% in the past year.
Core intermediate goods prices declined 0.1% in August but are up 7.5% versus a year ago. Core crude prices rose 1.6% in August and are up 24.2% in the past twelve months.
Implications: Lower energy prices have temporarily cooled overall producer price inflation. Although producer prices are up 6.5% in the past year they were unchanged in August and are down at a 0.6% annual rate in the past three months. However, these figures do not give the Federal Reserve extra room for easing. “Core” producer prices, which exclude food and energy, are up at a 3.4% annual rate in the past three months, making it tougher for the Fed to justify a third round of quantitative easing. Core prices for intermediate goods slipped 0.1% in August but are still up 7.5% in the past year; core crude prices increased 1.6% in August and are up 24.2% versus a year ago. Some of these large gains in core prices further back in the production pipeline will feed through to prices for finished goods. In other recent inflation news, import prices declined 0.4% in August but were up 0.3% excluding oil. Import prices are up 13% versus a year ago and up 5.5% excluding oil. Export prices increased 0.5% in August and 0.3% excluding agriculture. Export prices are up 9.6% from a year ago while prices ex-ag are up 5.5%. This is an environment that calls for monetary restraint, not looser money.
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The Consumer Price Index (CPI) rose 0.4% in August To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 9/15/2011
The Consumer Price Index (CPI) rose 0.4% in August versus a consensus expected increase of 0.2%. The CPI is up 3.8% versus a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) also rose 0.4% in August and is up 4.5% in the past year.
Gains in consumer prices were widespread. Energy prices increased 1.2%, food prices were up 0.5% and the “core” CPI, which excludes food and energy, was up 0.2%, matching consensus expectations. Core prices are up 2.0% versus last year.
Real average hourly earnings – the cash earnings of all employees, adjusted for inflation – fell 0.6% in August and are down 1.9% in the past year. Real weekly earnings are down 1.8% in the past year.
Implications: Consumer price inflation came in well above consensus expectations for August, the second month of hot readings. Consumer prices are now up 3.8% versus a year ago. This should make it clear to the Federal Reserve that an easy monetary policy is taking a toll on the US economy in the form of higher inflation. It should also give them great pause before embarking on any measures to ease monetary policy further. The Fed is likely to discuss these measures at its meeting next week. Before today’s data, the Fed appeared to be moving toward a program of buying more longer-maturity treasury securities. We believe this would be a mistake. The Fed has hidden behind relatively low readings for “core” inflation, which exludes food and energy, to justify its accommodative policy. But that dog will no longer hunt. Core prices are up 2.0% from a year ago (at the top of the Fed’s so-called target range), at a 2.7% annual rate in the past six months and a 2.9% annual rate in the past three months. “Cash” inflation, which excludes the government’s estimate of what homeowners would pay themselves in rent, is up 4.5% in the past year. Cash inflation is more indicative of the inflation actually being felt by consumers. In other news this morning, new claims for unemployment benefits rose 11,000 last week to 428,000. The four-week moving average is 420,000 versus 440,000 in May. Continuing claims for regular state benefits fell 12,000 to 3.73 million. High-frequency indicators, like claims, provide real-time data on economic activity. The increase in claims reflects the same problems with employment we have seen in the past two years, not a double-dip in economic activity.
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(http://ecx.images-amazon.com/images/I/61z9KzjcQdL._SS500_.jpg)
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(http://ecx.images-amazon.com/images/I/61z9KzjcQdL._SS500_.jpg)
http://www.amazon.com/gp/product/B004HYSWC8?ie=UTF8&tag=wwwviolentkicom&linkCode=ur2&camp=1789&creative=9325
We're on the same path as the country above.
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Great idea for toilet paper!
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http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100011987/china-to-liquidate-us-treasuries-not-dollars/
China to 'liquidate' US Treasuries, not dollars
By Ambrose Evans-PritchardEconomicsLast updated: September 15th, 2011
China intends to start reducing its portfolio of US debt
The debt markets have been warned.
A key rate setter-for China's central bank let slip – or was it a slip? – that Beijing aims to run down its portfolio of US debt as soon as safely possible.
"The incremental parts of our of our foreign reserve holdings should be invested in physical assets," said Li Daokui at the World Economic Forum in the very rainy city of Dalian – former Port Arthur from Russian colonial days.
"We would like to buy stakes in Boeing, Intel, and Apple, and maybe we should invest in these types of companies in a proactive way."
"Once the US Treasury market stabilizes we can liquidate more of our holdings of Treasuries," he said.
To my knowledge, this is the first time that a top adviser to China's central bank has uttered the word "liquidate". Until now the policy has been to diversify slowly by investing the fresh $200bn accumulated each quarter into other currencies and assets – chiefly AAA euro debt from Germany, France and the hard core.
We don't know how much US debt is held by SAFE (State Administration of Foreign Exchange), the bank's FX arm. The figure is thought to be over $2.2 trillion.
The Chinese are clearly vexed with Washington, viewing the Fed's QE as a stealth default on US debt. Mr Li came close to calling America a basket case, saying the picture is far worse than when Ronald Reagan and Margaret Thatcher took over in the early 1980s.
Mr Li, one of three outside academics on China's MPC, described the debt deals on Capitol Hill as "just trying to by time", saying it will not be enough to stop America's "debt dynamic" turning dangerous.
Fair enough, but let us be clear: the reason China has accumulated the equivalent of 6pc of global GDP in reserves (like the US in the 1920s) is because it has held down its currency to gain market share. As Michael Pettis from Beijing University points out tirelessly, the mercantilist policy hollows out US industries and forces America to choose between debt bubbles or unemployment – or, of course, protectionism, though we are not there yet.
Until it abandons that core policy, it has to keep buying foreign assets and lots of dollars. The euro can absorb only so much – 800bn euros so far – before Europeans realize (the French already realize) that Chinese bond purchases are double edged, and the yen the Swissie can't absorb anything at all. (The governments are intervening to stop it). Besides, China has the same misgivings about euro debt as it does about dollar debt. Perhaps more so after Euroland's long-running soap opera.
So what Li Daokui said is not bad for the dollar as such. He said there is "$10 trillion" waiting to be invested in the US, if America will open its doors.
It is bad for bonds – or will be. The money will go into strategic land purchases all over the world, until the backlash erupts in earnest. It will go into equities, until Capitol Hill has a heart attack. It will go anywhere but debt.
Yet another reason to be careful of 10-year Treasuries and Bunds below 2pc yields. There is a big seller out there, just itching to let go.
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"Fair enough, but let us be clear: the reason China has accumulated the equivalent of 6pc of global GDP in reserves (like the US in the 1920s) is because it has held down its currency to gain market share. As Michael Pettis from Beijing University points out tirelessly, the mercantilist policy hollows out US industries and forces America to choose between debt bubbles or unemployment – or, of course, protectionism, though we are not there yet."
This broaches a deep, important, and pivotal issue in the Chinese-American relationship and with regards to the state of the international economy and its players.
I stand ready to be educated to a better thought process, but at the moment it makes perfect sense to me to say that a key, perhaps THE key problem is that the Chinese are wreaking havoc with their "beggar-thy-neighbor" exchange rate policies and what I understand to be their tight controls on the convertibility of currencies. At the moment it makes sense to me for the US to have a real eyeball-to-eyeball moment with them until they blink.
I get that trade wars are bad. Getting fuct the way we are now is worse.
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Think Obama has the chops to pull that off?
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I note that Obama has already cut off F-16s to Taiwan and F-22s and F-35s to America. China is quite pleased by these acts of submission.
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Of course not. Of the Reps, should he put his mind to it, Newt does I think. Perry? Dunno, he doesn't seem very deep in things international. Mitt? Too used to getting beat up by the Dems in MA.
(Concerning China, Taiwan, and Baraq-- also to be noted is that the "compromise" of installing better technology into what the Taiwanese already have actually increases the risk of high US tech falling into Chinese hands. That said, please take any further conversation on the point to the China-US thread.)
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WSJ:
By JAVIER E. DAVID
NEW YORK—Widespread market speculation that Switzerland may adopt new measures to prevent its currency from inflicting further damage on its export sector sent the franc sharply lower Tuesday, with the move momentarily distracting traders from Europe's ongoing sovereign-debt problems.
In early U.S. trading, speculation ran rampant through the market that the Swiss National Bank—seemingly unhappy that the franc has continued to strengthen despite efforts to weaken it—was mulling a new target rate of CHF1.25 against the euro. The SNB declined to comment on the rumor.
Two weeks after the Swiss National Bank shocked markets by adopting a target rate of CHF1.20 against the euro, the single currency has drifted around that level without actually breaching it. Until recently, shelter-seeking traders have used the franc as an umbrella from the various storms buffeting the global economy.
But heightened fears of a Greek default—and the spillover effects on the global financial system—have sent nervous investors flocking to safe-haven instruments. The SNB is determined to shield the country's exporters from the ravages of a muscular franc, and has indicated a willingness to expend unlimited amounts in order to achieve that goal.
Europe's inability to resolve Greece's festering woes, and new fears about Italy, have put the SNB between the proverbial rock and a hard place, analysts say.
"If they don't step in and buy a lot of euros, they're going to lose a lot of jobs and companies in their export sector," said Andrew Busch, global foreign exchange strategist at BMO Capital Markets in Chicago, calling it "a devil's trade-off."
But the franc's strength is a direct function of how Europe's raging debt crisis is churning the market. Mr. Busch echoed other analysts who question how effectively the Swiss can continue to counteract safe-haven buying.
"It's really a question of whether Europe get's their act together or not," he added.
The euro spiked as high as 1.2215 francs before paring some of those gains to trade near 1.2157 francs by midday.
Meanwhile, the euro was at $1.3684 compared with $1.3686 late Monday, and at ¥104.70 from ¥104.89. The dollar was at ¥76.51 compared with ¥76.59, while the pound was at $1.5692 from $1.5715. The dollar climbed as high as 0.8922 franc before scaling back to recently trade at 0.8884 franc from 0.8820 franc late Monday.
The ICE Dollar Index, which tracks the dollar against a basket of currencies, was at 77.12, off 0.3%.
Late Monday, Standard & Poor's lowered Italy's credit rating to single-A from A-plus, keeping a negative outlook. The decision converged with dour German economic figures, and heaped more negative sentiment on a market already battered by fears that Europe's sovereign-debt problems will soon infect the global financial system.
Meanwhile, Greece is locked in high-stakes talks with the so-called troika of European Union, European Central Bank and International Monetary Fund officials. The talks hinge on whether Greece can meet certain benchmarks to guarantee the release of a badly needed tranche of funds.
"The euro has been resilient to bad news today in terms of Italy's downgrade and German numbers," said Vassili Serebriakov, foreign exchange strategist at Wells Fargo in New York. "There's some optimism about the troika talks, but overall the market's not really getting much of a shift in sentiment still."
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Fed Actively Twists But Holds Off on QE3
Today the Federal Reserve announced major changes to
the composition of its balance sheet as well as major
changes to its description of the economy.
From now through the middle of next year, the Fed will
sell $400 billion of Treasury securities with maturities of
three years or less and purchase $400 billion in Treasury
securities with maturities of six years to thirty years. This
is an “active” form of “twisting” the maturities in its
balance sheet in an attempt to bring down long-term
interest rates. It is more aggressive than the “passive”
alternative in which the Fed would roll some of its
maturing short-term Treasury securities into longer-term
Treasury debt. It is unclear at this point whether the Fed
will employ the passive approach in addition to the active
twist of $400 billion.
The Fed also announced that it will cease shifting its
portfolio of mortgage backed securities (MBS) and the
debt of Fannie Mae and Freddie Mac (GSE debt) into
Treasury securities. Since mid-2010, the Fed has reduced
its holdings of these residential mortgage-based assets by
about $300 billion, to $1 trillion from $1.3 trillion, buying
Treasury securities with the principal as MBS and GSE
debt matured. Now the Fed will use the principal to buy
MBS. The Fed did not provide a date for that process to
end. In other words, going forward and for the foreseeable
future the Fed will maintain a stable amount of Treasury
securities and a stable amount of mortgage-based assets.
All of these measures come on top of the decision at the
Fed’s last meeting in early August to commit to
maintaining the current federal funds rate at nearly zero
percent through at least mid-2013.
Notice, however, that neither the active twist nor a passive
twist, nor maintaining the size of its mortgage-related
assets will alter the overall size of the Fed’s balance sheet.
In other words, the Fed did not announce a third round of
quantitative easing. The Fed also did not reduce or
eliminate the interest rate it pays banks on their excess
reserves, another policy move it surely discussed at the
meeting over the last two days.
The changes to the language of the Fed’s statement were
also significant. The Fed noted a modest increase in
household spending but suggested the recovery should be
stronger given the easing of supply-chain disruptions
related to Japan’s disasters. More importantly, the Fed
said downside risks to the economic outlook were
“significant,” including recent problems in “global
financial markets,” an obvious reference to the European
sovereign debt problems. Remarkably, even with
consumer prices up 0.5% in July, 0.4% in August and
3.8% in the past year, the Fed said that “inflation appears
to have moderated since earlier in the year,” the exact
same language it used at the prior meeting. Message to
markets: the Fed does not care about inflation right now.
Three members of the Federal Open Market Committee
(Fisher, Kocherlakota and Plosser), all reserve bank
presidents, not members of the Washington DC-based
Board of Governors, voted against today’s decision to shift
the composition of the Fed’s Treasury assets to longerdated
maturities and maintain the size of the Fed’s
This report was prepared by First Trust Advisors L. P., and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable.
Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
mortgage-related assets. These same three members
dissented last month against the decision to commit to
maintaining near zero short-term rates through at least
mid-2013.
We believe the changes announced today are unlikely to
have the beneficial effects on the economy that the Fed
majority thinks. The Fed is clearly trying to reduce
mortgage rates as well as other long-term interest rates.
But the policy measures taken today will, if they have a
financial impact, flatten the slope of the yield curve,
reducing bank earnings.
Moreover, the shift in the composition of the Fed’s
portfolio of Treasury securities means that, on net
(Treasury issuance minus Fed purchases), the federal
government is issuing less long-term debt and more shortterm
debt. This is poor management of the federal debt.
Given historically low interest rates, the federal
government should be issuing more long-term debt and
less short-term debt, not the other way around.
Ultimately, we believe today’s policy moves were more
about appearing to do something than getting actual
results.
Brian S. Wesbury, Chief Economist
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Wesbury has some interesting thoughts on the Fed's twist, and the sharp downturn in gold and silver (a risk of which I have warned btw-- which has not stopped me from getting badly dinged in silver, but I digress)
http://www.ftportfolios.com/Commentary/EconomicResearch/2011/9/23/bernanke-squashes-gold-bugs
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Wesbury has some interesting thoughts on the Fed's twist, and the sharp downturn in gold and silver (a risk of which I have warned btw-- which has not stopped me from getting badly dinged in silver, but I digress)
http://www.ftportfolios.com/Commentary/EconomicResearch/2011/9/23/bernanke-squashes-gold-bugs
Oh boy. :roll: More Wesbury Kool-aid!
Say it with me, 211 TRILLION in debt.
The Euro is dying, the USD is the cleanest shirt in the hamper, for now.
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The wave of selling that has washed over financial markets in recent weeks swamped precious metals on Friday, sending gold and silver prices plummeting and raising the stakes for key weekend meetings of global finance officials.
Gold and silver prices have seen sharp declines lately, but Barron's economics editor Gene Epstein says the long-term value of the commodities still shines.
.In the past week, the Dow Jones Industrial Average plunged 6.4%, its worst week since October 2008. Currencies, too, have had a wild ride. The dollar this month has soared against its rivals. The euro has tumbled 6% in September, while emerging currencies like Brazil's real have been punished.
Gold futures dropped 5.8% Friday, the biggest one-day loss in five years, as investors rushed to cash out of some of their most profitable investments in the hopes of making up for losses elsewhere. The decline capped gold's worst week since 1983. Silver was even harder hit, plunging 18% for its largest single-day decline since 1987.
Precious metals posted deep losses as investors continued to leave the market in favor of cash. Comex silver for September delivery dropped $6.4870, the worst dollar-decline since 1980. Liam Denning has details on The News Hub.
.The week highlighted a growing sense of despondency among investors concerned that policy makers have neither the will nor power to juice their economies.
The broad market declines have added pressure on finance ministers and central bankers as they gather for the International Monetary Fund's annual meeting in Washington this weekend.
"We are in a red zone," said World Trade Organization chief Pascal Lamy, one of many officials attending the meeting. "We are at risk of repeating what happened in 2008"—when market upheaval shook the global economy—"occurring again for different reasons but through the same channel, the financial system."
Friday's exodus from gold and silver underscores the unpredictable and volatile nature of financial markets in recent weeks.
.Investors have grown increasingly skeptical of policy makers' ability to revive the global economy, and of their willingness to bring about a resolution to the European debt crisis.
The broader rout has left many investors with unexpected losses, driving some to part with some of their better performing investments, among them gold and silver.
The declines are a turnabout for gold, in particular, which has recently found strong demand in good times and bad. It has enjoyed a special status as a safe haven from financial crisis and political turmoil, as well as a hedge against inflation.
Gold has risen six-fold in the past decade, including a 15% gain this year. In August, it reached a nominal record of $1,888.70 per troy ounce, rising on a trajectory that many had speculated could not last.
Gold settled at $1,637.50 an ounce, down 9.6% for the week. Silver, which had risen 28% this year by the end of April, settled at $30.05 per ounce, falling into negative territory for the year.
Fears of a possible Greek default and the U.S economy dipping back into recession pushed the blue-chip index to its worst weekly decline in nearly three years. Brendan Conway has details on The News Hub.
.Some hedge funds were selling to raise cash to meet margin calls from lenders. Other investors were using proceeds of silver and gold sales to replenish other parts of their portfolios, which had fallen in value in recent sessions, said George Gero, precious metals strategist at RBC Global Futures.
In addition, it appeared that European banks were selling gold, possibly in order to raise cash and shore up their balance sheets, Mr. Gero said. This selling was then magnified by so-called momentum traders whose strategy is to piggyback on moves up or down in price.
Silver faces the added woe of being widely used in industry, and therefore vulnerable to fears that weak economies will consume less. Moreover, the Shanghai Gold Exchange said Friday that it will expand the upper and lower trading limits for its silver contract.
Exchange-traded funds that invest in, and track, the metals also have helped investors move quickly in and out of gold and silver.
"It feels like there's tremendous macro headwinds for the metals," said David Lutz, managing director at Stifel Nicolaus.
The recent downdraft for precious metals came after the Federal Reserve this week acknowledged the economy is in worse shape than it thought, a sign that inflation will be of no concern for some time. As well, economic data out of China and Europe indicated that the global economy continues to lose steam.
"What's exacerbating the situation right now is that the global economy is in bad shape," said Andreas Utermann, global chief investment officer for money manager RCM, a subsidiary of Allianz Global Investors.
On Friday, members of the Group of 20 industrialized and developing nations met to see what measures they could devise to boost confidence in financial markets. But there was little expectation that they would produce anything concrete.
.The euro fell from nearly $1.38 to end the week at $1.35, and German, French and British stocks all fell too. Stocks in Hong Kong and Seoul fell, too, and the Shanghai Composite suffered its fourth straight week of declines. The Korean won tumbled 9.3% against the dollar, forcing the central bank to intervene.
In the U.S., the Dow's declines this week take the blue-chip index down 18% from its late-April highs. On Friday, the Dow rose 37.65 points, to 10771.48.
The fact that gold is falling along with other assets complicates life for those who bought gold because they thought it would rise or fall independently.
"There is nowhere really to hide at the moment," said Fredrik Nerbrand, global head of asset allocation at HSBC.
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Also see entries in today's China-US thread:
WSJ
Section: General News - A renewed dispute is looming between Beijing and Washington about the competitive advantages in global trade that China enjoys thanks to its government's rigid control and valuation of its currency, the yuan, also known as the Renminbi [RMB].
In Washington, the U.S. Senate is threatening to legislate trade sanctions against China because of the issue.
By fixing its exchange rate for the yuan below the market value, Beijing keeps its exports cheaper for foreign consumers, providing Chinese manufacturers with a considerable competitive advantage in global trade.
The Economic Policy Institute in the United States reported last week that, since 2001, China's use of exchange rate controls has contributed to the loss of nearly 3 million American jobs.
Sense of entitlement
Arthur Kroeber is managing director of GK Dragonomics. He argues that China sees its undervalued currency and trade surplus as a right - and a key part of its national economic development.
There is no other demonstrated way to become a rich and powerful country other than, at your early stage, to promote exports. One of the tools to promote exports is to run an undervalued exchange rate," said Kroeber. "The Chinese take the view that, 'Everyone else who has gotten rich has used the same technique... we want to get rich; we have the same rights as everyone else.'
Because Beijing's economy depends heavily on exports, Janet de Silva, the dean of the Ivey Business School in Hong Kong, said it is difficult to predict how Beijing might liberalize currency.
If China were to move to full convertibility, the RMB would appreciate greatly, perhaps as much as 20 percent against the U.S. dollar, making Chinese exports less viable, said de Silva.
To level the playing field between U.S. and Chinese manufacturers, U.S. Senate Majority Leader Harry Reid said this week that work will soon begin on a bipartisan bill that would make it easier for China to be labeled a currency manipulator and for trade sanctions to be imposed on Chinese goods.
Pros, cons of trade sanctions
Although many U.S. business groups oppose such legislation for fear of sparking a full-blown trade war with China, Diana Choyleva, of Lombard Street Research, understands the rationale for the bill.
Unfortunately, in the short-term, the U.S. faces a sharp downturn. So, in an election year... protectionist voices are on the rise again. You can imagine; the easiest entity to blame would be the foreigner. And, in this case the U.S. would be right, said Choyleva.
China disagrees that its exchange rate is contributing to American economic woes.
During the recent International Monetary Fund and World Bank meetings, Chinese officials have been keen to point out that the yuan has in fact been gradually appreciating for some time, and this week reached its highest rate since 2005.
In Beijing, foreign ministry spokesman Hong Lei rejected that the exchange rate was affecting the trade balance between China and the United States. He said China hopes the United States will refrain from politicizing the exchange rate and trade issues.
China's aversion to liberalized yuan
Chinese officials have been reluctant to liberalize the yuan because it likely would reduce the competitiveness of Chinese exports and fuel job losses, which could lead to social unrest.
But keeping the yuan under tight government control also carries costs. It means China's currency is not internationally traded, so many global businesses continue to price goods and contracts in dollars.
Analyst Kroeber said Chinese concerns about the stability of the dollar are becoming a catalyst for Beijing to try to internationalize the use of the yuan.
He said that the goal of the Chinese leadership, 10 or 20 years from now, is to create an internationally accessible bond market large enough to make the Chinese yuan a reserve currency like the dollar.
What they've been trying to do is increase the use of renminbi for settling and invoicing trade. If you have concerns about the currency in which your trade is denominated, traditionally U.S. dollars, using your own currency is a good solution to that, said Kroeber.
Strategic use of 'dim sum' bonds
China still restricts foreign investors from broad participation in its economy, but is using Hong Kong as a gateway for investment through programs such as dim sum bonds. These are yuan-denominated debts sold in Hong Kong since 2009 and named after a tasty appetizer much loved in China.
Dim sum bonds are attractive to global brands, such as Tesco and BP, as well as Chinese companies interested in raising and investing money through bonds that have lower repayment rates than those denominated in U.S. currency.
Professor de Silva said foreign and domestic investors in the debt tolerate yields as low as 1.7 percent in the belief they will make more gains as the yuan continues to appreciate.
If we look over the past year, RMB appreciation to the U.S. dollar is around six percent. And, the forecast over the next five years is about four percent per year. So if you take the 1.7 percent yield, plus that four percent yield, it starts to look quite attractive, said de Silva.
Although investors may be banking that the yuan will rise in value, there are still serious doubts about whether a truly liberalized yuan will become a reality anytime soon. As the yuan develops into a more globalized and mature medium of exchange and store of value, Chinese leaders indicate that currency policy will continue on their terms, and not those of China's trading partners. - VOA
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A different POV from the WSJ:
The world has done surprisingly well since the Great Recession began at not making things worse with trade protectionism. But that may soon change thanks to the U.S. Senate, which is expected to vote as early as this week on the most dangerous trade legislation in many years, the Currency Exchange Rate Oversight Reform Act. This is when an American President would normally step in and defend the U.S. and world economies, but Barack Obama is bobbing and weaving for his own narrow political ends. This is risky business.
Senators Chuck Schumer and Lindsey Graham have pushed since 2005 to impose punitive tariffs on China if the value of the yuan doesn't rise faster. The legislation is now coming to the floor because Senate Democrats want protectionist political cover against unions in return for voting on the free-trade pacts with Colombia, Panama and Korea that President Obama finally sent to Congress yesterday. But what is cynical posturing in Washington may look more threatening to the rest of the world, and once trade wars start they can be hard to stop.
Enlarge Image
CloseAssociated Press
The senators speak during a news conference on Sept. 22, to discuss unfair currency manipulation.
.Unlike America's last great trade blunder, the Tariff Act of 1930 (aka Smoot-Hawley), the China bill wouldn't raise tariffs across the board, but would instead allow companies to seek countervailing duties by treating a "misaligned" currency as a subsidy. This would nonetheless open the floodgates to applications from American companies, and the resulting tariffs would violate World Trade Organization rules. China would undoubtedly retaliate, meaning companies and consumers in both countries would lose.
If other countries follow suit, there would be knock-on effects throughout the global economy. As the erstwhile leader of the world's trading system as well as one of its main beneficiaries, the U.S. bears a special responsibility to avoid this outcome.
One reason we are so close to this ledge is that Washington has not led on global and regional liberalization. Free trade is like a bicycle, which needs to be pedaled forward or it tips over. When a President is AWOL on trade as Mr. Obama has been, U.S. politicians succumb to populist temptations. Instead of concentrating on domestic reforms to restore growth, Congressmen tell Americans that their lost prosperity was taken by China rather than by poor policy decisions. So now the U.S. will punish the biggest developing nation, and one of America's main goods suppliers, for its economic success.
The last six years are proof that revaluing the yuan is not the key to reducing China's large and persistent trade surplus with the world. The yuan has appreciated by almost 30% since the middle of 2005, when Mr. Schumer was pushing for a 25% revaluation. But the Chinese surplus has mostly grown and occasionally shrunk during this period in response to other forces.
This is a repeat of the 1980s, when Congress was bashing Japan for keeping the yen low and running large surpluses. As the yen rose from 360 to the dollar to 80 over 25 years, the surplus persisted and continues today, though it has shrunk in relative terms since the bursting of Japan's bubble.
The U.S. can do more to help Beijing avoid Japan's bubble and bust by urging it to reform the financial system that has favored exports. There are already signs that China's state-directed credit explosion of 2009 is leading to an increase in nonperforming bank loans, as well as state firms and local governments in need of bailouts. Wages are also rising, making some Chinese exports less competitive.
Related Video
Mary O'Grady on the status of the South Korea, Panama, and Colombia free trade agreements.
..As China comes under economic and political strain, it's worth remembering that a major benefit of free trade is its stabilizing effect on rising powers like China. In 1930, Smoot-Hawley and the retaliation it spurred contributed to a collapse of world trade and deepened the global depression. So too did a series of competitive currency devaluations, another tool of trade war. The global economic collapse gave Japan and Germany a push toward fascism. Once trade with the developed world was closed off, ambitious Japanese officers took the initiative to expand the empire to secure markets and raw materials.
Trade brinksmanship is always dangerous, but especially when the world economic recovery is beset by so many other problems. Yet the U.S. political system is now slouching toward protectionism less by design than by a general abdication of leadership.
Democrats want to appease labor to hold the Senate next year. The White House wants to appease Senate Democrats and labor, so it has failed to speak against the tariff bill. White House spokesman Jay Carney says only that it is "reviewing" the legislation and that "we share the goal."
Senate Republicans aren't about to stand in the way, especially when their Presidential front-runner, the supposedly business savvy Mitt Romney, is also calling for unilateral trade duties against China to give his candidacy a populist edge. John Boehner's House Republicans may be the last obstacle to such a destructive bill passing.
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In "The World in Depression, 1929-1939," the economic historian Charles Kindleberger wrote that one great contributor to depression was the failure of leadership, especially by the U.S. and Britain. Neither of the two leading economies were willing to maintain an open market for the world's goods in a period of distress.
"When every country turned to protect its national private interest, the world public interest went down the drain, and with it the private interests of all," Kindleberger wrote. Where's a U.S. President when you really need him?
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http://finance.yahoo.com/blogs/breakout/strong-dollar-careful-play-184447569.html
"Take a look at the dollar chart for the last year. It's been battered. It's been pummeled," notes Rich Ilczysyzn of MF Global. He believes that dollar weakness will come to an end and he's looking to profit from it.
Before we get into the whole "evil Fed debasing our currency" conversation it's important to note that all paper currency is relative. In the long run the dollar may be worthless, but more important is whether or not it's in better shape than the Euro right now. And, yes, it is more about the euro rather than other global currencies.
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GM, You raise a very important point here:
"it's important to note that all paper currency is relative"
The two main currencies are the US$ and the Euro. It is measure at this point the damage we are currently doing to our currency and our standard of living if central point of comparison is the currency of an economic union in collapse. Like judging the 0-4 Minnesota Vikings against the 0-16 2009 Detroit Lions, the 2011 Euro isn't exactly the gold standard, nor is the Obama-Bernancke dollar.
Why on earth are we striving to copy the economic policies that put Europe in this mess?
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Stratfor
Summary
The price of copper has dropped 30 percent since early August, reaching a 14-month low. Because businesses in China have been using copper as a financing tool to bypass the tightening of credit markets, the repercussions on the Chinese economy of a sustained drop in the copper price could be widespread. Beijing may not be able to do anything to significantly counter this threat, as copper is already being widely used for financing and Beijing does not want to enforce any new regulations that could sacrifice economic growth and employment.
Analysis
Copper prices have been experiencing increased volatility in recent weeks, dropping 30 percent since early August and reaching a 14-month low as a result of Europe’s deepening debt crisis and the overall slowing of the global economy. China has been using copper as a financing tool, thereby linking it to financial and real estate markets. This means that a sustained drop in the price of the metal — certainly a possibility amid the recent volatility — could deliver an unexpected hit to the Chinese economy.
The Use of Copper in Financial Markets
Even though China is the world’s largest consumer of copper, the drop in prices has not come as a welcome development. This is because of the different ways China uses copper. Though China’s demand for the metal has surged over the last 10 years due to domestic construction, industrial production and the needs of the manufacturing industry, copper has also taken on an important role in financing. An increasing number of Chinese firms have been using copper as a financing tool — stockpiling the metal and using it as collateral — because the government’s measures to curb inflation have limited the firms’ access to credit. Such financing links the price of copper to other key elements of the Chinese economy, including the growing speculative real estate bubble.
China’s tightening monetary policy has made it more difficult to access credit through official channels. As a result, Chinese small- and medium-size enterprises (SMEs) have increasingly turned to copper for use as collateral in loans, which are then funneled into other sectors of the economy. The falling price of copper means that the collateral initially put up for the loans in yuan is no longer worth what it once was, decreasing the likelihood that the borrower will be able to pay back the loan. If firms default on debts, then others connected in the chain will default — and determining where loans have been invested is nearly impossible.
Banks and state-owned enterprises (SOEs) are also potentially vulnerable. A high number of SOEs have also used copper as collateral. These firms are often involved in the real estate sector — even if their primary function is not always directly linked to it — and are therefore exposed to the country’s growing real estate bubble. The government would bail out the more politically favored SOEs if necessary, but that would leave fewer resources to be allocated to the private sector that is crucially important to China’s growth.
How Financing with Copper Works
As China considers raising interest rates further and implementing other measures to tighten credit, businesses continue to use more complicated methods to obtain loans. The procedure for using copper as a financing instrument has typically gone as follows: SMEs and SOEs apply for a low-interest loan to buy copper on the international market using U.S. dollars, deferring payment on the loan for three to nine months. The copper is imported and stockpiled in warehouses in China, and then they take the warehouse receipts to the bank and get around 80-85 percent of the face value to invest or speculate in other markets.
Due to the yuan’s general appreciation against the dollar, the borrower is in theory virtually guaranteed to make a profit during the initial three- to nine-month period, in addition to whatever they earn by their investment of yuan. Because of the apparent upside involved in trading assets purchased with dollars for yuan and the overall tightening credit environment in China, which makes it more difficult to secure loans through other channels, this approach has become quite popular. In fact, according to STRATFOR sources, virtually all copper imported into China over the past three months has been used for financing.
(click here to enlarge image)
Potential Fallout and Beijing’s Response
Beijing issued new regulations in late August requiring banks to place part of the original loan in a low-yielding reserve account instead of allowing it to be used to invest yuan elsewhere in the economy. But because the use of copper as collateral developed as a way to bypass lending regulations, there is no mechanism in place to track how much of the inventory is tied up in these financing deals, meaning the extent of the risk also cannot be measured. But China’s copper demand was up by nearly 100 percent between 2005 and 2009, during which time Chinese gross domestic product rose by only about a third, according to the International Copper Study Group.
There is little doubt that a significant proportion of this copper has been used for financing, given that industrial use alone does not account for the increase. Warehouses bonded to the London Metal Exchange (LME) also saw Chinese copper inventories increase 17 percent in the first quarter of 2011, compared to a drop in the purchasing managers index manufacturing rate to 52.9 percent during the same period, according to the China Federation of Logistics and Purchasing. That this figure only includes inventories registered on the LME again suggests that a high percentage of imported copper is being used to finance credit.
Any move by Beijing to institute new regulations to limit this activity may prove to arrive too late. Speculative tools like copper and real estate have been used in informal and formal lending, making them harder to regulate, thus increasing China’s vulnerability to price declines and financial risk. Beijing understands it needs to clamp down on copper speculation, but it is wary as this may lead to a big rise in nonperforming loans at banks.
A drop in copper prices appears on one hand to be a good thing, since China’s demand for copper is growing faster than production. On the other hand, if the value of China’s stockpiled copper collapses, the impact on those using copper as collateral has widespread ramifications. Such a collapse would result in a much worse outcome for Beijing and would parallel similar problems China faces in managing bubbles in, for instance, real estate. There are few safe investments, and the system is more stressed than it appears.
Beijing will find it hard, while installing new regulations, to achieve the contradictory goals it is pursuing — keeping the economy growing even as it tightens lending. It cannot sacrifice growth and employment, so it is unlikely to take measures to halt the copper financing practice completely.
Read more: China's Threat from Falling Copper Prices | STRATFOR
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This news is a couple of days old but I didn't notice it get much press time. I don't get this for example:
" The government will create a public-private entity that could buy $500 billion in toxic assets, and could be expanded to a trillion dollars."
I wonder if they include solyndra in this calculated brilliant use of tax dollars. There is no end to kicking the can down the road is there?
****U.S. Treasury Secretary Timothy Geithner speaks during a news conference at the Treasury Department on Tuesday.
By Sue Kirchhoff and Pallavi Gogoi, USA TODAY
WASHINGTON — Treasury Secretary Timothy Geithner unveiled a sweeping plan Tuesday to shore up the nation's troubled financial system.
It is designed to deliver as much as $2 trillion to troubled financial markets by having the government partner with the private sector to buy troubled assets from lenders, make more bank capital injections and expand a Federal Reserve lending program.
"Right now critical parts of our financial system are damaged," Geithner said at a Treasury Department press conference, warning that the nation faces the most serious economic crisis since the Great Depression. "Instead of catalyzing recovery, the financial system is working against recovery, and that's the dangerous dynamic we need to change."
The plan is just one part of overall efforts by the Obama administration, including a roughly $800 billion financial stimulus bill passed by the Senate Tuesday, to tackle the loss of millions of jobs, falling home and asset prices and a historic contraction in credit markets.
"It is essential for every American to understand that the battle for economic recovery must be fought on two fronts," Geithner said. "We have to both jump-start job creation and private investment and we must get credit flowing again to businesses and families."
Markets reacted negatively to the plan, however, with the Dow Jones industrial avereage down nearly 400 points in afternoon trading as investors and market analysts worried about the lack of specifcs in the broad proposal.
"The Financial Stability Plan outlined by Treasury Secretary Geithner this morning ... is obviously a work that is still very much a 'work in progress,'" economic consulting firm Stone and McCarthy said in a note to clients "It is quite possible that it may not be a finished product for an extended period of time."
Geithner's plan attacks the credit crisis on several fronts. First, the Treasury Department would use part of the $350 billion remaining from last year's $700 billion financial rescue fund as seed money, to induce the private sector to buy bad assets from banks. The government will create a public-private entity that could buy $500 billion in toxic assets, and could be expanded to a trillion dollars. Treasury has not yet settled on a final design for the program.
The administration will use another $80 billion in financial rescue funds to expand a recently created $200 billion Federal Reserve program. That program, designed to free up money for student loans, credit cards and auto loans, could also cover bonds backed by commercial real estate and privately issued mortgage-backed securities. The new funding is designed to leverage as much as $1 trillion in overall activity under the Fed program.
Geithner noted that 40% of the money for consumer lending has come through bundling loans into securities and reselling them in financial markets. As those so-called secondary markets have frozen, so has consumer and business lending.
Banks could receive more capital under the plan, which will be funded from the remaining $350 billion of last year's $700 billion financial rescue plan. Geithner said in order to get aid, banks would be subject to beefed up supervision or stress testing, especially big banks. Institutions that need additional capital will be able to access a new funding mechanism using money from the Treasury "as a bridge to private capital," Geithner said.
The renamed "Financial Stability Plan" rolled out by Geithner will also use at least $50 billion from last year's financial rescue law to help prevent home foreclosures. Details of that plan will be announced "in the next few weeks," Geithner said.
The plan relies on the Federal Reserve's willingness to expand current, historic programs to aid financial markets. But Fed Chairman Ben Bernanke faced some skepticism at a Tuesday afternoon hearing on Capitol Hill. Some lawmakers said they were worried that the Fed has already expanded its own balance sheet from about $800 billion to nearly $2 trillion as it created lending programs for stressed financial markets. The lawmakers also said the Fed has not released enough public information about its programs.
Rep. Spencer Bachus, R-Ala., accused the Fed and Treasury of using an "obscure and seldom utilized" provision of law to make unprecedented interventions into the financial markets.
"Not only has there been no disclosure or little oversight or accountability, but there's actually been an active resistance on the part of these agencies to explain their actions or disclose the terms," Bachus said. "We simply know almost nothing about these transactions. We can only guess as to their ultimate success or failure. In future years I'm sure those that write (about) these days will be intrigued and captivated by the question: How could such an unprecedented action have occurred without the consent of the governed?"
Bernanke said the vast bulk of Fed loans are safe and are generating profits. He said the central bank is reviewing its policies to ensure it is providing as much public information as possible. He also said the Fed might have to continue expanding its balance sheet in areas such as student loans, auto loans, and other areas where it could help open up markets.
"With our expansion, we're trying to create and stimulate credit markets where markets have broken down," Bernanke said, adding the Fed wants to "keep looking for opportunity" where it has the tools to get markets working again.
Geithner said he realizes the financial rescue represents a sizable commitment, but noted that many of the amounts were loans and loan guarantees, which means the government eventually will be repaid.
Still, the country should know that the program will involve costs to the government and risks, but he said the alternative of doing nothing would be far riskier.
"As costly as this effort may be, we know that the complete collapse of our financial system would be incalculable for families, for businesses, and for our nation," Geithner said.
The new administration's bailout overhaul seeks to address widespread criticism of how the Bush administration ran the $700 billion program Congress passed in October. Lawmakers in both parties say banks were getting billions of dollars in taxpayer support with few strings attached, and all the government aid was failing to accomplish its primary objective of getting banks to lend more.
Under the overhaul, the Obama administration seeks to deal with those issues by more closely monitoring banks to make sure the money they get is being used to increase lending.
President Obama, speaking at a prime-time news conference Monday night, said his overhaul of the financial rescue program would bring "transparency and oversight" to the heavily criticized program.
He said the overhaul would correct previous mistakes such as a "lack of consistency" and what he said was the failure to require banks to show "some restraint" in terms of executive compensation and spending in such areas as corporate jets.
The first $350 billion in the bailout program was committed by the Bush administration under the direction of former Treasury Secretary Henry Paulson. In part because of the political outrage over how the program has been run, the Obama administration decided for now against seeking any money beyond the $350 billion that is still to be spent.
Many economists believe $700 billion won't be enough to get the financial system operating normally and the administration will eventually have to ask for billions more. The administration, however, decided to try to increase the power of the program by using smaller amounts of money to harness bigger resources available at the Fed and in the private sector.
Asked about the possibility that his administration will ultimately need more money, Obama said Monday the goal now is to "get this right" because it is important to restore financial market confidence so banks will resume more normal lending.****
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Do you happen to have the date on that?
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I think the 11th - tuesday.
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By LUCA DI LEO
U.S. wholesale prices rose sharply last month on the back of higher costs for gasoline, food and household detergents, pointing to continued inflation pressures in the production pipeline.
The index of producer prices, which measures how much manufacturers and wholesalers pay for goods and materials, rose by 0.8% in September from August, the Labor Department said Tuesday. It was the biggest monthly gain since April and came after wholesale prices were flat in August and rose by 0.2% in July.
Underlying prices, which strip out volatile food and energy components and are considered a more reliable predictor of future inflation, rose by a more moderate 0.2%.
The figured point to strengthening pipeline inflation, which could limit the Federal Reserve's leeway in providing more stimulus to a weak economy. Fed officials, who worry the recovery could falter due to politicians' inability to agree on growth-boosting measures, need to calibrate their monetary stimulus so that it boosts the economy and jobs without spurring too much inflation.
After a spike in the first half of the year, most Fed officials still expect the price of oil and other commodities to moderate amid slower growth in the U.S. and China, and a potential recession in Europe, which leads to less demand and lower costs for raw materials.
But there's little evidence that is happening. U.S. oil futures turned higher Tuesday, rising above $87 a barrel, despite a Chinese government report showing slightly slower growth there in the most recent quarter. And there was no indication from the U.S. government report that inflation pressures are softening.
Wholesale prices rose by 6.9% compared to September 2010. Underlying pipeline prices, meanwhile, increased by an annual 2.5%, the biggest gain since June 2009.
The breakdown of the monthly changes showed a sharp rise in energy prices -- up 2.3% in September from August -- following declines the previous three months. Last month's increase was led by gasoline prices, which rose by 4.2%.
Food prices rose by 0.6% last month, the fourth monthly increase in a row.
Light motor truck prices accounted for one-third of the rise in underlying wholesale prices. They rose by 0.6% in September from August, following a 0.1% gain the previous month. Higher prices for household detergents also contributed to last month's increase.
The continued inflation pressures mean the Fed's criteria for launching a new round of bond purchases to boost the economy "will not be satisfied anytime soon," Gary Bigg, economist at Bank of America Merrill Lynch, said in a note.
In a rare bit of positive news for the economy, a separate report showed U.S. home builders' sentiment rose to the highest level in 17 months during October as low mortgage rates and favorable home prices spurred a pickup in expectations for sales. Confidence in the market for new, single-family homes increased by four points to 18 this month – the largest monthly gain since the home buyer tax credit boosted the market in April 2010.
====================
The Producer Price Index (PPI) soared 0.8% in September, coming in well above the consensus expected increase of 0.2%. Producer prices are up 6.9% versus a year ago.
The increase in PPI in September was mostly due to a 2.3% rise in energy prices. Food prices increased 0.6%. The “core” PPI, which excludes food and energy, increased 0.2%.
Consumer goods prices climbed 1.0% in September and are up 8.8% versus last year. Capital equipment prices were up 0.2% in September and are up 1.7% in the past year.
Core intermediate goods prices rose 0.2% in September and are up 7.5% versus a year ago. Core crude prices increased 1.0% in September and are up 20.8% in the past twelve months.
Implications: After no change in producer prices in August, inflation came back with a vengeance in September, rising 0.8%. This spike in prices easily beat the consensus expected gain of 0.2%. Higher energy prices led the way, accounting for most of the rise in overall producer prices. This more than reversed the slippage in energy prices in the prior two months. Meanwhile, food prices continue to escalate, rising 0.6% in September and up at a 9.2% annual rate in the past three months. The “core” PPI, which excludes food and energy, rose 0.2%. This measure is up 2.5% from a year ago and is up at a 3% annual rate in the past three months. Moreover, some of the large gains in core prices further back in the production pipeline will feed through to prices for finished goods. Core prices for intermediate goods rose 0.2% in September and are up 7.5% in the past year; core crude prices increased 1.0% in September and are up 20.8% versus a year ago. These figures should be enough to show the Federal Reserve that there is no room for a third round of quantitative easing. In other news this morning, chain store sales continue to look good, up 4.6% versus a year ago according to Redbook Research and 3.6% according to the International Council of Shopping Centers. We have yet to see any sign of recession.
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Gates betting on inflation funds:
http://www.marketwatch.com/story/how-bill-gates-is-betting-on-inflation-2011-10-18?
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Question to all those interested in this subject: What is the acceptable range for the rate of inflation if we accept that a) deflation is totally unacceptable, b) exact 0% inflation is therefore too close to deflation, and c) that there is quite a margin of error for monetary policy makers working with very imprecise measurements and imprecise tools.
You of course don't have to accept my premises.
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I have come to doubt the "deflation is bad" hypothesis.
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I have come to doubt the "deflation is bad" hypothesis.
Oh? Do tell.
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I have come to doubt the "deflation is bad" hypothesis.
Oh? Do tell.
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I like it when conventional 'wisdom' gets questioned around here.
One argument is that deflation is not a risk in this environment because of our never ending increases in the money supply, but that is not what Crafty is saying.
If Crafty is correct, the Fed could target inflation at 0% instead of more like 1-3%, then with margin of error in a big economy price increases/decreases might swing 2% up or 2% down averaging 0% and the dollar maintaining all of its value over the long term.
That is only true as long as deflation is not the expectation.
Deflation has tended to correlate with lousy economic periods, the Great Depression in the US and the end of economic growth in Japan in the early 1990s are examples. Other studies say that is not always so. Small deflationary periods have come and gone without major damage.
The risk of deflation is really the risk of spiraling deflation. It goes something like this: Things are cheaper, but people actually buy less because of low demand and because they know prices keep falling. Companies sell less and make less on what they do sell at the lowered price. Businesses either lower wages or layoff workers. Households have even less to spend, demand falls further, prices fall further and the cycle continues or accelerates. If or when this happens, it is very difficult cycle to break.
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I just got back from shopping and note the roasted chicken my wife loves has jumped from about 5 bucks to almost 8.
Frack.
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Lets define our terms here. Question: Is the bursting of a bubble a deflation?
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Lets define our terms here. Question: Is the bursting of a bubble a deflation?
Well, it's a deflation of the bubble. I'm not sure that it applies to the broader definition of deflation as previously cited by Doug.
As an example, the gov't interference in the housing market created the distortion in housing prices and the end of the bubble is good when the houses return to an authentic demand based price. If it's a systemic deflation, I'd think it's not a good thing.
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What would be the cause of "systemic deflation" be if it weren't the bursting of a bubble?
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What would be the cause of "systemic deflation" be if it weren't the bursting of a bubble?
The willfull destruction of an economy and/or national sovereignty by those in control of the banking industries?
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Forgive me DF, but are you guessing or have you thought about this aspect of economic theory?
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Forgive me DF, but are you guessing or have you thought about this aspect of economic theory?
I'll admit that I'm not much of an economist. Simply put, I am not. Nor am I much of a conspiracy theorist. It would explain some entity's wating a viable option for driving a singular world government. Tri-lateral Commission or what have you. I don't know. That was the nature of my question. It was an honest one.
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The usual suspects here are curious about my dalliance with economic heresy. As they begin to question me, I seek to pin down the definition of "deflation". As such my question is not really a question-- it is a request that they define what the word "deflation" will mean in this conversation. If it results only after a bubble bursts, that is one thing-- and arguably it is but a return to the mean. OTOH, if there are other situations that constitute a deflation, then I am asking them to describe and define them.
What I am not doing is asking for random guesses. :lol:
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Fair enough.
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"Lets define our terms here. Question: Is the bursting of a bubble a deflation?"
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Yes, that is where it starts, at least in the case of the two examples I gave: America in the 1930s and Japan in the 1990s.
The problem is the spiral and that we don't know any easy fixes to snap an economy out of it.
In today's economy the bubble started with housing. We don't face deflation, but the fear of it was one big reason why we have this 6 trillion plus stimulus/quantitative expansion of debt and dilution will haunt us perhaps forever. Even with the multi-trillion dollar injection, the momentum is stalled. Wait, don't buy, don't hire, don't invest is what the smart money is doing. A sad state of affairs.
If bursting a bubble is a necessary evil, two questions come to mind: what were we doing that made the bubble worse than it needed to be (everything), and what are we doing now that is making the correction take longer than it needs to (pretty much everything).
If we didn't try so hard to stave off corrections maybe the expectation of continued falling prices wouldn't set in for so long and so deeply.
How does someone buy a house today if they know the price will be lower tomorrow? They don't. Consistently falling prices are a bad thing.
Back to you. :wink:
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"The problem is the spiral and that we don't know any easy fixes to snap an economy out of it."
I see us heading for a "hard reboot" at some point in the future. It's not going to be pretty.
"How does someone buy a house today if they know the price will be lower tomorrow? They don't. Consistently falling prices are a bad thing."
Buying houses is like polyester bellbottoms for the most part. Houses are a place to live. Houses as an investment (in most circumstances) are as dead as "Hope and change".
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"If we didn't try so hard to stave off corrections maybe the expectation of continued falling prices wouldn't set in for so long and so deeply. How does someone buy a house today if they know the price will be lower tomorrow? They don't. Consistently falling prices are a bad thing. Back to you."
I'm not sure if it is your intention but as best as I can tell, you make a telling argument against the theory of fighting deflation. If I understand correctly you are saying the feared dynamic of postponing purchases is actually lengthened by slowing the process down with "anti-deflationary" efforts-- is this your point?
Simultaneously the flood of money creates inflationary bubbles anew in other sectors e.g. food and other commodities.
So, as best as I can tell my doubts about fighting deflation are sound.
Yes?
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I'd think that trying to cure market distortions by creating more market distortions is not good policy, and with any complex system, will tend to result in unintended consequences.
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By RON PAUL
To know what is wrong with the Federal Reserve, one must first understand the nature of money. Money is like any other good in our economy that emerges from the market to satisfy the needs and wants of consumers. Its particular usefulness is that it helps facilitate indirect exchange, making it easier for us to buy and sell goods because there is a common way of measuring their value. Money is not a government phenomenon, and it need not and should not be managed by government. When central banks like the Fed manage money they are engaging in price fixing, which leads not to prosperity but to disaster.
The Federal Reserve has caused every single boom and bust that has occurred in this country since the bank's creation in 1913. It pumps new money into the financial system to lower interest rates and spur the economy. Adding new money increases the supply of money, making the price of money over time—the interest rate—lower than the market would make it. These lower interest rates affect the allocation of resources, causing capital to be malinvested throughout the economy. So certain projects and ventures that appear profitable when funded at artificially low interest rates are not in fact the best use of those resources.
Eventually, the economic boom created by the Fed's actions is found to be unsustainable, and the bust ensues as this malinvested capital manifests itself in a surplus of capital goods, inventory overhangs, etc. Until these misdirected resources are put to a more productive use—the uses the free market actually desires—the economy stagnates.
Enlarge Image
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Fed Chairman Ben Bernanke
.The great contribution of the Austrian school of economics to economic theory was in its description of this business cycle: the process of booms and busts, and their origins in monetary intervention by the government in cooperation with the banking system. Yet policy makers at the Federal Reserve still fail to understand the causes of our most recent financial crisis. So they find themselves unable to come up with an adequate solution.
In many respects the governors of the Federal Reserve System and the members of the Federal Open Market Committee are like all other high-ranking powerful officials. Because they make decisions that profoundly affect the workings of the economy and because they have hundreds of bright economists working for them doing research and collecting data, they buy into the pretense of knowledge—the illusion that because they have all these resources at their fingertips they therefore have the ability to guide the economy as they see fit.
Nothing could be further from the truth. No attitude could be more destructive. What the Austrian economists Ludwig von Mises and Friedrich von Hayek victoriously asserted in the socialist calculation debate of the 1920s and 1930s—the notion that the marketplace, where people freely decide what they need and want to pay for, is the only effective way to allocate resources—may be obvious to many ordinary Americans. But it has not influenced government leaders today, who do not seem to see the importance of prices to the functioning of a market economy.
The manner of thinking of the Federal Reserve now is no different than that of the former Soviet Union, which employed hundreds of thousands of people to perform research and provide calculations in an attempt to mimic the price system of the West's (relatively) free markets. Despite the obvious lesson to be drawn from the Soviet collapse, the U.S. still has not fully absorbed it.
The Fed fails to grasp that an interest rate is a price—the price of time—and that attempting to manipulate that price is as destructive as any other government price control. It fails to see that the price of housing was artificially inflated through the Fed's monetary pumping during the early 2000s, and that the only way to restore soundness to the housing sector is to allow prices to return to sustainable market levels. Instead, the Fed's actions have had one aim—to keep prices elevated at bubble levels—thus ensuring that bad debt remains on the books and failing firms remain in business, albatrosses around the market's neck.
The Fed's quantitative easing programs increased the national debt by trillions of dollars. The debt is now so large that if the central bank begins to move away from its zero interest-rate policy, the rise in interest rates will result in the U.S. government having to pay hundreds of billions of dollars in additional interest on the national debt each year. Thus there is significant political pressure being placed on the Fed to keep interest rates low. The Fed has painted itself so far into a corner now that even if it wanted to raise interest rates, as a practical matter it might not be able to do so. But it will do something, we know, because the pressure to "just do something" often outweighs all other considerations.
What exactly the Fed will do is anyone's guess, and it is no surprise that markets continue to founder as anticipation mounts. If the Fed would stop intervening and distorting the market, and would allow the functioning of a truly free market that deals with profit and loss, our economy could recover. The continued existence of an organization that can create trillions of dollars out of thin air to purchase financial assets and prop up a fundamentally insolvent banking system is a black mark on an economy that professes to be free.
Mr. Paul, a congressman from Texas, is seeking the Republican presidential nomination.
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The Ron Paul post is the shortest possible discussion of this issue. The Fed was created to establish a profit enhancing bank cartel. It's a long story, read the Creature from Jekyll Island or Rothbard's History of Money and Banking in the US for a detailed explanation of this point of view.
Ron Paul is briefly explaining the Austrian School of economics thesis. A market economy is simply a division of labor economy in which the factors of production are privately owned -- with markets to facilitate the free exchange of goods and services. Such a market economy is a self organizing system and the prices that emerge from buying and selling on free markets provide all participants with the information they need to effective employ our scarce resources.
Paul is right, the interest rate is a particular market price, or actually a ratio of prices. With free markets, the interest rate will represent the price of a current good divided by the price of an identical good in the future (say one year out). Humans have a "time preference" ... they prefer a good now more than the same good later. That preference can vary from individual to individual and from time to time. It is arguably the most important price within a market economy.
When a central bank manipulates the interest rate, it distorts the economy in fundamental ways. The "price level" is not the principal issue. The problem with Fed manipulation is that RELATIVE prices change and that alters human decisions concerning both consumption and production. When the Fed forcibly lowers interest rates below the market level that causes people to invest more heavily in durable goods (like houses) and capital goods. Trouble is, an economy is finite in size and resources -- even an economy as large as the US. A lowered interest rate induces people to launch many projects that prove later to be uneconomic because there are simply inadequate resources in the economy to complete those projects.
We all love the expansion phase, the boom. That is a period of inflation -- money is being generated by the fractional reserve banking system and everybody goes gaga over whatever the particular boom is elevating. Forget about the Fed's definitions of inflation and deflation. It's not even possible to measure "the price level." Inflation used to be defined as an increase in the supply of money and credit. Deflation was defined as a decrease in the supply of money and credit.
According to the Austrian School business cycle theory, the damage is done during the boom. The deflationary recession follows as a period during which market prices reassert themselves so that all economic participants will once again have good information -- so they can make intelligent and effective choices regarding their consumption and production efforts. As some contemporary Austrian School devotees say: "fear the boom, not the bust."
A deflation can be painful, for sure, but it cannot spiral out of control. The money supply and credit can contract by at most the amount it previously expanded during the boom. And the deflation can be avoided only by a central bank determined to pile market distortions on top of market distortions. Carried too far, a central bank can definitely destroy a currency -- and our current Fed Head has a belief system ideally suited to destroying the US dollar.
Tom
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Folks:
Tom is a serious, well-informed advocate of the Austrian school. We are fortunate to have him drop in.
Marc
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"Folks: Tom is a serious, well-informed advocate of the Austrian school. We are fortunate to have him drop in. Marc"
Absolutely!
First to Crafty, I was partially agreeing with you and still wanting to draw your view out further. Overlap or agreement with me doesn't make either of us right. :wink:
Ron Paul's view has evolved from 'end the fed' (he wrote the book) to the one posted which I think is stop mis-managing the Fed, a view we can probably all agree on. His first point though is a bit simplistic and partly wrong to me. "Money is like any other good in our economy that emerges from the market to satisfy the needs and wants of consumers."
Yes money has the characteristics of other goods but it is a public good with a government monopoly as much as it is a private good. If the oil price (or corn or lumber) is too high, too low or too volatile, that screws up other industries. When money is high, low or unstable, it screws up all enterprise. Not only the relative price is important but also the general price level IMO.
TB, that is a great post, much more detailed than Ron Paul! I agree about with nearly all but pick out a couple of points for followup.
"deflation can be painful, for sure, but it cannot spiral out of control."
Good point, there are of course limits to a downward movement in price. It isn't that it would spiral out of control, but that it can develop a self-sustaining momentum difficult to break - at least that way in a couple of cases.
"The Fed was created to establish a profit enhancing bank cartel."
A muddled institution, the Fed is both public and private, owned by the member banks, managed by government appointed and confirmed technocrats. The Fed returns its own direct profits to the Treasury other than a statutory return to its owners, yet no doubt it serves to enable profits to its member institutions. The banks themselves are also public-private entities in a sense due to the deposit insurance guarantee relationship and the all-encompassing regulation aspect.
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The real error we are committing now in my view comes from congress assigning a dual mission to the Fed. Besides the function of managing a stable money supply, the Fed is charged with alleviating unemployment caused by policy errors that were not monetary in the first place. The Fed is supposed cover for the 40% excesses in federal spending, and 'stimulate' our way through economic damages caused by regulatory and tax policies. That doesn't make any sense. It enables rather than soves the other policy errors, and sets up a high likelihood of new inflation coming if or when the current stagnation ends.
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I'm still waiting for any examples of deflations that weren't post bubble returns to the mean. :-)
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Well, DougMacG, I think we have enough overlap of positions for a discussion. But we are miles apart. I have read Keynes and some other elements of mainstream economics, but I must say I have found the economics articulated by Mises and a few other "Austrians" to be absolutely compelling. Keynes' General Theory, on the other hand, should have been laughed off the stage as a bad joke. Within that book, at least, Keynes could not even apply consistency let alone logic.
It's true that governments have used their coercive powers to give themselves a monopoly position in the production of money. But that isn't the way it has always been, nor is it the way it should be. Mises has argued that money began as people simply looked for better ways to conduct indirect exchange. People naturally found they could exchange their product for a good that was highly marketable and then exchange that good for the things they needed. This process doesn't require government and, in fact, benefits from government's absence. All of our problems with money, in fact, are the result of government. Governments rarely do anything positive for the concept of money.
I can't agree with this statement at all: "If the oil price (or corn or lumber) is too high, too low or too volatile, that screws up other industries." First of all, if markets are free, there can be no such thing as a price "too high" or "too low." Prices just "are." The price of one good rising or falling dramatically, on a free market, can only happen if there is a large change in supply or demand for that good. Instead of "screwing up" other industries, a suddenly high price simply allocates the supply of that good to the people who value it most highly. Those people who are unwilling or unable to buy at the higher price will naturally shift their attention to substitutes which they now find more appealing. All prices will adjust dynamically to market clearing levels, giving both producers and consumers appropriate signals. If a higher price for one good also results in higher profit, entrepreneurs will shift resources toward its production. This is the principal reason why capitalism works as well as it does to produce the right mix of goods.
As to the "general price level" -- it is actually impossible to measure. Consider the equation of exchange: MV = PT (one variation of the theme). The total physical product of the economy, T, cannot be defined in any sense whatever. Irving Fisher didn't even try to define the elements of this equation, demonstrating how smart he was -- because it can't be done. There are no common units with which to add up the total physical product. Given that you can't define T, the price level P is undefined as well. I have been pushing to have everybody take a look at a newly written book that beautifully addresses many of these questions in a compact form. Take a look at Paper Money Collapse by Detlev Schlichter.
Now, of course, this problem with the price level is ignored by our mainstream economists. They just take a relatively short list of consumer products, apply arbitrary weights, and calculate a price index and ... presto, they have "the price level." Well, a little thought should tell you that the CPI and other various deflators give us very, very little information about anything important. Read Schlichter, please. However, I agree that when monetary inflation is significant the value of money is materially reduced and that certainly is a problem for everybody. The reason I am de-emphasizing price level rises is simply is that mainstream economists want us to believe that they can beneficially manage the money supply with reference to the silly price index. They cannot do that at all. There are very long lags before monetary inflation results in broad based price increases -- and there is no reason to suppose that price increases will EVER be spread uniformly over all products.
And finally, I believe the "dual mission" problem you cite comes from Keynesian and macro-economic thinking that I find to be just plain foolish. Full employment is easy to achieve if you run a totalitarian government. Just force people to stop using trains and trucks, for example. Let everything be carried on human backs. That will surely put everybody to work! What we need as a goal, instead, is an economy that meets all consumer needs as well as can be accomplished in a world of limited resources. There is only one way to achieve that goal -- a division of labor economy with privately owned factors of production and totally free markets. Including the market for money. A sound money is the only money consistent with any country's proper economic goal.
Tom
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I think what he means by "dual mission" refers to the Humphrey-Hawkins law which added maximizing employment to price stability as a mission for the Fed.
Tom, short of private money, what is the appropriate way for the Fed to determine money/interest rates etc?
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http://clinton2.nara.gov/WH/kids/inside/html/spring98-2.html
When the United States Secret Service (USSS) was established, its main duty was to prevent the illegal production, or counterfeiting, of money. In the 1800s, America's monetary system was very disorganized. Bills and coins were issued by each state through individual banks, which generated many types of legal currency. With so many different kinds of bills in circulation, it was easy for people to counterfeit money. During President Lincoln's Administration, more than a third of the nation's money was counterfeit. On the advice of Secretary of the Treasury Hugh McCulloch, President Lincoln established a commission to stop this rapidly growing problem that was destroying the nation's economy, and on April 14, 1865, he created the United States Secret Service to carry out the commission's recommendations.
I'm not sure returning to this would work out well.
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Yes, that is the dual mission that I tried to comment upon. As I said, "full employment" is not a valid economic goal and there is no conflict between the goals except in the minds of Keynesian-influenced economists.
Central planning does not work. There should not be any institution setting interest rates or manipulating markets in an attempt to set interest rates at some preferred level. No human being can know where interest rates should be set. Having a Fed empowered to control interest rates makes no more sense than having a commission to set the price of oil, or cantaloupes. The problems created by the Fed, however, are dramatically greater than would be caused by a narrow price setting commission.
If you want to keep the Fed then eliminate all open market operations and strive to keep the money supply unchanging. Do not let the Fed loan money to banks or set interbank lending rates. If you are going to insist on continuing fractional reserve banking with minuscule required reserves, then there should never, ever be a bailout. Insolvent banks should be immediately subject to bankruptcy -- that should motivate bankers to voluntarily watch the extent to which they narrow their operating reserves. Under those conditions we could still have credit expansion booms (and busts), but they would be inherently far more limited.
It's fascinating how many economists are drawn to the concept of free markets but, for some reason, think in terms of centrally managing money. Milton Friedman is probably the most prominent of those -- but many mainstream economists fall into that broad category, including our so-called supply-side economists. Frankly, I think the reason for this (well explained by Schlichter, by the way) is simply that government benefits dramatically from a monopoly on money and economists benefit dramatically from going along. The entire banking and Wall Street contingent all benefit from ongoing inflation. Most economists are employed by government or the financial industry. The Austrian School thinking basically says: "we don't need no stinking economists trying to invent policy responses for the government." Not too surprising that so many economists choose another path.
Tom
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GM,
This may seem completely flippant, but as it stands now virtually ALL of our money might as well be counterfeit. When the Fed creates a few extra trillion dollars in a few months, that has a tremendously negative impact on all dollar holders. The process is indistinguishable from counterfeiting except that the beneficiaries are usually government and financial industry personnel instead of a bunch of misfits slaving over a press in the basement.
Money was not a free market creation in the 19th century. Far from it. There were many government players passing laws that limited the rights of money users. State sanctioned banks were encouraged to lend a greater percentage of their reserves, for example, to create a boom -- and then state governments gave those banks the right to suspend specie payments when they were found out. Lincoln dumped unbacked "Green Backs" on the people. There were lots of legal tender laws and other market interventions. Problems needed to be addressed, but we certainly didn't need to follow the path we have traveled.
Tom
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TB,
Yes, when we magically create all these dollars, it makes the NorK/Iranian "supernotes" plale in comparison.
BTW, it looks like QE3 is being floated. Zimbabwe, here we come.... :roll:
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**Oy-fracking-vey!
http://www.cnbc.com//id/44963251
QE3 'Certainly a Possibility': Boston Fed President
Published: Wednesday, 19 Oct 2011 | 3:16 PM ET
By: Margo D. Beller
Special to CNBC.com
Another round of quantitative easing by the Federal Reserve is "certainly a possibility" if there is a "bad economic shock," Boston Fed President Eric Rosengren told CNBC Wednesday.
"It depends on what you think is the likelihood of what a bad economic shock is," he said. "So if you think there’s a shock from Europe, or you think that some of the fiscal discussion is gonna break down, those might be the types of incidents…[that] might affect how likely you think it is that we’ll have additional quantitative easing ."
Deflation would be another condition "under which it would make sense to have additional quantitative easing," he added.
Rosengren was interviewed after speaking at the Boston Fed's annual conference. He said it is "critical that we focus on strengthening the financial architecture" of U.S. banks "so that the struggles of one institution or group of them no longer poses risks to the broader global economy."
To CNBC he said most U.S. banks don't have huge direct exposure to the troubles in Europe. But "if a serious problem erupted in Europe, we would not be immune," he said, and that might be something the Fed would "have to react to."
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"Oy-fracking-vey!"
I like that!
By the way, miss.org has many, many free books in pdf and epub formats (see their literature tab). I have my iPad filled with just about every significant Austrian School book with very few exceptions. On the subject of hyper inflation there are several worth looking at. Fiat Money Inflation in France is one: http://mises.org/resources/3041/Fiat-Money-Inflation-in-France. Another book is When Money Dies -- not available from miss.org, but an interesting history of hyperinflation in Weimar Germany.
IMO, it's too easy to see many of the inflationary disease symptoms right her in the USA. Rapidly rising consumer prices didn't necessarily happen early in these historic hyper-inflations. Governments everywhere seem to be applying the same belief system to money management, so it's difficult to imagine where we are going with all this. Oy-fracking-vey! -- may become my favorite expression over the coming months!
Tom
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http://www.businessinsider.com/the-hottest-idea-in-monetary-policy-2011-10
Over the weekend, Goldman came out with a report calling on the Fed to embrace Nominal GDP targeting: In other words, set as a goal for the economy that nominal GDP that we saw back in 2007, and then produce enough inflation so that we got there.
Now Bernanke is out with a new speech about monetary policy in the post-Great Recession era, and though he doesn't say that much substantive, he does talk more about trying to more clearly express monetary policy goals.
According to PIMCO's Bill Gross, that's code for... targeting Nominal GDP.
Meanwhile, Chicago Fed President Charles Evans has been making similar comments, about weighting the Fed's mandate much more towards the full employment/growth end of the spectrum, even if it means high inflation.
All of which means you should really be reading the work of Bentley Economist Scott Sumner, who has been writing forever about the benefits of Nominal GDP targeting, and who is sure to be the hottest economist in the world, as this takes off.
You can start by watching his lecture below.
Please follow Money Game on Twitter and Facebook.
Read more: http://www.businessinsider.com/the-hottest-idea-in-monetary-policy-2011-10#ixzz1bWRKLZcr
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"Now we really are fuct"
Yes indeed. In the 1920s, the charge was "price stability." Professor Irving Fisher was the initiator of that failed doctrine. With sound money in the 1920s, prices would have fallen slowly due to rapidly rising productivity, but the Fed used the stable price indices as a license to step on the monetary accelerator. Price stabilization policies were very popular during times of falling prices, not so popular during times of rising prices -- the objective is always to increase monetary inflation, not to tame it.
It will be the same with nominal GDP targeting. It'll be very popular when GDP is falling short, meaning that more monetary inflation is called for. When nominal GDP is exceeding the target ... well, heck, what's wrong with that?
And the problem with both of these ideas, as I have said in earlier posts, is that monetary inflation does its serious damage by distorting prices and interest rates. When interest rates are artificially lowered, people spend too much on capital goods and durable goods. Since 1980, the Fed has not allowed a recession to run its course, so we must have quite an impressive total of malinvestments by now. Anyone doubting that needs to take another look at the aggregate trillions of dollars poured into Fannie Mae, Freddie Mac, GM, AIG, and all the other Wall Street institutions and banks that have been sucking the country dry.
Doug Noland has been commenting upon credit expansion bubbles for a long time now (http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10586). He worries more and more that we will eventually reach the point where, suddenly, US debt obligations will fail to find a bid. That would change everything.
<I fear global market dynamics and Fed policymaking are propagating the worst-case scenario for the U.S. government finance Bubble. As was the case in Greece, Ireland, Portugal, Spain, Italy and elsewhere, a distorted market is content to accommodate profligate borrowing until it’s way too late. Is another round of Fed MBS QE going to help? A dysfunctional marketplace has, almost without exception, been incapable of imposing any degree of market discipline until the point when only exceptionally harsh and destabilizing “austerity” suffices.>
It's reached the point now where the US desperately needs a deflationary correction. Left to run its course, such a correction would soon put this once great nation into to shape to grow and prosper again. But our rulers will never allow that to happen. It appears that they will take us all down "fighting" battles that not only don't need to be fought -- but guarantee our destruction.
Tom
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http://www.minyanville.com/businessmarkets/articles/central-bank-hyperinflation-debt-money-supply/10/17/2011/id/37410?page=full
**I think so. :cry:
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Seems to me that a prolonged period of deflation following a bubble means that the asset prices are not freely correcting. In the case of housing today, we made this bubble by artificially inflating a market, now we prevent correction with more of the same policies on steroids, forcing re-writes, blocking foreclosures and delaying properties to market. Fixing an error by exacerbating it, what could possibly go wrong? The deflationary period it seems to me is a result of the correction not fully occurring. The downward expectation becomes a force of its own, just like the inflating bubble did. An asset price correction should not require a prolonged economic downturn to occur, IMO.
That we try to cover up other policy problems by injecting more and more dollars means yes, hyper inflation is very likely if/when we ever snap out of this.
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Spurred on by Tom's presence here I think we are having a good conversation. I now repost something from the Economics forum that I originally had brought to my attention by Tom.
The point of particular interest here is the explanation of low interest rates. Then I will follow with a separate post concerning a different explanation of interest rates-- which will plant the question of whether both analyses are correct, one is, or neither is.
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I am trying to understand your reasoning in the discussion about inflation vs. deflation. One of the things I don't understand is the role of "credit". You write that "the market value of credit is collapsing at an amazing rate". But isn't "credit" the same as "debt"? When the market value of debt falls, then I wouldn't I need less "real estate" to get rid of my debt? Please, can you spend a minute to clarify this contradiction.
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No Contradiction
Hello Josef,
An accepted offer for credit is a loan, resulting in debt for the borrower, and an asset (the loan) on the balance sheet of the lender (typically a bank or finance company). So yes debt = credit extended (plus agreed upon interest).
When the value of assets (loans) drop significantly, banks become capital impaired and cannot lend. This is happening now even though banks are hiding losses by not marking assets to market prices.
We have heard absurd statements from the Central bank of France that there are no toxic assets on French bank balance sheets. The market price of Greek debt says otherwise.
Plunge in Mark-to-Market Prices of Bank Assets
We can infer marked-to market plunges in value of bank assets by the enormous drops in financial stocks this year. We know the value of debt on the balance sheets of banks has collapsed, even if banks deny it.
Inability to pay back debt also shows up in credit default swaps, sovereign debt ratings, and soaring bond yields of Greece, Portugal, Spain, and Italy vs. Germany.
These credit actions show a demand for safe hiding places such as US and German government bonds and cash. We can see that in record low US treasury yields and German government bond yields.
Debt Not Marked-to-Market
The second question is where your error is "wouldn't I need less real estate to get rid of my debt?"
The debt remains until it is written off. In the US, people still owe more on their houses than they can pay back. The money is owed but will not be paid back. The same applied to may types of loans including auto loans, credit card debt, home equity lines, etc.
Enormous Foreclosure Backlog
US Banks have the value of their assets (mortgage loans, commercial real estate loans, consumer credit loans), at prices that do not reflect likelihood of default and thus that debt is not marked-to-market.
Writedowns are deflation in action, and they are coming.
In many instances, people walk away from mortgage debt. In those cases banks eventually foreclose. The key word is "eventually" as the list of pending foreclosures is measured in decades at the current rate.
Please see First Time Foreclosure Starts Near 3-Year Lows, However Bad News Overwhelms; Foreclosure Pipeline in NY is 693 months and 621 Months in NJ for details.
US Writedowns Coming on REOs
When homeowners walk away or go bankrupt, generally they are relieved of debt. However the problem for banks does not go away.
After foreclosure, banks have a different asset on the books. It is no longer a loan, but rather REO (Real Estate Owned).
What do you think those houses on the balance sheets of banks are worth vs. the value banks hypothesize they are worth?
Once again, this capital impairment shows up in banks inability and unwillingness to lend. When banks don't lend, businesses don't expand, and when businesses don't expand unemployment stays high.
This deflationary cycle feeds on itself until home prices fall to the point where there is genuine demand for them and banks are recapitalized.
European Writedowns
The biggest debt problem in Europe is in regards to loans made by French and German banks to Greece, Spain, Portugal, and Italy.
The ECB, EU, and IMF compounded the problem by throwing more money at Greece, on terms and timelines Greece cannot possibly pay back.
Europe has other huge structural issues regarding productivity in Spain and Greece vs. Germany, and in currency union that cannot possibly work given the lack of a fiscal union.
Poor Policies by IMF, EU, ECB, Fed
EU, IMF, ECB, and Fed policies in the US and Europe were designed to hide losses on real estate loans, to hide losses on sovereign debt loans to Greece, Spain, Portugal etc, and to prevent losses to banks and bondholders.
Barry Ritholtz had an excellent column on that yesterday called Banking’s Self Inflicted Wounds.
Policies of governments and central banks that bail out private banks are wrong because they place more burden on already over-extended and deep in debt taxpayers who are not equipped to take on more debt.
The deflationary backdrop will persist until debt is written off, consumer deleveraging peaks, home prices fall to affordable values, and global structural imbalances fixed. The situation is not encouraging because of five critical problems.
Five Critical Problems
Keynesian clowns everywhere refuse to accept the fact that debt is the problem and one cannot possibly spend one's way out of debt crisis.
Europe has structural problems related to the currency union, productivity, union work rules, pensions, retirement, and country-specific fiscal problems.
The US has structural problems related to prevailing wages, collective bargaining of public unions, corporate tax policies, etc.
Stimulus and bailouts are bad enough in and of themselves, but stimulus and bailouts without fixing structural problems is insanity.
Politicians on both continents refuse to address structural issues
Process is Important, Not the Term
It's important to not get hung up on the term "deflation" but rather to understand the process I am describing, the implications of that process, and why the policy actions taken have not worked (and cannot possibly work), all called well in advance.
For more on the process of deflation (regardless of what one wants to call it), please see Bizarro World Inflation; About that 2011 Hyperinflation Call ...
Yes Virginia, U.S. Back in Deflation; Inflation Scare Ends; Hyperinflationists Wrong Twice Over
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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A repost from the Economics thread on SCH: Second post of the evening, to be read in conjunction with the various posts from today. If I summarize the relevant point correctly, it is that the absence of increase in interest rates despite truly wild irresponsiblity on the part of the Fed and the US govt is that there has been a qualitative increase in the demand of central banks for dollars-- created by the Fed's policies!-- and that this increase in demand has qualitatively diminished the role of private capital in determining interest rates.
Question presented: Is this analysis correct? Is Shedlocks' analysis correct? Are the two analyses consistent with each other or not?
By RONALD MCKINNON
In past decades, tense political disputes over actual or projected fiscal deficits induced sharp increases in interest rates—particularly on long-term bonds. The threat of economic disruption by the so-called bond market vigilantes demanding higher interest rates served to focus both Democratic and Republican protagonists so they could more easily agree on some deficit-closing measures.
For example, in 1993 when the Clinton administration introduced new legislation to greatly expand health care without properly funding it ("HillaryCare"), long-term interest rates began to rise. The 10-year rate on U.S. Treasury bonds touched 8% in 1994. The consequent threat of a credit crunch in the business sector, and higher mortgage rates for prospective home buyers, generated enough political opposition so that the Clinton administration stopped trying to get HillaryCare through the Congress.
In the mid-1990s, Democrats and Republican cooperated to cap another open-ended federal welfare program—Aid to Families with Dependent Children—by giving block grants to the states and letting the states administer the program. Interest rates came down, and the Clinton boom was underway.
Enlarge Image
CloseChad Crowe
.In contrast, after the passage of ObamaCare in March 2010, long-term bond rates remained virtually unchanged at around 3%. This was despite great doubt about the law's revenue-raising provisions, and the financial press bemoaning open-ended Medicare deficits and the mandated huge expansion in the number of unfunded Medicaid recipients. Even with great financial disorder in the stock and commodity markets since late July 2011, today's 10-year Treasury bond rate has plunged below 2%. The bond market vigilantes have disappeared.
Without the vigilantes in 2011, the federal government faces no immediate market discipline for balancing its runaway fiscal deficits. Indeed, after President Obama finally received congressional approval to raise the debt ceiling on Aug. 2, followed by Standard & Poor's downgrade of Treasury bonds from AAA to AA+ on Aug. 5, the interest rate on 10-year Treasurys declined even further.
Since Alexander Hamilton established the market for U.S. Treasury bonds in 1790, they have been the fulcrum for the bond market as a whole. Risk premia on other classes of bonds are all measured as so many basis points above Treasurys at all terms to maturity. If their yields are artificially depressed, so too are those on private bonds. The more interest rates are compressed toward zero, the less useful the market becomes in reflecting risk and allocating private capital, as well as in disciplining the government.
To know how to restore market discipline, first consider what caused the vigilantes to disappear. Two conditions are necessary for the vigilantes to thrive:
(1) Treasury bonds should be mainly held within the private sector by individuals or financial institutions that are yield-sensitive—i.e., they worry about possible future inflation and a possible credit crunch should the government's fiscal deficits get too large. Because private investors can choose other assets, both physical and financial, they will switch out of Treasurys if U.S. public finances deteriorate and the probability of future inflation increases.
(2) Private holders of Treasurys must also be persuaded that any fall in short-term interest rates is temporary—i.e., that the Fed has not committed itself to keeping short-term interest rates near zero indefinitely. Long rates today are the mean of expected short rates into the future plus a liquidity premium.
The outstanding stock of U.S. Treasury bonds held outside American intergovernment agencies (such as the Social Security Administration but excluding the Federal Reserve) is about $10 trillion. The proportion of outstanding Treasury debt held by foreigners—mainly central banks—has been increasing and now seems well over 50% of that amount. Since 2001, emerging markets alone have accumulated more than $5 trillion in official exchange reserves. And in the last two years the Fed itself, under QE1 and QE2, has been a major buyer of longer-term Treasury bonds to the tune of about $1.6 trillion—and that's before the recently announced "Operation Twist," whereby the Fed will finance the purchase of still more longer-term bonds by selling shorter-term bonds. So the vigilantes have been crowded out by central banks the world over.
Central banks generally are not yield-sensitive. Instead, under the world dollar standard, central banks in emerging markets are very sensitive to movements in their dollar exchange rates. The Fed's near-zero short-term interest rates since late 2008 have induced massive inflows of hot money into emerging markets through July 2011. This induced central banks in emerging markets to intervene heavily to buy dollars to prevent their currencies from appreciating versus the dollar. They unwillingly accept the very low yield on Treasurys as a necessary consequence of these interventions.
True, in the last two months, this "bubble" of hot money into emerging markets and into primary commodities has suddenly burst with falls in their exchange rates and metal prices. But this bubble-like behavior can be traced to the Fed's zero interest rates.
Beyond just undermining political discipline and creating bubbles, what further economic damage does the Fed's policy of ultra-low interest rates portend for the American economy?
First, the counter-cyclical effect of reducing interest rates in recessions is dampened. When interest rates dipped in the past, at least part of their immediate expansionary impact came from the belief that interest rates would bounce back to normal levels in the future. Firms would rush to avail themselves of cheap credit before it disappeared. However, if interest rates are expected to stay low indefinitely, this short-term expansionary effect is weakened.
Second, financial intermediation within the banking system is disrupted. Since early 2008, bank credit to firms and households has declined despite the Fed's huge expansion of the monetary base—almost all going into excess bank reserves. The causes are complex, but an important part of this credit constraint is that banks with surplus reserves are unwilling to put them out in the interbank market for a derisory low yield. This bank credit constraint, particularly on small- and medium-size firms, is a prime cause of the continued stagnation in U.S. output and employment.
Third, a prolonged period of very low interest rates will decapitalize defined-benefit pension funds—both private and public—throughout the country. In California, for example, pension actuaries presume a yield on their asset portfolios of about 7.5% just to break even in meeting their annuity obligations, even if they were fully funded.
Perhaps Fed Chairman Ben Bernanke should think more about how the Fed's near-zero interest rate policy has undermined fiscal discipline while corrupting the operation of the nation's financial markets.
Mr. McKinnon is a professor at Stanford University and a senior fellow at the Stanford Institution for Economic Policy Research.
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Interesting stuff Crafty. I also look forward to the comments of others The Shedlock explanation of the difference between credit and debt is excellent. His deflation thoughts in housing need to be considered in the context of 'all other things held constant', which of course is not true. We are throwing trillions of fictional dollars at it all, so for the net effect, all bets are off. We do keep the cycle alive by slowing and preventing correction and the downward cycle feeds on itself killing off jobs andl income putting even more home loans upside down or into default, more homes to sell, less income, lower prices and lower expectations, more businesses close or layoff, keeping us from ever getting fully corrected - until something bold breaks the cycle.
Tom makes a great point that money supply and general price level are among most things economic that are impossible to measure accurately. You can see trends in standardized measures, but you never get a complete, accurate measure.
I'm no Keynesian, but poor Keynes gets his name besmirched by these hacks. He never said run up all this debt during good times which makes a a hundred billion of two of attempted stimulus when Keynes would call for a stimulus a meaningless drop in the ocean, with no economic or psychological boost, just more monetary dilution and more poisonous debt.
The MacKinnon piece (IMO) gives an excellent explanation of why a Fed operating with no ground rules (a huge portion of the deficits is not even borrowed), markets of buyers and sellers no longer set and adjust interest rates with such a farce for a market. Like a hang glider defying gravity for a time, isn't there always eventually a settlement of account with real market forces?
To make sense of both pieces at once I might offer this. Since we can't measure price levels accurately because of substitution of goods and complexity of goods and services offered, we could instead instantly devalue the dollar for each new fictional dollar put into circulation. If prices and wages were measured this way I think you would instantly see what a period of prolonged economic decline we are experiencing and how this self-perpetuating cycle is keeping itself from ever getting fully corrected.
The fix requires bold action on the 'all other things held constant' side of the equation. Shift the economy into forward with a comprehensive, all of the above, pro-growth agenda. The boost in jobs and income brings up the demand and affordability of the homes, and helps to close the deficits. Then, by congressional action, tell the Fed to work on one task only, safeguard and rightsize the dollar. No funny business.
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I think the heart of the matter is the massive debt at the federal, state and local levels. As pointed out in the Steyn piece Doug posted earlier, we are the brokest nation in human history and I think we are past the tipping point where we can avoid default. We can try to string this out a bit longer, but we will see this house of financial cards come crashing down, sooner rather than later.
Everything else is just attempts at Feng Shui-ing the deck chairs on the Titanic.
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http://www.usdebtclock.org/
Terminal.
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GM: "As pointed out in the Steyn piece Doug posted earlier, we are the brokest nation in human history and I think we are past the tipping point where we can avoid default."
Debt Clock approaching $15 trillion: Terminal.
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On the other side of the coin, total assets of the economy are impossible to measure, but one estimate is $188 trillion. http://rutledgecapital.com/2009/05/24/total-assets-of-the-us-economy-188-trillion-134xgdp/
A 15% tax on a trillion barrels of new $100 oil alone is 15 trillion. Another flawed measure but there are plenty of sources of wealth and revenues in a healthy growth economy.
Unlike 3rd world countries, our debt (so far) was iussued in our currency and devaluing rapidly as we speak. If we were to quit borrowing now, accumulated debt gets smaller over time through both real growth and inflation even if never paid off. Of course these devaluation policies are form of default.
What is terminal is the attitude of class envy, class warfare where we choose economic decline and anti-growth policies for 'fairness' instead of trusting people to succeed with economic freedom, limited government and the amazing innovation and growth powers of a private entrepreneurial economy. It isn't that we can't fix this, it is that we aren't fixing it. Instead, after another year of these clowns we will owe $16 trillion and be one year deeper into an anti-innovation, anti-freedom, anti-production mindset.
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Doug,
I hope you are correct. One of the problem with these low interest rates and the devaluation of the dollar is the impact on the retired. If a republican were in office, the MSM would be filled with images of struggling retirees. My wife and I have our retirements sunk into a state retirement fund that by most estimates will be defunct in 5 years or so. We haven't even begun to see the waves of new American poverty waiting on the horizon. Most pension funds, public and privates are in similar situations.
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Agreed that the consequences of low interest rates on pension funds is devastating.
"It isn't that we can't fix this, it is that we aren't fixing it."
This is exactly right.
A big part of the problem is that we lie to ourselves with baseline budgeting. Until we stop using baseline budgeting for our thinking we continue down the road to destruction.
If we were simply to make some genuine cuts to entitlements (e.g. block grants to states for Medicaid and Medicare, set in place gradual increases in the age for social security) truly freeze overall spending from there and set off growth by putting in a genuine massive tax reform (e.g. 9-9-9) would could turn this around in short order.
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http://legalinsurrection.com/2011/10/rhode-island-a-public-sector-pension-plan-which-doesnt-make-anything/
Rhode Island – A public sector pension plan which doesn’t make anything
Posted by William A. Jacobson Sunday, October 23, 2011 at 9:51am
You know about the RI pension mess, because I’ve been pounding that issue pretty much since the founding of this blog three years ago.
The New York Times takes a devastating look at Rhode Island, The Little State With a Big Mess (h/t @amandacarpenter):
ON the night of Sept. 8, Gina M. Raimondo, a financier by trade, rolled up here with news no one wanted to hear: Rhode Island, she declared, was going broke.
Maybe not today, and maybe not tomorrow. But if current trends held, Ms. Raimondo warned, the Ocean State would soon look like Athens on the Narragansett: undersized and overextended. Its economy would wither. Jobs would vanish. The state would be hollowed out.
It is not the sort of message you might expect from Ms. Raimondo, a proud daughter of Providence, a successful venture capitalist and, not least, the current general treasurer of Rhode Island. But it is a message worth hearing. The smallest state in the union, it turns out, has a very big debt problem.
After decades of drift, denial and inaction, Rhode Island’s $14.8 billion pension system is in crisis. Ten cents of every state tax dollar now goes to retired public workers. Before long, Ms. Raimondo has been cautioning in whistle-stops here and across the state, that figure will climb perilously toward 20 cents….
In some ways, the central question is not only what the government owes to pensioners but what citizens owe to one another.
That last sentence hits the nail on the head. In Rhode Island, the citizenry is being asked to spend increasing percentages of its income and assets not for the general welfare, but for the welfare of a relatively small percentage of the population who have state and municipal pensions.
It’s often joked that General Motors is a pension plan which makes automobiles. Rhode Island is in worse shape. Rhode Island is becoming a public sector pension plan which doesn’t make anything.
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http://www.cbsnews.com/stories/2011/02/20/sunday/main20034120.shtml
At 66, Alfred Arnold considers himself lucky, in a way. In September 2009, when the city of Prichard, Alabama, suddenly stopped paying pension checks to its retirees, at least he was able to work, as a security guard at a mall in Mobile.
And this past Christmas, instead of exchanging gifts, mall employees gave all the money they would have spent on each other to Alfred and his wife Jackie.
"They knew we didn't have a pension, we wasn't getting paid," said Alfred.
"How did you feel?" Teichner asked about the gift.
"Oh, man, that was devastating. I almost cried."
Alfred Arnold was Prichard's first black firefighter. He retired after 35 years, as a captain.
"If I didn't retire, I might not make it to the next day, going in the fire. You know, it gets too strenuous, you know? So I had to retire because I had heart problems."
Jackie worked for the Prichard Police Department for 40 years, and was the city's first female officer.
"I retired in June 2009," Jackie said. "I received two pension checks, and nothing after that. I said, 'Well, they'll come up with something.' But nothing ever happened."
"Had it not been for my job at the mall as a security officer, we probably couldn't even eat," Alfred said.
After 17 months, it's come to this: The Arnolds and Prichard's other retirees want to know what's wrong with this picture. Why handouts? Why not the pensions they contributed to? The pensions state law says Prichard has to pay?
"You can't draw blood from a turnip," said attorney Scott Williams, who represents the city of Prichard. "All the colloquialisms you want to come up with, if the money's not there, we can't pay it.
"If we took all the city's money and paid it to the pensioners, we won't have money to pay for the fire department or to keep the street lights on."
Prichard is small: 144 retirees, 27,000 residents. But what happens in Prichard is being watched by much larger cities - Chicago . . . Philadelphia . . . San Diego, to name a few - and by many states.
They all would like nothing better than to dump their staggeringly underfunded pension plans.
"Across the United States there is a difference of $3 trillion between the amount of money that we have promised public employees and the amount that has been set aside," said Joshua Rauh, who teaches finance at Northwestern University's Kellogg School of Management.
He's tracked the pension crisis: "Politicians are often trying to make it look like we can have our cake and eat it, too. And that's created a situation where we just push the problem down the road. And now we or our kids are going to have to pay for it."
Prichard has reached the end of that road. During the 1960s and '70s it was thriving - the fastest growing city in Alabama. Its population: 45,000 at its peak. Then, businesses began to leave, and hard times set in for good.
In 1999, its finances in shambles, the city declared bankruptcy. The pension fund was in trouble then. The city ignored a court order to replenish it.
A letter dated 2008 was sent to members of the city council and the mayor saying, essentially, that the pension fund would run out of money in July 2009.
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"The math was pretty simple," said city councilman Troy Ephriam, chairman of the pension board. "I think the letter was basically saying something needs to be done. And it needs to be done immediately. Unfortunately, there were no real efforts.
"I don't feel we've done everything in our power to prevent the inevitable from happening."
Woulda, coulda, shoulda. Famous last words being heard all over the country these days. When its pension fund did run out of money - right on schedule - what did Prichard do? It filed for bankruptcy, again, this time hoping to be rid of its pension.
"Was the attempt to file for bankruptcy a deliberate attempt to stall, to not solve that problem?" asked Teichner.
"Yes, yes, absolutely," said Ephriam.
The petition was eventually thrown out of court.
The city now owes its pensioners more than $2.5 million in back payments.
Robert Hedge represents retirees in a class action suit against the city of Prichard. He tells of their sad stories, such as Nettie Banks, a former police dispatcher who ended up having to file for bankruptcy.
"This breaks my heart," he said of another case. "Hugh Dawsett has some serious arthritis issues, unable to work. His 73-year-old wife had to go back to work.
"We're talking about, on average, $1,000 a month per person," said Hedge. "That's the difference between buying your medications and buying food."
And then there are current employees, like Police Captain Charles Kennedy. He's 67, has had a serious heart attack and open heart surgery, but can't afford to retire.
"Because if I was to leave now, I'd be like the rest of the retirees - I'd have nothing," he said.
Kennedy is the most decorated officer on the Prichard police force.
"I dedicated myself to the city. I did my part," he said.
And that's what gets him about how the city has acted.
"I did an honorable job for them," Kennedy said. "I think they owe me the same kind of respect."
Retired Fire Captain Alfred Arnold agrees.
"It's one thing to lose one check, but to lose two? That's devastating, you know what I mean?" he said. "You're not giving us something that we didn't earn. You're not giving us no welfare. You're giving us our money that we put in, see? Where's it? How we supposed to live?"
On Thursday nights at city council meetings, local reporters ambush Prichard Mayor Ron Davis: "These people haven't been paid in 17 months. What can you say?"
"I'm concerned about them not getting paid," Davis replied. "I would like to see them get some payment."
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http://www.theatlantic.com/business/archive/2011/10/the-limits-of-stimulus/247178/
The Limits of Stimulus
By Megan McArdle
Oct 21 2011, 2:37 PM ET192
Kevin Drum ponders an interesting factoid: rising gas prices have pretty much wiped out the whole cash value of the stimulus to families:
Stimulus is hard in an energy-constrained world. I confess that the more I think about this, the more I wonder if conventional fiscal/monetary policy has as much traction as we believe. I'm not an energy fundamentalist by any stretch, but the constraints are real. Ordinary stimulus measures still work, and we should be pursuing them more aggressively, but I can't help but suspect that we're entering an era where they're getting less effective all the time.
My macro professor at the University of Chicago argued that the stagflation of the 1970s looks pretty good as an oil-led phenomenon; when supply constraints are real, stepping up the fiscal and monetary policy gives you inflation plus economic doldrums.
But how relevant is that to the current recession? Well, James Hamilton has made a prettly compelling case that oil prices are responsible for more of the current setback than we might think. And even if you dispute that, I think it's easy to agree that they're making a bad downturn worse.
While I was at Chicago last weekend I sat down with Raghu Rajan, formerly Chief Economist of the IMF. And one of the things he pointed out is that the Great Moderation bred this assumption that policy can always do something. That may not be the case.
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GM: Those public sector pension funds articles are very interesting, but I'm thinking this is not quite the thread for them. How about the Government Programs thread?
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On the subject of Lord Maynard Keynes.
"poor Keynes gets his name besmirched by these hacks"
It's true that contemporary economists and others may sometimes incorrectly attribute ideas to Keynes, but on the other hand it's pretty darn difficult to even find out what ideas Keynes actually believed by reading The General Theory (http://www.amazon.com/General-Theory-Employment-Interest-Money/dp/1169831990/ref=sr_1_1?s=books&ie=UTF8&qid=1319468352&sr=1-1).
If you haven't read the book, you are in for a treat. Here is a reference that takes Keynes' book apart chapter by chapter (http://mises.org/resources/3655/Failure-of-the-New-Economics). As Hazlitt says, "What is original in the book is not true; what is true is not original." and "...I have found in Keynes General Theory an incredible number of fallacies, inconsistencies, vaguenesses, shifting definitions and usages of words, and plain errors of fact."
I have read other critiques of Keynes (http://mises.org/resources/3683/The-Critics-of-Keynesian-Economics) written by mainstream economists who were his contemporaries, and sometimes they were nearly left speechless by the confusion and errors sowed by this man. As an aside, by the way, Keynes had very little formal training in the economics of the time -- and no university degree in the discipline. He said that his only training was in Marshallian economics, and that was only a few courses. He admitted to knowing nothing about what we now know as "Austrian" economic thought because he could read in German "only ideas which I already understand."
Macro economics was not founded by Keynes, but macroeconomic constructs such as he used are among the grievous errors committed by what we now identify as mainstream economists. When these clowns start writing equations to describe the relationship between economic aggregates, they might as well stop right there. It absolutely is not true that these aggregates are in "functional" relationships of any kind. The mathematics implies a precise relationship. Y is a function of X implies that for every X there is a precisely defined result for Y (let's leave other complexities aside). This type of relationship NEVER exists in economics. Humans have volition, they are not bowling balls or subatomic particles.
Keynes was a very smart man, but his genius IMO lay strictly in his ability to cozy up to politically powerful people and tell them what they wanted to hear. Keynes was fundamentally a totalitarian and an elitist who wanted to manage the world. In the German edition of The General Theory Keynes even said, in his preface, that the ideas described within his book would be more easily implemented in a totalitarian state.
Keynes "besmirched"? It really takes some doing to besmirch this miserable S.O.B. Done properly, the besmirching looks something like this: http://mises.org/resources/5223/Keynes-the-Man
Tom
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Tom, Thank you for that. Yes I've read Keynes' works and my inability to follow him was a very positive step forward in my quest to understand economics.
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Doug:
A similar epiphany for me too.
In the late 60s I strongly disliked the idea of being drafted off to Vietnam. I had no idea why we should be there and the Vietnamese Army had a desertion rate three times the American casualty rate. This certainly fit in with the gestalt of my peers and I like them I fancied myself a leftist. Then in 1976 I returned to college by going to the U. of PA where in my first semester I took Micro-Econ. I was the star of the class (about 50 people) and Professor Mansfield's favorite. The second semester was Macro Economics and the text was a Keynesian manifesto written by Prof. Mansfield himself.
I found the fallacies glaring and in fairly short order asked of Professor Mansfiedl in front of the class if the ideas there in could actually work because they would require sustained intelligence of the part of the government. People chuckled behind their hands but Prof. Mansfield was NOT amused. I went from an "A" to a "C".
This is when I realized I really was not a leftist at all- that I had been a free minds and free markets person all along. :-D
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STRATFOR
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I love Stratfor, but frequently I find its economic analysis to be glib, Keynesian blather. I'm not saying the following piece is that, but I'm saying read its econ stuff with care.
======================================
November 30, 2011
FED ACTION IN EUROPE UNDERSCORES DOLLAR PRIMACY
The U.S. Federal Reserve on Wednesday adjusted its "dollar liquidity swap
arrangements" with Europe's central banks, as well as with Japan and Canada. This
means that for now, European banks will not require a massive bailout that Europe is
ill-equipped to provide. It also demonstrates the true nature of the U.S.-dominated
global financial order.
"Even though the Fed is merely providing liquidity as opposed to long-term
structural support, its action will do much to abate Europe's crisis."
The Fed's action effectively gives these central banks access to a massive pool of
new U.S. dollars that they can borrow at low costs. Central banks will then provide
funding to their banking sectors. The loans must be repaid to the Fed within three
months and are structured so that the risks are borne by the foreign central banks,
not the Fed. Similar arrangements have been used since the days following the 9/11
attacks and were deployed in the early stages of the U.S. subprime crisis, but
Wednesday's deal offers the best terms yet to borrowers. And loans like this are
regularly refinanced as they expire.
The move generates relief amid rapid deterioration in the European financial markets
as banks' holdings of distressed sovereign bonds decline in value. European banks
cannot withstand serious declines in the value of their assets compounded by
unwieldy amounts of leverage -- borrowing money to purchase these bonds and other
assets. In some cases even two-percent fluctuations in asset values could lead these
banks into bankruptcy. In this environment, banks stop lending to each other,
fearful that the borrower will go bankrupt and therefore be unable to pay back the
loans.
Europe's intertwined banking and sovereign debt crises create a complex and unwieldy
situation. The banks need governments to service what are basically unserviceable
debt burdens or the banks will become insolvent. Governments, meanwhile, need banks
to refinance their countries' growing debts or they will default. And on top of this
sits a relatively constrained European Central Bank (ECB) that does not have the
wide latitude for action its counterparts in other economies have. There is a strong
argument to be made that limitations on the ECB will ease as the crisis continues --
they already have to a significant degree -- but the stress in Europe's banking
sector has reached a critical stage.
The proposed solutions are, for the most part, not clearly conceived -- and all are
improbable as long-term fixes. Sovereign wealth funds based in nations whose per
capita incomes are a fifth of Europe's balked at providing funds. Investors who had
already shunned European bond markets despite full sovereign guarantees could not be
lured back with complex schemes involving only partial guarantees. The overall sense
of futility has been growing.
Even though the Fed is merely providing liquidity, as opposed to long-term
structural support, its action will do much to abate Europe's crisis. Nominally
designed to support markets with short-term dollar loans, the funds provided by the
currency swaps will find their way through numerous channels into the broader
European financial markets. Thus, in addition to helping banks, the funds could
relieve pressure on Europe's sovereign debt markets. For example, banks can purchase
government bonds -- even those, such as Greek bonds, that are very poorly rated --
and use them as collateral to secure this unlimited funding. But even though the
risk of a fundamental breakup in the banking sector or currency union will abate
somewhat, none of the underlying problems that have created the crisis will have
been solved.
In fact it is STRATFOR's standing forecast that nothing will solve the underlying
problems that have created Europe's crisis. The European Union is an inherently
desynchronized entity, and packing disparate economies like Germany and Greece into
a free trade zone, let alone a currency union, is naturally problematic. Peripheral
European countries cannot forever absorb unchecked German exports with no recourse
to the traditional methods they have used to protect themselves-- such as trade
barriers, controls on capital flows and independent monetary policies.
Still, forceful backing from the United States is a significant geopolitical event
in that it reinforces the established global financial and monetary order. The
United States provided this type of liquidity to Europe in the past, in order to
counter the effects of the U.S. subprime crisis. Now, as countries watch Europe's
crisis grow to threaten the eurozone's very existence, the United States is
ultimately the only economy large enough and with enough political credibility to
prop up the global system. This was a given for most of the postwar era, but was
seemingly forgotten over the past decade as proponents of the euro touted the
currency as a counterbalance to the dollar. But the facade of the euro's stability
has begun eroding, and dollar primacy has begun reasserting itself.
Copyright 2011 STRATFOR.
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Email Print Save ↓ More .
.smaller Larger By GERALD P. O'DRISCOLL JR.
America's central bank, the Federal Reserve, is engaged in a bailout of European banks. Surprisingly, its operation is largely unnoticed here.
The Fed is using what is termed a "temporary U.S. dollar liquidity swap arrangement" with the European Central Bank (ECB). There are similar arrangements with the central banks of Canada, England, Switzerland and Japan. Simply put, the Fed trades or "swaps" dollars for euros. The Fed is compensated by payment of an interest rate (currently 50 basis points, or one-half of 1%) above the overnight index swap rate. The ECB, which guarantees to return the dollars at an exchange rate fixed at the time the original swap is made, then lends the dollars to European banks of its choosing.
Why are the Fed and the ECB doing this? The Fed could, after all, lend directly to U.S. branches of foreign banks. It did a great deal of lending to foreign banks under various special credit facilities in the aftermath of Lehman's collapse in the fall of 2008. Or, the ECB could lend euros to banks and they could purchase dollars in foreign-exchange markets. The world is, after all, awash in dollars.
The two central banks are engaging in this roundabout procedure because each needs a fig leaf. The Fed was embarrassed by the revelations of its prior largess with foreign banks. It does not want the debt of foreign banks on its books. A currency swap with the ECB is not technically a loan.
The ECB is entangled in an even bigger legal and political mess. What the heads of many European governments want is for the ECB to bail them out. The central bank and some European governments say that it cannot constitutionally do that. The ECB would also prefer not to create boatloads of new euros, since it wants to keep its reputation as an inflation-fighter intact. To mitigate its euro lending, it borrows dollars to lend them to its banks. That keeps the supply of new euros down. This lending replaces dollar funding from U.S. banks and money-market institutions that are curtailing their lending to European banks—which need the dollars to finance trade, among other activities. Meanwhile, European governments pressure the banks to purchase still more sovereign debt.
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.The Fed's support is in addition to the ECB's €489 billion ($638 billion) low-interest loans to 523 euro-zone banks last week. And if 2008 is any guide, the dollar swaps will again balloon to supplement the ECB's euro lending.
This Byzantine financial arrangement could hardly be better designed to confuse observers, and it has largely succeeded on this side of the Atlantic, where press coverage has been light. Reporting in Europe is on the mark. On Dec. 21 the Frankfurter Allgemeine Zeitung noted on its website that European banks took three-month credits worth $33 billion, which was financed by a swap between the ECB and the Fed. When it first came out in 2009 that the Greek government was much more heavily indebted than previously known, currency swaps reportedly arranged by Goldman Sachs were one subterfuge employed to hide its debts.
The Fed had more than $600 billion of currency swaps on its books in the fall of 2008. Those draws were largely paid down by January 2010. As recently as a few weeks ago, the amount under the swap renewal agreement announced last summer was $2.4 billion. For the week ending Dec. 14, however, the amount jumped to $54 billion. For the week ending Dec. 21, the total went up by a little more than $8 billion. The aforementioned $33 billion three-month loan was not picked up because it was only booked by the ECB on Dec. 22, falling outside the Fed's reporting week. Notably, the Bank of Japan drew almost $5 billion in the most recent week. Could a bailout of Japanese banks be afoot? (All data come from the Federal Reserve Board H.4.1. release, the New York Fed's Swap Operations report, and the ECB website.)
No matter the legalistic interpretation, the Fed is, working through the ECB, bailing out European banks and, indirectly, spendthrift European governments. It is difficult to count the number of things wrong with this arrangement.
First, the Fed has no authority for a bailout of Europe. My source for that judgment? Fed Chairman Ben Bernanke met with Republican senators on Dec. 14 to brief them on the European situation. After the meeting, Sen. Lindsey Graham told reporters that Mr. Bernanke himself said the Fed did not have "the intention or the authority" to bail out Europe. The week Mr. Bernanke promised no bailout, however, the size of the swap lines to the ECB ballooned by around $52 billion.
Second, these Federal Reserve swap arrangements foster the moral hazards and distortions that government credit allocation entails. Allowing the ECB to do the initial credit allocation—to favored banks and then, some hope, through further lending to spendthrift EU governments—does not make the problem better.
Third, the nontransparency of the swap arrangements is troublesome in a democracy. To his credit, Mr. Bernanke has promised more openness and better communication of the Fed's monetary policy goals. The swap arrangements are at odds with his promise. It is time for the Fed chairman to provide an honest accounting to Congress of what is going on.
Mr. O'Driscoll, a senior fellow at the Cato Institute, was vice president at the Federal Reserve Bank of Dallas and later at Citigroup.
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Scott was kind enough to respond to my concerns about this:
The ECB is essentially doing the same thing today that the Fed did in 2008: massive balance sheet expansion, which by and large consists of swapping bank reserves for sovereign debt. Neither central bank has engaged in "money printing" in the sense that most people understand it (i.e., the kind of monetary expansion which fuels a big rise in inflation), because the vast majority of the newly created reserves are "excess" reserves sitting idle on deposit at the ECB and the Fed. Monetary aggregates like M2 are reasonably well-behaved. That's not to say things won't deteriorate in the future, of course, but for the moment a reasonable person can conclude that we are not on the cusp of hyperinflation.
Scott Grannis
http://scottgrannis.blogspot.com
and this:
Question for the Austrians: if the Fed and the ECB expand their balance sheets by hundreds of billions of dollars in a short period, but the value of the euro and the dollar relative to gold rises, and inflation remains very low, and commodity prices are flat to declining, have they in fact expanded the money supply by more than the demand for money? I think the answer is obviously "no." I think it's clear that, to date, both the ECB and the Fed have expanded their balance sheet in line with the public's demand for more risk-free assets (e.g., bank reserves) and more money in general.
I think it is also obvious that banks have not used their excess reserves to create more money than the system has wanted to hold. Furthermore, there is no evidence of any unusual expansion in the amount of money that people and corporations like to hold as "cash."
As a partial rebuttal to Hussman, who writes that "even the slightest exogenous interest rate pressure will imply the need for massive reversals in the monetary base in order to avoid steep inflationary pressures," and implies therefore that a reversal of the reserve injections would either be politically impossible, or economically disastrous, I note that the Fed has several times in the past executed "massive injections" base money in order to avoid deflationary pressures, and nothing much happened. If they can instantly expand base money, why can't they instantly contract it when the times call for such action?
I think all the alarmists are making the mistake of assuming that central banks will over-supply reserves ad infinitum regardless of what happens. If that were to occur, of course, then the result would be hyper-inflationary. But it hasn't happened yet.
Scott Grannis
http://scottgrannis.blogspot.com
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Federal Reserve Chairman Ben Bernanke and most of his colleagues showed little concern when house prices started to decline in 2006, predicting “a soft landing” in the then-strong U.S. economy, transcripts from the central bank released Thursday show.
Bloomberg News
Fed Chairman Ben S. BernankeBernanke, who took over from Alan Greenspan as Fed chairman in February 2006, is cautious in making forecasts about housing and the wider economy. But, together with then New York Fed chief Timothy Geither, he believes the slowdown in housing is healthy and likely to end well.
Few central bank officials look overly worried just a few months before the storm hit, leading to the worst recession since the Great Depression. There are expectations, however. At the May 2006 meeting, for example, Fed Governor Susan Bies brings the discussion back to housing and her growing worries about mortgages. At the following meeting in June, Janet Yellen, the Fed vice chairwoman who headed the San Francisco Fed in 2006, appears to be the most concerned about housing.
The transcripts, available on the Fed’s website, provide full details of Fed officials’ individual views during the eight Federal Open Market Committee Meetings, with the traditional five-year lag (the minutes, released three weeks after FOMC meetings, only give a summary.)
Highlights of the transcripts include:
JAN. 31: Alan Greenspan, who took over as Fed chairman in 1987, is chief for the last time during the meeting of the Fed’s decision-making body. Fed officials spend much of their time praising him. “I’d like the record to show that I think you’re pretty terrific, too,” says Timothy Geithner. “And thinking in terms of probabilities, I think the risk that we decide in the future that you’re even better than we think is higher than the alternative.”
MAR. 27-28: In Bernanke’s first meeting as Fed chairman, housing looms as a risk, but officials haven’t grasped the severity of the threat. The Fed’s chief economist, David Stockton, offers some ominous warnings. “Right now, it feels a bit like riding a roller coaster with one’s eyes shut,” when discussing his forecast for a modest slowdown in housing. “We sense that we’re going over the top, but we just don’t know what lies below.” Later, he notes that housing is “the most salient risk” to the economy. “I just don’t know how to forecast those prices,” he says of housing prices.
“Again, I think we are unlikely to see growth being derailed by the housing market, but I do want us to be prepared for some quarter-to-quarter fluctuations,” Bernanke says. He identifies housing as a crucial issue, but adds that he agrees “with most of the commentary that the strong fundamentals support a relatively soft landing in housing.
Timothy Geithner, who is now Treasury Secretary and was then president of the Federal Reserve Bank of New York, doesn’t see the parallel risks building in the financial system. “Equity prices and credit spreads suggest considerable confidence in the prospect for growth,” he says. “Overall financial conditions seem pretty supportive of the expansion.”
In terms of policy, Bernanke picks up where predecessor Greenspan left off: with another quarter-point boost in interest rates, and a hint of more to come.
But he puts a modest stamp of his own on the Fed’s closely watched post-meeting statement, by including a more explicit view of where the nation’s economy is headed. The statement’s forecast that economic growth appears likely “to moderate to a more sustainable pace” may be an early, though small, sign of his efforts to make the central bank’s thinking more transparent.
MAY 10: Fed officials spend a lot of time discussing rising energy prices and risks to inflation and agree to raise short-term interest rates by 0.25%. Susan Bies, a Fed governor, tries to bring the discussion back to housing and her growing worries about mortgages. She looks enlightened in retrospect in a discussion about the risks that increasingly exotic mortgages pose to consumers and banks.
Bies points in particular to negative amortization loans, in which household loan balances get bigger and not smaller over time. “I just wonder about the consumer’s ability to absorb shocks,” she warns. “The buildup of home equity and the ability to borrow against it have helped individual homeowners when they have had layoffs, medical problems, divorces-all the things in life that create month-to-month problems for cash flow. With the growth of negative amortization, home equity is not being built up anymore.” She sums up with a ominous warning: “The growing ingenuity in the mortgage sector is making me more nervous as we go forward in this cycle, rather than comforted that we have learned a lesson. Some of the models the banks are using clearly were built in times of falling interest rates and rising housing prices. It is not clear what may happen when either of those trends turns around.”
Bernanke acknowledges the risks, but doesn’t sound overly worried: “So far we are seeing, at worst, an orderly decline in the housing market; but there is still, I think, a lot to be seen as to whether the housing market will decline slowly or more quickly. As I noted last time, some correction in this market is a healthy thing, and our goal should not be to try to prevent that correction but rather to ensure that the correction does not overly influence growth in the rest of the economy.”
JUNE 28-29: In summarizing Fed officials’ views, Bernanke notes how it’s getting more and more difficult to make forecasts, describing the economic situation as “exceptionally complicated.” Since housing is particularly hard to project, Bernanke calls it “an important risk and one that should lead us to be cautious in our policy decisions.”
The Fed raises interest rates to 5.25% from 5% at this meeting, the 17th increase in a row. But for the first time since it began raising rates from a low of 1% in June 2004, the Fed doesn’t explicitly say another rate increase was under consideration.
AUG. 8: Bernanke reminds his colleagues that the Fed has not been “terribly successful with soft landings” in the economy. Then he adds: “We have a chance to get one.” Janet Yellen, the Fed vice chairwoman who headed the San Francisco Fed in 2006, appears to be the most concerned about housing, warning that the housing slowdown could become an “unwelcome housing slump.” The central bank leaves rates unchanged at this meeting after two years of steady increases. Geithner wants to cite housing weakness as a factor, but the majority is against that.
SEP. 20: The Fed cites housing and energy declines in holding interest rates steady. However, chief economist Stockton says that the economy “bends but doesn’t break” under one Fed forecasting scenario of a housing slump. “So far the collateral damage from the downturn in housing has been limited, and for the most part, we expect it to remain that way, at least for a time,” he says. Bernanke notes there’s a split on how housing is viewed at the Fed, with some expecting a deep correction while others believe incomes and rates will support housing. Here’s how he sums it up: “the economy except for housing and autos is still pretty strong, and we do not yet see any significant spillover from housing.”
OCT. 24-25: Fed officials spend most of the meeting talking about how to improve their communication with the public, a topic still obsessing them that will be the focus of the upcoming FOMC meeting this month. Officials are mired in an extensive debate about the words employed in the policy statement. They also devote significant time to airing views on whether the central bank should adopt an inflation target, a matter still unresolved to this very day.
The market’s long struggle to divine meaning from certain words is mirrored inside the Fed. Officials struggle to choose the right words to associate with their economic views. Geithner flags the “dictionary” issues before them, amid a conversation about what a word like “moderate” might mean when applied to the FOMC’s expectations of growth. He asks, “have we used that phrase in the recent past in a way that would allow the reasonably informed outside person to interpret it that way?” That leads to Vincent Reinhart, who was then an FOMC monetary policy advisor, to say “I don’t know.”
DEC. 12: The meeting that closes out the year sees policymakers showing little rising awareness of the storm coming their way. Indeed, much of the conversation officials have was about employment and inflation. Some of the evidence of rising weakness in housing was seen largely as a correction for past excess, rather than the genesis of the worst financial crisis since the Great Depression.
Boston Fed boss Cathy Minehan then observes her district was seeing a slowdown in housing, but she saw no great concern in this development. The Richmond Fed President Jeffrey Lacker notes a mixed housing picture: he doesn’t see any great catastrophe coming the sector’s way. Cleveland Fed leader Sandra Pianalto flags some borrowers’ increased difficulty in getting mortgages in her region. Then Fed Vice Chairman Donald Kohn says rising inventories in manufacturing was “a bit more troubling” than the cooling in housing activity he’d seen.
Fed Governor Bies once again looks ahead of the curve. She says “the amount of leverage in each housing deal may still need some correction going forward, and so we may see some slowdown in the volume of dollars that are funded through mortgage lending.” She also says that in markets there is a realization “that a lot of the private mortgages that have been securitized during the past few years really do have much more risk than the investors have been focusing on.”
Bernanke fails to see any major problem brewing in housing based on his comments in the transcripts, once again predicting a “soft landing” for the economy.
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The Producer Price Index (PPI) declined 0.1% in December To view this article, Click
Here
Brian S. Wesbury - Chief Economist
Robert Stein - Senior Economist
Date: 1/18/2012
The Producer Price Index (PPI) declined 0.1% in December, coming in below the
consensus expected gain of 0.1%. Producer prices are up 4.5% versus a year ago.
The decline in the PPI in December was due to food and energy, each dropping 0.8%.
The “core” PPI, which excludes food and energy, increased 0.3%.
Consumer goods prices dipped 0.2% in December but are up 5.4% versus last year.
Capital equipment prices rose 0.2% in December and are up 2.3% in the past year.
Core intermediate goods prices fell 0.5% in December but are up 4.2% versus a year
ago. Core crude prices were unchanged in December but are up 3.3% in the past
twelve months.
Implications: Due to falling commodities, producer prices took a breather in
December, dipping 0.1% overall. However, the Federal Reserve can hardly use this
data to justify another round of quantitative easing. “Core” prices,
which exclude food and energy and which the Fed says it follows more closely than
the overall figures, increased 0.3% and are now up 3.1% versus a year ago. With the
exception of a temporary surge in 2008-09, this is the largest 12-month increase for
core producer prices since the early 1990s. The increase in core prices in December
was largely due to light trucks and construction machinery, which suggests some
firms are preparing for an increase in activity. There has been a recent lull in
producer price inflation. Prices for overall finished goods increased 4.5% in the
past twelve months, but are down at a 0.6% annual rate in the past three months.
There has been a similar slowdown in producer price inflation at the intermediate
and crude levels of production, for both overall prices and for prices excluding
food and energy. Although monetary policy is loose, the reaction of inflation to
that policy is variable, not a straight line. We do not expect the lull in producer
price inflation to be long-lived. In other recent news, chain-store sales continue
to grow, up 3% versus a year ago according to the International Council of Shopping
Centers and up 2.8% according to Rebook Research. And remember, these data are only
for stores open for more than a year.
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http://www.realclearpolitics.com/articles/2012/01/23/why_the_fed_slept_112849.html
January 23, 2012
Why the Fed Slept
By Robert Samuelson Newsweek
WASHINGTON -- The recent release of the 2006 transcripts of the Federal Reserve's main policy-making body stimulated a small media frenzy. "Little Alarm Shown at Fed at Dawn of Housing Bust," headlined The Wall Street Journal. The Washington Post agreed: "As financial crisis brewed, Fed appeared unconcerned." The New York Times echoed: "Inside the Fed in '06: Coming Crisis, and Banter."
Comments from members of the Federal Open Market Committee (FOMC) now seem misguided. The first 2006 meeting was the last for retiring Fed Chairman Alan Greenspan. Janet Yellen -- then president of the Federal Reserve Bank of San Francisco and now Fed vice chair -- said "the situation you're handing off to your successor is a lot like a tennis racket with a gigantic sweet spot." Treasury Secretary Timothy Geithner -- then head of the Federal Reserve Bank of New York -- called Greenspan "terrific" and suggested his already exalted reputation might grow even more. There was no sense of a gathering crisis.
All true, but it begs the central question: why? The FOMC members weren't stupid, lazy or uninformed. They could draw on a massive staff of economists for analysis. And yet, they were clueless.
It wasn't that they didn't see the housing boom or recognize that it was ending. At 2006's first meeting, a senior Fed economist noted "that we are reaching an inflection point in the housing boom. The bigger question now is whether we will experience (a) gradual cooling ... or a more pronounced downturn."
At that same meeting, Fed Governor Susan Bies warned that mortgage lending standards had become dangerously lax. She explained that monthly payments were skyrocketing on mortgages with adjustable interest rates. She worried that many borrowers couldn't make the higher payments. The flagging housing boom concerned many Fed officials.
But they -- and most private economists -- didn't draw the proper conclusions. Hardly anyone asked whether lax mortgage lending would trigger a broad financial crisis, because America had not experienced a broad financial crisis since the Great Depression. A true financial crisis differs from falling stock prices, which are common. A financial crisis involves the failure of banks or other institutions, panic in many markets and a pervasive loss of wealth and confidence.
Such a crisis was not within the personal experience of members of the FOMC -- or anyone. Nor was it part of mainstream economic thinking. Because it hadn't happened in decades, it was assumed that it couldn't happen. There had been previous real estate busts. From 1964 to 1966, new housing starts fell 24 percent; from 1972 to 1975, 51 percent; from 1979 to 1982, 39 percent; from 1988 to 1991, 32 percent. Declining home construction had fed economic slowdowns or recessions. So the natural question seemed: Would this happen now? The answer seemed "no." The overall economy was strong. This is the most obvious reason for an oblivious FOMC.
But it is not the main reason, which remains widely unrecognized. Since the 1960s, the thrust of economic policy-making has been to smooth business cycles. Democracies crave prolonged prosperity, and economists have posed as technocrats with the tools to cure the boom-and-bust cycles of pre-World War II capitalism. It turns out that they exaggerated what they knew and could do.
There's a paradox to economic policy. The more it succeeds at prolonging short-term prosperity, the more it inspires long-run destabilizing behavior by businesses, banks, consumers, investors and government. If they think basic stability is assured, they will assume greater risks -- loosen credit standards, borrow more, engage in more speculation, relax wage and price behavior -- that ultimately make the economy less stable. Long booms threaten deep busts.
Since World War II, this has happened twice. In the 1960s, the so-called "new economics" promised that, by manipulating the budget and interest rates, it could stifle business cycles. The ensuing boom spanned the 1960s; the bust extended to the early 1980s and included inflation of 13 percent, four recessions and peak monthly unemployment of 10.8 percent. The latest episode was the so-called Great Moderation, largely paralleling Greenspan's Fed tenure (1987-2006), when there were only two mild recessions (1990-91 and 2001). We are now in the bust.
The Fed slept mainly because it overlooked the possibility of boom-bust. It didn't recognize that its success at sustaining prosperity -- for which Greenspan was lionized -- might sow the seeds of a larger failure. It bought into an overblown notion of economic "progress."
The Great Moderation begat the Great Recession. One implication is that an economy less stable in the short run becomes more stable in the long run by reminding everyone of risk and uncertainty. Sacrificing long booms may muffle subsequent busts. But this notion appeals to neither economists nor politicians. Ironically, the central lesson of the financial crisis is ignored.
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By DAVID MALPASS
On Wednesday the Federal Reserve shared its thoughts on the course of interest rates—but not on the implications for the value of the dollar. The two can't be disconnected. The Fed's rationale on interest rates determines the stability of the dollar, which is the economic bedrock for price stability, capital inflows, growth and jobs.
Obfuscation on the dollar works fine for Wall Street, which reaps billions in profits from the Fed's unstable dollar policy. It trades currencies and volatility, and makes a bundle protecting investors from the Fed by selling complex derivatives, interest-rate swaps, even triple-leveraged gold and currency funds pitched on television.
After the Fed's statement, markets bid gold above $1,700 per ounce, the latest insult to the Founders' clear intent for the dollar's value to be strong and stable relative to gold and silver over the life of our republic.
Dollar weakness doesn't work at all for economic well-being. The corollary to the Fed's policy of manipulating interest rates downward at the expense of savers is declining median incomes. It's no coincidence that inflation-adjusted median incomes rose in the sound-money booms of the Reagan and Clinton administrations and fell in the weak-dollar busts during the Carter, Bush and Obama years. When the currency weakens, the prices of staples rise faster than wages, hurting all but the rich who buy protection.
The economy and median incomes would do much better if the Fed said simply that it would set interest rates as best it could in order to keep the dollar's value strong and stable in coming decades, with the goal of attracting capital, maintaining price stability and encouraging full employment.
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.Yet the Fed is adamant that somehow business confidence will benefit by the Fed sharing its guesses on equilibrium interest rates—which after all are far from a science—but not its vital thinking on the future value of the dollar.
The Fed's status in Washington is unique and practically unassailable. It alone is a colossal self-funder operating outside the congressional appropriations process. Even the CIA and Navy Seals don't enjoy the Fed's unlimited spending power, checked only by its handpicked board and senior leadership.
Americans know this is a big problem but can't stop it. Texas Congressman Ron Paul has created an intensely popular presidential campaign around the need for stable money and limitations on the size (the Fed employs 22,000 people) and power of the Fed.
Yet legislation is moving in the opposite direction. Dodd-Frank's open-ended mandate has added another layer to the Fed's power, instructing it to control bank risk (good luck), protect the financial welfare of consumers, and even advise on mortgage bailouts.
Wednesday's meeting result could have been worse. The Fed might have announced more purchases of U.S. Treasurys and mortgage securities. It already owns nearly $2 trillion worth and has no limit on its expenditures, which fall completely outside the federal budget. Bond traders have been pleading with the Fed to announce further purchases so they can buy first and score big profits.
Stopping Fed asset purchases would help growth by allowing market distortions to subside. Its clear there's been no benefit from the Fed's unprecedented balance-sheet expansion, up 250% since 2008: no increase in private-sector credit (flat since 2009) and no impetus to the economy, which has been particularly weak in the quarters following Fed asset purchases.
Near-zero interest rates penalize savers and channel artificially cheap capital to government, big corporations and foreign countries. One of the most fundamental principles of economics is that holding prices artificially low causes shortages. When something of value is free, it runs out fast and only the well-connected get any. Interest rates are the price for credit and shouldn't be controlled at zero. It causes cheap credit for those with special access but shortages for those without—primarily new and small businesses and those seeking private-sector mortgages.
The economy's exit from Fed dominance of bond markets wouldn't be traumatic. The Fed has been fully sterilizing its asset purchases, meaning all the cash it has used to buy bonds is still contained at the Fed, not multiplied in the private sector. The Fed accomplishes this through bank regulation and by borrowing from banks at above-market interest rates—$1.5 trillion as of Jan. 18.
The Fed can reverse this process, letting its bond portfolio mature and the private sector smoothly reabsorb the debt by drawing down the excess reserves it has on deposit at the Fed. Other bond holders may see price pressure as the Fed finally sells its portfolio, but principal losses on bonds are small compared to fluctuations in equity markets. If the Fed adopts the pro-growth stance of letting markets allocate capital and the dollar stabilize, equity market gains will heavily outweigh bond market losses, lowering the cost of capital in the private sector.
The Fed's responsibility is to create confidence in price stability and the dollar, thus providing the best monetary policy environment for full employment. Most central banks operate on this principle. Instead, the Fed has systematically undermined economic confidence by promising to maintain zero interest rates for privileged borrowers. That policy will have to stop if the U.S. is to again achieve impressive growth.
Mr. Malpass, a deputy assistant Treasury secretary in the Reagan administration, is president of Encima Global LLC.
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Maybe he knows something?
http://money.cnn.com/2012/02/02/news/economy/federal_reserve_stocks/index.htm?iid=HP_LN
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Tuesday, February 07, 2012
Text Size:
From Porter Stansberry in the S&A Digest:
Most people still don't understand the risks we face as a nation because of our feckless leaders and their reckless ignorance of basic economics.
What follows are facts. Nothing in this essay will be conjecture or opinion. I will make no forecast – at least not in this essay. So please, stop the political name-calling... and grow up. The problems we face are ours. All of ours. It doesn't matter how we got here. It only matters that we begin to deal with these issues – soon. If we don't begin to solve these core financial problems, they will certainly destroy our country.
Today, our national federal debt far exceeds $15 trillion. This alone is not a serious problem. The interest we pay on these debts is small – thanks to the trust of our creditors, who, for the moment, continue to believe America is a safe bet.
So… what's the problem? The main problem is the amount of debt we owe continues to increase at a faster and faster pace. This is exceptionally dangerous for two simple reasons. First, there's simple math. When numbers compound, the result is geometric expansion. And that's happening right now with our national debt because we continue to borrow money to pay the interest. And we have done so for about 40 years. Think about it this way: How big would your debts be today if you'd been using credit cards to pay your mortgage for the last several decades?
Even worse, our debts are compounding at an accelerating pace because we lack the political ability to limit the federal government's spending. Please understand… I'm not pointing the finger at any politician or either political party. I'm simply pointing out a fact: This year's $3.6 trillion federal budget is 20% larger than the entire 2008 budget.
And while our government has grown at a record pace, our economy hasn't. It has hardly grown at all. Thus, this will be the fourth year in a row we set a record for deficit spending. Never before in peacetime has our government borrowed this much money. And now, it's borrowing record amounts every year.
This combination of borrowing record amounts of money (during peacetime) and continuing to borrow the money we need to pay the interest is setting the stage for a massive increase in total federal debt levels. Why is this happening? Don't our leaders realize they can't continue on this path?
Well… the problem isn't so simple to fix. What we face isn't a $15 trillion problem. It's actually much, much bigger…
The $15.3 trillion we owe today is really only a minor down payment on promises the federal government made to its most important creditors – the American people. Not yet included in our debt totals are the $15 trillion shortfall in Social Security (thanks to the Democrats), the $20 trillion unfunded prescription drug benefit (thanks to the Republicans), or the $115 trillion unfunded Medicare liability (thanks to the Democrats and Republicans).
Most people ignore these looming liabilities because they obviously will never be paid. In fact, the federal government's total obligations today – including all future obligations – is more than $1 million per taxpayer. And that's if you assume all 112 million taxpayers really count. (They don't. Only about 50 million people in the U.S. pay any substantial amount of federal income taxes.)
But here's the funny part… While everyone seems ready to ignore these obligations, we've already begun to pay them. Our spending on Medicare and Social Security already greatly exceeds the $800 billion in payroll taxes we're collecting to pay these benefits. (Total spending on Social Security and Medicare last year was more than $1.5 trillion.) And that means our actual debts will continue to compound faster and faster every year, assuming nothing is done to curtail these benefits.
I want to make sure you understand this fact: It doesn't matter how much (or how little) Congress chooses to cut its discretionary budget. The promises we've already made to Americans in the form of Social Security and Medicare guarantee that our debts will continue to compound faster and faster, every year. How do I know?
Once again… let's return to basic math. Right now, we're spending (at the federal level) $2.4 trillion per year on transfer payments and interest on our national debt. That doesn't include any of the other functions of the government – nothing else. Meanwhile, we are only collecting $2.3 trillion a year in income, payroll, and corporate taxes.
Let me make sure you understand this: Even if we cut every other government program – including the entire military budget – the federal revenue collected still wouldn't be enough to merely cover the costs of our direct transfer payments. Not even close. And every year, these payments will automatically grow.
Here's another way to look at the same basic numbers, but on a macro scale. Right now, total government spending in the U.S. equals $7 trillion per year. (That's federal, state, and local.) Total interest paid in the U.S. economy on all debts, public and private, equals $3.7 trillion. The size of our total economy is only $15 trillion. Thus, we are currently spending $10 trillion (out of $15 trillion) on our government and debt. This is unprecedented in all of American history. This financial structure is unsustainable – and extremely unstable, given our debt levels.
There's the bigger problem (yes, it gets worse). The political solution to our soaring deficits will most likely be higher taxes. Yes, technically that's a prediction… And I promised no predictions in this piece. But let's face it. You will never see the federal government make dramatic, meaningful cuts to its promised benefits – not when half the country pays no federal taxes and more than 40 million people are on food stamps. So it's not really a prediction – it's a political reality. Will higher taxes save us?
No. You cannot squeeze blood from a stone. The federal debt isn't the largest obligation we suffer under. Americans hold nearly $1 trillion in credit card debt. We hold nearly $1 trillion in student loans. Total personal debt in America is larger ($15.9 trillion) than all of the federal debt. In total – adding up all of our debts, public and private – Americans owe close to $700,000 per family. It is not possible to finance our federal government's spending via taxes because the American people are broke. Total debt levels in America are the highest – by far – of any developed nation.
Tax the rich, you say. Well, of course. But marginal rates in many places are already greater than 50%. Tax rates this high don't work… They actually reduce tax revenues as people move their economic activities elsewhere to avoid taxes… or even simply forgo working.
Don't forget, the very wealthy can simply leave. James Cameron – director of blockbuster movies Titanic and Avatar – recently did just that, buying a 2,500-acre farm in [New Zealand]. John Malone, chairman of Liberty Media, likewise told the Wall Street Journal that he bought a farm on the Canadian border specifically so that he could leave the country whenever he wanted. "We own 18 miles on the border, so we can cross. Anytime we want to, we can get away."
Think I'm exaggerating the risks of real capital flight from the U.S.? Well… let's look at the facts. According to the latest IRS report, the number of Americans renouncing their U.S. citizenship has increased ninefold since 2008.
How then will the government's spending be financed? Well, I promised no predictions. Not today. But I will remind you that since 2008, the Federal Reserve has expanded the monetary base from roughly $800 billion to nearly $3 trillion. That, again, is a fact. Feel free to draw your own conclusions about what the Federal Reserve is likely to do in the future if the U.S. Treasury is faced with a financial need that can't be met.
You may do whatever you'd like with [this essay]. Feel free to pass it around to your friends – or anyone else who may be interested in these ideas. Be prepared for lots of nonsense about making the rich pay their "fair share" and pie-in-the-sky projections about how the entitlement system could easily be reformed.
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"In fact, the federal government's total obligations today – including all future obligations – is more than $1 million per taxpayer. And that's if you assume all 112 million taxpayers really count. (They don't. Only about 50 million people in the U.S. pay any substantial amount of federal income taxes.)"
This answers the questions under the government spending thread about the burden on "real" taxpayers who are supporting not only themselves and family but several others.
Otherwise it sounds like the crises in Kally4rnia is the same as the Federal Government.
It is so bad or about ready to be so bad -
What is amazing man in the MSM look at people who write articles like this and laugh and smirk and belittle them.
Well health insurance in NJ goes up 10% every year.
Prescription drug program under Bush cost more than SS? I didn't know that. And we have some pushing for Jeb Bush?
No thanks. The first brought us Clinton the second brought us Brock. Enuf said.
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The hard reboot is coming. Plan accordingly.
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WSJ:
By LIAM DENNING
Fondlers, as Warren Buffett might call them, now wander the corridors of the world's central banks. Show them some love, gold bugs.
The identity of who buys gold has changed radically, as the latest report from the World Gold Council confirms. Just five years ago, jewelry accounted for two-thirds of gold demand. Last year, it represented less than half. Yet gold demand increased 13% overall in that time, and the price more than doubled.
Beyond dental crowns and those fancy cables that electronics retailers are always pushing on you, gold's utility is limited largely, paraphrasing the Oracle of Omaha, to fondling. As an investment, it yields nothing.
But if bridegrooms and rappers aren't buying, then who is? Fearful investors are one critical group. Between 2009 and 2011, demand for physical gold and exchange-traded funds jumped by 9.4 million troy ounces, more than offsetting the 6.6-million-ounce drop in jewelry consumption.
Most of that surge in investment demand happened in 2009, however. Flows into ETFs, in metal terms, slumped in 2011.
Increasingly, central banks, especially in emerging markets, have been the marginal buyers of gold. In 2011, an incremental 6.2 million ounces of supply came from miners and recycling. Demand for jewelry and industrial and dental applications, however, dropped by 1.8 million ounces.
Investors bought just 2.4 million ounces—enough to offset the drop in demand elsewhere, but nowhere near enough to absorb growing supply. Enter the central bankers, who purchased 11.7 million ounces. Having bolstered gold by debasing the paper money they print, they now help by buying the metal itself.
For gold bugs used to vilifying central bankers, it must be discomfiting to rely on them for support. And given how central-bank buying masks the impact of weak jewelry demand, slowing increases in investment flows and higher supply, it probably should.
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MARC: Given the huge cost increases, it makes perfect sense that jewelry, industrial, and dental application demand has dropped.
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I don't know if this accounts for the price but China is buying large amounts. Indians are buying too though I don't know if as much:
http://www.forbes.com/sites/gordonchang/2012/01/29/why-are-the-chinese-buying-record-quantities-of-gold/
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Wyoming House advances doomsday bill
By JEREMY PELZER Star-Tribune capital bureau | Posted: Friday, February 24, 2012 6:00 pm |
CHEYENNE — State representatives on Friday advanced legislation to launch a study into what Wyoming should do in the event of a complete economic or political collapse in the United States.
House Bill 85 passed on first reading by a voice vote. It would create a state-run government continuity task force, which would study and prepare Wyoming for potential catastrophes, from disruptions in food and energy supplies to a complete meltdown of the federal government.
The task force would look at the feasibility of
Wyoming issuing its own alternative currency, if needed. And House members approved an amendment Friday by state Rep. Kermit Brown, R-Laramie, to have the task force also examine conditions under which Wyoming would need to implement its own military draft, raise a standing army, and acquire strike aircraft and an aircraft carrier.
The bill’s sponsor, state Rep. David Miller, R-Riverton, has said he doesn’t anticipate any major crises hitting America anytime soon. But with the national debt exceeding $15 trillion and protest movements growing around the country, Miller said Wyoming — which has a comparatively good economy and sound state finances — needs to make sure it’s protected should any unexpected emergency hit the U.S.
Several House members spoke in favor of the legislation, saying there was no harm in preparing for the worst.
“I don’t think there’s anyone in this room today what would come up here and say that this country is in good shape, that the world is stable and in good shape — because that is clearly not the case,” state Rep. Lorraine Quarberg, R-Thermopolis, said. “To put your head in the sand and think that nothing bad’s going to happen, and that we have no obligation to the citizens of the state of Wyoming to at least have the discussion, is not healthy.”
Wyoming’s Department of Homeland Security already has a statewide crisis management plan, but it doesn’t cover what the state should do in the event of an extreme nationwide political or economic collapse. In recent years, lawmakers in at least six states have introduced legislation to create a state currency, all unsuccessfully.
The task force would include state lawmakers, the director of the Wyoming Department of Homeland Security, the Wyoming attorney general and the Wyoming National Guard’s adjutant general, among others.
The bill must pass two more House votes before it would head to the Senate for consideration. The original bill appropriated $32,000 for the task force, though the Joint Appropriations Committee slashed that number in half earlier this week.
University of Wyoming political science professor Jim King said the potential for a complete unraveling of the U.S. government and economy is “astronomically remote” in the foreseeable future.
But King noted that the federal government set up a Continuity of Government Commission in 2002, of which former U.S. Sen. Al Simpson, R-Wyo., was co-chairman. However, King said he didn’t know of any states that had established a similar board.
Contact capital bureau reporter Jeremy Pelzer at 307-632-1244 or jeremy.pelzer@trib,com
Read more: http://trib.com/news/state-and-regional/govt-and-politics/wyoming-house-advances-doomsday-bill/article_af6e1b2b-0ca4-553f-85e9-92c0f58c00bd.html
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A U.S. Boon in Low-Cost Borrowing
http://www.nytimes.com/2012/02/28/business/era-of-low-cost-borrowing-benefits-federal-government.html?nl=todaysheadlines&emc=tha25
WASHINGTON — These are the best of times for the world’s most ravenous borrower, the United States of America.
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A combination of unusual and unsustainable forces has pushed the cost of borrowing as low as it has ever been, so low that many investors effectively are paying to lend money to the government.
Investors buying five-year federal debt are accepting such low interest rates that inflation is on pace to reduce the value of their investments by more than 1 percent each year. Yet demand for United States Treasuries remains much greater than the supply.
The glut of cheap money has allowed the government to keep its annual deficits much smaller than it had expected, holding down the growth of the federal debt.
The Treasury Department, seeking to milk the moment, may start issuing debt with negative interest rates, making investors pay for the privilege of lending money to the government.
But a wide range of experts agrees that the bubble will eventually pop. The question, they say, is not if but when. There are signs that the era of low borrowing costs may be approaching its end, as the domestic economy shows signs of strength and Europe pulls back from economic immolation.
“We are in an unusual period right now in which net interest expense is temporarily depressed,” William C. Dudley, president of the Federal Reserve Bank of New York, said in a speech last week. “This will not last.”
People have been predicting that rates will rise ever since the 2008 financial crisis sent investors piling into the safe haven of federal debt, driving down rates.
But what looked like a brief plunge has become a broad trough. The average rates that the government pays to investors in its debt have declined in each of the last five years, from 4.92 percent at the end of 2006 to 2.24 percent at the end of 2011. Rates have edged even lower so far this year. Adjusting for inflation, the government is borrowing at virtually zero cost.
As a result, while the size of the public debt more than doubled over the last five years, from less than $5 trillion to more than $10 trillion, the government’s annual interest payments remained about the same.
In 2006, the bill was $226.6 billion. Last year, the bill was $227.1 billion. The numbers exclude debt held within the government, by the Social Security trust fund, and the cost of interest on those debts.
The danger, Mr. Dudley said last week, is that the current situation may lead some to underestimate the long-term cost of the debt when rates inevitably rise. The administration’s recent budget projects that rates will increase gradually over the next decade, including about 1 percentage point this year. If the increase is just 1 percentage point larger this year, the deficit will grow by $13 billion. If the same higher trajectory holds over 10 years, the additional interest payments would approach $1 trillion.
The basic reason to expect higher rates is that investors usually demand compensation as a borrower’s debts increase. And the government projects that its debt will grow rapidly in coming years.
The ratings agency Standard & Poor’s last year removed some categories of United States debt from its list of the world’s least risky investments, citing its concerns about the ability of the government to contain the growth through cutbacks in planned spending or increases in federal revenue.
So far, however, investors have grown only more clamorous for Treasuries.
The demand reflects the weakness of the domestic economy, and the Federal Reserve’s determined campaign to drive down the cost of borrowing by purchasing more than $1.6 trillion in Treasury securities.
One less obvious benefit is that about 10 percent of federal interest payments are now collected by the central bank, which returns almost all of the money to Treasury because it is required by law to remit its profits.
The United States also has benefited from concerns about the health of European governments. The International Monetary Fund estimates that the benefits of investors fleeing Europe to buy Treasuries have roughly offset any other damage to the American economy from the struggles of the euro zone.
“There’s a good argument that the net impact on the U.S. economy is zero, a little more or less,” the I.M.F.’s chief economist, Olivier Blanchard, said in a recent interview.
All of this has prompted a flight to safety so determined that investors are lining up to accept the near certainty of small losses on Treasuries to avoid the possibility of larger losses on stocks, corporate bonds or the debt of other countries.
This month, when the government auctioned off one-year debt, Treasury agreed to pay 14 cents for every $100 that it borrowed, or 0.14 percent. Last week at the most recent auction of five-year debt, it agreed to pay 88 cents a year for every $100 that it borrowed. At a 2 percent inflation rate, investors would need to be paid $2 for every $100 they lent just to keep pace.
Treasury is now reviewing whether to let prospective lenders offer negative interest rates, meaning that they would pay the government rather than vice versa. It is expected to make a decision by May.
Some economists say they believe rates will remain low for years. David Greenlaw, an economist at Morgan Stanley, forecasts little change through 2013.
“While there have been some bright spots in the data, the economy probably won’t be strong enough to justify rate increases,” Mr. Greenlaw said.
Other economists expect that rates will begin to rise later this year, as the domestic economy improves and fears about Europe abate.
John Ryding, chief economist at RDQ Economics in New York, expects rates on 10-year Treasuries to reach 3.75 percent this year, up from about 2 percent now, as investors awaken from what he described as “extreme risk aversion.”
But he added that he didn’t understand why rates had remained low for this long.
“I have to say that it’s a bit of an enigma,” Mr. Ryding said. “It’s a conundrum.”
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Fed Done: So Is Gold To view this article, Click Here
Brian S. Wesbury - Chief Economist
Date: 3/1/2012
It was a Fed-watchers delight when Ben Bernanke told the US Congress that there would be no QE3 and that the next move by the Fed would be to tighten monetary policy.
Oops! That’s not what he said. There were no quotable quotes to that affect. In fact, lots of people thought he said the opposite. A Wall Street Journal headline read Recovery Worries Weigh on Stocks, as “Bernanke took a cautious view of the U.S. recovery.” The Washington Post said “Bernanke Strikes Cautious Tone….” If you take these headlines at face value, Bernanke was dour and his testimony was about a weak economy and the potential for more ease.
But the gold market did not miss the message – gold futures fell $77 yesterday. And stocks were down on disappointment about the potential for more quantitative easing (QE3). We agree with gold and read the testimony in the opposite way of the popular press.
Bernanke’s testimony actually showed incredulity at the strength of the economy. He explained that job growth has been strong, but then said that the “decline in the unemployment rate over the past year has been somewhat more rapid than might have been expected.” The Fed is still stuck in the potential GDP trap. It believes the economy is well below its potential and not growing at its trend. As a result, the Fed is surprised that inflation remains above its forecasts, and it is incredulous that job growth has been strong.
Many look to the Fed for the final word on the economy and, therefore, this incredulity is interpreted as a dour outlook. In fact, the Fed, along with many forecasters, has been way too pessimistic on the US economy. But the data keeps coming in more strongly than the Fed thinks it should and it can no longer deny it.
What this means is that Bernanke cannot possibly justify QE3. He wants to justify it, but he can’t. This can be understood clearly by analyzing an answer to a question in the House Financial Services Committee, when Bernanke said “it is arguable that interest rates are too high, that they are being constrained by the fact that interest rates can’t go below zero.”
What he is talking about here is that some Taylor Rule-type-estimates say that the federal funds rate should be negative. These models use GDP relative to potential, unemployment relative to the natural rate and a target inflation rate, to estimate the correct target for short-term interest rates. But because rates can’t go below zero, the Fed wants to do more quantitative easing.
This raises an important dilemma for anyone who does not view the world through models alone. If the necessary interest rate really is negative, but rates cannot go below zero, then how is the economy growing? The Fed says it is growing because of QE1 and QE2. We seriously doubt this proposition because there has been no QE3 and the economy and stock market are both doing better. Moreover, even though the Fed’s balance sheet has grown, M2 has not accelerated. See charts below. The monetary base has exploded, but M2 has not, and if M2 is not rapidly expanding, then QE has not boosted the money supply.
The bottom line is that even though Bernanke wants to make the case for QE3, he can’t. In fact, better news on the economy has cut the Fed off from doing more massive easing projects. In the end, we believe the Fed has finally run out of justification for its excessively easy monetary policy. As the quarters ahead unfold, the prospects of more ease will continue to wane. This is good news for stocks – which do not do well with accelerating inflation – but, it is bad news for gold. Gold is done….and so is the Fed.
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BEIJING—Fresh data suggest China is moderating its appetite for investing in U.S. securities, a trend that could mean lower flows of cheap capital from Beijing and a possible rise in borrowing costs across the American economy.
An analysis of U.S. Treasury data suggests China, with $3.2 trillion in foreign-exchange reserves, has begun to rapidly diversify its currencies portfolio.
"It clearly indicates China's intention not to put all its eggs in one basket," said Lu Feng, director of Peking University's China Macroeconomic Research Center.
China still remains a strong buyer of U.S. debt. China's holdings of U.S. securities rose 7% to $1.73 trillion as of June 30, an increase of $115 billion from 12 months earlier, Treasury data show, but the percentage of dollar holdings in China's foreign-exchange reserves fell to a decade low of 54% in the year that ended June 30, from 65% in 2010. The Treasury data provided the most comprehensive read on China's holdings of U.S. securities available.
A comparison with China's own foreign-exchange reserve data suggests a marked reduction in the share of reserves parked in dollars. But difficulties in measuring China's holdings, exacerbated by what some analysts call an attempt by Beijing to hide the allocation of its reserves, mean that it is possible the data overstate the trend.
The purchase of U.S. securities amounted to just 15% of the increase in China's foreign-exchange reserves in the 12 months ended June 30, down from 45% in 2010 and an average of 63% over the past five years, according to calculations based on information published by the U.S. Treasury and the Chinese government.
Economists have long warned that if China starts to cut back its purchases of U.S. securities, U.S. interest rates could climb, damaging the American economy and ratcheting up the government's borrowing costs.
"We've been worried about China refraining from buying U.S. debt for three years now, and it really has not occurred," said David Ader, head of government bond strategy at CRT Capital in Stamford, Conn.
China's foreign-exchange reserves have ballooned over the past two years, and the country has plenty of money to support the U.S. and other debt issuers. "China has been diversifying for several years," Mr. Ader said. "It's been incremental and they've told us that much. Simply diversifying into another currency certainly made sense."
Some economists said China's move was well-timed. "It would be optimal for China to adopt a contrarian strategy and pick times when the dollar is strong to aggressively diversify the currency composition of its reserve portfolio away from the dollar," said Eswar Prasad, a China scholar at the Brookings Institution.
China won't say how it invests its foreign-exchange reserves, which have grown rapidly over the past decade. Beijing has used its control over the exchange rate as a key plank of its economic-development strategy and has racked up immense trade surpluses. That requires China's State Administration of Foreign Exchange to invest the proceeds overseas. In the past, SAFE has hinted that about two-thirds of its stash is held in U.S. securities, a percentage that generally has been in line with annual data collected by the U.S. Treasury. Officials at China's foreign-exchange agency didn't respond to questions faxed to them on Thursday.
China's leaders have made increasingly strong statements that they would like to help the 17-nation euro zone deal with its troubles. In February, Premier Wen Jiabao, speaking at the EU-China summit, said "Europe is a main investment destination for China to diversify its foreign-exchange reserves."
Klaus Regling, the chief executive of the European Financial Stability Facility—the euro-zone's rescue fund for Greece and other financially troubled nations—was in Beijing in October for talks with SAFE. Regular talks have continued since then and EFSF documents show that Asia, apart from Japan—essentially China—accounted for between 14% and 24% of purchases for three EFSF bond sales worth €13 billion in the first half of 2011. That was before Mr. Regling's Beijing trip.
China has many reasons to try to reduce its exposure to the dollar. They include very low yields paid by Treasurys and a vulnerability to U.S. decisions on managing its debt, which could lead to inflation that would erode the value of those holdings. Last summer's political debate over raising the U.S. debt ceiling sparked worries that the U.S. could default on obligations.
China also would have good reason for deepening its ties to other currencies. Buying some undervalued European assets during the debt crisis over the past year might have been a smart move. And China has an interest in supporting its exports by helping bolster the currencies of its biggest customers.
Meantime, overall global demand for U.S. securities has remained strong as investors seek a haven during troubled times. Foreign holdings of U.S. securities increased $1.8 trillion, or about 17%, to $12.52 trillion over 12 months to June, according to the Treasury data.
To arrive at the percentage of dollar holdings in China's reserves, U.S. Treasury data on Chinese purchases of U.S. securities must be compared with Beijing data on its foreign-exchange holdings. That calculation is complicated by the impact of currency movements on the value of China's reserves. Even so, it is clear that China is purchasing fewer dollar-based securities than it had in the past.
Reuters
.While China's holdings of U.S. securities rose 7% in the year that ended in June, China's total foreign-exchange holdings increased by 30% to $3.2 trillion, an increase of $743 billion. Essentially, the pace of China's purchases of U.S. securities didn't come close to matching the pace of expansion of its foreign-reserve pile, reducing the percentage of dollar holdings.
Monthly figures on China's holdings of U.S. Treasurys have been seen as less reliable than the annual survey.
But the Treasury has now introduced a new survey technique intended to improve the accuracy of the data.
The latest monthly numbers show China's holdings of U.S. Treasurys dropped to $1.15 trillion in December, falling $156 billion since the period covered by the annual survey. That suggests China's diversification away from dollars may have continued in the second half of 2011.
It is also unclear how much of Chinese dollar holdings are reflected in the latest data. China could have dollar-based assets outside the U.S., held by fund managers in other countries or on deposit in the international banking system.
Where China has pulled back on U.S. securities purchases, others have stepped up. Japan has more than compensated for the difference and other investors in the U.S. and abroad have done the same. That has supported Treasury prices and largely kept the 10-year yield below 2%—lower than it was last summer before any pullback from China.
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One business story these days is how companies are crashing the debt markets to raise money at today's bargain rates. The same goes for the world's biggest borrower, Uncle Sam, which is also quietly benefitting from historically low interest rates that cannot last. The latter deserves more attention because the next President and Congress are likely to be stuck paying the bill when rates inevitably rise.
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First, a couple facts: the U.S. Treasury currently has $10.7 trillion in outstanding publicly-held debt, and more than $8 trillion of it must be repaid within the next seven years. More than $5 trillion falls due within the next 36 months.
This relatively short-term debt sheet is no accident. Like a subprime borrower opting for a low teaser rate, the government has structured its debt to keep current interest payments low. This is a political temptation for every Administration because it means lower budget deficits on its watch.
The Obama Administration has added close to $5 trillion to the U.S. debt. So it much prefers to finance all of this at a rate, say, of 0.3% in two-year notes than at 2% in 10-year notes. The nearby charts show how federal debt has soared during the Obama years, yet net federal interest payments are lower than they were in 2007 and lower than they were in nominal dollars even in 1997 when public debt was a mere $3.8 trillion. This year the debt is expected to reach $11.58 trillion.
The problem is that this disguises the magnitude of the debt threat and stores up trouble for future Presidents and taxpayers. And maybe not far in the future.
The Congressional Budget Office (CBO), for example, forecasts that in the period 2014-2017 the average rates on three-month Treasury bills will rise to 2% from less than 0.1% today. CBO expects average rates on 10-year Treasury notes to climb to 3.8%, from 2.03% now. CBO adds that every 100 basis-point rise in government borrowing costs over the next decade will trigger almost $1 trillion in new federal debt.
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Close...As of January 2012, taking into account all the various notes and bonds issued by the federal government to the public, Uncle Sam is paying an average interest rate of 2.24%. The government expects to spend in the neighborhood of $225 billion this year making interest payments.
That may seem like a large sum, and it is, but consider what happens if rates quickly rise back toward their historical norms. As recently as early 2007 the government was paying 5% on its debt, which is the average of the last two decades, though of course rates could always go higher. During the 1990s, the average was well above 6%.
If the government had to pay the 5% rate that it was offering before the financial crisis on today's debt, the annual interest payments would be $535 billion, twice CBO's projection for total federal spending on Medicaid this year. If Uncle Sam had to pay 6% on its debt, the annual interest payments of $642 billion would surpass total federal spending on Medicare, currently $484 billion. Such a radical change in budget math could trigger a political panic and intense pressure for tax increases, perhaps even for a European-style value-added tax.
Should Treasury be much more aggressive now in seeking to borrow for the long term at today's low rates? This would seem to be a sensible call, especially given that everyone except perhaps the Federal Reserve Board of Governors expects rates to rise.
Treasury says it is aware of the dangers and is acting on it. In a September 2010 letter to the Journal, Mary J. Miller, Treasury's assistant secretary for financial markets, reported that 55% of Treasury debt was maturing within three years and that this figure was declining. She added that Treasury planned to continue lengthening the average maturity of its debt.
Ms. Miller and her Treasury colleagues have been true to her word. Today, 52% of the debt is due within three years.
The problem is that, amid the astounding Obama-era increase in federal debt, Ms. Miller's letter arrived almost $2 trillion ago. So while short-term debt may be declining modestly as a percentage of Treasury paper, it's part of a much bigger debt pie.
Of course, Treasury can't decide entirely on its own to rely on longer-term financing. Investors watching the mounting Obama debt pile probably wouldn't agree to finance most of it for 30 years at a low rate. The risk of future rate increases or inflation are too great.
Not that we can tell how much private market demand exists for 30-year bonds anyway. The Federal Reserve is now among the largest buyers as it implements "Operation Twist" and other monetary adventures.
This is a useful reminder that fiscal authorities aren't the only ones who will have trouble exiting from this era of profligate government. Sooner or later the Fed has to manage the withdrawal from its historically accommodative monetary policy. Even now many investors suspect that the Fed is keeping rates so low for so long in part to finance federal debt on easier terms.
If the economy gains steam—say, in a new Administration that reforms the tax code, cuts spending and reduces regulation—the Fed may have to raise rates to forestall inflation. But if it raises rates, interest payments on the debt will soar, the deficit may not fall from its Obama trillion-dollar levels, and pressure could build for a tax increase.
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President Obama may not mind this outcome but Mitt Romney and Rick Santorum should, which is why they need to talk about this fiscal nitroglycerin that Mr. Obama and Fed Chairman Ben Bernanke have created. The two Republicans might also take a moment to wonder how much they really want this job. The next Presidential term may be spent trying to defuse the Obama debt bomb.
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IIRC, the precedent for this was Sec Rubin under Bill Clinton. He made a very large and irreponsible gamble of putting long term debt out at short term rates to save money in the shart term that panned out quite well where they were able through other actions (capital gains tax cuts, welfare reform, spending restraints, internet buildout, etc.) balance the budget for a short time (in a bubble economy).
Now that kind of irresponsibility is the norm even though now we KNOW interest rates must go up and that we will be fiscally punished for doing this. This is not in the context of throwing a Hail Mary to balance the budget. This is in the context of multi-year, trillion dollar deficits, spending at nearly 1.5 times revenues, immeasurable entitlement liabilities accelerating and releasing yet another budget that reaches balance at date certain: NEVER.
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No Sign of QE3 To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 3/13/2012
Absolutely no sign of a third round of quantitative easing. That was the big news from today’s statement from the Federal Reserve. The stance of monetary policy remains unchanged.
The only alterations to the Fed’s statement, compared to what it released after the last meeting on January 25, indicated somewhat faster economic growth and higher inflation.
The Fed said unemployment “has declined notably,” growth in coming quarters should be “moderate” (last time it said “modest”), and that strains in global financial markets have eased. On inflation, the Fed acknowledged that crude oil and gas prices have risen lately, but says these increases will only keep inflation up “temporarily.”
Otherwise, the Fed made no changes to interest rates, the size of its balance sheet, or its policy of paying interest on excess reserves. In other words, no third round of quantitative easing. Given the re-acceleration in the economy we continue to think QE3 is a ship that will never sail.
Once again, the only dissent came from Richmond Bank President Jeffrey Lacker, who believes economic conditions will warrant raising rates before late 2014.
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http://www.cnbc.com/id/46721564
The Federal Reserve "is playing a game with us to some extent" by maintaining low interest rates, Pimco founder Bill Gross told CNBC, who also expects another round of quantitative easing.
"I think the Fed will continue to do this for a long time and subordinate investors in the bond market," said Gross, who runs the world's largest bond fund.
Gross spoke Tuesday after the Fed left its policy unchanged. While acknowledging signs of strength in the U.S. economy, it reiterated that unemployment is too high and interest rates would remain near zero until late 2014. The Fed did not say whether there would be another round of quantitative easing .
Gross said there has to be a QE3.
"Whenever the Fed and other central banks have paused with their quantitative easing programs since 2009, stock prices have fallen and economies have slowed. To my mind there’s little hope for the private markets substituting for central banks anytime soon," he said.
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Bill Gross is a very, very smart guy and he is a subject matter expert for this issue. That said, he most recent big prediction and attendant decision to get out of treasuries completely was a whiff-- interest rates went down even further after he exited. Of course that doesn't mean he's wrong now , , ,
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Bill Gross is a very, very smart guy and he is a subject matter expert for this issue. That said, he most recent big prediction and attendant decision to get out of treasuries completely was a whiff-- interest rates went down even further after he exited. Of course that doesn't mean he's wrong now , , ,
I'd be curious to see who has the better track record, Gross or Krug-bury.
If interest rates go up, what happens to our massive debt?
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http://www.thestreet.com/story/11449757/1/federal-reserves-sterilized-qe3-may-get-messy.html
NEW YORK (TheStreet) -- Reports that the Federal Reserve is toying with the idea of a "sterilized" U.S. Treasury bond trade as a way to push liquidity into the markets without igniting inflation sounds like a great deal.
Which, as it turns out, is exactly the point: Flood the economy with money without sounding inflationary alarm and causing equity investors to flee the U.S. markets in droves.
Under the proposed third quantitative easing plan (QE3), first reported by The Wall Street Journal, the Fed will buy mortgage-backed securities (MBS) and longer-dated U.S. Treasury bonds. That would give big investors already loaded up with Treasuries additional buying power, pushing down long-term yields and freeing up capital.
The Federal Reserve will pay for the program by doing what central banks do best -- printing money. But turning up the Fed printing presses is the first signal to the equity markets that asset-destroying inflation can't be far behind.
Any stimulus would be canceled out by a stock market swoon.
In order to dance around the specter of inflation, the Fed would then "sterilize" the trade by locking up the bonds with the buyers for a short period of a month or less. That would, in theory, damn up the liquidity at the source and keep from it flooding into the broader economy where it would push up prices.
The sterilization part of the Fed's trade idea is known as a reverse repurchase agreement, or reverse repo, and its entire purpose is to convince the stock market that inflation is off the table, said Arvind Krishnamurthy, professor of finance at the Kellogg School of Management at Northwestern University.
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CPI is calculated by removing those volatile items that go up the most. Some argue the real inflation rate is higher:
http://www.nypost.com/p/news/national/price_clubbed_in_jRGGyS9wKfAKjxAs0bkVnO
America’s real inflation rate has moved above 8%
Read it at the link, click on the ads.
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http://www.bloomberg.com/news/2012-03-14/watch-bernanke-s-little-inflation-capsize-u-s-amity-shlaes.html
A little is all right. That’s the message Federal Reserve Chairman Ben S. Bernanke has been giving out recently when asked about the evidence of inflation in the U.S. recovery.
Sometimes Bernanke doesn’t even go that far. He simply says he doesn’t see inflation. The Fed chairman recently described the prospects for price increases across the board as “subdued.”
About Amity Shlaes
Amity Shlaes is a senior fellow in economic history at the Council on Foreign Relations and the author of the best-sellers "The Forgotten Man: A New History of the Great Depression" and "The Greedy Hand: Why Taxes Drive Americans Crazy."
“Sudden” is more like it. The thing about inflation is that it comes out of nowhere and hits you. Monetary policy is like sailing. You’re gliding along, passing the peninsula, and you come about. Nothing. Then the wind fills the sail so fast it knocks you into the sea. Right now, the U.S. is a sailboat that has just made open water, and has already come about. That wind is coming. The sailor just doesn’t know it.
**Read it all.
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I don't favor a return to the gold standard for reasons different from the Fed Chair.
http://www.reuters.com/article/2012/03/20/us-usa-fed-gold-idUSBRE82J17A20120320
Bernanke says gold standard wouldn't solve problems
WASHINGTON | Tue Mar 20, 2012 4:55pm EDT
(Reuters) - Federal Reserve Chairman Ben Bernanke on Tuesday took aim at proponents of the gold standard, saying that such a system handicaps the government's ability to address economic conditions.
Bernanke spoke in the first of a series of four public lectures at George Washington University that is the central bank's latest effort to counter a raft of negative public sentiment that has arisen from its handling of the financial crisis. The former Princeton economics professor delivers a second lecture on Thursday and two more next week.
"Since the gold standard determines the money supply, there is not much scope for the central bank to use monetary policy to stabilize the economy," Bernanke said. "Under a gold standard, typically the money supply goes up and interest rates go down in a period of strong economic activity - so that's the reverse of what a central bank would normally do today." (more at the link)
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http://www.bloomberg.com/news/2012-03-14/watch-bernanke-s-little-inflation-capsize-u-s-amity-shlaes.html
A little is all right. That’s the message Federal Reserve Chairman Ben S. Bernanke has been giving out recently when asked about the evidence of inflation in the U.S. recovery.
Sometimes Bernanke doesn’t even go that far. He simply says he doesn’t see inflation. The Fed chairman recently described the prospects for price increases across the board as “subdued.”
About Amity Shlaes
Amity Shlaes is a senior fellow in economic history at the Council on Foreign Relations and the author of the best-sellers "The Forgotten Man: A New History of the Great Depression" and "The Greedy Hand: Why Taxes Drive Americans Crazy."
“Sudden” is more like it. The thing about inflation is that it comes out of nowhere and hits you. Monetary policy is like sailing. You’re gliding along, passing the peninsula, and you come about. Nothing. Then the wind fills the sail so fast it knocks you into the sea. Right now, the U.S. is a sailboat that has just made open water, and has already come about. That wind is coming. The sailor just doesn’t know it.
**Read it all.
http://www.cnbc.com/id/46923999
'Massive Wealth Destruction' Is About to Hit Investors: Faber
Published: Monday, 2 Apr 2012 | 8:12 AM ET Text Size By: Jeff Cox
CNBC.com Senior Writer
Runaway government debts have triggered uncontrolled money printing that in turn will lead to inflation that will decimate portfolios, according to the latest forecast from "Dr. Doom" Marc Faber.
Investors, particularly those in the "well-to-do" category, could lose about half their total wealth in the next few years as the consequences pile up from global government debt problems, Faber, the author of the Gloom Boom & Doom Report, said on CNBC.
Efforts to stem the debt problems have seen the Federal Reserve expand its balance sheet to nearly $3 trillion and other central banks implement aggressive liquidity programs as well, which Faber sees producing devastating inflation as well as other consequences.
"Somewhere down the line we will have a massive wealth destruction that usually happens either through very high inflation or through social unrest or through war or credit market collapse," he said. "Maybe all of it will happen, but at different times."
Noted for his pessimistic forecasts and gold advocacy, Faber nonetheless lately has been telling investors that stocks are a good choice as central bank policies pump up asset prices.
He reiterated both his commitment to stocks and gold, but said investors also can find value in other hard assets, particularly in distressed properties in the U.S. South.
"In Georgia, in Arizona, in Florida their property values will not collapse much more and will stabilize, so I think to own some land and some property, not necessarily in the financial centers but in the secondary cities, these are desirable investments relatively speaking," Faber said.
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... The Sound Dollar Act of 2012, a subject of hearings at the Joint Economic Committee this week, has a number of useful provisions. It removes the confusing dual mandate of "maximum employment" and "stable prices," which was put into the Federal Reserve Act during the interventionist wave of the 1970s. Instead it gives the Federal Reserve a single goal of "long-run price stability." - John Taylor, professor of economics at Stanford
http://online.wsj.com/article/SB10001424052702303816504577307403971824094.html?mod=googlenews_wsj
OPINION
Updated March 28, 2012
The Dangers of an Interventionist Fed
A century of experience shows that rules lead to prosperity and discretion leads to trouble.
By JOHN B. TAYLOR
America has now had nearly a century of decision-making experience under the Federal Reserve Act, first passed in 1913. Thanks to careful empirical research by Milton Friedman, Anna Schwartz and Allan Meltzer, we have plenty of evidence that rules-based monetary policies work and unpredictable discretionary policies don't. Now is the time to act on that evidence.
The Fed's mistake of slowing money growth at the onset of the Great Depression is well-known. And from the mid-1960s through the '70s, the Fed intervened with discretionary go-stop changes in money growth that led to frequent recessions, high unemployment, low economic growth, and high inflation.
In contrast, through much of the 1980s and '90s and into the past decade the Fed ran a more predictable, rules-based policy with a clear price-stability goal. This eventually led to lower unemployment, lower interest rates, longer expansions, and stronger economic growth.
Unfortunately the Fed has returned to its discretionary, unpredictable ways, and the results are not good. Starting in 2003-05, it held interest rates too low for too long and thereby encouraged excessive risk-taking and the housing boom. It then overshot the needed increase in interest rates, which worsened the bust. Now, with inflation and the economy picking up, the Fed is again veering into "too low for too long" territory. Policy indicators suggest the need for higher interest rates, while the Fed signals a zero rate through 2014.
It is difficult to overstate the extraordinary nature of the recent interventions, even if you ignore actions during the 2008 panic, including the Bear Stearns and AIG bailouts, and consider only the subsequent two rounds of "quantitative easing" (QE1 and QE2)—the large-scale purchases of mortgage-backed securities and longer-term Treasurys.
The Fed's discretion is now virtually unlimited. To pay for mortgages and other large-scale securities purchases, all it has to do is credit banks with electronic deposits—called reserve balances or bank money. The result is the explosion of bank money (as shown in the nearby chart), which now dwarfs the Fed's emergency response to the 9/11 attacks.
Before the 2008 panic, reserve balances were about $10 billion. By the end of 2011 they were about $1,600 billion. If the Fed had stopped with the emergency responses of the 2008 panic, instead of embarking on QE1 and QE2, reserve balances would now be normal.
This large expansion of bank money creates risks. If it is not undone, then the bank money will eventually pour out into the economy, causing inflation. If it is undone too quickly, banks may find it hard to adjust and pull back on loans.
The very existence of quantitative easing as a policy tool creates unpredictability, as traders speculate whether and when the Fed will intervene again. That the Fed can, if it chooses, intervene without limit in any credit market—not only mortgage-backed securities but also securities backed by automobile loans or student loans—creates more uncertainty and raises questions about why an independent agency of government should have such power.
The combination of the prolonged zero interest rate and the bloated supply of bank money is potentially lethal. The Fed has effectively replaced the entire interbank money market and large segments of other markets with itself—i.e., the Fed determines the interest rate by declaring what it will pay on bank deposits at the Fed without regard for the supply and demand for money. By replacing large decentralized markets with centralized control by a few government officials, the Fed is distorting incentives and interfering with price discovery with unintended consequences throughout the economy.
For all these reasons, the Federal Reserve should move to a less interventionist and more rules-based policy of the kind that has worked in the past. With due deliberation, it should make plans to raise the interest rate and develop a credible strategy to reduce its outsized portfolio of Treasurys and mortgage-backed securities.
History shows that reform of the Federal Reserve Act is also needed to incentivize rules-based policy and prevent a return to excessive discretion. The Sound Dollar Act of 2012, a subject of hearings at the Joint Economic Committee this week, has a number of useful provisions. It removes the confusing dual mandate of "maximum employment" and "stable prices," which was put into the Federal Reserve Act during the interventionist wave of the 1970s. Instead it gives the Federal Reserve a single goal of "long-run price stability."
The term "long-run" clarifies that the goal does not require the Fed to overreact to the short-run ups and downs in inflation. The single goal wouldn't stop the Fed from providing liquidity when money markets freeze up, or serving as lender of last resort to banks during a panic, or reducing the interest rate in a recession.
Some worry that a focus on the goal of price stability would lead to more unemployment. History shows the opposite.
One reason the Fed kept its interest rate too low for too long in 2003-05 was concern that raising the interest rate would increase unemployment in the short run. However, an unintended effect was the great recession and very high unemployment. A single mandate would help the Fed avoid such mistakes. Since 2008, the Fed has explicitly cited the dual mandate to justify its extraordinary interventions, including quantitative easing. Removing the dual mandate will remove that excuse.
A single goal of long-run price stability should be supplemented with a requirement that the Fed establish and report its strategy for setting the interest rate or the money supply to achieve that goal. If the Fed deviates from its strategy, it should provide a written explanation and testify in Congress. To further limit discretion, restraints on the composition of the Federal Reserve's portfolio are also appropriate, as called for in the Sound Dollar Act.
Giving all Federal Reserve district bank presidents—not only the New York Fed president—voting rights at every Federal Open Market Committee meeting, as does the Sound Dollar Act, would ensure that the entire Federal Reserve system is involved in designing and implementing the strategy. It would offset any tendency for decisions to favor certain sectors or groups in the economy.
Such reforms would lead to a more predictable policy centered on maintaining the purchasing power of the dollar. They would provide an appropriate degree of oversight by the political authorities without interfering in the Fed's day-to-day operations.
Mr. Taylor is a professor of economics at Stanford and a senior fellow at the Hoover Institution. This op-ed is adapted from his testimony this week before the Joint Economic Committee, which drew on his book "First Principles: Five Keys to Restoring America's Prosperity." (W.W. Norton, 2012).
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What’s Your Plan?
By Mark Steyn
April 14, 2012 4:00 A.M.
In the end, free societies get the governments they deserve. So, if the American people wish to choose their chief executive on the basis of the “war on women,” the Republican theocrats’ confiscation of your contraceptives, or whatever other mangy and emaciated rabbit the Great Magician produces from his threadbare topper, they are free to do so, and they will live with the consequences. This week’s bit of ham-handed misdirection was “the Buffett Rule,” a not-so-disguised capital-gains-tax hike designed to ensure that Warren Buffett pays as much tax as his secretary. If the alleged Sage of Omaha is as exercised about this as his public effusions would suggest, I’d be in favor of repealing the prohibition on Bills of Attainder, and the old boy could sleep easy at night. But instead every other American “millionaire” will be subject to the new rule — because, as President Obama said this week, it “will help us close our deficit.”
Wow! Who knew it was that easy?
A-hem. According to the Congressional Budget Office (the same nonpartisan bean-counters who project that on Obama’s current spending proposals the entire U.S. economy will cease to exist in 2027) Obama’s Buffett Rule will raise — stand well back — $3.2 billion per year. Or what the United States government currently borrows every 17 hours. So in 514 years it will have raised enough additional revenue to pay off the 2011 federal budget deficit. If you want to mark it on your calendar, 514 years is the year 2526. There’s a sporting chance Joe Biden will have retired from public life by then, but other than that I’m not making any bets.
Let’s go back to that presidential sound bite:
“It will help us close our deficit.”
I’m beginning to suspect that the Oval Office teleprompter may be malfunctioning, or that perhaps that NBC News producer who “accidentally” edited George Zimmerman into sounding like a racist has now edited the smartest president of all time into sounding like an idiot. Either way, it appears the last seven words fell off the end of the sentence. What the president meant to say was:
“It will help us close our deficit . . . for 2011 . . . within a mere half millennium!” [Pause for deafening cheers and standing ovation.]
Sometimes societies become too stupid to survive. A nation that takes Barack Obama’s current rhetorical flourishes seriously is certainly well advanced along that dismal path. The current federal debt burden works out at about $140,000 per federal taxpayer, and President Obama is proposing to increase both debt and taxes. Are you one of those taxpayers? How much more do you want added to your $140,000 debt burden? As the Great Magician would say, pick a number, any number. Sorry, you’re wrong. Whatever you’re willing to bear, he’s got more lined up for you.
Even if you’re absolved from federal income tax, you too require enough people willing to keep the racket going, and America is already pushing forward into territory the rest of the developed world is steering well clear of. On April Fools’ Day, Japan and the United Kingdom both cut their corporate-tax rates, leaving the United States even more of an outlier, with the highest corporate-tax rate in the developed world: The top rate of federal corporate tax in the U.S. is 35 percent. It’s 15 percent in Canada. Which is next door.
Well, who cares about corporations? Only out of touch dilettante playboys like Mitt Romney who — hmm, let’s see what I can produce from the bottom of the top hat — put his dog on the roof of his car as recently as 1984! That’s where your gran’ma will be under the Republicans’ plan, while your contraceptiveless teenage daughter is giving birth on the hood. “Corporations are people, my friend,” said Mitt, in what’s generally regarded as a damaging sound bite by all the smart people who think Obama’s plan to use the Buffett Rule to “close the deficit” this side of the fourth millennium is a stroke of genius.
But Mitt’s not wrong. In the end, a corporation doesn’t pay tax. The marble atrium of Global MegaCorp’s corporate HQ is indifferent to the tax rate; the Articles of Incorporation in the bottom drawer of the chairman’s desk couldn’t care less. Every dollar of “corporate” tax has to be fished out the pocket of a real flesh-and-blood human being, whether shareholder, employee, or customer.
And that’s the problem. For what Obama’s spending, there aren’t enough of them, or us, or “the rich” — and there never will be. There is only one Warren Buffett. He is the third-wealthiest person on the planet. The first is a Mexican, and beyond the reach of the U.S. Treasury. Mr. Buffett is worth $44 billion. If he donated the entire lot to the government of the United States, they would blow through it within four and a half days. Okay, so who’s the fourth-richest guy? He’s French. And the fifth guy’s a Spaniard. Number six is Larry Ellison. He’s American, but that loser is only worth $36 billion. So he and Buffett between them could keep the United States government going for a week. The next-richest American is Christy Walton of Walmart, and she’s barely a semi-Buffett. So her $25 billion will see you through a couple of days of the second week. There aren’t a lot of other semi-Buffetts, but, if you scrounge around, you can rustle up some hemi-demi-semi-Buffetts: If you confiscate the total wealth of the Forbes 400 richest Americans it comes to $1.5 trillion, which is just a little less than the Obama budget deficit for a year.
But there are a lot of “millionaires,” depending on how you define it. Jerry Brown, California’s reborn Governor Moonbeam, defines his “millionaire’s tax” as applying to anybody who earns more than $250,000 a year. “Anybody who makes $250,000 becomes a millionaire very quickly,” he explained. “You just need four years.” This may be the simplest wealth-creation advice since Bob Hope was asked to respond back in 1967 to reports that he was worth half a billion dollars. “Anyone can do it,” said Hope. “All you have to do is save a million dollars a year for 500 years.”
It’s that easy, folks! Like President Obama says, all you have to do to pay off his 2011 deficit is save $3.2 billion a year for 500 years.
He thinks you’re stupid. Warren Buffett thinks you’re stupid. Maybe you are. But not everyone is. And America’s foreign debtors understand that “the Buffett Rule” is just another pathetic sleight of hand en route to the collapse of the U.S. dollar, and of American society shortly thereafter.
When he’s not talking up his buddy Warren, the Half-Millennium Man has been staggering around demonizing Paul Ryan’s plan, which would lead, he says, to the end of the weather service, air-traffic control, national parks, law enforcement, and drinkable water. Given what’s at stake, you might think then that the president would have an alternative plan. But he has none, save for his proposal to pay off the 2011 federal deficit by the year 2526. The Obama No-Plan plan means the end of everything. That really ought to be the only slogan the Republicans need this fall:
What’s your plan?
And all you hear are crickets chirping.
But don’t worry, they’re federally funded crickets, chirping at a research facility in North Carolina investigating whether there’s any correlation between chirping crickets and the inability of America’s political institutions to effect meaningful course correction.
Hey, relax. The Buffett Rule will pick up the tab.
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Thank you to bigdog for posting the text of the oath of office taken by Supreme Court Justices over on the the constitutional issues thread including the history of the oath: http://dogbrothers.com/phpBB2/index.php?topic=1850.msg61804#msg61804
I would also would like to know the actual text of the oath of office for Federal Reserve Governors, and begin to hold them to it.
As I understand it, each member of the Board of Governors of the Federal Reserve Bank of the United States shall "within fifteen days after notice of appointment make and subscribe to the oath of office."
http://www.law.cornell.edu/uscode/text/12/242
There is a press release for every time a new Governor takes the oath, but I have not seen exactly what is that oath. The closest I could find is this oath for directors of individual Federal Reserve Banks swearing their allegiance - to the bank!
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I,the undersigned,having been duly elected a Class A director of the Federal Reserve Bank of______________________ do solemnly swear (or affirm) that I will, so far as the duty devolves on me, diligently and honestly administer the affairs of said Bank fairly and impartially and without discrimination in favor of or against any member bank or banks; and that I will not knowingly violate, or willingly permit to be violated, any of the provisions of the statutes of the United States applicable to this Bank.
http://www.kc.frb.org/publicat/aboutus/director-oaths-of-office.pdf
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Yes that is the wrong answer I already found. Can someone post the oath that Bernancke took? He is not 'elected', a 'Director', or a 'Class A' Director: "Class A and class B directors are elected by member banks in the District" http://www.federalreserve.gov/pubs/frseries/frseri4.htm
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Doug:
It was a well-intentioned effort.
GM:
Great article by Steyn. In that is about a possible tax, it belongs on the Tax thread :lol:
Doug:
Former Fed president (Kansas? Texas?) Herman Cain was making this very, very important point during his campaign. I wonder what the prospects are for this bill to gather some serious attention?
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How US debt risks dollar doomsday
By SCOTT S. POWELL
Last Updated: 12:27 AM, May 1, 2012
Posted: 10:23 PM, April 30, 2012
The US dollar is getting perilously close to losing its status as the world’s reserve currency. Should it cross the line, the 2008 financial crisis could look like a summer storm.
Yes, worries about insolvency in Europe dominate the headlines. Last week, Standard & Poor’s cut Spain’s bond rating to BBB+ — a clear sign that Europe’s financial crisis is far from over.
But America’s escalating debt problem is far more likely to precipitate a truly global crisis, because the dollar has for decades played such a central role in the world economy.
How bad is the US problem? Former Treasury official Lawrence Goodman recently pointed out that investors are shunning US bonds and notes; the lack of other buyers forced the Federal Reserve to buy “a stunning . . . 61 percent of the total net issuance of US government debt” last year. Like many others, he warns that ballooning debt puts the US economy at risk for a sharp correction.
Reuters
The greenback’s losing to the yuan.
But the even larger risk is the potential loss of the dollar’s “reserve currency” status — a key support of the world economy for the last four decades.
It started with the 1973 Saudi commitment to accept only US dollars as payment for oil, followed by OPEC’s 1975 agreement to trade only in dollars. Trading of other commodities came to be priced in dollars, reinforcing the dollar’s “reserve” status.
As a result, central banks worldwide have held onto large reserves of dollars to facilitate trade. That, in turn, has enabled the US to print much larger amounts of its currency, with seemingly little inflationary consequences. It’s also made it easier for Americans to import more than they export, to consume more than they produce, and to spend more than they earn.
But all that is changing rapidly.
A number of countries are abandoning the dollar for the Chinese yuan. Last December, Japan and China agreed to trade in yen and yuan. In January, the 10 nations of the Association of Southeast Asian Nations finalized a non-dollar credit agreement equivalent to $240 billion, strengthening their economies’ links with China, Japan and South Korea.
That same month, Chinese Premier Wen Jiabao signed a currency-swap agreement with the United Arab Emirates, which holds 7 percent of the world’s oil reserves. Iran has agreed to accept rubles and yuan in trade with Russia and China, and now is trading oil with India in rupees and gold.
In late March, the China Development Bank agreed with its counterparts in Brazil, Russia, India and South Africa to eschew dollar lending and extend credit to each other in their own respective currencies.
With global demand for dollars falling, central banks around the world will inevitably reduce their dollar reserves. That selloff further weakens the dollar against other currencies and in turn drives up inflation.
All this comes as US federal debt is soaring, adding to concerns about the future value of that debt and of the dollar. It’s suddenly much easier to imagine a dollar collapse — which would be a highly unexpected occurrence, known as a “black swan” event. This would precipitate unprecedented disruption, because the dollar remains the world’s most important currency.
Let’s hope we can avert a global crisis triggered by reckless US government spending. What’s needed is new leadership in Washington with the courage to get our fiscal house in order and to defend the dollar against attack in a competitive global market.
Scott S. Powell is a Discovery Institute senior fellow.
scottp@discovery.org
Read more: http://www.nypost.com/p/news/opinion/opedcolumnists/how_us_debt_risks_dollar_doomsday_j8dxHSYWUa22QpSN7ttOIL
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http://www.realclearpolitics.com/video/2012/04/30/ron_paul_vs_paul_krugman_on_economics.html
Two thought leaders, from both extremes.
Ron Paul is right about inflation being theft but a little off and confusing to me on monetary and Fed issues. He says in his book 'End the Fed' if you read it closely he does not say end the Fed but end the monopoly of the Fed. Okay, but IMHO: We just need a better managed, sole function Fed, manage our currency to protect its value; our currency value should not be manipulated to compensate for policy errors elsewhere in government. We don't need a full return to gold convertibility, but to track a 'basket of goods and commodities' that includes gold. We already track it we just don't act on the information.
Krugman doesn't say we are in a recession, he says we are in a depression. We should expand the monetary base and deficit spending far far more than we are right now in his view.
Interesting disagreement over their citing of Milton Friedman on the Fed's role in the (other) Great Depression.
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Data Watch
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Producer Price Index (PPI) declined 0.2% in April To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 5/11/2012
The Producer Price Index (PPI) declined 0.2% in April, versus the consensus expectation of no change. Producer prices are up 1.9% versus a year ago.
Energy prices fell 1.4%, while food prices rose 0.2%. The “core” PPI, which excludes food and energy, increased 0.2%.
Consumer goods prices were down 0.3% in April, but are up 1.9% versus last year. Capital equipment prices rose 0.2% in April and are up 2.0% in the past year.
Core intermediate goods prices rose 0.2% in April and are up 1.4% versus a year ago. Core crude prices were down 1.8% in April, and are down 3.6% versus a year ago.
Implications: Due to falling energy prices, overall producer prices were down 0.2% in April, coming in lower than the consensus expected. That’s good news for companies making purchases, but no justification for another round of quantitative easing. “Core” prices, which exclude food and energy, and which the Federal Reserve claims are more important than the overall number, were up 0.2% in April. The increase in core prices was led by pharmaceutical drugs which accounted for about a quarter of the “core” PPI increase. Core prices are now up 2.7% from last year, which is faster than the overall PPI. In the past three months, the core PPI is up at a 2.5% annual rate while overall prices are up at a 0.6% rate. We don’t expect that to last. Due to loose monetary policy, these inflation measures will head higher later this year. Taking a look further down the producer pipeline, core intermediate goods prices are accelerating, up at a 7.5% annual rate in the past three months, although core crude prices are down at a 3.7% annual rate in the same timeframe. Be careful of the stories you may read in the coming weeks about how the Federal Reserve was right all along and that inflation is not a problem. By later this year, the conventional wisdom will realize this was temporary.
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http://online.wsj.com/article/SB10001424052702303360504577408320289444822.html?mod=WSJ_hp_LEFTWhatsNewsCollection
Fed Flags Fiscal Risks
By KRISTINA PETERSON And JEFFREY SPARSHOTT
Federal Reserve officials in April flagged concerns over U.S. fiscal policy and its impact on the economy, according to minutes of their last policy meeting released Wednesday.
Central bank officials overall thought the economic outlook was still on a path of "moderate" economic growth that would gradually pick up, according to minutes of the Federal Open Market Committee's April 24-25 meeting, released after the customary three-week lag.
While Fed officials have indicated they aren't planning to take any immediate new actions to spur economic growth, "several" officials "indicated that additional monetary policy accommodation could be necessary if the economic recovery lost momentum or the downside risks to the forecast became great enough," the minutes said.
Among the concerns that Fed officials noted last month was the U.S. fiscal situation. Federal Reserve Chairman Ben Bernanke has warned lawmakers about the potential effect of the "fiscal cliff," which includes the Bush-era tax cuts and a payroll-tax break expiring at the end of this year, as well as more than $1 trillion in spending cuts scheduled to kick in at the beginning of 2013.
Fed officials expected that the government sector would be a "drag on economic growth over coming quarters" and saw the U.S. fiscal situation as a "sizable risk." If lawmakers don't reach agreement on a plan for the federal budget, "a sharp fiscal tightening could occur at the start of 2013," the minutes noted. That uncertainty "could lead businesses to defer hiring and investment," officials worried at the meeting. Agreement on a long-term plan could alleviate some of that uncertainty.
Fed officials also debated how much of the weakness in the job market would ease when the economic recovery accelerates.
"Participants expressed a range of views on the extent to which the unemployment rate was being boosted by structural factors such as mismatches between the skills of unemployed workers and those being demanded by hiring firms," the minutes stated.
The officials also explored making changes to the Fed's new communications strategy and agreed to discuss further the advantages and drawbacks of using "simple monetary rules" as "guides for monetary policy decision making" and for external communications about their policy.
In April, the Fed's policy-making body reaffirmed its plan to keep short-term interest rates near zero through late 2014. However, projections released on the same day showed some Fed officials expected the central bank to start raising interest rates earlier than they had in January.
For instance, only four Fed officials now expect the Fed to wait until 2015 for its first-interest rate increase, down from six in January. The minutes noted that views ranged in part because officials had different projections for how the economic recovery would proceed and the pace of the decline in unemployment. Some officials also thought it was appropriate to keep short-term interest rates lower for "a longer period" when the federal-funds rate had been near zero.
All 17 Fed officials make quarterly projections, but only the central bank's board of governors and five regional bank presidents vote on the path of monetary policy at FOMC meetings.
The Fed also decided to change the schedule for the meetings of its policy-making body. The FOMC will now meet over two days, instead of alternating one- and two-day meetings. Quarterly economic projections will be released and Mr. Bernanke will conduct a press conference after the meetings in the third month of each quarter: March, June, September and December.
Some Fed officials had "expressed a preference for the two-day format over the one-day format" and Mr. Bernanke raised the possibility of changing the meeting schedule "to incorporate more two-day meetings to allow additional time for discussion," the minutes noted.
In their assessment of the economy at the April meeting, Fed officials viewed the economy as continuing to "expand moderately." Strains in global financial markets continued to pose a risk. Labor-market conditions showed improvement, although Fed officials noted that unusually warm weather may have inflated employment figures earlier in the year. Most officials thought the inflation outlook was balanced, though "some" officials worried that "maintaining the current highly accommodative stance of monetary policy over the medium run could erode the stability of inflation expectations and risk higher inflation."
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I note that gold has been dropping rather sharply and it was reported this afternoon that it has broken its four year trend line.
This would seem to be rather contrary to some of the prevailing wisdom around here , , , though I might add that I have cautioned on gold more than once , , ,
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http://scottgrannis.blogspot.com/
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http://www.youngresearch.com/authors/jeremyjones/greenspan-we-dont-have-a-plan-b/?awt_l=PWy8k&awt_m=3au.bOMII0zlu1V
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Data Watch
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The Producer Price Index (PPI) declined 1.0% in May To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 6/13/2012
The Producer Price Index (PPI) declined 1.0% in May, coming in below the consensus expected drop of 0.6%. Producer prices are up 0.7% versus a year ago.
Energy prices fell 4.3% and food prices declined 0.6%. The “core” PPI, which excludes food and energy, increased 0.2%.
Consumer goods prices were down 1.5% in May, but are up 0.3% versus last year. Capital equipment prices rose 0.1% in May and are up 2.1% in the past year.
Core intermediate goods prices fell 0.2% in May but are up 0.5% versus a year ago. Core crude prices were down 1.3% in May, and are down 3.9% versus a year ago.
Implications: Energy prices plummeted in May, dropping by the most in any month in more than three years. Almost completely as a result of this drop, overall producer prices were down 1% in May, coming in below the consensus expected decline of 0.6%. That’s good news for companies making purchases, but no justification for another round of quantitative easing. “Core” prices, which exclude food and energy, and which the Federal Reserve claims are more important than the overall number, were up 0.2% again in May. Core prices are now up 2.7% from last year, which is much faster than the overall PPI. In the past three months, the core PPI is up at a 2.5% annual rate while overall prices are down at a 4.9% rate. In other recent inflation news, trade prices declined in May, with overall import prices down 1% and overall export prices down 0.4%. “Core” prices were also down in the trade sector in May, with imports ex-petroleum ticking down 0.1% and exports ex-agriculture declining 0.5%. Import prices are down 0.3% from a year ago, although up 0.3% excluding oil. Export prices are down 0.1% from a year ago, and up only 0.1% excluding agriculture. We do not expect the lull in inflation to last. With short-term rates being held near zero while nominal GDP is growing at about a 4% annual rate, monetary policy is loose. As a result, all these measures of inflation are very likely to move higher later this year. Be careful of all the stories you’ll read in the near future about how the Federal Reserve was right all along and that inflation is not a problem. By later this year, the conventional wisdom will realize this was temporary.
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The Consumer Price Index (CPI) fell 0.3% in May
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 6/14/2012
The Consumer Price Index (CPI) fell 0.3% in May, coming in below the consensus expected drop of 0.2%. The CPI is up 1.7% versus a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) was down 0.4% in May, but is up 1.6% in the past year. The drop in CPI in May was lead by a 4.3% drop in energy, which more than offset widespread gains in most other major categories. The “core” CPI, which excludes food and energy, was up 0.2%, matching consensus expectations, and is up 2.3% versus last year.
Real average hourly earnings – the cash earnings of all employees, adjusted for inflation – were up 0.3% in May but are down 0.1% in the past year. Real weekly earnings are flat the past year.
Implications: Gas prices plummeted in May. As a result, consumer prices fell 0.3% in May, coming in slightly below consensus expectations. Excluding energy, consumer prices were up across the board. “Core” inflation, which excludes food and energy, was up 0.2% again in May and is up 2.3% from a year ago, hovering near the largest 12-month gain since September 2008. In the past three months, core prices are up at a 2.7% annual rate. These figures are already above the Federal Reserve’s supposed target of 2%. Meanwhile, monetary policy is very loose and housing costs (which are measured by rents, not asset values) are rising. Owners’ equivalent rent was up 0.1% in May and is up 2.1% versus a year ago. The ongoing shift from home ownership toward rental occupancy should boost this inflation measure even more in the year ahead. With loose monetary policy and housing costs accelerating, it’s hard to see core inflation getting back down to the Fed’s 2% target anytime soon. On the earnings front, “real” (inflation-adjusted) wages per hour were up 0.3% in May. Although these earnings are down 0.1% from a year ago, the number of hours worked is up 1.8%, giving consumers more purchasing power. In other news this morning, new claims for jobless benefits increased 6,000 last week to 386,000. Continuing claims for regular state benefits declined 33,000 to 3.28 million. Recent data on claims suggest weak payroll growth in June, roughly 50,000 non-farm and 60,000 private, although data over the next two weeks may revise this forecast. Regardless, June payroll growth has been relatively weak the past few years, so don’t read too much into those figures. Job growth should accelerate again in the second half of the year.
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News From the Swamp: Federal Reserve Debt Holdings Skyrocket
Newly released numbers show that the Federal Reserve under Obama has become the largest shareholder in U.S. government debt. The Fed owned $302 billion in U.S. Treasury securities in January 2009. That portion rose an incredible 452 percent by April 2012, with the Fed now holding $1.67 trillion. In roughly the same time frame, China's share of U.S. government debt rose from $740 billion to $1.17 trillion, and Japan's share shot from $635 billion to just over $1 trillion. Together, these three entities possess 49 percent of all the new debt generated during Obama's term, in which total debt rose 50 percent from $10 trillion to $15 trillion.
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By PAUL HANNON LONDON—The euro-zone's bailout funds are now insufficient to aid a large member of the currency area, the world's biggest private financial institutions said Sunday.
In its monthly report, the Institute of International Finance Inc. said that following the euro-zone's decision to provide Spain with up to €100 billion ($126.3 billion) with which to support its stricken banks, the currency area's bailout funds have resources of just €251 billion.
"This means that...the Eurogroup's rescue funds, as currently authorized and structured, will have sufficient funds to help a small economy like Cyprus, but hardly enough to deal with any large country," the IIF said.
The banking group said rescue funds will increase in November as euro-zone members make additional contributions to the European Stability Mechanism, the currency area's permanent bailout fund.
The IIF represents more than 450 of the world's largest private financial firms.
The banking group repeated its view that the euro zone needs to move towards a "banking union," or a shared way to support troubled banks.
It said the euro-zone's decision to direct the €100 billion earmarked for Spanish banks through the government rather than directly to the institutions in need "validates investor concern about the vicious linkage between weak sovereign and bank balance sheets."
Mean Street host Francesco Guerrera calls on WSJ's Charles Forelle to discuss why the European crisis is so important to the U.S. economy.
.The IIF said that the amounts involved in the bailout should be "more than adequate" to recapitalize troubled Spanish banks and provide them with a "decent" buffer against future losses.
But it said the Spanish and euro-zone authorities had been partly responsible for the "lukewarm" response of investors to the bailout, which was agreed on June 9.
"Investors have been disheartened by inconsistent public statements from Spanish and European officials as to the nature and degree of conditionality and monitoring attached to the loan." the IIF said.
The banking group said investors were also worried by the possibility that existing and future bonds issued by the Spanish government would be "subordinated" to the ESM if it were to provide the bailout. That would mean that in the event Spain's government had problems paying its creditors, the ESM would be taken care of first, and bondholders would get what was left.
The IIF said the ESM's status as senior creditor could therefore push up already high borrowing costs for Spain and any other government that looked to it for help.
"The ESM...claim of seniority would increase the credit risk premium on outstanding and future sovereign debt of countries receiving...assistance," the banking group said. "The whole issue of credit seniority and subordination needs to he clarified quickly."
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http://pjmedia.com/blog/the-libor-scandal-historys-largest-market-fraud/?singlepage=true
While the Supreme Court’s health care decision and the 2012 election season have been dominating news in the U.S., in London a banking scandal is unfolding which threatens to engulf much of the British financial and political establishments. The story has barely registered in the U.S. outside of the financial press, but the scandal is set to spread across the Atlantic, and is being discussed as potentially the biggest market manipulation fraud in history.
Barclays bank has been fined $453 million by U.S. and UK regulators, and its American chief executive, Bob Diamond, has resigned after admitting its staff rigged the inter-bank “Libor” rate — a daily measure of the interest rates at which banks lend to one another — over a period of several years. The Libor rate affects interest rates paid to investors and by borrowers on mortgages and other loans. According to the Wall Street Journal, more than $800 trillion in securities and loans are linked to Libor.
This rigging was divided into two phases. Starting in 2005, Barclays traders conspired to manipulate Libor up or down for personal gain. This is bad enough, but it’s the second phase of the scandal that’s likely to have the greater ramifications. Around 2008, with the financial crisis in full swing, senior figures at Barclays ordered staff to distort Libor downward to create the impression that the bank’s finances were more sound than was the case. And Barclays bosses have claimed this manipulation had the tacit approval of the Bank of England — the UK central bank — and ministers in the then-Labour government, who wanted to shore up confidence in the economy. The current Conservative-led coalition government has gleefully launched a parliamentary inquiry into the affair.
Barclays’ involvement in the scandal emerged because they reached an agreement with regulators, admitting their guilt in return for reduced fines. Several banks are still under investigation, including UBS and Citigroup in the U.S. Lawsuits that could run into tens of billions of dollars are being prepared on behalf of individuals, companies, and institutions who have suffered losses.
At best, the scandal has revealed an appalling lack of bank regulation. At worst it suggests collusion at the highest levels between commercial banks, central bankers, and governments to manipulate interest rates for mutual benefit. It’s been suggested that the U.S. Federal Reserve could be dragged into the scandal.
This affair is set to run and run, and is likely to take all manner of twists in the coming months. But whatever the outcome, it’s clear there remain serious problems with the way big banks and financial institutions operate and are regulated. And conservatives shouldn’t be afraid to say so, because to acknowledge the problem is not remotely a concession that capitalism and free markets have failed.
The left-leaning are claiming just that — note this piece by Seumas Milne of Britain’s left-wing Guardian. Milne rightly points the finger at financial elites and their political enablers, but then writes:
It could of course have happened only in a private-dominated financial sector, and makes a nonsense of the bankrupt free-market ideology that still holds sway in public life.
This is nonsense, but sounds plausible to the casual observer and so needs to be debunked. Banks may have a passing acquaintance with capitalism to the extent that for a price they facilitate it, but today’s banking and financial behemoths do not operate in a free market. While genuine capitalists risk borrowed money or their own savings, banks gamble with other people’s money, and in recent years when things have gone wrong banks have been bailed out by governments with taxpayer cash.
The growth of too-big-to-fail banks has coincided with the growth of massive, statist government. And while nominally conservative politicians have certainly been guilty of indulging the bankers in the past, Labour in the UK and the U.S. Democrats are the primary culprits harnessing big finance to big government.
Tony Blair’s Labour government famously favored “light-touch” regulation, with one minister from that once proudly socialist party remarking that New Labour was “seriously relaxed about people getting filthy rich”. The reason Labour took such a lax attitude to bankers lining their pockets was that the City of London was providing billions of pounds in tax revenues for the government to pump into the black hole of public services, while at the same time ensuring a plentiful supply of cheap money to create a credit-fueled boom.
In the U.S., similar easy money policies enabled George W. Bush to oversee a decidedly un-conservative expansion of government and helped to fuel the housing bubble that ultimately led to the financial crisis. Many Republicans voted for the bailouts that followed, but it was Democrats, having won power thanks in no small measure to sticking the Republicans with the blame for the crisis, who fully enlisted big finance in their statist, crony capitalist project.
The banks and other financial institutions that helped bankroll Obama’s 2008 election campaign didn’t do so because they expected him to be a swashbuckling free-marketeer. They were rewarded with the Dodd-Frank bill, which effectively enshrined the notion of too big to fail and created a centrally planned banking system that discourages competition and innovation.
The American Enterprise Institute’s Peter Wallison wrote of the bill:
Crony capitalists and their government mentors will be the biggest winners. Concentrated and heavily regulated markets are fine with supporters of the Dodd-Frank Act. They are comfortable with a financial industry made up of a few large firms responsive to government direction.
Now the Libor scandal is shining a light on the cozy relationship between bankers and governments, and it could present an opportunity for real reform of the banking system. There are calls for tighter regulation — not least from the regulators and politicians who’ve brought us to this pass — but banks will always find new ways to game the system as long as the rewards are great, failure is rewarded with bailouts, and the punishment for wrongdoing amounts to a slap on the wrist. Parliamentary inquiries and Congressional hearings are not the answer. What’s required are regulators willing to enforce — and who are capable of enforcing – the existing rules, and punishments sufficient to deter wrongdoing.
With election season in full swing there’s little interest in banking reform in the U.S. now, although if the Libor scandal catches fire it could quickly become a campaign issue. However, the ideas of conservative economists such as Luigi Zingales, author of A Capitalism for the People: Recapturing the Lost Genius of American Prosperity and (profiled by the Boston Globe) are starting to attract attention.
In Britain, Conservative MPs such as Steve Baker are taking the lead with initiatives for real reform. Baker has introduced a bill that would force bank directors to take personal liability for any losses suffered under their leadership; would treat bankers’ bonus pools as capital that would be used to make good losses; and would create a mechanism to allow banks to fail in an orderly fashion without taxpayer bailouts.
Some — most prominently, Rep. Ron Paul — now argue for an end to the current system of fiat money (that is, money created out of thin air by central and commercial banks) and its replacement with a market-based system underpinned by gold and silver, or by digital systems such as Bitcoin. (See this article by economist Detlev Schlichter.)
Conservatives are acutely aware of the need to dismantle big government, but if they want to succeed they’re going to have to take apart big finance as well.
Mike McNally is a journalist based in Bath, England. He posts at PJ Tatler and at his own blog Monkey Tennis, and tweets at @notoserfdom. When he's not writing about politics he writes about Photoshop.
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Deep questions and implications for free market theory here. What do we make of this gents?
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http://londonbanker.blogspot.co.uk/2012/07/lies-damn-lies-and-libor.html
Lies, Damn Lies and LIBOR
I've been hesitant to write about the LIBOR scandal because what I want to say goes so much further. We now know that Barclays and other major global banks have been manipulating the calculation of LIBOR through the quotation data they provided to the British Bankers Association. What I suspect is that this is not a flaw but a feature of modern financial markets. And if it was happening in LIBOR for between 5 and 15 years, then the business model has been profitably replicated to many other quotation-based reference prices.
Price discovery is not a sexy function of markets, but it is critical to the efficient allocation of scarce capital and resources, and to the preservation of the long term wealth of investors and the economy as a whole. If price discovery is compromised by manipulation, then we will all be gradually impoverished and the economy will be imbalanced and unstable.
Over the past 25 years the forces of regulatory liberalisation and demutualisation of markets have allowed the largest global banks to set the rules, processes and infrastructure of global markets to their own self-interested requirements. Regulatory complexity and harmonisation benefit the biggest banks disproportionately, eroding the competitive stance of smaller, local banks and market participants. This has led to a very high degree of concentration in a very few banks in most markets that determine global reference rates for interest rates, currencies, commodities and investments. If those few collude with each other - as Adam Smith warned was always the result - then they impoverish us all.
We have allowed markets to evolve in ways that make supervision of markets almost impossible. Many instruments trade off-exchange or in multiple venues, making it nearly impossible for any single investor or regulator to supervise trading to prevent or detect manipulation or abuse. Many financial instruments are now synthetic compilations of underlying assets and derivatives, with multiple pricing components determined by reference to other prices or rates. Demutualisation and regualtory reforms stripped exchanges of the self-regulating interest in preventing manipulation and abuse by their members as mergers, profits and market share came to dominate governance objectives.
Off-exchange trading has been allowed to proliferate, creating massive ill-transparent and largely illiquid markets in almost every sector of finance. Pricing in these markets is based around calculated reference rates which, like LIBOR, are open to abusive quotation and data input practices. Many OTC derivatives are priced and margined using reference rates calculated against quotations unrelated to actual reported transactions. Synthetic securities such as ETFs are another example of an instrument that prices off a reference rate rather than the actual contents of an underlying asset portfolio. These instruments are open to consistent abusive pricing as a means of incrementally impoverishing those market participants who are the krill on which the global banks thrive.
How has it been possible for banks to grow from less than 4 per cent of the global economy to more than 12 per cent of the global economy without impoverishing others? How has it been possible for profits in the financial sector to be consistently higher than profits from other human endeavors with more tangible products or impacts on our daily lives - such as agriculture, transport, health care or utilities? How has it been possible that banks derive their profits not from the protected and regulated activities of deposit-taking and lending, but from the unsupervised and often unknowable escalation of off-balance sheet assets and liabilities? How has it been possible that pension savings have increased while pension returns have declined to the point where only bankers can expect a comfortable old age? Global banks have built the casinos and tilted the odds in the house's favour by rigging the data that determines the outcomes of most of the bets on the table. Every one of us that sits at the table long enough - whether saver, investor, borrower, taxpayer or pensioner - will be a loser. It is not a flaw; it is feature.
There is a reason that financial infrastructure used to be dominated by mutuals. Mutual gain and mutual liability created a natural discipline on excess and on rogue elements that would impoverish their peers.
There is a reason why trading was restricted to exchanges, and exchanges and clearing houses used to be self-regulating, and even had responsibility for resolution and liquidation of their members. Direct responsibility, authority and financial control meant that they could exert very powerful and immediate consequences on those members identified as abusing the market or investors.
The investigations into market rigging are just beginning. Paul Tucker opened the box yesterday when he admitted that he could not know whether the abuses discovered in setting LIBOR had spread to other synthetically calculated reference rates. As events unfold, it may be that we begin to appreciate just how deeply vulnerable we have become to predation by bankers with no stake in a local economy or in the local quality of life of the people they impoverish. A reckoning is needed, and then a rebalancing toward more local and mutual provision of essential services and market infrastructure that servers markets rather than those few bankers on the board.
As a start, regulators should consider punitive restrictions on the sale of instruments which price on reference rates unrelated to reported market transactions or underlying asset portfolios. Pricing should reflect real market transactions rather than guesstimates talking the banker's book.
We need to rethink as a society what banks are for, what exchanges are for, and what clearing houses are for. If they are for the profit of the few at the expense of the many now, that is because it is the business model we have permitted. If banks, markets and clearing are protected because they have a social function, we should make certain that social function is adding value. If it isn't, then we need some new models and some new rules.
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Placing a large portion of your liquid assets into physical gold and silver has never been more advisable. Time is growing short. The writing is on the wall in giant red letters:
Analysis: Euro zone fragmenting faster than EU can act
Mon, Jul 9 2012
By Paul Taylor
PARIS (Reuters) - Signs are growing that Europe's economic and monetary union may be fragmenting faster than policymakers can repair it.
Euro zone leaders agreed in principle on June 29 to establish a joint banking supervisor for the 17-nation single currency area, based on the European Central Bank, although most of the crucial details remain to be worked out.
The proposal was a tentative first step towards a European banking union that could eventually feature a joint deposit guarantee and a bank resolution fund, to prevent bank runs or collapses sending shock waves around the continent.
The leaders agreed that the euro zone's permanent bailout fund, the 500 billion euro ($620 billion) European Stability Mechanism, would be able to inject capital directly into banks on strict conditions once the joint supervisor is established.
But the rush to put first elements of such a system in place by next year may come too late.
Deposit flight from Spanish banks has been gaining pace and it is not clear a euro zone agreement to lend Madrid up to 100 billion euros in rescue funds will reverse the flows if investors fear Spain may face a full sovereign bailout.
Many banks are reorganizing, or being forced to reorganize, along national lines, accentuating a deepening north-south divide within the currency bloc.
An invisible financial wall, potentially as dangerous as the Iron Curtain that once divided eastern and western Europe, is slowly going up inside the euro area.
The interest rate gap between north European creditor countries such as Germany and the Netherlands, whose borrowing costs are at an all-time low, and southern debtor countries like Spain and Italy, where bond yields have risen to near pre-euro levels, threatens to entrench a lasting divergence.
Since government credit ratings and bond yields effectively set a floor for the borrowing costs of banks and businesses in their jurisdiction, the best-managed Spanish or Italian banks or companies have to pay far more for loans, if they can get them, than their worst-managed German or Dutch peers.
POLITICAL BACKLASH
The longer that situation goes on, the less chance there is of a recovery in southern Europe and the bigger will grow the wealth gap between north and south.
With ever-higher unemployment and poverty levels in southern countries, a political backlash, already fierce in Greece and seething in Spain and Italy, seems inexorable.
European Central Bank President Mario Draghi acknowledged as he cut interest rates last week that the north-south disconnect was making it more difficult to run a single monetary policy.
Two huge injections of cheap three-year loans into the euro zone banking system this year, amounting to 1 trillion euros, bought only a few months' respite.
"It is not clear that there are measures that can be effective in a highly fragmented area," Draghi told journalists.
Conservative German economists led by Hans-Werner Sinn, head of the Ifo institute, are warning of dire consequences for Germany from ballooning claims via the ECB's system for settling payments among national central banks, known as TARGET2.
If a southern country were to default or leave the euro, they contend, Germany would be left with an astronomical bill, far beyond its theoretical limit of 211 billion euros liability for euro zone bailout funds.
As long as European monetary union is permanent and irreversible, such cross-border claims and capital flows within the currency area should not matter any more than money moving between Texas and California does.
But even the faintest prospect of a Day of Reckoning changes that calculus radically.
In that case, money would flood into German assets considered "safe" and out of securities and deposits in countries seen as at risk of leaving the monetary union. Some pessimists reckon we are already witnessing the early signs of such a process.
OVERWHELMING?
Any event that makes a euro exit by Greece - the most heavily indebted member state, which is off track on its second bailout program and in the fifth year of a recession - look more likely seems bound to accelerate those flows, despite repeated statements by EU leaders that Greece is a unique case.
"If it does occur, a crisis will propagate itself through the TARGET payments system of the European System of Central Banks," U.S. economist Peter Garber, now a global strategist with Deutsche Bank, wrote in a prophetic 1999 research paper.
Either member governments would always be willing to let their national central banks give unlimited credit to each other, in which case a collapse would be impossible, or they might be unwilling to provide boundless credit, "and this will set the parameters for the dynamics of collapse", Garber warned.
"The problem is that at the time of a sovereign debt crisis, large portions of a national balance sheet may suddenly flee to the ECB's books, possibly overwhelming the capacity of a bailout fund to absorb the entire hit," he wrote in 2010, after the start of the Greek crisis, in a report for Deutsche Bank.
European officials tend to roll their eyes at such theories, insisting the euro is forever, so the issue does not arise.
In practice, national regulators in some EU countries are moving quietly to try to reduce their home banks' exposure to such an eventuality. The ECB itself last week set a limit on the amount of state-backed bank bonds that banks could use as collateral in its lending operations.
In one high-profile case, Germany's financial regulator Bafin ordered HypoVereinsbank (HVB), the German subsidiary of UniCredit (CRDI.MI: Quote, Profile, Research, Stock Buzz), to curb transfers to its parent bank in Italy last year, people familiar with the case said.
Such restrictions are legal, since bank supervision is at national level, but they run counter to the principle of the free movement of capital in the European Union's single market and to an integrated currency union.
Whether a single euro zone banking supervisor would be able to overrule those curbs is one of the many uncertainties left by the summit deal. In any case, common supervision without joint deposit insurance may be insufficient to reverse capital flight.
German Chancellor Angela Merkel, keen to shield her grumpy taxpayers, has so far rejected any sharing of liability for guaranteeing bank deposits or winding up failed banks.
Veteran EU watchers say political determination to make the single currency irreversible will drive euro zone leaders to give birth to a full banking union, and the decision to create a joint supervisor effectively got them pregnant.
But for now, Europe's financial disintegration seems to be moving faster than the forces of financial integration.
(Editing by David Holmes)
© Thomson Reuters 2011. All rights reserved.
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July 5, 2012 | Wall Street Journal
news » hoover daily report Hoover Institution Stanford University
. . . ideas defining a free society
http://www.hoover.org/news/daily-report/121856
Monetary Policy and the Next Crisis
by John B. Taylor (George P. Shultz Senior Fellow in Economics; Chair, Working Group on Economic Policy; and member of the Task Force on Energy Policy)
At its annual meeting of the world's central bankers in Switzerland last week, the Bank for International Settlements—the central bank of central banks—warned about the harmful "side effects" of current monetary policies "in the major advanced economies" where "policy rates remain very low and central bank balance sheets continue to expand." These policies "have been fueling credit and asset price booms in some emerging economies," the BIS reported, noting the "significant negative repercussions" unwinding these booms will have on advanced economies.
The BIS emphasizes the view that international capital flows stirred up by monetary policy were a primary factor leading to the preceding crisis and that these flows would lead to the next one. This is in stark contrast to the "global saving glut" hypothesis—which says that the funds pouring into the U.S. in the previous decade originated largely from the surplus of exports over imports in emerging market economies.
The BIS should be taken seriously. It warned long in advance about the monetary excesses that led to the financial crisis of 2008.
The capital-flow story starts during extended periods of low interest rates, as in the U.S. Federal Reserve's low rates from 2003 to 2005 and its current near-zero interest rate policy, which began in 2008 and is expected to last to 2014. These low interest rates cause investors to search elsewhere for yield, and they buy foreign securities—corporate as well as sovereign—for that reason. Global bond funds in the U.S. thus shift their portfolios to these higher-yielding foreign securities and investors move to funds that specialize in such securities.
Low U.S. interest rates also encourage foreign firms to borrow in dollars rather than in local currency. U.S. branch offices of foreign banks play a key part in this process: As of 2009, U.S. branches of over 150 foreign banks had raised $645 billion to make loans in their home countries, making special use of U.S. money-market funds, where about one half of these funds' assets are liabilities of foreign banks.
This increased flow of funds abroad—whether through direct securities purchases or through bank lending—puts upward pressure on the exchange rate in these countries, as the foreign firms sell their borrowed dollars and buy local currency to expand their operations and pay workers. That's when foreign central banks enter the story. Concerned about the negative impact of the appreciating currency on their country's exports or with the risky dollar borrowing of their firms, they respond in several ways.
First, they impose restrictions on their firms' overseas borrowing or on foreigners investing in their country. But the differences in yield provide strong incentives for market participants to circumvent the restrictions.
Second, central banks buy dollar assets, including mortgage-backed securities and U.S. Treasurys, to keep the value of their local currency from rising too much as against the dollar. One consequence of these purchases is a foreign government-induced bubble in U.S. securities markets, as we saw in mortgage markets leading up to the recent crisis, and as we may now be seeing in U.S. Treasurys.
The flow of loans from the U.S. to foreign borrowers is effectively matched by a flow of funds by central banks back into the U.S. There is no change in the current account, and no role for the so-called savings glut.
Third, in order to discourage the inflow of funds seeking higher yields—which would drive up the exchange rate of their own currency—foreign central banks hold their interest rates lower than would be appropriate for domestic economic stability. There is much statistical evidence for this policy response, and, when you roam the halls of the BIS and talk to central bankers, as I did last week, you get even more convincing anecdotal evidence. Call it the lemming effect: Central banks tend to follow each other's interest rates down.
This is what happened in the lead up to the 2008 financial crisis, and it has helped fuel Europe's current debt crisis. In the 2003-2005 period, low interest rates led to a flow of funds into U.S. mortgage markets as foreign central banks bought dollars, aggravating the housing boom and the subsequent bust.
Moreover, the European Central Bank's interest rate moves during 2003-2005 were influenced by the Fed's low rates. By my estimates, the interest rate set by the ECB was as much as two percentage points too low, which also had the effect of spurring housing booms in Greece, Ireland and Spain. Ironically, the European debt crisis, which originated in the booms and busts in Greece, Ireland and Spain, now has come around to threaten the U.S. economy.
The Fed's current near-zero interest rate policy, designed to stimulate the U.S. economy, has made it harder for other central banks to combat credit and asset price booms. A group of 18 emerging market central banks—including Brazil, China, India, Mexico and Turkey—held their interest rates on average as much as five percentage points below widely used policy benchmarks—and global commodity prices doubled from 2009 to 2011, a boom rivaling the excesses leading up to the 2008 financial crisis. This global, loose monetary policy was likely a big factor pushing up commodity prices. The current sharp slowdown in most emerging markets coincides with an inevitable bust of this easy-money induced boom, and the decline of foreign demand for American goods is now feeding back to the U.S. economy.
The Fed needs to pay closer attention to global capital flows and the reactions of other central banks to its decision to set interest rates very low for long periods of time. This does not mean taking one's eye off the U.S. economy, but rather preventing booms and busts abroad from slowing growth at home precisely when we need it most.
Mr. Taylor, a professor of economics at Stanford University and a senior fellow at the Hoover Institution, is the author of "First Principles: Five Keys to Restoring America's Prosperity (Norton, 2012).
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The Consumer Price Index (CPI) was Unchanged in June To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 7/17/2012
The Consumer Price Index (CPI) was unchanged in June, matching consensus expectations. The CPI is up 1.7% versus a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) was also unchanged in June, but is up 1.6% in the past year.
The CPI was flat in June due to a 1.4% drop in energy, which offset widespread gains in most other major categories. The “core” CPI, which excludes food and energy, was up 0.2%, matching consensus expectations, and is up 2.2% versus last year.
Real average hourly earnings – the cash earnings of all employees, adjusted for inflation – were up 0.2% in June and are up 0.3% in the past year. Real weekly earnings are up 0.6% in the past year.
Implications: Energy prices fell again in June. As a result, consumer prices were flat, matching consensus expectations. Excluding energy, consumer prices were up across the board. “Core” inflation, which excludes food and energy, was up 0.2% again in June and is up 2.2% from a year ago, hovering near the largest 12-month gain since September 2008. In the past three months, core prices are up at a 2.6% annual rate. These figures are already above the Federal Reserve’s supposed target of 2%. Meanwhile, monetary policy is very loose and housing costs (which are measured by rents, not asset values) are rising. Owners’ equivalent rent was up 0.1% in June and is up 2.0% versus a year ago. The ongoing shift from home ownership toward rental occupancy should boost this inflation measure even more in the year ahead. With loose monetary policy and housing costs accelerating, it’s hard to see core inflation getting back down to the Fed’s 2% target anytime soon. On the earnings front, “real” (inflation-adjusted) wages per hour were up 0.2% in June. These earnings are up 0.3% from a year ago. Worker hours are up 2.1% in the past year. Combining these two factors means workers' purchasing power is up about 2.5 % from a year ago, suggesting that the weakness in retail sales is temporary.
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Bringing Doug's post here, the banking thread:
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Hardly a buffoon? Watch the video and try to help me with a better description. Maybe he is diabolically clever and just plays a buffoon on television, and on policy matters.
Quite a career (usually one will credit source when cutting and pasting into your own text), Geithner is illustrative of the Peter Principle where people rise to their own level of incompetence. Head of the NY Fed, at a time when monetary policy was out of control and a major factor pulling us into collapse and scandal. He is the epitome of the botched policies/regulation/oversight that brought us the collapse and Great Recession. His face with a red circle and a line through it should be on every Occupy Wall Street sign.
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Geithner has more recent scandals brewing:
http://www.nypost.com/p/news/opinion/opedcolumnists/what_did_tim_know_NQ113lKVCrJPZHUhVCVVfM
What did Tim know?
Geithner’s Libor labors
Last Updated: July 11, 2012
The latest development in the Libor-manipulation scandal is that the banks weren’t really fixing the price of the key interest rate in total secret — US regulators were aware of the sleazy activities at the time, and seemed to have done nothing.
Which should surprise no one.
I can’t tell you how much federal officials knew about the activities of Barclay’s, JPMorgan, Citigroup and the other big banks at the center of the maelstrom. In coming weeks, both Federal Reserve chief Ben Bernanke and Treasury Secretary Tim Geithner will inevitably discuss the mess when they appear before Congress.
Geithner: Boss of New York Fed during alleged fixing of the key Libor financial benchmark.
Bernanke testifies before the Senate Banking Committee next week, but the more important hearing by far will come a week later — when the House Financial Services Committee questions Geithner, who headed the New York Fed when the sleaze was going down.
If the right questions get asked, the American people will get a firsthand account not just about how much our government knew about the Libor mess, but also of the cozy, corrosive relationship between the nation’s big banks and the bureaucrats who are supposed to regulate them.
Long before President Obama tapped him for Treasury, Geithner was one of those bureaucrats. He worked at the Clinton Treasury, the IMF and then as president of the New York Federal Reserve Bank for five years — where he played a key role in the bailouts and the rest of the government’s response to the financial crisis.
The New York Fed has two main functions: It handles the transactions whereby the overall Federal Reserve controls the nation’s money supply, and it’s supposed to be the chief regulator of the big banks in its region.
When Obama named him for Treasury, the banking industry hailed Geithner as a godsend. Shares shot up on his announcement, and CEOs called it a wise choice for a key job at a time of crisis.
But the dirty little secret on Wall Street is that the New York Fed is a horrible regulator: It sees its chief job as keeping the banking system intact. Since it needs its member banks to buy US government debt and to control the money supply, the last thing it wants to do is shed light on the banks’ shady practices.
Which is why the Wall Street power brokers loved Geithner so much: On his New York Fed watch, he basically let them get away with the financial equivalent of murder, letting them take on the astronomical amounts of risk that ultimately blew up the system in 2008.
And then, when they needed a bailout, he was there with a plan that made sure their banks and jobs were safe.
That’s why I’m saying Geithner is such an important witness as the Libor investigation expands to include the possibility that banking-industry cops like himself looked the other way.
The London Interbank Offered Rate, keep in mind, is one of the world’s most important financial benchmarks. Both Wall Street financiers and average consumers are charged interest based on Libor, which is set by a banking trade group that calculates an average of the big banks’ borrowing rates.
So the last thing you want is for the rate to be manipulated in any way. Yet that’s what the banks are accused of doing, as their borrowing rates started rising in the runup to the crisis.
The incentive for banks like Barclays to rig Libor by reporting falsely low borrowing costs is obvious: They could make money and disguise the extent of their distress.
We know that Barclays — so far the only firm charged in the matter — met with officials at the New York Fed to discuss the Libor mess back in 2007 and 2008, when it complained that banks might be manipulating the benchmark.
And we know that now-deposed Barclays CEO Bob Diamond met with Geithner during this time. Maybe they were only talking about the broader market upheaval; maybe they discussed the Libor rate-fixing, too.
Geithner has declined repeated requests for comment. The New York Fed stated that it “received occasional anecdotal reports from Barclays of problems with Libor . . . and we subsequently shared analysis and suggestions for reform” with regulators in the UK, where Libor is set.
Translation: We chose to do nothing.
But Congress has a duty to find out why — and what Tim Geithner knew about the banks’ dirty dealings.
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http://www.nypost.com/p/news/opinion/opedcolumnists/geithner_yawned_at_epic_fraud_ixr2rjBL9s16VKG673U4GO
Geithner yawned at epic fraud
July 15, 2012
Tim Geithner had evidence of a financial crime of epic proportion — so he wrote a memo.
That’s about the only way you can sum up the then-New York Fed boss’ actions several years ago, when he was confronted with fairly compelling evidence that banks under his direct supervision were manipulating Libor — a key benchmark of global finance.
The Libor scandal has become pretty big news, with Barclays ousting its CEO and agreeing to pay a large fine even as it cooperates with civil and criminal law-enforcement authorities now investigating other big banks.
What, me worry? Geithner only wrote a memo.
AP
What, me worry? Geithner only wrote a memo.
But it doesn’t end there: There’s also evidence that top regulators, including Geithner, now Treasury secretary, knew about and largely ignored the mess.
On Friday, the New York Fed released documents that supposedly exonerate Geithner. Selective leaks to friendly news outlets ensured kind first-day coverage, with one headline reading “Geithner tried to curb bank’s rate rigging in 2008.”
But that’s a bizarrely generous read of Geithner’s action (or inaction) on learning that Barclays actually admitted to one of his investigators that it had submitted false data for the computation of Libor, and that other banks were doing the same.
As I wrote last week, the New York Fed has long enjoyed a cozy relationship with the banks under its regulatory umbrella — ignoring even the stuff that brought down the financial system in 2008.
A close associate of former Clinton Treasury Secretary and top Citigroup exec Robert Rubin, Geithner has spent most of his professional life as a federal financial bureaucrat — a member of a community that keeps close ties with the heads of the major banks. Yet even by that standard, his behavior in the Libor scandal is incredible.
Libor, the London Interbank Offered Rate, is set by a UK banking trade group, which uses the big banks’ borrowing costs to compute a single benchmark rate that’s widely used on complex financial products as well as consumer loans.
In other words, rigging Libor is a pretty big deal. Yet Geithner treated it like a parking violation.
In 2007 and 2008, as the banking crisis began to heat up and big investors started demanding higher interest rates when lending to the banks, evidence began to build that banks were submitting falsely low borrowing costs to mask their financial distress.
Barclays was one such bank. Indeed, the New York Fed learned as early as December 2007 that Barclays may have been manipulating Libor — but Geithner’s crew waited until April 2008 to make its initial inquiry, documents show.
That’s when a New York Fed official contacted a trading executive at Barclays — who admitted the dirty deed with very little pressure: “We know that we’re not posting, um, an honest Libor.”
The trader’s rationale: If the bank posted its real borrowing costs, then spiking in the runup to the banking crisis, “It draws, um, unwanted attention on ourselves.”
The trader indicated that other banks were submitting fake info, too. The New York Fed regulator conducting the interview didn’t seem particularly outraged, answering with a simple “OK.”
Maybe the Fed official didn’t want to show her cards, but you’d think that a competent regulator hearing a concession like would get the wheels of justice moving pretty quickly. But not at Tim Geithner’s New York Fed.
Geithner was brought in right after the call — and his response was more of the same. He sent a single e-mail to his counterpart at the Bank of England recommending a handful of ways to address Libor rigging, including how UK regulators “should eliminate incentive to misreport.”
So here you have it: In Geithner’s world, rate-rigging fraud is “misreporting.”
His UK counterpart, Bank of England Governor Mervyn King, didn’t do much better. He e-mailed Geithner that he’d ask the trade group “to include in their consultation document the ideas contained in your note.”
Other than a few followup calls from his staff to traders, that’s about the end of Geithner’s real interest in the matter — until it came to light that the practices were much worse and more pervasive than even the Barclays trader had suggested, and that other big banks directly under the New York Fed’s jurisdiction were manipulating one of the world’s most important financial barometers.
Or, as Geithner put it, “misreporting.”
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http://www.latimes.com/business/la-fi-house-libor-20120717,0,1890104.story
House panel probes banks' alleged role in LIBOR-fixing scandal
It plans to question Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Timothy F. Geithner about allegations that banks rigged the key interest rate.
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:-o :-o :-o
Sunday, July 22, 2012 12:36 AM
Monetary Insanity: ECB Considers Negative Interest Rates, Looking for Clues From Denmark
The ECB is now pondering monetary insanity: ECB's Coeure says negative bank deposit rate an option
Cutting the deposit rate the European Central Bank offers lenders in the euro zone below zero is an option, ECB Executive Board Member Benoit Coeure said on Friday.
Speaking in Mexico, Coeure said the bank needed to take the rate down 25 basis points to zero to match its cut in the reference rate.
He said policymakers would need to consider whether it could take the deposit rate below zero, which would mean the central bank would start charging banks for the privilege of parking spare cash in the ECB.
"It's still possible," Coeure told students at an event in Mexico City. "It's true that we are hitting a psychological limit at zero. And it's unclear whether markets can function at negative interest rates. Some of them can."
"Some of them apparently can't. So before making the next step, which would be moving the deposit facility to a negative yield, we'll reflect about it," he added.
Denmark introduced a negative interest rate this month and the ECB is watching closely how the move plays out.
Negative Rates in Denmark, Switzerland
The Wall Street Journal discusses Negative Rates in Denmark, Switzerland.
July 6, 2012
For the first time ever, the Danes cut one of their official interest rates to below zero on Thursday.
Struggling against a tide of foreign capital seeking a safe haven, the Danes are trying to keep their exchange rate from rising to the point of throttling domestic industry. Unfortunately, one way or another, the struggle to retain competitiveness is likely to be a forlorn hope.
Denmark’s certificate of deposit rate was chopped by a quarter point to where CDs now yield minus 0.2%. Which is to say holders of these certificates willingly pay the Danish government a fifth of a percentage point for Denmark to hold their money.
Like Denmark, Switzerland is once again struggling against these capital flows, albeit nowadays they’re coming from closer to home.
Market rates on various short-dated Swiss, German and Danish government paper have been negative during the past year. Indeed, what started off as negative rates on the most short-dated bills has been creeping along the yield curve. On Friday morning, yields on the German two-year note, known as the Schatz, dropped to minus 0.01%.
So far, Switzerland and Denmark have managed to limit their currency appreciation. Switzerland has heroically been defending the 1.20 Swiss francs to the euro floor by buying euros frenetically.
Anteaters and Hurricanes
Denmark and Switzerland want to stop capital inflows and currency appreciation.
In contrast, the ECB does not want to stop currency appreciation nor does it want acceleration of bets against the euro. Rather, the ECB wants to stop capital flight specifically from Greece, Spain, Italy, and Portugal.
Moreover, and also in contrast to the problems in Denmark and Switzerland, the ECB is struggling with dramatically different sovereign bond rates in the Southern Europe (notably Greece, Spain, Italy, and Portugal), than the rest of Europe.
Such conditions only apply to monetary unions, not individual sovereign countries.
The only thing the ECB is likely to achieve if it goes ahead with this ridiculous idea is cause a massive cash withdrawal from money markets in general, not halt capital flight in Southern Europe.
Negative rates sure will not spur lending, another possible goal of the ECB.
Yet, Benoit Coeure wants to study results in Denmark. Good luck with that.
All things considered, studying negative rates in Denmark for application across the entire ECB is like studying anteaters when the problem is hurricanes.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Read more at http://globaleconomicanalysis.blogspot.com/#cL0EmrwPpHEGUalW.99
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Unbelievable. Like treating a failed car ignition system by continuously overflowing the gas tank.
No more than one in three adults in Europe have a full time job in the private sector in Europe. They aren't starting new businesses and there's no incentive to expand an existing one. You are taxed heavily if you earn, taxed heavily if you spend, taxed if you save and regulated to death. Economic growth is done and instead of fix any of all of what is broken, they increase the money supply.
We not only copy their insanity, we back it.
http://www.bloomberg.com/news/2011-09-15/ecb-coordinates-with-federal-reserve-in-lending-dollars-to-euro-area-banks.html
ECB Coordinates With Federal Reserve to Provide Dollars to Euro-Area Banks
Sep 15, 2011 Bloomberg
The Frankfurt-based ECB said it will coordinate with the Federal Reserve and other central banks to conduct three separate dollar liquidity operations to ensure banks have enough of the currency through the end of the year (2011).
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This is not a crisis. It is a you-reap-what-you sew economy. Decline by design.
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By JON HILSENRATH
Federal Reserve officials, impatient with the economy's sluggish growth and high unemployment, are moving closer to taking new steps to spur activity and hiring.
Federal Reserve officials, impatient with the economy's disappointing performance, are moving closer to taking new actions to spur growth and employment if they don't see evidence soon that activity is picking up on its own. Jon Hilsenrath has details on The News Hub.
.Since their June policy meeting, officials have made clear—in interviews, speeches and testimony to Congress—that they find the current state of the economy unacceptable. Many officials appear increasingly inclined to move unless they see evidence soon that activity is picking up on its own.
Amid the recent wave of disappointing economic news, conversation inside the Fed has turned more intensely toward the questions of how and when to move. Central-bank officials could take new steps at their meeting next week, July 31 and Aug. 1, though they might wait until their September meeting to accumulate more information on the pace of growth and job gains before deciding whether to act.
Stocks Pare Losses on News
Stocks are bouncing off session lows in the final trading hour on the news that Fed officials are moving closer to taking new actions if the labor market and economic growth don't pick up soon.
.Fed officials could take some actions in combination or one after another. Fed Chairman Ben Bernanke, in testimony to Congress last week, listed several options under consideration, including a new program of buying mortgage-backed or Treasury securities, new commitments to keep short-term interest rates near zero beyond 2014 or an effort to push already-low benchmark short-term interest rates even lower.
Determined to keep trying to get the economy going without causing inflation, the Fed is exploring other novel measures. One idea mentioned by Mr. Bernanke in his testimony would be to use a facility the Fed calls its discount window to provide cheap credit directly to banks that make new business or consumer loans. But it isn't clear such a program would do much good when banks already have ample access to cheap credit and this kind of program doesn't appear to be winning favor at the moment.
Mr. Bernanke told Congress he wants to see more progress in reducing unemployment and he expressed frustration the economy appears to be "stuck in the mud." The Fed chairman has spoken in the past about the importance of the economy achieving what he calls "escape velocity"—growth that is fast enough to give the economy forward, self-reinforcing momentum.
New worries are emerging at the Fed that the economy is falling short of that speed. The Commerce Department is expected to report this week that the economy grew at a rate substantially below 2% in the second quarter after expanding just 1.9% in the first quarter. The unemployment rate, at 8.2% in June, has moved little since January. Retail sales have been soft in recent months and financial markets, particularly in Europe, have become strained in past weeks. Some officials believe the outlook for growth has worsened a bit since the Fed's June meeting, when the central bank marked down its economic projections.
Several officials have expressed both frustration with the disappointing recovery and a willingness to act if growth and employment don't pick up. Sandra Pianalto, president of the Cleveland Fed, said in public comments earlier this month she would be prepared to act if weak economic data persisted. Dennis Lockhart, the Atlanta Fed president, said more action could be needed barring a "step-up of output and employment growth."
Fed "hawks"—who tend to worry more about inflation and have opposed more action to stimulate the economy—have softened their tone and acknowledged the frustration. "I know people feel like we haven't made enough progress," James Bullard, St. Louis Fed president, said in an interview this month. He said he would be prepared to act if inflation falls too low or if a new shock hits the economy.
There are several reasons why Fed officials might wait for their September meeting to decide whether to proceed. By then they will have seen two more monthly unemployment reports and two more months of data on output, spending and investment. Fed officials update their economic projections at the September meeting and Mr. Bernanke holds his a quarterly news conference after, which would give him an opportunity to publicly explain the Fed's thinking.
Moreover, some officials believe the Fed's June decision to continue a program known as "Operation Twist" through year-end could help the economy and want to give it time to work. Under that program, the Fed is buying $267 billion worth of long-term Treasury securities and selling an equal amount of short-term securities in an attempt to push down long-term interest rates to spur spending and investment.
The most controversial option on the Fed's list is a large bond-buying program in which the Fed would acquire long-term securities with newly created money—a step known to many as "quantitative easing," or QE.
In the Fed's first round of QE in 2009 and early 2010, it bought $1.25 trillion worth of mortgage-backed securities and $300 billion of Treasury securities and debt issued by Fannie Mae and Freddie Mac. In its second round in 2010 and 2011, the Fed bought $600 billion of Treasury securities. A third round could involve similarly substantial sums. Many officials have signaled a preference for buying mortgage securities. One reason: They fear that if they buy many more Treasury securities, the Fed could become too large a presence in that market and disrupt trading.
For years, critics have warned that such programs would spur inflation, a collapse in the value of the dollar or a new financial bubble. Most measures of consumer price inflation, however, are close to the Fed's 2% goal, and broad measures of the dollar exchange rate have strengthened in the past twelve months, which has dampened the power of these warnings.
Mr. Bernanke, meanwhile, has argued that the programs are helpful, while acknowledging their effects can be limited under certain conditions, such as when interest rates are already very low and demand for credit remains weak.
A new round of bond-buying would be politically controversial so close to the November presidential election. During Mr. Bernanke's testimony last week, Democrats made clear they wanted the Fed to act and Republicans said it should proceed cautiously. The Fed chief has said repeatedly that the central bank will seek to do what is best for the economy, regardless of political pressure.
Another option is a change in the Fed's public communication about its plans. Since January the Fed has been saying it doesn't expect to raise short-term interest rates until late 2014. The Fed could change its policy statement in September to move that date into 2015. Such pronouncements about the expected path of short-term rates tend to reduce long- and medium-term interest rates. The Fed thinks this supports near-term spending and investment.
Officials also are looking at changing the interest rate paid on money banks deposit at the Fed. This interest on reserves is now 0.25%. Some critics say the Fed shouldn't be paying banks even this small amount for money that they choose not to lend.
Fed officials haven't been very enthusiastic about this idea. Some officials think the benefits of reducing the rate would be small, and some worry cutting the rate could disrupt short-term money markets. Still, officials might choose to reduce the rate in combination with other moves in an effort to give the economy a little extra lift. The European Central Bank cut its bank deposit rate to zero earlier this month.
The Fed could also try to push its benchmark interest rate, the federal funds rate, a little lower. Since late 2008, it has targeted a range for the rate between zero and 0.25%. It could narrow that range closer to zero.
Write to Jon Hilsenrath at jon.hilsenrath@wsj.com
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Just saw a report that the House has passed the Audit the Fed bill!!!
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http://www.ftportfolios.com/Commentary/EconomicResearch/2012/7/26/justice-roberts-lesson-for-ben-bernanke
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http://www.youtube.com/watch?feature=player_embedded&v=GYNVNhB-m0o
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That was quite a scary video!
Step one is repeal the 'dual mandate'. That would simplify their mission.
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A couple of money quotes:
"Inflation is taxation without legislation."
"Only government can take perfectly good paper, cover it with perfectly good ink and make the combination worthless."
- Milton Friedman
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By SETH LIPSKY
An under-reported development of this campaign season is the Republican Party's decision this week to send Gov. Mitt Romney into the presidential race on a platform effectively calling for a new gold commission. The realization that America's system of fiat money is part of its economic problem is moving from the fringes of political discussion to the center.
This is a sharp contrast from the last time a gold commission was convened, in 1981, a decade after President Nixon abandoned the Bretton Woods system and opened the era of a fiat dollar. The 1981 commission recommended against restoring a gold basis to the dollar. But two members—Congressman Ron Paul and businessman-scholar Lewis Lehrman—dissented and outlined the case for gold.
The new platform doesn't use the word "gold," describing the 1981 United States Gold Commission as looking at a "metallic basis" for the dollar. But the metal was gold, and the new platform calls for a similar commission to investigate ways "to set a fixed value for the dollar."
What has stayed with me from 1981—I covered the commission as a young editorial writer for this newspaper—is how momentum for a new gold standard faded amid the successes of the supply-side revolution. President Reagan pushed through his tax reductions and Federal Reserve Chairman Paul Volcker maintained tight money. Inflation was defeated. The value of the dollar, which had sunk below 1/800th of an ounce of gold during President Carter's last year in office, soared.
The 1981 commission was also stacked against a gold-backed dollar from the start. The ruling philosophy was monetarism—which, as propounded by Milton Friedman, seeks to keep prices steady by adjusting the money supply. The commission's executive director was Anna Schwartz, co-author of Friedman's "Monetary History of the United States," and the Democratic-controlled House held firm to monetarist orthodoxy.
Enlarge Image
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.Today things have changed. Both Friedman and Schwartz died as heroes of capitalism and freedom, but monetarism lacks the sway it once had. Even Friedman before he died seemed to adjust his thinking on using the quantity of money as a target. Schwartz predicted that monetary instability would be a breeding ground for a restoration for the role of gold.
In the ferment within today's Republican Party, the gold standard has become almost the centrist position. On the left would be those who favor a system of discretionary activism in which brilliant technocrats, such as Ben Bernanke at the Fed, use their judgment in setting interest rates. A bit to their right would be advocates of a rule, such as John Taylor's rule linking interest rates to various conditions, or one that requires the Fed to target the price of gold but stops short of defining the dollar in terms of specie.
In the center would be advocates of a classical gold standard, in which a dollar is defined as a fixed amount of gold. These include, among others, Mr. Lehrman, James Grant of Grant's Interest Rate Observer, publisher Steve Forbes, economist Judy Shelton, and Sean Fieler of the American Principles Project.
A bit further to the right would be partisans of the Austrian school of economics, including Rep. Paul. He advocates less for a gold standard than for an idea of Friedrich Hayek, the Nobel laureate who came to favor what he called the denationalization of money and a system centered on private coinage and currency that would compete with government-issued money. Further right are purists such as the radical constitutionalist Edwin Vieira Jr., who would simply price things in weights of gold or silver.
A good bit of overlap exists among the camps, but Congress has come alive to all points on this spectrum. Rep. Kevin Brady, a Texas Republican who is vice chairman of the Joint Economic Committee, is seeking to pass the Sound Dollar Act, which would end the Fed's mandate to keep unemployment down, instead having the central bank focus only on stable prices. Rep. Paul is pressing the Free Competition in Currency Act, which would end legal tender and put Hayek's ideas into practice.
In the Senate, Jim DeMint, Mike Lee and Rand Paul are offering the Sound Money Promotion Act, which would remove the tax on the appreciation in the value of gold and silver coins that have been declared legal tender by the federal or a state government. Utah has already made gold and silver coins legal tender in the state.
Then there is Mr. Romney. In Paul Ryan he chose a running mate who understands the idea of sound money. In June 2010, as chairman of the House Budget Committee, Mr. Ryan asked Mr. Bernanke what he made of record-high prices of gold. (The value of the dollar had just slid to below 1/1,200th of an ounce of gold; it has since plunged to below 1/1,600th of an ounce.)
"I don't fully understand the movements in the gold price," Mr. Bernanke replied. He confessed his belief that some people were hedging "against the fact that they view many other investments as being risky and hard to predict at this point." No wonder the eventual House bill to audit the Fed passed with overwhelming bipartisan support.
This is the context in which Mr. Romney last week moved so pointedly to distance himself from a suggestion by one of his advisers, Glenn Hubbard, that Mr. Bernanke should be considered for another term. Mr. Romney made clear that he would be looking for a new Fed chairman, an important signal from a candidate who has made some mistakes—such as suggesting that monetary policy should be kept away from Congress. In fact, it is precisely to Congress that the Constitution (in Article 1, Section 8) grants the power to coin money and regulate the value thereof.
The New York Sun, the online paper I edit, has warned that a gold commission could prove to be the graveyard for sound money—on the principle that if one wants to bury an idea, one need but name a commission. But it's possible that a well-conceived and well-staffed gold commission could actually sort out the debate.
It's no small thing that Mr. Romney's platform calls for a gold commission and an audit of the Fed. The last Republican to run on a platform calling for a dollar "on a fully convertible gold basis" was Dwight Eisenhower, who cast the promise aside once in office. That's a strategic misstep for Mr. Romney, should he win in November, to avoid.
Mr. Lipsky is editor of the New York Sun. The recipient in April of a grant in the form of a lifetime achievement award from the Lehrman Institute, he is writing a book on the constitutional dollar, forthcoming from Basic Books.
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More Fed Bond Buying Won't Let 'Animal Spirits' Out of the Cage
If past is prologue, QE3 would act as a sugar rush to financial markets while spurring little if any growth..
By GERALD P. O'DRISCOLL JR.
Markets will be hanging on every word in Federal Reserve Chairman Ben Bernanke's speech Friday morning in Jackson Hole, Wyo. That is because the minutes from the July 31-Aug. 1 meeting of the Federal Open Market Committee, released on Aug. 22, were widely interpreted as signaling some kind of further easing of monetary policy.
The minutes stated in part that "many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery." And yet, one day after the minutes were released, St. Louis Fed President James Bullard said they were "a bit stale." This turned market sentiment around, sending equity prices down.
So will he send a signal favorable to "additional monetary accommodation"? Or will he endorse Mr. Bullard's comments?
Looking ahead to its next meeting on Sept. 12 and 13, the FOMC could decide to initiate a new round of "quantitative easing" through purchases of Treasury bonds, mortgage-backed securities or other unconventional asset classes, which has been its strategy since the fall of 2008. It might also choose to extend beyond the end of 2014 the period in which it anticipates holding the federal-funds rate near zero. These aren't mutually exclusive possibilities.
But whatever path Mr. Bernanke points the FOMC toward, further "monetary accommodation" of the type being discussed will be futile at best or counterproductive at worst.
Consider the kind of policies implemented by the Fed since the crisis began. One variety consisted of credit allocation, whether by direct lending to targeted financial institutions or even nonfinancial firms such as auto makers. Fed purchases of mortgage-backed securities direct credit to favored firms and sectors rather than to the businesses that could make most productive use of it.
Subsidizing housing finance is especially problematic, as homebuilding clearly overexpanded in the early 2000s and needed to contract. If public policy subsidized a good into excess supply, further subsidies aren't the cure. The Fed has merely delayed adjustment in the housing and financial sectors by continuing to direct credit to them.
The Fed has also engaged in temporary infusions of money into the economy via two previous rounds of quantitative easing, QE1 and QE2. It did so after driving short-term interest rates to near zero, which limited the effectiveness of traditional purchases of short-term government debt.
Quantitative easing is the Fed's version of "stimulus," the complement to fiscal stimulus. The trouble with all forms of temporary spending is that they have no permanent effects. They delay needed adjustments in the economy.
Today's state and local governments are a case in point. Municipal and state spending was propped up by federal transfers of many billions of dollars in the president's 2009 stimulus package. But as this federal money has dried up, public payrolls are declining, ironically enough for this administration, close to the presidential election. President Obama received bad advice when he was told that government spending would prime the pump of the economy. Instead it had the effect of temporarily transferring resources from the productive private sector to a bloated public sector.
The Fed's version of temporary stimulus will likely involve purchasing government bonds. If past is prologue, this will act as a sugar rush to financial markets. There will be equity- and bond-market rallies. Wall Street will rejoice, but none of this will translate into "substantial and sustainable" economic growth, the FOMC's stated goal.
Bond purchases won't change any fundamental determinant of economic activity. And in the current economic climate, a crucial issue is that investors don't know what the tax code will be next year. Investments are made in anticipation of after-tax profits. If the tax rate is unknown, investment returns are unknown. That is a great deterrent to capital formation and job growth.
This is no secret: The FOMC minutes from its July 31-Aug. 1 meeting refer to fiscal and regulatory uncertainties as a reason for the Fed to take action. The minutes reported that some participants thought a new bond-buying program "might boost business and consumer confidence." It hasn't done so in this recession. No amount of quantitative easing at this point will stir what John Maynard Keynes called the "animal spirits"—"a spontaneous urge to action rather than inaction"—needed for growth.
What would stir the spirits of investors and employers would be some policy certainty, reining-in of out-of-control government spending, stopping ill-advised regulations, and clearing the air of antibusiness rhetoric. No repeat of a one-off round of bond buying by the Fed substitutes for the fundamental and permanent changes needed.
Mr. O'Driscoll is a senior fellow at the Cato Institute. He was formerly vice president at the Federal Reserve Bank of Dallas and later vice president at Citigroup.
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http://beforeitsnews.com/economy/2012/09/first-audit-in-the-federal-reserves-nearly-100-year-history-were-posted-today-the-results-are-startling-2449770.html
Source: Sott
Rep. Ron Paul (R-Tex.) wins (again) the most significant victory of his congressional career. He has taken his pet issue since the 1970s–the unwarranted power and secrecy of the Federal Reserve–from something pretty much no one but him cared about six years ago, through a bestselling book and mass movement by 2009, the second time he’s gotten the House of Representatives to vote to widen the government’s powers to audit the Fed’s activities.
Huffington Post with details about the vote , and on Paul’s Democratic ally equally upset with the Fed’s lack of transparency, Rep. Dennis Kucinich (D-Ohio):
In a rare moment of bipartisanship, the House overwhelmingly passed a bill by Rep. Ron Paul (R-Texas) to audit the Federal Reserve.
The first ever GAO (Government Accountability Office) audit of the Federal Reserve was carried out in the past few months due to the Ron Paul, Alan Grayson Amendment to the Dodd-Frank bill, which passed last year. Jim DeMint, a Republican Senator, and Bernie Sanders, an independent Senator, led the charge for a Federal Reserve audit in the Senate, but watered down the original language of the house bill(HR1207), so that a complete audit would not be carried out.
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Privacy | Remove AdsBen Bernanke (pictured to the LEFT), Alan Greenspan, and various other bankers vehemently opposed the audit and lied to Congress about the effects an audit would have on markets. Nevertheless, the results of the first audit in the Federal Reserve’s nearly 100 year history were posted on Senator Sander’s webpage earlier this morning.
What was revealed in the audit was startling:
$16,000,000,000,000.00 had been secretly given out to US banks and corporations and foreign banks everywhere from France to Scotland. From the period between December 2007 and June 2010, the Federal Reserve had secretly bailed out many of the world’s banks, corporations, and governments. The Federal Reserve likes to refer to these secret bailouts as an all-inclusive loan program, but virtually none of the money has been returned and it was loaned out at 0% interest. Why the Federal Reserve had never been public about this or even informed the United States Congress about the $16 trillion dollar bailout is obvious – the American public would have been outraged to find out that the Federal Reserve bailed out foreign banks while Americans were struggling to find jobs.
To place $16 trillion into perspective, remember that GDP of the United States is only $14.12 trillion. The entire national debt of the United States government spanning its 200+ year history is “only” $14.5 trillion. The budget that is being debated so heavily in Congress and the Senate is “only” $3.5 trillion. Take all of the outrage and debate over the $1.5 trillion deficit into consideration, and swallow this Red pill: There was no debate about whether $16,000,000,000,000 would be given to failing banks and failing corporations around the world.
In late 2008, the TARP Bailout bill was passed and loans of $800 billion were given to failing banks and companies. That was a blatant lie considering the fact that Goldman Sachs alone received 814 billion dollars. As is turns out, the Federal Reserve donated $2.5 trillion to Citigroup, while Morgan Stanley received $2.04 trillion. The Royal Bank of Scotland and Deutsche Bank, a German bank, split about a trillion and numerous other banks received hefty chunks of the $16 trillion.
“This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else.”- Bernie Sanders (I-VT)
When you have conservative Republican stalwarts like Jim DeMint(R-SC) and Ron Paul(R-TX) as well as self identified Democratic socialists like Bernie Sanders all fighting against the Federal Reserve, you know that it is no longer an issue of Right versus Left. When you have every single member of the Republican Party in Congress and progressive Congressmen like Dennis Kucinich sponsoring a bill to audit the Federal Reserve, you realize that the Federal Reserve is an entity onto itself, which has no oversight and no accountability.
Americans should be swelled with anger and outrage at the abysmal state of affairs when an unelected group of bankers can create money out of thin air and give it out to megabanks and supercorporations like Halloween candy. If the Federal Reserve and the bankers who control it believe that they can continue to devalue the savings of Americans and continue to destroy the US economy, they will have to face the realization that their trillion dollar printing presses will eventually plunder the world economy.
The list of institutions that received the most money from the Federal Reserve can be found on page 131of the GAO Audit and are as follows..
Citigroup: $2.5 trillion ($2,500,000,000,000)
Morgan Stanley: $2.04 trillion ($2,040,000,000,000)
Merrill Lynch: $1.949 trillion ($1,949,000,000,000)
Bank of America: $1.344 trillion ($1,344,000,000,000)
Barclays PLC (United Kingdom): $868 billion ($868,000,000,000)
Bear Sterns: $853 billion ($853,000,000,000)
Goldman Sachs: $814 billion ($814,000,000,000)
Royal Bank of Scotland (UK): $541 billion ($541,000,000,000)
JP Morgan Chase: $391 billion ($391,000,000,000)
Deutsche Bank (Germany): $354 billion ($354,000,000,000)
UBS (Switzerland): $287 billion ($287,000,000,000)
Credit Suisse (Switzerland): $262 billion ($262,000,000,000)
Lehman Brothers: $183 billion ($183,000,000,000)
Bank of Scotland (United Kingdom): $181 billion ($181,000,000,000)
BNP Paribas (France): $175 billion ($175,000,000,000)
and many many more including banks in Belgium of all places
View the 266-page GAO audit of the Federal Reserve (July 21st, 2011):
Federal Reserve Chairman Ben S. Bernanke participated in a live webcast of a town hall meeting with educators on Thursday, September 30, 2010 from 2:30-3:30 p.m. EDT. During this session, Chairman Bernanke answered teachers’ questions about the Federal Reserve and the economy.
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Why Is Putin Stockpiling Gold?
Arends: Russia and other emerging-market nations are bulking up their gold reserves. Does that make bullion a good buy?
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By BRETT ARENDS
I can't imagine it means anything cheerful that Vladimir Putin, the Russian czar, is stockpiling gold as fast as he can get his hands on it.
According to the World Gold Council, Russia has more than doubled its gold reserves in the past five years. Putin has taken advantage of the financial crisis to build the world's fifth-biggest gold pile in a handful of years, and is buying about half a billion dollars' worth every month.
It emerged last month that financial gurus George Soros and John Paulson had also increased their bullion exposure, but it's Putin that's really caught my eye.
No one else in the world plays global power politics as ruthlessly as Russia's chilling strongman, the man who effectively stole a Super Bowl ring from Bob Kraft, the owner of the New England Patriots, when they met in Russia some years ago.
Putin's moves may matter to your finances, because there are two ways to look at gold.
On the one hand, it's an investment that by most modern standards seems to make no sense. It generates no cash flow and serves no practical purpose. Warren Buffett has pointed out that we dig it out of one hole in the ground only to stick it in another, and anyone watching this from Mars would be very confused.
You can forget claims that it's "real" money. There's no such thing. Money is just an accounting device, a way of keeping track of how much each of us produces and consumes. Gold is a shiny and somewhat tacky looking metal that is malleable, durable and heavy. A recent research paper by Duke University's Campbell Harvey and co-author Claude Erb raised serious questions about most of the arguments in favor of gold as an investment.
But there's another way to look at gold: As the most liquid reserve in times of turmoil, or worse.
The big story of our era is not that the Spanish government is broke, nor is it that Paul Ryan apparently feels the need to embellish his running record. It's that the United States, which has dominated the world's economy for several lifetimes, is in relative decline.
As was first reported here in April of last year, according to International Monetary Fund calculations, the U.S. is on track to lose its status as the world's biggest economy -- when measured in real, purchasing-power terms -- to China by 2017.
We will soon be the first people in two hundred years to live in a world not dominated by either Pax Americana or Pax Britannica. This sort of changing of the guard has never been peaceful. The declines of the Spanish, French and British empires were all accompanied by conflict. The decline of British hegemony was a leading cause of the First and Second World Wars.
What will happen as the U.S. loses its preeminence?
Maybe this will turn out better than similar episodes in the past. Maybe the Chinese will embrace an open society and the rule of law. If you believe that, there is probably no reason to hold any gold.
On the other hand, we may be about to enter a much more turbulent and dangerous era of power politics and international competition.
Not long ago, world gold reserves were mainly in the hands of the U.S. and the Europeans, which accumulated their holdings during their centuries at the top. The U.S. has 75% of its currency reserves in gold. Many other first world powers have comparable proportions.
But that's beginning to change. According to the World Gold Council, China, Saudi Arabia and Russia are now in the top five. Western European countries have been selling gold. If the current financial crisis gets any worse, they may yet sell more.
Emerging markets have been buying. In most cases, gold remains a very small percentage of their total reserves. China, despite its recent buying, holds less than 2% of its currency reserves in gold.
But you have to wonder how long emerging countries will want to hold their reserves in any currency that is controlled by someone else. Vladimir Putin clearly doesn't want to. Gold now accounts for 9% of Russia's reserves, and that figure is rising.
The gold price has had a shakeout since peaking at around $1,900 an ounce a year ago. It fell as low as $1,566 in June. Since then, it has risen to $1,688.
But that shakeout has been exaggerated by the rally in the U.S. dollar over most of the past year. Put another way: Priced in euros, gold is nearly back to its old high. It's 1,343 euros per ounce, just shy of the 1,356 euro record set a year ago.
The most common means of buying gold is either in bullion or through an exchange-traded bullion fund such as the SPDR Gold Shares (GLD: 165.08, 0.77, 0.47%) . And maybe that's sensible.
But you might also take a look at shares in gold-mining companies. They are at, or near, historic lows when compared with the gold price. Contrarians may take that as a buying signal.
The Philadelphia Gold & Silver Index, which tracks the stocks of precious-metal mining companies, stood at 170 on Tuesday -- a level first seen five years ago, in September, 2007, when gold itself was just $730 an ounce. Relative to gold itself, the Philly index is about 60% below the average levels seen since 1985.
Die-hard gold fans will tell you that the mining stocks involve all sorts of extra risks that you don't get with the metal. Companies can be mismanaged. Mining costs go up. Countries can wallop miners with windfall taxes.
They're right on all of the above. On the other hand, the equities are cheap and they do generate cash flow. Barrick Gold (ABX: 38.45, 0.36, 0.95%), the world's biggest, trades at eight times forecast earnings, with a dividend yield of nearly 2%. Newmont (NEM: 49.91, 0.29, 0.58%) is trading at 10 times forecast earnings, yielding 2.8%.
As ever, you pays your money and you takes your choice.
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Gramm and Taylor: The Hidden Costs of Monetary Easing
Inflation is not the only danger posed by the central bank's ballooning balance sheet. .
By PHIL GRAMM AND JOHN TAYLOR
Since mid-September of 2008, the Federal Reserve balance sheet has grown to $2,814 billion from $924 billion as it purchased massive amounts of U.S. Treasurys and mortgage backed securities. To finance those purchases the Fed increased currency and bank reserves (base money).
That kind of monetary expansion would normally be a harbinger of inflation. However, with banks holding excess reserves rather than lending them out—and with velocity (the rate at which money turns over generating national income) at a 50-year low and falling—the inflation rate has stayed close to the Fed's 2% target.
While the Fed considered its previous rounds of easing—QE1, QE2 and Operation Twist—the argument was consistently made that the cost of such actions was low because inflation was nowhere on the horizon. The same argument is now being made as the central bank contemplates QE3 during the Federal Open Market Committee meetings on Wednesday and Thursday.
Inflation is not, however, the only cost of these unconventional monetary interventions. As investors try to predict the timing and effect of Fed policy on financial markets and the economy, monetary policy adds to the climate of economic uncertainty and stasis already caused by current fiscal policy. There will be even greater costs when the economy begins to grow and the Fed, to prevent inflation, has to reverse course and sell bonds and securities to the public.
Since September 2008, the Fed has acquired $1.16 trillion of government securities—in fiscal year 2011 (Oct. 1, 2010-Sept. 30, 2011), the central bank bought 77% of all the additional debt issued by the Treasury. Aside from the monetary impact of these debt purchases, the Fed allowed the federal government to borrow a trillion dollars without raising the external debt of the Treasury and without having to pay net interest on that portion of the debt, since the central bank rebated the interest payments to the Treasury.
When the Fed must, in Chairman Ben Bernanke's words, begin "removing liquidity," by selling bonds, the external debt of the federal government will rise and the Treasury will then have to pay interest on that debt to the public. Selling a trillion dollars of Treasury bonds on the market—at the same time the government is running trillion-dollar annual deficits—will drive up interest rates, crowd out private-sector borrowers and impede the recovery. Debt-service costs to the Treasury will spiral as every 1% increase in federal borrowing costs add $100 billion to the annual budget deficit.
In addition, Operation Twist, by shortening the average maturity date of externally held debt, will require the Treasury to borrow more money sooner when the economy recovers and interest rates start to rise. This too will drive up interest costs and the deficit.
The same problems will occur as the Fed begins to sell its holdings of mortgage-backed securities to reduce the monetary base. When the Fed bought these securities, it may have marginally reduced mortgage interest rates. Selling them during a real recovery will likely cause mortgage rates to rise.
Proponents of QE3 argue that while the Fed's balance sheet must be reduced at some future time, it has the tools to minimize the impact on interest rates by slowing down the pace of the sales. But the Fed's ability to act has already been compromised by its pledge to maintain low interest rates through 2014. Having to time open-market sales to minimize interest-rate increases will further limit the Fed's ability to preserve price stability. In short, the Federal Reserve in future years will face significant constraints that are being forged now.
The Fed could raise the interest rate that it pays banks on reserves they hold in lieu of reducing its balance sheet. Where would the money come from? It has to come out of the money the Fed is currently paying the Treasury, driving up the federal budget deficit. How will taxpayers feel about subsidizing banks not to lend them money?
Rational decision making comes down to a comprehensive measure of cost and benefits. The Fed's effort to use monetary policy to overcome bad fiscal and regulatory policy long ago reached the point of diminishing returns. The benefits of a third round of quantitative easing will almost certainly be de minimis. But when economic growth does return, Fed actions will have to be reversed in an era of rising interest rates, and the marginal cost of a QE3 tomorrow will almost certainly be far greater than the marginal benefit today.
Someday, hopefully next year, the American economy will come back to life. Banks will begin to lend, the money supply will expand, and the velocity of money will rise. Unless the Fed responds by reducing its balance sheet, inflationary pressures will build rapidly.
At that point the cost of our current monetary policy will be all too clear. Like Mr. Obama's stimulus policy, Mr. Bernanke's monetary expansion will ultimately have to be paid for. The Fed softened the recession by its decisive actions during the panic of 2008, but the marginal benefits of its subsequent policy have almost certainly been small. We may find the policies that had little positive impact on the recovery will have high costs indeed when they must be reversed in a full blown expansion.
Mr. Gramm was chairman of the Senate Banking Committee and is senior partner of US Policy Metrics. Mr. Taylor is a professor of economics at Stanford University and a senior fellow at the Hoover Institution. He was undersecretary of the Treasury for international affairs in the first George W. Bush administration.
A version of this article appeared September 12, 2012, on page A15 in the U.S. edition of The Wall Street Journal, with the headline: The Hidden Costs of Monetary Easing.
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The Consumer Price Index (CPI) was up 0.6% in August To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 9/14/2012
The Consumer Price Index (CPI) was up 0.6% in August, matching consensus expectations. The CPI is up 1.7% versus a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) rose 0.7% in August and is up 1.6% in the past year.
The rise in the CPI in August was due to a 5.6% gain in energy. There were also widespread gains in most other major categories. The “core” CPI, which excludes food and energy, was up 0.1%, versus a consensus expected gain of 0.2%, and is up 1.9% versus last year.
Real average hourly earnings – the cash earnings of all employees, adjusted for inflation – were down 0.7% in August but are unchanged in the past year. Real weekly earnings are up 0.3% in the past year.
Implications: Like yesterday’s report on producer prices, consumer prices came back with a vengeance in August, rising 0.6%. Energy, which was up 5.6%, drove the lion’s share of the price increases. Excluding energy, prices were up 0.1%, the same gain as the “core” CPI, which excludes food and energy. The overall CPI is up only 1.7% in the past year, while “core” prices are up only 1.9%, both lower than the Federal Reserve’s 2% objective. But don’t pop the champagne just yet. We expect inflation to pick up to 3%+ by the end of next year. Monetary policy is loose and rising housing costs (which are measured by rents, not asset values) are going to put upward pressure on the core CPI. Owners’ equivalent rent was up 0.3% in August (the most for any month since 2008) and is up 2% versus a year ago. The ongoing shift from home ownership toward rental occupancy should boost this inflation measure even more in the year ahead. It’s important to recognize that inflation getting above the Fed’s stated objective will not change the Fed’s monetary policy anytime soon. The Fed is now focused on the labor market and will allow inflation to exceed its supposed objective for a prolonged period of time. On the earnings front, “real” (inflation-adjusted) wages per hour were down 0.7% in August but are unchanged from a year ago. Worker hours are up 2% in the past year, which means their purchasing power is still growing.
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WSJ
The Magnitude of the Mess We're In
The next Treasury secretary will confront problems so daunting that even Alexander Hamilton would have trouble preserving the full faith and credit of the United States. .
By George P. Shultz, Michael J. Boskin, John F. Cogan, Allan H. Meltzer and John B. Taylor
Sometimes a few facts tell important stories. The American economy now is full of facts that tell stories that you really don't want, but need, to hear.
Where are we now?
Did you know that annual spending by the federal government now exceeds the 2007 level by about $1 trillion? With a slow economy, revenues are little changed. The result is an unprecedented string of federal budget deficits, $1.4 trillion in 2009, $1.3 trillion in 2010, $1.3 trillion in 2011, and another $1.2 trillion on the way this year. The four-year increase in borrowing amounts to $55,000 per U.S. household.
The amount of debt is one thing. The burden of interest payments is another. The Treasury now has a preponderance of its debt issued in very short-term durations, to take advantage of low short-term interest rates. It must frequently refinance this debt which, when added to the current deficit, means Treasury must raise $4 trillion this year alone. So the debt burden will explode when interest rates go up.
The government has to get the money to finance its spending by taxing or borrowing. While it might be tempting to conclude that we can just tax upper-income people, did you know that the U.S. income tax system is already very progressive? The top 1% pay 37% of all income taxes and 50% pay none.
Did you know that, during the last fiscal year, around three-quarters of the deficit was financed by the Federal Reserve? Foreign governments accounted for most of the rest, as American citizens' and institutions' purchases and sales netted to about zero. The Fed now owns one in six dollars of the national debt, the largest percentage of GDP in history, larger than even at the end of World War II.
The Fed has effectively replaced the entire interbank money market and large segments of other markets with itself. It determines the interest rate by declaring what it will pay on reserve balances at the Fed without regard for the supply and demand of money. By replacing large decentralized markets with centralized control by a few government officials, the Fed is distorting incentives and interfering with price discovery with unintended economic consequences.
Did you know that the Federal Reserve is now giving money to banks, effectively circumventing the appropriations process? To pay for quantitative easing—the purchase of government debt, mortgage-backed securities, etc.—the Fed credits banks with electronic deposits that are reserve balances at the Federal Reserve. These reserve balances have exploded to $1.5 trillion from $8 billion in September 2008.
The Fed now pays 0.25% interest on reserves it holds. So the Fed is paying the banks almost $4 billion a year. If interest rates rise to 2%, and the Federal Reserve raises the rate it pays on reserves correspondingly, the payment rises to $30 billion a year. Would Congress appropriate that kind of money to give—not lend—to banks?
The Fed's policy of keeping interest rates so low for so long means that the real rate (after accounting for inflation) is negative, thereby cutting significantly the real income of those who have saved for retirement over their lifetime.
The Consumer Financial Protection Bureau is also being financed by the Federal Reserve rather than by appropriations, severing the checks and balances needed for good government. And the Fed's Operation Twist, buying long-term and selling short-term debt, is substituting for the Treasury's traditional debt management.
This large expansion of reserves creates two-sided risks. If it is not unwound, the reserves could pour into the economy, causing inflation. In that event, the Fed will have effectively turned the government debt and mortgage-backed securities it purchased into money that will have an explosive impact. If reserves are unwound too quickly, banks may find it hard to adjust and pull back on loans. Unwinding would be hard to manage now, but will become ever harder the more the balance sheet rises.
The issue is not merely how much we spend, but how wisely, how effectively. Did you know that the federal government had 46 separate job-training programs? Yet a 47th for green jobs was added, and the success rate was so poor that the Department of Labor inspector general said it should be shut down. We need to get much better results from current programs, serving a more carefully targeted set of people with more effective programs that increase their opportunities.
Did you know that funding for federal regulatory agencies and their employment levels are at all-time highs? In 2010, the number of Federal Register pages devoted to proposed new rules broke its previous all-time record for the second consecutive year. It's up by 25% compared to 2008. These regulations alone will impose large costs and create heightened uncertainty for business and especially small business.
This is all bad enough, but where we are headed is even worse.
President Obama's budget will raise the federal debt-to-GDP ratio to 80.4% in two years, about double its level at the end of 2008, and a larger percentage point increase than Greece from the end of 2008 to the beginning of this year.
Under the president's budget, for example, the debt expands rapidly to $18.8 trillion from $10.8 trillion in 10 years. The interest costs alone will reach $743 billion a year, more than we are currently spending on Social Security, Medicare or national defense, even under the benign assumption of no inflationary increase or adverse bond-market reaction. For every one percentage point increase in interest rates above this projection, interest costs rise by more than $100 billion, more than current spending on veterans' health and the National Institutes of Health combined.
Worse, the unfunded long-run liabilities of Social Security, Medicare and Medicaid add tens of trillions of dollars to the debt, mostly due to rising real benefits per beneficiary. Before long, all the government will be able to do is finance the debt and pay pension and medical benefits. This spending will crowd out all other necessary government functions.
What does this spending and debt mean in the long run if it is not controlled? One result will be ever-higher income and payroll taxes on all taxpayers that will reach over 80% at the top and 70% for many middle-income working couples.
Did you know that the federal government used the bankruptcy of two auto companies to transfer money that belonged to debt holders such as pension funds and paid it to friendly labor unions? This greatly increased uncertainty about creditor rights under bankruptcy law.
The Fed is adding to the uncertainty of current policy. Quantitative easing as a policy tool is very hard to manage. Traders speculate whether and when the Fed will intervene next. The Fed can intervene without limit in any credit market—not only mortgage-backed securities but also securities backed by automobile loans or student loans. This raises questions about why an independent agency of government should have this power.
When businesses and households confront large-scale uncertainty, they tend to wait for more clarity to emerge before making major commitments to spend, invest and hire. Right now, they confront a mountain of regulatory uncertainty and a fiscal cliff that, if unattended, means a sharp increase in taxes and a sharp decline in spending bound to have adverse effect on the economy. Are you surprised that so much cash is waiting on the sidelines?
What's at stake?
We cannot count on problems elsewhere in the world to make Treasury securities a safe haven forever. We risk eventually losing the privilege and great benefit of lower interest rates from the dollar's role as the global reserve currency. In short, we risk passing an economic, fiscal and financial point of no return.
Suppose you were offered the job of Treasury secretary a few months from now. Would you accept? You would confront problems that are so daunting even Alexander Hamilton would have trouble preserving the full faith and credit of the United States. Our first Treasury secretary famously argued that one of a nation's greatest assets is its ability to issue debt, especially in a crisis. We needed to honor our Revolutionary War debt, he said, because the debt "foreign and domestic, was the price of liberty."
History has reconfirmed Hamilton's wisdom. As historian John Steele Gordon has written, our nation's ability to issue debt helped preserve the Union in the 1860s and defeat totalitarian governments in the 1940s. Today, government officials are issuing debt to finance pet projects and payoffs to interest groups, not some vital, let alone existential, national purpose.
The problems are close to being unmanageable now. If we stay on the current path, they will wind up being completely unmanageable, culminating in an unwelcome explosion and crisis.
The fixes are blindingly obvious. Economic theory, empirical studies and historical experience teach that the solutions are the lowest possible tax rates on the broadest base, sufficient to fund the necessary functions of government on balance over the business cycle; sound monetary policy; trade liberalization; spending control and entitlement reform; and regulatory, litigation and education reform. The need is clear. Why wait for disaster? The future is now.
The authors are senior fellows at Stanford University's Hoover Institution. They have served in various federal government policy positions in the Treasury Department, the Office of Management and Budget and the Council of Economic Advisers.
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second post
Bernanke and the Fed Repeal Einstein
Near-zero interest rates, which are expected to last through mid-2015, make a mockery of thrift..
By ROBERT L. POLLOCK
Albert Einstein reportedly called compound interest "the most powerful force in the universe." He didn't live long enough to experience Ben Bernanke.
Last week the Federal Reserve chairman told the world that U.S. savers should expect the new normal of near-zero interest rates to last through mid-2015. So compound interest is a concept with which today's early to mid 20-somethings will remain essentially unfamiliar.
For those of us who are slightly older, it seems as if Mr. Bernanke is on a mission to convince us that everything our grandparents told us about household economics was wrong.
My grandmother and grandfather were children of the Depression who built a successful dry-cleaning business with inspiration from—no kidding—a Wall Street Journal article. Then they built an insurance brokerage, and after much saving and hard work retired as the proverbial millionaires next door. They spent money on a house and a boat. But clothes always came from the secondhand shop, and Grandma remained an avid coupon clipper until she and Papa went into an assisted-living facility a few years back.
On family vacations to see them in the Seattle area, I always heard the lecture about the importance of saving, or "making your money work for you." Once on a coupon shopping run, someone asked Grandma why she didn't buy in bulk. My father answered for her: "You wouldn't want your money all tied up in toilet paper."
So thriftiness prompted a few laughs, yes. But there were also real lessons about its virtues.
From a purely financial standpoint, Einstein's miraculous force is most easily expressed in the so-called Rule of 72. That is, at a 7.2% annual rate of return, your money will double in 10 years. The rate is quite feasible in a healthy market (especially in non-inflation-adjusted terms). For people of my grandparents' generation, it came to be seen as the norm. Lately the mainstream press, to its credit, is increasingly cottoning on to the punishing effect that Mr. Bernanke's interest rates have on older people living off savings.
But near-zero interest rates—especially when inflation is running a couple of points higher—are as bad for those of us still in our working years.
Thrift—that is, work and delayed gratification—is both a personal and societal good. It is supposed to allow us to be self-sufficient in future years, support older generations now, and finance the great engine of progress that has been the American economy. But why save when common instruments such as savings accounts, money-market funds and CDs guarantee that you'll lose out to inflation?
For those of us determined to remain savers, low rates force speculation in commodities like gold or oil that we hope won't lose too much value against the dollar. Call it the honest-saver's dilemma. It's one that unelected central bankers don't have the right to force on us, no matter how much their models may tell them low rates will goose the market or ease the deflation of the housing bubble.
That latter rationale is an admission of what serious economists have always known easy money to be: a redistribution of wealth to debtors from savers. Or, as a general rule, from the more virtuous to the less virtuous. This is true when the headline inflation rate is high, but also when it's merely higher than the predictable return on savings.
In an insightful 2009 essay, the Manhattan Institute's Steve Malanga connected the loose mores of the 1970s to the loose monetary policy of that period:
"The economic shocks that followed the tumultuous late 1960s, especially the devastating inflation of the 1970s, reinforced an emerging materialism. . . . The inflation hit hardest those who had embraced the work ethic, destroying lifetimes of savings in unprecedented price spikes and sending the message that 'saving and shunning debt was for saps,' Fortune observed."
Saps. Chumps. Whatever. That's what savers become when central bankers challenge Einstein's most powerful force, or our grandparents' hard-learned advice.
Mr. Pollock is a member of the Journal's editorial board.
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From Crafty's post:
"Bernanke and the Fed Repeal Einstein
Near-zero interest rates, which are expected to last through mid-2015, make a mockery of thrift.."
Excellent point. Too many of us look at interest rates as the cost of borrowing. It also was the reward and incentive for savings. It is true that the law of compound interest was repealed when interest approached zero and then stayed there long term.
In a healthy economy there is a balance between savings and lending/borrowing. Now the savings is at zero and our borrowing demand is met with pretend money that is artificially manufactured by devaluing our existing supply of money.
What could possibly go wrong?
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IMHO it is quite fair and quite accurate to speak of a "War on Savers".
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Massive injections of stimulus into financial markets by the world's largest central banks are creating a domino effect around the globe, prompting governments from Brazil to Turkey to take steps to keep easy money from flooding in and driving up their currencies.
The Bank of Japan has joined two other central banks in easing monetary policy. Are central banks hinting at more long-term changes? Vincent Cignarella discusses on Markets Hub. Photo: Reuters.
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The Bank of Japan Wednesday became the latest central bank to ease monetary policy. That follows bold pledges by the world's two biggest central banks to launch open-ended programs to bolster their economies.
The BOJ's efforts were largely designed to stimulate Japan's moribund economy, in part by adding money to financial markets as well as driving down the value of the yen to help the nation's exporters. The bank increased the size of its asset-purchase program to 80 trillion yen ($1 trillion) from 70 trillion yen, and extended the program by six months until the end of 2013.
The Big Easing
Central banks around the world are taking steps to ease monetary policy to bolster their economies and push down their currencies.
View Interactive
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The European Central Bank said earlier this month that it is prepared to buy debt from euro-zone countries that need help in controlling their borrowing costs. The Federal Reserve last week announced a program to buy $40 billion a month in mortgage-backed securities until the economy recovers. Many investors expect the Bank of England to announce its own additional measures to stimulate growth.
Amid the flurry of news from central banks, financial markets have been buoyant but calm. Investors note that stocks and other riskier investments staged big rallies over the summer in part on expectations for easier monetary policy, muting the response to the news. The Standard & Poor's 500 stock index is up 1.7% since last Wednesday, the day before the Fed announced its latest easing.
Given the apparent slowing in the global economy, worries about inflation or asset-price bubbles from central bank efforts to pump money into the financial system have for the most part been pushed to the back burner. But should economic activity pick up, those concerns could quickly revive, especially when it comes to commodities or higher-yielding investments.
And, given that the Fed and other major central banks appear committed to long periods of easy money, investors expect the effects of their actions to play out for months or years.
The efforts of the world's major central banks to stimulate growth in their own economies are already rippling across financial markets.
Investors are flocking to countries and assets that offer higher interest rates than the rock-bottom rates offered in Japan, the U.S. and parts of Europe. That is driving other central banks to employ their own measures, in part to keep their interest rates low or to make their currencies less attractive.
Global Rates
Rate changes since 2004 in dozens of countries.
View Interactive
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More photos and interactive graphics
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A weaker currency makes a country's exports more affordable overseas. At the same time, that makes other nations' exports more expensive. The dynamic raises the incentive for policy makers to devalue their own currencies to remain competitive in global markets.
As with past episodes of aggressive easing by the world's major, developed-market central banks, many investors are homing in on emerging markets offering higher yields and generally healthier economies. The Brazilian real initially jumped 0.7% after the Fed's move, but finished Wednesday's session up 0.3% from a week earlier. The Mexican peso, meanwhile, has gained 2.7% over the past week, the Polish zloty is up 4.3% and the Korean won is up 1.6%.
"All of this cash generated by the Federal Reserve is going to be entering foreign shores," said Komal Sri-Kumar, chief global strategist at TCW. "Emerging markets are going to be tempted to cut interest rates…to offset their currencies appreciating too much."
Brazil took steps Monday to prevent potential waves from the Fed's easing from lifting the value of its currency, conducting so-called "reverse dollar swaps" to prevent its currency, the real, from appreciating. Also Monday, Peru adjusted its intervention strategy toward weakening the Peruvian sol, and on Tuesday Turkey cut interest rates by more than expected.
Unlike past easing episodes that created fears of a "currency war" over tidal waves of money heading toward emerging markets, some in the markets expect a muted response this time.
Officials in South Korea, Thailand, Singapore and the Philippines took a cautious view of the uptick in their currencies following the Fed's announcement, though they all asserted a readiness to smooth out market movement if capital inflows become excessive.
Investors like Alessio de Longis, a portfolio manager at Oppenheimer Funds, which has $182 billion under management, have been buying currencies of countries such as Poland, Norway, Mexico and Canada, whose central banks are seen as less likely to act to push down their currencies against the U.S. dollar.
In the previous round of Fed quantitative easing, the dollar weakened significantly against most currencies. The Wall Street Journal Dollar Index, a measure of the dollar's value against a basket of major currencies, fell 18% in the 13 months from June 2010, when expectations of more Fed stimulus first began to rise, until the $600 billion bond-buying program ended the following summer. The index dropped 20% against the Brazilian real over the same period and 18% versus the Korean won.
The dollar's decline was less pronounced ahead of the announcement last week. The WSJ Dollar Index is down 6% from its 2012 high reached in July.
The current environment is far different from late 2010, when the Fed launched its second major bond-buying program, known as QE2. At the time, the stronger growth in emerging-market nations helped attract investors from advanced economies. The Fed's move spurred loud complaints from Brazil, China and other emerging powers that a surge in "hot money" would destabilize their economies and spur unwanted inflation.
By contrast, U.S. job creation has slowed sharply since the start of the year. The euro zone is already in recession, driven by worsening downturns in southern European nations such as Spain and Italy spreading to their northern neighbors. Most emerging-market economies, in turn, have seen their export sectors struggle as a result of Europe's woes. Almost every major economy in the world is seeing its manufacturing sector contract, according to recent surveys of purchasing managers.
Recent reviews by the International Monetary Fund of the effects of QE2 dismissed many of the concerns that were originally raised about the Fed's bond-buying program.
"The Brazilians and the Chinese, who were among the biggest critics of QE2, I think have changed their view of it in hindsight," said Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics and former Fed economist. "They're just less inclined to worry about it."
Emerging-market nations are less likely to complain this time, after taking their own measures to boost exports.
China may limit the appreciation of its currency, despite appeals from the U.S. to let the yuan rise, but the country "won't risk outright confrontation with Washington in the run-up to the election," said Simon Evenett, an economist at the University of St. Gallen in Switzerland. And Brazil "lost a lot of credibility" already by devaluing its currency, the real, he said.
—Stephen L. Bernard
and Matthew Walter contributed to this article.
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http://www.ftportfolios.com/Commentary/EconomicResearch/2012/9/26/the-futility-of-quantitative-easing
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Harsh Words for Fed From Beijing, Seoul .
By AARON BACK And IN-SOO NAM
BEIJING--Chinese and South Korean central-bank officials criticized the U.S. Federal Reserve's latest easing efforts and advocated reducing Asia's dependence on the U.S. dollar.
The comments Thursday, at a joint seminar in Beijing by the two central banks, are the clearest indication yet of a rising backlash in Asia against U.S. monetary policy, suggesting it could speed up the search for alternatives to the dollar as the main global currency.
"The rise in global liquidity could lead to rapid capital inflows into emerging markets including South Korea and China and push up global raw-material prices," said Bank of Korea Gov. Kim Choong-soo. "Therefore, Korea and China need to make concerted efforts to minimize the negative spillover effect arising from the monetary policies of advanced nations."
Chen Yulu, an academic adviser to the People's Bank of China, said Asia needs a "regional core currency" to reduce its dependence on the dollar. China's ultimate goal is for the yuan to be as important as the euro or the dollar, he said.
But he acknowledged that will be a slow process, saying it would be possible for the yuan to be fully convertible by 2020, and that the overall yuan-internationalization process may last until 2040. China strictly controls its currency, though it has made small moves to broaden its use globally in recent years and has also allowed a little more flexibility in its movements.
Facing persistent economic stagnation and high unemployment, the U.S. Federal Reserve earlier this month launched a mortgage-bond buying program, its third round of so-called quantitative easing, or QE3. The Bank of Japan has also expanded its existing easing program, and the European Central Bank has unveiled a plan for potential purchases of the sovereign bonds of stressed euro-zone countries.
The latest round of easing by the U.S. will increase inflationary pressures for emerging-market economies, Mr. Chen said. This contributes to a monetary-policy dilemma for Chinese authorities, he added. While markets have looked for signs of more forceful action by China's leaders to rekindle growth, some officials attribute the government's caution to fears of reigniting inflation.
"On the one hand, China needs to stabilize growth, but on the other hand China is very worried about a property-price rebound," Mr. Chen said.
At the time of the Fed's second round of quantitative easing in 2010, many Asian economies looked to tighten, rather than easing, monetary policy as strong growth made them attractive for speculative money. Currently, with particularly the Chinese economy slowing, hot-money inflows are likely to be more subdued.
Two years ago, several emerging-market central banks also faced a painful choice between raising rates to thwart inflation—risking stronger currencies, which would threaten their exports—and leaving rates alone and tolerating inflation. In 2012, with global growth slowing and inflation less of a threat in Asian emerging markets, central banks can more easily row in the same direction as the Fed and ease credit.
The Korean and Chinese economies are also likely to be affected differently by the Fed's easing. The freer flow of South Korea's currency, the won, means sudden rushes of capital can destabilize the financial system quickly, while China's tighter controls means pressures build more slowly.
Mr. Kim of the Bank of Korea is already on the record fretting about the effects of QE3 on Korea. Earlier this month he said that the Bank of Korea may need to take steps to curb the potential influx of liquidity into South Korea.
The PBOC hasn't made any official comment on the Federal Reserve's latest bond-buying program since it was unveiled. But Chinese policy makers and government scholars have generally reacted negatively, making similar arguments to those from Mr. Kim, predicting inflationary effects on China as commodity prices rise and capital rushes in.
That fits with the past reaction of the PBOC to previous rounds of quantitative easing. In November 2010, PBOC Gov. Zhou Xiaochuan said in a speech that he understands that the Federal Reserve's mandate is only to look after the U.S. economy, but quantitative easing is having adverse effects on the rest of the world.
"A domestic policy may be optimal for the U.S. alone. However at the same time it is not necessarily optimal for the world," he said at the time. "There is a conflict between the U.S. dollar's domestic role and its international settlement role."
A year earlier, Mr. Zhou argued in an influential essay that the world should move to a multicurrency system, including an increased role for Special Drawing Rights, a synthetic international currency created by the International Monetary Fund.
Mr. Kim said Thursday that China and Korea should consider making the two countries' bilateral currency-swap agreement permanent. The three-year agreement allows each country to swap a fixed amount of its own currency for the other's, facilitating trade in the currencies and serving as a possible liquidity booster during times of crisis. South Korea and China agreed last October to almost double the size of their currency swap agreement to 64 trillion won ($57 billion) or 360 billion yuan, from 38 trillion won.
He told reporters on the sidelines of the forum, that there has been no discussion with his Chinese counterparts on the proposal and declined to give a timeline for changes to the swap line.
Both countries should also try to use the yuan and the won in bilateral trade, to cut costs and reduce their reliance on the dollar in transactions, Mr. Kim said. In the long-term, the two countries may consider setting up a won-yuan foreign-exchange market, he added.
Il Houng Lee, a South Korean who currently serves at the chief representative for the IMF in China, said at the seminar that Asian countries can use the yuan as a core currency to settle trade. This can reduce reliance on the dollar and the euro, and can also help improve the efficiency of trade, he said.
But Mr. Lee also echoed Mr. Chen's assessment that yuan internationalization will be gradual, saying it could take more than 30 years.
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Yuan Hits High Against U.S. Dollar
By Lingling Wei
China's yuan briefly hit its highest level against the U.S. dollar since the launch of a modern Chinese currency trading system in 1994, a remarkable turnaround from its slump earlier this year but one that the government will likely cap to protect China's crucial export sector.
Traders and analysts attributed the recent rally to renewed weakness in the dollar in the wake of the latest round of bond purchases launched by the U.S. Federal Reserve, in a move known as quantitative easing. The Fed's move has pushed down the value of the dollar and led investors to plow capital into emerging markets, such as China, to seek higher returns.
Further aiding the yuan's push: domestic businesses dumped dollars for the yuan on speculation that China will take more monetary-easing measures to arrest the economic slowdown that has raised worries over potential factory closures and job losses. Such a move would typically put short-term downward pressure on the yuan, but any increase in optimism over the Chinese economy could strengthen the currency.
The speculation was triggered by a record amount of cash injected into China's banking system by the central bank this week, as well as the approach of next week's weeklong National Day holiday.
"People don't want to be short of the renminbi during the weeklong holiday in case the government announces any measures to stimulate the economy," WoonKhien Chia, a currency analyst at the Royal Bank of Scotland, referring to the yuan's other name.
Many market players, however, expect the bounce in the yuan to be short-lived as Beijing comes under growing pressure to bolster its economy ahead of a once-a-decade leadership transition set to begin in November. A cheaper yuan makes Chinese goods sold overseas less expensive in dollar terms.
China's central bank, the People's Bank of China, "could still try to push down the yuan's value to help Chinese exporters," Ms. Chia said, adding that she doesn't expect the yuan's strong rally to last the next couple of months.
The yuan has experienced rare ups and downs this year as China moved to let market forces play a bigger role in deciding its value. It consistently weakened against the dollar early this year after a year and a half of appreciation, falling as much as 1.6% against the greenback in late July.
Since then, the Chinese currency has reversed course, and it reached the strongest level since modern trading began in 1994 against the dollar on Friday, at 6.2835 to the dollar. The yuan, which ended at 6.2849 versus the dollar, is now up 0.14% this year. It has risen nearly 32% against the dollar since Beijing dropped its peg to the U.S. currency seven years ago.
The PBOC maintains a tight grip on the yuan's value by setting a daily rate for it, known as the parity rate. In April, it widened the range in which the yuan is allowed to rise and fall in daily trading, to 1% above or below the parity rate from 0.5% previously. The move was a signal that China believes the currency is fairly valued and ready to take a more prominent role globally.
"An interesting phenomenon we're seeing is that the yuan has become more volatile since April, indicating a more market-driven currency regime," said Beng-Hong Lee, Deutsche Bank AG's head of trading in China.
Despite the yuan's strong bounce Friday, many traders pointed out that the 6.3410-to-the-dollar parity rate set by the PBOC before the day's trading began showed that it still guided the yuan weaker than its closing level of 6.2940 at the end of last year, indicating the central bank's desire to keep the yuan from appreciating too fast against the dollar.
Until late last year, when China's slowing economy began to weigh on the yuan, the PBOC had frequently intervened in the currency trading to prevent a sharp jump in the yuan's value. Some traders say the central bank could renew its intervention in the coming weeks should the yuan continue to rise sharply.
In addition, Beijing has its eyes trained more than just the dollar. The European Union so far this year has been China's No. 2 export market after the U.S., and China is believed to also have the incentive to prevent the yuan from appreciating too much from the euro. By reducing the value of the yuan against the dollar, the PBOC could slow the rise of the yuan against the euro, analysts say.
But any fall in the yuan is bound to keep it a political issue in the U.S. during an election year in which the Obama administration continues to publicly push China to let its currency appreciate. Some U.S. businesses and lawmakers have accused Beijing of keeping the yuan artificially weak to help its exporters.
Meanwhile, Republican presidential challenger Mitt Romney has said he would name China a "currency manipulator" if elected.
--Wynne Wang contributed to this report.
Write to Lingling Wei at lingling.wei@wsj.com
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Ron Paul Says Someone Needs to Ask the Fed Question By DAVID WEIDNER
It has been a tough summer and fall for Ron Paul.
In June, he conceded the Republican presidential nomination. In August, he turned down a chance to speak at the Republican convention when he reportedly was told he would have to fully endorse Mitt Romney. A video tribute to Mr. Paul ran instead. His delegates were barred from and accused of disrupting the party proceedings. And now through three presidential debates, the Texas congressman's pet issue, monetary policy, has been ignored. "They don't want to talk about it," Mr. Paul said in an interview Tuesday. He added sarcastically: "It's not important enough. It's only half of every single transaction in the world."
You would think that even if Ron Paul the presidential candidate has failed, Ron Paul the Fed critic would be alive and well, front and center in the national debate. After all, any economist will tell you we are living in an unprecedented time of active central banking.
Ben Bernanke, chairman of the U.S. Federal Reserve, has embarked on the third part of an already $2.3 trillion easing program aimed at stimulating the U.S. economy.
Mario Draghi, president of the European Central Bank, has bought €210 billion ($272.4 billion) in sovereign bonds and promised to buy more to keep interest rates low to spur growth in the European Union. Combined with bank lending, the ECB's balance sheet is now more than $4 trillion.
Supporters argue that central bankers are setting the stage for a robust recovery. Critics argue that these reserve banks are making the problem worse by trying to fix one credit bubble with another.
Yet as controversial and full of impact as these moves have been, they have hardly captured center stage in the political realm. You're more likely to hear President Barack Obama or Mr. Romney talk about "binders of women" or "bayonets and horses" than monetary policy.
Mr. Paul is realistic but disappointed. For a politician who ran three presidential campaigns—1988, 2008 and 2012—in which overhauling the Fed was a central platform, relegating the issue to secondary status on the campaign trail has produced mixed feelings.
"They'd just as soon not talk about it too much," Mr. Paul said. Still he added that he is "always amazed at the amount of attention we've gotten over the last several years from the grass roots, but it's coming from the grass roots. It's not coming from the leadership of the Democratic or Republican parties."
The candidates haven't completely ignored the issue. Mr. Obama has stood by Mr. Bernanke and his policy at the Fed. The president lobbied hard for Mr. Bernanke and renominated him in 2010. Mr. Romney has criticized the Fed's actions as inflationary and punchless. He has promised to replace Mr. Bernanke but hasn't hinted at whom he would tap for the job.
Mr. Romney also has said he would consider a gold commission that would study the possibility of tying the value of a dollar to the price of gold.
Mr. Paul and his devoted following argue that it's not enough. Mr. Paul said most of our economic ills can be traced to Fed policy run amok. He finds it ironic that the candidates talk about the recession, the jobs lost to it, bailouts, the national deficit and debt swelled by it, without mentioning monetary policy.
"I wish somebody would ask the question," he said. "I did my best to call attention to it."
Mr. Paul said that with a hint of finality. After all, he announced last summer that this term in Congress would be his last. He will no longer have Capitol Hill as his stage. Not to worry, he adds. There's a lot of criticism about monetary policy happening outside of Washington. He says he would serve, if asked, on a gold commission or in a role related to his cause.
Ultimately, however, if his own accounting of the situation is correct, whoever is in the White House during the next four years will have to consider the Fed and its impact. Just last week, Mr. Paul noted, the Fed bought $20 billion in Treasurys, while foreign banks bought $22 billion. "This wasn't money that was earned," he said. "How long can this go on?"
Debate about the Fed's role "will come back," Mr. Paul said. "It will be forced on the front burner because as long as we keep doing this and the longer the delay, the bigger the problem becomes."
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Staid Yuan Roams as China Lets Out Slack .
By LINGLING WEI
BEIJING—The once-predictable Chinese yuan has become increasingly volatile, a development that signals a stronger role for markets in the currency's moves but poses greater foreign-exchange risks for businesses and investors.
China still keeps a tight grip on the yuan by limiting its trading within a range. In terms of volatility, the currency still pales in comparison to more freely traded counterparts.
But since late September, as China's economy started to show signs of stabilizing, traders betting on the yuan's rise have pushed the currency to the upper limit of the Beijing-imposed trading range more frequently, according to an analysis by The Wall Street Journal. The intraday moves have been much bigger than suggested by changes in the daily rate set by China's central bank. Traders say they are increasingly taking advantage of an April move by the People's Bank of China to expand the yuan's trading territory.
On Thursday, the yuan again hit the upper limit of its daily trading band, finishing at the day's high of 6.2417 to the dollar. That level is the highest since the launch of modern foreign-exchange trading in China in 1994.
China's lighter hand on the currency is one reason the yuan has had a rare bumpy ride this year. The yuan is up 0.8% against the U.S. dollar for the year, after falling as much as 1.6% in July. Back then, as investors worried over China's economic slowdown, traders sold the yuan, aiding Beijing's effort to make it weaker against the dollar.
The new volatility underscores Beijing's increasing willingness to allow market forces to play a bigger role in setting the yuan's value. "The PBOC is not intervening much these days, and the market is taking full advantage of the widened trading band," said analyst WoonKhien Chia at Royal Bank of Scotland RBS.LN -0.25%.
PBOC officials didn't respond to requests for comment.
The yuan's recent rise comes as China prepares for a once-a-decade leadership change. Some market analysts expect the transition to pave the way for more monetary-easing measures aimed at keeping China's economy humming. Such measures typically put short-term downward pressure on a country's currency, but any increase in optimism over the economy could help strengthen the yuan.
China's growing flexibility also could help deflect criticism by the U.S., where the yuan's value has become an issue in the current election campaign.
The Chinese currency also has been buffeted by the same forces hitting other Asian markets. Money has poured into Asian assets as investors seek higher returns in response to declines in interest rates in Western countries.
Chinese stocks have risen recently after a dismal year, in part because of the inflow of new cash. Net flows of cash into Hong Kong and mainland China equity mutual funds have totaled $1.3 billion over the past four weeks, the most for any part of Asia excluding Japan, according to research by Deutsche Bank DBK.XE -0.58%.
Chinese officials have said the country will push ahead with establishing a market-based exchange-rate system, whereby the yuan would move up and down like any other major currency. The change is part of China's plan to overhaul its creaky financial sector, elevate the country's status in the international monetary system and someday challenge the U.S. dollar as the de facto global currency.
Russian Prime Minister Vladimir Putin said Thursday that Russia and China should move toward settling trade in their own currencies and that full convertibility for the yuan is "a matter of time."
China's growing flexibility also could help deflect criticism by the U.S., where the yuan's value has become an issue in the current election campaign. Some U.S. businesses and lawmakers say China undervalues the yuan to make its exports more attractive. Republican contender Mitt Romney has said he would label China a currency manipulator on his first day in office.
The swings are causing problems for exporters like Du Hanbing, who runs a business in the Chinese city of Shenzhen that makes embossing machines and sells them in the U.S. and Canada. Mr. Du said he usually would adjust prices based on how the yuan is trading.
"If the yuan depreciates, I would bump up the dollar prices for our products, and vice versa," he said. "But nowadays, the yuan seems to be switching courses faster than we could adjust our prices."
The volatility has increased the yuan's appeal for financial investors like hedge funds that profit from swings either way.
Andy Seaman, a portfolio manager at hedge-fund firm Stratton Street Capital, said he has been increasing his exposure to renminbi all year. He manages a yuan-bond fund with about $180 million in assets under management. It buys Asian dollar-denominated bonds and enters into forward contracts that allow the fund to get renminbi by selling dollars.
The fund is up 2.8% this month and nearly 23% this year, he said. It has benefited from both yuan appreciation and rising yields on the underlying bonds. Mr. Seaman said the fund also has benefited from the yuan's increased volatility. Prices on the yuan-linked forward contracts he buys are lower than they otherwise would be, reflecting the uncertain outlook, leaving his fund with bigger gains if the yuan continues to appreciate.
The PBOC keeps a leash on the yuan's trading in mainland China by setting a daily rate for it, known as the parity rate. In April, it widened the range in which the yuan is allowed to rise and fall daily to 1% above or below the parity rate from 0.5% previously. The move reflected China's belief that the currency is fairly valued and ready to take a more prominent role globally.
The yuan consistently weakened against the dollar early this year amid worries over China's economy. Since the summer, the yuan has reversed course.
Still, it remains a stable currency compared with many others. The yuan has fluctuated 2.1% in the past month, compared with 6.52% for the South Korean won, 4.74% for the Singapore dollar and an average 4.85% for Asian currencies, according to RBS.
—Wynne Wang and Stephen Fidler contributed to this article.
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I have no idea whether this is gibberish or insightful:
http://www.thegoldandoilguy.com/articles/
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The dollar is our currency, but it's your problem.
—U.S. Treasury Secretary
John Connally, 1971
In the final televised presidential debate, Mitt Romney promised that if he is elected on Nov. 6 he will "label China a currency manipulator" on "day one" of his presidency. He also pledged to pay more attention to trade with Latin America, noting that the region's "economy is almost as big as the economy of China."
To be consistent, Mr. Romney should call out the Federal Reserve on day two for engaging in its own currency manipulation by way of "quantitative easing," which undermines the value of the dollar relative to Latin American currencies. After all, no one can expect a healthy trade relationship with the region if the Fed is goading U.S. trading partners into competitive currency devaluations.
Related Video..But that's not the main reason why a new U.S. president should want to rein in the Fed. The greater worry is the one that International Monetary Fund Managing Director Christine Lagarde warned about at the IMF's October meeting in Tokyo. Easy money from the central banks of developed countries, she said, creates the risk of "asset price bubbles" in emerging economies.
If history is any guide, such bubbles are likely to lead to financial crises that in turn lead to setbacks in development. Aside from the damage that does to middle-income countries like Brazil, emerging-market financial crises also undermine U.S. economic and geopolitical objectives.
From September 2008 through the end of 2011, Mr. Bernanke's Fed created $1.8 trillion in new money. But Fed policy makers were only warming up. In September they announced that they will engage in a third round of quantitative easing—that is, more money creation, ostensibly to spur growth and thus bring down unemployment—at a rate of $40 billion per month with no deadline.
With so many dollars sloshing around in U.S. banks and with a fed-funds rate set near zero, investors have found it hard to earn a decent return. The scavenger hunt for yield has sent dollars rushing into emerging markets where, as they are converted into local currency, they put upward pressure on the exchange rate.
Brazil has experienced this in spades. Brazilian Finance Minister Guido Mantega has complained bitterly about it because in his mind the higher relative value of the real makes Brazil worse off.
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U.S. Federal Reserve Chairman Ben Bernanke
.In Mr. Bernanke's remarks at the IMF meeting in Tokyo, he suggested that emerging economies ought to simply let their currencies appreciate rather than "resist appreciation" through "currency management." To do otherwise, he noted, can mean "susceptibility to importing inflation," which means making Brazilians poorer.
Mr. Bernanke has a point. The closed, heavily regulated Brazilian economy is held back by too much government, not a strong real.
Indeed, the quest for a weak currency to boost exports is counterproductive if the goal is development. As former Salvadoran Finance Minister Manuel Hinds wrote earlier this month for the Atlantic magazine's new online publication, Quartz, the Brazilian boom in industrial production, which stirred "the idea that [Brazil] would become the engine of the world," came from "the inflow of dollars that Mr. Mantega hates so much."
But Mr. Bernanke's dismissive posture toward emerging economies missed the larger point. As Mr. Hinds also pointed out, "the exceptional prosperity would last only as long as the dollars kept on coming." And there's the rub. The boom is an artificially high valuation of the Brazilian economy, produced only because Mr. Bernanke has made the world awash in dollars.
The sustainability issue is troubling. As Bank of England Governor Mervyn King noted in a speech last week: "When the factors leading to a downturn are long-lasting, only continual injections of [monetary] stimulus will suffice to sustain the level of real activity. Obviously, this cannot continue indefinitely."
The Americas in the News
Get the latest information in Spanish from The Wall Street Journal's Americas page.
.In a perfect world, the end of the dollar flows—or a downturn in soaring commodity prices when investor expectations begin to shift—would simply mean an economic slowdown. But booms are almost always accompanied by credit expansions, and Brazil's is no different. Since 2004, bank credit has grown to 167% of gross domestic product from 97%.
What happens when a leveraged economy, living on accommodative monetary policy, suddenly finds the spigot turned off? Ask Americans who were on the receiving end of Fed tightening in 2007.
In Tokyo, Mr. Bernanke spoke to the world the way former U.S. Treasury Secretary John Connally spoke to the G-10 in Rome in 1971 after the U.S. abandoned the Bretton Woods agreement that had tied the dollar to gold: Get over it. We do what we want.
That attitude wasn't constructive for Americans or the rest of the world. If some future U.S. president intends to restore American prestige in economic leadership, restoring Fed credibility as a responsible manager of the world's reserve currency is a necessary first step
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http://www.economist.com/news/finance-and-economics/21564880-yuan-displacing-dollar-key-currency?fsrc=scn/tw/te/pe/trending/yuan
Turning from green to red
The yuan is displacing the dollar as a key currency
Oct 20th 2012 | HONG KONG | from the print edition
..IN TOKYO last week the bigwigs of international finance paid close attention to a speech by Ben Bernanke, chairman of America’s Federal Reserve. His speech urged them, in effect, to pay less attention. Many policymakers in emerging markets complain that Fed easing destabilises their economies, contributing to higher inflation and asset prices. Mr Bernanke pointed out that emerging economies can insulate themselves from his decisions by simply decoupling their currencies from the dollar. It is their habit of shadowing America’s currency, however loosely, that obliges emerging economies to ease monetary policy whenever he does.
Policymakers may heed Mr Bernanke’s words—freeing them to ignore his decisions—sooner than he thinks. In a (more thinly attended) speech on the same day, a deputy governor of China’s central bank pointed out that China no longer hoovers up dollar reserves with its past abandon. And according to a new study by Arvind Subramanian and Martin Kessler of the Peterson Institute for International Economics in Washington, DC, the dollar’s influence is waning in the emerging world. Currencies that used to shadow the greenback are no longer following it so closely. Some are floating more freely. But in other cases they are steadily falling under the spell of a different currency: the yuan.
Some inflation-prone emerging economies, such as Ecuador, have adopted the dollar as their official currency. Others, such as Jordan, peg their exchange rate to it. These official policies are one measure of the dollar’s international role. Messrs Subramanian and Kessler use a different measure, based on the way exchange rates behave in the market. They identify currencies that tend to move in sympathy with the dollar in its daily fluctuations against a third currency, such as the Swiss franc. This “co-movement” could reflect market forces, not official policies. It need not be a perfect correlation. It need only be close enough to rule out coincidence.
Based on this measure, the dollar still exerts a significant pull over 31 of the 52 emerging-market currencies in their study. But a number of countries, including India, Malaysia, the Philippines and Russia, appear to have slipped anchor since the financial crisis. Comparing the past two years with the pre-crisis years (from July 2005 to July 2008), they show that the dollar’s influence has declined in 38 cases.
The greenback has in the past played a dominant role in East Asia. But if anything, the region is now on a yuan standard. Seven currencies in the region now follow the yuan, or redback, more closely than the green (see chart). When the dollar moves by 1%, East Asia’s currencies move in the same direction by 0.38% on average. When the yuan moves, they shift by 0.53%.
Of course, the yuan does not yet float freely itself. Since June 2010 it has climbed by about 9% against the dollar, fluctuating within narrow daily bands. Its close relationship with the greenback poses a statistical conundrum for Messrs Subramanian and Kessler. How can they tell if a currency is following in the dollar’s footsteps or the yuan’s, if those two currencies are moving in close step with each other? In previous studies, wherever this ambiguity arose, currencies were assumed to be following the dollar. The authors relax this assumption, arguing that the yuan now moves independently enough to allow them to distinguish its influence. But some of the yuan’s apparent prominence may still be the dollar’s reflected glory.
Outside East Asia, the redback’s influence is still limited. When the dollar moves by 1%, emerging-market currencies move by 0.45% on average. In response to the yuan, they move by only 0.19%. But China’s currency will continue to grow in stature as its economy and trading activity grow in size. Based on these two forces alone, China’s currency should surpass the dollar as a key currency some time around 2035, Mr Subramanian guesses. By that point, the Fed chairman will be the one pulling in the smaller audiences.
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FWIW IMHO we are going to be quite sorry when the dollar loses what remains of the respect it holds. Amongst a number of important reasons is that our numbers (debt as a % of GDP, that sort of thing) are nearly fully as bad as Greece's-- the main difference being that we print the currency in which our debt is denominated. When foreign buyers for our debt disappear, the Fed, which already buys some 60%+ of the debt will step in. How does this not lead to a serious inflation and interest rate spike? With the interest rate spike, our deficit takes off, and Weimar monetary policy beckons its bony hand , , ,
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FWIW IMHO we are going to be quite sorry when the dollar loses what remains of the respect it holds. Amongst a number of important reasons is that our numbers (debt as a % of GDP, that sort of thing) are nearly fully as bad as Greece's-- the main difference being that we print the currency in which our debt is denominated. When foreign buyers for our debt disappear, the Fed, which already buys some 60%+ of the debt will step in. How does this not lead to a serious inflation and interest rate spike? With the interest rate spike, our deficit takes off, and Weimar monetary policy beckons its bony hand , , ,
Yup.
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http://www.forbes.com/sites/afontevecchia/2012/03/27/peter-schiff-market-crushing-treasury-collapse-to-hit-around-2013/
Peter Schiff: Market-Crushing Treasury Collapse To Hit Around 2013
Schiff considers Fed Chairman Ben Bernanke "public enemy number one" - (Image credit: Getty Images via @daylife)
Peter Schiff, the divisive investor and commentator that predicted the subprime/real-estate bubble, is forecasting a U.S. dollar and bond crisis over the next couple of years. Schiff blames intervened bond markets, where rates are artificially and excessively low, and expects the coming crisis to blow the 2008-9 financial crisis out of the water.
There is little doubt that the Federal Reserve, with Chairman Ben Bernanke at the helm, is holding markets by the hand. Bernanke, himself a divisive figure, has done all he can to push interest rates lower, using quantitative easing and Operation Twist once nominal rates had hit the zero-range. While many believe ultra-loose monetary policy is dangerous, Schiff thinks it will lead to a catastrophic correction.
“The more you delay it, the bigger it will be,” Schiff tells Forbes in a phone interview Tuesday, “so we need to raise interest rates during the recession to confront the inefficiencies.” Schiff, who runs Euro Pacific Capital and is seen by many as permanently bearish, argues that government-intervened bond markets are leading to massive distortions in capital allocation that have only been exacerbated as the Fed reacted to the last couple of recessions.
Recent market behavior supports his thesis that massive dislocations in bond yields distort reality. Ten-year Treasury yields had traded in a narrow-range for about four months, on the presumption that a weak economy would continue to count on Bernanke’s monetary support (particularly of the bond market). On March 13, the policy-setting Federal Open Market Committee (FOMC) acknowledged an improved recovery, but did not mention more quantitative easing, or bond purchases, were on the way, sparking a violent sell-off in Treasuries (exacerbated by JPMorgan’s dividend announcement the same day, which triggered a rally in financial stocks) as market players fled a bond rally they considered fixed by the Fed.
While Bernanke delivered calm to bond markets on Monday in a speech that promised “continued accommodative policies,” the violence of the sell-off speaks to Schiff’s argument. “We consume more than we produce and we borrow abroad, but we are never going to be able to pay them back,” says Schiff.
The controversial investor and commentator expects a massive crash over the next two to three years as a bond market bubble, coupled with the U.S. dollar, collapses under the weight of excessive debt. Schiff, like PIMCO’s Bill Gross, doesn’t believe in the current deleveraging cycle. While households have reduced their leverage, government debt has ballooned on the back of stimulus programs, but, argued Schiff, the government’s debt is the people’s debt, thus overall leverage has actually increased.
In CNBC interview Wednesday, Schiff called Bernanke “public enemy number one” and warned that banks would crash if the bond market collapses. While most major banks, including the likes of JPMorgan, Wells Fargo, and even Bank of America, passed the Fed’s strenuous stress tests, which stipulated a massive decline in equity and real estate prices, Schiff still believes they’re in trouble. “The Fed didn’t ask the banks to stress test a big drop in the bond market because that’s what coming, and the banks would fail that,” he said.
Schiff cites the rising price of gold as evidence that U.S. dollar debasement, and inflation, are higher than the Fed, and consumer price data, suggest. Following the Austrian economic tradition, Schiff believes that only a massive correction, via a deflationary recession, can set the system straight. “In a deflation, real wages will rise because the cost of goods will fall faster,” he says, adding that the government should accompany the correction by lowering taxes and cutting back on regulation.
While Schiff does suggest saving in gold, he understands the limitations of the investment. “If you invest in gold, then the economy doesn’t benefit from savings, I want investment to go to plants and equipment.”
The system, he argues, is as broken as it was before the financial crisis. Schiff, who was very prescient in his forecast and prediction of how the subprime debacle would filter through to the broader real estate market and thus bring down the economy, believes complacency is widespread. “All of the people who were 100% wrong [back in ‘08] are saying that everything’s OK [now]. I am telling them they didn’t solve the problem and are making it so much worse.”
Schiff, who knows how to build his case, concludes it thusly: “I didn’t get lucky, I just understood the problem, and we are going to get another big one coming soon.”
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This makes sense to me-- did I read correctly the piece by him in a nearby thread that I just finished criticizing?!?
What does he suggest we ordinary mortals do?
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This makes sense to me-- did I read correctly the piece by him in a nearby thread that I just finished criticizing?!?
What does he suggest we ordinary mortals do?
No. I don't think you did. He is big on gold, which seems to be selling well these days, for some reason. He has some book out on how to invest for the coming crash.
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It's called .22 LR ammunition. Buy in bulk now.
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I see that AK type rifles are now 100-250 dollars above pre-election prices. 7.62x39 ammo is up as well. Probably not getting any cheaper anytime soon.
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http://www.shtfplan.com/emergency-preparedness/what-is-money-when-the-system-collapses_12292009
What is Money When the System Collapses?
Mac Slavo
December 29th, 2009
SHTFplan.com
What is money?
Economist Mike Shedlock defines money through the eyes of Austrian economist Murray N. Rothbard as “a commodity used as a medium of exchange.”
“Like all commodities, it has an existing stock, it faces demands by people to buy and hold it. Like all commodities, its price in terms of other goods is determined by the interaction of its total supply, or stock, and the total demand by people to buy and hold it. People buy money by selling their goods and services for it, just as they sell money when they buy goods and services.”
What is money when the system collapses and the SHTF?
In disaster situations, the value of money as we know it now changes, especially if we are dealing with a hyperinflationary collapse of the system’s core currency. This article discusses money as a commodity in an event where the traditional currency (US Dollar) is no longer valuable.
In a collapse of the system, there will be multiple phases, with the first phase being the “crunch”, as discussed in James Rawles‘ book Patriots. The crunch is the period of time directly preceding a collapse and the collapse itself.
Traditional Currency
Initially, the traditional currency system will maintain some value, though it may be rapidly depreciating in buying power. For those with physical, non-precious metal denominated currency on hand (paper dollars, non-silver coins), spending it as rapidly as possible is the best approach.
It is during the crunch that ATM machines around the country will run out of currency as people aware of the rapidly devaluing dollar will be attempting to withdraw as much money as possible. This immediate increase in money supply, coupled with the population’s general knowledge of the currency depreciation in progress, will lead to instant price increases for goods, especially essential goods.
If your physical cash has not been converted into tangible assets, this would be the time to do so. Acquiring as much food, fuel, clothing and toiletry items as possible would be the ideal way to spend remaining cash before it completely collapses to zero, as it did in the Weimar inflation in 1930′s Germany, or Zimbabwe’s hyperinflation in recent years.
Precious Metals
During the initial phase of the ‘crunch’ precious metals will be a primary bartering tool, but this may not last long. The old survivalist adage “you can’t eat your gold” will become apparent very quickly. In a total breakdown of the system, food, water and fuel will be the most important tangible goods to acquire.
Consider someone who has a two week or one month supply of food on hand. Do you believe they would be willing to part with that food for some precious metals? The likely answer is no. There will be almost no bartering item that one would be willing to trade their food for once it is realized that food supply lines have been cut.
That being said, since most will not barter their food, not even for fuel, the next recognized medium of exchange by merchants, especially those selling fuel, will be precious metals. For the initial crunch, silver coins, especially recognizable coins like 90% silver quarters, dimes and half dollars, along with one (1) ounce government mint issued silver coins like US Silver Eagles, will be accepted by some, probably most, merchants. For those trying to flee cities to bug-out locations, silver coins of the aforementioned denominations may be a life saver, as they can be used to acquire fuel. While we recommend having gold, as well, the issue with gold is that its value is so much higher than that of silver, that breaking a one ounce gold coin into 10 pieces just to buy a tank of gas will not be practical. It is for this reason that having silver on hand is highly recommended. Packing at least $25 – $50 of silver coins in each bug-out bag would be a prudent prepping idea.
In a total SHTF scenario, silver and gold may eventually break down as a bartering unit, as contact with the “outside” world breaks down. One reason for this, is that the fair value price of precious metals will be hard to determine, as it will be difficult to locate buyers for this commodity.
This, however, does not mean that you should spend all of your precious metals right at the onset of a collapse. Precious metals will have value after bartering and trade is reestablished once the system begins to stabilize. Once stabilization begins, the likely scenario is that precious metals will be one of the most valuable monetary units available, so having plenty may be quite a benefit. At this point, they could be used to purchase property, livestock, services and labor.
Water
Water is often overlooked as a medium of exchange, though it is one of the most essential commodities for survival on the planet. Had individuals in New Orleans stockpiled some water supplies during Hurricane Katrina, much of the loss of life there could have been avoided.
For those bugging out of cities, it will be impractical to carry with them more than 5 – 10 gallons of water because of space limitations in their vehicles. Thus, having a method to procure water may not only save your life, but also provide you with additional goods for which you can barter.
An easy solution for providing yourself and others with clean water is to acquire a portable water filtration unit for your bug-out bag(s). While they are a bit costly, with a good unit such as the Katadyn Combi water filter running around $150, the water produced will be worth its weight in gold, almost literally. This particular filter produces 13,000 gallons of clean water! A Must have for any survival kit.
Because we like reserves for our reserves, we’d also recommend acquiring water treatment tablets like the EPA approved Katadyn Micropur tabs. If your filter is lost or breaks for whatever reason, each tablet can purify 1 liter of water. In our opinion, the best chemical water treatment available.
Clean water is money. In a bartering environment, especially before individuals have had time to establish water sources, this will be an extremely valuable medium of exchange and will have more buying power than even silver or gold on the individual bartering level.
Food
In a system collapse, food will be another of the core essential items that individuals will want to acquire. Survival Blog founder James Rawles suggests storing food for 1) personal use 2) charity 3) bartering.
Dry goods, canned goods, freeze dried foods can be used for bartering, but only if you have enought to feed yourself, family and friends. They should be bartered by expiration date, with those foods with the expiration dates farthest out being the last to be traded. You don’t know how long the crunch and recovery periods will last, so hold the foods with the longest expiration dates in your posession if you get to a point where you must trade.
Baby formula will also be a highly valued item in a SHTF scenario, so whether you have young children or not, it may not be a bad idea to stockpile a one or two week supply. (For parents of young children, this should be the absolute first thing you should be stockpiling!). In addition to water, baby formula may be one of the most precious of all monetary commodities.
Another tradeable food good would be seeds, but the need for these may not be apparent to most at the initial onset of a collapse, though having extra seeds in your bug-out location may come in handy later.
Fuel
Fuel, including gas, diesel, propane and kerosene will all become barterable goods in a collapse, with gas being the primary of these energy monetary units during the crunch as individuals flee cities. For most, stockpiling large quantities will be impractical, so for those individuals who prepared, they may only have 20 – 50 gallons in their possession as they are leaving their homes. If you are near your final bug-out destination, and you must acquire food, water or firearms, fuel may be a good medium of exchange, especially for those that have extra food stuffs they are willing to trade.
Though we do not recommend expending your fuel, if you are left with no choice, then food, water and clothing may take precedence.
For those with the ability to do so, store fuel in underground tanks on your property for later use and trading.
Firearms and Ammunition
Though firearms and ammunition may not be something you want to give up, those without them will be willing to trade some of their food, precious metals, fuel and water for personal security. If the system collapses, there will likely be pandemonium, and those without a way to protect themselves will be sitting ducks to thieves, predators and gangs.
Even in if you choose not to trade your firearms and ammo during the onset of a collapse, these items will be valuable later. As food supplies diminish, those without firearms will want to acquire them so they can hunt for food. Those with firearms may very well be running low on ammunition and will be willing to trade for any of the aforementioned items.
In James Rawles’ Patriots and William Forstchen’s One Second After, ammunition was the primary trading good during the recovery and stabilization periods, where it was traded for food, clothing, shoes, livestock, precious metals and fuel.
Clothing and Footwear
We may take it for granted now because of the seemingly endless supply, but clothing and footwear items will be critical in both, the crunch and the phases after it. Having an extra pair of boots, a jacket, socks, underwear and sweaters can be an excellent way to acquire other essential items in a trade.
As children grow out of their clothes, rather than throwing them away, they will become barterable goods.
It is recommended that those with children stock up on essential clothing items like socks, underwear and winter-wear that is sized a year or two ahead of your child’s age.
Additional Monetary Commodities
The above monetary units are essential goods that will be helpful for bartering in the initial phases of a collapse in the system. As the crunch wanes and recovery and stabilization begin to take over, other commodities will become tradeable goods.
In A Free Falling Economy Makes Bartering Go Boom, Tess Pennington provides some other examples of items that will be bartering goods during and after a crunch including, vitamins, tools, livestock, fishing supplies, coffee and medical supplies.
Another important monetary commodity after the crunch will be trade skills. If you know how to fish, machine tools, hunt, sew, fix and operate radioes, fix cars, manufacture shoes, or grow food, you’ll have some very important skills during the recovery period.
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http://www.washingtonsblog.com/2012/05/will-china-make-the-yuan-a-gold-backed-currency.html
Will China Make the Yuan a Gold-Backed Currency?
Posted on May 22, 2012 by WashingtonsBlog
If China Backs Its Currency with Gold, It Could Have Profound Effects for Investors … and Consumers
Larry Edelson – - writes today:
I know for a fact that Beijing wants its yuan to eventually become a gold-backed currency, much like the Swiss franc was originally. Backing the yuan with some gold will certainly help it become a major international currency.
Edelson is a financial adviser who travels frequently to Asia, a former high-volume gold trader who is interviewed a lot in the mainstream financial media.
I have no idea whether Edelson is right or not. But he’s not the first to make the claim.
Doug Casey says that if one country – such as China – switches to a gold-backed currency, the dollar will be toast:
All it will take for the world to realize that U.S. dollars are nothing more than hot potatoes is for one country (Doug postulated that maybe China would be first) to introduce a gold-backed currency. If China introduced a gold-backed yuan, for example, who on earth would want anything to do with U.S. dollars?
Similarly, SafeHaven points out:
Suppose a large exporter, such as China, which undervalues its currency and runs a large trade surplus as a result, takes a huge radical step and goes all the way to a 100%-reserve gold currency. The ultimate hard currency. If this succeeds, China is the new England – the financial capital of the world, forever. Everyone else’s money? In a word: pesos. Hard currency is Chinese currency. China’s natural supremacy over the barbarian kingdoms of the West is restored.
Goldcore argues:
China is clearly trying to position the yuan or renminbi as the alternative global reserve currency. The Chinese likely realise that they will need to surpass the Federal Reserve’s official, but unaudited, gold holding of 8,133.5 tonnes.
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World Bank President Robert Zoellick recently mooted the possibility of a return to some form of gold standard. It seems extremely likely that senior and influential Chinese policy makers, bankers and government officials may be having similar thoughts.
Simit Patel writes:
China’s central bank continues to aggressively accumulate gold. Is this a setup for making the renminbi a gold-backed currency? Many have speculated that this is the game plan. Certainly a currency that is gold-backed will have appeal as a reserve currency capable of storing wealth; indeed, the reason why the US was able to position itself as a reserve currency is largely because it was once pegged to gold.
MaxKeiser says:
China is clearly trying to position the yuan or renminbi as the alternative global reserve currency. The Chineselikely realise that they will need to surpass the Federal Reserve’s official, but unaudited, gold holding of 8,133.5 tonnes. China is the sixth largest holder of gold reserves in the world today and officially has reserves of 1054.1 tonnes which is less than half those of even Euro debtor nations France and Italy who are believed to have 2,435.4 and 2,451.8 tonnes respectively.
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[This] game theory article is great because it points out that China does not need to amass a gold stock similar to the US, it can simply go to a gold standard now and effect a simultaneous devaluation against the dollar (as game theory dictates that the US and all other CB’s would be forced to follow China’s lead, or risk losing all their capital as investors buy the only gold backed currency in the world).
And Wikileaks noted several reasons for China’s stocking up on gold. ZeroHedge summarizes:
As the following leaked cable explains, gold is, to China at least, nothing but the opportunity cost of destroying the dollar’s reserve status. Putting that into dollar terms is, therefore, impractical at best, and illogical at worst. We have a suspicion that the following cable from the US embassy in China is about to go not viral but very much global, and prompt all those mutual fund managers who are on the golden sidelines to dip a toe in the 24 karat pool. The only thing that matters from China’s perspective is that “suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar’s role as the international reserve currency. China’s increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB.” Now, what would happen if mutual and pension funds finally comprehend they are massively underinvested in the one asset which China is without a trace of doubt massively accumulating behind the scenes is nothing short of a worldwide scramble, not so much for paper, but every last ounce of physical gold…
From Wikileaks:
3. CHINA’S GOLD RESERVES
“China increases its gold reserves in order to kill two birds with one stone”
“The China Radio International sponsored newspaper World News Journal (Shijie Xinwenbao)(04/28): “According to China’s National Foreign Exchanges Administration China ‘s gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the U.S. and European countries. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar’s role as the international reserve currency. China’s increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB.”
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"Robert Zoellick recently mooted the possibility of a return to some form of gold standard"
What does the verb "to moot" mean?
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Monday Morning Outlook
________________________________________
Is QE4 Really Coming? To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 12/10/2012
The Federal Reserve meets this week. Analysts are supposing and predicting what the statement will say and if the Fed will change its economic projections.
We think this is all much ado about not much. The Fed won’t change the federal funds rate, the short-term interest rate it targets for interbank lending. It appears that Ben Bernanke wants it where it is for the rest of our lifetimes. And it is way too low. Nominal GDP – real GDP growth plus inflation – grew at a 5.5% annual rate in Q3 and is up 4.2% in the past year. With nominal growth this far above the funds rate, monetary policy is truly accommodative.
So, the key issue on the table is what the Fed will do about “Operation Twist.” Since September 2011, the Fed has been buying $45 billion per month in long-term Treasury securities and simultaneously selling $45 billion in short-term securities. The program is designed to bring down long-term interest rates, but is supposed to end at year end.
Our best bet is that given how aggressively the Fed wants to use monetary policy to try to stimulate the economy – despite the fact that fiscal and regulatory mistakes are the real problem – the Fed is not willing to just let Twist die. Instead, it’s likely to continue to purchase $45 billion per month in long-term securities and just stop selling the short-term securities.
What’s important to recognize is that this would not be some cosmetic change in policy. Operation Twist shifted the composition of the Fed’s balance sheet (more long-term, less short-term), but it did not change the size of the balance sheet. By contrast, continuing to buy long-dated Treasuries but no longer selling shorter-term Treasuries would add to the size of the balance sheet and can be looked at like QE4.
If the Fed embarks on this for the next year it would add about $540 billion to a balance sheet that is now $2.8 trillion. The Fed is already committed to buying $40 billion per month in mortgage securities, so we’re on a path for a balance sheet of nearly $4 trillion.
This expansion in the balance sheet is not going to help the economy. The vast majority of the expansion will simply add to excess reserves in the banking system that’s already overstuffed with $1.4 trillion in excess reserves. Banks, knowing the Fed will eventually retract this liquidity are not eager to lend it out.
The Fed may claim that by driving down long-term rates, it can generate some improvement in the housing market. But notice how home building is recovering much faster than home buying. This recovery in housing would have happened anyway. Another issue at the Fed’s meeting will be how to handle the drop in unemployment. In September, the Fed said the jobless rate would finish the year at about 8.1% and not get to 6.5% until mid-2015.
But the unemployment rate is more likely to finish the year at 7.7% and hit 6.5% sometime in 2014. So, is the Fed willing to move up its potential first rate hike? Not likely. The Fed is committed to a course of super-ease and will stay that way. The result will be more inflation and some real difficultly when the Fed finally decides to do something about it.
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A mystery to me why Reps don't rampage with this sort of thing , , ,
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As early as Tuesday Senate Majority Leader Harry Reid (D., Nev.) will seek to extend a 2008 emergency program that aids banks and their wealthiest customers. Senator Richard Shelby (R., Ala.) tells us that he will be voting no, and taxpayers should hope that a bipartisan majority will join him.
Mr. Shelby rightly says that the program, known as the Transaction Account Guarantee (TAG), represents far too much taxpayer exposure. U.S. banks now hold close to $1.5 trillion in TAG deposits. These are non-interest-bearing accounts, typically owned by businesses, well-heeled individuals and local governments. Whereas regular coverage from the Federal Deposit Insurance Corporation now guarantees up to $250,000, TAG accounts enjoy unlimited protection from the FDIC.
We've never understood why middle-class taxpayers should be forced to stand behind an infinite guarantee for the largest bank customers. Instead of providing an answer, the bank lobby tries to pretend that those taxpayers really don't stand behind it and that it's fully funded by premiums paid by banks. Taxpayers can see for themselves by checking the FDIC website, which proudly notes that "the resources of the United States government stand behind FDIC-insured depositors."
Community bankers in particular say they need TAG to compete with the big banks that benefit from too-big-to-fail, but one bad taxpayer guarantee does not warrant another. The policy goal should be to shrink the taxpayer safety net whenever possible.
Bankers keep saying that they have cleaned up their balance sheets, raised capital, improved underwriting and enhanced their liquidity since the crisis days of 2008. So why do they still need a crisis-era backstop courtesy of Uncle Sugar? And can they really argue for regulatory relief during the same lobbying visit when they ask for an extended federal guarantee?
The House leadership has wisely expressed its opposition to TAG. Now it's up to the Senate to signal an end to the era of bank bailouts. A Tuesday cloture vote could give lawmakers the perfect opportunity to demonstrate a turn toward taxpayer protection and more market discipline. Senators should join with Mr. Shelby and tag this bill out on the floor.
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Funny enough, Harry Reid got really rich while working in gov't. Amazing how that happened....
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Which is another point the Reps should be rampaging with , , ,
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Let's see, if the MSM-DNC doesn't carry it, do the low information voters ever hear?
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I get that, but OTOH hand FOX is number one for a reason. Also, there is the fact that the Pravdas are sluts and a good knock-down brawl is good for ratings. If the Reps don't put up a fight, then , , , they will lose.
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Oh, the average 'pub is nutless, no argument there.
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To QE Infinity, and Beyond!
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 12/12/2012
The Federal Reserve made two big changes today, but changes that were mostly anticipated by the markets.
First, the Fed decided to convert Operation Twist into an outright expansion of its balance sheet. Since September 2011, the Fed has been buying $45 billion per month in long-term Treasury securities and, at the same time, selling $45 billion in short-term securities. Once this program ends at the end of December, the Fed will keep buying the long-term securities but stop selling the short-term ones.
This is not some cosmetic change. Unlike Operation Twist, which shifted the composition of the Fed’s balance sheet (more long-term, less short-term), the new program will expand the size of the balance sheet. If the Fed does it for all of 2013, it will add about $540 billion to a balance sheet that is now $2.8 trillion. Meanwhile, the Fed will keep buying $40 billion per month in mortgage securities, so we’re on a path for a balance sheet of nearly $4 trillion by the end of next year.
We don’t like the change. The extra expansion of the Fed’s balance sheet is not going to help the economy. The vast majority will simply add to excess reserves in a banking system that’s already overstuffed with $1.4 trillion in excess reserves. Banks, knowing the Fed will eventually retract this liquidity are not eager to lend it out. When nominal GDP – real GDP plus inflation – is consistently growing at a 4%+ annual rate, a federal funds rate of nearly zero is unsustainably low. Monetary policy is already too loose. Policymakers need to focus on fiscal and regulatory obstacles to growth, not a supposed lack of monetary accommodation.
The second big change by the Fed is the removal of a specific timeframe for keeping rates at essentially zero. As recently as the October meeting, the Fed was saying it would keep rates at current levels through mid-2015. Instead, the Fed introduced economic guideposts to signal when it will start changing short term rates. These include an unemployment rate at or below 6.5%, an inflation forecast (by the Fed) of 2.5% or more, or an unmooring of inflation expectations. In addition, the Fed says it will also look at other measures of the labor market, inflation pressure, and the financial markets. Note that the Fed’s most important inflation measure is its own projection of future inflation, not actual inflation. In other words, higher inflation, by itself, won’t mean higher short term rates, unless the Fed thinks higher inflation will be persistent.
Notably, the Fed also issued a more pessimistic set of economic projections than it previously released in September, reducing the real GDP growth rate for 2012-15 by about 0.1 percentage points per year. Despite the fact that the unemployment rate in recent months has declined faster than the Fed anticipated, it thinks the jobless rate will end 2014 at or slightly above where it previously thought. Taking these projections at face value, as well as the Fed’s projections for inflation, suggests the consensus view at the Fed is the federal funds rate will not have to rise until the third quarter of 2015. This is consistent with its previous guidance of staying where they are until at least mid-2015. By contrast, plugging the First Trust forecast of the unemployment rate into the Fed’s framework suggests the first rate hike will come in the third quarter of 2014, about a year earlier than the Fed now anticipates.
Other, more minor, changes to the statement include the following.
(1) Adding an assessment of employment into the very first sentence of the statement, showing how focused the Fed is on the labor market.
(2) Removing a reference to the housing market coming back “from a depressed level,” suggesting the Fed thinks the housing recession is getting further away in the rear view mirror and is less relevant to the economy today.
(3) Inserting a reference to monetary policy staying accommodative for a considerable period “after the asset purchase program ends.” In other words, the Fed will stop expanding its balance sheet before it starts raising rates.
It also reiterated that it will “closely monitor” the economy and financial markets to gauge whether it should continue asset purchases or even expand them.
Once again, the lone dissent was from Richmond Fed President Jeffrey Lacker, who opposed both the asset purchase program and the economic guideposts chosen to signal when the Fed will consider raising interest rates.
Like we have been saying for many months, quantitative easing will simply keep adding to the already enormous excess reserves in the bank system, not deal with the underlying causes of economic weakness, including the growth in government spending, excessive regulation, and expectations of higher future tax rates. It will not add anything to economic growth and, as long as banks are reluctant to lend aggressively, not cause hyper-inflation either.
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Wesbury: "Like we have been saying for many months, quantitative easing will simply keep adding to the already enormous excess reserves in the bank system, not deal with the underlying causes of economic weakness, including the growth in government spending, excessive regulation, and expectations of higher future tax rates."
Where do they come up with this stuff? Wesbury would have been a far better Fed Chair than Bernancke.
Wesbury here, just reporting on the Fed: "Other...changes...include... (2) Removing a reference to the housing market coming back “from a depressed level,” suggesting the Fed thinks the housing recession is getting further away in the rear view mirror and is less relevant to the economy today."
Crisis IS the new normal in housing, and it will take another turn for the worse AFTER the Fed begins to return interest rates to market levels.
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Referencing here for the Monetary Policy recort Washington Post mainstream idiocy that I excerpted over on 'Cognitive Dissonance of the Left': http://www.washingtonpost.com/blogs/plum-line/wp/2012/12/12/feds-big-decision-is-victory-for-liberal-economics/ Nothing helpful to be learned there.
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Making sense on this or at least sounding the right alarms, not surprisingly, is the WSJ Editorial today, linked at RCP
"the Fed has bought more than 70% of new Treasury debt issuance this year"
Bought Treasury?? Bought with WHAT?? Oil? Gold? They are the printer of money. We are borrowing only 30% of the fiscal shortfall of over a trillion a year and printing the rest. What could possibly go wrong? (Almost everything you can imagine.) Forget about China, what if the Fed calls these notes due!
"Sooner or later the bill for open-ended monetary stimulus will arrive..." - Ya think? Not if your only source of information is the Washington Post!
http://online.wsj.com/article/SB10001424127887323981504578175693687046384.html?mod=WSJ_Opinion_LEADTop
The Fed's Contradiction
Easier money hasn't led to more growth, so we need still easier money.
Four years ago this month the Federal Reserve began its epic program of monetary easing to rescue an economy in recession. On Wednesday, Chairman Ben Bernanke declared that this has worked so well that the Fed must keep easing money for as long as anyone can predict in order to save a still-sputtering recovery.
That's the contradiction at the heart of the Fed's latest foray into "unconventional policy," which is a euphemism for finding new ways to print money: The economy needs more monetary stimulus because it is still too weak despite four years of previous and historic amounts of monetary stimulus. In the words of the immortal "Saturday Night Live" skit: We need "more cowbell."
In his press conference Wednesday, Mr. Bernanke was at pains to say this week's decisions were nothing new, merely an implementation of the policy direction that the Fed's Open Market Committee had set in September. This is technically true, but the timing and extent of the implementation are more than details.
The Fed committed Wednesday to purchase an additional $45 billion in long-term Treasury securities each month well into 2013, in addition to the $40 billion in mortgage assets it is already buying each month. At $85 billion a month, the Fed's balance sheet will thus keep growing from its current $2.9 trillion, heading toward $4 trillion by the end of the year. Four years ago it was less than $1 trillion.
The Fed's goal is to push down long-term interest rates even lower than they are, to the extent that's possible when the 10-year Treasury note is trading at 1.7%. The theory goes that this will in turn reduce already very low mortgage rates, which will help spur a housing recovery, which will lead the economy out of its despond. This has also been the theory for the last four years.
In case there was any doubt about its resolve, the Fed statement also issued a new implicit annual inflation target: 2.5%. The official target is still 2%. But the Open Market Committee stated that it will keep interest rates near zero, and by implication keep buying bonds, as long as the jobless rate stays above 6.5% and inflation stays "no more than a half-percentage point above the Committee's 2-percent longer-run goal."
That is a 2.5% inflation target by any other name, and it's striking to see a central bank in the post-Paul Volcker era say overtly that it wants more inflation. This is a victory for the Fed's dovish William Dudley-Janet Yellen faction that echoes economists who think we have to inflate our way out of the debt crisis. Inflation remains quiescent, but central banks that ask for more inflation invariably get it.
These new overt economic targets are part of Mr. Bernanke's campaign for more "transparency" in monetary policy, but they also have the effect of exposing how much the Fed has misjudged the economy. In January 2012, the Board of Governors and regional bank presidents predicted growth this year in the range of 2.2%-2.7%. On Wednesday, they predicted growth of 1.7%-1.8%, which means they are expecting a downbeat fourth quarter.
Which brings up another irony: Mr. Bernanke may be pulling the trigger on more bond purchases now because he fears economic damage from consumer and business concern over the fiscal cliff. Yet no one has done more to promote public and market worry over the fiscal cliff than Mr. Bernanke, notably in his June testimony to Congress.
Meantime, the Fed's near-zero interest rate policy will continue to disguise the real cost of government borrowing. One reason the Obama Administration can keep running trillion-dollar deficits is because it can borrow the money at bargain rates. Stanford economist and Journal contributor John Taylor says the Fed has bought more than 70% of new Treasury debt issuance this year.
All of this will create a fiscal cliff of its own when interest rates start to rise. The Congressional Budget Office says that every 100 basis-point increase in interest rates adds about $100 billion a year to government borrowing costs. Pity the President and Congress who have to refinance $15 trillion in debt at 6%. If Mr. Bernanke really wants to drive the President and Congress to reduce future spending, he shouldn't keep bailing them out with easier money.
The overarching illusion is that ever-easier monetary policy can return the U.S. economy to a durable expansion and broad-based prosperity. The bill for unbridled government spending stimulus is already coming due. Sooner or later the bill for open-ended monetary stimulus will arrive too.
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I can't remember, was it under Bush or Reagan where our credit rating got downgraded? What will that cost when we need to re-finance $24 trillion at market interest rates?
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The Consumer Price Index (CPI) declined 0.3% in November To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 12/14/2012
The Consumer Price Index (CPI) declined 0.3% in November, coming in slightly below the consensus expected -0.2%. The CPI is up 1.8% versus a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) fell 0.5% in November but is up 1.7% in the past year.
All of the decline in the CPI in November can be attributed to energy prices, which fell 4.1%. Food prices rose 0.2%. The “core” CPI, which excludes food and energy, was up 0.1% in November and is up 1.9% versus a year ago. The consensus expected gain of 0.2% in November.
Real average hourly earnings – the cash earnings of all employees, adjusted for inflation – were up 0.5% in November but are unchanged in the past year. Real weekly earnings are down 0.1% in the past year.
Implications: For now, Ben Bernanke is smiling because all is quiet on the inflation front. Consumer prices fell 0.3% in November, falling short of consensus expectations and are up only 1.8% from a year ago. “Core” prices, which exclude food and energy, were up only 0.1% in November, also coming in lower than consensus expectations, and are up 1.9% from a year ago. Neither figure sets off alarm bells. Instead, they suggest the Federal Reserve’s preferred measure of inflation, the PCE deflator (which usually runs a ¼ point below the CPI) remains below the Fed’s target of 2%. We don’t expect this to last. With nominal GDP growth – real GDP growth plus inflation – running at 4%+, a federal funds rate at essentially zero will generate higher rates of inflation in the year ahead. Look for housing, which makes up about 30% of the CPI, to be a large contributor to higher inflation in the next few years. It’s important to recognize that the Fed will not start raising rates just because inflation gets above its target of 2%. For the Fed, the key measure of inflation is its own forecast of future inflation. So even if inflation goes to roughly 3% next year, as long as the Fed projects the rise to be temporary it will not react by raising short-term interest rates. The Fed is more focused on the labor market and, we believe, is willing to let inflation exceed its long-term target of 2% for a prolonged period of time. The best news in today’s report was that real average hourly earnings rose 0.5% in November, the largest rise since December 2008. This, as well as job growth and low financial obligations by households, will help support growth in consumer spending in the year ahead.
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Leszek Balcerowicz: The Anti-Bernanke Leszek Balcerowicz, the man who saved Poland's economy, on America's mistakes and the better way to heal from a financial crisis..
By MATTHEW KAMINSKI
Warsaw
As an economic crisis manager, Leszek Balcerowicz has few peers. When communism fell in Europe, he pioneered "shock therapy" to slay hyperinflation and build a free market. In the late 1990s, he jammed a debt ceiling into his country's constitution, handcuffing future free spenders. When he was central-bank governor from 2001 to 2007, his hard-money policies avoided a credit boom and likely bust.
Poland was the only country in the European Union to avoid recession in 2009 and has been the fastest-growing EU economy since. Mr. Balcerowicz dwells little on this achievement. He sounds too busy in "battle"—his word—against bad policy.
"Most problems are the result of bad politics," he says. "In a democracy, you have lots of pressure groups to expand the state for reasons of money, ideology, etc. Even if they are angels in the government, which is not the case, if there is not a counterbalance in the form of proponents of limited government, then there will be a shift toward more statism and ultimately into stagnation and crisis."
Looking around the world, there is no shortage of questionable policies. A series of bailouts for Greece and others has saved the euro, but who knows for how long. EU leaders closed their summit in Brussels on Friday by deferring hard decisions on entrenching fiscal discipline and pro-growth policies. Across the Atlantic, Washington looks no closer to a "fiscal cliff" deal. And the Federal Reserve on Wednesday made a fourth foray into "quantitative easing" to keep real interest rates low by buying bonds and printing money.
As a former central banker, Mr. Balcerowicz struggles to find the appropriate word for Fed Chairman Ben Bernanke's latest invention: "Unprecedented," "a complete anathema," "more uncharted waters." He says such "unconventional" measures trap economies in an unvirtuous cycle. Bankers expect lower interest rates to spur growth. When that fails, as in Japan, they have no choice but to stick with easing.
"While the benefits of non-conventional [monetary] policies are short lived, the costs grow with time," he says. "The longer you practice these sorts of policies, the more difficult it is to exit it. Japan is trapped." Anemic Japan is the prime example, but now the U.S., Britain and potentially the European Central Bank are on the same road.
If he were in Mr. Bernanke's shoes, Mr. Balcerowicz says he'd rethink the link between easy money and economic growth. Over time, he says, lower interest rates and money printing presses harm the economy—though not necessarily or primarily through higher inflation.
First, Bernanke-style policies "weaken incentives for politicians to pursue structural reforms, including fiscal reforms," he says. "They can maintain large deficits at low current rates." It indulges the preference of many Western politicians for stimulus spending. It means they don't have to grapple as seriously with difficult choices, say, on Medicare.
Another unappreciated consequence of easy money, according to Mr. Balcerowicz, is the easing of pressure on the private economy to restructure. With low interest rates, large companies "can just refinance their loans," he says. Banks are happy to go along. Adjustments are delayed, markets distorted.
By his reading, the increasingly politicized Fed has in turn warped America's political discourse. The Lehman collapse did help clean up the financial sector, but not the government. Mr. Balcerowicz marvels that federal spending is still much higher than before the crisis, which isn't the case in Europe. "The greatest neglect in the U.S. is fiscal," he says. The dollar lets the U.S. "get a lot of cheap financing to finance bad policies," which is "dangerous to the world and perhaps dangerous to the U.S."
The Fed model is spreading. Earlier this fall, the European Central Bank announced an equally unprecedented plan to buy the bonds of distressed euro-zone countries. The bank, in essence, said it was willing to print any amount of euros to save the single currency.
Mr. Balcerowicz sides with the head of Germany's Bundesbank, the sole dissenter on the ECB board to the bond-buying scheme. He says it violates EU treaties. "And second, when the Fed is printing money, it is not buying bonds of distressed states like California—it's more general, it's spreading it," he says. "The ECB is engaging in regional policy. I don't think you can justify this."
"So they know better," says Mr. Balcerowicz, about the latest fads in central banking. "Risk premiums are too high—according to them! They are above the judgments of the markets. I remember this from socialism: 'We know better!'"
Mr. Balcerowicz, who is 65, was raised in a state-planned Poland. He got a doctorate in economics, worked briefly at the Communist Party's Institute of Marxism-Leninism, and advised the Solidarity trade union before the imposition of martial law in 1981. He came to prominence in 1989 as the father of the "Balcerowicz Plan." Overnight, prices were freed, subsidies were slashed and the zloty currency was made convertible. It was harsh medicine, but the Polish economy recovered faster than more gradual reformers in the old Soviet bloc.
Shock or no, Mr. Balcerowicz remains adamant that fixes are best implemented as quickly as possible. Europe's PIGS—Portugal, Italy, Greece, Spain—moved slowly. By contrast, Mr. Balcerowicz offers the BELLs: Bulgaria, Estonia, Latvia and Lithuania.
These EU countries went through a credit boom-bust after 2009. Their economies tanked, Latvia's alone by nearly 20% that year. Denied EU bailouts, these governments were forced to adopt harsher measures than Greece. Public spending was slashed, including for government salaries. The adjustment hurt but recovery came by 2010. The BELL GDP growth curves are V-shaped. The PIGS decline was less steep, but prolonged and worse over time.
The systemic changes in the BELLs took a while to work, yet Mr. Balcerowicz says the radical approach has another, short-run benefit. He calls it the "confidence effect." When markets saw governments implement the reforms, their borrowing costs dropped fast, while the yields for the PIGS kept rising.
Greece focused on raising taxes, putting off expenditure cuts. They got it backward, says Mr. Balcerowicz. "If you reduce through reform current spending, which is too excessive, you are far more likely to be successful with fiscal consolidation than if you increase taxes, which are already too high."
He adds: "Somehow the impression for many people is that increasing taxes is correct and reducing spending is incorrect. It is ideologically loaded." This applies in Greece, most of Europe and the current debate in the U.S.
During his various stints in government in Poland, the name Balcerowicz was often a curse word. In the 1990s, he was twice deputy prime minister and led the Freedom Union party. As a pol, his cool and abrasive style won him little love and cost him votes, even as his policies worked. At the central bank, he took lots of political heat for his tight monetary policy and wasn't asked to stay on after his term ended in 2007.
Mr. Balcerowicz admits he was an easy scapegoat. "People tend to personalize reforms. I don't mind. I take responsibility for the reforms I launched." He says he "understands politicians when they give in [on reform], but I do not accept it." It's up to the proponents of the free market to fight for their ideas and make politicians aware of the electoral cost of not reforming.
On bailouts, Mr. Balcerowicz strikes an agnostic note. They can mitigate a crisis—as long as they don't reduce the pressure to reform. The BELL vs. PIGS comparison suggests the bailouts have slowed reform, but he notes recent movement in southern Europe to deregulate labor markets, privatize and cut spending—in other words, serious steps to spur growth.
"Once the euro has been created," Mr. Balcerowicz says, "it's worth keeping it." The single currency is no different than the gold standard, "which worked pretty well," he says. In both cases, member countries have to keep their budget deficits in check and labor markets flexible to stay competitive. Which makes him cautiously optimistic on the euro.
"It's important to remember that six, eight, 10 years ago Germany was like Italy, and it reformed," he says. Before Berlin pushed through an overhaul of the welfare state, Germany was called the "sick man of Europe." "There are no European solutions for the Italians' problem. But there are Italian solutions. Not bailouts, but better policies."
Why do some countries change for the better in a crisis and others don't? Mr. Balcerowicz puts the "popular interpretation of the root causes" of the crisis high on the list.
"There is a lot of intellectual confusion," he says. "For example, the financial crisis has happened in the financial sector. Therefore the reason for the crisis must be something in the financial sector. Sounds logical, but it's not. It's like saying the reason you sneeze through your nose is your nose."
The markets didn't "fail" but were distorted by bad policies. He mentions "too big to fail," the Fed's easy money, Fannie Mae FNMA 0.00%and the housing boom. Those are the hard explanations. "Many people like cheap moralizing," he says. "What a pleasant feeling to condemn greed. It's popular."
"Generally in the West, intellectuals like to blame the markets," he says. "There is a widespread belief that crises occur in capitalism mostly. The word crisis is associated with the word capitalism. While if you look in a comparative way, you see that the largest economic and also human catastrophes happen in non-market systems, when there's a heavy concentration of political power—Stalin, Mao, the Khmer Rouge, many other cases."
Going back to the 19th century, industrializing economies recovered best after a crisis with no or limited intervention. Yet Keynesians continue to insist that only the state can compensate for the flaws of the market, he says.
"This idea that markets tend to fall into self-perpetuating crises and only wise government can extract the country out of this crisis implicitly assumes that you have two kinds of people. Normal people who are operating in the markets, and better people who work for the state. They deny human nature."
Gathering the essays for his new collection, "Discovering Freedom," Mr. Balcerowicz realized that "you don't need to read modern economists" to understand what's happening today. Hume, Smith, Hayek and Tocqueville are all there. He loves Madison's "angels" quote: "If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary."
This Polish academic sounds like he might not feel out of place at a U.S. tea party rally. He takes to the idea.
"Their essence is very good. Liberal media try to demonize them, but their instincts are good. Limited government. This is classic. This is James Madison. This is ultra-American! Absolutely."
Mr. Kaminski is a member of the Journal's editorial board.
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http://hotair.com/archives/2013/01/04/hey-lets-avoid-the-debt-ceiling-standoff-by-minting-a-trillion-dollar-platinum-coin-instead/
Hey, let’s avoid the debt-ceiling standoff by minting a trillion-dollar platinum coin instead
posted at 4:23 pm on January 4, 2013 by Allahpundit
Words cannot express my excitement that this banana-republic idea is now being taken seriously enough to attract vocal support from a sitting Democratic congressman. If you’re looking for a way to convince the public that the left has no interest whatsoever in reducing spending before we face a fiscal meltdown, you can’t do better than having Obama and Geithner respond to the GOP’s demand for cuts by producing a de facto handful of magic beans.
In fact, that’s my condition for supporting this proposal. I’ll back it to the hilt, but only if the masterminds behind it figure out a constitutional way to let Treasury choose beans as the trillion-dollar currency instead of a coin. That’ll show those Republicans.
“There is specific statutory authority that says that the Federal Reserve can mint any non-gold or -silver coin in any denomination, so all you do is you tell the Federal Reserve to make a platinum coin for one trillion dollars, and then you deposit it in the Treasury account, and you pay your bills,” Nadler said in a telephone interview this afternoon.
I asked whether he was serious.
“I’m being absolutely serious,” he said. “It sounds silly but it’s absolutely legal. And it would normally not be proper to consider such a thing, except when you’re faced with blackmail to destroy the country’s economy, you have to consider things.”
By “things,” he means magic coins, not Medicare reform. Over at National Journal, a jittery Matthew Cooper wonders if the optics of all this might not be counterproductive for Democrats:
As bad as the House behavior has been, using a small legal provision meant to please numismatists to leverage the nation’s debts seems, um, risky. The only analogy I can think of is the Court-packing mess of the 1930s when President Roosevelt, faced with a cranky Supreme Court that overturned his social-welfare programs and those in the states, tried to enlarge the size of the Court to fill it with more sympathetic appointees. After an outcry, the president backed down. But FDR at least tried to make the change by proposing a statute and forcing a Senate debate. (The bill never cleared the chamber.)
Minting the coins would seem even more imperious. After all, the Supreme Court in the 1930s was knocking down state minimum-wage laws and other expressions of the popular will. FDR had some momentum behind him. But President Obama would look despotic if he embraced this tactic. (Imagine all the pictures of King Obama on a coin.)
I assume the reason they’re thinking about a coin worth “only” a trillion instead of $10 trillion is because, you see, a $10 trillion coin would be exorbitant and sound crazy.
Via Mediaite, here’s Rick Santelli proving his extremism by wondering why people who refuse to mindlessly extend the nation’s line of credit while we’re on an unsustainable fiscal track are the “lunatics” in this debate. Exit question: Am I giving American voters way, way too much credit in thinking they’d laugh at the trillion-dollar coin idea? At this point, given the results in November, what’s the best result poll-wise we could hope for? 55-45 against?
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http://www.sovereignman.com/highlight/when-priced-in-gold-the-us-economy-is-at-depression-era-levels-10286/
When Priced in Gold, the US economy is at Depression-Era Levels
by Simon Black on December 31, 2012
(http://www.sovereignman.com/wp-content/uploads/2012/12/image1.jpg)
December 31, 2012
Buenos Aires, Argentina
As we slide into the end of yet another year in which the nominal price of gold has posted a positive return, I thought it would be interesting to take a look back on history to get a better understanding of where we are today.
It’s obvious that, for many reasons, the size of the global economy is far greater than it was decades ago. We learn in any basic economics course that, over the long run, enhanced productivity and increased technology drive long-term production gains.
Certainly, an economy can produce more widgets if you’re a lean, mean, automated machine… as opposed to a blacksmith with a hammer and forge.
But there are other factors as well. Population growth. Accounting standards. And of course, the continued inflation of the currency. $1 today buys a whole lot less today than it did a century ago, so when comparing, it’s important to find a better standard of measurement.
There are a number of pricing yardsticks we could use… like the cost of a New York City cinema ticket (25 cents in 1935, $20 today). But it would be awkard to calculate GDP in terms of billions of cinema tickets.
Gold is a much more appropriate (though still imperfect) long-term standard of pricing, with its history as a store of value dating back to the ancients.
With this in mind, I collected the appropriate data on gold prices, population, and GDP in the United States since 1791 and plotted GDP per capita denominated in ounces of gold.
(http://www.sovereignman.com/wp-content/uploads/2012/12/gold-chart-300x133.jpg)
This measurement smooths out changes in economic growth due to currency inflation and changes in the population, making it much easier to compares apples to apples.
The results are rather startling. In its earliest days, US GDP per capita was a mere 2.6 ounces of gold per person per year. But this grew quickly, effectively doubling in the 20 year period from 1791 to 1811.
Most of the 19th century proved difficult for growth, as it took another seven decades (over three times as long) for GDP per capita to double again. This makes sense given that the 19th century was marked by several costly wars (War of 1812, Mexican War, Civil War, etc.)
An industrialized American economy began to take off in the 20th century; GDP doubled from 12.00 ounces of gold per capita in 1892 to 23.55 ounces of gold per capita in 1916. And by 1929, it had almost doubled again to 41.12 ounces of gold per capita.
We know what happened after that– years of depression and economic stagnation. The economy bottomed in 1934 at 14.93 ounces of gold per capita, and then it began a multi-decade rise, peaking at 139.05 ounces of gold per capita in… 1970. This was right before Nixon closed the gold window. And the economy never touched that level again. How interesting.
Since 1970, it’s been a series of peaks and troughs. The economy boomed during the 1990s, then ran out of steam quickly in the ensuring dot-com/housing/sovereign bust.
We have just ended the year at 28.40 ounces of gold per capita (based on trailing twelve month GDP data). This is an astoundingly low figure.
To put it in perspective, since the end of the Great Depression, US GDP per capita has only been under 30 ounces of gold two times– this year, and 1980. That’s it.
In fact, the post-war average for the US economy is 72.83 ounces of gold per capita, so the economy today is an amazing 61% off this historical average.
Right now, the largest economy in the world is producing as much as it did in 1931, almost at the peak of the Great Depression. And no matter what the talking heads and politicians say, the data show that the trend is getting worse. Today’s figure is worse than last year, which was worse the year before. This trend of economic contraction goes back to 2001.
Curiously, this time period also coincides with the greatest expansion of debt and the monetary base in history. Hmmm. Coincidence?
This is truly incredible. With all of our modern advances in technology and productivity, our criminal Ponzi scheme debt-based fiat monetary system is so destructive that it’s turned the clock back seven decades on the economy. Mind blowing. If this doesn’t scream “SYSTEM RESET”, I don’t know what will.
Please share this with your friends and loved ones. It’s time for a wakeup call.
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Jobs and Money
Markets care more about the Fed than the labor market..
Once upon a time, the U.S. monthly jobs report would move markets as an indicator of the health of the private economy. These days, the employment news moves markets mainly based on how quickly it might cause the Federal Reserve to change its ultraloose monetary policy. These days in markets, money trumps jobs.
That's one lesson from this week's post-fiscal cliff economic news. On Thursday, the Fed released the minutes of its December Open Market Committee meeting, which disclosed that there was more dissent over the Fed's open-ended bond buying than previously believed.
The FOMC's December announcement had suggested that it was ready to buy $85 billion in Treasury and mortgage securities each month through the end of 2013. But this week's minutes said that "several" committee members "thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013" due to concerns about financial stability and the Fed's rapidly growing balance sheet. Previously only Jeffrey Lacker, president of the Richmond Fed, had been known to be a dissenter from the bond-buying party.
This isn't what some investors wanted to hear. Stock and commodity prices around the world promptly fell on the news about the Fed minutes, underscoring the degree to which asset prices are floating on expectations of continued Fed easing.
But never worry. On Friday came another mediocre jobs report—and stocks and the rest of the riskier-asset plays rebounded despite this sign of still not-so-great economic growth. Why? Because investors believe that the weaker the jobs report, the more likely the Fed will keep buying bonds as far as the eye can see. So weakness equals strength, at least in stocks. So goes a financial world dominated by the decisions of central bankers.
Meanwhile, back in the real economy, slow growth continues to define the job market. The economy created 155,000 net new jobs, essentially the same as the 153,000 average monthly pace for all of 2012, which was the same as the average monthly gain in 2011. The jobless rate stayed at 7.8%, after the November rate had been adjusted up a tic from 7.7% due to the Labor Department's annual revisions.
For the year the economy created about 1.84 million new jobs, which is consistent with the plodding expansion and is barely keeping up with new entrants into the job market. In previous and healthier expansions, the economy created 2.5 million or more net new jobs a year.
The overall labor participation rate actually fell during 2012—to 63.6% of the civilian population from 64% in December 2011. The rate is now down to where it last was in 1981. That suggests more Americans have given up looking for work, gone on disability or retired prematurely because they couldn't find work.
The December jobs survey is the last one before the tax and spending increases of the fiscal-cliff deal kick in. That legislation contains a two-percentage-point increase in the payroll tax rate, which means a higher cost for working. The bill also includes another one-year extension in jobless benefits of up to 99 weeks, which is an incentive not to work. Neither policy will help job creation in 2013.
The Keynesians who run the U.S. economy these days are predicting better days ahead now that the worst of the fiscal cliff has been dodged and the housing market is coming back. We'll see if they're right, but meanwhile markets are likely to keep their eyes mainly on the masters of the economic universe at the Fed.
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"Ironically, the harmful effects of these interventions lead policy makers to expand them, which further increases their harmful effects."
"While borrowers like near-zero interest rates, there is little incentive for lenders to extend credit at that rate."
"[these] policies perversely decrease aggregate demand and increase unemployment while they repress the classic signaling and incentive effects of the price system"
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My new favorite economist John Taylor of Stanford says that Fed Policy is a Drag on the Economy. My hope is that President Rubio will put Taylor in charge of the Fed if we still have a nation worth saving at that point.
http://online.wsj.com/article/SB10001424127887323375204578267943236658414.html?mod=WSJ_Opinion_LEADTop (excerpted)
...Early in 2010 [the Fed] predicted that growth in 2012 would be a robust 4%. It turned out to be a disappointing 2%. And as the recovery fell short of their expectations, they continued and then doubled down on the emergency interventions used in the panic in 2008.
The Fed ratcheted up purchases of mortgage-backed and U.S. Treasury securities, and now they say more large-scale purchases are coming. They kept extending the near-zero federal funds rate and now say that rate will remain in place for at least several more years. And yet—unlike its actions taken during the panic—the Fed's policies have been accompanied by disappointing outcomes. While the Fed points to external causes, it ignores the possibility that its own policy has been a factor.
At the very least, the policy creates a great deal of uncertainty. People recognize that the Fed will eventually have to reverse course. When the economy begins to heat up, the Fed will have to sell the assets it has been purchasing to prevent inflation.
If its asset sales are too slow, the bank reserves used to finance the original asset purchases pour out of the banks and into the economy. But if the asset sales are too fast or abrupt, they will drive bond prices down and interest rates up too much, causing a recession. Those who say that there is no problem with the Fed's interest rate and asset purchases because inflation has not increased so far ignore such downsides.
The Fed's current zero interest-rate policy also creates incentives for otherwise risk-averse investors—retirees, pension funds—to take on questionable investments as they search for higher yields in an attempt to bolster their minuscule interest income. The low rates also make it possible for banks to roll over rather than write off bad loans, locking up unproductive assets. And extraordinarily low rates support and feed the spending appetites of Congress and the president, increasing deficits and debt.
More broadly, the Fed's excursion into fiscal policy and credit allocation raises questions about its institutional independence and accountability. This reduces public confidence in the central bank.
The large on-again off-again asset purchases have already created highly variable money growth—from 10% in January 2009 to 2% in June 2010 and back to 10% in early 2012 and then down again. Wide swings in money supply reduce macroeconomic stability—a danger that Milton Friedman warned about long ago.
There is yet another downside. Foreign central banks—whether they like it or not—tend to follow other central banks' easy-money policies to prevent their currency from appreciating sharply, which would put their exporters at a disadvantage. The recent effort of the new Japanese government to force quantitative easing on the Bank of Japan and thus resist dollar depreciation against the yen vividly makes this point. This global increase in money risks commodity booms and busts as we saw in 2011 and 2012.
When dissenters in and outside the Fed point out these costs, a majority of the Federal Open Market Committee—the main policy-making branch of the central bank—respond that the costs are outweighed by a huge benefit. They argue that the ultralow interest rates and asset purchases reduce unemployment by increasing aggregate demand, and they back up the argument with macroeconomic models.
But these models, which are useful for evaluating conventional monetary policy such as rules for the interest rate, were not designed and are not useful for evaluating the Fed's unconventional policies of the past few years. Instead, a basic microeconomic analysis shows that the policies perversely decrease aggregate demand and increase unemployment while they repress the classic signaling and incentive effects of the price system.
Consider the "forward guidance" policy of saying that the short-term rate will be near zero for several years into the future. The purpose of this guidance is to keep longer-term interest rates down and thus encourage more borrowing. A lower future short-term interest rate reduces long-term rates today because portfolio managers can, in a form of arbitrage, easily adjust their portfolio mix between long-term bonds and a sequence of short-term bonds.
So if investors are told by the Fed that the short-term rate is going to be close to zero in the future, then they will bid down the yield on the long-term bond. The forward guidance keeps the long-term rate low and tends to prevent it from rising. Effectively the Fed is imposing an interest-rate ceiling on the longer-term market by saying it will keep the short rate unusually low.
The perverse effect comes when this ceiling is below what would be the equilibrium between borrowers and lenders who normally participate in that market. While borrowers might like a near-zero rate, there is little incentive for lenders to extend credit at that rate.
This is much like the effect of a price ceiling in a rental market where landlords reduce the supply of rental housing. Here lenders supply less credit at the lower rate. The decline in credit availability reduces aggregate demand, which tends to increase unemployment, a classic unintended consequence of the policy.
Research presented at the annual meeting of the American Economic Association this month by Eric Swanson and John Williams of the San Francisco Fed is consistent with this view of credit markets. It shows that during periods of forward guidance, the long-term interest rate does not adjust to events that shift supply or demand as it does in normal periods. In addition, while credit to corporate businesses is up 12% over the past two years, credit has declined to noncorporate businesses where the low rate is more likely to be a disincentive for lenders. Peter Fisher, head of fixed income at the global investment-management firm BlackRock and a former Fed and Treasury official, wrote in September: "[A]s they approach zero, lower rates . . . run the significant risk of perversely discouraging the lending and investment we need."
Ironically, the harmful effects of these interventions lead policy makers to expand them, which further increases their harmful effects. No one should want a continuation of this vicious circle... more at wsj.com, link above
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John Taylor: Fed Policy Is a Drag on the Economy
While borrowers like near-zero interest rates, there is little incentive for lenders to extend credit at that rate..
By JOHN B. TAYLOR
As they meet this week, Federal Reserve Chairman Ben Bernanke and his colleagues will be looking at an economic recovery that has been far weaker than expected. Early in 2010 they predicted that growth in 2012 would be a robust 4%. It turned out to be a disappointing 2%. And as the recovery fell short of their expectations, they continued and then doubled down on the emergency interventions used in the panic in 2008.
The Fed ratcheted up purchases of mortgage-backed and U.S. Treasury securities, and now they say more large-scale purchases are coming. They kept extending the near-zero federal funds rate and now say that rate will remain in place for at least several more years. And yet—unlike its actions taken during the panic—the Fed's policies have been accompanied by disappointing outcomes. While the Fed points to external causes, it ignores the possibility that its own policy has been a factor.
At the very least, the policy creates a great deal of uncertainty. People recognize that the Fed will eventually have to reverse course. When the economy begins to heat up, the Fed will have to sell the assets it has been purchasing to prevent inflation.
If its asset sales are too slow, the bank reserves used to finance the original asset purchases pour out of the banks and into the economy. But if the asset sales are too fast or abrupt, they will drive bond prices down and interest rates up too much, causing a recession. Those who say that there is no problem with the Fed's interest rate and asset purchases because inflation has not increased so far ignore such downsides.
Enlarge Image
Close
Reuters
Federal Reserve Chairman Ben Bernanke
.
The Fed's current zero interest-rate policy also creates incentives for otherwise risk-averse investors—retirees, pension funds—to take on questionable investments as they search for higher yields in an attempt to bolster their minuscule interest income. The low rates also make it possible for banks to roll over rather than write off bad loans, locking up unproductive assets. And extraordinarily low rates support and feed the spending appetites of Congress and the president, increasing deficits and debt.
More broadly, the Fed's excursion into fiscal policy and credit allocation raises questions about its institutional independence and accountability. This reduces public confidence in the central bank.
The large on-again off-again asset purchases have already created highly variable money growth—from 10% in January 2009 to 2% in June 2010 and back to 10% in early 2012 and then down again. Wide swings in money supply reduce macroeconomic stability—a danger that Milton Friedman warned about long ago.
There is yet another downside. Foreign central banks—whether they like it or not—tend to follow other central banks' easy-money policies to prevent their currency from appreciating sharply, which would put their exporters at a disadvantage. The recent effort of the new Japanese government to force quantitative easing on the Bank of Japan and thus resist dollar depreciation against the yen vividly makes this point. This global increase in money risks commodity booms and busts as we saw in 2011 and 2012.
When dissenters in and outside the Fed point out these costs, a majority of the Federal Open Market Committee—the main policy-making branch of the central bank—respond that the costs are outweighed by a huge benefit. They argue that the ultralow interest rates and asset purchases reduce unemployment by increasing aggregate demand, and they back up the argument with macroeconomic models.
But these models, which are useful for evaluating conventional monetary policy such as rules for the interest rate, were not designed and are not useful for evaluating the Fed's unconventional policies of the past few years. Instead, a basic microeconomic analysis shows that the policies perversely decrease aggregate demand and increase unemployment while they repress the classic signaling and incentive effects of the price system.
Consider the "forward guidance" policy of saying that the short-term rate will be near zero for several years into the future. The purpose of this guidance is to keep longer-term interest rates down and thus encourage more borrowing. A lower future short-term interest rate reduces long-term rates today because portfolio managers can, in a form of arbitrage, easily adjust their portfolio mix between long-term bonds and a sequence of short-term bonds.
So if investors are told by the Fed that the short-term rate is going to be close to zero in the future, then they will bid down the yield on the long-term bond. The forward guidance keeps the long-term rate low and tends to prevent it from rising. Effectively the Fed is imposing an interest-rate ceiling on the longer-term market by saying it will keep the short rate unusually low.
The perverse effect comes when this ceiling is below what would be the equilibrium between borrowers and lenders who normally participate in that market. While borrowers might like a near-zero rate, there is little incentive for lenders to extend credit at that rate.
This is much like the effect of a price ceiling in a rental market where landlords reduce the supply of rental housing. Here lenders supply less credit at the lower rate. The decline in credit availability reduces aggregate demand, which tends to increase unemployment, a classic unintended consequence of the policy.
Research presented at the annual meeting of the American Economic Association this month by Eric Swanson and John Williams of the San Francisco Fed is consistent with this view of credit markets. It shows that during periods of forward guidance, the long-term interest rate does not adjust to events that shift supply or demand as it does in normal periods. In addition, while credit to corporate businesses is up 12% over the past two years, credit has declined to noncorporate businesses where the low rate is more likely to be a disincentive for lenders. Peter Fisher, head of fixed income at the global investment-management firm BlackRock and a former Fed and Treasury official, wrote in September: "[A]s they approach zero, lower rates . . . run the significant risk of perversely discouraging the lending and investment we need."
Ironically, the harmful effects of these interventions lead policy makers to expand them, which further increases their harmful effects. No one should want a continuation of this vicious circle.
If the economy surprises a bit on the upside this year, we can hope that it results in fewer interventions by the Fed—perhaps a halt to asset purchases. This will bolster growth and help put the economy on a sustained recovery path.
Mr. Taylor is a professor of economics at Stanford University and a senior fellow at the Hoover Institution, and a former Treasury undersecretary for international
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reliability unknown:
http://www.thegoldandoilguy.com/articles/precious-metals-miners-making-waves-and-new-trends/
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http://www.zerohedge.com/news/2013-01-30/peter-schiff-doug-casey-gold-investor-cluelessness-and-escape-america-plan
Peter Schiff & Doug Casey On Gold, Investor Cluelessness, And The "Escape From America" Plan
Submitted by Tyler Durden on 01/30/2013 20:51 -0500
Global EconomyMonetary PolicyPeter SchiffReality
In just under 30 minutes, Peter Schiff and Doug Casey muse on many facets of the crumbling edifice of the status quo that is our current world.
From Gold's relatively imminent rise to $5,000 and beyond, to investor ignorance of reality, Casey & Schiff swing from discussions of the US as political entity going forward to 'escape from America' plans for personal and wealth assets, and the realization that the biggest casualty (of US indebtedness), aside from individual liberty, is the value of the dollar - as taxing the middle class is unpopular with both parties - leaving only one route for the government - the inflation tax. Owning gold, silver, and foreign assets is preferred and while the rest of the world is also printing, the US is likely to beat them all.
People "are clueless with respect to the true state of the global economy," with regard to inflation, fiat currencies, and specifically what will happen to the dollar. The conversation is wide-ranging and absolutely must-see as they remind market-watchers that "the whole thing is artificial," as you can't just keep printing money and monetizing debt without the dollar imploding with monetary policy descending (along with its trillion dollar coin) into 'Three Stooges' comedy.
The conversation weaves to some endgame discussions which bring Peter to discuss his father, who he sees as a political prisoner, and his views on the future...
"the biggest change that is coming to the global economy is a realignment of global living standards."
There is something here for everyone...
[youtube]http://www.youtube.com/watch?feature=player_embedded&v=kEDmj3qocag[/youtube]
http://www.youtube.com/watch?feature=player_embedded&v=kEDmj3qocag
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Correcting my own imprecise writings, I think we need to consider dropping the term U.S. "Dollar", a meaningless designation if the date of value is not specified. Otherwise dollar would need to be written with a subscript of dollar date for inflation value calculations. Economists use terms like year specified constant dollars, but really, to which part of the year do they refer?
Past inflation calculator: http://www.westegg.com/inflation/
"Dollar" sounds like something solid, stable, constant, like a meter, a pound, a pint or a commandment. Very misleading.
The correct term for the varying value of American paper money is: "Federal Reserve Note".
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Not a very scholarly piece, but , , ,
http://globaleconomicwarfare.com/2013/02/putin-prepares-for-a-currency-war-that-he-thinks-hopes-will-collapse-america/
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http://www.cnbc.com/id/100453993?__source=yahoo|headline|other|text|&par=yahoo
US to Win Currency War, Then 'Implode': Schiff
Published: Tuesday, 12 Feb 2013 | 2:12 PM ET
By: Jeff Cox
CNBC.com Staff Writer
HOLLYWOOD, Fla. -- The U.S. will win the global currency race to the bottom but decimate its economy in the process, economist Peter Schiff said.
With global central banks using currency manipulation to spur growth, capital markets have been awash in talk of what the fallout will be for investing strategies and consumers who may have to bear the weight of inflation.
(Read More: G-7 Fires Warning Shot Over Currencies)
Longtime Federal Reserve critic Schiff said the central bank is being forced to prop up an ailing U.S. economy and the only way it can is by weakening the dollar.
"There is a currency war going on," Schiff said at the Inside ETFs conference presented by Index Universe. "The irony of a currency war which makes it different from other wars is the object is to kill itself. Unfortunately, I think the U.S. is going to win the currency war."
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The CEO of Euro Pacific Capital in New York has been one of the market's most outspoken supporters of gold as a hedge against inflation specifically and global turmoil in general.
He believes the metal will be a prime beneficiary of the currency war, while consumers will be its main victim.
(Read More: Food Stamp Users Could See a Benefits Cut If Congress Doesn't Act)
"Anybody who believes there is no inflation isn't shopping," he said.
Government cost-of-living indexes such as the consumer price index are a "total fraud. Consumer prices in the U.S. are moving up much faster than indicated by the CPI. It is manipulated. It is deliberately designed to mask inflation, not report it," he said.
As for U.S. economic prospects, Schiff believes they are gloomy.
Gross domestic product indicated a slight contraction in the fourth quarter, though most economists expect that to change in future revisions and growth to be steady but modest through the year. In the meantime, the European sovereign debt crisis is beginning to return to the news as well, though the stock market hasn't seemed to mind any of it.
(Read More: ECB'S Draghi Says Currency War Talk Exaggerated)
But that could change quickly.
"We're broke. We owe trillions. Look at our budget deficit, look at the debt to GDP (ratio), the unfunded liabilities," Schiff said. "If we were in the euro zone they would kick us out."
For Schiff, such talk, though incendiary, is fairly routine.
He found a good deal of interest at the conference, though, with attendees crowding him after his panel discussion even as some other participants were beginning to catch flights out.
"The Fed knows that the U.S. economy is not recovering," he said. "It simply is being kept from collapse by artificially low interest rates and quantitative easing. As that support goes, the economy will implode."
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Of the many points for consideration there, I note how hard the first Euro downturn hit the US markets. Indeed is not part of the argument that current DOW numbers are due to international diversification of many of the constiutuent companies of the Index?
I am seeing things that Euro may be heading for a double dip of what it has already experienced. (What do people do with the bankruptcy of nanny fascism?) If one no longer believes in the market as the supreme leading indicator (efficient market theory et al) and instead sees it as a zero sum gambling casino with the attention deficit disorder of massive trainding program algorithims of hedge funds, then one may conclude the coming Euro crackup may will hit the Dow hard and fast.
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Wait until the dollar crashes, it'll make the end of the euro look clean in comparison.
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"...note how hard the first Euro downturn hit the US markets"
Yes, we were blindsided by the failure of socialism. The US used to lead Europe and the world in the other direction.
MSN Money: Rich world heads into recession
For the first time in 4 years, GDP growth in the 7 largest economies actually shrank.
http://money.msn.com/top-stocks/post.aspx?post=1f1fda46-56dc-4982-a96f-1b0a98fe6214
"Indeed is not part of the argument that current DOW numbers are due to international diversification of many of the constituent companies of the Index?"
Yes, but most are moving beyond Europe as well as moving beyond the US. They can go into India, China, Brazil, or wherever they see growth, but at some point the planet is too small for large enterprises to escape economic failure in the largest economies. Also some management within these companies will bet wrong on the Wesbury theory, that governments can set all the policy levers wrong and the economy will grow just fine anyway.
Crafty continued: "I am seeing things that Euro may be heading for a double dip of what it has already experienced. (What do people do with the bankruptcy of nanny fascism?) If one no longer believes in the market as the supreme leading indicator (efficient market theory et al) and instead sees it as a zero sum gambling casino with the attention deficit disorder of massive training program algorithms of hedge funds, then one may conclude the coming Euro crackup may will hit the Dow hard and fast"
When it looks like zero-sum, it is time to be out - unless you are truly smarter and quicker than all the other players. I don't know the future of the DOW but under what theory is it immune from everything happening around it?
If the Fed expansion caused the housing bubble (I will post the Forbes piece today separately) then is it not the Fed expansion today causing artificially high stock prices? When exactly does that correct, no one knows.
All these taxes, rules and regulations keep out startups and newer, weaker competitors, and actually help the entrenched players to a point. The DOW, NASDAQ and S&P are indexes of the entrenched players, not of the economy as a whole. The big health insurers just got 30 million new customers for example, and the subsidies to help to sell autos, furnaces etc. But these lines can't go in opposite directions forever. These companies are not fully insulated from the other troubles in the economies. Yes, if I was in the market I would be very worried. If gold were at 400 or even under a thousand I might say put it all there. At 1600-1800 an ounce, who knows. The money most of us have won't buy much gold. No easy answer except to think wisely about playing defense.
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"Wait until the dollar crashes, it'll make the end of the euro look clean in comparison."
Yet muddying the waters is that money fleeing the Euro may well come out way first.
Also, we really need to keep in mind that there are some powerful forces to the good building on the energy front for the US. The free market is a powerful thing and can be hard to hold down sometimes.
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Unfortunately, the full faith and credit of the US isn't what it used to be, and people are starting to figure that out globally. Should China introduce a gold backed Yuan, things might change rapidly as the US credit rating drops and our nat'l debt spirals ever upwards.
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I get that of course, yet my point is that others may be going under before us and that capital flight may well come our way. The Euros are fuct and the Chinese's books are badly cooked.
Then there is the matter of what happens should the liberal fascists stop trying to abort the nascent US rise to energy dominance , , ,
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'Loose Talk' and Loose Money
The G-20 concedes that central banks rule the world economy..
The main message out of the Group of 20 nations meeting in Moscow on the weekend boils down to this: Countries can continue to devalue their currencies so long as they don't explicitly say they want to devalue their currencies. Markets got the message and promptly sold off the yen on Monday in anticipation of further monetary easing by the Bank of Japan.
This contradiction between economic word and deed shows the degree to which policy makers have defaulted to easy money as the engine of growth. The rest is commentary.
The days before the Moscow meeting were dominated by blustery fears about the "currency war" consequences of money printing in the service of devaluation. Lael Brainard, the U.S. Treasury under secretary for international affairs, gave a speech in Moscow warning against "loose talk about currencies." She seemed to have in mind Japan, whose new prime minister Shinzo Abe has made a weaker yen the explicit centerpiece of his economic policy.
In the diplomatic event, all of that angst went by the wayside. The G-20 communique bowed toward a vow to "refrain from competitive devaluation." But the text also repeated its familiar promise "to move more rapidly toward more market-determined exchange rate systems"—words that essentially mean a hands-off policy on currency values. So Japan can do what it wants on the yen as long as it doesn't cop to it publicly.
That message was also underscored by Federal Reserve Chairman Ben Bernanke, who implicitly endorsed Japan's monetary easing and declared that the U.S. would continue to use "domestic policy tools to advance domestic objectives." When the chief central banker of the world's reserve currency nation announces that he is practicing monetary nationalism, it's hard to blame anyone else for doing the same.
The upshot is that this period of extraordinary monetary easing will continue. Economist Ed Hyman of the ISI Group counts dozens of actions in recent months in what he calls a "huge global easing cycle." The political pressure will now build on the European Central Bank to ease in turn to weaken the euro. South Korea and other countries that are on the receiving end of "hot money" inflows may feel obliged to ease as well to prevent their currencies from rising or to experiment with exchange controls.
This default to monetary policy reflects the overall failure of most of the world's leading economies to pass fiscal and other pro-growth reforms. Japan refuses to join the trans-Pacific trade talks that might make its domestic economy more competitive. The U.S. has imposed a huge tax increase and won't address its fiscal excesses or uncompetitive corporate tax regime. Europe—well, suffice it to say that Silvio Berlusconi is again playing a role in Italian politics and the Socialists are trying to resurrect the ghost of early Mitterrand in France.
So the central bankers are running the world economy, with the encouragement of politicians who are happy to see stock markets and other asset prices continue to rise. Here and there someone will point out the danger of asset bubbles if this continues—ECB President Mario Draghi did it on Monday—but no one wants to be the first to take away the punchbowl. It's still every central bank, and every currency, for itself.
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The Producer Price Index (PPI) Rose 0.2% in January To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 2/20/2013
The Producer Price Index (PPI) rose 0.2% in January, coming in slightly below the consensus expected gain of 0.3%. Producer prices are up 1.4% versus a year ago.
The increase in the overall PPI was due to food and pharmaceuticals, which rose 0.7% and 3.5% respectively. Energy prices fell 0.4%. The “core” PPI, which excludes food and energy, was up 0.2%.
Consumer goods prices were up 0.2% in January, while capital equipment prices rose 0.1%. In the past year, consumer goods prices are up 1.5% while capital equipment prices are up 1.1%.
Core intermediate goods prices were up 0.3% in January and are up 0.7% versus a year ago. Core crude prices fell 0.3% in January, and are down 3.7% versus a year ago.
Implications: Despite a continued drop in energy prices, overall producer prices rose 0.2% in January, the first upward move in four months. Given higher energy prices so far in February, we anticipate another larger gain in overall prices in next month’s report. “Core” prices, which exclude food and energy and which the Federal Reserve claims are more important than the overall number, were also up 0.2% in January and tell a somewhat different story than the overall PPI. In the past year, overall producer prices are up 1.4% while core prices are up 1.8%. But, in the past three months, energy prices have pushed down overall producer prices to a negative 1.8% annual rate even as core prices rose at a 2% rate. Some analysts may suggest that with the overall PPI up only 1.4% from a year ago that the Federal Reserve has room for the new round of bond buying it announced a couple of months ago. We think this is a mistake. Core prices are likely to continue growing at roughly the recent pace. Food inflation has been moving upward and may continue to do so given recent improvement in emerging economies, and energy prices are now headed upward again as well. Monetary policy is loose enough already. The problems that ail the economy are fiscal and regulatory, not monetary. Adding even more excess reserves to the banking system is not going to boost economic growth. Given the loose stance of monetary policy, higher inflation is eventually on the way.
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I get that of course, yet my point is that others may be going under before us and that capital flight may well come our way. The Euros are fuct and the Chinese's books are badly cooked.
Then there is the matter of what happens should the liberal fascists stop trying to abort the nascent US rise to energy dominance , , ,
I'm not sure if our books aren't even more cooked than China's books.
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http://www.cnbc.com/id/100461159
Is the Dollar Dying? Why US Currency Is in Danger
Published: Thursday, 14 Feb 2013 | 12:49 PM ET By: Jeff Cox
CNBC.com Senior Writer
Getty Images The U.S dollar is shrinking as a percentage of the world's currency supply, raising concerns that the greenback is about to see its long run as the world's premier denomination come to an end.
When compared to its peers, the dollar has drifted to a 15-year low, according to the International Monetary Fund, indicating that more countries are willing to use other currencies to do business.
While the American currency still reigns supreme -- it constitutes $3.72 trillion, or 62 percent, of the $6 trillion in allocated foreign exchange holdings by the world's central banks -- the Japanese yen, Swiss franc and what the IMF classifies as "other currencies" such as the Chinese yuan are gaining.
(Read More: Hedge Funds Reap Billions on Yen Bets)
"Generally speaking, it is not believed by the vast majority that the American dollar will be overthrown," Dick Bove, vice president of equity research at Rafferty Capital Markets, said in a note. "But it will be, and this defrocking may occur in as short a period as five to 10 years."
Bove uses several metrics to make his point, focusing on the dollar as a percentage of total world money supply.That total has plunged from nearly 90 percent in 1952 to closer to 15 percent now. He also notes that the Chinese yuan, the yen and the euro each have a greater share of that total.
"To the degree that China succeeds in increasing its market share of the world's currency market, the United States is the loser," Bove said. "For years, I have been arguing that the move of the Chinese makes perfect sense from their point-of-view but no sense for the Americans."
Play VideoHedge Funds Make Billions Betting Against Yen
Hedge funds are making billions betting against the Japanese yen. Greg Zuckerman, author of "The Greatest Trade Ever," offers insight.For a country with a budget deficit in excess of $1 trillion a year, the consequences of losing standing as the world's reserve currency would be dire.
(Read More: US Credit Risk Appetite Signals a 'Sell'?)
"If the dollar loses status as the world's most reliable currency the United States will lose the right to print money to pay its debt. It will be forced to pay this debt," Bove said. "The ratings agencies are already arguing that the government's debt may be too highly rated. Plus, the United States Congress, in both its houses, as well as the president are demonstrating a total lack of fiscal credibility."
Bove is not the only one sounding the reserve currency alarm, though the issue has fallen off the front pages as hopes for a sustained U.S. recovery have taken hold and the stock market has surged to near-record highs.
But the looming battle over budget sequestration in Washington could revive long-standing fears of fiscal stability.
"If (dollars) no longer offer the safety that investors have come to expect, they will not function as the stable collateral required by bank funding markets," Barry Eichengreen, a professor at the University of California, Berkley, warned in a Financial Times commentary late last year. "They will not be regarded as an attractive form in which to hold international reserves. And they will not be seen as a convenient vehicle for merchandise transactions."
To be sure, the markets at this point are not acting like the dollar is in severe trouble. The greenback has maintained its position as a general safe haven in times of trouble.
(Read More: Russia: Don't Compete Through Currency Devaluations)
"Longer term, of course, countries are going to diversify away from the dollar if they can. There are more favorable investment opportunities out there if you can catch yield," said Christopher Vecchio, currency analyst at DailyFX, a trading firm. "Despite the increase in risk to the U.S. dollar and Treasury, investors still feel safest at home."
But the Federal Reserve's successive quantitative easing programs, which have created $3 trillion in new greenbacks, continue to spur worry over the dollar's status.
"The No. 1 security issue we have as a nation is the preservation of the U.S. dollar as the world's reserve currency," said Michael Pento, president of Pento Portfolio Strategies. "It's a thousand times more important than a nuclear bomb being tested by North Korea. It's a thousand times more important that we keep the dollar as the world's reserve currency, and yet we are doing everything to abuse that status."
The dollar's seemingly precarious status is why Pento remains bullish on gold and believes the dollar's demise as the premier reserve currency could end even sooner than Bove predicts -- perhaps by 2015.
"Five to 10 years -- that would be an outlier," he said. "I would say 2015, 2016, that would be the time when it becomes a particularly salient issue. When we're spending 30 to 50 percent of our revenue on debt service payments, we enter into a bond market crisis. The dollar starts to drop along with bond prices. That would set off the whole thing."
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The Consumer Price Index (CPI) was Unchanged in January To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 2/21/2013
The Consumer Price Index (CPI) was unchanged in January, coming in below the consensus expected gain of 0.1%. The CPI is up 1.6% versus a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) was also unchanged in January but is up 1.4% in the past year.
The unchanged CPI in January was the result of a 1.7% decline in energy prices offsetting increases in most other major categories. Food prices were unchanged. The “core” CPI, which excludes food and energy, was up 0.3% in January and is up 1.9% versus a year ago. The consensus expected a gain of 0.2% in January.
Real average hourly earnings – the cash earnings of all employees, adjusted for inflation – were up 0.2% in January and are up 0.6% in the past year. Real weekly earnings are up 0.3% in the past year.
Implications: For the time being, overall consumer price inflation remains quiet. Consumer prices were unchanged in January and are up only 1.6% from a year ago. Once again, falling energy prices offset gains in most other major categories. That’s been the recent theme, with the overall CPI down at a 0.7% annual rate in the past three months, all due to energy. The reason that’s important is that energy prices have spiked higher in February, so we are likely to see overall prices move higher as well when that data arrives in a month. “Core” prices, which exclude food and energy, were up 0.3% in January, coming in above consensus expectations and the largest monthly increase since May 2011. Core prices are up 1.9% from a year ago. Neither overall or core price gains in the past year sets off alarm bells. Instead, they suggest the Federal Reserve’s preferred measure of inflation, the PCE deflator (which usually runs a ¼ point below the CPI) remains comfortably below the Fed’s target of 2%. We don’t expect this to last. However, for the Fed, the key measure of inflation is its own forecast of future inflation. So even if inflation goes to roughly 3% within the next year, as long as the Fed projects the rise to be temporary it will not react by raising short-term interest rates. The Fed is more focused on the labor market and, we believe, is willing to let inflation exceed its long-term target of 2% for a prolonged period of time in order to get the unemployment rate down. The best news in today’s report was that “real” (inflation-adjusted) average hourly earnings rose 0.2% in January. In the past three months they are up at a 4.4% annual rate. In other news this morning, new claims for unemployment insurance increased 20,000 last week to 362,000, very close to the four-week moving average of 361,000. Continuing claims for regular state benefits increased 11,000 to 3.15 million. These figures are consistent with continued moderate payroll growth in February.
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Quantitative easing simplified:
[youtube]http://www.youtube.com/watch?feature=player_embedded&v=XrJHzbl7ay0[/youtube]
http://www.youtube.com/watch?feature=player_embedded&v=XrJHzbl7ay0
http://www.zerohedge.com/news/2013-02-22/late-friday-humor-quantitative-easing-simplified
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http://www.economicreason.com/usdollarcollapse/us-dollar-collapse-here-are-9-ways-it-could-happen/
US Dollar Collapse? Here Are 9 Ways It Could Happen
Submitted by Chris Ferreira, 13 February 2013. Tags: Bond Vigilantes, Central Banks, China, FACTA, FED, Gold Reserves, IMF, QE, SDR, Too Big To Fail, Trade Deficit, US Debt Crisis
We all know that the US dollar is losing value through inflation every year; in fact, the dollar has lost over 97% of its purchasing power over the last century. When “real money” (i.e. backed up with intrinsic value) was used, a cup of coffee in the 1920s costed about a few cents. In a fiat world, where money’s value is ambiguous, a cup of coffee can cost upward to a 100 trillion dollars, as was the case in Zimbabwe in recent times. Just how much more can the remaining 3% be debased from the US dollar, and how fast can it happen?
A slow, gradual decline can occur without any one person ever even noticing the effects– until, that is, a “black swan”event comes along and triggers the psychology of investors to quickly reverse their thinking, and here a collapse can literally happen overnight. A “black swan,” a term coined by Nassim Nicholas Taleb in his bestselling book The Black Swan, is “an event, positive or negative, that is deemed improbable yet causes massive consequences.” In his book he describes the psychology biases that makes people individually and collectively blind to a rare event. He also notes that the more complex a system is, the more prone it is to failure as there is more room for glitches and errors. This analogy can be used to describe the complexity of the US global empire, complete with its massive debt and 900 military bases around the world. This article is taking a “black swan” approach to the US dollar.
Here are nine events that could trigger a black swan event that would result in a US dollar collapse. The reasons below are not in order of importance, and all them can prove to be negative for the US dollar.
1. The Fed Chooses to engage in currency wars by being the spender of last resort and printing money to oblivion
When people think of a collapse, they often think of a deflationary setting. But a collapse can also occur when the face value of the currency goes up–or skyrockets upwards, as did the currency in Zimbabwe, when everyone was suddenly eligible to be a “trillionaire.” (Webster needs to update their dictionary with this word). When the face value of a currency skyrockets, the purchasing power decreases, and these are usually the ingredients for hyperinflation and collapse.
It took the US 200 years to issue $3 trillion dollar in M3 money supply. Greenspan increased this to $10 trillion dollars in his eighteenth year as Fed chairman. How much has it increased under Ben Bernanke, in his seven years as chairman of the Fed? Your guess is as good as mine, actually, because the exact number is unknown: the Fed no longer reports this statistic as of 2006, exactly when Bernanke entered office. What a coincidence!
With QE 3 and QE 4, the Fed now prints a total of $85 billion a month, most of which is reportedly being held in reserves. Even with these rock bottom low interest rates, credit demand is weak. There is plainly too much uncertainty.
If the stock market were to crash again as it did in 2008, and the Fed were to consequently launch QE5, then QE6 and so on… This would hardly be, in reality, a “black swan” event since it is probable, but nevertheless, it could eventually lead to hyper-inflation and a total collapse of the dollar, where people would lose purchasing power of the dollar as in the case of Zimbabwe. This is more likely to occur if the US dollar also loses its reserve currency status.
2. The Fed’s printing press “jams” and ceases to stops printing money
As I’ve stated before, the Fed will most likely not stop printing money. During the December 2012 FOMC meeting, this belief was supported. The most important reason why the Fed needs to continue printing money is so that it can hold interest rates artificially low to stimulate the economy. Normally, higher interest rates would increase the value of the dollar, as this would cause people to deleverage from investments and increase the demand for dollars. However, the structural imbalances the economy has undertaken from a decade of artificial low interest rates would implode the economy from high interest rates now. Undoubtedly, if the Fed stops printing money, this will mostly cause higher interest rates. This will lead to increased bankruptcies, higher unemployment, more foreclosures, lower tax revenue for the US government, and increased interest on the national debt. In this situation it could lead to the bankruptcy of the US as they could default on their own debt.
Interest rates in the 80′s were increased signficantly to kill inflation, however the US debt was nowhere near what it is today (even in terms of % of GDP). At the present moment, the US is paying over $1 billion a day just in interest payments to service its debt. A slight increase in interest rates would significantly increase these payments and leave the US with even more debt than it already has, increasing their trillion dollar per year deficits. This is a scenario whereby the US could default just as Argentina did in the early 2000′s.
If they were to stop printing money, the Fed could trigger a dollar collapse, especially if foreigners decide to no longer lend the US any more money, and start dumping US debt from their foreign reserves.
3. Rise of “Gotham City” and the Vigilantes
We know that the US is currently the largest debtor nation in the history of the world, operating on yearly trillion dollar deficits. What if the US citizens were to “wake up” and collectively stop paying their taxes? What if they were to collectively choose to no longer support political decisions that serve to perpetually increase the debt? An increase in debt ruins the prospects for future generations, after all. Taxes are essentially the life-line of any government. A cut on this life-line is like cutting the main artery to the heart. Without a tax base, government can no longer pay its bills.
A significant internal revolution by citizens would entail a collective refusal against the paying of taxes and the continual raising of the debt ceiling. Perhaps these citizens might even become bond vigilantes and sell US bonds, especially if other countries became US bond vigilantes and sell their US bonds, as well. This would likely collapse the dollar, and send the US dollar into hyper-inflation.
4. China, the largest financier of the US debt, drops the debt bomb
The Chinese can drop the debt bomb on the US just by selling a fraction of their US treasury holdings. As of June 2012,
the Chinese owned $1.16 trillion in US debt (US government treasury bonds). Japan owns $1.11 trillion and the OPEC nations, $261 billion. In the last few years, China has been lowering their purchases of US debt and replacing it with other assets. To circumvent this problem, the Fed of late has been stepping in to purchase treasury bonds to make up for the lost demand of the foreigners.
China’s power is the direct result of the symbiotic trade relationship with the US. The US buys goods from China in US dollars, and China ships them the products and uses the US dollar surpluses to buy US debt, among other assets.
It may not be in the interest of China to drop the debt bomb, but it definitely has the power to do it. If this is the case, there would be so much US debt on the market that other US debt holding countries could also throw their debt on the market as well as a result of panic and fear. Triggering an international run on US debt. The US Dollar will surely collapse in this scenario.
5. China, Japan, Russia, Iran, Germany, Brazil, Australia, Chile, UAE, India, and South Africa are bypassing the dollar and creating bi-lateral trade warfare.
What if now the Chinese, instead of dropping the debt bomb, create enough bi-lateral trade agreements to avoid the US dollar altogether with foreigners? In fact China, among other countries, has already done this by trading with the Chinese Yuan instead of the US dollar. If China, Japan, Russian, Iran, Germany, Brazil, Australia, Chile, USE, India, and South Africa would continue to do so, other larger countries may follow suit and before you know it, the majority of trade would be transacted in non-US dollars. At this point, the US dollar would no longer be needed, and its world reserve currency status would collapse along with its purchasing power.
What could also trigger a large decline in the US dollar would be if a relatively large oil-producing country (like Saudi Arabia) refuses to use the US dollar to sell its oil, choosing instead something more tangible (like gold). William R. Clark’s excellent book, Petrodollar Warfare, treats this issue precisely, going in depth into the Petrodollar collapse and how the US maintains its dollar supremacy with its current imperialistic foreign policy. If a major OPEC nation refuses to sell its oil in US dollars, this could result in a total loss of confidence in the US dollar, precipitating its collapse.
6. “Good-bye Dollar, Hello SDR!” The U.N. and IMF implement a New World Reserve Currency
George Soros states in a recent video interview (see here) that the US needs a “New Financial World Order,” on the pretext that the current system is “broke” and creating huge trade imbalances. The Guardian stated the following:
“The International Monetary Fund warned that the colossal United States trade deficit was a noose around the neck of the economy, emphasizing that the once mighty dollar could collapse at any moment.”
Soros, a member of the Bretton Woods Committee–the same institution that created the IMF–is now promoting the Special Drawings Right (SDR) as a potential new world currency.
The progress for the SDR has been very slow and has not received much acceptance among other nations. However, note that the US currently controls the IMF by its voting powers (17% nominal interest, and a required of 85% majority for decisions). As more and more people lose confidence in the US dollar in general due to reckless monetary and fiscal policies, the IMF can instead back the SDR with gold to promote stability and confidence. That is certainly one realistic possibility considering that they reportedly own over 2,800 tons of gold. A shift in reserve currency from the US dollar to the SDR or other another currency would undoubtedly collapse the US dollar. It’s trade imbalance is sustained by it’s reserve status.
7. A “too-big-to-fail” corporation fails: A derivative shock-wave.
The Financial Stability Board (FSB) released a list of 29 “too big to fail” corporations operating around the world. According to the FSB, these banks are considered to be “systemically important financial institutions” and a failure of any one of these corporations could result in “financial systemic failure.” Of the 29 corporations on the list, 17 are based in Europe, eight in the U.S., and four in Asia.
◦Bank of America
◦Bank of China
◦Bank of New York Mellon
◦Banque Populaire CdE
◦Barclays
◦BNP Paribas
◦Citigroup
◦Commerzbank
◦Credit Suisse
◦Deutsche Bank
◦Goldman Sachs
◦Group Crédit Agricole
◦HSBC
◦ING Bank
◦JPMorgan Chase
◦Lloyds Banking Group
◦Mitsubishi UFJ FG
◦Mizuho FG
◦Morgan Stanley
◦Nordea
◦Royal Bank of Scotland
◦Santander
◦Société Générale
◦State Street
◦Sumitomo Mitsui FG
◦UBS
◦Unicredit Group
◦Wells Fargo
A failure of any one of these banks, but especially one in the US, could create a bank run, further destroying the ability to provide credit and increasing the likelihood of a dollar collapse.
What is most likely to create a bank failure is a derivative failure. Actually, a current derivatives scandal is threatening to take down the world’s oldest bank:
“Banca Monte dei Paschi di Siena, the world’s oldest bank, was making loans when Michelangelo and Leonardo da Vinci were young men and before Columbus sailed to the New World. The bank survived the Italian War, which saw Siena’s surrender to Spain in 1555, the Napoleonic campaign, the Second World War and assorted bouts of plague and poverty.
But MPS may not survive the twin threats of a gruesomely expensive takeover gone bad and a derivatives scandal that may result in legal action against the bank’s former executives. After five centuries of independence, MPS may have to be nationalized as its losses soar and its value sinks.”
The precise, total amount of global derivatives in the market is not exactly known, but estimates range from 650 trillion to 1.5 quadrillion dollars. This amount dwarfs the world’s GDP at approximately $70 trillion. (Refer to this article to see what $16 trillion looks like.) It is no wonder why Warren Buffet calls derivatives the “financial weapons of mass destruction.”
According to the Controller of Currency and National Banks, here are the stats for the following banks as of September 2012:
JPMorgan Chase
Total Assets: $1.85 trillion dollars
Total Exposure To Derivatives: $71.07 trillion dollars
Citibank
Total Assets: $1.365 trillion dollars
Total Exposure To Derivatives: $55.51 trillion dollars
Bank Of America
Total Assets: $1.448 trillion dollars
Total Exposure To Derivatives: $43.79 trillion dollars
Goldman Sachs
Total Assets: $120.43 billion (not trillion)
Total Exposure To Derivatives: $41,23 trillion
Note that JP Morgan alone has more derivative exposure than the world’s GDP. A derivative collapse is definitely an event that could take down the whole financial system and collapse the US dollar.
8. A run on the gold and silver bullion exchanges
Andrew McGuire, a former Goldman Sachs trader, disclosed that the London bullion Market Association (LBMA) trades on a net basis each year of $5.4 trillion dollars, a little less than half the size of the US economy. The LBMA is the biggest gold commodity market in the world.
But how can the LBMA do this be when the gold market is such a tiny market? The world production of gold is about 2,500 metric tons of gold (88,184,905 oz) which at today’s price of $1,667 is approximately $147 billion in yearly production value.
The LBMA is the equivalent of a fractional reserve system in that it is leveraged 100 to 1. For every ounce of real gold that is sold, 100 ounces of paper gold is sold, meaning there are 100 claims on each and every ounce of gold. These numbers were verified by Jeffrey Christian, a gold expert and founder of CMP Group (a commodities research, consulting, investment banking, and asset management company). The leverage is absurd.
The LBMA can be compared with other exchanges. The world’s gold market is backed up by approximately 2.3% of real gold. If a mere 2.5% of people would start demanding their gold, the physical gold market would explode, subsequently crushing the dollar, as the value of the dollar is inversely proportional to the price of gold.
Hedge fund manager Kyle Bass pointed out that the New York Comex has only approximately 3% of the bullion on hand to cover future contracts positions. and this game will continue if people do not demand delivery of their gold. The emperor has no clothes!
9. A central bank gold rush and foreign gold repatriation from the Fed – Gold Audit
Venezuela has actually just recently received their last shipment of gold bars from the US.
“This was the largest type of operation to transport this type of metal in the last fifteen years,” said Merentes. “The repatriation of our gold was an act of financial prudence and sovereignty.” (Bloomberg)
The Germans and the Dutch have also recently requested their gold to be repatriated from the US. However, unlike Venezuela, Germany was told to wait seven years to get their gold back. That sounds odd, right?
Now the Swiss, under their recently launched Swiss Initiative to Secure the Swiss National Bank’s Gold Reserves, are hinting that they might want to get their gold back on Swiss soil. The Swiss government has a long standing tradition of backing their currency with gold.
This gold repatriation is turning out to be much bigger than a political statement. It is a total non-compliant/non-confidence vote for the US and the US dollar.
Which country is next? Mexico? They have 96% of their gold stored in the US and London.
A central bank gold rush to repatriate a country’s gold from the US can cause a huge upward demand for gold, pushing the price of gold upward and crushing the US dollar. (Especially if the Fed doesn’t have their gold and has been leased out into the market)
We have just gone through nine black swan events–events, remember, that are highly improbable but yet, when they do happen, have massive consequences. In Part 2 of this article, we will go through four other “black swan” events that could cause the US dollar to collapse.
References
http://en.wikipedia.org/wiki/Too_big_to_fail
http://www.silverdoctors.com/bank-of-mexico-admits-96-of-gold-reserves-held-in-us-london/
http://www.zerohedge.com/news/2013-01-16/all-aboard-gold-repatriation-train-first-germany-next-netherlands
http://www.bloomberg.com/news/2012-01-31/venezuela-receives-last-shipment-of-repatriated-gold-bars-1-.html
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http://www.forbes.com/sites/michaelpollaro/2011/02/08/america-poised-for-a-hyperinflationary-event/
America, poised for a hyperinflationary event?
It is a long standing proposition of many, supported on both theoretical and historical grounds, that one of the surest roads to hyperinflation is one grounded in a government whose answer to every economic and social problem is to borrow and spend the problem away, supported by a central bank able, willing and ready to finance the effort. That support is of course to simply print the money through which to buy the debt so issued by the government – what is euphemistically called monetizing the debt – thereby exploding the supply of money and eventually trashing its value.
READ IT ALL.
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GM:
First I would note a problem with the graphs which is quite common with many graphs and is a pet peeve of mine: A change from 20 to 40 is a 100% increase, yet a change from 100 to 120 is a 20% increase, yet the chart visually gives the impression of a constant rate of growth. In other words, the bias is strongly towards visually overstating the rate of increase.
That said, the piece does focus in on some points worthy of serious consideration-- yet it has surprisingly analysis or content as to the WHY of foreign purchases of US debt or the possible triggers of a change in foreign behavior.
This is not to deny the merit of the piece, rather it is to express frustration at the incompleteness of its analysis.
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http://www.bloomberg.com/news/2013-03-13/central-banks-seen-buying-more-gold-yen-renminbi-to-diversify.html
Central Banks Seen Buying More Gold, Yen, Renminbi to Diversify
By Debarati Roy - Mar 13, 2013 5:00 AM MT.
Central banks are increasing purchases of gold, yen and China’s renminbi to reduce their dollar and euro holdings as a percentage of total reserves, the World Gold Council said.
Official holdings increased to more than $12 trillion in 2012 from $2 trillion in 2000, while the share of gold and currencies apart from the greenback tripled in absolute terms since 2008, the London-based council said today in a report. The group is funded by gold producers.
Central banks added 534.6 tons of gold to reserves in 2012, the most since 1964, the council said last month. Barclays Plc forecast government purchases of 300 tons in both 2013 and 2014. Currency debasement and inflation concerns will spur metal demand, Morgan Stanley said in a Feb. 25 report.
“Building gold reserves in tandem with new alternatives is an optimal strategy as central banks remain under-allocated to gold and many attractive alternatives are either too small or, as is the case with the renminbi, not yet open to broader international participation,” Ashish Bhatia, the manager for government affairs at the council, said in the report.
Barrick Gold Corp., the world’s largest producer, Newmont Mining Corp. and AngloGold Ashanti Ltd. are among council members.
To contact the reporter on this story: Debarati Roy in New York at droy5@bloomberg.net
To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net
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What is gold at now?
Last time I looked it was down about 15% from its peak , , , Given what GM's post describes, why is this so?
Silver is down quite a bit from its peak too , , , Why?
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MHO, because they went up way too far, too fast previously, up 4 times more than the Dow since 2000.
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http://libertyblitzkrieg.com/2013/03/22/texas-moves-to-repatriate-its-gold-from-the-federal-reserve/
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http://www.ibtimes.com/so-long-yankees-china-brazil-ditch-us-dollar-trade-deal-brics-summit-1153415#
So Long, Yankees! China And Brazil Ditch US Dollar In Trade Deal Before BRICS Summit
By Ryan Villarreal | March 26 2013 5:49 PM
China and Brazil agreed to trade in each other’s currencies just hours ahead of the BRICS summit in South Africa. The deal, which extends over a three-year period and amounts to an exchange of about $30 billion in trade per year, marks the latest effort among two of the world’s largest emerging economies to shift the dynamics of international trade that have long favored the U.S. dollar.
"Our interest is not to establish new relations with China, but to expand relations to be used in the case of turbulence in financial markets," Brazilian Central Bank Governor Alexandre Tombini said, Reuters reported.
By shifting some trade away from the U.S. dollar, the world’s primary reserve currency, the two countries aim to buffer their commercial ties against another financial crisis like the one that resulted from the collapse of the U.S. housing market bubble in 2008.
"Trade ties between China and Brazil are of great importance to the two countries' economies amid global woes and the member states' economic stability is vital for the BRICS mechanism," said Zhou Zhiwei, a researcher with the Chinese Academy of Social Sciences, Xinhua reported.
Trade between China and Brazil has exploded in recent years from $6.68 billion in 2003 to over $75 billion in 2012, and in 2009, China replaced the U.S. as Brazil’s main trading partner.
The trade deal comes before a summit of the BRICS nations (Brazil, Russia, India, China and South Africa) in Durban, where the group of five is expected to discuss the establishment of an international development bank.
"BRICS Development Bank will make the global financial sector more democratic," said Brazil's Minister for Development, Industry and Foreign Trade Fernando Pimentel, according to Xinhua.
China and has touted the proposed bank as an alternative to international financial institutions like the World Bank, which funds infrastructure and development projects in emerging economies around the world.
With a combined GDP of over $14 trillion, the BRICS is looking to expand its economic influence throughout African countries in particular.
"We are creating new axis of global development,” Anand Sharma, India's Minister of Commerce, Industry and Textiles, Xinhua reported. “The global economic order created several decades ago is now undergoing change and we believe for the better to make it more representative.”
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http://globaleconomicanalysis.blogspot.ca/2013/03/canada-discusses-forced-depositor-bail.html
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http://www.theaustralian.com.au/national-affairs/foreign-affairs/pm-set-to-sign-china-currency-deal-in-boost-to-exporters/story-fn59nm2j-1226609244139
PM set to sign China currency deal in boost to exporters
by:Rowan Callick, Asia-Pacific Editor
From:The Australian
March 30, 201312:00AM
A CURRENCY deal enabling the Australian dollar to be converted directly into Chinese yuan, slashing costs for thousands of businesses, is set to be the centrepiece of Julia Gillard's mission to China next weekend.
Australia would become the third country, after the US and Japan, to secure such an arrangement from China, which is Australia's top trading partner, with exports and imports totalling $120 billion last financial year.
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http://www.cnbc.com/id/100615508
"Online currency bitcoin had 20 percent knocked off its price overnight on Thursday as one of its major exchanges became the victim of a hacking attack leading to a sell-off in the virtual currency after reaching an all-time high."
"There is pretty much nothing that can be done. Large companies are frequently victims of these kinds of attacks. Even though we are using one of the best companies to help us fight against these DDoS attacks, we are still being affected."
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ILLINOIS -- An active bill, S.B. 3341, takes a direct swipe at personal privacy and ownership of tangible, hard currency. The bill would require a traceable record of sale on precious metals, to allow the government knowledge of who owns real hard assets.
If enacted, it would prohibit the sale of precious metals for cash. Coin Dealers would be required to obtain a proof of ownership, create a record of the sale, and verify the identity of the seller, before buying precious metals. Records must be kept, and can be inspected by the Attorney General at any time.
An amendment also requires that coin dealers deliver DAILY REPORTS of coin transactions to the local police department.
If we have learned anything from history, it is to never let the government know what we own. President Franklin Roosevelt, police state hero of the 20th century, confiscated citizens gold via Executive Order and handed it over to his buddies at the Federal Reserve. Never register your valuables.
http://www.wnd.com/wnd_video/new-bill-requires-gold-and-silver-registration/#iLA3Mi5wQVPBAFLj.99
http://www.ilga.gov/legislation/BillStatus.asp?DocNum=3341&GAID=11&DocTypeID=SB&LegId=64562&SessionID=84
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Exhibit A in why we are so fuct.
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http://mortgageorb.com/e107_plugins/content/content.php?content.13593#.UWLpEcpnvZ4
So, Why Has The Recovery Been So Tepid?
WORD ON THE STREET: The decentralized structure of the Fed is one of its most important features. It has deep roots in our nation’s federalist structure. Independent Federal Reserve Banks ensure that policy reflects the economic and geographic diversity of the nation.
Americans have always been skeptical of too much centralized authority. The structure of the Fed was deliberately designed to preserve a diversity of views and provide checks and balances. Indeed, I believe the diversity of opinion around the Federal Open Market Committee (FOMC) table is one of its great strengths and serves to improve the quality of our policy decision-making. As the famous American journalist Walter Lippmann once said, "Where all men think alike, no one thinks very much."
Preserving price stability, in my view, is the most important function of a central bank. In our modern economy, there is no other government agency that has the responsibility or capability to ensure the stability of the purchasing power of our nation’s currency.
I will be the first to admit that over the 100-year history of the Federal Reserve, its track record has been mixed. At times, it has been successful, and at other times, it has failed spectacularly.
You may remember that early last year, the FOMC announced an explicit long-run inflation target of 2% a year. While you might argue, correctly, that 2% inflation is not truly price stability, it is widely believed because of measurement problems and the risks of deflation, or falling prices, that a 2% average inflation target is a reasonable compromise when weighing all the costs and benefits. In fact, most central banks around the world have a similar target.
Average inflation over the last three years has been running about 1.8%, a little under our 2% target. I expect that personal consumption expenditure inflation will remain close to our goal over the next year or two.
However, as they say in the investment community, "Past performance does not guarantee future results." The Fed must remain vigilant. Inflation is a monetary phenomenon. It often evolves slowly, and what sometimes appear to be purely temporary or transitory movements in volatile individual prices, like oil or other commodity prices, can prove to be precursors of more sustained movements in prices in general.
Nevertheless, I expect that inflation will be near our 2% target over the medium to longer term. But to achieve this outcome, the FOMC will likely need to begin stepping back from the extraordinary accommodation it has been applying. I will return to this point shortly.
Let me turn now to other aspects of the economy, including the prospects for growth and employment. The link between monetary policy actions and economic growth and employment is quite different from monetary policy’s link with inflation. Economists understand that in the long run, inflation is a monetary phenomenon. Yet, in the long run, monetary policy cannot determine the growth of either output or employment. Even in the short run, the links between monetary policy and employment or output are tenuous at best and hard to predict.
The FOMC explained in its January 2012 statement of longer-term goals and objectives that factors other than monetary policy play the dominant role in determining the maximum level of employment. As a result, it is not feasible or desirable for the monetary authorities to specify a numerical objective for employment or unemployment.
Nevertheless, I have become increasingly concerned that many people inside and outside our government have come to expect too much from monetary policy. Monetary policy is not a panacea for all our economic ills. If society pressures monetary policy to overreach its capabilities, it will surely fail and, in doing so, will undermine not only the Fed’s credibility, but also monetary policy’s ability to deliver on the goals that it is most capable of achieving. The public and central bankers should scale back their expectations of the role and power of monetary policy.
Let me talk a little about the real economy, how I see it evolving and why I think the recovery has been so tepid. The recovery officially began nearly four years ago, in June 2009, yet real GDP growth has averaged just 2.1% a year since then.
According to the latest estimate, the economy grew just 1.6% in 2012, measured on a fourth-quarter-to-fourth-quarter basis. Growth in the fourth quarter was particularly weak, eking out just a 0.1% gain. Most economists pointed to a number of temporary factors that adversely affected performance in the fourth quarter - in particular, Hurricane Sandy had an enormous impact on economic activity in the Northeast.
However…
Beneath the very weak headline number, there were some signs of improvement in consumption, business investments and residential investments. Thus, there is reason to be somewhat optimistic for the coming quarters.
I anticipate that the pace of growth will pick up somewhat, to about 3% in 2013 and 2014 - a pace that is slightly above the trend. My outlook is somewhat more optimistic than that of some forecasters.
For instance, the median forecast in the Philadelphia Fed’s first-quarter Survey of Professional Forecasters is for the economy to grow at a 2.4% pace from the fourth quarter of 2012 to the fourth quarter of 2013.
My forecast of 3% growth should allow for continued improvements in labor market conditions, including a gradual decline in the unemployment rate, similar to the improvements we have seen over the past two years.
So, why has the recovery been so tepid? To understand this, we need to understand the nature of the shocks that have hit the economy. We now understand that we entered the most recent recession over-invested in the housing and financial sectors. The economic adjustments as a result of the boom and bust in housing have been painful.
The housing and financial sectors have both shrunk as a share of the economy, and it would not be particularly wise to seek to return those sectors to their pre-crisis highs. We learned the hard way that those levels were not sustainable. Thus, labor and capital must be reallocated to other uses. Moreover, the labor force needs to be at least partially retooled to match the skills employers now demand. This adjustment takes time. It is painful, to be sure, but it will lead to a healthier economy in the long run.
The housing collapse also significantly reduced consumer spending, which accounts for about 70% of the nation’s gross domestic product. The sharp decline in housing values destroyed a lot of the equity that families had built up in their homes. Thus, a huge chunk of their savings vanished.
With that wealth gone, it is only natural for consumers to want to rebuild savings. Consequently, private savings rates have risen substantially, and consumption by households has been restrained.
I believe these adjustments cannot be significantly accelerated through traditional government policies that seek to stimulate aggregate demand. This is especially true in the case of ever more aggressive monetary policy accommodation.
The conventional view is that by lowering interest rates, monetary accommodation tends to encourage households to reduce savings and thus consume more today. However, as I’ve noted, in the current circumstances, consumers have strong incentives to save. They are deleveraging and trying to restore the health of their balance sheets, so they will be able to retire or put their children through college. They are behaving wisely and in a perfectly rational and prudent way in the face of the reduction in wealth.
In fact, low interest rates and fiscal stimulus spending that leads to larger government budget deficits may be designed to stimulate aggregate demand or consumption, but they could actually do the opposite. For example, low interest rates encourage households to save even more because the return on their savings is very small. And large budget deficits suggest to households that they are likely to face higher taxes in the future, which also encourages more saving.
In my view, until household balance sheets are restored to a level that consumers and households are comfortable with, consumption will remain sluggish. Attempts to increase economic "stimulus" may not help speed up the process and may actually prolong it.
Businesses interpret increased savings and the modest growth in consumer spending as weak demand. This causes them to slow production, as well as hiring and investment. And this has made progress on employment slower than it was in recoveries from earlier deep recessions. For instance, in the recession that occurred in 1981-82, unemployment peaked at 10.8%. Yet, by the end of 1985, three years later, the rate had fallen 3.8 percentage points to 7%.
In contrast, today's improvement in labor markets has occurred at a relatively slow pace. The unemployment rate peaked at 10.1% in October 2009, but in the three years since then, the rate has fallen only about 2.2 percentage points, to 7.9%, where it stood in January. With the economic recovery continuing, I believe we will see the unemployment rate fall at a similar pace, to near 7% by the end of 2013.
Uncertainty is the other factor restraining hiring and investment by businesses. Many U.S. firms have restrained hiring and investing as businesses and consumers wait to see how our own fiscal problems will be resolved.
There remains significant uncertainty about the choices that will be made. How much will tax rates rise? How much will government spending be cut? U.S. fiscal policy is clearly on an unsustainable path that must be corrected. Efforts by Congress and the administration at the end of last year reduced some of the near-term uncertainty over personal tax rates. But the impact of the sequester, the debate over the continuing resolution to fund the federal government and the debt ceiling, which will once again become binding in the spring, all have clouded the fiscal policy situation. So, the resultant uncertainty will likely be a drag on near-term growth.
In my view, until uncertainty has been resolved, monetary policy accommodation that lowers interest rates is unlikely to stimulate firms to hire and invest. Firms have the resources to invest and hire, but they are uncertain as to how to put those resources to their highest valued use.
To sum up, there are good reasons to expect that the recovery will continue but at a moderate pace over the next couple of years.
Charles I. Plosser is president and CEO of the Federal Reserve Bank of Philadelphia. This article is adapted and edited from a speech delivered before the recent annual meeting of the Economic Development Co. and Economic Development Finance Corp. of Lancaster County, Pa. The original text is online.
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"War, what war? Don’t mention the (currency) war."
by:By Gregory McKenna
April 09, 20139:16AM
Shh, don't mention the currency war!
YES, international finance collectives, G7 and G20 have been pulling their best Basil Fawlty impressions of late.
With straight faces they are claiming that the policies they are pursuing, which have weakened the US dollar, severely weakened the Yen and which will soon weaken the Euro and Pound, are not currency manipulation.
"No, not us! We wouldn’t do that!"
Just look at their recent communique from the G20 and what it said about currencies:
“We reaffirm our commitment to cooperate for achieving a lasting reduction in global imbalances, and pursue structural reforms affecting domestic savings and improving productivity. We reiterate our commitments to move more rapidly toward more market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals, and avoid persistent exchange rate misalignments and in this regard, work more closely with one another so we can grow together.”
“Reflect underlying fundamentals”, translates to “we’re weak but you BRICS and Aussies are strong so your currencies and Economies have to suffer”. It was G20, or more correctly G7 speak for "Don’t mention the War!"
Pulling the trigger
Certainly the folks at the Federal Reserve (Fed), Bank of England (BoE) or Bank of Japan (BoJ) would claim that they have not fired any shots in anger, but prisoners are being taken all over the world. The Fed’s unconventional policy has, until very recently, had the twin successes for the Fed of driving stocks up and the US dollar down, as the US economy has clearly improved relative to most of the rest of the world. Exports as a proportion of the US GDP are up 3-4% since the beginning of the GFC.
Plenty of shots have been fired in the battle to get those numbers moving and plenty of foreign business owners are smarting from the Fed’s phony war. Nope -- ask the Fed and what you might hear is, "Not me Sir! It’s those Chinese; they are the ones who manipulate their currency. Not us, certainly not!"
It’s almost like the Cat in the Hat is about to jump out or Basil Fawlty is going to be appointed Treasury Secretary or Chairman of the Fed.
Collateral Damage
The Japanese are only slightly less overt about their intentions. Gone are the days of the stealthy approach. No, Japan under Prime Minister Shinzo Abe favours a more direct approach of simply seeking to destroy the Bank of Japan’s credibility and in so doing drive the USDJPY rate from high 70s to above 96, as witnessed in the early weeks of March.
Since Brazil’s Finance Minister Guido Mantega accused the big nations of launching a currency war back in 2011 against the rest of the world, there has been denial after denial. Yet somehow, the Yen to USD has now fallen to an average of 92 in 2013 from an average of 80 in 2012 and 79.5 in 2011. This is more than 15% devaluation against the USD and such similar movement can also be seen against the Chinese Renmimbi.
What is clear is that the big guys are saying "do as we say, not do as we do." But who could argue that the Chinese economic miracle and the recovery from the 2009 economic weakness could have proceeded at the pace (or even proceeded at all) if the CNY was a truly floating currency against the US dollar and others? It takes around 6.2 Yuan to buy 1 US dollar at the moment, but where would it be otherwise? 3.5? 4.5? Or maybe just somewhere in the 5s? Any way you look at it though, the Yuan is undervalued.
And therein lies the rub
The big nations have set internal monetary policies and quantitative easing with the express purpose, although not stated publicly (except perhaps in Japan), of improving their competitiveness globally through currency weakness.
The Australian dollar is still above 1.02 even when Europe is weak; Japan stagnant, the UK about to have a triple dip recession and the US is only just now starting to climb out of the doldrums. As the Reserve Bank has said many times recently, the Aussie dollar has been stronger than might have been expected.
But like the Brazilians, there is little anyone can do to fight the combined might of the big 4 Central Banks of the Fed, ECB, BoJ and BoE. Countless times over the years, from the Plaza Accord to until the next G20 meeting, they have and will set currency levels when and where they want them.
It is the same again -- just don’t mention the war.
Gregory McKenna is Australia’s first Currency Strategist at Westpac and Vantage FX’s Key Expert Writer.
Read more: http://www.news.com.au/business/australian-dollar/war-what-war-dont-mention-the-currency-war/story-fn6t6wad-1226611800434
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Bill Gross of PIMCO sees Ten Year US Treasuries as benefitting from the new Japanese policy.
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Bill Gross of PIMCO sees Ten Year US Treasuries as benefiting from the new Japanese policy.
Also the news of the Yuan hitting a record high this month should be sweet music to those who thought China's currency manipulation (Yuan too low) was our worst economic problem.
http://online.wsj.com/article/SB10001424127887323296504578396012452964432.html
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Precious metals had a decent day today too , , ,
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I've been making some doubting noises here about gold for a while now, , ,
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Below the streets of Lower Manhattan, in the vault of the Federal Reserve Bank of New York, the world’s largest trove of gold — half a million bars — has lost about $75 billion of its value. In Fort Knox, Ky., at the United States Bullion Depository, the damage totals $50 billion.
Falling Fortunes The price of gold has had an extraordinary run up in the last 10 years, creating wealth for investors. But its price has fallen in the last two years.
And in Pocatello, Idaho, the tiny golden treasure of Jon Norstog has dwindled, too. A $29,000 investment that Mr. Norstog made in 2011 is now worth about $17,000, a loss of 42 percent.
“I thought if worst came to worst and the government brought down the world economy, I would still have something that was worth something,” Mr. Norstog, 67, says of his foray into gold.
Gold, pride of Croesus and store of wealth since time immemorial, has turned out to be a very bad investment of late. A mere two years after its price raced to a nominal high, gold is sinking — fast. Its price has fallen 17 percent since late 2011. Wednesday was another bad day for gold: the price of bullion dropped $28 to $1,558 an ounce.
It is a remarkable turnabout for an investment that many have long regarded as one of the safest of all. The decline has been so swift that some Wall Street analysts are declaring the end of a golden age of gold. The stakes are high: the last time the metal went through a patch like this, in the 1980s, its price took 30 years to recover.
What went wrong? The answer, in part, lies in what went right. Analysts say gold is losing its allure after an astonishing 650 percent rally from August 1999 to August 2011. Fast-money hedge fund managers and ordinary savers alike flocked to gold, that haven of havens, when the world economy teetered on the brink in 2009. Now, the worst of the Great Recession has passed. Things are looking up for the economy and, as a result, down for gold. On top of that, concern that the loose monetary policy at Federal Reserve might set off inflation — a prospect that drove investors to gold — have so far proved to be unfounded.
And so Wall Street is growing increasingly bearish on gold, an investment banks and others had deftly marketed to the masses only a few years ago. On Wednesday, Goldman Sachs became the latest big bank to predict further declines, forecasting that the price of gold would sink to $1,390 within a year, down 11 percent from where it traded on Wednesday. Société Générale of France last week issued a report titled, “The End of the Gold Era,” which said the price should fall to $1,375 by the end of the year and could keep falling for years.
Granted, gold has gone through booms and busts before, including at least two from its peak in 1980, when it traded at $835, to its high in 2011. And anyone who bought gold in 1999 and held on has done far better than the average stock market investor. Even after the recent decline, gold is still up 515 percent.
But for a generation of investors, the golden decade created the illusion that the metal would keep rising forever. The financial industry seized on such hopes to market a growing range of gold investments, making the current downturn in gold felt more widely than previous ones. That triumph of marketing gold was apparent in an April 2011 poll by Gallup, which found that 34 percent of Americans thought that gold was the best long-term investment, more than another other investment category, including real estate and mutual funds.
It is hard to know just how much money ordinary Americans plowed into gold, given the array of investment vehicles, including government-minted coins, publicly traded commodity funds, mining company stocks and physical bullion. But $5 billion that flowed into gold-focused mutual funds in 2009 and 2010, according to Morningstar, helped the funds reach a peak value of $26.3 billion. Since hitting a peak in April 2011, those funds have lost half of their value.
“Gold is very much a psychological market,” said William O’Neill, a co-founder of the research firm Logic Advisors, which told its investors to get out of all gold positions in December after recommending the investment for years. “Unless there is some unforeseen development, I think the market is going lower.”
Gold’s abrupt reversal has also been painful for companies that were cashing in on the gold craze. In the last year, two gold-focused mutual funds were liquidated after years of new fund openings, Morningstar data shows. Perhaps the most famous company to come out of the 2011 gold rush, the retail trading company Goldline, has drastically cut back its advertising on cable television, lowering spending to $3.7 million from $17.8 million in 2010, according to Kantar Media.
Page 2 of 2)
Goldline agreed to pay $4.5 million last year to settle charges brought by the city attorney of Santa Monica, Calif., accusing the company of running a bait-and-switch operation. Goldline did not respond to requests for comment for this article.
A 1-ounce gold coin. Some investors expecting high inflation are sticking with gold, but it lost $28 an ounce on Wednesday.
But the worst news for gold is probably good news for the broader economy, which, though still struggling to grow, has recovered from its lows.
“As the economy improves, the demand for gold as a financial hedge declines more than the fundamental demand for gold jewelry increases,” said Daniel J. Arbess, a partner at Perella Weinberg Partners, who sold off his fund’s large stake in gold in the fourth quarter of 2012.
Investment professionals, who have focused many of their bets on gold exchange-traded funds, or E.T.F.’s, have been faster than retail investors to catch wind of gold’s changing fortune. The outflow at the most popular E.T.F., the SPDR Gold Shares, was the biggest of any E.T.F. in the first quarter of this year as hedge funds and traders pulled out $6.6 billion, according to the data firm IndexUniverse. Two prominent hedge fund managers who had taken big positions in gold E.T.F.’s, George Soros and Louis M. Bacon, sold in the last quarter of 2012, according to recent regulatory filings.
“Gold was destroyed as a safe haven, proved to be unsafe,” Mr. Soros said in an interview last week with The South China Morning Post of Hong Kong. “Because of the disappointment, most people are reducing their holdings of gold.”
Gold’s most vocal bulls say gold doubters are losing faith too easily. Peter Schiff, the chief executive of the investment firm Euro Pacific Capital, said that he still expected gold to hit $5,000 an ounce within a few years because, he said, the world is headed for a period of dangerous hyperinflation.
“People believe the U.S. economy is recovering. It’s not,” said Mr. Schiff.
The most famous investor who is standing by gold is John Paulson, the hedge fund manager who made a fortune betting against the American housing market. His $900 million gold fund reportedly dropped 26 percent in the first two months of this year.
Mr. Paulson’s losses were particularly severe because he bet heavily on gold mining companies, which have fallen more sharply than gold itself.
Mr. Norstog, in Pocatello, made a similar mistake. He put his money in a gold fund that was focused on mining company stocks.
“If I had to do it all over again, I would have just bought the gold,” Mr. Norstog said. “At least that way I could have run my fingers through the glittering coins.”
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Bitcoin crashes:
http://www.naturalnews.com/039865_bitcoin_crash_prediction_Mike_Adams.html
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I would love to buy and own gold today - but not at 1500 or 1700/oz. Maybe if the price was 1/3 of that (and if I had money). The article is mostly negative about gold but all that really happened is that it already went up way too far too fast for too long prior to the 2 year, relatively small drop that is the focus here. In total it went up about 4 times what stocks did over the last 12 years.
"Analysts say gold is losing its allure after an astonishing 650 percent rally from August 1999 to August 2011." ... "Even after the recent decline, gold is still up 515 percent. "
The lesson I see with gold (to apply to stocks now) is that waiting to buy until after a huge, unexplainable rise and after it is all the hype in the media is the opposite of buying low or selling high. When something is overbought and over-hyped, stay away. What goes up too far too fast eventually goes down. I think they call it the law of gravity.
Those who predicted that total, global financial collapse would happen by now had their timing wrong.
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For the members' consideration regarding gold:
I own gold not as an investment vehicle, but as an insurance policy against what I believe is an inevitable hyper-inflationary scenario/financial collapse. Gold stocks or ETFs are NOT alternatives to owning physical gold and silver under this scenario. As I'm sure everyone here will agree, it's better to be prepared in case this happens, rather than find yourself with worthless paper money and stocks. Just a suggestion. Think Weimar Germany in the 1930's. And YES, I think it could happen here - even globally.
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http://blogs.wsj.com/marketbeat/2013/04/12/gold-twinned-with-bitcoin/
http://buzz.money.cnn.com/2013/04/12/gold-plunges/
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http://buzz.money.cnn.com/2013/04/12/gold-plunges/
A longer look at that:
(http://www.realfreemarket.org/blog/wp-content/uploads/2014/01/Gold-vs-SP-2013.jpg)
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Fair enough , , , but:
a) I'm not see any drop at all in the gold line for the year 2013 and in point of fact it has dropped over $250;
b) more to the point, how about a chart that goes back to 1973, when Nixon-Connaly took the dollar off gold and by so doing set off world-wide inflation?
What I am raising here and now is the question of the applicability vel non of the late '70s to now. Gold went from $38 to over $800. Percentage wise that is some 2100%!!!(double check my math someone please)
Then look at what happened when Carter had to appoint Volcker to the Fed and V. raised interest rates? Gold crashed. If you bought at 800 and held, how many decades did you have to wait, interest free btw, to return to 800?
Right now we have negative real interest rates. Can that continue? What happens to gold when it does not?
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IMHO, there is currently a fire-sale on gold and silver, and one should be buying, not selling. The article below details many of the events I've noticed through my own research. As I asked in a previous post - when the economic collapse comes - and I believe it will within the next five years - would you rather own hard assets, or a pile of worthless stocks and/or paper money?
Why Are The Banksters Telling Us To Sell Our Gold When They Are Hoarding Gold Like Crazy?
By Michael, on April 10th, 2013 - www.alt-market.org
The big banks are breathlessly proclaiming that now is the time to sell your gold. They are warning that we have now entered a "bear market" for gold and that the price of gold will continue to decline for the rest of the year. So should we believe them? Well, their warnings might be more credible if the central banks of the world were not hoarding gold like crazy. During 2012, central bank gold buying was at the highest level that we have seen in almost 50 years. Meanwhile, insider buying of gold stocks has now reached multi-year highs and the U.S. Mint cannot even keep up with the insatiable demand for silver eagle coins. So what in the world is actually going on here? Right now, the central banks of the world are indulging in a money printing binge that reminds many of what happened during the early days of the Weimar Republic. When you flood the financial system with paper money, that is eventually going to cause the prices for hard assets to go up dramatically. Could it be possible that the banksters are trying to drive down the price of both gold and silver so that they can gobble it up cheaply? Do they want to be the ones sitting on all of the "real money" once the paper money bubble that we are living in finally bursts?
Over the past few weeks, nearly every major newspaper in the world has run at least one story telling people that it is time to sell their gold. For example, the following is from a recent Wall Street Journal article entitled "Goldman Sachs Turns Bearish on Gold"...
Another longtime gold bull is turning tail.
Investment bank Goldman Sachs Group Inc. said Wednesday that gold's prospects for the year have eroded, recommending investors close out long positions and initiate bearish bets, or shorts. The shift in outlook was the latest among banks and investors who have soured on gold as its dozen-year runup has been followed by a 12% decline in the last six months.
Goldman began the year predicting gold would decline in the second half of 2013, but said Wednesday the drop began earlier than expected and doesn't appear likely to reverse. Like others, the firm said the usual catalysts that have been bullish for gold during its run are no longer working.
Major banks over in Europe are issuing similar warnings about the price of gold. The following is from a Marketwatch article entitled "Sell gold, buy oil, Societe Generale analysts say"...
Analysts at Societe Generale predict in a note Thursday that gold prices will fall below $1,400 by the year’s end and continue heading south next year.
They cite two main reasons:
1. Inflation has so far stayed low and now investors are beginning to see economic conditions that would justify an end to the Fed’s quantitative easing program.
2. The dollar has started trending higher, which should make gold prices move lower as the physical gold market is extremely oversupplied without continued large-scale investor buying.
And even Asian banks are telling people to sell their gold at this point. According to CNBC, Japanese banking giant Nomura is another major international bank that has turned "bearish" on gold...
Nomura forecast gold prices will fall in 2013, on Thursday, becoming the latest bank to turn bearish on the precious metal which has been a favorite hedge for investors who fear aggressive monetary stimulus will lead to rising inflation.
"For the first time since 2008, in our view, the investment environment for gold is deteriorating as economic recovery, rising interest rates and still benign Western inflation (for now) will likely leave some investors rethinking their cumulative $240 billion investment in gold over the past four years," wrote Nomura analysts in a sector note on Thursday.
A lot of financial analysts are urging people to dump gold and to jump into stocks where they "can get a much better return". They make it sound like it is only going to be downhill for gold from here. The following is from a recent CNBC article entitled "Gold's 'Death Cross' Isn't All Investors Are Worried About"...
Gold is flashing the "death cross" but the bearish chart pattern is not the only thing scaring investors.
The magnetic appeal of a rising stock market has pulled some investment funds away from the yellow metal. Since the beginning of the year, stocks are up nearly 7 percent and gold is down nearly 6 percent.
But if gold is such a bad investment, then why are the central banks of the world hoarding gold like crazy?
According to the World Gold Council, gold buying by global central banks in 2012 was at the highest level that we have seen since 1964...
Worldwide gold demand in 2012 was another record high of $236.4 billion in the World Gold Council’s latest report. This was up 6% in value terms in the fourth quarter to $66.2 billion, the highest fourth quarter on record. Global gold demand in the fourth quarter of 2012 was up 4% to 1,195.9 tonnes.
Central bank buying for 2012 rose by 17% over 2011 to some 534.6 tonnes. As far as central bank gold buying, this was the highest level since 1964. Central bank purchases stood at 145 tonnes in the fourth quarter. That is up 9% from the fourth quarter of 2011, and the eighth consecutive quarter in which central banks were net purchasers of gold.
This all comes on the heels of decades when global central banks were net sellers of gold. Marcus Grubb, a Managing Director at the World Gold Council, says that we are witnessing a fundamental change in behavior by global central banks...
Central banks’ move from net sellers of gold, to net buyers that we have seen in recent years, has continued apace. The official sector purchases across the world are now at their highest level for almost half a century.
Meanwhile, insiders seem to think that gold stocks are actually quite undervalued right now. In fact, insider buying of gold stocks is now at a level that we have not seen in quite some time. The following is an excerpt from a recent Globe and Mail article entitled "Insider buying of gold stocks surges to multi-year highs"...
The TSX global gold index has lost about a third of its value over the past two years. The S&P/TSX Venture Exchange, stock full of gold mining juniors, hit a multi-year low this month.
Yet, executives and officers who work within those businesses are showing remarkable confidence that the sector is poised for better times.
In addition, the demand for physical silver in the United States seems to be greater than ever before. According to the U.S. Mint, demand for physical silver coins hit a new all-time record high during the month of February.
And demand for silver coins has not abated since then. Just check out what has been happening in April so far...
The US Mint has updated April sales statistics for the first time since last week, and to no surprise, the Mint again reported more massive sales, with another 833,000 silver eagles reported sold Monday! The April total through 6 business days is now 1.645 million ounces, bringing the 2013 total to a massive 15.868 million ounces. In response to the continued massive demand for silver eagles, the mint also has begun rationing sales of silver eagles to primary dealers resulting in supply delays! Just as was seen in January, tight physical supplies have seen premiums on ASE’s skyrocketing over the weekend and throughout the day, as ASE’s are rapidly becoming as scarce as 90%!
Something does not appear to add up here.
I also found it very interesting that according to Reuters, Cyprus is being forced to sell most of their gold reserves in order to help fund the bailout of their banking system...
Cyprus has agreed to sell excess gold reserves to raise around 400 million euros (341 million pounds) and help finance its part of its bailout, an assessment of Cypriot financing needs prepared by the European Commission showed.
So exactly who will they be selling that gold to?
And I also found it very interesting to learn that Comex gold inventories have been falling dramatically over the last few months. The following is from a recent article by Tekoa Da Silva...
A stunning piece of information was brought to my attention yesterday. Amid all the mainstream talk of the end of the gold bull market (and the end of the gold mining industry), something has been discretely happening behind the scenes.
Over the last 90 days without any announcement, stocks of gold held at Comex warehouses plunged by the largest figure ever on record during a single quarter since eligible record keeping began in 2001 (roughly the beginning of the bull market).
In particular, something very unusual appears to be happening with JP Morgan Chase's gold...
JP Morgan Chase’s reported gold stockpile dropped by over 1.2 million oz.’s, or rather, a staggering $1.8 billion dollars worth of physical gold was removed from it’s vaults during the last 120 days.
So what does all of this mean?
I don't know. But I would like to find out. Someone is definitely up to something.
Meanwhile, the central banks of the globe seem determined to put their reckless money printing into overdrive.
For example, the Bank of Japan actually plans to double the monetary base of that country by the end of 2014 as a recent Time Magazine article described...
On Thursday, the new governor of the Bank of Japan (BOJ), Haruhiko Kuroda, announced that the central bank would double the monetary base of the country — adding an additional $1.4 trillion — by the end of 2014 in an attempt to end the deflation plaguing the economy. To achieve that, Kuroda will buy government bonds and other assets to inject cash into the economy — what has now become familiar as quantitative easing, or QE — to bump inflation up to a targeted 2%. The plan is part of a greater strategy ushered in by new Japanese Prime Minister Shinzo Abe to restart the economy through massive fiscal and monetary stimulus. It also expands on the efforts by the Federal Reserve, Bank of England and European Central Bank to stimulate growth and smooth over financial turmoil by infusing huge sums of new money into the global economy.
Many in the western world have been extremely critical of this move, but the truth is that we actually started this "currency war". The Federal Reserve has been recklessly printing money for years, and even though we are now supposedly in the midst of an "economic recovery", the Fed is actually doing more quantitative easing than ever.
Anyone that thinks that gold and silver are bad investments for the long-term when the central banks of the world are being so reckless should have their heads examined.
However, I do believe that gold and silver will experience wild fluctuations in price over the next several years. When the next stock market crash happens, gold and silver will go down. It happened back in 2008 and it will happen again.
But in response to the next major financial crisis, I believe that the central banks of the globe will become more reckless than anyone ever dreamed possible. At that point I believe that we will see gold and silver soar to unprecedented heights.
Yes, there will be huge ups and downs for gold and silver. But in the long-term, both gold and silver are going to go far, far higher than they are today.
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"a) I'm not see any drop at all in the gold line for the year 2013 and in point of fact it has dropped over $250"
True. I realize the chart is not updated for 2013. Still in that time frame, gold is still miles above the S&P line. If gold had gone to 1500 from 1200 instead of from 1700, this story line would be different.
b) more to the point, how about a chart that goes back to 1973, when Nixon-Connally took the dollar off gold and by so doing set off world-wide inflation?
What I am raising here and now is the question of the applicability vel non of the late '70s to now. Gold went from $38 to over $800. Percentage wise that is some 2100%!!!(double check my math someone please)
Then look at what happened when Carter had to appoint Volcker to the Fed and V. raised interest rates? Gold crashed. If you bought at 800 and held, how many decades did you have to wait, interest free btw, to return to 800?
Right now we have negative real interest rates. Can that continue? What happens to gold when it does not?
I agree. Time frames picked to demonstrate a point are always selective. Same goes for stocks. The peaks and troughs seem obvious in hindsight but not so much in real time. Why didn't we buy more of anything at the bottom or sell more at the top? To do so you have to turn against the thinking of the masses and the experts.
Gold is the anti-investment. It is what you buy when things, especially monetary, are about to go to hell. It is the opposite of investing in the economy, investing in plant and equipment for hiring and producing. When gold makes sense it means the other choices suck, such as anything based in the US dollars or other currencies. That is the debate we are having. These are in-between times where we see slight growth but also stupidity and stagnation.
The people who pulled money out of other investments to buy gold already did that. These fundamentals have looked the same for a long time now. In order to buy more now, you first need to make more money in the productive sector, pay taxes on it, and then move it to gold. But gold buyers were pulling their money out of the productive economy so making more there that just keeps getting harder. It is very hard to drive the price up further from such lofty levels.
The comparison to the 1970s is only partly valid. That same day in 1973 Nixon enacted fascist price-wage controls because the inflation scare was already so severe and then inflation went on to double again by the end of the decade. Today there is denial of inflation and we have a Fed that can barely remember that the value of the dollar is part of its mission.
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Scott appears to have been reading my mind and today provides the chart I wished for in my previous post.
http://scottgrannis.blogspot.com/
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Scott appears to have been reading my mind and today provides the chart I wished for in my previous post.
http://scottgrannis.blogspot.com/
With the logarithmic scale, they make a 500% increase look rather modest. I wonder how the DOW does on this scale. Also wonder how other investments do in 'constant dollars'.
(http://i603.photobucket.com/albums/tt114/dougmacg/42ba6715-2e6e-47b9-a1a4-ba06988309ba_zpsdec32725.jpg)
It should be the other way around, gold on a flat line and productive investments going steadily up.
Gold doesn't change. It's the confidence in the dollar we measure it with that is wavering.
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I'm confused. I was under the impression that the lack of logarithmic scale exaggerated the visual impression-- at least that is what I have periodically said around here :-)
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https://www.thetrumpet.com/article/10520.19.0.0/economy/australia-to-abandon-the-us-dollar
Australia to Abandon the U.S. Dollar
April 11, 2013 • From theTrumpet.com
Australia chooses a side in the global currency war.
Australia’s announcement that it is abandoning the U.S. dollar for trade with China is the latest broadside in the global currency war. Starting April 10, Australia and China will no longer use the U.S. dollar for trade between the two nations. For the first time, Australian businesses will be able to conduct trade in Chinese yuan. No more need for U.S. dollar intermediation.
This is a significant announcement and key development for China as it continues its campaign to internationalize the yuan and chip away at the dollar’s role as the world’s reserve currency.
Australian Prime Minister Julia Gillard made the announcement during an official visit to Shanghai on Monday. She noted that China is now Australia’s biggest trading partner and that the direct currency trading would be a “huge advantage for Australia.”
She called the currency accord a “strategic step forward for Australia as we add to our economic engagement with China.”
According to hsbc bank, more than 40 percent of small and medium-size Australian businesses that trade with China plan to offer quotes for goods and services in yuan. No longer will Chinese customers need U.S. dollars before purchasing Australian goods.
For China, this is a big accomplishment as it works toward its goal of having about a third of its foreign trade settled in yuan by 2015.
But for the U.S. dollar, it is more like the treatment the U.S. Eighth Army got at Chosin Reservoir in Korea.
This Australia-China currency pact isn’t the only whipping the dollar has taken lately either.
On March 26, China and Brazil agreed to cut out the U.S. dollar for approximately half of their trade. Some $30 billion worth of commerce per year will now be conducted in yuan and reals. Brazilian Economy Minister Guido Mantega said the trade and currency agreement would act as a buffer against any unexpected dollar turbulence in the international financial markets.
Less than a week later, China announced its participation in the joint brics bank initiative. Brazil, Russia, India, China and South Africa announced the creation of a new development bank that some analysts say has the potential to rival the U.S.-dominated World Bank and European-influenced International Monetary Fund.
“Most people assume that the current economic crisis has led to a great strengthening of the power of the World Bank and the imf, and that this power is largely uncontested,” notes Prof. Geoffrey Wood, who teaches at Warwick Business School. “The proposed brics development bank represents an important new development that potentially further circumscribes the influence of these bodies.”
America’s other major ally in the Pacific announced last year that it would be curtailing its use of the dollar too. In June, Japan and China began cutting out the dollar in bilateral trade. The initiative was announced as part of a broad agreement to reinforce financial ties between the world’s third- and fourth-largest economies.
Similar dollar exclusion deals have been announced by Russia and China, Russia and Iran, India and Iran, and India and Japan.
“[T]he free lunch the U.S. has enjoyed ever since the advent of the U.S. dollar as world reserve currency may be coming to an end,” writes popular financial blog ZeroHedge. “And since there is no such thing as a free lunch, all the deferred pain the U.S. Treasury Department has been able to offset thanks to its global currency monopoly status will come crashing down the second the world starts getting doubts about the true nature of just who the real reserve currency will be in the future.”
As more nations challenge the dollar’s position as reserve currency it will greatly impact living standards in America. Interest rates will skyrocket. The government will be forced to resort to full-scale money printing to finance its debt. Credit and loans will become unaffordable, collapsing much of America’s consumer economy. Monetary inflation will shoot through the roof destroying the value of people’s savings. And higher levels of unemployment will become a way of life.
By jumping ship and swimming to China, Australia may think it will mitigate the worst of the looming dollar war. But eking out strategic partnerships with China comes with a whole set of other risks that are just as deadly. ▪
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http://www.zerohedge.com/news/2013-04-13/china-takes-another-stab-dollar-launches-currency-swap-line-france
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Scott Grannis comments on this and my previous post:
"I fail to see how "direct currency convertibility between Aussie dollars and Chinese yuan will hurt the dollar in any meaningful fashion. Currently the dollar is an intermediary in a transaction between Australia and China, now it will be bypassed. Dollars were held for only a fraction of a second before, now they won't be held at all. The value of the dollar is not a byproduct of its use in transactions, it is a function of the world's demand to hold the existing stock of dollars relative to its demand to hold the existing stock of other currencies. Changing the way in which money flows between China and Australia doesn't really affect the demand for dollars.
"If the yuan benefits from moves such as these, it is because transactions in yuan are becoming more efficient, and therefore on the margin the world may be more inclined to hold yuan rather than dollars. China will have to back up such minor improvements such as these by removing the constraints to capital flowing into and out of China. That will be a big deal when it happens."
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"I fail to see how direct currency convertibility between Aussie dollars and Chinese yuan will hurt the dollar in any meaningful fashion."
Agree. It is what we are doing to the US Dollar that is potentially hurting it.
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The Consumer Price Index (CPI) Declined 0.2% in March To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 4/16/2013
The Consumer Price Index (CPI) declined 0.2% in March, coming in below consensus expectations of no change. The CPI is up 1.5% versus a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) was down 0.3% in March but is up 1.3% in the past year.
The decline in the CPI in March was due to a 2.6% drop in energy prices. Food prices were unchanged. Most other major categories saw small gains. The “core” CPI, which excludes food and energy, was up 0.1% in March, coming in just below the consensus expected gain of 0.2%. Core prices are up 1.9% versus a year ago.
Real average hourly earnings – the cash earnings of all employees, adjusted for inflation – were up 0.2% in March and are up 0.3% in the past year. Real weekly earnings are up 0.6% in the past year.
Implications: Despite the headline number of a 0.2% decline in the CPI, it looks like loose monetary policy is starting to nudge up underlying inflation. In the first three months of the year, consumer prices have accelerated, up at a 2.1% annual rate compared to up only 1.5% in the past year. The decline in CPI in March was due to energy prices, which are obviously volatile and which fell 2.6%. “Core” prices, which exclude food and energy, were up 0.1% in March and are up 1.9% from a year ago. Neither overall nor core price gains in the past year set off alarm bells. Instead, they suggest the Federal Reserve’s preferred measure of inflation, the PCE deflator (which usually runs a ¼ point below the CPI) remains well below the Fed’s target of 2%. We don’t expect this to last. However, for the Fed, the key measure of inflation is its own forecast of future inflation. So even if inflation goes to roughly 3% within the next year (which we expect), as long as the Fed projects the rise to be temporary it will not react by raising short-term interest rates. The Fed is more focused on the labor market and, we believe, is willing to let inflation exceed its long-term target of 2% for a prolonged period of time in order to get the unemployment rate down. The best news in today’s report was that “real” (inflation-adjusted) average hourly earnings rose 0.2% in March. Given today’s news it looks like “real” (inflation-adjusted) consumer spending grew at a 2.5 – 3.0% annual rate in Q1, consistent with our forecast of 3% real GDP growth.
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Bitcoin Investors Hang On for the Ride .
By ROBIN SIDEL
Norman Vialle, a 53-year-old car dealer in Kansas, invested in his share of winners and losers during the Internet bubble of the 1990s. Now he is clinging to a stash of Bitcoin, even though the fledgling virtual currency has lost about 70% of its value in the past week.
"It's volatile because it's new, but it's still a lot higher than it was a month ago," Mr. Vialle says.
In addition to investing in the currency, Mr. Vialle recently began accepting bitcoins for payment at Overland Park Jeep Dodge Ram Chrysler. One of his customers is planning to pay for a $40,000 Jeep with the currency next month.
Bitcoin is attracting attention as a wildly volatile, all-digital currency. How does it work? How are criminals taking advantage of it? How risky an investment is it? In this Bitcoin explainer, WSJ's Jason Bellini has "The Short Answer."
It has been a volatile month for Bitcoin, the virtual currency that is based on a mathematic algorithm and can be used to buy everything from maple syrup to pornography.
A furious run-up in the value of Bitcoin earlier this month has been followed by an abrupt price drop that has rattled investors. The price of one Bitcoin unit continued its dive on Tuesday, falling 39% at one point to $50 before recovering somewhat to around $70.
The unpredictable trading has given fresh fuel to skeptics, who question the viability of a volatile currency that isn't backed by a central bank.
"I think there are some businesses that offer legitimate goods that like the concept and like the cachet of it," said Beth Robertson, a senior consultant with Javelin Strategy and Research, which focuses on the payments industry. "But I don't think that you're going to see any broad base of merchants accepting Bitcoin."
Regulators, meanwhile, recently weighed in on virtual currencies for the first time, encouraging entities that exchange or sell them to follow the same money-laundering rules that apply to companies like Western Union Co. WU +1.13%
.
Despite the lack of wide acceptance and looming prospect for regulation, a cadre of Silicon Valley venture capitalists, Web programmers and anti-Establishment thinkers are still revved up about Bitcoin's prospects.
Unlike currencies that are backed by a central bank, Bitcoin users can essentially create the units themselves in a process called "mining" that involves solving a complicated mathematical problem with sophisticated computer servers.
The currency, which is stored in an online account, also can be traded on an exchange and swapped privately.
Bitcoin payments are becoming increasingly popular among Internet merchants, who want to reduce costs associated with accepting credit cards.
Bits and Pieces
Mystery still surrounds Bitcoin – its creator – or creators – has remained anonymous and specific details surrounding its history remain fuzzy. But buzz is growing, despite recent wild swings in the currency's value.
The virtual currency also is starting to make inroads in the brick-and-mortar world, where customers can pay with bitcoins using their mobile phones, but because the transactions are essentially anonymous, critics worry that the currency could be used for drug trafficking and money laundering. The U.S. Treasury Department's Financial Crimes Enforcement Network, known as FinCen, last month issued a three-page memo that effectively lays the groundwork to regulate firms that issue or exchange virtual currencies. Among other things, money transmitters must alert authorities if they believe a transaction might be tied to suspicious activity.
Despite the looming regulation, investors were encouraged by the memo. They believe increased oversight will ease money-laundering concerns that have kept some investors and merchants out of the market.
"The industry is happy about this guidance even if it imposes a regulatory burden because it is an indicator of respectability," says Behnam Dayanim, a lawyer at Paul Hastings LLP in Washington.
The memo helped spark a rally earlier this month on the Tokyo-based Mt. Gox exchange, which says that it handles 80% of Bitcoin trading. The currency nearly quintupled in less than a month, leaping from roughly $50 in mid-March to a high of $230 on April 9. But since then, Bitcoin has plunged almost as quickly as it rose. Mt. Gox suspended trading for 12 hours last week after a surge in trading volume overloaded its system. The exchange also has been hit with cyberattacks. Such wild swings could make it difficult for the virtual currency to gain traction—among investors and businesses alike, experts said.
But Jennifer Longson, who began accepting bitcoins at her San Francisco cupcake bakery in October, considers the volatility to be no different from the fluctuations she sees in the price of her baking ingredients. Customers use Bitcoin for payment three or four times a week at her store, she said. "They're all excited to talk about it," said the owner of Cups and Cakes Bakery, whose concoctions include cupcakes made with ingredients such as bacon and tequila.
Ms. Longson's husband, Tom, has been buying and selling the currency for the past year. He cashed out his original investment when the price hit $100 in early April, but bought some for $241 last week.
"I lost some money, but not enough to jump off a building. Unfortunately, I sold some to a friend at that price as well and I felt guilty about that," he said.
The price gyrations are more worrisome to John Reitano, co-founder of three-month-old CoinFlash, a San Diego company that aims to launch a bitcoin-trading network that is similar to airport currency kiosks this summer. "Our hope is that the volatility settles down over time," said Mr. Reitano, who already is preparing to answer investor questions about the issue.
Entrepreneurs hope the new FinCen guidelines will help Bitcoin evolve into a more developed currency. A number of companies are expected to register with FinCen as money transmitters in the coming months. A few already have done so, anticipating that the industry would be capturing the attention of regulators.
But Mr. Vialle, the car dealer, still views Bitcoin more as an investing opportunity than a payment mechanism. He says he plans to hang onto his bitcoins, which he mined about a year ago, for the foreseeable future. "Maybe I will use them someday, but I probably will hold them for five or 10 years," he says
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The Bitcoin Money Myth
Mises Daily: Wednesday, April 17, 2013 by Frank Shostak
Many economists and financial commentators believe that in the unregulated market of the internet economy, new forms of money can be created that bypass central-bank and government supervision. The latest development is the emergence of a new electronic means of exchange, Bitcoin (BTC). Bitcoin was launched on January 3 2009 by its inventor, a programmer called Satoshi Nakamote.
The basic idea behind Bitcoin is to create, by means of a mathematical algorithm, a digital good that is scarce and fungible.
Nakamote devised a software system that enabled people to obtain bitcoins as a reward for solving complex mathematical puzzles. The resulting coins are then used for online trading. Nakamote also arranged that the number of bitcoins can never exceed 21 million.
Some experts maintain that Bitcoin will displace the existent fiat money and will usher in a new era of free banking, which will finally put to rest the menace of inflation. Unfortunately, this is a pipe dream. Electronic money will not replace fiat paper money. The belief that it can stems from a failure to understand the nature and function of money and how it emerges on the market.
To see where this view goes wrong, let's first see how money comes about. Money emerges out of barter conditions that permit more complex forms of trade and economic calculation. The distinguishing characteristic of money is that it is the general medium of exchange, evolved from private enterprise from the most marketable commodity. On this Mises wrote,
"There would be an inevitable tendency for the less marketable of the series of goods used as media of exchange to be one by one rejected until at last only a single commodity remained, which was universally employed as a medium of exchange; in a word, money. (The Theory of Money and Credit, pp. 32-33)"
In short, money is the thing for which all other goods and services are traded. Furthermore, money must emerge as a commodity. An object cannot be used as money unless it already possesses an exchange value based on some other use. The object must have a pre-existing price for it to be accepted as money.
Why? Demand for a good arises from its perceived benefit. For instance people demand food because of the nourishment it offers. With regard to money, people demand it not for direct use in consumption, but in order to exchange it for other goods and services. Money is not useful in itself, but because it has an exchange value, it is exchangeable in terms of other goods and services.
The benefit money offers is its purchasing power, i.e. its price in terms of goods and services. Consequently for something to be accepted as money, it must have a pre-existing purchasing power: a price. This price could have only emerged if it had an exchange value established in barter. Once a thing becomes accepted as the medium of exchange, it will continue to be accepted even if its non-monetary usefulness disappears. The reason for this acceptance is that people now possess previous information about its purchasing power. This in turn enables them to form the demand for money.
In short the key to the acceptance is the knowledge of the previous purchasing power. It is this fact that made it possible for governments to abolish the convertibility of paper money into gold, thereby paving the way for the introduction of the paper standard. Again the crux here is that an object must have an established purchasing power for it to be accepted as general medium of exchange, i.e. money.
In today's monetary system, the core of the money supply is no longer gold, but coins and notes issued by governments and central banks. Consequently coins and notes constitute the standard money we know as cash that are employed in transactions. Notwithstanding this, it is the historical link to gold that makes paper money acceptable in exchange.
Observe that a bitcoin is not a thing; it is a unit of a non-material virtual currency. A bitcoin has no material shape; hence from this perspective the notion that it could somehow replace fiat money is not defendable. Bitcoin can function only as long as individuals know that they can convert it into fiat money, i.e. cash on demand (see, e.g., Lawrence H. White "The Technology Revolution And Monetary Evolution," Cato Institute's 14th annual monetary conference, May 23, 1996).
Without a frame of reference or a yardstick, the introduction of new forms of settling transactions is not possible. On this Rothbard wrote,
"Just as in nature there is a great variety of skills and resources, so there is a variety in the marketability of goods. Some goods are more widely demanded than others, some are more divisible into smaller units without loss of value, some more durable over long periods of time, some more transportable over large distances. All of these advantages make for greater marketability. It is clear that in every society, the most marketable goods will be gradually selected as the media for exchange. As they are more and more selected as media, the demand for them increases because of this use, and so they become even more marketable. The result is a reinforcing spiral: more marketability causes wider use as a medium which causes more marketability, etc. Eventually, one or two commodities are used as general media-in almost all exchanges-and these are called money."
(Murray N. Rothbard, What Has Government Done to Our Money?)
It was through a prolonged process of selection that people had settled on gold as the most marketable commodity. Gold therefore had become the frame of reference for various forms of payments. Gold formed the basis for the value of today's fiat money. Besides, Bitcoin is not a new form of money that replaces previous forms, but rather a new way of employing existent money in transactions. Because Bitcoin is not real money but merely a different way of employing existent fiat money, obviously it cannot replace it.
The fact that the price of bitcoins has jumped massively lately implies that people assign a high value to the services it offers in employing existent money. This is no different from the case when in a country which imposes restrictions on taking money out people will agree to pay a high price for various means to secure their money.
Summary and conclusion
Contrary to the recent hype, we hold that Bitcoin is not money but rather a new way of employing existent money in transactions. The fact that the price of bitcoins has jumped massively lately implies that people assign a high value for the services it offers and nothing more.
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Interesting piece though I don't fully agree with the optimism. I think the reason gold fell is because it went up too far, too fast, previously. The economy went from free fall in crisis to stable stagnation, which is quite an improvement. The outlook is more stagnation, far better than free fall. The gold to oil ratio pointed out in the piece is quite telling. In general, gold is how you take money out of productive business investment, so a move away from gold is some reason for optimism.
http://online.wsj.com/article/SB10001424127887324485004578427271772508456.html?mod=WSJ_Opinion_LEFTTopOpinion
Gold's Plunge Is Cause For Optimism
It signals strength in the dollar that could reorient investment away from hedges and toward economic growth.
By JOHN TAMNY
In January 1980, the price of gold hit what was then an all-time high, $850 per ounce. Ten years earlier, gold traded at $35. Its stupendous rise in the 1970s neatly correlated with that malaise-riddled decade, as its decline in the 1980s signaled renewed prosperity.
That is why the recent decline in the price of gold—down 16% to $1,387 an ounce from $1,660 when February began—is cause for cautious optimism. Gold's recent weakness points to renewed dollar strength and, if this strength is maintained, may preview reorientation of precious capital away from dollar-devaluation hedges and toward investments in what has been called "the economy of the mind"—that is, new entrepreneurial endeavors and industries.
The precious metal has long been referred to as "the golden constant" for its steady value. An example is the skyrocketing price of gold in the 1970s, which didn't so much signal a spike in gold's value as it showed the decline of the dollar in which it was priced. If gold's constancy as a measure of value is doubted, consider oil: In 1971 an ounce of gold at $35 bought 15 barrels, in 1981 an ounce of gold at $480 similarly bought 15 barrels, and today an ounce once again buys a shade above 15.
There is another way of looking at the 1970s rise in the price of gold and decline in the value of the dollar, which has relevance for today. The weakening dollar marked a massive redistribution of wealth away from savers and equity investors, and with that redistribution a capital deficit for companies eager to grow.
When savers commit capital to new ideas, it is to receive a return in later years. But with the dollar in free fall throughout the 1970s, incentives were seriously distorted, and investments migrated toward classes of hard assets—such as commodities (oil, cotton, wheat, etc.) whose dollar-denominated prices rose and were thus least vulnerable to devaluation. Housing prices also soared. Meanwhile, stock market indexes such as the S&P 500, which represented the nation's most promising companies, nearly flattened.
If you owned a house, or were long in commodities like gold and oil, your dollar wealth rose substantially. If your savings were held in dollars or equities, your nominal wealth position flat-lined and in real terms plummeted.
Happily for investors and the U.S. economy more broadly, the dollar hit a low point in 1980 and reversed course in the next two decades. In the 1980s, gold fell 52%—and the S&P zoomed upward by 222%. In the 1990s, gold declined by another 29%—and the S&P roared, up 314% for the decade.
With the dollar on an upswing, investors had a renewed incentive to migrate out of inflation hedges and into economic sectors where new ideas offered the potential for outsize returns. The technology sector shined. However risky it was to put capital into new companies or an unproven concept, investors at least had more assurance that any returns they reaped would not be eroded by devaluation.
Fast forward to the new millennium. In January 2001, a dollar bought roughly 1/270th of an ounce of gold, but in the ensuing 12 years its value took a severe turn downward to 1/1600th of an ounce two months ago.
By August 2011, gold had soared to $1,900 from $270 in January 2001. When we take into account the greenback's extreme weakness, the alleged mystery about a "lost decade" in economic growth is quickly erased.
As in the 1970s, gold's rise in the past decade once again signaled a painful dollar devaluation that would foster a commodity boom, rising house prices and near flat markets. Though some cheer the market highs of today, it should be remembered that they're merely a return to heights last reached in 2000, when the dollar was much stronger.
All this is to emphasize that the recent fall in gold prices, while surely bad news for investors who are long in hard assets, may be good news for the future.
The unwind in these investors' positions wrought by a stronger dollar will surely be painful, but savers, unemployed workers and the broad economy have suffered long enough from a weak dollar and slow growth. It must be remembered that there are no companies and no jobs without investment first. A strong dollar would energize the savers as it did before, and savings are the economic tonic needed to get Americans working again.
Mr. Tamny is editor of Forbes Opinions and RealClearMarkets.
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Fed Zeroes In on Vulnerability to Rate Rise .
By VICTORIA MCGRANE
The Federal Reserve is scrutinizing the nation's biggest banks to ensure they can handle an eventual rise in interest rates, as concern grows among regulators about the risks posed by a long low-interest-rate environment.
On Thursday, a panel of federal regulators charged with identifying market risks warned that a sudden rise in interest rates could have a destabilizing effect on financial markets. The Financial Stability Oversight Council, in its third annual report, cited interest-rate risk as one of seven major vulnerabilities to financial stability.
"A sudden spike in yields and volatilities could trigger a disorderly adjustment, and potentially create outsized risks," the council said in its report.
The Fed's chairman, Ben Bernanke, sits on the FSOC. Using detailed data that the central bank started collecting after the financial crisis, Fed officials are regularly running big banks' portfolio holdings through models to gauge their exposure to various changes in interest rates, according to Fed officials.
For the first time this year, the Fed asked banks to gauge their ability to withstand a hypothetical inflation and interest-rate shock as part of an annual "stress-testing" exercise.
According to Fed officials, none of the 18 largest U.S. banks saw their capital levels fall below regulatory minimums under the scenario, which featured a mix of moderate recession, rising consumer prices and rapid increases in short-term interest rates, as might occur if oil prices were to shoot sharply higher. The Fed didn't publicly release results of the scenario.
The Fed found that banks are protected in part because they have increased capital levels and because their net interest income would increase with a rate rise. They also have an inexpensive source of funds in customer deposits, which would insulate them, it found.
The Fed isn't expected to raise rates any time soon, and the monitoring isn't a signal that the central bank might shift its position—it has committed to holding rates low for a long time, at least until unemployment falls below 6.5%, as long as inflation remains stable.
The vast majority of the Fed's 19 policy makers don't believe the central bank will raise short-term rates until 2015 at the earliest.
Fed officials said they haven't seen any major vulnerabilities appear yet. Regulators have issued a steady drumbeat of warnings that banks need to be prepared for rate increases and for the impacts that a rate spike would have on their funding costs and investments.
The latest came Thursday, when the FSOC said the sustained low-interest rate environment may have led some financial institutions, including banks, to seek out higher returns by investing in longer-term securities. The council said bank supervisors and market participants "should be particularly attuned to signs of heightened interest rate and credit risk at depository institutions, credit unions, broker-dealers and bank holding companies." The FSOC warned that while so-called reaching for yield may boost near-term earnings, "it could significantly increase losses" if rates rise.
The Fed's concern stems in part from the situation that arose in 1994 when, after a relatively long period of low interest rates, the central bank began raising short-term rates to deal with rising inflation. The response caught market participants by surprise: Rates rose dramatically, bond markets plunged and investors suffered big losses. The fallout helped sink brokerage firm Kidder, Peabody & Co., pushed Orange County, Calif., into bankruptcy and wiped out a hedge fund run by Askin Capital Management that had made leveraged bets on mortgage-backed securities.
Banks are exposed to interest-rate risk in several ways, including through the value of their long-term bond holdings, which fall as interest rates rise. That could result in losses as banks are forced to reflect the declining value. Treasury and government backed mortgage securities account for about 14% of bank portfolios, up from less than 10% before the financial crisis though not as high as more than 20% in the early 1990s, according to Fed data. And if the Fed raises short-term interest rates, the banks' borrowing costs could go up.
The Fed and other banking regulators put out guidance in January 2010 telling firms to beef up their measurement and management of interest rate-related risks, highlighting regulators' concerns that banks could get caught off guard by rising rates. Among the instructions were for banks to conduct stress tests using assorted rate scenarios, including "instantaneous and significant" increases in rates and prolonged rate shocks.
The risk extends beyond banks to pension funds, insurance companies and other financial entities that invest in financial assets. The longer the low interest-rate environment persists "the more very low interest-producing assets accumulate on their balance sheets," said Sheila Bair, former chairman of the Federal Deposit Insurance Corp. "At some point the Fed's going to have to raise rates, and the market value of those lower-yielding assets are going to go down."
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... a panel of federal regulators charged with identifying market risks warned that a sudden rise in interest rates could have a destabilizing effect on financial markets
... interest-rate risk as one of seven major vulnerabilities to financial stability.
...the scenario, which featured a mix of moderate recession, rising consumer prices and rapid increases in short-term interest rates, as might occur if oil prices were to shoot sharply higher.
... The longer the low interest-rate environment persists "the more very low interest-producing assets accumulate on their balance sheets,"
..."At some point the Fed's going to have to raise rates, and the market value of those lower-yielding assets are going to go down."
"At some point the Fed's going to have to raise rates..."
But why? If it is a great policy, healthier for job growth than having market rates for interest , why would we ever stop manipulating the market for something as harmless as money?
It's almost as if the architects of the quantitative easing policies, trying to solve a non-monetary problem with monetary flooding, are admitting these policies are unsustainable, and that the longer the wrong policies continue the harder the fall will be. (Other than the readers of this forum), Who knew?
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Bitcoin Startups Begin to Attract Real Cash
Venture Investors Pour in Millions, Adding Credibility to Internet Virtual Currency; Regulation Looms as a Concern
By SARAH E. NEEDLEMAN and SPENCER E. ANTE
Bitcoin startups are beginning to raise sizable investment capital even as industry leaders warn that hackers are abusing the Internet virtual currency for profit.
In the past year, fledgling businesses Coinbase Inc., Coinsetter Inc. and CoinLab Inc. have raised millions of dollars collectively from prominent venture-capital firms and angel investors, adding credibility to a digital currency that isn't backed by a central bank.
Coinbase founders Brian Armstrong, left, and Fred Ehrsam. 'We are in land-grab mode,' Mr. Ehrsam says.
Bits and Pieces
Mystery still surrounds Bitcoin, but buzz is growing, despite recent wild swings in the currency's value. Here's a rough timeline of the Bitcoin evolution.
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On Wednesday, Bitcoin, which can be used to make payments over the Internet without transaction fees or involving a financial institution, is expected to win its biggest validation to date with a $5 million investment in San Francisco-based Coinbase led by Twitter Inc. investor Union Square Ventures.
That investment would top last month's more than $2 million put into OpenCoin Inc., another virtual currency startup whose backers include venture firm Andreessen Horowitz.
"This is going to be a trigger point," said Union Square managing partner Fred Wilson of the Coinbase investment. "You'll see lot more venture money being poured into this space."
Coinbase operates an online service that allows users to buy Bitcoin, store the virtual currency in a digital wallet and pay merchants for goods or services with it. The company was founded last year by Fred Ehrsam, a 24-year-old former Goldman Sachs GS +0.98% trader, and 30-year-old Brian Armstrong, previously an engineer at short-term rental startup Airbnb.
Bitcoin is attracting attention as a wildly volatile, all-digital currency. How does it work? How are criminals taking advantage of it? How risky an investment is it? In this Bitcoin explainer, WSJ's Jason Bellini has "The Short Answer."
In April, the Coinbase co-founders said the company had about 116,000 members who converted $15 million of real money into Bitcoin, up from $1 million in January. Mr. Ehrsam said its dollar conversions are increasing by about 15% a week, and its user base is growing at a weekly rate of about 12%.
"We are in land-grab mode," said Mr. Ehrsam.
Coinbase profits by charging users a 1% fee to convert dollars to and out of Bitcoin. "We have a pretty clear business model," said Mr. Ehrsam. "It's not like we're eating Ramen every day."
Bitcoin is gaining traction with some small merchants and others who want to reduce costs associated with accepting credit cards, such as content-aggregation site Reddit.com, and OKCupid.com, a dating site owned by IAC/Interactive Inc. IACI +0.20% eBay Inc. EBAY +1.39% Chief Executive John Donahoe last month also said the e-commerce heavyweight is exploring ways to integrate Bitcoin into its PayPal payments network.
Supporters of Bitcoin, which was created in 2009 by a person or group that goes by the name Satoshi Nakamoto, say it offers anonymity and a cheap way to transact business across borders. But critics say Bitcoin faces so many regulatory and technical hurdles it will never mature into a mainstream currency.
Last month, Tokyo-based Mt. Gox Co., the largest online exchange trading Bitcoin, said its services were disabled for approximately four hours by an Internet denial-of-service attack.
"Attackers wait until the price of Bitcoins reaches a certain value, sell, destabilize the exchange, wait for everybody to panic-sell their Bitcoins, wait for the price to drop to a certain amount, then stop the attack and start buying as much as they can," according to the exchange.
Coinbase Nabs $5M in Biggest Funding for Bitcoin Startup
That volatility is one of the concerns about the currency. Bitcoin rose in value from roughly $5 in June 2012 to a high of $266 in April and was down to about $108 on Tuesday, according to Mt. Gox data.
"If I really sat down and thought about writing a financial disclosure statement, I could probably list dozens of risks," said Union Square's Mr. Wilson.
Carol R. Van Cleef, a partner specializing in emerging payments and anti-money-laundering-compliance at Washington, D.C., law firm Patton Boggs LLP, said government financial reporting regulations likely will make it difficult for virtual-currency startups. The Financial Times reported on Monday that the Commodity Futures Trading Commission is discussing whether Bitcoin might fall under its regulatory jurisdiction.
Regulation is "going to force some players out of the market," Ms. Van Cleef said. Others, she added, "will bite the bullet and become compliant. But it will be expensive."
That isn't stopping venture investors. Jeremy Liew, a partner with Lightspeed Venture Partners, which has invested in three virtual currency startups including OpenCoin, said he's "incredibly bullish" because it allows for cost-free micro-transactions—such as buying a single candy bar—that would be too small for other electronic payments.
"The appeal of zero transaction costs is really strong and extremely disruptive for a massive industry, the payments industry," he said.
Chi-Hua Chien, a general partner at venture firm Kleiner Perkins Caufield & Byers who found the Facebook FB -0.41% investment while previously working at Accel Partners, said his firm is actively exploring investments related to Bitcoin and has already looked at more than two dozen such companies.
Mr. Chien estimates almost 100 companies are operating in the Bitcoin domain, including exchanges, payment processors and Bitcoin ATM machine operators. "It is completely crazy that money is not borderless," he said. "This is super-logical."
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http://www.ftportfolios.com/Commentary/EconomicResearch/2013/5/10/the-bogus-qe-xcuse
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http://www.ftportfolios.com/Commentary/EconomicResearch/2013/5/10/the-bogus-qe-xcuse
I'm curious what the excuse is for the record number of Americans on food stamps and disability, given the amazing economy Wesbury sees.
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He is addressing claims, such as those made by many of us here, of an impending inflation.
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He is addressing claims, such as those made by many of us here, of an impending inflation.
What does Wesbury's infomercial say? No negative results from using the magical money machine?
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Take the six minutes or so and find out for yourself. It would take me longer than that to write it up :-)
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MOBY BEN, OR, THE WASHINGTON SUPER-WHALE: HEDGE FUNDIES, THE FEDERAL RESERVE, AND BERNANKE-HATRED
http://delong.typepad.com/sdj/2013/05/the-washington-super-whale-hedge-fundies-the-federal-reserve-and-bernanke-hatred.html
In February 2012, a number of hedge fund traders noted one particular index--CDX IG 9--that seemed to be underpriced. It seemed to be cheaper to buy credit default protection on the 125 companies that made the index by buying the index than by buying protection on the 125 companies one by one. This was an obvious short-term moneymaking opportunity: Buy the index, sell its component short, in short order either the index will rise or the components will fall in value, and then you will be able to quickly close out your position with a large profit.
But February passed, and March passed, and April rolled in, and the gap between the price of CDX IG 9 and what the hedge fund traders thought it should be grew. And their bosses asked them questions, like: "Shouldn't this trade have converged by now?" "Have you missed something?" "How much longer do you want to tie up our risk-bearing capacity here?" "Isn't it time to liquidate--albeit at a loss?"
So the hedge fund traders began asking who their counterparty was. It seemed that they all had the same counterparty. And so they began calling their counterparty "the London Whale". They kept buying. And the London Whale kept selling. And so they had no opportunity to even begin to liquidate their positions and their mark-to-market losses grew, and the risk they had exposed their firms to grew.
So they got annoyed.
And they went public, hoping that they could induce the bosses of the London Whale to force him to unwind his possession, in which case they would profit immensely not just when the value of CDX IG 9 returned to its fundamental but by price pressure as the London Whale had to find people to transact with. And so we had 'London Whale' Rattles Debt Market, and similar stories
The London Whale was Bruno Iksil. He had been losing, and rolling double or nothing, and losing again for months. His boss, Ina Drew, took a look at his positions. They found they had a choice: they could hold the portfolio and thus go all-in, or they could fold. They could hold CDX IG 9 until maturity--make a fortune if a fewer-than-expected number of its 125 companies went bankrupt, and lose J.P. Morgan Chase entirely to bankruptcy if more did. Or they could take their $6 billion loss and go home. They could either take their losses, or sing "Luck, Be a Lady Tonight!" and bet J.P. Morgan Chase on a single crapshoot. After all, what could they do if the bet went wrong and they had to eat losses at maturity? J.P. Morgan Chase couldn't print money. So Drew stood Iksil down, and the hedge fund traders had their happy ending.
In late 2008, the Treasury bond went haywire. The interest rate on the Ten Year Nominal Treasury bond fell to 2.1% in the panic--clearly overpriced. In the late 1990s with the debt-to-annual-GDP ratio on the decline the Treasury bond had traded between 5% and 7%. In the 2000s with a weak economy the Treasury bond had traded between 4% and 5%. With the Federal debt exploding even faster than it had around 1990, it seemed to hedge fund traders very clear that the long-term fundamental value of the Ten-Year Treasury bond probably carried an interest rate of 7%, or more--and was at the very least more than 5%. So smart hedge fund traders shorted Treasuries, and waited for the Treasury Bond to return to its fundamental value.
And they ran into the widowmaker.
So they scrambled around, wondering: "Why did the interest rate on the Ten-Year Treasury peak at 4%? And why has it gone down since then? And why won't it go back to its 5%-7% fundamental." And they looked around. And they found Ben Bernanke:
The Washington Super-Whale.
He had printed-up reserve deposits, and used them to buy Treasury Bonds, and in so doing, they thought, had pushed the price of Treasuries up well beyond their fundamentals. Yet rather than easing off, taking his lumps, and letting the market "clear" he kept buying and buying and buying and buying, leaving the hedge fund traders with larger and larger and larger short positions in Treasuries that had to be carried at a loss. And every year that they carry those positions is a -2% times the size of the long leg negative entry in their cash flow.
Bruno Iksil, they thought, had been pulled up short by his boss Ina Drew's unwillingness to bet the firm and risk bankruptcy. Ben Bernanke, they thought, ought to have been pulled up short by his regard for financial stability--by his promise to keep inflation at its target, for the counterpart to J.P. Morgan Chase's bankruptcy and liquidation would be the national bankruptcy that is another episode of inflation like the 1970s. But Ben Bernanke wasn't pulled up short by the risk of inflation. He had no supervising CEO. And he dominated the Federal Open Market Committee.
But what Bernanke was doing, they thought, was as unprofessional as it would have been for Ina Drew to tell Bruno Iksil: "You turn out to have made a large directional bet that we can sell unhedged protection and profit? Let's see if you are right: let it ride!"
And so they went public with the Washington Super-Whale, as they had gone public with the London Whale. Perhaps somewhere out there was an equivalent of Jamie Dimon who could tell Bernanke that it was time to unwind the Federal Reserve's balance sheet now? Jeremy Stein, perhaps?
From my perspective, of course, the hedge fundies' analogy between the London Whale and the Washington Super-Whale is all wrong--the hedge fundies are thinking partial-equilibrium when they should be thinking general equilibrium. CDX IG 9 has a well-defined fundamental value: the payouts should each of the 125 companies go bankrupt times the chance that they will. What Bruno Iksil does does not affect that fundamental value. He can bet, and drive the price, but he cannot change the fundamental.
But the Washington Super-Whale is different.
In a healthy economy, the Ten-Year Treasury Bond does have a well-defined fundamental. When the economy is healthy enough that pricing power reverts to workers and keeping inflation from rising is job #1 for the Federal Reserve, the level of the Federal Funds rate now and in the future is pinned down by the requirement to hit the inflation target. And the fundamental of the Ten-Year Treasury Bond is then the expected value over the bond's lifetime of the future Federal Funds rate plus the appropriate ex ante duration risk premium.
But when the economy is depressed, like now? When market appetite for short-term cash at a zero interest rate is unlimited, like now? When workers have no pricing power, and so wage inflation is subdued, like now? The Federal Reserve is not J.P. Morgan Chase. It is not a highly-leveraged financial institution that must worry about holding too much duration risk. As Glenn Rudebusch once said:
Our business model here at the Fed is simple: (i) print reserve deposits that cost us 0 (OK. 0.25%/yer), (2) invest them in interest-paying bonds that we then hold to maturity, (3) PROFIT!!
And the more quantitative easing the Fed undertakes and the larger is its balance sheet the larger is the amount of money the Federal Reserve makes on its portfolio, without running any risks--as long as the economy remains depressed.
The Federal Reserve, you see, is unlike J.P. Morgan Chase: the Federal Reserve does print money.
But, the hedge fundies say: "What if the economy recovers and starts to boom? What if inflation shoots up? The Fed could loose $500 billion on its portfolio as it moves to control inflation! Why doesn't that fear that?"
The Fed does not fear that. That is what it is aiming for. The Fed is charged by law with "promot[ing] effectively the goals of maximum employment, stable prices, and moderate long term interest rates". A full-employment economy is not something to be feared but something to be welcomed. And a $500 billion mark-to-market loss on its current portfolio? The Fed has given $500 billion to the Treasury, as a present, over the past decade. It is not a profit-making private bank. It is a central bank charged with "promot[ing] effectively the goals of maximum employment, stable prices, and moderate long term interest rates".
"But," the hedgies say, "George Soros! The Bank of England held the pound sterling away from fundamentals in 1992, and George Soros bet against them and they could not maintain the parity and George Soros took them for $2 billion! Why aren't we doing the same?" Ah. But George Soros took $2 billion from the Bank of England because its political masters told it to stand down: "We will not," they said, "defend the ERM pound parity at the price of bringing on a deep recession and mass unemployment." Who do the hedgies imagine are the Fed's political masters who will tell it to shift and adopt policies that will bring on even massier unemployment? Rand Paul?
There is a reason that the trade of shorting the bonds of a sovereign issuer of a global reserve currency in a depressed economy is called "the widowmaker".
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Scott Grannis responded to the Moby Ben piece by referencing this post on his blog last year--
see http://scottgrannis.blogspot.com/2012/12/the-fed-leverages-up_17.html for the charts:
Monday, December 17, 2012
The Fed leverages up
Ben Bernanke, head of the world's largest hedge fund (aka The Federal Reserve), last week announced that next year he plans to borrow another $1 trillion dollars—on top of the $1.5 trillion he's borrowed over the past four years—in order to fund the federal government's CY 2013 deficit and give his shareholders (aka taxpayers) a profit to boot. This plan is otherwise known as QE4.
His is a unique business, since he can force the market to lend him money—he simply buys what he wants and pays for it with his "bank reserve checkbook." By the end of next year, the Fed will own $1 trillion more bonds, and the banking system will have $1 trillion more reserves, whether it wants them or not. Bernanke can also dictate the rate at which he borrows money; for the foreseeable future that will be the rate the Fed decides to pay on reserve balances held at the Fed, currently 0.25%. Those who end up with the reserves will have essentially lent the Fed money on the Fed's terms.
To be more specific: Next year, Bernanke plans to make net purchases of $540 billion of longer-term Treasuries, and $480 billion of MBS. He will fund those purchases by issuing $1.02 trillion of newly-minted bank reserves. In effect, the Fed will be swapping reserves (which are functionally equivalent to 3-mo. T-bills, the paragon of risk-free assets, but which currently pay a slightly higher rate of interest) for bonds. Since money and bank reserves are fungible, Bernanke's planned purchases should effectively cover Treasury's deficit next year, which, perhaps not coincidentally, looks to be about $1 trillion.
It's important to note here that when the Fed issues $1 trillion of bank reserves, it is NOT "printing money." That's because bank reserves are not cash and they can't be spent anywhere: like pajamas, they are only for use "in house," since they are always kept at the Fed. Bank reserves do have a unique feature, of course, that other short-term assets don't: they can be used by banks to create new money, and in fact, acquiring more reserves is the only way that banks can increase their lending, because banks need reserves to back their deposits. Since banks now hold $1.6 trillion of reserves, of which only $0.1 trillion is required to back current deposits, banks already have an almost unlimited ability to make new loans and thereby expand the money supply. A year from now they will have an even more unlimited ability to do so.
That banks haven't yet engaged in a massive expansion of lending activity and the money supply is a testament only to the risk-averse nature of bank management and the risk-averse nature of the public, which now holds $6.5 trillion of bank savings deposits (up 64% in the past four years) paying almost nothing. As the above chart shows, in recent years the M2 measure of money supply has grown only slightly faster than its long-term average.
To put it another way: The Fed's massive provision of reserves to the banking system has not resulted in an equally large increase in inflation because the world's demand for money (cash, bank deposits, and cash equivalents like bank reserves and T-bills) has been very strong. Banks, in short, have been content to sit on $1.5 trillion of "excess" reserves because they worry that making more loans and increasing deposits might be a lot riskier.
The rationale for hedge funds is to exploit arbitrage opportunities, buying one thing and selling or borrowing another. Even small differences in prices can become lucrative, thanks to the use of lots of leverage. If done successfully, arbitrage can contribute to market efficiency, which in turn can contribute to the health of an economy. Whether the Fed will accomplish the same thing with QE4, however, is an open question. Will banks lend a lot more next year, even though they have an essentially unlimited capacity to lend today? Will increased bank lending fuel genuine economic growth, or will it just fuel more speculation? No one knows. We are in uncharted waters; what the Fed is doing today has never been done before.
When faced with issues of daunting complexity and with little or no guidance from the past, one can only begin by trying to reduce things to their simplest form. Here's what I think is a simplified description of what the Fed is planning: Next year the Fed will be purchasing a total of $1 trillion of 10-yr Treasuries and current coupon MBS. 10-yr Treasuries currently yield 1.75%, and current coupon MBS about 2.25%, so the Fed will earn roughly 2.0% on its purchases, while paying out 0.25% on the reserves it creates to buy those bonds, for a net spread of 1.75%. By the end of next year, the Fed will be raking in $17.5 billion per year in profits on their $1 trillion swap, and that will make the Fed the envy of all other hedge fund managers.
These profits, of course, are automatically remitted by the Fed to Treasury. Happily for taxpayers, those profits will completely offset Treasury's cost of borrowing, at least for the next several years. Here's the math, also in simplified form: First, let's assume that Treasury is funding its deficit with 7-yr Treasuries (that's a decent approximation, since last year they told us that they were going to lengthen the average maturity of outstanding Treasuries, which at the time was about six years). The yield on 7-yr Treasuries is currently about 1.25%, so Treasury will pay 1.25% on $1 trillion, and receive back from the Fed 1.75%, leaving a profit of about 0.5%, or $5 billion. Bottom line, we will all benefit from next year's deficit financing! (Note that the key to the profit is the Fed's decision to buy lots of MBS, which yield more than Treasuries of similar maturity.)
A real-world hedge fund attempting to do the same thing would run up against the reality of mark-to-market accounting rules. If interest rates on the bonds it buys rise, the mark-to-market losses on the bonds could easily wipe out the interest it's receiving, threaten margin calls and ultimately result in insolvency. For example, a 1 percentage point rise in the yield on 7-yr Treasuries would result in a 6.7% decline in their price, thereby wiping out over 5 years' worth of coupon payments. Mortgage-backed securities could fall in price by even more. A hedge fund would also be exposed to the risk that its borrowing costs could rise, thus narrowing or even eliminating the net interest spread it's earning.
Happily, Bernanke doesn't have to worry about any of this, since he doesn't have to mark his bonds to market, and he can keep his borrowing costs below the current yield on his portfolio for at least the next 2 or 3 years, given the FOMC's recent guidance (i.e., it won't start tightening until the unemployment rate falls to 6.5%, short-term inflation expectations exceed 2.5%, and/or long-term inflation expectations become unanchored). And of course, the Fed can always make the interest payments on its borrowings because its "bank reserve checkbook" is effectively bottomless.
If this all sounds too good to be true, it is. The Fed may not face the risks that a typical hedge fund does, but that doesn't mean the Fed is not taking on a huge amount of risk at taxpayers' and citizens' expense. Although the Fed need never face insolvency, if mark to market losses got really bad, they could lose their credibility and with that the value of the dollar could be seriously at risk. The Fed's losses might become direct obligations of Treasury, or they might be inflicted on taxpayers and citizens via the sinister "inflation tax." The Fed could eventually repay its borrowings with devalued dollars, leaving the rest of us with deflated balance sheets and deflated incomes. Meanwhile, by allowing Treasury to borrow trillions at no cost, the Fed is acting as an obstacle to badly needed deficit reduction.
Although it may seem paradoxical, the biggest risk we all face as a result of the Fed's unprecedented experiment in quantitative easing is the return of confidence and the decline of risk aversion. If there comes a time when banks no longer want to hold trillions of dollars worth of excess bank reserves for whatever reason (e.g., the interest rate the Fed is paying is no longer attractive, or the banks feel comfortable using their reserves to ramp up lending, or the public no longer wants to keep many of trillions of dollars in bank savings deposits), that is when things will get "interesting."
More confidence would mean less demand for cash and cash equivalents, and that in turn would mean that a virtual flood of money could try to exit banks (e.g., as people withdraw their savings deposits, and/or borrow more from their banks). If the public attempted to shift trillions in cash into housing, stocks, gold, or other currencies, the consequences would likely be seen in sharply rising prices and higher inflation. Moreover, higher inflation would almost certainly lead to higher interest rates, which in turn would exacerbate the Fed’s mark to market problem and possibly accelerate the whole process. And of course, higher interest rates will result in significantly higher borrowing costs to Treasury, although this will be mitigated to some extent by Treasury's efforts to extend the average maturity of its borrowings.
The Fed reasons that it could deal with declining risk aversion by selling bonds (i.e., reducing bank reserves), not reinvesting principal, and by raising the rate it pays on bank reserves. But it’s not hard to see how things could get out of control: higher rates on bank reserves would likely accelerate the rise in market yields and the mark to market losses on the Fed’s bond holdings, at the same time as its spread eroded. In the meantime, the more bank reserves the Fed creates, the harder it will be to avoid an unhappy outcome.
It’s ironic that the Fed is trying, with QE4, to accomplish the very thing that could be its own undoing. Trying, that is, to encourage more confidence, more lending, more borrowing, more investment, and higher prices for risk assets.
It’s no wonder that the market remains so risk-averse, since this is hardly a comforting position we're in. For now, that is probably a good thing. But in the wake of the election results and the Fed's latest decision, I am less optimistic today than I have been for several years.
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"It’s no wonder that the market remains so risk-averse, since this is hardly a comforting position we're in. For now, that is probably a good thing. But in the wake of the election results and the Fed's latest decision, I am less optimistic today than I have been for several years. "
"less optimistic" & "for several years".
Wow.
Now if Wesbury starts to show signs of cold feet - it's money under the mattress time. :|
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Wesbury would try to spin a zombie apocalypse into "good news for the plowhorse".
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From David Gordon (known to several of us here as a very, very shrewd player of the stock market) I am unable to include the attached file.
*Printing Money*
"*The Federal Reserve is printing money*."
No statement could be less truthful. The Federal Reserve (Fed) is not, and
has not been, “printing money” as defined as an acceleration in M2 or money
supply. Just check the facts. For the first quarter of 2013 the Fed
purchased $277.5 billion in securities (net) as their security portfolio
expanded from $2.660 trillion to $2.937 trillion. A review of post-war
economic history would lead to a logical assumption that the money supply
(M2) would respond upward to this massive infusion of reserves into the
banking system. The reality is just the opposite...
Please see pdf file attached for complete commentary by Lacy Hunt.
Internet friend Tom, a serious student of Austrian economics replies;
When he says "No statement could be less truthful" he is overstating his
case a bit. Yes, most of the security buying has gone directly into bank
reserves, but note this sentence in the article:
<The money supply indeed went up (35%) but not in proportion to the
increase in the monetary base (249%). Presently, the year- over- year
expansion of M2 is only 6.8%, which is nearly identical to its
year-over-year growth rate in March of 2008 before the Fed decided to “help
out the economy”.>
This is still quite a lot of monetary growth. Boom period growth rates were
similar and that was sufficient to generate the housing bubble and make the
bust inevitable. The Fed is seeking to continue that inflation rate and the
result will be further malinvestment and, eventually, another bust. If M2
had grown at the rate by which the Fed expanded bank reserves we would
likely have seen a money-induced catastrophe.
The Fed is obviously trying to do something with its security purchases. It
seems, in fact, that the Fed bureaucrats really do believe they can somehow
improve the economy by injecting additional bank reserves and manipulating
interest rates. Notice, too, that the Bank of Japan thinks it can produce
price inflation through the same means. Whatever its direct effects, the
Fed is trying to centrally manage the US capital markets. The result will
be lots of relative price distortions leading to malinvestment and,
eventually, another bust.
Tom
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First, two comments on the David M Gordon (DMG) post above in this thread: a) By saying trillions of quantitative easing did not expand M2 to me is pointing out what a lousy, incomplete measurement M2 is of the money supply, hence the terms M3, M4, MZM, L, etc. b) As I have rebutted previously, Milton Friedman said MV=PQ. If the extra money is all parked and uncirculated as bank reserves with zero velocity, then prices don't change with output stagnant. But what are those bank reserves other than money that presumably has the potential to be circulated and multiplied. The final scorecard of the damage done by these policies is not yet known.
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Perhaps David Malpass was reading the discussions on the forum :wink: when he wrote the following piece for the WSJ today. The Fed's manipulations create distortions in the economy and distortions keep resources from moving to their best use. The proof is in the dismal results of these policies.
http://online.wsj.com/article/SB10001424127887323855804578511463018969112.html?mod=WSJ_Opinion_LEADTop
David Malpass: Fed Policy Is a Drag on Recovery
The stock market is soaring. Yet real median income has fallen 5%, unheard of for a recovery.
By DAVID MALPASS
Former Federal Reserve Chairman Paul Volcker said in a speech to the Economic Club of New York on Wednesday that the Fed should not be asked to "accommodate misguided fiscal policies" and "will inevitably fall short." He outlined a preferred monetary policy based on orthodox central banking aimed at a stable currency in order to maximize employment. "Credibility is an enormous asset," he said. "Once earned, it must not be frittered away." Those words are true and timely.
As this month's stock and bond market gyrations showed, traders are obsessively focused on every nuance of the Fed's monetary plans. Billions of dollars are at stake for Wall Street, which profits mightily from the Fed's bond buying and cheap credit.
The problem is the broader economy's poor performance in growth and jobs. The Fed, which was once a key proponent of market-based economic policies, has forced U.S. interest rates to near zero for four-and-a-half years with no plans to stop. It has bought nearly $3 trillion in bonds, with the express goal of channeling credit to the government, government-owned enterprises and large corporations in the hope that this will boost employment.
The Fed's bond-market interventions probably helped during the 2008 crisis when markets had frozen, but after that the economy would have done much better without them. Recoveries are normally fast and broad once markets are allowed to clear and begin operating. Quarterly growth topped 9% in 1983 after a deep recession and 7% in 1996 leading into President Clinton's re-election. Interest rates were high, yet median incomes were rising sharply.
Growth in the current recovery only rose above 4% once, in the fourth quarter of 2011, and averaged just 2% per year in its first four years versus 5% in the same period of the 1980s recovery, 3.2% in the 1990s recovery and 2.9% in the 2000s recovery. The underperformance over the past four years translates into more than three million jobs that should have been created but weren't, an economic disaster that lowered real median incomes by 5%.
The disastrous state of affairs was rationalized as a "new normal" following the Great Recession, but the reality is that poor policy choices hurt growth. Tax-and-spend policies sapped investment, and the Fed's low rates and bond purchases damaged markets, hurt savers and channeled credit to the government at the expense of job creators. It's a zero-sum process that should be stopped because of the bad effect on growth and jobs.
Incredibly, as Fed Chairman Ben Bernanke alluded to in his May 22 congressional testimony, the Fed is now angling to create a semi-permanent control dial with which the Fed can increase its $85 billion in monthly bond purchases when growth slows and reduce them if growth ever speeds up. This creates maximum uncertainty for the private sector, giving an advantage to traders, the government and the rich but hurting growth and long-term investors.
Washington thrives on the impression that the economy and markets are dependent on the Federal Reserve and deficit spending. This is the wrong lesson. More likely, past government excesses—trillions added to the national debt and the Fed's liabilities—lowered the growth rate. The economy and markets would adjust and be better off without them.
One line of Fed criticism has emphasized money printing and an inflation risk. This is off target and, with inflation low, gives the Fed an opening to keep going. When the Fed buys bonds, it pays for them with liabilities to banks called excess reserves. There's no creation of new money in the private sector. The M2 money supply, the measure of bank deposits often used by monetarists to anticipate inflation, is unaffected. Private-sector credit grew only 0.8% from the end of 2008 through the end of 2012, whereas credit to the government grew 58%.
Rather than money printing that turns into cash, the excess reserves are, in effect, an IOU from the Fed. Interest is paid on them and they aren't spent or used by banks to increase lending. This distinguishes current policy from the inflationary 1960s and 1970s, when the Fed created reserves that banks used as backing for multiple loans and rapid growth in private-sector credit.
The stronger criticism is that the Fed's policy is contractionary, harming growth. The Fed's intention is that the low bond rates it provides the government will spill over to big corporations and banks, who in turn will help the little guy. This trickle-down monetary policy has contributed to very fast growth in corporate profits, part of the explanation for the record stock market, but also to weak GDP growth and declining middle-class incomes. The extra credit the Fed channeled to government and big corporations meant less credit elsewhere in the economy, a contractionary influence since most new jobs come from small businesses.
Still, three important developments may lift the economy despite the Fed, forcing it to taper its bond purchases and allow the recovery to accelerate. First, the Jan. 2 tax bill removed the risk of tax rate increases—on income, dividends, estates and the alternative minimum tax—that depressed growth in 2010-12. Second, most businesses are encouraged by the sequester and the idea of the government tackling spending, however clumsily. Third, private credit has started to grow, helped by thousands of new nonbank lenders. Total credit grew at a 5.6% annual rate in the fourth quarter of 2012 after contracting for much of 2009-12.
But whether the economy turns up or not, it should be clear that the Fed's unprecedented and far-reaching monetary policy has been a drag, not a stimulus.
Mr. Malpass, a deputy assistant Treasury secretary and legislative manager for the 1986 Tax Reform Act in the Reagan administration, is president of Encima Global LLC.
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By ROBIN SIDEL and ANDREW R. JOHNSON
State banking regulators are scrutinizing companies that let people buy and sell virtual currencies such as bitcoin, and some are looking at requiring costly licenses, according to people familiar with the efforts.
It is the latest sign that the freewheeling world of virtual currencies is about to get less free. Just this week, prosecutors claimed to have exposed a $6 billion money-laundering ring that allegedly relied on them.
Bitcoin enthusiasts say the currency derives its value from its limited supply and the support of the people using it.
"Virtual" currencies can be used just like dollars among people who agree to accept them. One big difference is that they aren't backed by a government. Instead, bitcoin enthusiasts say, the currency derives its value from its limited supply and the support of the people using it.
In the past three months, the Treasury Department, prosecutors and now state regulators have taken aim at virtual-currency exchanges, telling them they must follow traditional rules aimed at thwarting money-laundering. The lightly regulated currencies have caught the attention of people who allegedly use some of them to mask profits from illegal activities.
Companies using virtual currencies said they welcome the regulatory push because it helps legitimize the practice and build trust with users and investors. But new rules could also make the systems more cumbersome, taking away some advantages, currency experts say. Bitcoin can sometimes be cheaper to use than regular currencies, for instance, because there are fewer "transaction fees" that can take a bite out of regular credit-card transactions.
MoneyBeat
Guide to Virtual Currencies
"There is definitely a lot of scrambling that is going on in the industry," says Carol Van Cleef, a lawyer at Patton Boggs LLP in Washington who represents clients in bitcoin ventures.
The four-year-old bitcoin payment system is among the most popular of the new methods. The price of a bitcoin on the Tokyo-based Mt. Gox, a primary exchange, was about $130 Friday. That compares with roughly $50 in mid-March and a high of $230 in April.
The new scrutiny comes at the same time federal regulators are attempting to rein in illegal activities made easier by virtual currencies. The Financial Crimes Enforcement Network, or FinCEN, a unit of the Treasury Department, in March issued guidelines that said virtual currency exchanges are subject to the same comprehensive anti-money-laundering requirements as traditional money-transmission businesses such as Western Union Co. WU -0.49% and encouraged them to register with the agency.
"This is definitely on our radar. We are becoming aware of more and more businesses that may need to be licensed," said Daniel Wood, assistant general counsel in the Texas Department of Banking.
Texas is one of 48 states that require companies to obtain money-transmission licenses to operate. South Carolina and Montana don't have such rules.
New York bank regulators said they are also discussing the issues with virtual currency exchanges operating in the state. "We are not only looking at whether virtual currency companies should be licensed as money transmitters," says Benjamin Lawsky, superintendent of the New York Department of Financial Services, but also looking at money-transmission rules "to see whether they need to be modernized" to address the "potential dangers raised by virtual currencies."
The federal crackdown intensified Tuesday when prosecutors accused Costa Rica-based Liberty Reserve of operating a $6 billion money-laundering ring that was tied to an Internet-based currency. It marked the first time authorities have invoked the 2001 Patriot Act against a virtual currency.
Liberty Reserve couldn't be reached late Friday for comment. Its website, libertyreserve.com, says the site has been seized by the "United States Global Illicit Financial Team."
The criminal indictment was filed in U.S. District Court in the Southern District of New York. The company and seven of its principals and employees were charged with money-laundering and operating an unlicensed money-transmitting business.
The Liberty Reserve charges came two weeks after authorities froze an account tied to the largest bitcoin exchange. The Department of Homeland Security accused Mt. Gox and one of its subsidiaries of conducting transactions "as part of an unlicensed money service business."
Mt. Gox said Thursday it is beefing up its identification process for users. Among other things, the exchange, which says it handles 80% of all bitcoin trading, said accounts must be verified with a valid photo ID and proof of residence.
Mark Karpeles, Mt. Gox's CEO, declined to comment on the recent regulatory guidance.
Mr. Ehrsam declined to discuss Coinbase's efforts to seek money-transmitter licenses.
Companies that register with FinCEN as money transmitters must hire a chief compliance officer, implement an anti-money-laundering program and alert authorities if they believe a transaction might be tied to suspicious activity.
"If you are operating in this industry, you have to recognize it is regulated," says Chris Daniel, a lawyer specializing in payments at Paul Hastings LLP, an Atlanta firm.
Compliance isn't always easy at the state level, executives said. Each state has different requirements, according to people familiar with the process.
State money-transmission licenses can be costly. In Texas, companies seeking a license must provide a surety bond of between $300,000 and $2 million, depending on transaction volume, said Mr. Wood of the state's banking department.
Write to Robin Sidel at robin.sidel@wsj.com and Andrew R. Johnson at andrew.r.johnson@dowjones.com
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http://www.cbsnews.com/8301-505123_162-57587033/wealth-of-most-americans-down-55-since-recession/
By Constantine von Hoffman /
MoneyWatch/ May 31, 2013, 12:07 PM
Wealth of most Americans down 55% since recession
(MoneyWatch) Increasing housing prices and the stock market''s posting all-time highs haven't helped the plight most Americans. The average U.S. household has recovered only 45 percent of the wealth they lost during the recession, according to a report released yesterday from the Federal Reserve Bank of St. Louis.
This finding is a very different picture than one painted in a report earlier this year by the Fed that calculated Americans as a whole had regained 91 percent of their losses. The writers of the report released yesterday point out that the earlier number is based on aggregate household-net-worth data. However, this isn't adjusted for inflation, population growth or the nature of the wealth. Further, they say much of recovery in net worth is because of the stock market, which means most of the improvement has been a boon only to wealthy families.
"Clearly, the 91 percent recovery of wealth losses portrayed by the aggregate nominal measure paints a different picture than the 45 percent recovery of wealth losses indicated by the average inflation-adjusted household measure," the report said. "Considering the uneven recovery of wealth across households, a conclusion that the financial damage of the crisis and recession largely has been repaired is not justified," the researchers said.
Household wealth plunged $16 trillion from the top of the real estate bubble in the third quarter of 2007 to the bottom of the bust in the first quarter of 2009. By the last three months of 2012, American households as a group had regained $14.7 trillion.
The report says almost two-thirds of the increase in aggregate household wealth is due to rising stock prices. This has disproportionately benefited the richest households: About 80 percent of stocks are held by the wealthiest 10 percent of the population.
Much of the total wealth of middle- and lower-income households is based on home values, not stocks. Even though home prices have increased nearly 11 percent in the past year, they remain about 30 percent below their peak.
While Americans continue to pay down their debt, the report says debt levels and problems with rebuilding net worth are the main reasons the recovery has been so slow. Also, the people who bore the brunt of the recession through job losses and reduced income were the ones who had borrowed the most.
The report found that members of the households that suffered the most financially were less educated, relatively young or black or Hispanic, or some combination of these factors. Those families tended to have low savings and high debt, with much of their wealth based on housing.
The poorest households have felt the sharpest losses as a consequence of the recession: "While many Americans lost wealth during the Great Recession, younger, less-educated and nonwhite families lost the greatest percentage of their wealth," James Bullard, president of the St. Louis Fed, said in a statement. "Household deleveraging, or paying down debt, has played a key role in the recent recession and the slow recovery."
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Good article GM but your subject line heading is inaccurate. Americans wealth is not down 55%, it is the recovery of losses is but 45%. The two are quite different.
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Where's The Inflation?
Monday Morning Outlook
Where's The Inflation? To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 6/10/2013
So far this year, the Plow Horse US economy has accelerated a little bit from
2010-2012, the S&P 500 is up 16%, interest rates have risen, and gold is off
17%. As our readers know, this is exactly what we’ve been forecasting.
Despite this success, we have had one big miss: inflation. Consumer prices –
including food and energy – are up a mere 1.1% from a year ago. We’ve
never been in the hyperinflation camp – that’s why we’ve been
bearish on gold these past few years – but, we never expected such benign
inflation.
We think gold had priced in 10% to 12% inflation, and we expected 3 or 4 or 5%,
that’s why we were bearish on the yellow metal. And, at the same time we
thought the Federal Reserve’s forecast of 1.5 to 2% inflation was too low. So,
even though we have been right on gold, our inflation estimates have been too high
– just like the Fed’s.
The “hyper-inflationistas” have been overly focused on the size of the
Fed’s balance sheet, failing to recognize that it’s mostly due to a
surge in excess bank reserves. The M2 measure of money has continued to grow around
6% per year, well below the growth in the monetary base, Quantitative easing has not
only been unnecessary but has also made monetary policy more opaque, leading some to
falsely expect hyperinflation.
Despite this, our model of Fed policy, which compares the federal funds rate to
nominal GDP growth, says the Fed is easy. A federal funds rate of essentially zero
is well below the 3.5% nominal GDP growth rate (real GDP growth plus inflation).
This should generate rising inflation and we think inflation is right now at a
crucial inflection point.
We expect to look back in a few years and see that the present low readings were the
lowest inflation would get. And we also believe it will become apparent that weak
monetary velocity is the reason for current low inflation.
The expansion of government over the past several years, both in measurable terms
like spending relative to GDP as well as hard to measure ways, such as the
regulatory costs of Obamacare, are suppressing the economy’s potential growth
in a way that slows the circulation of money. As a result, for any given amount of
money, we get less nominal GDP, including less real growth and less inflation.
Another issue might be the Fed’s decision to pay banks interest on excess
reserves. This new policy was implemented in late 2008. It could mean that a low
federal funds rate is not as “stimulative” as the historical record
suggests it should be.
Yet another issue may be simple “inflation inertia.” It sometimes takes
many years for loose money to generate higher inflation, especially when the public
trusts the Fed to keep inflation low. For example, back in the 1950s, the federal
funds rate averaged about 2% even as nominal GDP growth averaged 6 - 7%. But with
the Bretton-Woods monetary system’s gold peg firmly entrenched, inflation
averaged 2.2% for the decade. It wasn’t until the late 1960s that inflation
became a problem.
If a similar pattern holds, we can expect inflation to rise from the current low,
but not accelerate rapidly anytime soon.
However, in the end a price will be paid. Once unacceptably high inflation arrives,
the same inertia helping hold inflation down will keep it up, so the Fed will have
to tighten even more than it wants to wrestle inflation back down.
If Chairman Bernanke soon retires, he will get high marks for keeping inflation low,
but his successor will have some problems to clear up. In other words, even though
inflation has remained low, we don’t expect it to stay that way for long.
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Data Watch
The Producer Price Index (PPI) Rose 0.5% in May To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 6/14/2013
The Producer Price Index (PPI) rose 0.5% in May, coming in much higher than the
consensus expected 0.1%. Producer prices are up 1.7% versus a year ago.
The increase in the overall PPI was due to energy prices, which rose 1.3%, and food
prices which were up 0.6%. The “core” PPI, which excludes food and
energy, was up 0.1%.
Consumer goods prices were up 0.6% in May, while capital equipment prices rose 0.1%.
In the past year, consumer goods prices are up 2.0% while capital equipment prices
are up 0.9%.
Core intermediate goods prices were down 0.4% in May and are down 0.2% versus a year
ago. Core crude prices fell 2.3% in May, and are down 6.3% versus a year ago.
Implications: Producer prices rebounded 0.5% in May, easily beating consensus
expectations. Even with this rebound, prices are up only 1.7% from a year ago. Given
the loose stance of monetary policy, higher inflation is eventually coming, but it
isn't here yet. The main culprits behind the wholesale price rise were energy and
food prices which rose 1.3% and 0.6% respectively after falling 2.5% and 0.8% in
April. Still, energy prices are down 17.3% at an annualized rate over the past three
months. “Core” prices, which exclude food and energy and which the
Federal Reserve claims are more important than the overall number, were up 0.1% in
May and are up 1.7% versus a year ago. Some analysts may suggest that with the
overall and “core” PPI only up 1.7% from last year that the Federal
Reserve has room to continue its latest round of bond buying. We think this is a
mistake, and it seems like some more members of the FOMC are starting to think the
same thing. Core inflation is likely to continue growing and, despite projections of
bumper US crop yields, food inflation should continue moving upward given recent
improvement in foreign economies. Monetary policy is loose enough already. The
problems that ail the economy are fiscal and regulatory in nature. Adding even more
excess reserves to the banking system is not going to boost economic growth.
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http://www.pimco.com/EN/Insights/Pages/Wounded-Heart.aspx
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Data Watch
________________________________________
The Consumer Price Index (CPI) Increased 0.1% in May To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 6/18/2013
The Consumer Price Index (CPI) increased 0.1% in May, coming in below the consensus expected gain of 0.2%. The CPI is up 1.4% versus a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) was up 0.1% in May and is up 1.2% in the past year.
The gain in the CPI in May was led by rent (+0.2%) and energy (+0.4%). Food prices were down 0.1%. The “core” CPI, which excludes food and energy, was up 0.2% in May, exactly as the consensus expected. Core prices are up 1.7% versus a year ago.
Real average hourly earnings – the cash earnings of all employees, adjusted for inflation – were down 0.2% in May, but are up 0.5% in the past year. Real weekly earnings are up 0.9% in the past year.
Implications: For now, all continues to be quiet on the inflation front. Consumer prices rose a tepid 0.1% in May and are only up 1.4% from a year ago. The slight rise in May was due to rent (both actual rent and owners’ equivalent rent) as well as energy costs. Food and medical care each declined 0.1%. “Core” prices, which exclude food and energy, were up 0.2% in May and are up 1.7% from a year ago. Neither overall nor core price gains in the past year set off alarm bells. Instead, they suggest the Federal Reserve’s preferred measure of inflation, the PCE deflator (which usually runs a ¼ point below the CPI) will remain below the Fed’s target of 2%. We don’t expect this to last. Inflation probably bottomed in April when it was up only 1.1% from the prior year, and will be noticeably higher a year from now. However, for the Fed, the key measure of inflation is its own forecast of future inflation, which we see released tomorrow with the FOMC statement. So, even if inflation goes to roughly 3% in 2014, as long as the Fed projects the rise to be temporary it will not react to that inflation alone by raising short-term interest rates. The Fed is more focused on the labor market and, we believe, is willing to let inflation exceed its long-term target of 2% for a prolonged period of time in order to get the unemployment rate down. The worst news in today’s report was that “real” (inflation-adjusted) average hourly earnings declined 0.2% in May, although they are still up 0.5% in the past year. Given today’s news it looks like “real” (inflation-adjusted) consumer spending is growing at a 2.5% annual rate in Q2, consistent with our forecast of 2.5% real GDP growth.
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Gold and silver are dropping hard and fast.
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Gold and silver are dropping hard and fast.
The crash of the dollar has been cancelled? Postponed?
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Yes :lol:
As I have commented many times around here, gold dropped hard and fast in the late 70s when Volcker increased interest rates. As I have predicted here, when rates go up, gold/silver will go down. That is what we are seeing now.
Gents, when the facts prove us wrong we should change our opinion. I think Scott Grannis has given us a level of analysis superior to what we were saying with regard to money supply (M2) and bank reserves-- data about the latter being what was scaring the beejeezus out of us. The debt as a percentage of GDP has dropped from 11 or 12% to something under 6% now (i.e. about as high as the peak of the deficit under Reagan) and federal spending as a % of GDP has dropped from 25% to something like 23%. Are 6% and 23% too high? Destructive? ABSOLUTELY! AND they are not the apocalyptic numbers of but a year or two ago.
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Moving GM's post on the Stock Market thread to here:
http://www.telegraph.co.uk/finance/personalfinance/investing/gold/10150235/Gold-price-falls-fuel-record-bullion-sales.html
Gold price falls fuel 'record' bullion sales
The UK’s biggest internet gold and silver dealer has predicted rising sales even as the gold price slumped to a three-year low.
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a nine minute talk
http://www.ftportfolios.com/Commentary/EconomicResearch/2013/7/11/ben-bernanke-is-seeing-the-light
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The Producer Price Index (PPI) Rose 0.8% in June To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 7/12/2013
The Producer Price Index (PPI) rose 0.8% in June, coming in higher than the consensus expected 0.5%. Producer prices are up 2.5% versus a year ago.
The increase in the overall PPI was mostly due to energy prices, which rose 2.9%. Food prices increased 0.2%, the same as the “core” PPI, which excludes food and energy.
Consumer goods prices were up 1.1% in June, while capital equipment prices rose 0.1%. In the past year, consumer goods prices are up 3.0% while capital equipment prices are up 0.9%.
Core intermediate goods prices were up 0.1% in June and are up 0.9% versus a year ago. Core crude prices rose 0.1% in June, but are down 2.2% versus a year ago.
Implications: Producer prices spiked 0.8% higher in June on top of a large gain in May. Most of the gains in the past two months have been due to energy. It remains to be seen whether this is the start of the persistently higher inflation trend that we think is inevitable given the loose stance of monetary policy. Overall producer prices are up 2.5% in the past year while “core” prices, which exclude food and energy are up 1.7%. Some analysts may suggest that with the “core” PPI only up 1.7% from last year that the Federal Reserve has room to continue quantitative easing at a pace of $85 billion per month. We think this is a mistake, and, given the minutes from the most recent Fed meeting, it seems like more members of the FOMC are starting to think the same thing. Monetary policy is loose enough already. The problems that ail the economy are fiscal and regulatory in nature; adding even more excess reserves to the banking system is not going to boost economic growth. In other recent inflation news, trade prices were subdued in June, with import prices down 0.2% for the month and up only 0.2% from a year ago. Import prices excluding petroleum were down 0.3% in June and down 0.5% from a year ago. Export prices slipped 0.1% in June, but are up 0.8% from a year ago. The small climb in export prices since last year is all due to food; ex-agriculture export prices are down 0.3% from a year ago. For the labor market, new claims for unemployment insurance were up 16,000 last week to 360,000. Continuing claims were up 24,000 to 2.98 million. However, there is nothing unusual about a temporary increase in claims around July 4 and we expect a decline next week. Plugging these data into our employment models generates a very early estimate of a 163,000 gain in nonfarm payrolls in July. More plow horse.
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http://rt.com/usa/gold-coins-pennsylvania-family-626/
Feds seize gold coins worth $80 mln from Pennsylvania family
Get short URL
Published time: September 07, 2012 18:46
Edited time: September 07, 2012 22:52
Gold coins are on display for sale.(AFP Photo / Kevork Djansezian)
A federal judge has upheld a verdict that strips a Pennsylvania family of their grandfather’s gold coins — worth an estimated $80 million — and has ordered ownership transferred to the US government.
Judge Legrome Davis of the Eastern District Court of Pennsylvania affirmed a 2011 jury decision that a box of 1933 Saint-Gaudens double eagle coins discovered by the family of Israel Switt, a deceased dealer and collector, is the property of the United States.
In the midst of the Great Depression, then-President Franklin Roosevelt ordered that America’s supply of double eagles manufactured at the Philadelphia Mint be destroyed and melted into gold bars. Of the 445,500 or so coins created, though, some managed to escape the kiln and ended up into the hands of collectors. In 2003, Switt’s family opened a safe deposit back that their grandfather kept, revealing 10 coins among that turned out to be among the world’s most valuable collectables in the currency realm today.
Switt’s descendants, the Langbords, thought the coins had been gifted to their grandfather years earlier by Mint cashier George McCann and took the coins to the Mint to have their authenticity verified, but the government quickly took hold of the items and refused to relinquish the find to the family. The Langbords responded with a lawsuit that ended last year in a victory for the feds.
Because the government ordered the destruction of their entire supply of coins decades earlier, the court found that Switt’s family was illegally in possession of the stash. Even though they may had been presented to the dealer by a Philadelphia Mint staffer, Judge Davis agrees with last year’s ruling that Mr. McCann broke the law.
"The coins in question were not lawfully removed from the United States Mint,” the judge rules.
Despite this decision, though, the attorney representing Switt’s family says the government has no right to remove their own items and transfer property back to the state.
"This is a case that raises many novel legal questions, including the limits on the government's power to confiscate property. The Langbord family will be filing an appeal and looks forward to addressing these important issues before the 3rd Circuit," Barry Berke, an attorney for the Langbords, tells ABCNews.com
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Robert Scheer
Robert Scheer July 17, 2013 PoliticsFederal Reserve SystemBarack ObamaBen BernankeLawrence SummersPresidency of Barack ObamaWall Street
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Tell me it's a sick joke: Former U.S. Treasury Secretary Lawrence Summers, the guy who tops the list of those responsible for sabotaging the world's economy, is lobbying to be the next chairman of the Federal Reserve. But no, it makes perfect sense, since Summers has long succeeded spectacularly by failing.
Why should his miserable record in the Clinton and Obama administrations hold him back from future disastrous adventures at our expense? With Ben Bernanke set to step down in January, and Obama still in deep denial over the pain and damage his former top economic adviser Summers brought to tens of millions of Americans, this darling of Wall Street has yet another shot to savage the economy.
Summers was one of the key players during the Clinton years in creating the mortgage derivative bubble that ended up costing tens of millions of Americans their homes and life savings. This is the genius who, as Clinton's Treasury secretary, supported the banking lobby's successful effort to make the sale of unregulated bundles of mortgage securities and the phony insurance swaps that backed them perfectly legal and totally unmonitored. Those are the toxic bundles that the Federal Reserve is still unloading from the banks at a cost of trillions of dollars.
But back on July 30, 1998, when he was deputy Treasury secretary, Summers assured the Senate agriculture committee that the "thriving" derivatives market was the driving force of American prosperity and would be fatally hurt by any government regulation of the sort proposed by Brooksley Born, the stunningly prescient chair of the Commodity Futures Trading Commission.
Summers opined that "the parties to these kinds of contracts are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies. ... "
Consider the astounding stupidity of that statement and the utter ignorance upon which it was based. One financial CEO after another has testified to not knowing how the derivatives were created and why their worth evaporated. Think of AIG and the other marketers of these products that were saved from disaster only by the injection of government funds not available to foreclosed homeowners whose mortgages were wrapped into those toxic securities.
Most of those dubious financial gimmicks were marketed by the too-big-to-fail banks made legal by another piece of legislation supported by Summers and passed a year later when Clinton tapped him to be Treasury secretary. Summers was an ardent proponent of repealing the Glass-Steagall Act that prevented the merger of highflying investment houses with traditional commercial banks entrusted with the government insured deposits of ordinary folks.
The first result of destroying that sensible barrier to too-big-to-fail banks was the creation of Citigroup as the biggest bank in the world. Threatened by its wild derivative trading, it had to be saved from bankruptcy with an infusion by taxpayers of $45 billion in U.S. government aid and a guarantee for $300 billion of its toxic assets.
Summers had condemned Glass-Steagall as an example of "archaic financial restrictions" and called instead for "allowing common ownership of banking, securities and insurance firms." A decade later, while in the Obama administration, Summers worked to prevent a return to the Glass-Steagall prohibition in the Dodd-Frank legislation.
The need to restore that reasonable banking regulation implemented by President Franklin Roosevelt in response to the Great Depression was acknowledged by bipartisan legislation introduced last week in the Senate by Elizabeth Warren, D-Mass., and John McCain, R-Ariz. "It will take a lot of tools to get rid of too-big-to-fail, but one of them ought to be that if you want to do high-stakes gambling, good on you, but you do not get access to people's checking accounts and savings accounts," Warren told Bloomberg News on Friday in urging the return of Glass-Steagall.
As opposed to Summers, who continued to insist on the wisdom of ending essential financial regulation, McCain, who had voted for the repeal, has seen the error of that decision. "Since core provisions of the Glass-Steagall Act were repealed in 1999, shattering the wall dividing commercial banks and investment banks, a culture of dangerous greed and excessive risk-taking has taken root in the banking world," the senator said in a press release Thursday announcing the legislation.
Even Sanford Weill, who headed Citigroup after pushing for the reversal of Glass-Steagall, had the good sense to acknowledge his mistake, saying in a statement a year ago: "What we should probably do is go and split up investment banking from banking. Have banks do something that's not going to risk the taxpayer dollars, that's not going to be too big to fail." Richard Parsons and John Reed, two other former high-ranking officers of Citigroup, also have called for the reinstatement of Glass-Steagall.
The question then is why Summers, the man who got it all wrong, would imagine that he could be in the running to head the Federal Reserve? Why would he ever fantasize that President Obama might turn to someone who always gets it wrong to right a still struggling economy?
Maybe because he knows Obama better than we do. After all, it was a massive infusion of Wall Street money that helped Obama get elected both times. And Wall Street, which showered Summers with almost $8 million in speaking fees and hedge fund profits during the 2008 campaign while he advised Obama, clearly would approve of this greed enabler as the next Fed chairman.
Robert Scheer is editor of TruthDig.com, where this column originally appeared. Email him atrscheer@truthdig.com. To find out more about Robert Scheer and to read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Webpage at www.creators.com.
COPYRIGHT 2013 CREATORS.COM
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http://www.bloomberg.com/news/2013-07-28/silver-vault-for-200-tons-starts-in-singapore-as-wealthy-buy.html
Silver Vault for 200 Tons Starts in Singapore as Wealthy Buy
By Chanyaporn Chanjaroen - Jul 29, 2013 3:26 AM MT.
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A silver vault that can hold 200 metric tons opens in Singapore this week to cater for increasing demand for physical precious metals among Asia’s wealthy even as the commodity leads declines this year.
The new facility is 30 percent booked at the opening, said Joshua Rotbart, precious-metals general manager at owner Malca-Amit Global Ltd. The storage will add to the firm’s five vaults at the Singapore FreePort, which are fully reserved for gold, he said in an interview. The repository can hold $128 million of silver at today’s prices. Gold is about 67 times more expensive.
Malca-Amit Global Ltd.'s security vehicles are seen at one of the company's existing vaults in Singapore, in this 2012 handout photograph released to the media on July 29, 2013. Source: Malca-Amit Global Ltd. via Bloomberg
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While silver has lost 34 percent in 2013 on concern the U.S. Federal Reserve will taper stimulus, holdings in exchange-traded products have held steady. The number of high-net-worth individuals in the Asia-Pacific region expanded 9.4 percent last year, according to Cap Gemini SA (CAP) and Royal Bank of Canada. Deutsche Bank AG, UBS (UBSN) AG and JPMorgan Chase & Co. are among banks operating metals storage in Singapore.
“Our existing vaults at the FreePort are highly secured and the rate is too expensive to store silver there,” said Rotbart, who declined to say where the new facility is sited. “We need to find a solution, and we also see a strong demand.”
Silver is the biggest loser on the Standard & Poor’s GSCI Index of 24 raw materials this year, beating declines in corn, gold and nickel. Futures, which dropped to $18.17 an ounce in June, the lowest since August 2010, traded at $19.9045 today. Gold has slumped 21 percent to $1,330.34 an ounce.
ETP Holdings
Silver holdings in ETPs stood at 19,222 tons on July 26, 1.6 percent higher this year, according to data compiled by Bloomberg. Assets in gold-backed ETPs have contracted at a record pace, shrinking 25 percent to 1,970 tons. ETPs allow investors to trade assets without taking delivery, while physical holders require storage, such as a vault.
Investors in silver are mostly private individuals, while the majority of gold holders are institutions, said Rotbart. Malca-Amit is looking to build another silver vault in Hong Kong, and may add more gold vaults in Singapore as there is no more availability in the FreePort, he said. The FreePort is located near Changi Airport in the east of the city-state.
The number of individuals with $1 million or more in investible assets climbed to 3.68 million in the Asia-Pacific region in 2012, boosted by additions in Singapore and Hong Kong, according to a report from Cap Gemini and Royal Bank of Canada. China accounted for 43 percent of worldwide economic growth from 2007 to 2012, according to an estimate from Barclays Plc.
Leased Space
UBS, Switzerland’s biggest bank, started storing gold for clients in a leased facility in Singapore, an executive said this month. JPMorgan Chase opened a bullion vault at the Singapore FreePort in 2010. Jeremy Hughes, a Deutsche Bank spokesman in Singapore, said that the bank had leased space for its 100-ton gold vault at the FreePort from Malca-Amit.
Goldman Sachs Group Inc. forecasts further declines in precious metals, with a 12-month target of $19.60 for silver and $1,175 for gold. The Fed is likely to start tapering its $85 billion a month of asset purchases in September, Jan Hatzius, the New York-based bank’s chief economist, said in a report.
About 50 percent of silver is used in industry, compared with 10 percent for gold, data from the Silver Institute and World Gold Council show. Industrial applications for silver include photography and electronics.
Malca-Amit’s vaults in Hong Kong and Singapore have a precious-metals capacity of 1,000 tons each, and the company also has facilities in New York, Zurich, Geneva, London and Bangkok. The company leases vault space to banks, and stores items for its own customers.
The Singapore government has been promoting the country as a bullion-trading hub, removing a 7 percent sales tax on investment-grade precious metals in 2012. About 2 percent of world gold demand flows through Singapore, and the government aims to increase that to as much as 15 percent.
To contact the reporter on this story: Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net
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(from US Economics)
As the U.S. emerged from recession in the summer of 2009, Janet Yellen, then president of the Federal Reserve Bank of San Francisco, took a grim view of the economy's prospects.
A WSJ analysis of more than 700 economic predictions between 2009 and 2012 by Fed policymakers shows doves, particularly Janet Yellen, have been the most prescient, while inflation hawks lagged the pack. Jon Hilsenrath explains. Photo: AP.
"I expect the pace of the recovery will be frustratingly slow," she said in a San Francisco speech. A month later, addressing fears that money flooding into the economy from the Federal Reserve would stoke inflation, Ms. Yellen said not to worry in a speech to Idaho bankers: High unemployment and the weak economy would tamp wages and prices.
Others at the Fed spoke forcefully in the other direction. Unless the central bank reversed the easy money course, Philadelphia Fed President Charles Plosser warned in December 2009, "the inflation rate is likely to rise to levels that most would consider unacceptable."
Ms. Yellen was proved right. ...
Last week Alan Binder endorsed Yellen for new Fed chief. Today, NYT endorsed her:
http://www.nytimes.com/2013/07/30/opinion/choosing-the-next-fed-leader.html?ref=opinion&_r=0
Both are contrary indicators. Run from them and run from her is my advice. She is a current Fed insider. Forecasting is far different than getting policy right.
NY Times Editorial Board, link above: "no one else can match Janet Yellen’s combination of academic credentials and policy-making experience. And no one ever confirmed to the job has come to it with as deep a grounding in both the theory and practice of monetary and regulatory policy as Ms. Yellen would bring."
Yeah, dilute the currency by $85 billion a month - these are great policies...
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By
NICOLE HONG
The dollar is stumbling as investors begin to question the relative strength of the U.S. economic recovery, which had powered a rally in the greenback in the first half of 2013.
The WSJ Dollar Index, a gauge of the dollar's exchange rate against seven of the world's most heavily traded currencies, is down 4% in the past month and hit a seven-week low on Friday. Before the selloff, which began after the dollar hit a three-year high in early July, the U.S. currency was up 8.3% for the year.
Driving the reversal: a shift in views on when the Federal Reserve might start reining in some easy-money policies that are a legacy of the financial crisis, many fund managers say. Many investors had piled into the dollar earlier this year on the belief that robust growth in the U.S. would lead the Fed to scale back its bond-purchase program, which has been pumping $85 billion into the economy each month, in the fall. Not only would a receding flood of dollars raise the greenback's value, the positive signal it would send about the U.S. economy would give the dollar additional fuel by attracting money flows from outside the U.S., analysts say.
However, disappointing economic data, mainly weaker-than-expected jobs growth and tepid retail sales, have prompted some currency investors to back away from bullish dollar bets that were based on the Fed reducing—or "tapering"—bond purchases in September, well before other major central banks would be ready to start tightening monetary policy.
Investors have slashed bets on a rising dollar by 49%, to $21.7 billion, since late May. Then, the value of wagers hit its highest level since at least 2007, when the U.S. Commodity Futures Trading Commission first started to track the data. The number reflects investors' net position in the futures market.
"We are at this turning point where investors aren't sure whether this strong-dollar thesis is really going to hold up," says Samir Sheldenkar, an investment partner at Harmonic Capital Partners LLP, a London hedge fund with $1.2 billion under management. The fund recently pared back bets on a stronger dollar because the rate of job growth in the U.S., which the Fed is closely watching as it mulls a pullback, hasn't picked up since the start of the year.
Now, investors like Mr. Sheldenkar say tapering is more likely to happen in December or even later.
The Fed has said it won't start pulling back on bond purchases until the U.S. labor market sees "substantial" improvement. In July, the U.S. economy added 162,000 jobs, less than economists had expected.
At the same time, there are signs that Europe's year-and-a-half-long recession is coming to an end, enhancing the allure of the euro. As well, fears that a slowdown in China would drag down the global economy appear overblown for now, a factor that could revive the appeal of riskier assets such as emerging-market currencies.
Although the selloff in the dollar is in its early stages, the implications could be wide-ranging. For example, in the longer term, a weaker dollar could bolster corporate earnings, as multinational companies find that profits made outside the U.S. are worth more when translated into dollars.
Currency investors are focusing on the next jobs report, slated for release on Sept. 6, because they believe it is likely to dictate the Fed's next move at its Sept. 17-18 meeting. If the Fed doesn't announce tapering then, the dollar could face a bumpy ride lower, analysts and investors say. Conversely, if the central bank says it will cut back on the stimulus, the dollar rally could resume.
"The trade is no slam dunk, and the dollar has gone down a lot," says Adrian Lee, president of Adrian Lee & Partners, which oversees $6 billion of currency and fixed-income investments. "But it's only a matter of time before it will turn higher again."
The Fed is unique among its counterparts in Japan, the U.K., Australia and the euro zone in that it has openly considered a policy of withdrawing monetary stimulus, Mr. Lee says. That alone is supportive of the dollar.
The relative health of the U.S. economy will continue to remain a lure, investors say. The International Monetary Fund pegs U.S. growth this year at 1.9%, compared with an average of 1.2% for all developed economies.
"What's the most attractive currency in the room? To investors, it's clear it's the dollar," says Akshay Krishnan, a senior analyst at Stenham Asset Management in London. "The underlying view is that the U.S. economy is recovering and growing at a faster pace than other parts of the world."
Still, there are warning signs for the dollar. Yields on Treasurys rose sharply starting in May—for reasons also related to possible Fed tapering—with the 10-year yield hitting a nearly two-year high of 2.718% on July 5. The soaring bond yields sparked record outflows in emerging markets, sending investors back to the refuge of the dollar. But the drop in bond prices, which move in the opposite direction to yields, has since abated. The yield on the 10-year Treasury was 2.58% Friday.
Christopher Brandon, a managing director with Rhicon Currency Management (Pte.) Ltd., believes Treasury yields will have to rise above 3% before another upswing in the dollar is triggered. He says that is unlikely until the Fed actually starts tapering. "The market found that it got a little bit ahead of itself" in its optimism on the dollar, said Mr. Brandon, who manages about $500 million in Singapore.
A sustainable rally probably won't emerge for several months, says Stephen Jen, founding partner of London hedge fund SLJ Macro Partners LLP.
"The dollar needs confirmation that this economic divergence is indeed playing out," Mr. Jen said. "We need to see better data in the U.S., and we need to see weak data in the rest of the world. If this thesis is undermined, then the dollar will struggle."
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"QE has tended to benefit the already rich at the expense of the poor"
http://www.telegraph.co.uk/finance/economics/10253268/Recovering-economy-needs-investors-prepared-to-take-a-property-risk.html
The article is about the UK, but I wonder what Obama, Bernancke et al think about THAT.
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Rep. Kevin Brady, R-Texas, is chairman of the Joint Economic Committee
The Federal Reserve's Next Hundred Years
The bickering over Bernanke's successor is a sideshow. What's really needed is a debate about Fed policy.
http://online.wsj.com/article/SB10001424127887323477604579003203280099282.html?mod=WSJ_Opinion_LEFTTopOpinion
...
The bickering between the Summers and Yellen camps should not distract the country from what should be an opportunity to seriously examine the future direction of Federal Reserve monetary policy. That is the goal of legislation that I introduced earlier this year, the Centennial Monetary Commission Act.
The bill would create a 12-member, bipartisan commission that would objectively review the Fed's performance in terms of output, employment, prices and financial stability over its first 100 years. The commission would also study what legislative mandate the Fed should follow to best promote economic growth and opportunity.
...
I believe the best way to grow jobs and the economy is for the Fed to focus on preserving the purchasing power of the dollar, as reflected in the Sound Dollar Act, which I introduced last year. Stanford economist John B. Taylor shares this view of the Fed's ideal policy. However, since 1977 the Fed has operated under a dual mandate: to maintain stable prices and to maximize employment.
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The Brilliant Fed Chair and the Clueless President
Obama's cavalier treatment of Ben Bernanke is yet another indication of an administration clueless about how serious the country's economic condition is
By Mortimer B. Zuckerman
August 9, 2013
Federal Reserve Chairman Ben Bernanke testifies at a House Financial Services Committee hearing on , Wednesday, July 17, 2013, in Washington.
How good is your memory? Not many people today have personal memories of the Great Depression some 80 years ago, when thousands of banks closed. It would be natural, you'd think, to have a burning memory of what happened just five years ago when the U.S. banking system was on the brink of a similar collapse. The housing bubble burst. Lehman Brothers went bankrupt. Banks pulled back on lending, investors avoided new bonds and everyone seemed to be stockpiling cash. The economy started to contract by 5 percent to 6 percent annually. Trillions of dollars were knocked off the value of U.S. companies. The public and financial authorities had reason to believe nothing much could be done to avert a rerun of the Great Depression.
George Santayana (and before him the 18th century British philosopher and politician Edmund Burke) had history in mind when he observed that those who can't remember the past are condemned to repeat it. Five years hardly qualifies as "history," so it is unnerving that even supposedly well-informed people have forgotten how we got out of the mess. Last year, for example, the House of Representatives followed the lead of former Texas Republican Rep. Ron Paul (now taken up by his son, Kentucky Sen. Rand Paul) in passing a motion for an audit of the Federal Reserve, as if the Fed had been a cause of our problems.
On the contrary, the Federal Reserve was quite simply our last hope. It was the chairman of the Federal Reserve Ben Bernanke who came to the rescue. Bernanke, a former Princeton professor, was a scholar of the Great Depression, a background that proved critical. Right from his start in 2006, he demonstrated a tough independence. Unconvinced of inflation predictions in 2007, he refused to continue ratcheting up interest rates – and he was proved right. When the crisis hit in 2008, he went way beyond the standard response of a central banker, which would have been to lower interest rates and hope that cheaper credit would somehow work its way to more borrowing, more activity, more jobs.
It hadn't worked that way in the Great Depression. Nobody wanted to borrow because there was no demand for their products and services. Bernanke understood that the full faith and credit of the U.S. government was required for a bailout, so he devised a whole menu of unique liquidity facilities to restore credit and confidence. More than a trillion dollars in lending programs helped troubled financial firms, especially the banks. Debt from industrial corporations was bought up, and distressed mortgage assets were put onto the Fed's books. The Fed's policy sustained money market funds, commercial paper, consumer loans and more. His intervention was decisive in easing the panic.
Bernanke's boldness no doubt stemmed from his intricate understanding of the Great Depression. He literally transformed the Fed into a daring, financial first-responder and an active market participant, rather than limiting it to its traditional role of controlling the money supply. Simultaneously he joined Treasury Secretary Hank Paulson on a visit to Capitol Hill to persuade terrified politicians to embrace the famously massive fiscal injection of the Troubled Asset Relief Program, or TARP. That was a close call, for at that fragile moment financial experts worried that the banks might not open the next morning.
Bernanke rallied both the Treasury Department and other central bankers around the world. He pushed other central banks to pursue expansion. Miraculously, the clogged arteries of the global financial system opened up. He leveraged whatever assets the Congress authorized him to deploy, and almost single-handedly steered the global economy back from the brink. In so doing he was able to secure enough time for the U.S. to stabilize the financial system and begin to heal its economy.
His greatest strength came from the authority endowed by his insight and understanding of the magnitude of the crisis at a time when Washington was in turmoil and the Obama presidency did not enjoy congressional confidence. Not so with Bernanke. He got behind a series of imaginative but untested emergency funding procedures for the banks. He used the Fed's balance sheet both uniquely and aggressively to buy not only short-term Treasury bills but also long-term bonds and mortgages as a way of manipulating prices and forcing policy interest rates down to virtually zero for an unprecedented period. This lowered both short- and long-term interest rates. He also didn't hesitate to suggest that the Fed would do even more if these measures didn't work.
Through it all, Bernanke retained a unique candor. He spelled out the costs and risks of these unconventional policies. He made it clear that the more the Fed had to persist, the more difficult it would be to get the world back into a state of normal balance.
To this day, the Fed has not yet been able to wind down his innovative policies – for good reason. The U.S. economy in the four years since the recession ended has been growing at less than half the rate of any other recession since World War II. We are still living with a real unemployment rate of at least 14 percent, punishing millions of a new "lost generation." Some 37 percent of the unemployed have been out of work for over six months. And we have failed to attain "escape velocity" to return to steady growth.
That is the justification – the imperative in Bernanke's view – for continuing to purchase Treasury and mortgage-backed bonds at the level of $85 billion a month, or a trillion dollars a year. He has managed this "quantitative easing" through three different phases and remains committed to continuing it to keep short-term interest rates at record-low levels at least until the unemployment rate falls to 6.5 percent.
And what did he receive for this from the president of the United States? A back-of-the-hand comment in a recent PBS television interview with Charlie Rose that the Federal Reserve chairman had stayed longer than he wanted or was supposed to. This made it clear that Bernanke's days as Fed chairman were numbered despite his unpredicted triumph. This was all done with just seven months left in his appointed term, thus depriving the chairman of the dignity of making his own announcement and even precluding the decision that he might not want to re-up for another tour of duty after eight exhausting years of the worst economic and financial crisis since the 1930's.
The market naturally reacted to President Obama's statement. The equity market lost hundreds of millions of dollars in the next two days. It was not the send-off that Bernanke deserved. The best the president could muster by way of complimenting this brilliant and courageous man was to describe him as an "outstanding partner" with the White House. Partner? The White House was the critical player here only in the sense that its economic policies had drained the confidence of the business community. (By the way, since the Federal Reserve is an independent agency overseen by Congress, no Fed chairman reacts well to the description of "partner," for it undermines the integrity and independence of the Federal Reserve and its leader.) And the stab in the back was carried out while Bernanke was conducting an important Federal Open Market Committee meeting.
It could be argued that Bernanke has made mistakes. He was perhaps a little loose in implying that the Fed might soon cut back its stimulus efforts. But his remarks were intended to minimize speculative activity that relied on the Fed's buying of these bonds, and calm was soon restored.
History will marvel at the role that he played in his seven tumultuous years, intervening so bravely and boldly in Wall Street in ways never before contemplated. As the only operator in Washington who was capable of juicing up the economy in the short term, there is now a fear that when Bernanke quits there will be nobody in Washington capable of leading us out of the unemployment and underemployment that is devastating millions of Americans.
But he leaves a legacy: Buying bonds without limits to their quantity or duration is now an acceptable policy. The financial markets have also adjusted to having the Fed as a key participant, which is a dramatically different role than that of monetary policymaking.
Bernanke's Fed was quite simply our last hope, preventing an economy from sliding into a financial abyss. Our economy still has a way to go before it regains full strength, but the president's mean-spirited dismissal of perhaps the greatest central banker in our history is yet another indication of an administration that has no clue of how serious the country's current economic condition is. What a shame to have so cavalierly treated the very architect of the policies that saved America from another Great Depression.
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I know a lot of intelligent people support this line of thought, but I am going to disagree. What Zuckerman says here is quite wrong IMHO.
The correct response was NOT was Bernanke has done. While a VERY short term response from the Fed may well have been appropriate, the correct response would have been precisely was NOT done-- to let those who fuct up go bankrupt. This does NOT mean that depositors would have been wiped out-- that is precisely what the FDIC is for after all. It DOES mean that the officers and Board of Directors would be out of work and equity (shareholders) would be wiped out per the same bankruptcy laws that apply to everyone else. The banks would be put up for auction (via the bankruptcy courts?) and new ownership would take over. This has been done with major airlines without interruption and I do not see why it could not have been done here. Instead, the savers of America have been brutally anally raped for the last five years so the bankers who made the mistakes (and worse?) can get fat on the carry trade. These policies have made things worse, not better.
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For his piece, Brilliant Fed Chair and the Clueless President, we should at least give Mort Zuckerman credit for getting the second half right.
If we look at the financial crisis period alone, my view is not that what Bernancke did was right but that he might be forgiven for taken such bold and decisive actions and preventing a freefall from doing far more damage than it did. That said, I agree with Crafty. Propping up failed organizations, rewarding failure, and not allowing the bankruptcy process to work properly were all bad aspects of his governance, and tend to make recurrence likely. Worse yet are his actions and inactions before and after the crisis.
I posted recently people should run and scream when you hear crony government terms public-private partnerships. That is exactly what we had - on steroids - with the Bernancke-managed bail ous and mergers of banks, investment houses and insurance companies, some insured, some not, Goldman Sachs, JP Morgan, AIG, and on and on. Though the aim was to minimize the fall and what the Fed would ultimately have to cover, this was the unauthorized war powers act for monetary affairs. The precedent now set is that the Fed has no monetary limits.
Let's say we forgive about 6 months of actions taken in a crisis that thwarted a worse meltdown and likely saved the Treasury money, how does the rest of his governance look?
Coming into the housing-caused financial crisis, did we know housing values were insane - and over-leveraged? Yes, without a doubt. Did anyone say or do anything about it? No. For the Fed Chair as a co-conspirator in the mess to not have seen an abrupt correction coming is somewhere between negligent and criminal.
After the crisis, it is argued that monetary policy is just about right for the conditions. Price levels have been relatively steady. I call steering the car away from accidents - by looking in the rear view mirror. We don't yet know the damage done by current, reckless policies.
In 1977, Congress amended the Federal Reserve Act to give the Fed a dual mandate, to maximize employment in addition to keep price levels stable. http://www.chicagofed.org/webpages/publications/speeches/our_dual_mandate.cfm The Bernancke Fed, post-crisis, gave itself a third mandate; it took on the role of financier and enabler of the trillion dollar a year Obama deficits.
Zuckerman may believe Bernancke did this impossible job brilliantly. I say he did it recklessly, issuing trillions in pretend bonds that in fact have no buyers. When the crisis was over, he had no business playing unauthorized games with the US Dollar and Treasury. As described previously, the economy was a car running with three flat tires and his only tool was to add more and more gasoline, while saying that the flat tires of over-spending, over-taxing and over-regulating are not under his jurisdiction. Maybe so but he was the enabler. It the fiscal geniuses had to pay their way, or at least borrow it, some form of responsibility would have hit the powers in Washington far sooner. For five years and counting he is acting as if we are still in a financial meltdown, while in fact he is CAUSING the next one.
Most strange is that he is being 'let go' by the administration for not going far enough - in the wrong direction.
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Good responses from CD and DM.
I agree with their thoughts not Mort (except about OBama's ability to stab people in the back.)
To a large extent barak the terrible's main focus is ramming through the liberal agenda and not helping the economy.
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Brandon Smith - alt-market.com - August, 2013
Even after seven years of writing macroeconomic analysis for the liberty movement and bearing witness to astonishing displays of financial and political stupidity by more "skeptics" than I can count, it never ceases to amaze me the amount of blind faith average Americans place in the strength of the U.S. dollar. One could explain in vast categorical detail the history of fiat currencies, the inevitable destruction caused by inflationary printing and the conundrum caused when any country decides to monetize its own debt just to stay afloat - often, to no avail.
Bank bailouts, mortgage company bailouts, Treasury bond bailouts, stock market bailouts, bailouts of foreign institutions: None of this seems to faze the gibbering bobbleheaded followers of the Federal Reserve cult. Logic and reason and wisdom bounce like whiffle balls off their thick skulls. They simply parrot one of two painfully predictable arguments:
Argument No. 1:
There is no way foreign countries will ever dump the U.S. dollar because they are so dependent on American consumers to buy their export goods.
Argument No. 2:
There is no way the dollar's value will ever collapse because it is the dominant petro-currency, and the entire world needs dollars to purchase oil.
I have written literally hundreds of articles over the years dismantling the first argument, pointing out undeniable signals that include:
China's subtle dumping of the dollar - using bilateral trade agreements with other developing nations and, more recently, major economic powers like Germany and Japan
The massive gold-buying spree undertaken by China and Russia - even in the face of extreme market manipulation by JPMorgan Chase and Co. and CME Group Inc.
The dumping of long-term U.S. Treasuries by foreign creditors in exchange for short-term Treasuries that can be liquidated at a moment's notice.
The fact that bonds now are supported almost entirely by Fed stimulus. When the stimulus ends, America's ability to honor foreign debts will end and faith in the dollar will crumble.
Blatant statements by the International Monetary Fund calling for the end of the dollar's world reserve status and the institution of special drawing rights (SDRs) as a replacement.
The second argument held weight for a short time, only because the political trends in the Mideast had not yet caught up to the financial reality already underway. Today, this is quickly changing. The petrodollar's status is dependent on a great number of factors remaining in perfect alignment, socially, politically and economically. If a single element were to fall out of place, oil markets would explode with inflation in prices, influencing the rest of the world to abandon the greenback. Here are just a few of the primary catalysts and why they are an early warning of the inevitable death of the petrodollar.
Egyptian Civil War
I was recently contacted by a reader in reference to an article I wrote concerning the likelihood of civil war in Egypt, a civil war which erupted only weeks later.
She asked why I had waited until this year to make the prediction and why I had not called for such an event after the overthrow of Hosni Mubarak, as many mainstream pundits had. The question bears merit. Why didn't Egypt ignite with violent widespread internal conflict after Mubarak was deposed? It seemed perfectly plausible, yet the mainstream got the timing (and the reasons) horribly wrong.
My response was simple: The Mideast is being manipulated by elitist organizations towards instability, and this instability is a process. The engineered Arab Spring, I believe, is not so much about the Mideast as it is about the structure of the global economy. An energy crisis would be an effective tool in changing this structure. Collapse in the Mideast would provide perfect opportunity and cover for a grand shift in the global paradigm. However, each political step requires aid from a correct economic atmosphere, and vice versa.
If you want to identify a possible trend within a society, you have to take outside manipulation into account. You have to look at how economic events work in tandem with political events and at how these events benefit globalization as a whole. The time was not right after Mubarak's overthrow. The mainstream media jumped the gun. If the target is the U.S. dollar and Egypt is the distraction, this year presented perfect opportunity with the now obvious failure of quantitative easing stimulus being exposed.
As the situation stands, the Egyptian military regime that overthrew Mohammed Morsi has completely cut the Muslim Brotherhood out of the political process and murdered at least 450 protesters, including prisoners already in custody.
Morsi supporters have responded by torching government buildings and shooting police personnel. But the real fighting will likely begin soon, as the current government calls for a ban on the Muslim Brotherhood itself. Simultaneously, hatred for the United States and its continued support of the Egyptian power base - regardless of who sits on the throne - is growing to a fever pitch throughout the region. This is not healthy for the life of the petrodollar in the long run.
It is important for Americans to understand when examining Egypt that this is not about taking sides. The issue here is that circumstances are nearly perfect for war and that such a war will spread and will greatly damage oil markets. The Suez Canal accounts for nearly 8 percent of the world's ocean trade, and 4.5 million barrels of oil per day travel the corridor. Already, oil prices have surged due to the mere threat of disruption of the Suez (as I predicted). And this time, the nation is
not
going to recover. A drawn-out conflict is certain, given the nature of the military coup in place and the adamant opposition of the Muslim population.
Strangely, there are still some in the mainstream arguing that the Suez will "never close" because "it is too important to the Egyptian economy," The importance of the Suez to the Egyptian government is irrelevant in the midst of all-out revolution. The Suez will close exactly because there will be no structure left to keep the canal open. In the meantime, oil prices will continue to rise and distrust of the United States will continue to fester.
Saudi Arabia Next?
The relationship between the United States and Saudi Arabia is at once symbiotic and parasitic, depending on how one looks at the situation. The very first oil exploration and extraction deal in Saudi Arabia was sought by the vast international oil cartels of Royal Dutch Shell, Near East Development Company, Anglo-Persian, etc., but eventually fell into the hands of none other than the Rockefeller's Standard Oil Company. The dark history of Standard Oil aside, this meant that Saudi business would be handled primarily by American interests. And the Western thirst for oil, especially after World War I, would etch our relationship with the reigning monarchy in stone.
A founding member of OPEC, Saudi Arabia was one of the few primary oil-producing nations that maintained an oil pipeline that expedited processing and bypassed the Suez Canal. (The pipeline was shut down, however, in 1983). This allowed Standard Oil and the United States to tiptoe around the internal instability of Egypt, which had experienced ongoing conflict which finally culminated in the civil war of 1952. Considered puppets of the British Empire at the time, the ruling elites of Egypt were toppled by the Muslim Brotherhood, leading to the eventual demise of the British pound sterling as the top petro-currency and the world reserve. The British economy faltered and has never since returned to its former glory.
On the surface, Saudi Arabia seems to have avoided the effects of the Arab Spring climate, but all is not as it seems. The defection of Saudi Prince Khalid Bin Farhan Al-Saud has brought up startling questions as to the true state of the oil producing giant.
Saudi prince defects: 'Brutality, oppression as govt scared of Arab revolts' (EXCLUSIVE)
I believe this defection is only the beginning of Saudi Arabia's troubles and that America's largest oil partner is soon to witness domestic turmoil that will disrupt oil shipments around the world. America's support for a monarchy that is so brutal to its population will only hasten the end of the dollar's use in global oil trade, especially if these puppet regimes are toppled.
For those who doubt that Saudi Arabia is in line for social breakdown, I would ask why the nation felt it necessary to pump billions of dollars into the new Egyptian military junta.
While the country is surely being used in some cases as a proxy by the West, the Saudi government itself is fearful that success of dissenting elements will spread to its own borders. Little do they understand that this is part of the globalist game plan. Without control over Saudi petroleum, the United States loses its last influential foothold in the oil market, and there is absolutely no doubt whatsoever that the dollar will fall as the petro-currency soon after. The desperation caused by such an energy crisis will make international markets beg for a solution, which global banking cartels led by the IMF are more than happy to give.
Iranian Wild Card
The U.S. government's outright creation of the Syrian insurgency and its funding and armament of al-Qaida agents have understandably angered numerous Mideast nations, including Iran. Iran sits on the most vital oil shipping lane in the world: the Strait of Hormuz. About 20 percent of the world's annual oil exports are shipped through Hormuz, and the narrow inlet is incredibly easy to block using nothing but deliberately sunken freighters. In fact, this tactic is exactly what Iran has been training for in order to frustrate a U.S./Israeli invasion.
A U.S. or NATO presence on the ground or in the air above Syria, Egypt or Iran will most likely result in the closure of the Strait of Hormuz, causing sharp rises in gasoline costs that Americans cannot afford.
Russia/China Oil Deal
Finally, just as most bilateral trade deals removing the dollar as world reserve have gone ignored by the mainstream media, so has the latest sizable oil deal between Russia and China. Russia has been contracted by the Chinese to supply 25 years of petroleum, and this deal follows previously established bilateral guidelines - meaning the dollar will not be used by the Chinese to purchase this oil.
I expect that this is just the beginning of a chain reaction of oil deals shunning the dollar as the primary trade mechanism. These deals will accelerate as the Mideast sees more internal strife and as the popular distaste for the United States becomes a liability for anyone in power.
The Dollar Is A Paper Tiger
Some might argue that oil discoveries in the Midwestern U.S. could be used to counter the disruption of oil pipelines in the Middle East, and certainly, there is much untapped oil in America. However, to claim that this oil would somehow negate a crisis is naive, primarily because oil supply is not the ultimate issue; the dollar's petro-status IS the ultimate issue. That status is dangerously reliant on the continued stability of Western friendly regimes in the East. We can produce all the oil we want within our own borders, but if the dollar loses global standing as the world reserve, we will STILL see a massive debasement of our currency's value, we will still see collapse, and I guarantee, most of our domestic oil will end up being exported as payment to foreign creditors just to satisfy outstanding debts.
The dollar is no more invincible than any other fiat currency in history. In some ways, it is actually far weaker than any that came before. The dollar is entirely reliant on its own world reserve status in order to hold its value on the global market. As is evident, countries like China are already dumping the greenback in trade with particular nations. It is utterly foolish to assume this trend is somehow "random" rather than deliberate. Foreign countries would not be initiating the process of a dollar dump today if they did not mean to follow through with it tomorrow. All that is left is for a cover crisis to be conjured. Existing tensions in the Mideast signal a pervasive crisis, most likely an energy crisis, in the near term.
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Failing to prepare is preparing to fail.
Beans. Bullets. Bandages.
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Obj:
Good to have you with us once again 8-)
Although the article you post echoes themes long expounded around here, I confess I find some of its logic rather , , , jumpy.
Has not Scott Grannis made good explanation of the difference between bank reserves and printing money?
Are pretro-dollars really the reason for the dollar's reserve currency role?
Why has gold dropped some 35% from its peak?
Although I have cannot check as I sit here in Switzerland on a system unfamiliar to me, my SWAG is that the dollar has gone UP along with US interest rates.
What currency would replace the dollar? Are people going to flee to the yuan? I think not. The Euro's very existence is in question. OF COURSE the IMF wants SDRs! It is in its bureaucratic interest- duh! When has the IMF ever been right about anything?
Does not international instability continue to produce a flight to the dollar?
This guy writes as if he has not noticed the substantial changes for the better in certain numbers that concerned this forum profoundly e.g. (working from memory here so I may be off somewhat but I think I have the gist of it correct) fed spending as a % of GDP down from 25% to 21%, deficit as a % of GDP down from 11% to 5 or 6% etc.
Compare the Euro. Compare China, which I believe to be a huge bubblel (see my posts in the China thread).
This is not to say that Baraq has not been a terrible president economically, socially, internationally, militarily, or legally-- he has been all of these and more. That said, that does not mean that this particular article's criticisms are particularly well thought out.
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second post of the evening
http://www.tweaktown.com/news/32478/us-feds-seize-2-1-million-more-from-bitcoin-exchange-mt-gox/index.html#QCsscmzpxhvEdl7Q.99
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We are the brokest nation in human history. There is not enough money on the planet to pay our debts. When this bubble pops, everyone goes down.
Denial is a powerful force. Reality always wins in the end though.
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But that does not change the erratic reasoning of the piece.
21% of GDP for fed spending and deficit of 5% is territory from which we have recovered before. We may well be about to become the Saudi Arabia of natural gas. Europe and Russia face demographic collapse while we maintain population. China may well be a bigger bubble than anyone realizes and the various Muslim groups of the mid-east and Afpakia are busy killing each other.
And we have our guns :lol:
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Hammering home my criticism of the piece's death of the dollar thesis, here is this from Stratfor. Yes, I know, as usual Strat's economics is contaminated by glib Keynesianism, but I post here for its reportage of currency movements.
he Upside of the Slide in Global Currencies
Geopolitical Diary
Friday, August 23, 2013 - 01:25 Text Size Print
The ongoing slide in global currencies may have more advantages for the affected countries than many observers suspect. Nevertheless, a number of important countries are at risk of instability as the global financial system undergoes a correction. The U.S. economy is slowly recovering, a change that prompted Ben Bernanke, the chairman of the U.S. Federal Reserve, to first hint in May that the Fed might pull back on the asset buyback program that has injected tens of billions of dollars every month into the U.S. financial system.
The Fed's hint that it is confident enough in U.S. growth to pull back on its quantitative easing program has triggered investors to reconsider their positions. Capital has flooded back into dollar markets, bringing down the relative value of most major developing countries. The ongoing slide in currencies and stock markets around the world has prompted enormous concern among national leaders. Just Thursday, Brazil's Central Bank President, Alexandre Tombini, cancelled a planned trip to the United States to stay at home and address the challenges of the country's currency devaluation.
What is a Geopolitical Diary? George Friedman explains.
For countries like Brazil, where inflation haunts the national consciousness, devaluation threatens to upset the government's fragile efforts to ensure that inflation targets are not threatened by the rising price of imports that devaluation will inevitably cause. Rising prices threaten consumer (and therefore voter) satisfaction and undermine the possibility of consumption driving aggregate growth. Recent investment in Brazil has been dominated by direct investment in manufacturing and commodities extraction. This kind of investment is less likely to be deterred by current market pressures, which prompt investors to pull out of currencies, stocks and bonds.
The countries most affected when investors flee emerging markets are those that rely on the fickle inflow of investment to balance out longstanding deficits in trades and services. These include Turkey, which has seen its financial and capital accounts plummet, triggering a negative balance of payments in May and June alongside a steep dive in the value of the Turkish lira. India is also vulnerable, with a deep trade deficit due to a persistent reliance on energy imports. Other countries are on the edge. Indonesia, for instance, only developed a deficit in the trade of goods and services at the end of 2011, and Jakarta has wavered between balance of payments deficits and surpluses since that time.
Tools exist for countries to combat market pressures that might otherwise cause massive disruptions in local economies. Turkey intervened in currency markets by auctioning $350 million in foreign exchange Thursday. Indonesia raised interest rates in June -- which they hope will have the effect of attracting foreign currency deposits -- and has increased reserve requirements for banks in an effort to slow inflation. High foreign currency reserves remain the critical factor in helping countries balance and maintain their financial stability in times of global turmoil.
The fear is that the current slide in currencies is a replication of the crisis that shook markets 16 years ago. This concern is particularly acute in Southeast Asia, where memories of the 1997 collapse of the Asian Tigers are painfully fresh. It is not clear yet how far this process will take the region, but it is clear that this is a global phenomenon affecting a range of countries -- and domestic vulnerabilities will be the deciding factor. The difference this time around is that oil prices have made what appears to be a secular shift to a much higher range. Oil prices in 1997 were a fraction of their current level, and this has contributed to aggravating trade deficits. These deficits were perhaps affordable in times of growth, but with global economic uncertainty prevailing, they have become a serious liability.
Yet despite the anxiety in the press and the statements of alarm from public officials, it's not all bad news for developing economies. Corrections and rebalancing are a natural part of the economic process, and currently, capital that was pushed overseas by the Fed's actions and by low economic growth is returning. This cannot help but have a depressing effect on the countries that had absorbed that excess capital. Slower growth will push down wages, and weaker currencies will improve the competitiveness of exports. These factors can aid some countries as they compete to attract export-oriented investment. As long as such countries keep domestic unrest in check -- particularly in Latin America and Southeast Asia -- they can improve their access to job-creating foreign direct investment.
Read more: The Upside of the Slide in Global Currencies | Stratfor
Follow us: @stratfor on Twitter | Stratfor on Facebook
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http://www.telegraph.co.uk/finance/commodities/10278463/Gold-will-hit-1500-as-investors-seek-safe-haven.html
Gold 'will hit $1,500’ as investors seek safe haven
Gold could climb to $1,500 (£968) an ounce if military action is taken against Syria, City analysts predict.
The upward trend of the great bull market has been broken. The technical damage is brutal. Bank of America expects a further drop to $1,200. Be patient Photo: Alamy
By Emma Rowley
9:30PM BST 31 Aug 2013
46 Comments
The yellow metal climbed above the $1,433 mark on Wednesday, its highest level since mid-May, as tensions around Syria increased its allure as a “safe haven”. On Friday it ended the week at $1,395 against its late-June trough of $1,180 an ounce.
“Safe-haven and geopolitical hedges are back in vogue,” said analysts at HSBC. The metal’s price has passed both its 50-day and 100-day moving averages this month, setting it on course for the $1,500 mark. “Gold is now decisively through previous resistance and is pushing higher towards the $1,500-$1,532 area,” said Citigroup’s technical research team in a recent note.
The threat to supply from a strike in the South African gold sector announced for the coming week could also push prices higher, while jewellery-buying in China and India to take advantage of the price weakness has been offering support.
Any move further upwards could be short-lived, however. In the longer term, many expect concerns about “tapering” by the Federal Reserve — the unwinding of its vast, inflationary monetary stimulus — will dull gold’s appeal. If the US central bank does start curbing its $85bn-a-month bond-buying programme in September that would dent the metal, which benefited from this flood of liquidity.
Ed Morse, Citigroup’s chief commodities analyst, said while the action in the gold market was “understandable, it’s all related to political risk insurance as perceived by participants in the market”, and the price should drop back. “Once military action has been taken, the gold market will sell off,” he said.
Gold hit a high of $1,900 an ounce in September 2011, but when inflation is taken into account that does not compare with its 1980 high of $873 — $2,475 an ounce in current money.
Tensions over Syria have also pushed oil higher, with Brent settling at $114 a barrel on Friday.
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The Bond Bear is Waking Up To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 9/3/2013
We’ve been bond bears for quite some time, and we still are. The good news is that the violent part of the bear market has passed. We expect a slower, but still painful and consistent, move higher in interest rates during the quarters ahead. The 30-year bull market in bonds is over.
The low in yields, after a 30+ year bull market, was seen in the past few years. In past cycles (mid-1970s, 1992, 2004), when the Fed had reached its most accommodative stance, when the federal funds rate was at its lowest point, the spread between the 10-year Treasury and the funds rate was 3.5% or a little higher. This is because long-term investors thought short-term rates would rise in the future.
In the most recent cycle, with the Fed promising to hold rates down for a long time and telling the market it would end QE before lifting rates, the yield spread collapsed and the 10-year went as low as 1.5%. Now, with the Fed preparing to taper QE, the specter of higher short-term rates is pushing the yield curve toward historical norms.
This does not mean bond yields are about to catapult into the stratosphere. The US is not Argentina, or Weimar Germany, or Yugoslavia, and QE can be unwound without creating hyper-inflation. In the past sixty years, including the double-digit inflation of the 1970s, the yield on the 10-year Treasury Note has never been more than 385 basis points higher than the funds rate.
Think of it like a boat with an anchor. The 10-year bond is the boat, on the surface, moving back and forth with the waves. But the anchor, the federal funds rate, remains locked in position by the Fed. The chain between the anchor and the boat is the yield spread. As long as the chain doesn’t break, there’s only so far the boat (and the 10-year) can go.
In Argentina the chain broke (with hyper-inflation, 10-year bonds denominated in pesos weren’t possible). In the US, the chain has never broken. And if it held in the 1970s, with double-digit inflation and an expanding government share of GDP, it’s hard to make the case that it won’t hold today.
Inflation remains relatively subdued, with the consumer price index (including food and energy) up only 2% versus a year ago. We expect inflation to move higher, but we don’t expect hyperinflation. Yes, QE has expanded the Fed’s balance sheet enormously, but, it has been contained in excess reserves and has not led to a sharp expansion in the M2 money supply.
The reason talk of tapering lifted bond yields this past spring was because the Fed will end QE before it lifts rates. In other words, tapering is a sign short-rates are eventually headed higher and when the market expects this it automatically prices in higher long-term interest rates. In other words, the bond market is normalizing and the bear is coming out of a 30-year hibernation.
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"The US (in 2013) is not Argentina, or Weimar Germany, or Yugoslavia,"
- No, but he does recognize that people see the resemblance.
"QE can be unwound without creating hyper-inflation."
- The typesetters forgot to put a question mark at the end of that uncertainty. He may be right; hyper-inflation may not be the worst ailment to come out of the QE 'unwinding'. We may soon know the real answers to this. Or will they keep the economic news bad enough to keep the faucet open 3 more years.
Isn't the fact that everyone agrees an unwinding is required in itself evidence that the markets and the economy currently have a drug-like addiction to the wrong-headed, ongoing, multi-trillion dollar, artificial monetary stimulus. BTW, how many net full time jobs did it create? At what cost??
No concern expressed by Wesbury that the number one criteria for picking the next chair is that he/she must strongly support the wrong side of the dual mandate. Good luck America.
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"No concern expressed by Wesbury that the number one criteria for picking the next chair is that he/she must strongly support the wrong side of the dual mandate. Good luck America."
Actually, he had a separate piece supporting Larry Summers over , , , whatshername precisely because he would take a harder line on monetary policy.
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"No concern expressed by Wesbury that the number one criteria for picking the next chair is that he/she must strongly support the wrong side of the dual mandate. Good luck America."
Actually, he had a separate piece supporting Larry Summers over , , , whatshername precisely because he would take a harder line on monetary policy.
That is good, Summers is marginally better than Janet Yellen, but what I mean is that Wesbury's optimism doesn't flinch in the face of:
a) The Marginal tax rate increase, anti-investment act
b) The Obamacare anti-employment act
c) Explosion of other new regulations, anti new businesses act
d) The resulting shrinking of the workforce, based on the above
e) Growth slowdowns in the former high growth areas of the world, China, India, Korea, etc.
f) The declared War on Fracking, refusal to build nuclear, anti-pipeline, anti-drilling policies - trying to take down the only economic good news going
g) Impending Middle East wars, resulting spikes in oil prices etc.
and now,
h) The President announcing his number one criteria in picking a Fed chair for the next 6 years is that his choice will be committed to running the Fed in the exact opposite direction of what we know is right, a sole focus on sound money.
Wesbury may not flinch but markets do. The view that these policies and circumstances don't matter to an economy is easily proven wrong. The Dow, NASDAQ and S&P 500 are up 100% since 2009 lows. People investing new money today (what new money?) think the lines below can only go up? In the face of all we know right now? To that view I say good luck.
(http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=djia&uf=0&type=2&size=2&sid=1643&style=320&freq=2&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=12&rand=970523140&compidx=&ma=0&maval=9&lf=1&lf2=0&lf3=0&height=335&width=579&mocktick=1)
(http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=nasdaq&uf=0&type=2&size=2&sid=3291&style=320&freq=2&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=12&rand=2062848184&compidx=&ma=0&maval=9&lf=1&lf2=0&lf3=0&height=335&width=579&mocktick=1)
(http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=SPX&uf=0&type=2&size=2&sid=3377&style=320&freq=2&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=12&rand=1158004244&compidx=&ma=0&maval=9&lf=1&lf2=0&lf3=0&height=335&width=579&mocktick=1)
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I wish Wesbury would show up here to see him try to defend his position from Doug's deconstruction.
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I wish Wesbury would show up here to see him try to defend his position from Doug's deconstruction.
Then again, Wesbury is just selling a more upscale version of an infomercial. It's like expecting intellectual honesty from a 3am shopping channel host.
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I wish Wesbury would show up here to see him try to defend his position from Doug's deconstruction.
Thanks G M. As always, I would love to be proven wrong. My view of this train wreck is not a pretty sight.
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Yup. Guns, ammo, canned food.
I can't time it, but it's coming.
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Milestone for Yuan Marks Rise of China
Yuan Rises to Ninth-Most-Actively-Traded Currency Globally
By NICOLE HONG, CLARE CONNAGHAN and TOM ORLIK
WSJ
China for the first time joined the ranks of the most-traded international currencies, underscoring the rise of the world's second-largest economy and the growth of the global foreign-exchange market.
The Chinese yuan vaulted to ninth in the Bank for International Settlements' latest report on foreign-exchange turnover, surpassing the Swedish krona and New Zealand dollar, among other widely used currencies.
China Signals Moves to Loosen Capital Controls
The Yuan Outshines Hong Kong Dollar
Trading in the Chinese currency, also known as the renminbi, has more than tripled over the past three years, to $120 billion a day in 2013, the BIS said, referencing survey data from April. Daily U.S. dollar trading in 2013 has averaged $4.65 trillion.
Yuan gains highlight China's ambitions to play a larger role in a market long dominated by the dollar and, to a lesser extent, the euro. Daily global currency flows have risen more than 30% in three years. The yuan ranked 17th in the previous BIS survey, in 2010. The shift also highlights the international nature of the manufacturing supply chain and the flexibility U.S.-based firms can gain by using yuan.
The report also showed the continued dominance of London as a foreign-exchange hub: 41% of daily average currency trading took place in the U.K., up from 32.6% in 1998. The U.S. share of the currency market grew slightly over the same period, rising to 18.9% in 2013 from 18.3% 15 years earlier.
Like the rising yuan, the Mexican peso ranked among the top-10 most-traded currencies. It cracked the list for the first time since 1998, demonstrating the breadth of the ascent of emerging-market currencies. Both the yuan and peso roughly doubled their shares of the market. The Russian ruble, Turkish lira, South African rand and Brazilian real all also accounted for a bigger slice of global flows, while the Korean won and Polish zloty accounted for slightly smaller shares.
In developed-market currencies, flows in the Japanese yen also shot higher in this year's survey, with turnover surging by 63% from 2010. Trading in the dollar against the yen was up by about 70%, the BIS said.
China's central bank on Thursday raised the prospect of a further loosening of controls on cross-border investment, broadening access to the economy and banking sector. Officials have signaled they don't believe efforts to ease restrictions should be slowed by market volatility or other external factors, such as the U.S. Federal Reserve's plans to reduce monetary stimulus. Observers said the shift could hasten more-widespread use of the yuan.
"As China starts loosening up its banking regulations, companies will eventually see the renminbi on par with the euro," said Anil Sawrup, a senior vice president at currency-exchange firm Cambridge Mercantile Group. "Now that it's in the top 10, more businesses will realize the urgency of making payments in the Chinese currency."
Yuan payments by American companies were up almost 90% in the first half of 2013 from the same period a year ago, according to a survey from global payment-services firm Western Union Business Solutions. The survey showed yuan transactions now represent 12% of all U.S. payments to China, up from 8.5% in the first half of last year.
The Chinese government began liberalizing the currency in 2009, but controls still made it difficult for businesses to make payments directly in the yuan. In early 2012, the central bank announced that all Chinese companies could settle their trades in yuan and more directly swap foreign currencies with it.
"Five years ago, it was next to impossible to help our clients pay Chinese suppliers in renminbi because of the government controls," said Guido Schulz, global head of strategic management at AFEX, an international payment service. "Now, it's just another transaction."
Anbo International Ltd., a U.K.-based wood-flooring manufacturer and distributor, has been paying its Chinese suppliers in renminbi for more than two years as a way to cut costs. Since Chinese factories usually raise prices on foreign currency transactions as a cushion for potential exchange-rate fluctuations, paying in the local currency allowed Anbo to get a 3% to 4% discount on the kitchen tops and hardwood flooring it imports from China, said Guren Zhou, managing director at the company.
He estimates Anbo has saved about $1 million since it switched to yuan payments, which also allowed the company to sell their products to home-improvement retailers in the U.K. at a cheaper price than competitors could.
"If you're an importing business, paying renminbi to China will give you flexibility on pricing and allow you to compete with other people who aren't dealing in renminbi," Mr. Zhou said. "It's a really good thing to do."
This rapid growth of foreign exchange and the rise of the yuan underscore why banks and financial centers around the world are keen to grab a slice of offshore yuan trading.
Since China made Hong Kong its first offshore trading center for its currency in 2009, competition has been fierce among global and regional financial hubs to be key yuan markets as Beijing tries to make the currency a serious rival to the dollar's supremacy in global trade. Singapore and London have emerged as the leading candidates, with Tokyo, Sydney, Luxembourg and Kuala Lumpur also vying for a spot.
"The renminbi has been a big growth story over the last year," said Richard Anthony, global head of foreign-exchange electronic trading at HSBC in London. "Trading volumes are increasing not only from corporate clients off the back of global trade, but also from the investor community."
With a stable economy, healthy banking system, and exchange rate "approaching balance," the timing is right for China to push capital-account opening, wrote Sheng Songcheng, head of the central bank's statistics department in an article in the central bank's own Financial News on Thursday. The capital account reflects investment flows, while the current account measures trade flows.
A shift by the Fed to reduce its $85 billion monthly bond-purchase plan, which could trigger fresh swings in global capital flows, shouldn't be allowed to affect China's plans, Mr. Sheng added.
As part of the steps toward a convertible yuan, domestic media have reported that a new free-trade zone to be set up in Shanghai could feature more liberal rules on cross-border yuan flows.
Allowing freer international investment would be a significant change for a nation that has long imposed restrictions on such flows. A tightly controlled exchange rate has also been a key feature of China's reform-era development. The controls have been seen as a way to keep exports competitive and shield the country from waves of currency speculation.
Economists say loosening controls would help stem a slowdown in China's growth by encouraging more efficient use of capital and speeding a transition away from dependence on exports and toward stronger domestic demand.
But the move also brings risk, as a swing to hefty capital outflows could undermine the stability of an overstretched financial sector.
A sharp rise in lending over the past five years has left banks overextended, with the ratio of corporate and household debt to gross domestic product rising to about 170% at the end of 2012, from 117% in 2008.
"In a country where there's significant fragility in the financial system, rapid opening of the capital account could trigger a crisis," wrote Zhang Ming, a senior economist at the government's Chinese Academy of Social Sciences in a recent paper.
—Chiara Albanese, Grace Zhu and Amy Li contributed
to this article.
Write to Nicole Hong at nicole.hong@wsj.com, Clare Connaghan at clare.connaghan@wsj.com and Tom Orlik at Thomas.orlik@wsj.com
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http://metronews.ca/news/canada/788541/bitcoin-kiosks-coming-to-canada-this-fall/
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Yellen Takes Over To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 9/18/2013
Today’s statement and (lack of) policy changes from the Federal Reserve was about as dovish as investors could imagine. The statement from the Fed reads as if Chairman Bernanke handed the pen to Vice-Chair Janet Yellen and let her write it instead, which makes sense if he knows something the rest of us don’t – about her chances for being elevated to the top spot in the near future.
The big issue going into the meeting was whether the Fed would reduce, or “taper,” the pace of net asset purchases from the current rate of $85 billion per month. The consensus was for a reduction of $10-15 billion per month; instead, the Fed didn’t taper at all.
The Fed wrote that the pace of asset purchases was “not on a preset course.” This implicitly rejected Bernanke’s own words at the June press conference that quantitative easing would be finished around the time unemployment hit 7%. When asked about the 7% trigger today, Bernanke treated his old statement like it had the plague, saying there was “no fixed schedule” and “not any magic number” for ending QE, and, that the unemployment rate itself is not a great measure for the state of the labor market.
In other words, don’t expect QE to be over when the jobless rate hits 7%, which the Fed now thinks will happen in March 2014. In terms of when tapering might start, the Fed said it wants to see ongoing improvement in the labor market and an inflation rate moving closer to the Fed’s 2% target.
The Fed meets again in late October but we doubt that will be enough time for the Fed to change its views on tapering. Instead, we think the very earliest the Fed will start tapering is the December meeting, and then only if it sees some clear and unambiguous acceleration in economic growth.
Given our economic forecast, which is that real GDP growth will accelerate to near 3% at an annual rate in Q4 and continue into 2014, we expect the Fed to taper and then wind down quantitative easing by mid-2014.
For today, the Federal Reserve made several other changes to the text of the statement, all of which were more dovish. It noted higher interest rates and said they could slow economic growth and the pace of improvement in the labor market. The Fed also added language that suggests an increase in inflation from current levels would be more consistent with the Fed’s dual mandate. All in all, the Fed set the stage for a much easier monetary policy going forward than it had led the markets to believe over the past three months. So much for transparency.
The one dissent at the meeting was by Kansas City Fed Bank President Esther George, who continued to say policy is overly accommodative.
In addition to releasing its statement, the Fed also provided a new set of economic projections as well as an internal poll on the most likely course for interest rates.
Highlights include the following:
• The Fed cut its forecast for real GDP growth this year to slightly more than 2% (from about 2.5%). It also cut next year by a ¼ point to 3%.
• The Fed cut its estimate of the long-term average unemployment rate to 5.5% from 5.6%.
• Only three members (out of 17) thought rates should go up in 2014, versus four members in June.
• The median federal funds target for the end of 2015 was 0.75% versus 1% back in June.
Based on today’s statement, lack of policy changes, and the sense that Vice Chairman of the Fed, Janet Yellen, seems to have the inside track to getting the nomination, it looks like, the federal funds rate is not going anywhere until 2015. The Fed’s projections say the funds rate will still be about 1.75% in late 2016. And, in his press conference, Bernanke said that it would take two or three more years after 2016 for the funds rate to get back to a more normal 4%.
As we have written many times before, QE3 is not boosting growth, but, instead, is simply adding to the already enormous excess reserves in the banking system. There is little evidence that QE has lifted growth and Price-to-Earnings ratios remain below their levels in early 2008, before QE ever started.
QE is not dealing with the underlying causes of economic weakness at all. The economy has grown slowly, not because of deleveraging, or a recovery from financial problems, but because government is too big. Spending, regulation, and tax rates have all become a bigger burden on the economy – a wet blanket on recovery that the Fed cannot possibly offset.
The good news is that entrepreneurs never give up. New technology continues to left growth. One can only hope that the Fed does not eventually ruin what is left of innovation and creativity by creating too much inflation.
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http://www.cnbc.com/id/101055418?__source=yahoo|finance|headline|headline|story&par=yahoo&doc=101055418|Fed%20in%20%27monetary%20roach%20mo
Fed in 'monetary roach motel,' won't taper: Schiff
Published: Monday, 23 Sep 2013 | 1:09 PM ET
By: Jeff Cox | Senior Writer
Peter Schiff, CEO, Euro Pacific Capital
The Federal Reserve has no intention to pull back on its monthly bond buying and instead is more likely to increase it due to economic weakness, investment pro and gold advocate Peter Schiff said.
Fed Chairman Ben Bernanke is trapped in a "monetary roach motel" that will force the central bank to continue quantitative easing, in turn leading to a major economic crisis, Schiff added.
"The recovery that the Federal Reserve is bragging about helping create is 100 percent dependent on the quantitative easing that it is supplying," the CEO of Euro Pacific Capital said Monday during IndexUniverse's Inside Commodities Conference. "Like every drug, the economy's going to need more of it to sustain the phony economy. ... Far from diminishing QE, the next big move is going to expand it."
Play Video
Peter Schiff responds to Twitter critics
As gold has fallen, Peter Schiff has drawn flack on Twitter. But he has a special message for the online ¿naysayers,¿ with CNBC's Jackie DeAngelis and the Futures Now Traders.
(Read more: Did the Fed just pop the stock market bubble?)
On the heels of the financial crisis in 2008, the Fed began the first of what is now three QE programs, with the latest involving purchases of $85 billion a month in Treasurys and mortgage-backed securities.
In recent months, Bernanke and other officials have indicated a desire to start winding down—or "tapering"—the program on belief that the economy is recovering and that prolonged QE carries risks.
However, the Fed stunned the financial markets last week by passing on tapering yet, stressing that the economic data has not improved enough and congressional infighting has stymied fiscal policy.
Schiff, though, said the Fed never intended to taper.
(Read more: BofA got Fed right, here's what they say is next)
"They're going to have to do 100, 115, 125 (billion dollars a month). When the market comes to terms with that it's going to be a whole different ballgame," he said. "Right now, the Fed has to maintain the illusion that there's a method to their madness."
From an investment standpoint, Schiff has had to defend a gold position that has deteriorated as belief has increased that the Fed has managed to stave off inflation.
He attributed the fall of the metal to some of the speculative fervor dying off, as well as a highly publicized bearish call from Goldman Sachs.
Once inflation comes back and the speculators realize they were wrong, Schiff said he the expects the price to roar back up.
Marc Chandler, global head of currency strategy at Brown Brothers Harriman, disputed Schiff's thesis on the Fed's end game, leading to a prolonged and heated debate between the two.
(Read more: Gold is no safe haven: Gartman)
"People like Peter have been arguing that Fed monetary policy has been leading to inflation. But you know what? It hasn't," Chandler said. "Deflation remains a bigger risk to us to date than inflation."
That's not going to be the case for long, said Schiff, who predicted a coming huge drop in the U.S. dollar value and a collapse of the Fed policy structure.
"At some point the dollar is going to fall off the edge of a cliff," he said. "Bond prices are going to go down, and the Fed is going to have no choice but to slam on the brakes, and then we are going to have a worse financial crisis than we had in 2008."
—By CNBC's Jeff Cox. Follow him
@JeffCoxCNBCcom
on Twitter.
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Scott Grannis says:
"I'm not trying to say that things are rosy, but I'm compelled to point out that
government borrowing and "spreading around" trillions of dollars is NOT stimulative.
When the government borrows, it takes money from someone. When it spends, it gives
that money to someone else. It takes from Peter and gives to Paul. That is only
stimulative if Paul ends up doing something more productive with the money than
Peter would have if he had kept it. I have a hard time believing that is the case.
"It's much more likely that all the borrowing and spending has worked to depress the
economy, not stimulate it. That's because the bulk of the debt-financed spending has
gone to fund transfer payments. We've borrowed money from the productive members of
society and given it to the non-productive sectors (e.g., Solyndra, food stamps,
disability payments, etc.).
"So it would be more accurate to rephrase Anatole's statement like this: "without the
government borrowing and spreading around hundreds of dollars per living soul per
month, we would be enjoying a stronger, more normal recovery."
MARC: This makes sense to me.
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What does SG say about the end of QE or the lack thereof?
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I'll ask him to post here, but my guess is something that is the reverse of what he says here-- that it would be a good thing.
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I'd like to know why the Fed did the headfake and then kept it in place.
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I'd like to know why the Fed did the headfake and then kept it in place.
I think the outgoing Fed chair wanted to have an end to the madness scheduled before his departure and the incoming Fed chair did not. A bit of a power struggle and she won. Merely conjecture of course.
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1) http://scottgrannis.blogspot.com/2013/09/fed-tightening-is-real-issue-not.html
2) I could write a book, I suppose, about living in Argentina from 1975-1979, during which time the rate of inflation averaged 7% PER MONTH, and at times reached 25-50% in one month alone.
There is one huge difference between Argentina's and Germany's experience with hyperinflation and the situation in the U.S. today. Argentina and Germany literally "printed money" to pay for the government's spending. Neither country could finance its spending through the sale of debt. Only a fraction of the population used checking accounts; most transactions were cash. The government printed up cash and used that cash to make payrolls and to pay for goods and services. The ever-increasing amounts of cash circulating in the economy quickly became a "hot potato" that was passed around faster and faster. It was the rapidly increasing velocity of money and the rapidly declining demand for that money that turned a lot of money printing into hyperinflation.
Nothing like that could happen today. If the Fed were to print billions and billions of dollar bills to pay for the bonds it is buying, the banking system would just as quickly return the dollars to the Fed in exchange for bank reserves (which pay interest). (In any event the Fed is legally unable to print dollar bills unless it is done in exchange for bank reserves; the Fed can only create bank reserves out of thin air, not currency.) It is thus almost impossible for the Fed to print "too much" money. But the Argentine and German central banks could do that, and they did.
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So everything is fine/ We can just QE into the sunset w/out any bad results?
1) http://scottgrannis.blogspot.com/2013/09/fed-tightening-is-real-issue-not.html
2) I could write a book, I suppose, about living in Argentina from 1975-1979, during which time the rate of inflation averaged 7% PER MONTH, and at times reached 25-50% in one month alone.
There is one huge difference between Argentina's and Germany's experience with hyperinflation and the situation in the U.S. today. Argentina and Germany literally "printed money" to pay for the government's spending. Neither country could finance its spending through the sale of debt. Only a fraction of the population used checking accounts; most transactions were cash. The government printed up cash and used that cash to make payrolls and to pay for goods and services. The ever-increasing amounts of cash circulating in the economy quickly became a "hot potato" that was passed around faster and faster. It was the rapidly increasing velocity of money and the rapidly declining demand for that money that turned a lot of money printing into hyperinflation.
Nothing like that could happen today. If the Fed were to print billions and billions of dollar bills to pay for the bonds it is buying, the banking system would just as quickly return the dollars to the Fed in exchange for bank reserves (which pay interest). (In any event the Fed is legally unable to print dollar bills unless it is done in exchange for bank reserves; the Fed can only create bank reserves out of thin air, not currency.) It is thus almost impossible for the Fed to print "too much" money. But the Argentine and German central banks could do that, and they did.
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RICHARD KOO: Forget Hyperinflation — The Fed Is Now Facing The True Cost Of Quantitative Easing
Matthew BoeslerSep. 25, 2013, 8:38 PM
Last Wednesday, the Federal Reserve shocked markets with a surprise decision to refrain from beginning to taper back the pace of its bond-buying program known as quantitative easing.
In the press conference following the decision, Fed chairman Ben Bernanke cited the recent rise in long-term interest rates — spurred by Bernanke's previous press conference in July, during which he seemed to endorse it — as a reason for the delay. Rates had risen too far, too fast, and they were presenting a threat to sustainable economic growth.
Nomura chief economist Richard Koo calls this a "QE 'trap' of [the Fed's] own making," writing in a note to clients that the Fed's decision last week is a clear sign that a "vicious cycle of rising rates and economic weakness has already emerged."
The yield on the 10-year U.S. Treasury note rose as high as 3.0% in the weeks before the Fed announced its decision not to taper.
"Instead of falling back to 2.0% or lower following the Fed’s decision to delay tapering, the 10-year Treasury yield has settled at around 2.5%, which means the next rise in rates could easily take the 10-year yield into 3.0%-plus territory," says Koo. "I worry that this kind of intermittent increase in rates threatens the recoveries in interest- rate-sensitive sectors such as housing and automobiles. That could lead to renewed hesitance at the Fed and prompt it to temporarily shelve or postpone tapering."
That's how the vicious cycle starts.
"While rates might then decline, reassuring the markets for a few months, talk of tapering would probably re-emerge as soon as the data showed some improvements, pushing rates higher and serving as a brake on the recovery," says Koo. "Then the Fed would again be forced to delay or cancel tapering. In my view, recent events have greatly increased the likelihood of this kind of 'on again, off again' scenario, something I warned about in my last report. To be honest, I did not expect it to occur so soon."
Now that it's here, though, Koo writes that the Fed is facing the true cost of QE:
Given that this would never have been a problem if the central bank had not engaged in quantitative easing, I think the US is now facing the real cost of its policy decision.
Had the Fed not implemented QE, long-term rates would not have risen so early in the rebound, and the economic recovery would have proceeded smoothly. Now, any talk of ending QE pushes long-term rates higher and throws cold water on the economy, making it more difficult to discontinue the policy.
That raises the possibility that by buying longer-term securities the central banks of the US, the UK and Japan have placed themselves in a QE “trap” of their own making and will be unable to escape for many years to come. I have previously described QE as a policy that is easy to begin and hard—even scary— to end. The recent drama over tapering signals the start of the less-pleasant second part.
"Amid all the talk of ending QE, I think hyperinflation is a less likely outcome than a QE 'trap'," says Koo. "As soon as the economy picks up a bit, the authorities begin to talk about tapering, which sends long-term rates sharply higher and nips the recovery and inflation in the bud, effectively preventing them from winding down the policy. In this kind of world the economy never fully recovers because businesses and households live in constant fear of a sharp rise in long-term rates."
Read more: http://www.businessinsider.com/richard-koo-says-fed-now-facing-true-cost-of-quantitative-easing-2013-9
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But isn't Koo's logic ultimately Keynesian?
And isn't what Scott is saying is simply that hyper-inflation is not the concern that most of us here (including me) thought it was? I don't see him saying it was a good idea or that it was costless; merely that it won't be causing hyper-inflation.
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I'm not sure. I've read both that deflation and hyperinflation are looming. I know that the American middle class is evaporating like an ice cube on the Vegas strip in July. I don't see a happy ending to the epic debt and the collapse of American exceptionalism.
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NATIONAL REVIEW ONLINE www.nationalreview.com
September 18, 2013 4:00 AM
The Price of Politics
Debt and deficits impoverish us in ways we can only begin to measure.
By Kevin D. Williamson
The headline numbers from the Congressional Budget Office’s newest debt and deficit estimates: Publicly held debt will be at 100 percent of GDP in 25 years, driven by spending on health care and Social Security that will double over the next quarter century. In spite of the fact that taxes as a share of GDP will be higher than their historical average, the debt will continue to grow — and interest payments on that debt will more than double from their current levels.
That’s the best-case scenario.
The more realistic outcome is that each of those measures of debt and spending as a share of GDP will in fact be considerably worse, because our GDP will grow more slowly. We have entered the realm of the vicious circle: Debt and deficits will slow down economic growth, and slower economic growth will make our debt and deficits worse.
Our growing debt slows down economic growth by sucking up capital that could have been used for productive investments. Today’s investors pay higher taxes to fund yesterday’s spending — at the expense of tomorrow’s workers, taxpayers, and entrepreneurs. As the CBO puts it:
The increase in debt relative to the size of the economy, combined with an increase in marginal tax rates (the rates that would apply to an additional dollar of income), would reduce output and raise interest rates relative to the benchmark economic projections that CBO used in producing the extended baseline. Those economic differences would lead to lower federal revenues and higher interest payments. . . . Increased borrowing by the federal government would eventually reduce private investment in productive capital, because the portion of total savings used to buy government securities would not be available to finance private investment. The result would be a smaller stock of capital and lower output and income in the long run than would otherwise be the case.
The cost of government spending isn’t just the total in the column marked “total disbursements” on the great Washington cash-flow statement. It is that plus the economic growth forgone as a result of that spending.
The CBO, to its credit, has attempted to get a handle on how heavily that growing debt will weigh upon economic activity in the next 25 years, and the answer is worrisome: Taking into account the economic effect of those deficits, instead of our debt hitting 100 percent of GDP in 25 years, CBO estimates that it will hit something closer to 200 percent of GDP — or 250 percent under the least sunny scenario. (There are even less-sunny scenarios, but the CBO does not believe that it can model them reliably.) Note here that these estimates also assume that the sequester and other deficit-control measures remain in place, which would consequently mean that spending on everything outside of Medicare, Medicaid, Social Security, and debt service — everything else the government does — will be reduced far below current levels, in fact reverting to pre–World War II levels as a share of GDP. That is unlikely to be the case. Assume, then, that those spending and debt numbers look worse to the extent that the ladies and gentlemen in Washington lack the brass to resist demands for more domestic spending — and more military spending, too. The loudest and most insistent critics of the sequester have been defense contractors and the cluster of politicians in Maryland and Northern Virginia most sensitive to their complaints.
This is not just a balance-sheet problem; it is a problem of values and a problem of philosophy. On the one hand, we have the traditional conservative view that the role of government is to protect property and enforce contracts. The traditional antagonist to this view has been socialism, and in a sense it still is, though the old-fashioned Marxist analysis has been supplanted by what we might call the “Hey, the government invented the Internet!” school of economic analysis.
The Left has of late been atwitter about a new and energetic expression of that banal idea in a book called “The Entrepreneurial State,” written by Professor Mariana Mazzucato, a scholar in the field of technology policy at the University of Sussex. Professor Mazzucato’s argument is not really a matter of technology policy at all but a moral argument, and a poor one. Because government has made economic interventions in various ways in the past (e.g., through military research that has supported advances in things like smart phones and pharmaceuticals), it is immoral for businesses to look to minimize their tax payments or otherwise resist political control of their capital, and it is immoral — not merely mistaken, but immoral — to look to entrepreneurs, venture capitalists, and the like as the main drivers of economic innovation. Professor Mazzacuto writes:
In this era of obsession with reducing public debt — and the size of the state more generally — it is vital to dispel the myth that the public sector will be less innovative than the private sector. Otherwise, the state’s ability to continue to play its enterprising role will be weakened. Stories about how progress is led by entrepreneurs and venture capitalists have aided lobbyists for the U.S. venture capital industry in negotiating lower capital gains and corporate income taxes — hurting the ability of the state to refill its innovation fund.
In support of her claim that the state is an effective entrepreneur, Professor Mazzucato cites the government’s role in developing what we now know as the Internet, its $500,000 investment in Apple through a small-business program, the CIA’s financial sponsorship of GPS technology, etc. This is a classic example of single-entry bookkeeping: Every government intervention that has some connection, however tenuous, with a profitable product in current use is listed on the credit side of the entrepreneur-state’s ledger. Nothing is listed on the debit side. How many Solyndras do we have for every $500,000 handout to Apple? How many Fannie Maes and housing bubbles for every GPS or nascent Internet? Do not look for Professor Mazzucato and those of her kidney to answer that question, or even to acknowledge it in any serious way. But past successes in state entrepreneurship can justify future adventures only to the extent that past efforts have been on balance successful. That is a difficult case to make.
And the debit side has to include much more than such obvious disasters as Solyndra. The government does support pharmaceutical and medical research in many ways — but how many potentially useful pharmaceuticals and medical products have been kept off the market by the federal regulatory apparatus and the enormous costs it imposes on effective and defective products alike? (And how much damage has been done by the FDA’s incompetent policing of defective products that do reach the market?) How many businesses have not been started, and how much innovation forgone, because of the state’s rapacious appetite for capital? For a sense of scale, consider that, as of October 2011, the world’s largest hedge-fund company was Bridgewater Associates of Westport, Conn., with $77.6 billion under management. That total is well less than Medicare loses to fraud year in and year out. You’d have to combine the assets of the three largest private-equity firms to match what Medicare loses to fraud in a typical year, whereas the holdings of venture-capital titans such as Andreessen Horowitz are hardly even rounding errors on that amount.
Would you invest with a firm with that record?
Government is what government does, and what government does is what government spends. Our government is a corrupt HMO with an underfunded pension plan attached, and a few aircraft carriers in tow. Contra Professor Mazzucato, the confiscatory taxes the federal government wishes to impose upon Apple et al. are not being used to replenish any such “innovation fund” as may exist in her imagination, but to prop up the corrupt, wasteful, and destructive programs that make up the great majority of its spending. Federal support for basic science research is pretty low on the list of things that small-government conservatives are worried about, and George Will is not entirely misguided in his admiration for the National Institutes of Health. But the neo-Nehruvian dream of the state as main entrepreneur cannot intellectually survive even the most modest attempt to balance benefits against costs.
As the CBO sees it, the economic weight of the deficits we’re expected to add just in the next 25 years is enough to bring the national debt from 100 percent of GDP to 200 or 250 percent of GDP, i.e., from paralyzing to catastrophic. The deficits we’ve run for the last 25 years have imposed costs of their own. That the costs mainly manifest themselves negatively — in the form of businesses that don’t exist, profits that aren’t collected, and help that is not wanted — does not make them any less real, or less tragic. In the long run, the deficit is as much about whether you have a decent job or die from diabetes complications as it is about figures in CBO estimates. The price may not always be obvious, but you pay it every day.
— Kevin D. Williamson is roving correspondent for National Review.
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http://www.forbes.com/sites/kotlikoff/2013/09/28/is-hyperinflation-just-around-the-corner/
Laurence Kotlikoff, Contributor
I cover fiscal policy, macro, banking, healthcare, etc.
Retirement
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9/28/2013 @ 4:33PM
Is Hyperinflation Just Around The Corner?
In his parting act, Federal Reserve Chairman Ben Bernanke has decided to continue printing some $85 billion per month (6 percent of GDP per year) and spend those dollars on government bonds and, in the process, keep interest rates low, stimulate investment, and reduce unemployment.
Trouble is, interest rates have generally been rising, investment remains very low, and unemployment remains very high.
Bernanke’s dangerous policy hasn’t worked and should be ended. Since 2007 the Fed has increased the economy’s basic supply of money (the monetary base) by a factor of four! That’s enough to sustain, over a relatively short period of time, a four-fold increase in prices. Having prices rise that much over even three years would spell hyperinflation.
And while Bernanke says this is all to keep down interest rates, there is a darker subtext here. When the Treasury prints bonds and sells them to the public for cash and the Fed prints cash and uses it to buy the newly printed bonds back from the public, the Treasury ends up with the extra cash, the public ends up with the same cash it had initially, and the Fed ends up with the new bonds.
Yes, the Treasury pays interest and principal to the Fed on the bonds, but the Fed hands that interest and principal back to the Treasury as profits earned by a government corporation, namely the Fed. So, the outcome of this shell game is no different from having the Treasury simply print money and spend it as it likes.
The fact that the Fed and Treasury dance this financial pas de deux shows how much they want to keep the public in the dark about what they are doing. And what they are doing, these days, is printing, out of thin air, 29 cents of every $1 being spent by the federal government.
I have heard one financial guru after another discuss Quantitative Easing and its impact on interest rates and the stock market, but I’ve heard no one make clear that close to 30 percent of federal spending is now being financed via the printing press.
That’s an unsustainable practice. It will come to an end once Wall Street starts to understand exactly how much money is being printed and that it’s not being printed simply to stimulate the economy, but rather to pay for the spending of a government that is completely broke — with long-term expenditures obligations that exceed its long-term tax revenues by $205 trillion!
This present value fiscal gap is based on the Congressional Budget Office’s just-released long-term Alternative Fiscal Scenario projection. Closing this fiscal gap would require a 57 percent immediate and permanent hike in all federal taxes — starting today!
When Wall Street wises up to our true fiscal condition (and, some, like Bill Gross already have), it will dump long-term bonds like hot potatoes. This will lead interest rates to jump and make people and banks very reluctant to hold money earning no return. In trying to swap their money for goods and services, the public will drive up prices.
As prices start to rise and fingers start pointing at the Fed for fueling the inflation, QE will be brought to an abrupt halt. At that point, Congress will have to come up with an extra 6 percent of GDP on a permanent basis either via huge tax hikes or huge spending cuts. Another option is simply to borrow the 6 percent. But this would raise the deficit, defined as the increase in Treasury bonds held by the public, from 4 to 10 percent of annual GDP if we take 2013 as the example. A 10 percent of GDP deficit would raise even more eyebrows on Wall Street and put further upward pressure on interest rates.
But why haven’t prices started rising already if there is so much money floating around? This year’s inflation rate is running at just 1.5 percent. There are three answers.
First, three quarters of the newly created money hasn’t made its way into the blood stream of the economy – into M1 – the money supply held by the public. Instead, the Fed is paying the banks interest not to lend out the money, but to hold it within the Fed in what are called excess reserves.
Since 2007, the Monetary Base – the amount of money the Fed’s printed – has risen by $2.7 trillion and excess reserves have risen by $2.1 trillion. Normally excess reserves would be close to zero. Hence, the banks are sitting on $2.1 trillion they can lend to the private sector at a moment’s notice. I.e., we’re looking at an gi-normous reservoir filling up with trillions of dollars whose dam can break at any time. Once interest rates rise, these excess reserves will be lent out.
The fed says they can keep the excess reserves from getting lose by paying higher interest on reserves. But this entails poring yet more money into the reservoir. And if interest rates go sufficiently high, the Fed will call this practice quits.
As excess reserves are released to the economic wild, we’ll see M1, which was $1.4 trillion in 2007 rise from its current value of $2.6 trillion to $5.7 trillion. Since prices, other things equal, are supposed to be proportional to M1, having M1 rise by 219 percent means that prices will rise by 219 percent.
But, and this is point two, other things aren’t equal. As interest rates and prices take off, money will become a hot potato. I.e., its velocity will rise. Having money move more rapidly through the economy – having faster money – is like having more money. Today, money has the slows; its velocity – the ratio GDP to M1 — is 6.6. Everybody’s happy to hold it because they aren’t losing much or any interest. But back in 2007, M1 was a warm potato with a velocity of 10.4.
If banks fully lend out their reserves and the velocity of money returns to 10.4, we’ll have enough M1, measured in effective units (adjusted for speed of circulation), to support a nominal GDP that’s 3.5 times larger than is now the case. I.e., we’ll have the wherewithal for almost a quadrupling of prices. But were prices to start moving rapidly higher, M1 would switch from being a warm to a hot potato. I.e., velocity would rise above 10.4, leading to yet faster money and higher inflation.
I hope you’re getting the point. Having addicted Congress and the Administration to the printing press, there is no easy exit strategy. Continuing on the current QE path spells even great risk of hyperinflation. But calling it quits requires much higher taxes, much lower spending, or much more net borrowing (with requisite future repayment) from the public. Yet weaning Uncle Sam from the printing press now is critical before his real need for a fix – paying for the Baby Boomers’ retirement benefits – kicks in.
The one caveat to this doom and gloom scenario is point three – increased domestic and global demand for dollars. The Great Recession put the fear of God into savers worldwide. And the fact that U.S. price level has risen since 2007 by only 15 percent whereas M1 has risen by 88 percent reflects a massive expansion of domestic and foreign demand for “safe” dollars. This is evidenced by the velocity of money falling from 10.4 to 6.6. People are now much more eager to hold and hold onto dollars than they were six years ago.
If this increased demand for dollars persists, let alone grows, inflation may remain low for quite a while. But our ability to get Americans and foreigners to hand over real goods and services in exchange for very few green pieces of paper is hardly guaranteed once everyone starts to understand the incredible rate at which Uncle Sam is printing and spending this paper. Once everyone gets it into their heads that prices are taking off, individual beliefs will become collective reality. This brings me to my bottom line: The more money the Fed prints, the more it risks everyone starting to expect and, consequently produce, hyperinflation.
Laurence Kotlikoff is Professor of Economics at Boston University and co-author of The Clash of Generation and author of Jimmy Stewart Is Dead.
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http://www.zerohedge.com/news/2013-10-02/bitcoin-plunges-following-us-government-seizure-silk-road-website
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If you want to trust one thing and one thing only, trust that once QE is gone and the policy rate becomes the focus, that fed funds will then stay lower than expected for a long, long time. Right now the market (and the Fed forecasts) expects fed funds to be 1% higher by late 2015 and 1% higher still by December 2016. Bet against that.
Investment Outlook
October 2013
Survival of the Fittest?
William H. Gross
Article Introduction
Article Main Body
I hate crows and my wife Sue hates bugs, but like most married couples we have learned to live with our differences. Crows eat bugs though, and bugs eat bugs, and that scientific observation sets the context for the next few paragraphs of this month’s Investment Outlook.
About those crows: They screech, they jabber, they complain from the treetops and then once on the ground they hop, hop, hop all over the street looking for garbage. Flying seems beyond them – too much effort to flap those ebony wings. They prefer to play chicken with my car rolling into the driveway at 5 mph. “Get out of my way,” they seem to be saying. “We’re probably on the endangered species list and if you hit us, you’re the one that’ll be sorry.” Probably true – damn crows. About those bugs: Sue hates any kind of bug, but especially those with lots of legs. Creepy crawly legs. Centipedes, Millipedes, even Octapedes and there are no eight-legged bugs. And of course there’s the world’s perennial favorite – the cockroach. Who could love “La Cucaracha?” Not Sue, that’s for sure.
Our hatred of bugs and crows though is perhaps too strong of a word. “Dislike” or “not like” might be better. Nature itself is rather neutral when it comes to any living thing – including us humans – so perhaps we Grosses should take a lesson from the grand Mother. And to think of it, perhaps it is nature and its rather incomprehensible neutrality that “bugs” me the most – not crows. Why, I wonder, is it that nature seems so indifferent to life, that it promotes, even encourages the Grim Reaper as a necessary condition for living and evolving? Why must it create multiple examples of a living species and then rather innocently step aside as they voraciously consume one another? Must Darwin and his survival of the fittest be God’s philosophical guidepost? Why couldn’t a loving and theoretically omniscient creator just make it simple as opposed to infinitely complex? Why couldn’t the Mother, for instance, pattern an outcome that produced a pride of one or two perfectly healthy lion cubs as opposed to three or four with flaws – the latter two becoming hyena food because they were too slow or insufficiently hyena-aware. So the hyenas could live, you say? Then why create hyenas in the first place – leave them out of the plan and prevent the needless suffering. Of course we would then probably all become grazing cows, chewing our cuds in a more pastoral but less painful setting. Perhaps – but better a cow, I think, than millions of crows eating billions of bugs. Hindus would agree. If I were the creator I’d do it better, but then I’m not. As for this life – count me in by necessity. I’ll play the game but reluctantly. My rage and incomprehension at the pain and death of living things – especially two-legged ones – is as old as Mother time herself, but forever fresh and completely unanswerable.
Speaking of questions with no answers: 1) investors wonder what happened to the taper, 2) why the Fed seemed to change its mind and 3) where of course do we go from here? A few days before the September meeting, I tweeted that the Fed would “tinker rather than taper,” which was close to the end result, but still not totally accurate. They refused to budge, with an uncertain economy being the explanation. Ben Bernanke sort of sat back and did nothing, just like Mother Nature with her crows and bugs. The debate though is actually only so much noise in the scheme of things. The Fed will have to taper, cease and then desist someday. They can’t just keep adding one trillion dollars to their balance sheet every year without something negative happening – either accelerating inflation, a tanking dollar or a continued unwillingness on the part of corporations to invest because of the resultant low and unacceptable returns on investment. QE (quantitative easing) has to die sometime. Just like Mother Nature, death and creative destruction seem to be part of the Grand Economic Scheme.
What matters most for bond and other investors though is not timing of the taper nor the endpoint of QE, but the policy rate: 1) how long it stays where it is, 2) what is the long-term neutral rate in a highly levered economy and 3) can a chastened central bank convince investors that it knows the answer and can be trusted to stick to it?
It’s the policy rate, both spot and forward, that prices markets and drives economies and investment decisions. QEs were simply a necessary medicine for rather uncertain and illiquid times. Now that more certainty and more liquidity have been restored, it’s time for the policy rate and forward guidance to assume control. Janet Yellen, future Fed Chairperson, would agree, as would oft-quoted Michael Woodford, Columbia University professor and 2012 Jackson Hole speaker, who seems to have become the private sector’s philosophical guru for guidance and benchmarks, that will now attempt to convince an investment public that what you hear is what you get.
But if QE is soon to be out, and guidance soon to be what remains, I think investors should listen and invest accordingly. Not with total innocence, but sort of like a totally hyena-aware lion cub – knowing there’s bad things that can happen out there in the jungle, but for now enjoying the all clear silence of the African plain. In bond parlance, the all clear sign would mean that the Fed believes what it says, and if their guideposts have any credibility, they won’t be raising policy rates until 2016 or even beyond. The critical question to ask in terms of the level and eventual upward guide path of the policy rate is how high a rate can a levered economy stand? How much wood can a woodchuck chuck? How high a rate can a homebuyer handle? No one really knows, but we’re beginning to find out. The increase of over 125 basis points in a 30-year mortgage over the past 6–12 months seems to have stopped housing starts and importantly mortgage refinancings in its tracks. It was the primary “financial condition” that Chairman Bernanke cited in his September press conference that shifted the “taper to a tinker to a chance” that maybe they might do something next time.
The 30-year mortgage rate of course is connected to the policy rate and its pricing in forward space. All yields in composite are what an economy has to hurdle in order to grow at historically hoped-for rates at 2–3% real and 4–5% nominal: Treasury yields, mortgage yields, corporate yields and credit card yields, all in composite. Ray Dalio and company at Bridgewater have the concept down pat. The objective, Dalio writes, is to achieve a “beautiful deleveraging,” which assumes minimal defaults and an eventual return of investors’ willingness to take risk again. The beautiful deleveraging of course takes place at the expense of private market savers via financially repressed interest rates, but what the heck. Beauty is in the eye of the beholder and if the Fed’s (and Dalio’s) objective is to grow normally again, then there is likely no more beautiful or deleveraging solution than one that is accomplished via abnormally low interest rates for a long, long time. It is PIMCO’s belief that Yellen, Woodford and Dalio are right. If you want to trust one thing and one thing only, trust that once QE is gone and the policy rate becomes the focus, that fed funds will then stay lower than expected for a long, long time. Right now the market (and the Fed forecasts) expects fed funds to be 1% higher by late 2015 and 1% higher still by December 2016. Bet against that.
The reason to place your bet on the “don’t come” 2016 line is what we have just experienced over the past few months. We have seen a 3% Treasury yield and a 4½% 30-year mortgage rate and the economy peeked its head out its hole like a groundhog on its special day and decided to go back inside for another metaphorical six weeks. No spring or summer in sight at those yields. The U.S. (and global economy) may have to get used to financially repressive – and therefore low policy rates – for decades to come. As the accompanying chart shows, the last time the U.S. economy was this highly levered (early 1940s) it took over 25 years of 10-year Treasury rates averaging 3% less than nominal GDP to accomplish a “beautiful deleveraging.” That would place the 10-year Treasury at close to 1% and the policy rate at 25 basis points until sometime around 2035! I’m not gonna stick my neck out for that – April, May and June of 2013 have taught me a lesson that low yields can become high yields almost overnight. But they should stay abnormally low. A highly levered U.S. and global economy cannot deleverage “beautifully” without repressive future policy rates, which in turn help to contain 5s and 10s although with much less confidence and more volatility as investors have seen recently.
Investment Implications
In betting on a lower policy rate than now priced into markets, a bond investor should expect a certain pastoral quietude in future years, much like that grazing cow, I suppose. Not that exciting, but what the hay, it’s an existence! Portfolios should emphasize front end maturity positions that are stabilized by the Fed’s forward guidance as well as volatility sales explicitly priced in 30-year agency mortgages. Because of the inflationary intention of low policy rates, TIPS (Treasury Inflation-Protected Securities) and the avoidance of anything compositely longer than say 7–10 years of maturity should be favored (long liability structures such as pension funds excepted). PIMCO believes that such a modeled portfolio could likely return 4% in future years.
A bond investor’s focus must simplistically be this: In this new age where short-term yields cannot go lower, let the yield curve, volatility and acceptably priced credit spreads be your North Star. Duration and its empowering carry are fading from the nighttime sky, especially for 10- and 30-year maturities. Mother Nature nor Mother Market cares not a whit for your losses nor your hoped for double-digit return from an equity/bond portfolio that is priced for much less. Be a contented cow, not a voracious crow, and graze wisely with increasing certainty that the Fed and its forward guidance is your best bet for survival.
"Survival Speed Read"
1) Focus on front-end yields, because the Fed can’t raise policy rates in a levered economy.
2) Respect all living things, even crows and bugs.
William H. Gross
Managing Director
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http://www.marketwatch.com/story/why-uncle-sam-is-hoarding-gold-2013-10-04?reflink=MW_GoogleNews&google_editors_picks=true
Oct. 7, 2013, 7:56 a.m. EDT · CORRECTED
Why Uncle Sam is hoarding gold
The Treasury says it won’t tap its gold stockpile, even to avoid a default
By Brett Arends
CORRECTION: An earlier version of this story misidentified a holding owned by the Appleseed fund.
Grab any Wall Street trader in a bar, or any portfolio manager in his office, and he’s likely to tell you gold is finished.
It’s silly, nothing more than a shiny metal, a substance with little use and little real value, a “barbarous relic,” and the stuff of nothing more than superstition. Only a fool would own any gold in his portfolio.
Right?
After all, its value has plunged by $500 an ounce in the past year, and $100 just in the past month. Gold hasn’t even rallied during the budget crisis: So much for its “safe haven” status.
There is just one nagging problem with this story line. One group of people disagrees. And I am not talking about wacko gold bugs in Arizona (“the ex-husband state”) with tinfoil on their heads.
AFP/Getty Images
Enlarge Image
I am talking about the people running the United States Treasury.
They remain firm believers in gold. Big-time.
This week I asked them if they would consider selling some of the country’s gold reserves to pay the bills if the budget crisis escalates later this month.
Their response? Not a chance.
The Treasury has considered that option, among the many others, and rejected it. “Selling gold would undercut confidence in the U.S. both here and abroad,” a spokeswoman said, “and would be destabilizing to the world financial system.” She was quoting an official position laid out last year in a letter to Senator Orrin Hatch, but so far apparently little noticed on Wall Street.
The Treasury’s position is, in a word, extraordinary. We hear all this skepticism these days about gold. Yet the Treasury itself considers U.S. gold holdings to be a key element in maintaining confidence in the country’s soundness—and the stability of the international financial system.
I thought gold was a joke. Totally over. I thought no one cared about gold. But if that were really the case, why wouldn’t the government just dump the holdings for whatever it could get?
To get the full measure of that statement, it is worth reminding ourselves of where we are now. The government has already shut down and there is a non-trivial risk that in just over two weeks it may actually default on its debts. I’m not saying it’s likely, but I am saying the risk is real. To prevent that happening, Congress, which can’t even agree to keep open the Bunker Hill Monument for tourists, must agree to hike the debt ceiling. If it doesn’t, the federal government will quickly run out of money.
The Treasury has considered various scenarios and contingencies, officials say. They have concluded that delaying government payments across the board—from Social Security to debt interest — would be the least harmful approach.
Click to Play What do gold prices do during a shutdown?On the second day of the shutdown, the markets were relatively stable -- but what about gold? Heard on the Street editor Liam Denning joined MoneyBeat to discuss. Photo: AP.
In other words, according to the official position of the U.S. Treasury, the promises and commitments of the government, and its “full faith and credit,” are actually worth less than gold. They’d rather default than lose their bullion.
The federal government has about 8,100 metric tonnes of gold, held in places like Fort Knox. At current prices that’s worth about $340 billion. That would only keep the government going for about a month, which tells you how little gold we really have in relation to our commitments.
Governments in Europe, including those in Great Britain and Switzerland, have sold off some of their gold in the past (much of it near the bottom of the market 13 years ago).
Josh Strauss, co-manager of the Appleseed mutual fund (and a gold fan), calls the Treasury’s admission extraordinary. “With gold on the ropes this year, investors are increasingly questioning the intrinsic value of gold,” he says. “Given the craziness in D.C., it seems to me that investors should really be questioning the intrinsic value of paper dollars backed by feckless promises.”
Strauss’s fund has a big position in gold. He owns, and especially likes, the Central GoldTrust /quotes/zigman/27810/quotes/nls/gtu GTU +1.12% , a closed-end fund with gold in its vaults. The shares trade for 6% less than their net asset value, and because it is a stock your capital gains, if any, will be taxed at the lower rates levied on shares, rather than at the higher rates levied on collectibles such as gold.
I confess I am a gold agnostic—neither a confirmed skeptic, nor a true believer. I try to keep an open mind. (I do see some value in owning it, since in the past it has often tended to do well when other assets, such as stocks and bonds, have done badly.) But the Treasury’s comment is really remarkable. The Treasury suspects that if the government just sold its gold, all those “gold skeptics” who run the financial markets would panic.
What does that tell you?
/quotes/zigman/27810/quotes/nls/gtu Add to portfolio GTU Central GoldTrust US : U.S.: NYSE MKT $ 45.90 +0.51 +1.12% Volume: 49,458Oct. 7, 2013 3:45pP/E RatioN/ADividend YieldN/AMarket Cap$906.28 millionRev. per EmployeeN/A
Brett Arends is a MarketWatch columnist. Follow him on Twitter @BrettArends.
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The Yellen Difference
The Tobin Keynesians are back in charge at the Federal Reserve.
Markets are (mostly) cheering President Obama's appointment of Janet Yellen to the second most powerful job in the world for its continuity: The current Federal Reserve vice chairman was present at the creation of Chairman Ben Bernanke's extraordinary monetary exertions, and the market belief is that she will keep it all going. This may be true, yet it obscures an important distinction between the two that may have consequences down the road.
Related Video
Assistant editorial page editor James Freeman on why President Obama picked Janet Yellen to succeed Ben Bernanke, and what the choice means for monetary policy and markets. Photos: AP
Mr. Bernanke is more of an improvisational policy maker who came to his post-crisis actions by what he considers to be the necessities of the moment. His academic roots are as a monetarist, and he justifies his policy mainly in those terms. He considers his various quantitative easings to be entirely consistent with Milton Friedman's monetary history of the Great Depression, however much other monetarists might disagree.
Ms. Yellen is a distinguished academic economist but she is also an unreconstructed Keynesian. She studied under James Tobin, the late Yale economist whose ideas dominated American economic policy from the 1950s through the 1970s. Friedman monetarism was in part a revolt against the Tobin school, which to oversimplify made unemployment a central focus of monetary policy. In the Tobin-Yellen view, the first task of a central banker is to promote full employment rather than to maintain price stability.
This is the intellectual underpinning to keep in mind when you read that Ms. Yellen favors "easy money" or is a monetary "dove." And it has consequences that are likely to appear over time if she is confirmed by the Senate as expected.
One is that she believes wholeheartedly in the wisdom of government to steer the private economy and business cycle. When she testifies before Congress as chairman, you can expect her to support spending "stimulus" for growth in the short-term but tax increases to reduce deficits in the longer term. President Obama will not be disappointed.
Her ascension also means the revival of the Phillips Curve, and its academic cousin, NAIRU, or the non-accelerating inflation rate of unemployment. These nostrums hold that there is a trade-off between inflation and unemployment: that you can have rapid growth or low inflation, but you can't have both at once for any length of time. Thus the Fed must constantly be fine-tuning Fed policy to manipulate the business cycle.
This view dominated Fed councils for decades until the Paul Volcker-Alan Greenspan era, when it was marginalized because it seemed to lose any predictive power. In both the 1980s and 1990s, the U.S. had rapid growth and low inflation as the Fed kept its focus primarily on price stability. But the Tobinites never went away, and in Ms. Yellen they have one of their own back in charge.
At the current economic moment, all of this is likely to lead Ms. Yellen to continue to use Fed policy to try to push the jobless rate much lower, and perhaps for a longer period of time. In a February 11 speech this year to the AFL-CIO, she said that "attaining maximum employment" must take "center stage" for a long time to come.
And in 1995 she said during a debate on inflation targeting that "when the goals conflict and it comes to calling for tough trade-offs, to me, a wise and humane policy is occasionally to let inflation rise even when inflation is running above target." This helps to explain why, even in the Bernanke era, Ms. Yellen has often pushed behind the scenes for even more aggressive bond purchases.
Ms. Yellen's defenders says she really isn't a dove and they point to her 2006 warning about a housing bubble and its risks for the larger economy. Full marks for that. But the problem is that by 2006 the mortgage-securities and housing bubbles were so large and distended that substantial economic harm was inevitable. The time for the Fed to have begun tightening was in 2003 and 2004 when it was keeping interest rates at 1%-2% even as the economy was growing by nearly 4% a year and commodity prices were exploding. Ms. Yellen was no great public dissenter from that historic Greenspan-Bernanke mistake.
All of this monetary musing may seem beside the point with little inflation and a jobless rate still at 7.3%. But everyone loves a central banker when she's easing. The test of a Fed chairman is whether she has the fortitude to tighten money when it is required but when the politicians and Wall Street are saying it's still premature. That was a test that Fed chairmen, operating on Keynesian principles, failed repeatedly in the late 1960s and 1970s.
As for Mr. Bernanke, he must feel at least some frustration that someone else will be responsible for completing his post-panic monetary experiment. Having failed to start tapering bond purchases in September, his window for doing so may be shut as power and deference begin to flow to his successor.
Our view of the Bernanke era is that he contributed greatly to creating the bubble and panic, then acted admirably and creatively to stem the crisis. (MARC: Disagree!) His policy since the recovery has failed to live up to its growth expectations, and now the verdict of history will depend on a monetary exit that Ms. Yellen will steer.
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http://www.telegraph.co.uk/finance/comment/jeremy-warner/10378666/The-sun-is-setting-on-dollar-supremacy-and-with-it-American-power.html
The sun is setting on dollar supremacy, and with it, American power
A serious alternative to the dollar is still a long way off, but the latest shenanigans on Capitol Hill have given the search for them renewed momentum
Such is the dollar's dominance that, to begin with at least, investors might simply have to take default on the chin. Photo: Bloomberg News
By Jeremy Warner, Assistant Editor
8:18PM BST 14 Oct 2013
All great empires – from the Greek, to the Roman, the Spanish and the British - have at their heart a dominant means of exchange which is very much part of their political and social hegemony. Once upon a time, it was Roman coinage which was the world's pre-eminent currency. In more recent times it was the British pound. Today, it's the US dollar to which international investors flock as a safe haven for their money. Highly liquid and apparently reliable – until recently at least – nothing else comes even remotely close to the greenback's dominant position in the international monetary system.
That this position – what Giscard d'Estaing referred to as America's "exorbitant privilege" – could so casually be put at risk by politicians on Capitol Hill is an extraordinary spectacle that may be indicative of a great power already seriously on the wane.
With the pound, the fall from grace was swift. Britain emerged from the devastation of the First World War an irreparably damaged economic and military power, with crushing debts and a deeply impaired manufacturing sector.
The dollar was able quickly to usurp the pound's position. Final defeat for sterling came with Britain's decision to leave the gold standard in 1931 – an economically sensible decision but a psychological turning point for sterling from which it never recovered.
Lack of any credible alternative means it won't happen so quickly with the dollar. For all the progress of the last 30 years, China for now remains a much smaller economy than the US and in any case is nowhere near ready financially to assume such a role. As for the euro, the dollar needn't trouble itself much about this one-time pretender to the throne.
Yet rarely before has international dissatisfaction with the dollar's role as reserve currency to the world been as great as it is now. The most visible anger comes from China, with more than $3 trillion of dollar foreign exchange reserves, $1.3 trillion of them held in US Treasuries. For ordinary Chinese, it has come as a revelation to discover they own so much American debt. That they own it in a country which because of political brinkmanship may actually default has provoked understandable fury.
"It is perhaps a good time for the befuddled world to start considering building a de-Americanised world", China's official government news agency has said.
A steady erosion of trust which began with the financial crisis five years ago has reached apparent breaking point with the pantomime antics on Capitol Hill. The search for long-term alternatives to the dollar is on as never before. Regrettably, there aren't any, or not for the time being in any case. Everyone can only look on in horror as the US commits apparent economic suicide.
Such is the dollar's dominance that, to begin with at least, investors might simply have to take default on the chin. More than 60pc of global foreign exchange reserves are held in US dollars, which also account for more than 80 per cent of global foreign exchange trading.
So important is dollar liquidity in global trade that if, for instance, you wanted to sell Singapore dollars and buy South African rand, your forex dealer would first typically buy US dollars with your Singapore dollars and then use them to buy the South African rand. The dollar is the middle currency in the vast bulk of international transactions.
By the same token, US Treasuries are the very backbone of the global financial system. They are the supposed "risk-free asset" against which everything else is benchmarked, and as such are the collateral of choice in a huge array of financial market transactions. The dollar is also the currency used to price most commodities, from oil to gold.
The dollar's hegemony is all pervasive. This has given the greenback a degree of leverage unmatched by any other reserve currency in history. If China starts to sell dollar assets, it will only weaken the dollar, undermining Chinese exports and reducing the value of its remaining portfolio of dollar assets.
I'd been part of the received wisdom that any act of US default would set off a devastating chain reaction of bankruptcies that would provoke a second global financial crisis. But David Bloom, chief currency strategist at HSBC, has convinced me that dollar hegemony might perversely act in the opposite way, at least initially.
Unlike a generalised credit event, where all instruments default at the same time, the US would initially engage in a series of little, self contained defaults, or "selective defaults", whose individual impact would probably not be that great.
Each bond has a life and coupon of its own. The missed coupon payment might therefore be regarded as not so bad – especially as this is a case of "won't pay", rather than "can't pay".
Markets see such defaults differently, with missed payments expected to be made up eventually once a political resolution is found. It's also very likely that the Federal Reserve would attempt to counter the damage in financial markets with more QE, buying up the Treasuries that investors dumped.
Furthermore, the financial uncertainty created by default would likely drive investors towards past safe havens of choice – in particular, US dollar assets. Alternative safe havens, such as Japan and Switzerland, have been rendered defunct by central bank money printing. Ironically, emerging markets are likely be more damaged by default than the US itself, with further capital flight.
Such is the degree of "exorbitant privilege" enjoyed by the dollar that it might therefore be the first currency in history to see an asset price rally on the back of a default. However, if there were repeated selective defaults, a second, less benign phase would eventually set in. Spooked markets would begin to sell off the dollar.
The consequent stronger euro and pound would have powerfully deflationary consequences for Europe. Internal demand in the US would also collapse as a result of the wrenching fiscal squeeze that would result from federal government attempts to match expenditures with tax revenues.
Dollar hegemony has long been a destabilising force at the centre of the international monetary system; it's a major part of the sharp build-up in global current account imbalances and cross border capital flows that have been at the heart of so many of the problems in the world economy. The unprecedented accumulation of dollar foreign exchange reserves has in turn caused new challenges for the US, making it more difficult to maintain fiscal and financial stability within its own borders.
Policies that may or may not be good for the US are in all probability bad for everyone else. Loose monetary policy in the US since the crisis began has induced unwanted demand and asset bubbles elsewhere in the world.
Serious alternatives to the dollar, such as a global reserve currency, are still a long way off, but the latest shenanigans on Capitol Hill have given the search for them renewed and added momentum. The US is wrecklessly throwing away its future.
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Clairvoyant, and a woman. Too good to be true.
Please see this Peter Schiff video:
http://www.youtube.com/watch?v=rfLlF1vtit8
Too bad our media passes along the lies about what she said in her 'warning' speeches instead of checking them.
Did she warn of the housing bubble early? No. She tried to downplay the risks and the threats of the housing bubble. Plus she would have made it worse. And promises to do more of the same.
'Peter Schiff goes over in detail the same speeches her supporters put forward and comes to the easy conclusion that the new leader at the Federal Reserve is just as incapable as her predecessors of recognizing a dangerous asset bubble. Worse yet, as a diehard believer in the power of expansive monetary policy, Ms. Yellen would be much less likely to attack an asset bubble even if she were ever to recognize one before it burst.' - http://www.zerohedge.com/news/2013-10-17/janet-yellen-exposed-truth-behind-myth-0
Janet Yellen, 2010: "I didn't see any of that coming until it happened."
http://www.nytimes.com/2013/08/14/business/economy/careers-of-2-fed-contenders-reveal-little-on-regulatory-approach.html
“For my own part,” Ms. Yellen said, “I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.’s — I didn’t see any of that coming until it happened.”
She was wrong then, is wrong now, and will lead us off a cliff much taller and steeper than Obama could do without an accommodating Fed chair, but hey, it's exciting that she is a woman!
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Hat tip to Tricky Dog:
http://arstechnica.com/security/2013/10/youre-infected-if-you-want-to-see-your-data-again-pay-us-300-in-bitcoins/
With freedom comes risk.
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Hat tip to Tricky Dog:
http://arstechnica.com/security/2013/10/youre-infected-if-you-want-to-see-your-data-again-pay-us-300-in-bitcoins/
With freedom comes risk.
Anyone who thinks bitcoin transactions can't be tracked will find out differently at some point.
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Twice in 2 days I find myself quoting economic doomsayer Peter Schiff. It would be nice if his reasoning was false. but it makes sense to me.
http://www.realclearmarkets.com/articles/2013/10/22/investors_have_a_green_light_to_load_up_on_gold_100679.html
It is rare that investors are given a road map. It is rarer still that the vast majority of those who get it are unable to understand the clear signs and directions it contains. When this happens the few who can actually read the map find themselves in an enviable position. Such is currently the case with gold and gold-related investments.
The common wisdom on Wall Street is that gold has seen the moment of its greatness flicker. This confidence has been fueled by three beliefs: A) the Fed will soon begin trimming its monthly purchases of Treasury and Mortgage Backed Securities (commonly called the "taper"), B) the growing strength of the U.S. economy is creating investment opportunities that will cause people to dump defensive assets like gold, and C) the renewed confidence in the U.S. economy will shore up the dollar and severely diminish gold's allure as a safe haven. All three of these assumptions are false. (Our new edition of the Global Investor Newsletter explores how the attraction never dimmed in India).
Recent developments suggest the opposite, that: A) the Fed has no exit strategy and is more likely to expand its QE program than diminish it, B) the U. S. economy is stuck in below-trend growth and possibly headed for another recession C) America's refusal to deal with its fiscal problems will undermine international faith in the dollar.
...
The reality is that Washington has now committed itself to a policy of permanent debt increase and QE infinity that can only possibly end in one way: a currency crisis. While the dollar's status as reserve currency, and America's position as both the world's largest economy and its largest debtor, will create a difficult and unpredictable path towards that destination, the ultimate arrival can't be doubted. The fact that few investors are drawing these conclusions has allowed gold, and precious metal mining stocks, to remain close to multi year lows, even while these recent developments should be signaling otherwise. This creates an opportunity.
Gold moved from $300 to $1,800 not because investors believed the government would hold the line on debt, but because they believed that the U.S. fiscal position would get progressively worse. That is what happened this week.
...
Investors should be concluding that America will never deal with its fiscal problems on its own terms. ... The hard choices that our leaders have just avoided will have to be made someday under far more burdensome circumstances. ... More at link.
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Or as economic optimist Wesbury put it on radio last week, a choice between jumping out a 2nd floor window now or off the 10th floor rather soon.
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http://money.msn.com/investing/is-the-yuan-the-new-dollar-jubak.aspx
Is the yuan the new dollar?
As China's currency becomes easier and easier to trade, and as its economy grows, it is becoming an alternative to the greenback. Here's how investors can play the trend.
Throughout the global financial crisis -- even as the problem changed its focus (and name) from the U.S. mortgage-backed securities crisis to the eurozone debt crisis -- the United States could find solace in the strength of the dollar.
It may not have been a currency backed by the largest gold reserves or a well-run fiscal policy, but it needed only to be less bad than its global competitors. And up against a euro that threatens to come apart and a yen backed by a Tokyo government with an even bigger debt problem than Washington has, the dollar looked good enough.
For liquidity, for the depth of its markets and for its ease of transfers and payments, the dollar was relatively strong, because the competition was relatively weak. The dollar was a global currency without real competition. That's been critical to allowing U.S. Treasury prices to rally and yields to fall even after the country lost its AAA credit rating.
The dollar isn't without long-term competitive threats, however. The most obvious of those has long been the Chinese renminbi, or yuan. (China's currency is named the renminbi. The units of the renminbi are the fen, jiao and yuan. It takes 10 fen to make a jiao, and 10 jiao make a yuan. It's as if the U.S. currency was named the dollar, but its units were called the George, the Alexander and the Benjamin.) But that threat, while acknowledged as real, has always seemed very, very distant.
Is the dollar dying?
.
Well, I think it's time to at least take one "very" off the timeline. China is moving more quickly than expected to turn its currency into a true global alternative.
How far can it go?
It remains to be seen if the Beijing government can bring itself to give up the kind of control over its currency that would be necessary to turn the renminbi into a real alternative to the dollar. China's economic policies are so grounded in the government's ability to control the exchange rate, and the flow of its currency in and out of the country, that the renminbi may never gain the currency market share that China's economy and reserves could otherwise command. But the global financial crisis -- and the damage suffered by the euro, which had looked like a true alternative to the dollar before the European debt crisis -- has pushed Beijing into action faster than projected even just a year or two ago.
Any real challenge to the dollar from the renminbi isn't going to come tomorrow. But I don't think investors should take the long-term supremacy of the dollar for granted. The likelihood of slippage in the dollar's global role has implications for global stock and bond markets, for U.S. interest rates and for U.S. economic growth rates that you should at least consider in formulating any long-term investment plan.
The latest move -- announced just last week and set to take effect in the third quarter of the year -- is, to me, a bombshell that indicates just how quickly the currency game is changing for the renminbi. (It also suggests a few stocks you might want to consider for your portfolio to take advantage of the long-term currency trend.)
The yuan on the block
Hong Kong Exchanges and Clearing (HKXCY -1.58%, news), trades as 388.HK in Hong Kong but is very thinly traded in New York. The company, which owns and operates the stock and futures exchanges in Hong Kong and related clearinghouses, announced plans to launch the first yuan-denominated futures in the third quarter of 2012. The new product would allow investors to trade against the dollar in contracts priced at $100,000.
•Find more from Jubak on his MSN Money home page
Nothing new there. Lots of markets offer futures based on the U.S currency. But this is new and an important change: The contracts will require delivery in dollars by the seller and payment in yuan. In essence, then, the futures allow for the convertibility of dollars and yuan.
The move is another step in China's project of creating a global offshore market for trading renminbi, which really got up to speed with the creation of an offshore market for renminbi in Hong Kong in mid-2010. Until then, the buying and selling of yuan had been largely limited to mainland China under the government's strict currency controls. From July 2010 to January 2011, daily trading in Hong Kong grew from zero to the equivalent of $400 million. Still a drop in the global bucket, but China didn't stop there.
In January 2011, for example, the state-controlled Bank of China allowed customers to trade yuan in the United States. The move was an endorsement of the expansion of yuan trading by Beijing, but it came with the typical truckload of restrictions. Businesses can convert any amount of currency, as long as they are engaged in international trading, but U.S.-based individual customers were limited to $4,000 a day.
In August 2010, McDonald's (MCD -0.96%, news) became the first foreign nonfinancial company to sell yuan-denominated bonds in Hong Kong. Since then, Caterpillar (CAT -6.07%, news) and Volkswagen (VLKAY -1.03%, news) have joined a parade of companies raising capital in yuan-denominated bonds in Hong Kong. In spite of a slump in issuance in the fourth quarter of 2011, the value of new so-called dim sum bonds reached 104 billion yuan -- $16.4 billion. That's almost triple the offerings in 2011.
In December 2011, China and Japan agreed to conduct future bilateral trades directly in yuan. (In 2011, trade between China and Japan amounted to $350 billion.) Before the agreement, Japanese companies, like those from most other countries, had to convert payments into dollars and then into yuan. Each conversion imposed trading costs and exposure to currency fluctuations.
The real big bang, though, is scheduled for 2014, according to the People's Bank. That's when China will roll out a system that would allow countries to settle payments for Chinese goods in yuan instead of dollars. With higher volumes will come lower costs -- in the current system it costs more to do cross-border transfers in yuan than in dollars. That cost differential isn't likely to persist for long, given the volume of its China's global trade. International trade settled in yuan was just $371 billion in 2011.
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http://money.cnn.com/2013/10/10/news/economy/ecb-china-currency/index.html
Europe, China agree currency deal
By Alanna Petroff @AlannaPetroff October 10, 2013: 9:41 AM ET
The new currency swap agreement between the European Central Bank and the People's Bank of China has been in the works for the past few months.
LONDON (CNNMoney)
Europe and China have agreed a currency swap deal to boost trade and investment between the regions.
Under the terms of the deal between the European Central Bank and the People's Bank of China, the swap facility could total as much as 350 billion yuan and €45 billion.
The agreement is one of the largest currency deals between China and a non-Asian trading partner and will last for three years.
Europe and China trade roughly €480 billion in goods and services each year, and the European Union is China's biggest export market.
Related: Yuan now among most traded currencies
China is pushing to internationalize the yuan, and the currency is being used to conduct a growing number of transactions on international markets.
For years Beijing has kept tight control of the yuan, pegging the currency to the U.S. dollar as a way of promoting manufacturing in its export-driven economy, though it has slowly been loosening its hold recently.
The swap deal will allow more trade and investment between the regions to be conducted in euros and yuan, without having to convert into another currency such as the U.S. dollar first, said Kathleen Brooks, a research director at FOREX.com.
"It's a way of promoting European and Chinese trade, but not doing it with the U.S. dollar," said Brooks. "It's a bit like cutting out the middleman, all of a sudden there's potentially no U.S. dollar risk."
Related: U.S. debt loses some appeal in Hong Kong
In June, China struck a similar agreement with the Bank of England worth up to 200 billion yuan.
The deal with the ECB comes as political gridlock in the U.S. weakens the U.S. dollar against many other global currencies.
A spokesperson for the ECB said the deal had been in the works for the last few months.
The yuan, also called the renminbi, currently trades directly with the U.S. dollar, the Australian dollar and the Japanese yen.
In September, the Bank for International Settlements announced the Chinese yuan was the ninth most traded currency in the world.
The yuan was involved in 2.2% of foreign exchange trading worldwide in April, the period examined by the report, more than double its share in April 2010.
The dollar was involved in 87% of all trades, the euro was part of 33% of trades, and the Japanese yen was involved in 23%.
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More than one point in this strike me as unsound, but tossing it out there nonetheless:
How the Dollar Could Eventually Collapse
By William Tucker on 10.23.13 @ 6:11AM
Two events last week were a reminder, as if any were still needed.
The great issue in Washington that divides Republican and Democrats is whether we can go on running deficits and piling up the national debt without some day reaching a point of reckoning.
Democrats adhere to the Keynesian/Paul Krugman school, which says that “deficits don’t matter,” “we owe it to ourselves,” and that printing money is the best and fairest way to stimulate the economy. (Actually, this viewpoint is adopted by whichever party happens to be in power. The Republicans argued the same thing when they controlled the government during the Bush and Reagan years.)
The Republicans and other green-eyeshade types argue that out-of-control deficit spending can’t go on. It’s like a household budget. Any country that runs up a negative account balance will eventually hit bankruptcy. If it tries to inflate its way out of debt, people will start to doubt the value of money and the currency will collapse. Savings will be wiped out and the nation will become penurious.
So far the neo-Keynesians seem to be winning. Federal Reserve Chairman Ben Bernanke has been pursuing his policy of “quantitative easing” (which just means printing more dollars) for five years without producing any negative consequences. Inflation has remained low and the dollar has actually strengthened against some currencies, particularly the Euro as European countries sink into their own financial crises. True, we have now run up a national debt of approximately 100 percent of GDP, which is exactly where Greece was when things started to fall apart. But as everyone observes, no one really thinks the United States is as vulnerable as a little country 11 million people that lives on olives and tourism.
Then there is the example of Japan. The Japanese have had a national debt of 200 percent of GDP for nearly a decade. True, their economy has been in the doldrums for almost two decades and no one talks about the Japanese overtaking the American economy anymore. But once again the Japanese experience seems to confirm that “deficits don’t matter.” You can run up a huge national debt without suffering any immediate consequences.
Two things happened in London last week, however, that indicate there might be a flaw to this argument after all. There won’t be any consequences next week or the week after, but in the long run they may point to the place where America’s house of cards — or paper dollars — could eventually collapse. As Kenneth Rogoff, co-author of This Time It’s Different, says, “Any country that sits with a historically large debt for too long is taking a chance that some out-of-the-box event will shake up markets and raise interest rates to the point where funding becomes very painful. Wars and unexpected catastrophes do happen and the historical transformations that follow can occur.”
So here’s what happened in London:
• The British, faced with declining natural gas production in the North Sea and reluctant to embrace fracking, are facing power blackouts this winter. So they have decided to go with nuclear. They have quickly discovered, however, that America no longer has a nuclear industry and France, the one European country that has embraced nuclear, is bogged down in bureaucracy and political opposition. So they have turned to the country where nuclear construction and technology are making rapid progress — China. Last week Chancellor of the Exchequer George Osborne announced he would allow Chinese nuclear companies to invest in British reactor projects and eventually take ownership of them.
• Almost simultaneously, the Exchequer announced that Britain will allow Chinese banks to set up branches for wholesale banking in London. The decision is part of an effort to steal a mark on Frankfurt and Paris to become the hub of trading in the Yuan, the Chinese currency, in Europe. Having Chinese banks operating in London will allow direct trading between the Yuan and the British pound, instead of going by way of the dollar as things are done now.
The significance of these two events is hard to convey without sounding alarmed, but I will give it a try. First the nuclear part. At the end of the day, as the saying goes, the world is going to have little choice except to go nuclear. China and India are already proving that, even if you’re not particularly concerned about global warming, running an industrial nation on coal produces insufferable air pollution. China just passed the United States on total electricity generated and China and India combined will probably have to produce ten times more if they are to lift their populations out of poverty — which their people desperately want. We may be able to divert ourselves into natural gas for awhile, even though it is a huge waste. (Gas would be much better utilized as methanol to run our cars.) But in the end, the world is going to move to nuclear power — there is no other way.
All this will create enormous economic opportunities. Countries that can build nuclear infrastructure are going to grow rich. The Koreans have landed a $20 billion contract to build four reactors in the United Arab Emirates and that is just the beginning. The Hinckley Point Reactor in Britain — the one the Chinese are investing in — is estimated at $22 billion. There are 70 reactors under construction right now, mostly in Russia and Asia. The builders include Russia, China, Korea and Japan,— which is still selling its technology abroad even though public opinion is opposing it at home. France was in the lead for awhile but has fallen victim to the general sclerosis of European institutions. At the Olkiluoto project in Finland, the Finnish environmental bureaucracy has taken months to sign off on approvals that were supposed to be done in days and the project is now five years behind schedule with completion still out of sight. Before she was forced out of her job, Anne Lauvergeon, former CEO of France’s Areva, was complaining that the Chinese were able to build French-designed reactors faster and cheaper than the French could themselves.
So the task or producing the world’s industrial infrastructure is rapidly shifting from West to East. So will the cutting edge of innovation. Bill Gates sat in the lobby of the Nuclear Regulatory Commission in Beltsville, Maryland, for a year (figuratively) before finally realizing the task of getting the bureaucrats to look at his Traveling Wave reactor was hopeless. So he took his invention to China. The design, which burns continuously for 50 years, consuming its own waste in the process, is now being developed by the Chinese National Nuclear Corporation.
That’s one thing. Now what about this banking business? Well, the Chinese here are striking at our Achilles’ heel — the role of the dollar as the world’s reserve currency. Let’s go back to Ben Bernanke’s “qualitative easing” and the argument that the national debt doesn’t matter because “we owe it to ourselves.” The fact is we don’t owe it to ourselves anymore. Fully one-third of our debt is owned by foreigners. China and Japan are the largest stakeholders, each owning 7 percent. If we just owed this money to American investors, we could just stiff them the way the government stiffed bondholders at GM and Chrysler — or the way savers are currently being stiffed by the Fed’s zero interest rates. There is nothing anyone could do except move their money abroad. (This is apparently already happening, since the U.S. is experiencing a negative investment capital outflow.)
But the real danger lies in the dollar’s role as the world’s reserve currency. This is the legacy of our hugely productive economy during and after World War II when we played the role of world leadership. “At the Bretton Woods Conference of 1944, the major western powers turned over responsibility for maintaining a stable world currency to the United States,” says Lewis Lehrman, the long-time advocate of the gold standard. “Unfortunately, it’s a responsibility that we haven’t fulfilled.”
Until 1971, the dollar was pegged to gold at $35 an ounce. But with inflation raging and gold flying out of Fort Knox, President Nixon renounced the exchange rate and said that the dollar would float against other currencies. “Since 1971 we’ve been living in an era of inconvertible paper currency,” says Lehrman. Gold now sells at $1300 an ounce, a 2000 percent depreciation since 1971.
So what “quantitative easing” really means is that we are dumping out domestic profligacy on the rest of the world. We go on running up debt and printing dollars and the rest of the world is forced to take them because, based on its former stability, the dollar still serves as the international means of exchange in 60 percent of world trade. There are now more $100 bills circulating abroad than at home. It’s the kind of situation that will go on until someone successfully challenges the dollar’s role as the world currency.
That challenge will almost certainly come from China.
As holders of $1.1 trillion in American debt, the Chinese are the principal victims of our inflationary policies. So far, however, there’s not much they can do about it. In 2009, as the American economy was collapsing, Chinese Prime Minister Wen Jiabao warned “We have lent a huge mount of money to the US. Of course, we are concerned about the safety of our assets. To be honest, I am definitely a little worried.” The Chinese can’t rock the boat too hard, however, without endangering their own assets. As the great swindler Billie Sol Estes once said, “When you owe someone $1000, you’re in debt. When you owe them $1 million, you’ve got yourself a partner.”
What the Chinese have been doing, however, is quietly building a financial infrastructure that would allow them and the rest of the world to free themselves from dependency on the dollar. They have suggested substituting promissory notes from the International Monetary Fund in world trade and struck deals with Russia and the OPEC nations to trade outside the dollar. They have established direct exchange of the yuan with Hong Kong, Taiwan and Singapore. Last spring Australia agreed to make its currencies directly convertible with the yuan and has since shifted 5 percent of its reserve holdings into yuan instead of dollars. The Chinese are negotiating a similar arrangement with New Zealand. And now they will be moving into London and the European market as well.
All this may seem very distant but it represents an historical shift that could come about very quickly. “We hear arguments that China has a long was to go before they could become a major international reserve currency but let’s not kid ourselves. The process is already underway and a lot further down the road than most people think,” says Stuart Oakley, head of foreign exchange trading at Nomura, a global investment bank in Singapore. Michael Pento, president of Pento Portfolio Strategies, who writes frequently for Huffington Post, adds: “The No. 1 security issue we have as a nation is the preservation of the U.S. dollar as the world’s reserve currency. It’s a thousand times more important than a nuclear bomb being tested by North Korea. Yet we are doing everything to abuse that status.”
At any one time, up to 35 percent of the dollar’s value comes from its role in international trade. This is what differentiates us from Japan, which may have twice our national debt but does not have the same exposure in international markets. If the dollar were to be toppled from its role as the world’s reserve currency, it would set off a run on the dollar in which every American could lose up to a third of his net worth.
At that point, people might start paying attention to what the Tea Party is saying.
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Scott Grannis responds: OMG, the sky is falling!
All this essay says is that if the demand for dollars were to collapse, and if the Fed were to not do anything in response, and if the federal government were to continue to borrow extreme amounts of money, then the value of the dollar would likely collapse. That's a lot of very big "ifs."
Even the author acknowledges that the Chinese can't really do anything about their massive dollar exposure. They're stuck. See my post "Pity the Chinese."
It's true that we can't go running massive deficits forever, but right now we're not. The deficit has fallen from 10.5% of GDP to about 4.5% in just four relatively short years. The federal government hasn't increased its spending at all for the past four years, even as tax revenues have grown at double digit rates. The Fed has done an awful lot of QE, but sooner or later that is going to come to an end, even when Janet Yellen takes over the reins from Ben.
There's also a strong mercantilist strain in the essay, which asserts that those who know how to build nuclear reactors are going to get rich, presumably at the expense of those that don't. No one country could build enough nuclear reactors to cause any significant shift in the relative prosperity of other countries. The ones getting the reactors are going to benefit as well: the cost of a reactor is proportionate to it's benefit, is it not?
Yes, the sky could fall, but lots of bad things would have to happen along the way.
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New York Times
BINYAMIN APPELBAUM
Published: October 26, 2013
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WASHINGTON — Inflation is widely reviled as a kind of tax on modern life, but as Federal Reserve policy makers prepare to meet this week, there is growing concern inside and outside the Fed that inflation is not rising fast enough.
Some economists say more inflation is just what the American economy needs to escape from a half-decade of sluggish growth and high unemployment.
The Fed has worked for decades to suppress inflation, but economists, including Janet Yellen, President Obama’s nominee to lead the Fed starting next year, have long argued that a little inflation is particularly valuable when the economy is weak. Rising prices help companies increase profits; rising wages help borrowers repay debts. Inflation also encourages people and businesses to borrow money and spend it more quickly.
The school board in Anchorage, Alaska, for example, is counting on inflation to keep a lid on teachers’ wages. Retailers including Costco and Walmart are hoping for higher inflation to increase profits. The federal government expects inflation to ease the burden of its debts. Yet by one measure, inflation rose at an annual pace of 1.2 percent in August, just above the lowest pace on record.
“Weighed against the political, social and economic risks of continued slow growth after a once-in-a-century financial crisis, a sustained burst of moderate inflation is not something to worry about,” Kenneth S. Rogoff, a Harvard economist, wrote recently. “It should be embraced.”
The Fed, in a break from its historic focus on suppressing inflation, has tried since the financial crisis to keep prices rising about 2 percent a year. Some Fed officials cite the slower pace of inflation as a reason, alongside reducing unemployment, to continue the central bank’s stimulus campaign.
Critics, including Professor Rogoff, say the Fed is being much too meek. He says that inflation should be pushed as high as 6 percent a year for a few years, a rate not seen since the early 1980s. And he compared the Fed’s caution to not swinging hard enough at a golf ball in a sand trap. “You need to hit it more firmly to get it up onto the grass,” he said. “As long as you’re in the sand trap, tapping it around is not enough.”
All this talk has prompted dismay among economists who see little benefit in inflation, and who warn that the Fed could lose control of prices as the economy recovers. As inflation accelerates, economists agree that any benefits can be quickly outstripped by the disruptive consequences of people rushing to spend money as soon as possible. Rising inflation also punishes people living on fixed incomes, and it discourages lending and long-term investments, imposing an enduring restraint on economic growth even if the inflation subsides.
“The spectacle of American central bankers trying to press the inflation rate higher in the aftermath of the 2008 crisis is virtually without precedent,” Alan Greenspan, the former Fed chairman, wrote in a new book, “The Map and the Territory.” He said the effort could end in double-digit inflation.
The current generation of policy makers came of age in the 1970s, when a higher tolerance for inflation did not deliver the promised benefits. Instead, Western economies fell into “stagflation” — rising prices, little growth.
Lately, however, the 1970s have seemed a less relevant cautionary tale than the fate of Japan, where prices have been in general decline since the late 1990s. Kariya, a popular instant dinner of curry in a pouch that cost 120 yen in 2000, can now be found for 68 yen, according to the blog Yen for Living.
This enduring deflation, which policy makers are now trying to end, kept the economy in retreat as people hesitated to make purchases, because prices were falling, or to borrow money, because the cost of repayment was rising.
“Low inflation is not good for the economy because very low inflation increases the risks of deflation, which can cause an economy to stagnate,” the Fed’s chairman, Ben S. Bernanke, a student of Japan’s deflation, said in July. “The evidence is that falling and low inflation can be very bad for an economy.”
There is evidence that low inflation is hurting the American economy.
“I’ve always said that a little inflation is good,” Richard A. Galanti, Costco’s chief financial officer, said in December 2008. He explained that the retailer is generally able to expand its profit margins and its sales when prices are rising. This month, Mr. Galanti told analysts that sluggish inflation was one reason the company had reported its slowest revenue growth since the recession.
Executives at Walmart, Rent-A-Center and Spartan Stores, a Michigan grocery chain, have similarly bemoaned the lack of inflation in recent months.
Page 2 of 2)
Many households also have reason to miss higher inflation. Historically, higher prices have led to higher wages, allowing borrowers to repay fixed debts like mortgage loans more easily. Over the five years before 2008, inflation raised prices 10 percent. Over the last five years, prices rose 8 percent. At the current pace, prices would rise 6 percent over the next five years.
“Let me just remind everyone that inflation falling below our target of 2 percent is costly,” Charles L. Evans, the president of the Federal Reserve Bank of Chicago, said in a speech in Madison, Wis., this month. “If inflation is lower than expected, then debt financing is more burdensome than borrowers expected. Problems of debt overhang become that much worse for the economy.”
Inflation also helps workers find jobs, according. to an influential 1996 paper by the economist George Akerlof and two co-authors. Rising prices allows companies to increase profit margins quietly, by not raising wages, which in turn makes it profitable for companies to hire additional workers. Lower rates of inflation have the opposite effect, making it harder to find work.
Companies could cut wages, of course. But there is ample evidence that even during economic downturns, companies are reluctant to do so. Federal data show a large spike since the recession in the share of workers reporting no change in wages, but a much smaller increase in workers reporting wage cuts, according to an analysis by the Federal Reserve Bank of San Francisco. There is, in practice, an invisible wall preventing pay cuts. The standard explanation is that employers fear that workers will be angry and therefore less productive.
“I want to be really careful about advocating for lower wages because I typically advocate for the other side of that equation,” said Jared Bernstein, a fellow at the left-leaning Center on Budget and Policy Priorities and a former economic adviser to Vice President Joseph R. Biden Jr. “But I think higher inflation would help.”
The Anchorage school board, facing pressure to cut costs because of a budget shortfall, began contract negotiations with its 3,500 teachers this year by proposing to freeze rather than cut wages. The final deal, completed last month, gives the teachers raises of 1 percent in each of the next three years.
Teachers, while not thrilled, described the deal as better than a pay cut. But it is likely, in effect, to cut the teachers’ pay. Economists expect prices to rise about 2 percent a year over the next three years, so even as the teachers take home more dollars, those dollars would have less value. Instead of a 1 percent annual increase, the teachers would fall behind by 1 percent a year.
“We feel like this contract still allows us to attract and retain quality educators,” said Ed Graff, the Anchorage school district superintendent.
In June, Caterpillar, the industrial equipment maker, persuaded several hundred workers at a Wisconsin factory to accept a six-year wage freeze. The company described the workers as overpaid, but it did not seek direct cuts.
The slow pace of inflation, however, minimizes the benefits. Seeking further savings, Caterpillar has since laid off almost half of the workers.
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http://www.cnbc.com/id/101133131
De-crowning the dollar, and the 'collapse' ahead
Published: Tuesday, 22 Oct 2013 | 11:23 AM ET
By: Michael Pento | President of Pento Portfolio Strategies
The gradual erosion of the U.S. dollar's status as the world's reserve currency has been greatly hastened of late. This is due not only to the perpetual gridlock in D.C., but also our government's inability to articulate a strategy to deal with the $126 trillion of unfunded liabilities.
Our addictions to debt and cheap money have finally caused our major international creditors to call for an end to dollar hegemony and to push for a "de-Americanized" world.
China, the largest U.S. creditor with $1.28 trillion in Treasury bonds, recently put out a commentary through the state-run Xinhua news agency stating that, "Such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated."
Washington's messiness and the dollar
Congress finally reached a deal to end the 16-day shutdown, but it wasn't pretty. CNBC's Rick Santelli makes the case that the dollar's weakness is more about the Fed and a mediocre economy.
In addition, Japan (our second largest creditor holding $1.14 trillion of U.S. debt) put out a statement through its Finance Minister last week saying, "The U.S. must avoid a situation where it cannot pay, and its triple-A ranking plunges all of a sudden."
(Read more: Fed in 'monetary roach motel,' won't taper: Schiff)
It is both embarrassing and hypocritical to be lectured by Japan about an intractable debt situation. However, the sad truth is we have become completely reliant on these two nations for the stability of our bond market and currency.
We arrived at this condition because our central bank has compelled the nation to rely on asset bubbles for growth and prevented the deleveraging of the economy by forcing down interest rates far below a market-based level.
For example, instead of allowing debt levels to shrink, the Fed's virtually free money has now caused consumer credit to surge past the $3 trillion mark by the second quarter 2013; that is up 22 percent in the past three years. And of course, the Federal government massively stepped up its borrowing beginning in 2008, piling on over $6.8 trillion in additional publicly traded debt since the start of the Great Recession.
(Read more: It's back with a vengeance: Private debt)
While most are now celebrating the end of government gridlock (however ephemeral it may be), the truth is few understand the consequences of our addictions.
The real problems of government largess, money printing, artificial interest rates, asset bubbles and debt have not been addressed at all. Rather, Washington has merely agreed to perpetually extend its lines of credit and to have the central bank purchase most of that new debt.
Instead of placating the fears of our foreign creditors we have cemented into their minds that the U.S. dollar and bond market cannot be safe repositories of their savings. The eventual and inevitable loss of that confidence will ensure nothing less than surging prices and a complete collapse of our economy.
The fear of an economic meltdown was the genesis of a constitutionally-based third-party political movement.
The Tea Party was formed to prevent runaway inflation and an economic depression resulting from a crumbling currency and devalued debt. It appears by the absolute and universal vilification of its members by both Republicans and Democrats that U.S. citizens are not yet ready to undergo the pain associated with the removal of our pernicious addictions.
(Read more: Tea party leader takes protest to new level)
Since there appears to be no political solution in site it would benefit investors to take steps now to protect their portfolios from the de-crowning of the U.S. dollar as the world's reserve currency.
—Michael Pento is president of Pento Portfolio Strategies and author of The Coming Bond Market Collapse: How to Survive the Demise of the U.S. Debt Market.
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http://spectator.org/archives/2013/10/23/how-the-dollar-could-eventuall/print
How the Dollar Could Eventually Collapse
By William Tucker on 10.23.13 @ 6:11AM
Two events last week were a reminder, as if any were still needed.
The great issue in Washington that divides Republican and Democrats is whether we can go on running deficits and piling up the national debt without some day reaching a point of reckoning.
Democrats adhere to the Keynesian/Paul Krugman school, which says that “deficits don’t matter,” “we owe it to ourselves,” and that printing money is the best and fairest way to stimulate the economy. (Actually, this viewpoint is adopted by whichever party happens to be in power. The Republicans argued the same thing when they controlled the government during the Bush and Reagan years.)
The Republicans and other green-eyeshade types argue that out-of-control deficit spending can’t go on. It’s like a household budget. Any country that runs up a negative account balance will eventually hit bankruptcy. If it tries to inflate its way out of debt, people will start to doubt the value of money and the currency will collapse. Savings will be wiped out and the nation will become penurious.
So far the neo-Keynesians seem to be winning. Federal Reserve Chairman Ben Bernanke has been pursuing his policy of “quantitative easing” (which just means printing more dollars) for five years without producing any negative consequences. Inflation has remained low and the dollar has actually strengthened against some currencies, particularly the Euro as European countries sink into their own financial crises. True, we have now run up a national debt of approximately 100 percent of GDP, which is exactly where Greece was when things started to fall apart. But as everyone observes, no one really thinks the United States is as vulnerable as a little country 11 million people that lives on olives and tourism.
Then there is the example of Japan. The Japanese have had a national debt of 200 percent of GDP for nearly a decade. True, their economy has been in the doldrums for almost two decades and no one talks about the Japanese overtaking the American economy anymore. But once again the Japanese experience seems to confirm that “deficits don’t matter.” You can run up a huge national debt without suffering any immediate consequences.
Two things happened in London last week, however, that indicate there might be a flaw to this argument after all. There won’t be any consequences next week or the week after, but in the long run they may point to the place where America’s house of cards — or paper dollars — could eventually collapse. As Kenneth Rogoff, co-author of This Time It’s Different, says, “Any country that sits with a historically large debt for too long is taking a chance that some out-of-the-box event will shake up markets and raise interest rates to the point where funding becomes very painful. Wars and unexpected catastrophes do happen and the historical transformations that follow can occur.”
So here’s what happened in London:
The British, faced with declining natural gas production in the North Sea and reluctant to embrace fracking, are facing power blackouts this winter. So they have decided to go with nuclear. They have quickly discovered, however, that America no longer has a nuclear industry and France, the one European country that has embraced nuclear, is bogged down in bureaucracy and political opposition. So they have turned to the country where nuclear construction and technology are making rapid progress — China. Last week Chancellor of the Exchequer George Osborne announced he would allow Chinese nuclear companies to invest in British reactor projects and eventually take ownership of them.
Almost simultaneously, the Exchequer announced that Britain will allow Chinese banks to set up branches for wholesale banking in London. The decision is part of an effort to steal a mark on Frankfurt and Paris to become the hub of trading in the Yuan, the Chinese currency, in Europe. Having Chinese banks operating in London will allow direct trading between the Yuan and the British pound, instead of going by way of the dollar as things are done now.
The significance of these two events is hard to convey without sounding alarmed, but I will give it a try. First the nuclear part. At the end of the day, as the saying goes, the world is going to have little choice except to go nuclear. China and India are already proving that, even if you’re not particularly concerned about global warming, running an industrial nation on coal produces insufferable air pollution. China just passed the United States on total electricity generated and China and India combined will probably have to produce ten times more if they are to lift their populations out of poverty — which their people desperately want. We may be able to divert ourselves into natural gas for awhile, even though it is a huge waste. (Gas would be much better utilized as methanol to run our cars.) But in the end, the world is going to move to nuclear power — there is no other way.
All this will create enormous economic opportunities. Countries that can build nuclear infrastructure are going to grow rich. The Koreans have landed a $20 billion contract to build four reactors in the United Arab Emirates and that is just the beginning. The Hinckley Point Reactor in Britain — the one the Chinese are investing in — is estimated at $22 billion. There are 70 reactors under construction right now, mostly in Russia and Asia. The builders include Russia, China, Korea and Japan,— which is still selling its technology abroad even though public opinion is opposing it at home. France was in the lead for awhile but has fallen victim to the general sclerosis of European institutions. At the Olkiluoto project in Finland, the Finnish environmental bureaucracy has taken months to sign off on approvals that were supposed to be done in days and the project is now five years behind schedule with completion still out of sight. Before she was forced out of her job, Anne Lauvergeon, former CEO of France’s Areva, was complaining that the Chinese were able to build French-designed reactors faster and cheaper than the French could themselves.
So the task or producing the world’s industrial infrastructure is rapidly shifting from West to East. So will the cutting edge of innovation. Bill Gates sat in the lobby of the Nuclear Regulatory Commission in Beltsville, Maryland, for a year (figuratively) before finally realizing the task of getting the bureaucrats to look at his Traveling Wave reactor was hopeless. So he took his invention to China. The design, which burns continuously for 50 years, consuming its own waste in the process, is now being developed by the Chinese National Nuclear Corporation.
That’s one thing. Now what about this banking business? Well, the Chinese here are striking at our Achilles’ heel — the role of the dollar as the world’s reserve currency. Let’s go back to Ben Bernanke’s “qualitative easing” and the argument that the national debt doesn’t matter because “we owe it to ourselves.” The fact is we don’t owe it to ourselves anymore. Fully one-third of our debt is owned by foreigners. China and Japan are the largest stakeholders, each owning 7 percent. If we just owed this money to American investors, we could just stiff them the way the government stiffed bondholders at GM and Chrysler — or the way savers are currently being stiffed by the Fed’s zero interest rates. There is nothing anyone could do except move their money abroad. (This is apparently already happening, since the U.S. is experiencing a negative investment capital outflow.)
But the real danger lies in the dollar’s role as the world’s reserve currency. This is the legacy of our hugely productive economy during and after World War II when we played the role of world leadership. “At the Bretton Woods Conference of 1944, the major western powers turned over responsibility for maintaining a stable world currency to the United States,” says Lewis Lehrman, the long-time advocate of the gold standard. “Unfortunately, it’s a responsibility that we haven’t fulfilled.”
Until 1971, the dollar was pegged to gold at $35 an ounce. But with inflation raging and gold flying out of Fort Knox, President Nixon renounced the exchange rate and said that the dollar would float against other currencies. “Since 1971 we’ve been living in an era of inconvertible paper currency,” says Lehrman. Gold now sells at $1300 an ounce, a 2000 percent depreciation since 1971.
So what “quantitative easing” really means is that we are dumping out domestic profligacy on the rest of the world. We go on running up debt and printing dollars and the rest of the world is forced to take them because, based on its former stability, the dollar still serves as the international means of exchange in 60 percent of world trade. There are now more $100 bills circulating abroad than at home. It’s the kind of situation that will go on until someone successfully challenges the dollar’s role as the world currency.
That challenge will almost certainly come from China.
As holders of $1.1 trillion in American debt, the Chinese are the principal victims of our inflationary policies. So far, however, there’s not much they can do about it. In 2009, as the American economy was collapsing, Chinese Prime Minister Wen Jiabao warned “We have lent a huge mount of money to the US. Of course, we are concerned about the safety of our assets. To be honest, I am definitely a little worried.” The Chinese can’t rock the boat too hard, however, without endangering their own assets. As the great swindler Billie Sol Estes once said, “When you owe someone $1000, you’re in debt. When you owe them $1 million, you’ve got yourself a partner.”
What the Chinese have been doing, however, is quietly building a financial infrastructure that would allow them and the rest of the world to free themselves from dependency on the dollar. They have suggested substituting promissory notes from the International Monetary Fund in world trade and struck deals with Russia and the OPEC nations to trade outside the dollar. They have established direct exchange of the yuan with Hong Kong, Taiwan and Singapore. Last spring Australia agreed to make its currencies directly convertible with the yuan and has since shifted 5 percent of its reserve holdings into yuan instead of dollars. The Chinese are negotiating a similar arrangement with New Zealand. And now they will be moving into London and the European market as well.
All this may seem very distant but it represents an historical shift that could come about very quickly. “We hear arguments that China has a long was to go before they could become a major international reserve currency but let’s not kid ourselves. The process is already underway and a lot further down the road than most people think,” says Stuart Oakley, head of foreign exchange trading at Nomura, a global investment bank in Singapore. Michael Pento, president of Pento Portfolio Strategies, who writes frequently for Huffington Post, adds: “The No. 1 security issue we have as a nation is the preservation of the U.S. dollar as the world’s reserve currency. It’s a thousand times more important than a nuclear bomb being tested by North Korea. Yet we are doing everything to abuse that status.”
At any one time, up to 35 percent of the dollar’s value comes from its role in international trade. This is what differentiates us from Japan, which may have twice our national debt but does not have the same exposure in international markets. If the dollar were to be toppled from its role as the world’s reserve currency, it would set off a run on the dollar in which every American could lose up to a third of his net worth.
At that point, people might start paying attention to what the Tea Party is saying.
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Already posted by me on this thread on Oct 23 :lol: with additional comments too , , ,
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Already posted by me on this thread on Oct 23 :lol: with additional comments too , , ,
Doh!
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The Consumer Price Index (CPI) Increased 0.2% in September To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 10/30/2013
The Consumer Price Index (CPI) increased 0.2% in September, exactly as the consensus expected. The CPI is up 1.2% versus a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) increased 0.2% in September and is up 0.9% in the past year.
The gain in the CPI in September was led by energy and rent. Energy rose 0.8%, while rent (including homeowners’ equivalent rent) rose 0.2%. Food prices were unchanged. The “core” CPI, which excludes food and energy, was up 0.1% in September, slightly below the consensus expected rise of 0.2%. Core prices are up 1.7% versus a year ago.
Real average hourly earnings – the cash earnings of all employees, adjusted for inflation – were flat in September, and are up 0.9% in the past year. Real weekly earnings are also up 0.9% in the past year.
Implications: The Federal Reserve is comfortable with today’s inflation report. Consumer prices rose a consensus expected 0.2% overall and only 0.1% excluding food and energy. Energy and rent led the gains. Compared to a year ago, overall consumer prices are up 1.2% while core prices are up 1.7%. Neither of these figures sets off alarm bells. Instead, they suggest the Fed’s preferred measure of inflation, the PCE deflator (which usually runs a ¼ point below the overall CPI) will remain below the Fed’s target of 2%. We don’t expect this to last. Inflation bottomed in April when it was up only 1.1% from the prior year, and we expect it will be noticeably higher a year from now. Recent figures underscore a slight acceleration in inflation, with the overall CPI up at a 1.7% annual rate in the past three months. However, for the Fed, the key measure of inflation is its own forecast of future inflation. So, even if inflation moves higher, as long as the Fed projects the rise to be temporary it will not react to that inflation alone by raising short-term interest rates. The Fed is more focused on the labor market and, we believe, is willing to let inflation exceed its long-term target of 2% for a prolonged period of time in order to get the unemployment rate down. In other news this morning, the ADP Employment index, which measures private-sector payrolls, was up 130,000 in October. As a result, our models for the official report (out Friday November 8) now forecast payroll gains of 90,000 nonfarm and 135,000 private. Not bad at all considering the partial government shutdown during the survey period. We expect payroll gains to rebound sharply in November.
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http://www.nytimes.com/2013/10/31/technology/bitcoin-pursues-the-mainstream.html?nl=todaysheadlines&emc=edit_th_20131031
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Anyone out there want to point out which article or amendment in the constitution authorizes the federal government to 'buy up' $1.25 trillion in 'mortgage backed securities' as a way of injecting purely inflationary money into the system in an attempt to 'stimulate' business and consumption in the economy? Good God, what have we become?
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http://online.wsj.com/news/articles/SB10001424052702303763804579183680751473884?mod=WSJ_Opinion_LEADTop
I can only say: I'm sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed's first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I've come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time.
Five years ago this month, on Black Friday, the Fed launched an unprecedented shopping spree. By that point in the financial crisis, Congress had already passed legislation, the Troubled Asset Relief Program, to halt the U.S. banking system's free fall. Beyond Wall Street, though, the economic pain was still soaring. In the last three months of 2008 alone, almost two million Americans would lose their jobs.
The Fed said it wanted to help—through a new program of massive bond purchases. There were secondary goals, but Chairman Ben Bernanke made clear that the Fed's central motivation was to "affect credit conditions for households and businesses": to drive down the cost of credit so that more Americans hurting from the tanking economy could use it to weather the downturn. For this reason, he originally called the initiative "credit easing."
My part of the story began a few months later. Having been at the Fed for seven years, until early 2008, I was working on Wall Street in spring 2009 when I got an unexpected phone call. Would I come back to work on the Fed's trading floor? The job: managing what was at the heart of QE's bond-buying spree—a wild attempt to buy $1.25 trillion in mortgage bonds in 12 months. Incredibly, the Fed was calling to ask if I wanted to quarterback the largest economic stimulus in U.S. history.
This was a dream job, but I hesitated. And it wasn't just nervousness about taking on such responsibility. I had left the Fed out of frustration, having witnessed the institution deferring more and more to Wall Street. Independence is at the heart of any central bank's credibility, and I had come to believe that the Fed's independence was eroding. Senior Fed officials, though, were publicly acknowledging mistakes and several of those officials emphasized to me how committed they were to a major Wall Street revamp. I could also see that they desperately needed reinforcements. I took a leap of faith.
In its almost 100-year history, the Fed had never bought one mortgage bond. Now my program was buying so many each day through active, unscripted trading that we constantly risked driving bond prices too high and crashing global confidence in key financial markets. We were working feverishly to preserve the impression that the Fed knew what it was doing.
It wasn't long before my old doubts resurfaced. Despite the Fed's rhetoric, my program wasn't helping to make credit any more accessible for the average American. The banks were only issuing fewer and fewer loans. More insidiously, whatever credit they were extending wasn't getting much cheaper. QE may have been driving down the wholesale cost for banks to make loans, but Wall Street was pocketing most of the extra cash.
From the trenches, several other Fed managers also began voicing the concern that QE wasn't working as planned. Our warnings fell on deaf ears. In the past, Fed leaders—even if they ultimately erred—would have worried obsessively about the costs versus the benefits of any major initiative. Now the only obsession seemed to be with the newest survey of financial-market expectations or the latest in-person feedback from Wall Street's leading bankers and hedge-fund managers. Sorry, U.S. taxpayer.
Trading for the first round of QE ended on March 31, 2010. The final results confirmed that, while there had been only trivial relief for Main Street, the U.S. central bank's bond purchases had been an absolute coup for Wall Street. The banks hadn't just benefited from the lower cost of making loans. They'd also enjoyed huge capital gains on the rising values of their securities holdings and fat commissions from brokering most of the Fed's QE transactions. Wall Street had experienced its most profitable year ever in 2009, and 2010 was starting off in much the same way.
You'd think the Fed would have finally stopped to question the wisdom of QE. Think again. Only a few months later—after a 14% drop in the U.S. stock market and renewed weakening in the banking sector—the Fed announced a new round of bond buying: QE2. Germany's finance minister, Wolfgang Schäuble, immediately called the decision "clueless."
That was when I realized the Fed had lost any remaining ability to think independently from Wall Street. Demoralized, I returned to the private sector.
Where are we today? The Fed keeps buying roughly $85 billion in bonds a month, chronically delaying so much as a minor QE taper. Over five years, its bond purchases have come to more than $4 trillion. Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.
And the impact? Even by the Fed's sunniest calculations, aggressive QE over five years has generated only a few percentage points of U.S. growth. By contrast, experts outside the Fed, such as Mohammed El Erian at the Pimco investment firm, suggest that the Fed may have created and spent over $4 trillion for a total return of as little as 0.25% of GDP (i.e., a mere $40 billion bump in U.S. economic output). Both of those estimates indicate that QE isn't really working.
Unless you're Wall Street. Having racked up hundreds of billions of dollars in opaque Fed subsidies, U.S. banks have seen their collective stock price triple since March 2009. The biggest ones have only become more of a cartel: 0.2% of them now control more than 70% of the U.S. bank assets.
As for the rest of America, good luck. Because QE was relentlessly pumping money into the financial markets during the past five years, it killed the urgency for Washington to confront a real crisis: that of a structurally unsound U.S. economy. Yes, those financial markets have rallied spectacularly, breathing much-needed life back into 401(k)s, but for how long? Experts like Larry Fink at the BlackRock investment firm are suggesting that conditions are again "bubble-like." Meanwhile, the country remains overly dependent on Wall Street to drive economic growth.
Even when acknowledging QE's shortcomings, Chairman Bernanke argues that some action by the Fed is better than none (a position that his likely successor, Fed Vice Chairwoman Janet Yellen, also embraces). The implication is that the Fed is dutifully compensating for the rest of Washington's dysfunction. But the Fed is at the center of that dysfunction. Case in point: It has allowed QE to become Wall Street's new "too big to fail" policy.
Mr. Huszar, a senior fellow at Rutgers Business School, is a former Morgan Stanley managing director. In 2009-10, he managed the Federal Reserve's $1.25 trillion agency mortgage-backed security purchase program.
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Excellent post Doug, I hope lots of people get to see that.
Here's the WSJ on budget numbers http://online.wsj.com/news/articles/SB10001424052702303460004579190043997395918?mod=Opinion_newsreel_4
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Here's the WSJ on budget numbers http://online.wsj.com/news/articles/SB10001424052702303460004579190043997395918?mod=Opinion_newsreel_4
From the chart:
Year 2013, Revenues 2,774(B), Outlays 3,454, Deficit 680, Deficit % of GDP: 4.1%
For all the hoopla over budget improvement, deficit % of GDP is still 30% worse than 2008. Under this likely-to-be-temporary spending sequester in the last fiscal year before Obamcare, and taxing at the highest tax rates in recent memory, we are still spending 25% above and beyond what we take in! What could possibly go wrong?
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Continuing this morning's conversation:
Monday Morning Outlook
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Taper Talk To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Dep. Chief Economist
Date: 11/11/2013
Tapering…please bring it on. We wanted it yesterday, or last month, or even years ago. We never thought QE helped the economy and certainly don’t think keeping it around is a good idea. It’s created uncertainty at an unprecedented level.
But, we aren’t holding our breath waiting for the Fed to change course. Despite better data on the economy, the Fed will take its sweet time, possibly waiting until March before slowing the pace of “quantitative easing,” the monthly purchase of $85 billion in long-term securities. With Vice-Chair Janet Yellen on tap for the top spot at the Fed and more potential budget fights looming in January/February, it’s hard to imagine the Fed rushing to do something that might spook the markets.
However, in addition to Yellen’s promotion, another change is afoot at the central bank that dovetails (pun intended) well with her ascent. A recent study by Fed staffers says monetary policy would be more effective at boosting economic growth if policymakers signaled their intentions by using the unemployment rate as the trigger for rate hikes.
At present, the Fed says as long as its own forecast of inflation stays below 2.5% it won’t even consider rate hikes until the unemployment rate hits 6.5%. But the new paper suggests the Fed would get more economic bang for the buck from this forward commitment if it cut the jobless threshold to 5.5% instead. The theory is that by committing to a longer time period for a zero federal funds rate, the Fed could hold long-term interest rates down, which would stimulate the economy.
In other words, the new study has given the Fed a way to move forward with tapering and, in its own view, loosen monetary policy at the same time.
The Fed is, in effect, admitting that quantitative easing was never the reason long-term interest rates fell in the first place. It wasn’t the amount or make-up of bonds the Fed was buying that mattered; instead, quantitative easing was just a tool the Fed could use to signal how long that short-term rates would stay at zero. The more securities the Fed would buy and the longer it committed to buying them, the longer it would take to end those purchases, which meant the longer it would be before the Fed finally got around to raising short-term rates.
And with long-term interest rates largely a function of expected short-term rates over the same time horizon, prolonging expectations of zero short term rates meant – violà – long-term rates fell and stayed down as well. Think about it. If you could guarantee that overnight interest rates would be zero for the next three years, the yield on the 3-year Treasury would be very close to zero as well.
The problem with all this new chatter about reducing the unemployment threshold is that it doesn’t adequately contemplate how policymakers a few years down the road will react, when the economy hits this lower threshold. The new Fed paper assumes a future Fed will move up short-term rates aggressively enough to prevent inflation from becoming a persistent problem. Inflation might stay above the 2% long-run goal for a little while, the theory goes, but the Fed would then wrestle it back down.
We’re more inclined to think that after tasting inflation above 2% for a couple of years the Fed will, due to either political pressure or an ideology it doesn’t want to fully reveal, look for excuses to accept a new long-run inflation target above 2%, and then above 2.5%, and then, maybe, at or above 3%.
We’re not saying the US is doomed to repeat the same exact mistakes of the 1970s with double-digit inflation. But a hallmark of that period was a never-ending stream of excuses for not stabilizing prices. The Fed has just found a new excuse and investors should plan accordingly. The days of 1% inflation are nearing an end. Look out above.
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http://english.caixin.com/2013-11-06/100600037.html
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Scott Grannis comments:
"This sounds like a gutsy/crazy move. Selling yuan bonds is equivalent to shorting the yuan, which has been appreciating almost continuously against every currency on the planet, though much less against the CAD than against the US dollar. However, the CAD is close to an all-time high against the US dollar, and seems very unlikely to appreciate further. CAD could decline against US as US declines against CNY. Not an obvious strategy to pursue in my book. Better to buy those bonds than sell them"
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The Producer Price Index (PPI) Declined 0.2% in October To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 11/21/2013
The Producer Price Index (PPI) declined 0.2% in October, matching consensus expectations. Producer prices are up 0.3% versus a year ago.
The decline in the overall PPI was due to energy, which dropped 1.5%. Food prices increased 0.8%. The “core” PPI, which excludes food and energy, rose 0.2% in October.
Consumer goods prices declined 0.2% in October while capital equipment prices rose 0.1%. In the past year, consumer goods prices are up 0.1% while capital equipment prices are up 1.0%.
Core intermediate goods prices declined 0.1% in October but are up 0.8% versus a year ago. Core crude prices declined 0.5% in October, and are down 5.1% versus a year ago.
Implications: The wait for higher inflation continues. Overall producer prices declined 0.2% in October, led by a 1.5% drop in energy costs, which more than offset a 0.8% gain in food prices and a 0.2% increase in “core” prices, which exclude food and energy. Producer prices are up only 0.3% in the past year. “Core” producer prices are up 1.4% from a year ago, faster than the overall gain but not fast by the standards of the past several decades. As a result, some analysts still say the Federal Reserve has room to continue quantitative easing at the current pace of $85 billion per month. We think this would be a mistake. The problems that ail the economy are fiscal and regulatory in nature; continuing to add more excess reserves to the banking system is not going to boost economic growth, but, for the time being, it won’t lift inflation either. In other news this morning, initial claims for unemployment insurance fell 21,000 last week to 323,000. Continuing claims increased 66,000 to 2.87 million. However, the gain in continuing claims follows a drop of 64,000 the prior week, so the most recent gain just returned claims to around the level from two weeks before. Plugging these figures into our payroll models, we’re now forecasting November payroll gains of 153,000, both nonfarm and private. On the manufacturing front, the Philly Fed index, a measure of factory sentiment in that region, slowed to a still positive +6.5 in November from +19.8 in October. The index has remained positive for six consecutive months, signaling continued expansion in the manufacturing sector.
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http://www.cnbc.com/id/101222045
Fed's Tarullo details plans to counter bank runs
Published: Friday, 22 Nov 2013 | 3:58 PM ET
Federal Reserve Board Governor Daniel Tarullo.
Global regulators need more policy tools to counter the risk of devastating bank runs and should have powers over a wide array of market participants, U.S. Federal Reserve Governor Dan Tarullo said on Friday.
"There is a need to supplement prudential bank regulation with a third set of policy options in the form of regulatory tools that can be applied on a market-wide basis," Tarullo said at a conference on shadow banking.
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From $140 to $1000
http://blogs.wsj.com/moneybeat/2013/11/27/what-bubble-bitcoin-tops-1000/
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second post:
Although the author obviously has not read Scott Grannis, nonetheless the fact of the Chinese action need be noted and pondered.
http://www.conservativeactionalerts.com/2013/11/china-announces-that-it-is-going-to-stop-stockpiling-u-s-dollars/
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The world is waking up to the sad reality that we are going to spend until collapse.
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I shared the piece of my previous post with Scott Grannis, who commented as follows:
"Obviously this guy doesn't know much about international finance and trade theory. What's going on in China represents no threat to the U.S. or to the dollar. The announcement referenced here is not new news, and it only means that China is going to step up its purchases of U.S. goods and services. And by the way, our federal deficit has been plunging, so if China buys less of our debt it's hardly a problem. The problem would be if they wanted to buy more. I'm inspired to write this up more formally as a post. More to come, probably after Thanksgiving."
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http://blogs.computerworld.com/cybercrime-and-hacking/23217/huge-bitcoin-heist-black-market-drug-shop-sheep-marketplace-poofs-40-million
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Fed Moves Toward New Tool for Setting Rates
'Reverse Repo' Program Could Be Critical to Fending Off Inflation
By Victoria McGrane and Jon Hilsenrath
WSJ
Dec. 11, 2013 3:31 p.m. ET
An experimental bond-trading program being run at the Federal Reserve Bank of New York could fundamentally change the way the central bank sets interest rates.
Fed officials see the program, known as a "reverse repo" facility, as a potentially critical tool when they want to raise short-term rates in the future to fend off broader threats to the economy. Of particular concern for the Fed is finding a way to contain inflation once the trillions of dollars it has sent into the financial system get put to use as loans.
Like the plumbing beneath the floorboards in a home, this program is unseen by most investors and it isn't part of the Fed's current efforts to spur growth. Launched this year, it is still in a testing stage and isn't expected to be fully implemented for years.
Under this system, the Fed would raise short-term interest rates by borrowing in the future against its large and growing securities portfolio.
The Fed traditionally has managed short-term interest rates by shifting its benchmark federal-funds rate, an overnight intrabank rate. It did this by controlling how much money flowed into and out of the banking system on a daily basis. Small adjustments could significantly impact short-term rates. Since the Fed has pumped $2.5 trillion into the economy by purchasing bonds, the old system won't work unless the central bank pulls much of this money out. Instead, what Fed officials increasingly envision is a system in which it would tie up this money as needed by offering investors and banks interest on their funds.
The stakes are enormous. Right now banks aren't lending this money aggressively. But as the economy expands and lending picks up, the Fed will need to tie up the money to ensure it doesn't cause the economy or financial markets to overheat.
"The Federal Reserve has never tightened monetary policy, or even tried to maintain short-term interest rates significantly above zero, with such abundant amounts of liquidity in the financial system," according to a draft of a new research paper by Brian Sack, the former head of the New York Fed's markets group, and Joseph Gagnon, an economist at the Peterson Institute for International Economics and a former Fed economist.
Short-term rates—which serve as a benchmark for long-term rates for mortgages, car loans and other borrowing—are now near zero and the Fed doesn't plan to raise them for a couple of years. In normal times, the Fed cuts short-term rates to spur growth and raises them when it wants to slow growth.
When it does want to raise rates, the Fed under the repo program would use securities it accumulated through its bond-buying programs as collateral for loans from money-market mutual funds, banks, securities dealers, government-sponsored enterprises and others.
The rates it sets on these loans, in theory, could become a new benchmark for global credit markets.
The head of the New York Fed's markets group, Simon Potter, in a speech at New York University this month, described the new program as "a promising new technical advance."
Some market observers are going a step further and arguing that the Fed should abandon the fed-funds rate as its main lever for managing a broad spectrum of rates in the financial system.
Mr. Sack is among them. In his draft paper with Mr. Gagnon, they say the reverse-repo program should become a linchpin for the way the Fed manages interest rates in the future.
Mr. Sack, who is now co-director of global economics at the hedge fund D.E. Shaw, and Mr. Gagnon argue the Fed should discard its effort to target the fed-funds rate and instead use these repo trades as a primary way of guiding the borrowing rates that ripple through the economy.
The paper is notable because Mr. Sack, during his tenure at the New York Fed from 2009 to 2012, led the central bank's effort to find new ways to manage short-term interest rates.
Barclays analyst Joseph Abate said the repo program appears to have set a floor under short-term lending rates even during the small-scale tests. The general-collateral rate—the borrowing rate for the most common type of repo—has recently settled at about 0.10%, about 0.05% above the fixed rate the Fed has set for the repo facility and about 0.05% higher than it was earlier in the fall before the tests were launched.
Mr. Abate also said the Fed should abandon its fed funds target and stick with this program.
"The Fed has a very powerful tool on its hands," he said.
Without new tools like the repo facility, the Fed might not be able to control interest rates or it might be forced to take financially destabilizing steps such as selling the securities in its portfolio in a hurry.
The idea for the repo program bubbled up from the New York Fed's market group in part because another tool wasn't working well. Officials had seen a program known inside the Fed as IOER, for "interest on excess reserves," as the main avenue for managing short-term rates amid the flood of money in the system. Under this program, the Fed pays banks 0.25% for cash they keep at the central bank. In theory, when the Fed wants to raise short-term rates, it would raise this interest rate. Rather than lend out money, banks should want to keep it with the Fed.
In reality, the IOER program hasn't worked well, in part because some big market players including Fannie Mae and Freddie Mac can't participate. The fed funds rate has hovered well below the Fed's 0.25% floor for years. That isn't a problem now because the Fed wants to hold rates very low, but it raises concerns that the central bank won't have tight control of rates when the time comes to raise them.
The reverse-repo program extends the Fed's reach beyond traditional banks to Fannie, Freddie and others, and in theory should give the central bank more control over interest rates. Mr. Sack and Mr. Gagnon say the Fed should use the IOER program in conjunction with the reverse-repo program to set rates.
The Fed has been testing the repo program with 139 different counterparties in the past few months, including 94 money-market funds, and setting an interest rate of 0.05%.
"By reaching financial institutions that are ineligible to earn [interest on excess reserves]…the facility widens the universe of counterparties that should generally be unwilling to lend at rates below those rates available through the central bank," Mr. Potter said in his speech.
Write to Victoria McGrane at victoria.mcgrane@wsj.com and Jon Hilsenrath at jon.hilsenrath@wsj.com
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Alan Greenspan, who couldn't speak intelligibly, can't write either.
He was chief economist to Gerald Ford from 1974 to 1977, perhaps our most economically illiterate Republican President. Reagan chose him to head the Fed for the independent reputation he earned being a skeptic of Reaganomics. (Most Dems believe Reagan was senile by 1987.)
http://www.nytimes.com/2013/11/17/books/review/alan-greenspans-map-and-the-territory.html?smid=pl-share
"It [Greenspan's new book] suffers in trying to appeal to two audiences. One audience is the professional economists. The book contains dozens of graphs and tables of regression analysis, together with t-statistics calculated with the appropriate Newey-West heteroskedasticity and autocorrelation consistent standard errors. (Don’t ask.) But Greenspan is also writing for lay readers who want to hear from this famous man about how the economy works. For their sake, most of those graphs and tables are put in an appendix, where they can be safely ignored. In trying to reach two audiences, the book does not quite reach either. Economists can learn a lot from it, but they will recognize that many of the arguments would have trouble passing scrutiny in peer-reviewed journals. "
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A good read on excess reserves (of $2.5 trillion!) and what the Fed will eventually have to do to control their use:
Friday, December 13, 2013
Why Interest Rates Will Eventually Explode to the Ups
http://www.economicpolicyjournal.com/2013/12/why-interest-rates-will-eventually.html
...now you are being warned about the incredible boom in interest rates that is coming because the Fed is going to have to attempt, at some point, to manage these excess reserves once they start leaving the Fed.
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How Much Does that Burger Cost in Bitcoins?
The digital scrip doesn't meet the requirements to be a real currency.
By Brian Wesbury
Dec. 15, 2013 6:33 p.m. ET
In the 1930s, when the Federal Reserve let the money supply contract, there was a true shortage of currency. At least 150 communities experimented with scrip—printing their own money to grease the wheels of commerce. None worked, and all have disappeared.
Today, because of worries about the Fed printing too much money, a private online global scrip, called Bitcoin, has been created. This scrip is supposed to protect society from inflationary monetary policy.
Could Bitcoins become an alternative to the money or monies that exist across the globe? One of the biggest investors in Bitcoins thinks so. The Winklevoss twins, of Facebook FB +0.62% fame, think the market for Bitcoins could increase 100-fold to more than $400 billion. And a Costa Mesa, Calif., luxury car dealer is reportedly selling cars, including a Tesla S and a Lamborghini Gallardo, for Bitcoins.
Bitcoins are "mined" by running a computer algorithm, creating a digitized code. That code can then be used to complete online transactions. The algorithm makes it progressively harder to mine Bitcoins as the total number increases. Preset limits supposedly cap the maximum number of Bitcoins at 21 million, and right now there are roughly 12 million in existence. Rising hope of wider acceptance drove the price of a Bitcoin to more than $1,200 a few weeks ago. But when Baidu.com, BIDU -0.30% the Chinese web services company, said it would not accept the scrip, the price fell sharply and it currently trades near $900.
Bitcoins meet most of the criteria of money. They are a medium of exchange, a unit of account, a store of value and a standard of deferred payment. But what ultimately gives money value is that it is accepted by others in trade for something of value. And that is why scrip doesn't work.
Let's say a barber in a Wisconsin town accepts scrip for haircuts and uses it to eat at a local restaurant that buys its produce from a local farmer. As long as each of these businesses kept all their purchases in the community, all would be well. But why would a scissor manufacturer in Germany or China or even Chicago accept this scrip? The car dealer in California, for example, is not actually accepting Bitcoins for his vehicles—they first have to be converted to U.S. dollars.
To become a true alternative currency, Bitcoins need to be accepted in a wide enough swath of society to facilitate the normal transaction of business. If they aren't, they will always trade at a discount to their potential value.
Right now, total cash and deposits in the U.S. banking system (the M2 money supply), is roughly $11 trillion. Assuming 21 million Bitcoins are mined and they become an accepted currency, each one could be worth as much as $524,000. This is a massive potential appreciation from their current level.
However, the list of companies that accept Bitcoin as payment for actual transactions make up what I estimate to be less than one-hundredth of a percent of all spending, or GDP. Since money gets its value from the goods, services and assets that it can purchase, a Bitcoin is currently worth only 0.01% of its true potential, or about $52.40.
Bitcoins require storage space (in a computer), power to run the computer (electricity), security (from hacking), and computational power (serious encryption) on both sides of a transaction. There are firms that act as middlemen in Bitcoin transactions, and firms that make a market in Bitcoins, but they are new and have no serious financial track record. Many Bitcoin transactions facilitate illegal commerce. The Bitcoin world is not friction-free, or clean.
And is it really true that no more than 21 million Bitcoins can be produced? Hackers keep getting better, and the temptation to expand the supply of money has been powerful (and profitable, for the issuer) since the time of the Romans. These costs and questions all impact the value of a Bitcoin substantially.
To become a real alternative currency, Bitcoins must be recognized by a majority of businesses and consumers. They must be as safe, or safer, than currency issued by a central bank. And they must be transportable. Currently, the Bitcoin does not meet any of these requirements, and this is why it is trading for much less than its actual convertible U.S. dollar value.
If you believe Bitcoin in time will become an alternative to the world's currencies, there are huge potential profits as the value of a Bitcoin rises to $524,000—or higher if drug dealers and other nefarious users are willing to pay a premium for anonymity.
But to be truly successful, Bitcoins have to win the battle of money on all levels of competition and that is a very high hurdle to clear.
Mr. Wesbury is chief economist at First Trust Advisors LP.
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Tricky Dog, who is a very bright fellow and has been following bitcoin comments:
Marc - he makes a few salient points but he is vague on the prospects or the details. Moreover, he does not seem to understand BitCoin (asking if only 21 million can be produced - it is an algorithm, not a choice). And it was not "created" due to any concerns about the Fed printing too much money. It was created to eliminate central authorities all together.
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What's to stop an executive order banning bitcoin use in the US?
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http://theeconomiccollapseblog.com/archives/83-numbers-from-2013-that-are-almost-too-crazy-to-believe
83 Numbers From 2013 That Are Almost Too Crazy To Believe
By Michael Snyder, on December 16th, 2013
During 2013, America continued to steadily march down a self-destructive path toward oblivion. As a society, our debt levels are completely and totally out of control. Our financial system has been transformed into the largest casino on the entire planet and our big banks are behaving even more recklessly than they did just before the last financial crisis. We continue to see thousands of businesses and millions of jobs get shipped out of the United States, and the middle class is being absolutely eviscerated. Due to the lack of decent jobs, poverty is absolutely exploding. Government dependence is at an all-time high and crime is rising. Evidence of social and moral decay is seemingly everywhere, and our government appears to be going insane. If we are going to have any hope of solving these problems, the American people need to take a long, hard look in the mirror and finally admit how bad things have actually become. If we all just blindly have faith that "everything is going to be okay", the consequences of decades of incredibly foolish decisions are going to absolutely blindside us and we will be absolutely devastated by the great crisis that is rapidly approaching. The United States is in a massive amount of trouble, and it is time that we all started facing the truth. The following are 83 numbers from 2013 that are almost too crazy to believe...
#1 Most people that hear this statistic do not believe that it is actually true, but right now an all-time record 102 million working age Americans do not have a job. That number has risen by about 27 million since the year 2000.
#2 Because of the lack of jobs, poverty is spreading like wildfire in the United States. According to the most recent numbers from the U.S. Census Bureau, an all-time record 49.2 percent of all Americans are receiving benefits from at least one government program each month.
#3 As society breaks down, the government feels a greater need than ever before to watch, monitor and track the population. For example, every single day the NSA intercepts and permanently stores close to 2 billion emails and phone calls in addition to a whole host of other data.
#4 The Bank for International Settlements says that total public and private debt levels around the globe are now 30 percent higher than they were back during the financial crisis of 2008.
#5 According to a recent World Bank report, private domestic debt in China has grown from 9 trillion dollars in 2008 to 23 trillion dollars today.
#6 In 1985, there were more than 18,000 banks in the United States. Today, there are only 6,891 left.
#7 The six largest banks in the United States (JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley) have collectively gotten 37 percent larger over the past five years.
#8 The U.S. banking system has 14.4 trillion dollars in total assets. The six largest banks now account for 67 percent of those assets and all of the other banks account for only 33 percent of those assets.
#9 JPMorgan Chase is roughly the size of the entire British economy.
#10 The five largest banks now account for 42 percent of all loans in the United States.
#11 Right now, four of the "too big to fail" banks each have total exposure to derivatives that is well in excess of 40 trillion dollars.
#12 The total exposure that Goldman Sachs has to derivatives contracts is more than 381 times greater than their total assets.
#13 According to the Bank for International Settlements, the global financial system has a total of 441 trillion dollars worth of exposure to interest rate derivatives.
#14 Through the end of November, approximately 365,000 Americans had signed up for Obamacare but approximately 4 million Americans had already lost their current health insurance policies because of Obamacare.
#15 It is being projected that up to 100 million more Americans could have their health insurance policies canceled by the time Obamacare is fully rolled out.
#16 At this point, 82.4 million Americans live in a home where at least one person is enrolled in the Medicaid program.
#17 It is has been estimated that Obamacare will add 21 million more Americans to the Medicaid rolls.
#18 It is being projected that health insurance premiums for healthy 30-year-old men will rise by an average of 260 percent under Obamacare.
#19 One couple down in Texas received a letter from their health insurance company that informed them that they were being hit with a 539 percent rate increase because of Obamacare.
#20 Back in 1999, 64.1 percent of all Americans were covered by employment-based health insurance. Today, only 54.9 percent of all Americans are covered by employment-based health insurance.
#21 The U.S. government has spent an astounding 3.7 trillion dollars on welfare programs over the past five years.
#22 Incredibly, 74 percent of all the wealth in the United States is owned by the wealthiest 10 percent of all Americans.
#23 According to Consumer Reports, the number of children in the United States taking antipsychotic drugs has nearly tripled over the past 15 years.
#24 The marriage rate in the United States has fallen to an all-time low. Right now it is sitting at a yearly rate of just 6.8 marriages per 1000 people.
#25 According to a shocking new study, the average American that turned 65 this year will receive $327,500 more in federal benefits than they paid in taxes over the course of their lifetimes.
#26 In just one week in December, a combined total of more than 2000 new cold temperature and snowfall records were set in the United States.
#27 According to the U.S. Census Bureau, median household income in the United States has fallen for five years in a row.
#28 The rate of homeownership in the United States has fallen for eight years in a row.
#29 Only 47 percent of all adults in America have a full-time job at this point.
#30 The unemployment rate in the eurozone recently hit a new all-time high of 12.2 percent.
#31 If you assume that the labor force participation rate in the U.S. is at the long-term average, the unemployment rate in the United States would actually be 11.5 percent instead of 7 percent.
#32 In November 2000, 64.3 percent of all working age Americans had a job. When Barack Obama first entered the White House, 60.6 percent of all working age Americans had a job. Today, only 58.6 percent of all working age Americans have a job.
#33 There are 1,148,000 fewer Americans working today than there was in November 2006. Meanwhile, our population has grown by more than 16 million people during that time frame.
#34 Only 19 percent of all Americans believe that the job market is better than it was a year ago.
#35 Just 14 percent of all Americans believe that the stock market will rise next year.
#36 According to CNBC, Pinterest is currently valued at more than 3 billion dollars even though it has never earned a profit.
#37 Twitter is a seven-year-old company that has never made a profit. It actually lost 64.6 million dollars last quarter. But according to the financial markets it is currently worth about 22 billion dollars.
#38 Right now, Facebook is trading at a valuation that is equivalent to approximately 100 years of earnings, and it is currently supposedly worth about 115 billion dollars.
#39 Total consumer credit has risen by a whopping 22 percent over the past three years.
#40 Student loans are up by an astounding 61 percent over the past three years.
#41 At this moment, there are 6 million Americans in the 16 to 24-year-old age group that are neither in school or working.
#42 The "inactivity rate" for men in their prime working years (25 to 54) has just hit a brand new all-time record high.
#43 It is hard to believe, but in America today one out of every ten jobs is now filled by a temp agency.
#44 Middle-wage jobs accounted for 60 percent of the jobs lost during the last recession, but they have accounted for only 22 percent of the jobs created since then.
#45 According to the Social Security Administration, 40 percent of all U.S. workers make less than $20,000 a year.
#46 Approximately one out of every four part-time workers in America is living below the poverty line.
#47 After accounting for inflation, 40 percent of all U.S. workers are making less than what a full-time minimum wage worker made back in 1968.
#48 When Barack Obama took office, the average duration of unemployment in this country was 19.8 weeks. Today, it is 37.2 weeks.
#49 Investors pulled an astounding 72 billion dollars out of bond mutual funds in 2013. It was the worst year for bond funds ever.
#50 Small business is rapidly dying in America. At this point, only about 7 percent of all non-farm workers in the United States are self-employed. That is an all-time record low.
#51 The six heirs of Wal-Mart founder Sam Walton have as much wealth as the bottom one-third of all Americans combined.
#52 Once January 1st hits, it will officially be illegal to manufacture or import traditional incandescent light bulbs in the United States. It is being projected that millions of Americans will attempt to stock up on the old light bulbs before they are totally gone from store shelves.
#53 The Japanese government has estimated that approximately 300 tons of highly radioactive water is being released into the Pacific Ocean from the destroyed Fukushima nuclear facility every single day.
#54 Back in 1967, the U.S. military had more than 31,000 strategic nuclear warheads. That number is already being cut down to 1,550, and now Barack Obama wants to reduce it to only about 1,000.
#55 As you read this, 60 percent of all children in Detroit are living in poverty and there are approximately 78,000 abandoned homes in the city.
#56 Wal-Mart recently opened up two new stores in Washington D.C., and more than 23,000 people applied for just 600 positions. That means that only about 2.6 percent of the applicants were ultimately hired. In comparison, Harvard offers admission to 6.1 percent of their applicants.
#57 At this point, almost half of all public school students in America come from low income homes.
#58 Tragically, there are 1.2 million students that attend public schools in the United States that are homeless. That number has risen by 72 percent since the start of the last recession.
#59 According to a Gallup poll that was recently released, 20.0 percent of all Americans did not have enough money to buy food that they or their families needed at some point over the past year. That is just under the all-time record of 20.4 percent that was set back in November 2008.
#60 The number of Americans on food stamps has grown from 17 million in the year 2000 to more than 47 million today.
#61 Right now, one out of every five households in the United States is on food stamps.
#62 The U.S. economy loses approximately 9,000 jobs for every 1 billion dollars of goods that are imported from overseas.
#63 Back in 1950, more than 80 percent of all men in the United States had jobs. Today, less than 65 percent of all men in the United States have jobs.
#64 According to one survey, approximately 75 percent of all American women do not have any interest in dating unemployed men.
#65 China exports 4 billion pounds of food to the United States every year.
#66 Overall, the United States has run a trade deficit of more than 8 trillion dollars with the rest of the world since 1975.
#67 The number of Americans on Social Security Disability now exceeds the entire population of Greece, and the number of Americans on food stamps now exceeds the entire population of Spain.
#68 It is being projected that the number of Americans on Social Security will rise from 57 million today to more than 100 million in 25 years.
#69 Back in 1970, the total amount of debt in the United States (government debt + business debt + consumer debt, etc.) was less than 2 trillion dollars. Today it is over 56 trillion dollars.
#70 Back on September 30th, 2012 our national debt was sitting at a total of 16.1 trillion dollars. Today, it is up to 17.2 trillion dollars.
#71 The U.S. government "rolled over" more than 7.5 trillion dollars of existing debt in fiscal 2013.
#72 If the U.S. national debt was reduced to a stack of one dollar bills it would circle the earth at the equator 45 times.
#73 When Barack Obama was first elected, the U.S. debt to GDP ratio was under 70 percent. Today, it is up to 101 percent.
#74 The U.S. national debt is on pace to more than double during the eight years of the Obama administration. In other words, under Barack Obama the U.S. government will accumulate more debt than it did under all of the other presidents in U.S. history combined.
#75 The federal government is borrowing (stealing) roughly 100 million dollars from our children and our grandchildren every single hour of every single day.
#76 At this point, the U.S. already has more government debt per capita than Greece, Portugal, Italy, Ireland or Spain.
#77 Japan now has a debt to GDP ratio of more than 211 percent.
#78 As of December 5th, 83 volcanic eruptions had been recorded around the planet so far this year. That is a new all-time record high.
#79 53 percent of all Americans do not have a 3 day supply of nonperishable food and water in their homes.
#80 Violent crime in the United States was up 15 percent last year.
#81 According to a very surprising survey that was recently conducted, 68 percent of all Americans believe that the country is currently on the wrong track.
#82 Back in 1972, 46 percent of all Americans believed that "most people can be trusted". Today, only 32 percent of all Americans believe that "most people can be trusted".
#83 According to a recent Pew Research survey, only 19 percent of all Americans trust the government. Back in 1958, 73 percent of all Americans trusted the government.
So do you have any numbers from 2013 that you would add to this list? If so, please feel free to share them by posting a comment below...
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From the front page of today's WSJ, some serious questions are presented:
a) We here have vociferously predicted inflation. Why have we been so wrong?
b) What the hell is wrong with deflation?
c) How did this piece wind up on the front page of the WSJ?
Low Inflation Tests World's Central Banks
Subdued Prices Persist Despite Years of Easy Money; Deflation Still a Threat
By Sudeep Reddy in Washington,
Brian Blackstone in Frankfurt and
Jason Douglas in London
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Updated Dec. 17, 2013 7:28 p.m. ET
Inflation is slowing across the developed world despite ultralow interest rates and unprecedented money-printing campaigns, posing a dilemma for the Federal Reserve and other major central banks as they plot their next policy moves.
U.S. consumer prices rose just 1.2% in November from a year earlier, according to Labor Department data released Tuesday. The subdued price data came as the Fed opened a two-day policy meeting at which the fate of its $85 billion-a-month bond-buying program—an effort to hold down long-term interest rates and drive up the value of homes, stocks and other assets—is a central focus.
Meanwhile, annual inflation in the euro zone was 0.9% in November, the European Union's statistics office said Tuesday. And central banks in Sweden and Hungary cut interest rates, the latest efforts elsewhere in Europe to boost struggling economies as inflation remains low.
The downward pressure on prices presents a conundrum for policy makers across advanced economies: Should they respond with even easier monetary policy or dismiss it as a temporary development?
Central bankers worry about inflation falling too low because it raises the risk of deflation, or generally falling prices, a phenomenon that is difficult to combat through monetary policy. Some economists believe weak or falling prices can lead consumers to delay major purchases, exacerbating an economic slowdown. Even without deflation, very low inflation can be a sign of weak demand that weighs on wages, corporate profits and growth.
"We're in a world where there's still a tremendous amount of economic slack," said Joseph Lupton, a global economist at J.P. Morgan Chase. "A return to growth is not a return to health. There's a long way to go here, which is why central banks in places like the U.S., U.K. and Japan are trying to get inflation up."
Inflation in both advanced and emerging economies picked up in the early stages of the economic recovery, eventually straddling central banks' inflation targets closely enough that many policy makers were charting an exit from their extraordinary monetary policies. But persistently weak demand in recent years has pushed inflation back into uncomfortably subdued territory.
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While policy makers have fretted about low inflation for years, their actions to combat it have yielded generally disappointing results. In the U.S., the Fed is wrapping up a fifth year of near-zero interest rates while also carrying out trillions of dollars of bond purchases in an effort to spark stronger hiring and investment. Employers are starting to add jobs at a steady pace, though overall economic growth remains modest.
But U.S. inflation has been below the Fed's 2% target for much of the past two years. The central bank's preferred gauge, the price index for personal consumption expenditures, increased just 0.7% in October from a year prior, according to a Commerce Department data released earlier this month.
Fed officials have forecast consistently that inflation would pick up, but that hasn't happened. Whether the Fed announces a pullback in its bond-buying program Wednesday or in coming months, it is expected to acknowledge its concerns about low inflation. That could reinforce expectations that the central bank will keep short-term interest rates near zero for years to come—as investors now widely expect.
The situation in Europe is perhaps more fraught. European Central Bank President Mario Draghi has said the euro currency bloc may see a "prolonged" period of low inflation. ECB forecasts support that view, with inflation averaging just 1.3% in 2015, well below its target of just under 2%.
Mr. Draghi says Europe doesn't face a slide into deflation like the one that plagued the Japanese economy for much of the past two decades. The ECB loosened its monetary policy more decisively than Japan did in the 1990s, he said earlier this month, and it is acting more swiftly to resolve problems with its banks. The ECB last month cut a key interest rate to 0.25% as it highlighted concerns about low inflation.
But the latest consumer-price figures mask deep divisions across the 17-member currency bloc. In healthy economies such as Germany and Austria where unemployment is low, inflation is around 1.5%. But in stressed countries along the bloc's southern periphery, consumer prices are stagnant or falling. Annual inflation was 0.7% in Italy last month and just 0.3% in Spain. The disparity makes combating low inflation broadly across the currency union difficult.
Deflationary forces deepened in recession-ravaged Greece, according to the Eurostat figures, with consumer prices down 2.9% in November from the previous year. Despite a banner year for Greek tourism, which saw visitor arrivals jump double digits to more than 17 million this year, the country's two main carriers, Aegean Air and Olympic Air, are struggling. Both carriers have offered steep discounts to fill vacant seats and their situation is so dire that, in October, the European Commission allowed the two airlines to merge—reversing its earlier ban—so as to save one or both from bankruptcy.
High inflation had been a major headache for the Bank of England in recent years, setting the U.K. apart from many other advanced economies. But inflation weakened in November to its slowest pace in four years, with prices rising just 2.1% during the month from a year earlier. That was just a hair above the Bank of England's 2% target.
Further evidence of subdued inflation was evident in U.K. wholesale prices Tuesday. Prices charged by companies at the factory gate rose 0.8% on the year in November, while raw-material costs fell by 1%.
Inflation's retreat is likely to reinforce the BOE officials' commitment to keep their benchmark interest rate at a historic low of 0.5% to underpin an accelerating U.K. economic recovery. The inflation slowdown puts the BOE "in a more comfortable position as it suggests that as growth picks up it is less likely to be concerned that inflation pressures will build up in the economy," said Blerina Uruci, an economist at Barclays.
Some developing economies, meanwhile, saw inflation accelerate enough that they were worrying about soaring prices. That changed over the past two years as demand slowed.
The slowdown in global prices has helped Brazil fight domestic inflation that peaked in June at a 6.7% annual rate and has since fallen to 5.8%, still above the central bank's 4.5% target. The country's central bank has increased interest rates by 2.5 percentage points, to 10%.
In China, the world's second-largest economy, inflation as measured by consumer prices has fallen to below 3.5% this year from 8% five years ago. Some economists say years of state-directed overinvestment in factories and a buildup of excess capacity could push prices even lower.
While China's low-cost manufacturing helped keep prices of consumer goods down in Western nations in recent years, the huge source of supply today risks exacerbating deflation worries in industrialized countries, some economists say. Excess capacity in key industries such as steel, glass and construction equipment has dragged prices down in some sectors.
China's growth slowdown also has reduced its demand for imports of items such as iron ore, copper and coal, pushing down prices in a range of global commodity markets.
"For a lot of industrial commodities—especially metals—Chinese demand is the factor that causes prices to rise or fall," said Mark Williams, an economist at Capital Economics, a London-based research firm.
Pep Boys, a Philadelphia-based supplier of tires and auto parts, blamed its disappointing financial results last week partly on weaker sales of lower-priced tires. That was "a result of competitive pressures from Asian imported tires," Pep Boys CEO Michael Odell said. He warned that the "pricing pressure could persist."
—David Roman in Madrid and Richard Silk in Beijing, Paulo Trevisani in Brasilia and Alkman Granitsas in Athens contributed to this article.
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Don't let this second post cause us to miss the first one :-)
China Bitcoin Exchange Ends Third-Party Yuan Cooperation
Virtual-Currency Exchange Can No Longer Accept Deposits in Yuan After PBOC Steps In
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By Chao Deng
connect
Updated Dec. 18, 2013 4:50 a.m. ET
SHANGHAI—Prices of virtual currency bitcoin fell 20% Wednesday and are now down more than 50% from their record high hit two weeks ago amid worries that China is moving to block the purchase and use of the currency by its citizens.
China has emerged as a big driver of the bitcoin market in recent months as enthusiasm for the currency helped send prices soaring more than tenfold in the fall. In recent weeks, prices have tumbled after China's central bank issued a warning about the risks of bitcoin and said financial institutions shouldn't do business with bitcoin-related companies.
On Wednesday, the world's largest bitcoin exchange stopped allowing customers to use yuan to buy bitcoin. Shanghai-based BTC China "has no choice but to stop accepting yuan deposits," the exchange said in a post on Weibo, China's Twitter-like microblogging website.
"Bitcoin deposits, bitcoin withdrawals and yuan withdrawals will not be affected," it added. The exchange said it "will try to provide another method for deposits" but didn't elaborate. The move means a big source of new cash driving up prices of bitcoin has been eliminated. Exchanges are an important component of bitcoin's ecosystem. Coins can be bought and exchanged privately but most retail investors use the exchanges.
"My understanding" is that the People's Bank of China told third-party payment companies on Monday they can't work any longer with exchanges, BTC China CEO Bobby Lee said on Wednesday. These payment companies are often used for e-commerce in China and are the easiest way for individuals to transfer money from their bank accounts for web purchases.
While the central bank hasn't released an official statement, a person familiar with the matter said that a meeting between the bank and several third-party payment providers took place on Monday. The person said officials suggested that third-party payment providers cease their bitcoin involvement by the end of January though no official date was set.
The person added that the central bank sees its latest stance toward third-party payment providers as a reiteration of an earlier statement that neither financial institutions nor payment institutions partake in bitcoin-related businesses. The growing popularity of bitcoin is a threat to China's strict capital controls because it allows citizens to trade yuan for bitcoin and then sell the bitcoin overseas for foreign currency.
BTC China learned about the PBOC's latest stance from third-party payment platforms only and not the PBOC, added Mr. Lee. On Sunday, TenPay, the third-party payment unit of Chinese Internet giant Tencent Holdings Ltd. TCEHY -2.39% , stopped working with BTC. The exchange switched to Yeepay, another provider, but hasn't stopped working with Yeepay as well, Mr. Lee said.
Beijing-based bitcoin exchange OKCoin issued a similar statement on its website that it would no longer work with third-party payment service providers. Users of the site will be able to withdraw their funds within 24 hours, it added. OKCoin didn't respond to emailed requests to comment.
Worries China wants to clamp down on the bitcoin industry stemmed from local media reports earlier in the week on the central bank's warning to third-party payment processors. International bitcoin prices are down more than 30% since Monday, according to industry tracker CoinDesk, which incorporates prices from several large bitcoin exchanges around the world. On Wednesday, bitcoin prices fell another 20% to $550.02, down more than 50% from its high of $1,147.25 two weeks ago.
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The Fed revised its FOMC statement. Here is the new one.
FOMC Statement
Information received since the Federal Open Market Committee met in September finds that economic activity has continued to expand at a greatly strengthened pace due to the wise guidance and decision making ability of Chairman Bernacke. Labor market conditions have shown great improvement, and provided that the Census Bureau continues to massage the data the Labor Market should be at full employment by May.
Household spending and business fixed investment advanced significantly, showing they have recovered completely from the ravages of the conservative hoard. The recovery in the housing sector continues to impress all with home values reaching pre-crash level. These are sustainable levels as homes are in greater demand than ever before. Contrary evidence of loan officers' rapidly dwindling cash reserves; higher mortgage rates and many Realtors leaving to pursue seasonal employment at local big box retailers is of no concern.
Fiscal policy is correct, despite conservative Congressional gridlock and dysfunction. Rampant public consternation over the Affordable HealthCare Act is misplaced fear, but is not restraining economic growth as claimed by Tea Party members. Apart from fluctuations due to changes in energy prices and food costs, no indicate of less than ideal inflation exist, and as long as the CPI continues to be manipulated, longer-term inflation expectations remain stable.
Consistent with its statutory mandate, the Committee seeks to foster economic Nobel Prizes for Committee members. The Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace since equities continue to gain 20% annually. and the unemployment rate will quickly decline with the exception of certain current NFC East head coaches or unless UPS conducts mass layoffs due to Amazon Drone Deliveries and as pizza sales soar for WA and CO "herb" enthusiasts toward levels the Committee judges consistent with its dual mandate.
The Committee sees the downside risks to the outlook for the economy and the labor market as being non-existent, since even unqualified, schizophrenic sign language interpreters can gain employment and due to burgeoning IT hiring following HealthCare.gov's launch debacle. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term as MBS purchases increase to 75% of total issuance.
Taking into account the extent of federal fiscal retrenchment over the past year, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more Edward Snowden leaks on NSA's FOMC surveillance and new imaginative Miley Cyrus videos that we can drool over before increasing the pace of its purchases. Accordingly, the Committee has decided to fake a Taper until we catch our breath after watching the videos.
In light of FHFA's looming "risk based pricing adjustments and to build further anticipation for release of next Fed Minutes, The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities and rolling into Atlantic City keno investments and Power Ball lotteries. These actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.
The Committee will closely monitor incoming information on point spread changes for BCS Championship Game; and the freeze resistant Manhattan cockroaches until the labor market is at 150% employment. In judging when to moderate the pace of asset purchases, the Committee will at its coming meetings, assess whether Committee Christmas gift expenditures and the current chairman's retirement compensation packages are on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's greed.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy, generous holiday tips for domestic staff and aggressive Mega Millions lottery ticket purchases will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate to the end of the decade. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of complete New World Order global power and replacing the legislative branch of federal government with Committee controlled cyborgs.
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Someone managed to out-Wesbury Wesbury. :-D
The Fed revised its FOMC statement. Here is the new one.
FOMC Statement
Information received since the Federal Open Market Committee met in September finds that economic activity has continued to expand at a greatly strengthened pace due to the wise guidance and decision making ability of Chairman Bernacke. Labor market conditions have shown great improvement, and provided that the Census Bureau continues to massage the data the Labor Market should be at full employment by May.
Household spending and business fixed investment advanced significantly, showing they have recovered completely from the ravages of the conservative hoard. The recovery in the housing sector continues to impress all with home values reaching pre-crash level. These are sustainable levels as homes are in greater demand than ever before. Contrary evidence of loan officers' rapidly dwindling cash reserves; higher mortgage rates and many Realtors leaving to pursue seasonal employment at local big box retailers is of no concern.
Fiscal policy is correct, despite conservative Congressional gridlock and dysfunction. Rampant public consternation over the Affordable HealthCare Act is misplaced fear, but is not restraining economic growth as claimed by Tea Party members. Apart from fluctuations due to changes in energy prices and food costs, no indicate of less than ideal inflation exist, and as long as the CPI continues to be manipulated, longer-term inflation expectations remain stable.
Consistent with its statutory mandate, the Committee seeks to foster economic Nobel Prizes for Committee members. The Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace since equities continue to gain 20% annually. and the unemployment rate will quickly decline with the exception of certain current NFC East head coaches or unless UPS conducts mass layoffs due to Amazon Drone Deliveries and as pizza sales soar for WA and CO "herb" enthusiasts toward levels the Committee judges consistent with its dual mandate.
The Committee sees the downside risks to the outlook for the economy and the labor market as being non-existent, since even unqualified, schizophrenic sign language interpreters can gain employment and due to burgeoning IT hiring following HealthCare.gov's launch debacle. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term as MBS purchases increase to 75% of total issuance.
Taking into account the extent of federal fiscal retrenchment over the past year, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more Edward Snowden leaks on NSA's FOMC surveillance and new imaginative Miley Cyrus videos that we can drool over before increasing the pace of its purchases. Accordingly, the Committee has decided to fake a Taper until we catch our breath after watching the videos.
In light of FHFA's looming "risk based pricing adjustments and to build further anticipation for release of next Fed Minutes, The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities and rolling into Atlantic City keno investments and Power Ball lotteries. These actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.
The Committee will closely monitor incoming information on point spread changes for BCS Championship Game; and the freeze resistant Manhattan cockroaches until the labor market is at 150% employment. In judging when to moderate the pace of asset purchases, the Committee will at its coming meetings, assess whether Committee Christmas gift expenditures and the current chairman's retirement compensation packages are on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's greed.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy, generous holiday tips for domestic staff and aggressive Mega Millions lottery ticket purchases will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate to the end of the decade. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of complete New World Order global power and replacing the legislative branch of federal government with Committee controlled cyborgs.
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Crafty, 12/18/13:
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b) What the hell is wrong with deflation?
c) How did this piece wind up on the front page of the WSJ? [low inflation is a problem??]
1. See your post in Economics, (Wesbury then making Scott Grannis' point now): 7/1/13:http://dogbrothers.com/phpBB2/index.php?topic=1023.msg73491#msg73491
2. Deflation tends to be self sustaining: hard to snap out of, limited policy options available to address it. From the WSJ article: "Central bankers worry about inflation falling too low because it raises the risk of deflation, or generally falling prices, a phenomenon that is difficult to combat through monetary policy. Some economists believe weak or falling prices can lead consumers to delay major purchases, exacerbating an economic slowdown. Even without deflation, very low inflation can be a sign of weak demand that weighs on wages, corporate profits and growth."
3. Deflation is associated with lack of velocity (MV=PQ) see link in point 1) and is associated with economic depression. It is feared by central bankers; easier to avoid in the first place than to get out of once in it.
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From the San Francisco Fed, quoting MIT and economic textbooks:
http://www.frbsf.org/education/publications/doctor-econ/1999/september/deflation-disinflation-causes
What is deflation and how is it different from disinflation?
September 1999
The MIT Dictionary of Modern Economics defines deflation as “A sustained fall in the general price level.”1 Deflation represents the opposite of inflation, which is defined as an increase in the overall price level over a period of time. In contrast, disinflation, represents a period when the inflation rate is positive, but declining over time.
Deflation, inflation, and disinflation represent different behavior of the price level. The price level is commonly measured using either a Gross Domestic Product Deflator (GDP Deflator) or a Consumer Price Index (CPI) indicator. The GDP Deflator is a broad index of inflation in the economy; the CPI Index measures changes in the price level of a broad basket of consumer products. The Chart shows the monthly percentage change in the CPI (all urban consumers, all items) over the prior 12-month period, and includes periods of deflation, inflation, and disinflation in consumer prices.
Two brief periods, the first from approximately mid-1949 to mid-1950, and the second, approximately from the fall of 1954 to the summer of 1955, shown in Chart, indicate brief periods of deflation in the consumer price index. Other than these two brief periods, the CPI Index shows inflation in consumer prices over nearly the entire 1947 to 1999 period. The period from mid-1980 to mid-1983 indicates a period of disinflation, a period when the rate of inflation was declining from month to month.
Periods of deflation typically are associated with downturns in the economy. The two temporary periods of deflation corresponded to recessions in the U.S. economy. However, periods of deflation need not be as short as these two brief episodes in the 1950s. During the Great Depression of the 1930s the nation experienced a long period of deflation. As noted by Samuelson and Nordhaus (1998), “Sustained deflations, in which prices fall steadily over a period of several years, are associated with depressions, such as occurred in the 1930s or the 1890s.”2
References
1. Pearce, David W., editor. The MIT Dictionary of Modern Economics. 1992. MIT University Press.
2. Samuelson, Paul A., and William D. Nordhaus. Economics. 1998. The McGraw-Hill Companies.
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"a) We here have vociferously predicted inflation. Why have we been so wrong?"
Scott Grannis: "Why then has U.S. inflation remained low and slowed of late if the Fed is doing all it can to keep interest rates low? I fleshed out the answer to this question in a post earlier this month: it's because we have been experiencing the most risk-averse recovery ever. Risk aversion and a general lack of confidence have translated into very strong demand for money and bank reserves." From that previous post: "The recovery from the recent Great Recession has been the weakest ever, and that may have a lot to do with the fact that this has also been the most risk-averse recovery ever. Households have deleveraged like never before; the world has stocked up on cash and cash equivalents like never before; banks have accumulated massive amounts of excess reserves; and business investment has been weak"
And demand for money and bank reserves, is the opposite of new investment and demand for goods and services.
Stagnation with inflation is possible, see Jimmy Carter, but generally a slow moving, stagnant economy (with money on the sidelines) does not bid up prices.
Risk aversion means an investment stall. Bidding up the price of existing companies is not investment IMO, building new plants and starting real new companies is. This economy lacks energy, velocity, investment and demand, along with lacking employment and economic growth.
Today banks hold a whopping $2.5 trillion in excess reserves, according to former Fed Governor Alan Binder, WSJ, which means that money is on the sidelines, not chasing goods and services.
It seems that the trillions in quantitative expansion are neither stimulating the economy nor driving up current price levels because that money is on the sidelines.
Grannis introduces his first with this: "Let's begin by taking a look at inflation in the U.S. as measured by the Consumer Price Index." and that chart shows a trend line of 2.4% annual price increases, actually a little lower of late. But CPI does not directly measure inflation IMHO, it is an indicator or symptom of inflation which is strictly a monetary phenomenon. In this case, CPI measures the effect of the money in circulation, but not the future effect of trillions accumulating in reserve that could enter circulation.
The problem with our economy today is not a lack of liquidity (money) and so the solution was not an injection of money. The problems are overly-burdensome taxes, regulations and uncertainty, along with many other screwed up disincentives to produce, none of which are addressed by the Feds flailing attempt the second of its two mandates - stimulating employment. (Meanwhile we are implementing the largest anti-employment act in our nation's history.)
The question (in my mind) is not why haven't price levels gone through the roof in a stagnant economy, but what will price levels do if things ever get rolling again, and multiples of those multiples of trillions come into circulation via the banking system.
Luckily nothing on the horizon looks like a robust economy headed our way and none of our underlying problems are even beginning to be addressed.
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A pair of excellent posts Doug.
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A couple of follow up points on deflation:
Even if the fear of deflation is unfounded, that fear is the stated reason the the Fed's inflation target is 2% instead of zero. The Fed knows how to move the policy levers up or down a little bit at 2% inflation, but not when inflation hits zero or goes negative. Where do you go with interest rates after you hit zero? Negative interest rates? You can pay people to hold free money but they don't have to invest it in the economy to make money.
Because we have permanent inflation with a long term CPI trend line at 2.4%, not zero, and an inflation target going forward of 2%, not zero, a dollar in the future is worth less than a dollar today. The only possible exception is a worse outcome: a deep, prolonged economic depression.
Coincidentally we are a massive debtor nation with the power to devalue our debt by devaluing our currency. We use devalued future dollars to pay today's unpaid bills. (BLS inflation calculator: http://data.bls.gov/cgi-bin/cpicalc.pl) If we really had to borrow all of our revenue shortfall, rather than print most of it (issue "excess reserves"), lenders would charge for that loss and the cost of our debt would be prohibitive.
Stated more directly, the current fiscal and monetary path is unsustainable and everyone knows it.
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It is Pravda on the Hudson, so caveat lector:
http://dealbook.nytimes.com/2013/12/21/into-the-bitcoin-mines/?nl=todaysheadlines&emc=edit_th_20131222
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http://www.theblaze.com/stories/2014/01/08/cataclysmic-what-you-probably-didnt-know-about-germany-getting-its-gold-back-from-the-federal-reserve/
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http://www.theblaze.com/stories/2014/01/08/cataclysmic-what-you-probably-didnt-know-about-germany-getting-its-gold-back-from-the-federal-reserve/
Anyone remember William H.Macy's character from Fargo trying to cover up his embezzlement ?
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I'll fax that right on over to ya. :lol:
http://www.theblaze.com/stories/2014/01/08/cataclysmic-what-you-probably-didnt-know-about-germany-getting-its-gold-back-from-the-federal-reserve/
Anyone remember William H.Macy's character from Fargo trying to cover up his embezzlement ?
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Forwarded by a friend who is usually, but not always, reliable:
Third Banker, Former Fed Member, "Found Dead" Inside A Week If the stock market were already crashing then it would be simple to blame the dismally sad rash of dead bankers in the last week on that - certainly that was reflected in 1929. However, for the third time in the last week, a senior financial executive has died in what appears to be a suicide. As Bloomberg reports, following the deaths of a JPMorgan senior manager (Tuesday) and a Deutsche Bank executive (Sunday), Russell Investments' Chief Economist (and former Fed economist) Mike Dueker was found dead at the side of a highway in Washington State. Police said the death appeared to be a suicide. ' zerohedge.com
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http://blogs.wsj.com/moneybeat/2014/02/03/bitbeat-your-daily-bitcoin-round-up/?mod=WSJ_hps_MIDDLE_Video_Top
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Deep in the unregulated underbelly of the Internet, bitcoin is the crypto-currency of the realm, making as many headlines for its volatile price as it has for its popularity with criminals seeking anonymity.
These are reasons enough to keep most people away. But bitcoin keeps popping up in more places as a way to pay for legal, everyday things. So I spent a week using the virtual currency and my experience surprised me: It was neither anonymous nor shadowy.
Though my hunt for places to spend bitcoin did turn up a questionable massage parlor, it didn't require venturing into fishy corners of the Internet. I used bitcoin to buy cupcakes and sushi at local shops, and I got a Grumpy Cat sweatshirt at Overstock.com.
Bitcoin isn't ready to replace credit cards or PayPal. It lacks wide acceptance, consumer protections and stability. The currency is in crisis right now, after hacking attacks disabled two of the biggest exchanges, making bitcoin lose a third of its value. During the course of a week, my own bitcoin lost as much as 7% of its value.
But that isn't stopping me from keeping a small wallet of the first major Internet currency. I'm no speculator, I'm not investing my savings in bitcoin, or recommending that anyone does that. I'm interested in what it might enable—a "tip jar" for online art, or small daily donations to charity. And if you're intrigued, too, this column will hopefully help you keep from losing your shirt.
The good news is you don't have to put much money at risk to try it out. I didn't even buy an entire "coin"—just 0.25 of one, or about $160. I signed up for a virtual wallet, which promises to safeguard the string of code that is your money, and exchanges dollars for bitcoin (and vice versa). I recommend Coinbase, whose wallet connects to your regular bank account and charges a small fee, about 1%, with each trade.
Are these people trustworthy? Coinbase is backed by some big names in Silicon Valley, but has nothing like the government-backed guarantees of using dollars in a regular bank. In the past 15 months, Coinbase says it has set up nearly one million consumer wallets.
What surprised me most is how Coinbase strips some anonymity out of the currency. To buy bitcoin, it asked me for my bank account information, my credit-card numbers, even my bank website login details. The company doesn't retain all that info but it is used to speed up the verification process, which can normally take four days.
The point of gathering all this information, says CEO Brian Armstrong, is to prevent "shenanigans," so the traditional banks will see Coinbase as legitimate.
Coinbase has done a good job of simplifying bitcoin use. To pay for sushi at a local shop, I used the Coinbase app on my Android phone to scan the QR code presented by my server. (Apple hasn't yet approved the Coinbase app for iPhone, but you can make payments via the Web.)
Once I confirmed my sushi payment, the money transferred instantly. For consumers, bitcoin's speed can be a dual-edged sword: If something goes wrong, there's no third party to intercede and get your money back. And returns can be tricky on a currency with a wildly fluctuating value. (Fortunately, I had no complaints about my sushi.)
Making a purchase online works much the same. At the Overstock.com checkout page, I chose to pay by bitcoin, and then scanned an on-screen code with my phone.
So why bother using bitcoin? Bitcoin doesn't really solve mainstream consumer problems like speed and convenience, says Mark T. Williams, who teaches finance at Boston University and is a bitcoin skeptic. "It solves a problem if you want to send stuff secretly."
Though Coinbase and other wallets collect information about you, you can still try to make transfers or payments anonymous. If someone gives you bitcoin, you can set up a Coinbase wallet without entering many personal details—though you'll need to verify yourself if you want to turn your bitcoin back into dollars.
Getting merchants on board will be a slog. Some 3,000 businesses around the world accept bitcoin for payment, according to Coinmap.org. There are more than 60 in the San Francisco Bay Area where I live, but I still struggled to find places worth spending my bitcoin. When I did, paying with bitcoin was usually speedy, but certainly not faster than using a credit card or cash.
Overstock is planning to offer a financial incentive to paying with bitcoin. Since bitcoin payments save the retailer credit-card fees, Overstock will give bitcoin customers 1% back on their purchases (in store credit).
So far, the killer app for bitcoin may be international transfers, a process made costly and slow by traditional banks and services like PayPal. I tried sending $10 worth of bitcoin to my friend Kevin in Hong Kong. In minutes, he was up on Coinbase and zapping the money back to me. I sent it over the Pacific again, impressed at our ability to play ping pong with a financial process that normally takes days.
But when Kevin tried to spend his bitcoin in Hong Kong, opportunities were slim. He found a massage parlor that accepts it, but his wife wasn't impressed with his proposal to sample its services. Eventually Kevin found a florist (wife-approved), but I hadn't sent him enough to buy a bouquet. To buy more bitcoin, a legitimate-seeming Hong Kong wallet company asked for his passport, proof of address—and more time.
Someday, all of this might be easier. Taking a vacation with bitcoin might provide a way to avoid international currency and credit card fees. But that day isn't here yet.
"Some day"—I found myself thinking that a lot while using Bitcoin. It may be a currency of the future, but it's still looking for a reason to be useful in the present.
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Bitcoin is one executive order away from extinction in the US.
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The Producer Price Index (PPI) Declined 0.1% in February To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 3/14/2014
The Producer Price Index (PPI) declined 0.1% in February, coming in below the consensus expected gain of 0.2%. Producer prices are up 0.9% versus a year ago.
The decline in the PPI in February was all due to services, which dropped 0.3%, led lower by trade services, down 1.0%. Goods, which include food and energy, were up 0.4%.
In the past year, prices for goods are up 0.6% while service prices are up 1.0%. Private capital equipment prices increased 0.1% in February and are up 1.8% in the past year.
Prices for core intermediate processed goods rose 0.6% in February and are up 0.4% versus a year ago. Prices for core unprocessed goods decreased 0.7% in February, and are down 3.3% versus a year ago.
Implications: The impact of the new final-demand format, introduced last month for reporting producer prices, came to the forefront in today’s report. The old PPI format only included prices for goods prices, which increased 0.4% in February and are up at a 5.1% annual rate in the past three months. But the new format includes both goods and services, combined; in fact, services now account for more than 60% of the index. As a result, with service prices falling 0.3% in February, the price index for overall final demand dipped 0.1%. “Core” prices, which exclude food and energy, were down 0.2%. Given the dip in the headline PPI index for February, some analysts will say the Federal Reserve should stop tapering quantitative easing, because inflation still appears below its target of 2%. We think this would be a mistake. If anything, the Fed should be considering an acceleration in the pace of tapering, so quantitative easing ends well before the end of the year. The problems that ail the economy are fiscal and regulatory in nature; continuing to add more excess reserves to the banking system is not going to boost economic growth. Despite the negative inflation headline, intermediate demand prices for processed goods continue to climb, up at 7.2% annual rate over the past three months, though prices still remain tame compared to year-ago levels. Unprocessed goods, led by fuel and nonfood materials, rose 5.7% in February and are up at a 41.3% annual rate in the past three months. For now, service prices are holding down broad price gains at the producer level, but, given loose monetary policy, service prices should eventually turn up as well.
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An important story surprisingly missed by most of MSM:
http://www.cnbc.com/id/101488955
http://www.bloomberg.com/news/2013-11-04/dallas-fed-s-fisher-says-u-s-economy-hog-tied-by-government-1-.html
http://disinfo.com/2014/03/federal-reserve-president-qe-massive-gift-intended-boost-wealth/
courtesy of the president of the Dallas Fed, via Bloomberg.
FISHER SAYS QE WAS A MASSIVE GIFT INTENDED TO BOOST WEALTH
http://www.zerohedge.com/news/2014-03-21/qe-was-massive-gift-intended-boost-wealth-fed-president-admits
Speaking to a London group, Richard Fisher, president of the Federal Reserve Bank of Dallas, noted the massive additions to the Fed balance sheet and advocated for a much faster elimination of the Fed’s policy towards quantitative easing, ideally ending in October.
http://www.valuewalk.com/2014/03/dallas-fed-president-says-qe-massive-gift-wealth/
QE effect on shoppers:
(http://disinfo.s3.amazonaws.com/wp-content/uploads/2014/03/QE-effect-on-shoppers.jpg)
http://www.zerohedge.com/news/2014-03-21/qe-was-massive-gift-intended-boost-wealth-fed-president-admits
QE effect on income inequality:
(http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2013/08-2/20130911_inequal1.jpg)
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Fed Funds Rate An Anachronism
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 3/24/2014
During Fed Chair Janet Yellen’s first press conference last week, some analysts said she made a major mistake. Supposedly, she put an actual time limit on when the Fed may start to lift the federal funds rate.
She said it would be “around six months” after the Fed ended any further purchases of bonds for its Quantitative Easing program. This could be true, but she used enough qualifiers that it became clear six months is not a hard target.
The Fed dropped its 6.5% jobless rate as a trigger point for raising rates, and will now follow a long list of indicators to determine when the job market is functioning well. In other words, when Janet Yellen says she wants “full employment,” we assume she means for Fed Watchers.
Even Minneapolis Fed President Kocherlakota, a dove when it comes to monetary policy, had a problem with this. He dissented with his vote, saying, “If you’re not specific in the statement, then market participants are just grasping for scraps of information.” He wanted an explicit, but lower, unemployment rate target before raising interest rates.
But all of this is becoming moot. The federal funds rate has rapidly become a non-issue for monetary policy. In the past, the Fed manipulated the funds rate by making reserves “scarce” or “plentiful.” It withdrew reserves to push rates up and added reserves to push rates down – a simple “supply and demand” calculation.
So, when rates went up, the Fed was tightening and when rates went down, the Fed was easing. This was a classic monetarist view of the world. However, now that the Fed has injected $2.6 trillion in “excess reserves” via QE, there is no way to make reserves “scarce” without completely unwinding the Fed’s balance sheet.
As long as banks have excess reserves, they do not need to borrow reserves from other banks to meet their reserve requirements. In fact, over the past few years, as excess reserves have piled up, the amount of actual trading in the overnight reserve market has contracted sharply.
The Fed debated this problem way back in 2008. Fed Governor Donald Kohn thought the Fed had lost control of the funds rate. However, Janet Yellen, then the President of the San Francisco Fed, said the Fed could control the funds rate by raising the interest rate it paid on excess reserves (currently 25 bps). The idea was that by raising the rate on excess reserves, the few banks who were participating in the overnight reserve market would demand higher rates.
The only problem is that most of the lending in the overnight reserve market is done by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks who, by law, are not allowed to be paid interest by the Fed on excess reserves.
So, while it is possible that lifting the interest rate on excess reserves could lift the federal funds rate, too, it is not 100% clear that this will work. Nor is it clear that it will change monetary policy all that much.
With so many excess reserves in the system, higher interest rates would not, in themselves, tighten money in the system. Only if the Fed paid banks more to hold reserves at the Fed than they could earn by lending them to customers could the Fed affect money growth. If banks decided to lend excess reserves anyway, the Fed would be forced to shrink its balance sheet, or face an explosion of money growth.
In other words, the federal funds rate has become an anachronism. Six months? Twelve months? Twelve years?. Who cares? Excess reserves are all that matters.
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Not sure I agree with Brian on this. I think the Fed can raise the interest rate on reserves and that will have the same effect as reducing the amount of reserves. They will probably do both.
Banks will have excess reserves in abundance for a long time no matter what they choose to do. They can choose to increase lending or not increase their lending. If they increase their lending it would probably be because the risk-adjusted return on their lending is expected to be greater than the risk-free rate they receive on their reserves. If reserves suddenly paid 5%, would banks want to increase their lending? Or would they be happy just to keep their reserves?
At any given time, there must be an interest rate on reserves that makes increased lending unattractive. The Fed can experiment with the rate it pays on reserves to find the level that keeps bank lending from being excessive.
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Monetary policy lately has been like adding gas to a car that already had the tank full but had 3 flat tires and 2 brakes struck on. The additional gas won't go in, didn't do any good or harm, and the car keeps showing the same lousy symptoms after the gas spills out on the ground.
A tight dollar not was the problem of the last decade and a loose dollar was not the solution. (Nor was cash for clunkers, ACA, raising the minimum wage, immigration reform, Solyndra, shovel-ready jobs or any other phony initiative we have seen.) The loosening and tightening of reserves will only matter after the real problems that are preventing economic expansion are addressed. For now the excess reserves just sit idle.
A friend who runs a venture capital business told me last week that banks have plenty of money to lend but will only put 50% into a good company transaction instead of perhaps 80% previously and suggested they only lend to known entities whom they know and trust. They will not lend to unknowns or startups. The price and quantity of money (on the sidelines) is not the limiting factor right now. Instead there is a shortage of proven, solid companies wanting or needing expansion capital in an environment poisoned by over-taxation and over-regulation. Loose money did not stimulate and tightening now will not significantly affect our stalled, Pelosi/Reid, Obamanomic economy.
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Doug,
So how long can we go on with this charade?
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This might be connected to the price of G&S:
OECD, G-20: Global Inflation Eases
Declining Rates Fuel Concerns for Central Bankers
By Paul Hannon
Updated April 1, 2014 6:09 a.m. ET
Consumer-price growth in the world's largest economies slowed for the third straight month in February, fueling concerns that too little inflation, rather than too much, could threaten the global economy's fragile recovery.
The Organization for Economic Cooperation and Development on Tuesday said the annual rate of inflation in its 34 members fell to 1.4% from 1.7% in January, while in the Group of 20 leading industrial and developing nations it fell for a third straight month, to 2.3% from 2.6%. The G-20 accounts for 90% of global economic activity.
The continuing decline in the rate of inflation across developed countries will worry central bankers, since many regard annual price rises of 2% as consistent with healthy economic growth. The decline in the inflation rate was driven by lower energy prices, while the core rate of inflation in the OECD—excluding energy and food—was unchanged at 1.6%.
Related Coverage
Euro-Zone Inflation Unexpectedly Weakened to Lowest Rate Since 2009 (March 31, 2014)
China Consumer Prices Rose 2% in February (March 8, 2014)
Corrosive Inflation Eats at Developing World (Feb. 10, 2014)
Low Inflation Tests World's Central Banks (Dec. 17, 2013)
When inflation is low, companies, households and even governments have a harder time cutting their debt loads, a particular problem for a number of highly indebted nations in the euro zone.
When prices start to fall, consumers can postpone purchases in the expectation that they will get better value for their money in the future. That can in turn weaken economic activity, and create further deflationary pressures. Following the difficulties Japan has experienced in getting out of its long period of deflation, central banks in other countries are anxious to avoid a similar struggle.
The OECD said six of its members experienced a decline in prices over the 12 months to February—all being in Europe.
The threat of low inflation, and the possibility that prices may start to fall, is most pressing for the European Central Bank, whose governing council meets on Thursday. Figures released on Monday showed consumer prices rose in the euro zone by 0.5% in the 12 months to March, a decline in the annual rate of inflation from 0.7% in February.
But the euro zone is far from alone in confronting a period of uncomfortably weak inflationary pressures. In the U.S., the annual rate of inflation fell to 1.1% in February from 1.6%, while in Canada it dropped to 1.1% from 1.5%.
There were also significant declines in large developing economies that have in recent years driven global economic growth and have been the leading source of inflationary pressures. The annual rate of inflation fell to 2.0% from 2.5% in China, and to 6.7% from 7.2% in India.
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Fed Shows Growing Worry About Low Inflation
Central Bankers Around World Have Expressed Angst About Weakness in Global Economy
By Jon Hilsenrath
Updated April 9, 2014 7:48 p.m. ET
Federal Reserve officials are growing concerned the U.S. inflation rate won't budge from low levels, the latest sign of angst among central bankers about weakness in the global economy.
The Fed began 2014 hopeful that a strengthening U.S. economy would push very low inflation from 1% toward the 2% level that officials associate with healthy business activity. Three months into a year marked by unusually harsh winter weather, which appears to have damped economic growth, there is little evidence of such movement.
Fed officials expressed worry about the persistence of low inflation at a policy meeting last month, according to minutes of the meeting released by the central bank Wednesday. They discussed at the March 18-19 meeting whether to make a more explicit commitment to keeping short-term interest rates pinned near zero until they saw inflation move up, but chose instead to take a wait-and-see approach.
Low inflation is high on the agenda of global central bankers and finance ministers gathering in Washington this week for semiannual meetings of the International Monetary Fund. Bank of Japan officials are trying to overcome more than a decade of on-again-off-again deflation, and inflation in Europe is running close to zero.
"We think there is also a risk of deflation, negative inflation. And we think that if this were to happen, this would make the adjustment both at the euro level, and even more so for the countries in the periphery, very difficult," IMF chief economist Olivier Blanchard said of Europe on Tuesday, after the IMF released updated economic projections. "We think that everything should be done to try to avoid it."
On its face, flat consumer prices sound like a blessing that holds down household costs. But when tepid inflation is associated with small wage gains, excess business capacity and soft global demand, as now, economists see it as a sign of broader economic malaise that restrains investment and hiring. Exceptionally slow wage and profit gains also make it harder for household and business borrowers to pay off debt.
Fed officials believe the U.S. economy was soft in the early months of the year in part because of the weather, and they are now expecting a pickup. But if that doesn't happen, they could wait longer to start raising interest rates. Many central-bank officials and market participants don't expect rate increases until well into 2015.
"In light of their concerns about the possible persistence of low inflation, members agreed that inflation developments should be monitored carefully," the Fed minutes said.
IMF officials have been chiding European Central Bank officials, in particular, for failing to do enough to lift inflation in the euro area from well below 1%. Like the Fed, the ECB expects inflation to rise this year, but it is under greater pressure to act.
The IMF reduced its growth and inflation forecasts for 2014 and 2015 in projections released this week. It sees consumer-price inflation in developed economies this year of 1.5%, compared with 1.4% in 2013. It expects global growth this year of 3.6%, better than the 3% growth in 2013, but less than the 3.7% growth it projected in January.
Bruce Kasman, chief economist with J.P. Morgan Chase, said inflation is also softening in developing economies, most notably China. The development, he said, is taking pressure off central banks in places like India and Turkey to raise interest rates to prevent their economies from overheating.
"Six months from now, I think we'll see that inflation in the emerging markets is materially less than it was a year ago," Mr. Kasman said.
For years since the financial crisis ended, critics have warned central bankers that their low-interest-rate policies risked pushing consumer prices much higher as they flooded the world financial system with money.
But weak demand in many developed economies, combined with excess supply in places such as China, have hampered firms from raising consumer prices.
"Below-target inflation is a world-wide phenomenon, and it is difficult to be confident that all policy makers around the world have fully taken its challenge on board," said Charles Evans, president of the Federal Reserve Bank of Chicago, in a speech in Washington on Wednesday.
The Commerce Department's personal consumption expenditures price index, which is the Fed's favored measure of inflation, was up 0.9% in February from a year earlier. The Labor Department's consumer-price index, an alternative measure, was up 1.1%.
Low inflation is high on the agenda of global central bankers and finance ministers gathering in Washington this week for semiannual meetings of the International Monetary Fund. Above, the Federal Reserve building in Washington.
The aluminum sector offers one stark view of the global tides holding down inflation. Aluminum prices are in the third year of a decline that has dented profits at the world's top producers and caused them to cut capacity to try to end an aluminum glut that analysts say has lasted for more than a decade.
Since April 2011, at a time when stimulus measures in China and the U.S. were boosting metals prices, raw aluminum prices on the London Metal Exchange have dropped more than 35% to around $1,800 a ton. The average cost of making raw aluminum at a smelter is around $2,000 a ton, so many smelters around the world have been operating at a loss.
At some point, the oversupply will run its course, but it doesn't appear to have happened yet. On Tuesday, Alcoa Inc., AA +3.75% the world's top aluminum producer by revenue, said it swung to a net loss of $178 million, or 16 cents a share, from a profit of $149 million a year earlier, mainly because prices for raw aluminum fell 8% year-over-year. It also took a $255 million charge related to closing plants in Brazil, Australia and upstate New York. Alcoa said those closures eliminated 421,000 tons, or 10% of its overall capacity. Russia's United Rusal 0486.HK +1.37% PLC, the world's No. 1 producer by volume, is planning to reduce production by 330,000 tons, or 8%, in 2014.
Although Chinese government officials have pledged to reduce capacity, cuts have been resisted by local leaders eager to preserve jobs. Aluminum production in China is expected to increase 9% this year and 7% next year, according to Deutsche Bank.
In the U.S. and Europe, signposts of soft consumer demand also are evident. In Switzerland, executives at Swatch Group AG told The Wall Street Journal earlier this month that consumers were switching to lower-cost timepieces. In the U.S., companies such as Procter & Gamble Co. and Georgia Pacific Corp., among others, have been blitzing consumers with deals and coupons to lift sales.
Carnival Corp. is filling cabins on its cruise ships by reducing ticket prices—a situation the Miami-based company hopes is temporary. "As the economy improves and as demand is there, we should be able to get the pricing back without any problem," Chief Financial Officer David Bernstein told analysts last month.
—John W. Miller and Ben Leubsdorf contributed to this article.
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The Producer Price Index (PPI) Rose 0.5% in March
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 4/11/2014
The Producer Price Index (PPI) rose 0.5% in March versus a consensus expected gain of 0.1%. Producer prices are up 1.5% versus a year ago.
All of the increase in producer prices was due to services, which were up 0.7%. Goods prices, including food and energy, were unchanged.
In the past year, prices for service are up 1.5% while goods prices are up 1.2%. Private capital equipment prices increased 0.1% in March and are up 1.6% in the past year.
Prices for intermediate processed goods declined 0.2% in March but are up 0.8% versus a year ago. Prices for intermediate unprocessed goods declined 0.1% in March, but are up 5.9% versus a year ago.
Implications: After dropping slightly in February, producer prices surged 0.5% in March. Both the decline in February and the spike in March were led by prices in the service sector, which, until recently, weren’t even counted in producer prices. Cutting through the month-to-month volatility, it appears inflation is starting to wake up from its slumber. Producer prices are up 1.5% in the past year but up at a 2.2% annual rate in the past three months. The acceleration is in prices for both goods and services. Goods prices are up 1.2% in the past year but have climbed at a 3.2% annual rate in the past three months; services are up 1.5% from a year ago but have climbed at a 1.9% rate in the past three months. Prices further back in the production pipeline (intermediate demand) are showing similar acceleration. For example, although prices for processed goods are up only 0.8% in the past year, they’re up at a 4.3% annual rate in the past three months. Unprocessed goods are up 5.9% in the past year but up at a 28.8% annual rate in the past three months. Figures like these suggest the Federal Reserve should be tapering quantitative easing faster. In other recent inflation news, import and export prices surged in March, increasing 0.6% and 0.8%, respectively. However, overall import prices are still down 0.6% from a year ago, all due to a decline in petroleum. Excluding petroleum, import prices have increased 0.1% from a year ago. Export prices are up 0.2% from a year ago, 0.4% excluding farm products. In broader news on the economy, initial unemployment claims declined 32,000 last week to 300,000, the lowest level in almost seven years. Continuing claims dropped 62,000 to 2.78 million. As a result, our early payroll models suggest job growth of about 200,000 in April. After a winter hibernation, the Plow Horse economy has woken up and is ready to go
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I appreciate the Wesbury posts. That said, I don't recall him telling us we were not experiencing Plow Horse growth this past winter. Spinning only the positive? Positive economic performance reported last fall was adjustted downward, BTW.
"After a winter hibernation, the Plow Horse economy has woken up and is ready to go"
What say BW about this chart I posted? http://dogbrothers.com/phpBB2/index.php?topic=1467.msg80150#msg80150
Workforce participation down (by 9 million). Food stamp participation up (by 77%). Fewer people pulling the wagon; more people riding on it; incline getting progressively steeper. What could possibly go wrong?
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Posting this here as well as on the Scott Grannis thread:
http://scottgrannis.blogspot.com/2014/04/tracking-perfect-storm.html
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Fed Acknowledges Faster Growth To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 4/30/2014
Today’s policy statement from the Federal Reserve was about as close to a non-event as possible. The Fed acknowledged that the US economy “has picked up recently” since the first quarter, citing faster growth in consumer spending. However, it also noted a drop in business investment. Other than that, the Fed made no notable changes to its policy statement and there were no dissents.
As expected, the Fed announced it would reduce its monthly purchases of Treasury securities and mortgage-backed securities by another $5 billion each ($10 billion total) to $45 billion starting in May. This follows a tapering of $10 billion announced at each of the three prior meetings in December, January, and March. So the size of the Fed’s balance sheet will continue to rise, but slightly more slowly than before.
Our view is that the Fed will continue to taper quantitative easing (QE) and probably finish expanding its balance sheet this fall. It should start raising short-term rates by the second quarter of 2015.
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http://www.wptv.com/news/local-news/water-cooler/cat-saves-boy-from-dog-attack-in-southwest-bakersfield-california-video
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http://www.wptv.com/news/local-news/water-cooler/cat-saves-boy-from-dog-attack-in-southwest-bakersfield-california-video
OK, so the boy is the American consumer and the dog is inflation....
What does the cat symbolize?
Has Wesbury tired of beating a dead Plowhorse?
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Let's try that again :oops: :oops: :oops: :oops: :oops: :oops:
The Producer Price Index (PPI) Rose 0.6% in April To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/14/2014
The Producer Price Index (PPI) rose 0.6% in April versus a consensus expected gain of 0.2%. Producer prices are up 2.1% versus a year ago.
The increase in producer prices was broad based, with both services and goods prices up 0.6%.
In the past year, prices for service are up 2.0% while goods prices are up 2.5%. Private capital equipment prices increased 0.6% in April and are up 2.0% in the past year.
Prices for intermediate processed goods were unchanged in April, but up 1.5% versus a year ago. Prices for intermediate unprocessed goods increased 0.4% in April, and are up 6.6% versus a year ago.
Implications: The long-awaited upward move in inflation may finally be arriving. Producer prices surged 0.6% in April, the largest monthly gain in more than four years, coming on top of a 0.5% gain in March. In the past year, producer prices have increased a moderate 2.1%. But, in the past three months, producer prices are up at a 4.1% annual rate. The acceleration is in prices for both goods and services. Goods prices are up 2.5% in the past year and have climbed at a 3.9% annual rate in the past three months; services are up 2% from a year ago and have climbed at a 4.1% rate in the past three months. Prices further back in the production pipeline (intermediate demand) are showing similar acceleration. For example, although prices for processed goods are up 1.5% in the past year, they’re up at a 2% annual rate in the past three months. Unprocessed goods are up 6.6% in the past year but up at a 26.4% annual rate in the past three months. Taken as a whole, the trend in producer price inflation suggests the Federal Reserve should be tapering quantitative easing faster. The problems that ail the economy are fiscal and regulatory in nature; continuing to add more excess reserves to the banking system is not going to boost economic growth. Loose monetary policy is finally gaining traction and we expect both real GDP growth and inflation to accelerate in the year ahead.
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Angling to Be the MasterCard of Bitcoin
The 31-year-old CEO of Coinbase on his plan to become the world payment processor for the virtual currency. Could this be the end of credit cards?
By Andy Kessler
May 16, 2014 6:07 p.m. ET
San Francisco
As I drive into San Francisco to meet tech entrepreneur Brian Armstrong, reminders of the California Gold Rush pop up everywhere, from Levi Strauss to the San Francisco 49ers. Various modern gold rushes have periodically swept the area for the past few decades, and the 31-year-old Mr. Armstrong is at the forefront of the latest frenzied scramble: virtual currency.
Bitcoin is the dominant player in the field, and Mr. Armstrong, as the CEO of Coinbase, thinks he has found a rich vein to mine. He wants to be the Visa V +1.14% and MasterCard MA +0.92% of Bitcoin payment processing, taking those behemoths out of the picture as merchants and customers move to virtual transactions.
Credit-card companies "collect $500 billion in fees" today, he says confidently as we meet in the company conference room overlooking San Francisco Bay. As commerce eventually turns increasingly virtual and credit-card fees drop to match cheaper technology, he says, "it's going to be $50 billion."
But wait . . . Bitcoin? A lot of people still aren't sure what a virtual currency is, much less what a "Bitcoin wallet" like Coinbase might be. Mr. Armstrong offers a working Bitcoin definition for starters: "It's a distributed digital currency. There's no central authority. It's based on a consensus of people working on this around the world. It's both a currency and a payment method and a protocol, a commonly agreed-upon language so that computers can talk to each other and exchange currency or payments, at least at first."
The number of Bitcoins is capped at 21 million (about 12 million have been generated so far by an algorithmic method using Bitcoin's agreed-upon protocol), making them immune to the sort of government money-pumping or -restricting policies that can send real-world currencies up or down. Bitcoins are simply worth whatever those who trade in them agree they're worth.
The peer-to-peer payment system has suffered some public-relations disasters: In 2013, the FBI shut down the platform Silk Road, which may have earned $80 million in commissions from allegedly facilitating more than $1 billion in drug trafficking. The biggest Bitcoin exchange—Mt. Gox in Japan—collapsed in February. In the process Mt. Gox lost $450 million in Bitcoins, though they seem to have been later rediscovered—it's still not clear, which reflects the moving-target reputation of Bitcoin that still makes many investors wary.
Still, the buzz continues: Earlier this week, investors including billionaire Richard Branson and Yahoo co-founder Jerry Yang put $30 million into BitPay, a payment-processing rival of Coinbase. Mr. Branson's Virgin Atlantic airline accepts Bitcoin and uses BitPay for processing. World-wide, about 20,000 merchants accept Bitcoin, stored by customers in virtual wallets like Coinbase's. In December, Mr. Armstrong's company raised $25 million thanks to the heavyweight venture-capital firm Andreessen Horowitz. There's gold in them hills.
"There are still people who we meet who say there is no way the government is going to let this happen," Mr. Armstrong says, "but they don't have the information we have." So far, he seems to have embraced the prospect of regulation in a nascent industry with an all too Wild West reputation.
When he founded Coinbase two years ago with Fred Ehrsam, Mr. Armstrong says, "our risks were fraud and compliance." But in March last year, the Treasury Department's Financial Crimes Enforcement Network, known as FinCEN, offered some clarification, providing guidance on virtual currency.
"A week later we registered with FinCEN as a money-services business. A good first step," Mr. Armstrong says. "Compliance is a large cost of our business. Our method is not battling, but embracing and educating regulators, building relationships with them." He notes that "New York state is thinking about how they can create a specific 'bit license,' " sort of a money-transmitting license for virtual-currency companies. "Even the IRS released guidance on how they will collect taxes on Bitcoin gains. The regulatory environment is much clearer today than it was a year ago and it's all been very positive."
It's rare to hear a CEO so chipper about the U.S. regulatory environment, but then participating in the Bitcoin world requires a certain faith in the benevolence of strangers. That was certainly the case at the company where Mr. Armstrong worked before starting Coinbase: Airbnb, the do-it-yourself lodging-booking business that is roiling the hotel industry. Mr. Armstrong, who graduated from Rice University in 2005 with degrees in economics and computer science, had spent a few years working for the Deloitte professional-services firm and for a few startups in Silicon Valley before going to Airbnb in 2011, when the company had just 35 employees.
Working on fraud prevention and proprietary payments for 190 countries as the company grew with dizzying speed, he says, "I had a front-row seat to the pain point." When Mr. Armstrong left after 18 months to start Coinbase, Airbnb had 600 employees. Growth has been slower for Coinbase, but the trend line is clearly up. Coinbase says it now administers 1.2 million Bitcoin wallets.
Here's how the company got there in two years. Mr. Armstrong, who speaks with the intensity of a seasoned entrepreneur but none of the bravado of many Silicon Valley players, relates how in December 2010, while home in San Jose for the holidays, he printed out a copy of the Satoshi white paper, the original Bitcoin manifesto published in 2008 under a still-mysterious pseudonym. He became engrossed. His mother, he says, told him "all our relatives are here, you need to come spend time with the family." But he stayed upstairs reading. "I couldn't put it down, it was the most important thing I've read," he recalls. "I saw right away this could be a big open payment network for the world. Very much like the Internet was for distributing data."
Six months later, he slapped together an app for Android phones, a "wallet" to store Bitcoins. More than 15,000 people installed it in the first week, and others translated it into German, Russian and Chinese. It was the moment he realized he was onto something. But the app was flawed. It stored money on a phone, which is breakable, and, worse, the app hogged so much data that transactions were painfully slow. So he moved the business to servers in the online cloud and, voilà, the virtual transactions were easier than a credit-card swipe.
Processing Bitcoin transactions requires two key players: miners and payment processors. Miners solve complex algorithms and are rewarded with Bitcoins when they do. They accomplish this by installing vast arrays of personal computers that run day and night. (Some are located in Iceland to defray electricity bills.) Mining adds transactions to a public ledger, where the buying and spending of Bitcoins is recorded. The ledger is called the "blockchain"—a giant public accounting of every Bitcoin transaction ever. The systems being used to mine Bitcoins must agree on the accuracy of the ledger to prevent cheating, at least in theory. "The more mining there is, the more security there is," Mr. Armstrong says.
Few people were interested in installing expensive machines to mine Bitcoins—until the currency began trading above $100 last year. Now thousands of miners assume that they are digging for virtual gold. In reality, they are building a global payment processing network for Bitcoin.
Payment processors like Coinbase borrow the miners' Bitcoins for a short time to conduct a transaction. The processors enter the transaction into the network, which crunches on it until it is deemed legitimate, and records it in the blockchain.
The financial industry, at first leery of Bitcoin, has slowly relented. "We became the first Bitcoin company to get a deal done with a U.S. bank"—Mr. Armstrong says, declining to name the bank—"which allows us to have anyone connect a bank account in the U.S. and convert dollars in and out of Bitcoin." When Coinbase made the deal in December 2012, the company had 100,000 wallets, a number that increased tenfold in a year.
Bitcoin wallets are mostly about speculation, the hope that the currency will rise in value. That seemed promising for a while. Last year, the value of a Bitcoin soared to $1,100 in December, from $13.30 in January. It's now $448, though transactions are still growing. And now with some 1.2 million Coinbase wallets, customers have Bitcoins to spend. It isn't Visa, but it's a start.
Mr. Armstrong says much of Coinbase's efforts now go into signing up merchants to accept Bitcoins. The roster of sign-ups includes the online retailer Overstock, the Sacramento Kings basketball team, the dating site OkCupid and hundreds of other businesses. Why would they bother? Because Bitcoin payment processors offer a value play: Visa and MasterCard charge merchants about 3% on every transaction, but Coinbase charges 1%—sometimes not even that. "Overstock pays a number less than 1%," Mr. Armstrong confides.
What about the currency's notoriety as a criminal favorite because of its assumed anonymity? "There will always be bad actors," Mr. Armstrong says, noting that Bitcoin lends itself to transparency: "Because, of course, it is a public ledger. In the blockchain, if you see a path here and here," he says, spreading his arms apart, "you can find a path and a connection." And Coinbase is willing to work with law-enforcement to help out.
Mr. Armstrong also doesn't seem worried about Bitcoin's price volatility. "Like the beginning of the Web, there are periods of high expectations and hype that aren't met. . . . There is clearly a gold rush going on right now, and we'll have these cycles of hype and declines."
Yet even with professional backing, how can a roller coaster like Bitcoin disrupt a reliable, predictable payments system offered by credit cards? "Payments flow to the path of least resistance," Mr. Armstrong says. "If there exists a more efficient network, payments will begin to flow to that network."
He sees other opportunities, beyond challenging the credit-card companies by offering lower fees: "A lot of countries don't have a stable currency and people don't have access to banking at all. And everyone has cellphones"—which can be used for access to Bitcoin wallets. "If the world did have access to a stable currency, Bitcoin could help bank the world, bank the unbanked."
It's a nice dream, but Bitcoin fans would do well to keep their focus closer to home for now. Regulatory capture is the way financial services operate. Congress now even sets debit-card fees. Coinbase should be wary of just "embracing and educating" regulators. The companies that collect $500 billion in fees annually can afford a lot of lobbyists, nothing virtual about them.
Mr. Kessler, a former hedge-fund manager and frequent Journal contributor, is the author, most recently, of "Eat People" (Portfolio, 2011).
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Moving GM's post to here:
http://www.paulcraigroberts.org/2014/05/12/fed-great-deceiver-paul-craig-roberts/
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http://live.wsj.com/video/why-the-price-of-gold-is-falling/A514AFF0-2E8F-4E35-B6C9-3E187AA2EF81.html?mod=trending_now_video_4#!A514AFF0-2E8F-4E35-B6C9-3E187AA2EF81
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http://live.wsj.com/video/why-the-price-of-gold-is-falling/A514AFF0-2E8F-4E35-B6C9-3E187AA2EF81.html?mod=trending_now_video_4#!A514AFF0-2E8F-4E35-B6C9-3E187AA2EF81
The result of lots of shady manipulation. I'm buying on the dips.
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Bitcoin's Futile Quest to Be a Currency
The IRS treats bitcoins as property, and any transaction using them triggers a taxable event.
By Lawrence Parks
June 1, 2014 6:26 p.m. ET
Bitcoin is a fascinating and ingenious technology, but most promoters are mindful of neither the monetary nor the tax issues. For all practical purposes IRS regulations issued in March preclude bitcoins from being used as an alternative currency.
The IRS treats bitcoins as property. The result is that bitcoin transactions trigger a taxable event. Buyers incur a tax liability for the difference in dollars between what they paid for a bitcoin when they acquired it and the dollar value attributed to the bitcoin when they spend it. Sellers of course are subject to a tax based on the dollar value of the bitcoins they receive for a good or service.
To comply with these tax regulations, buyers and sellers must log all bitcoin transactions and report them at tax time. For transactions that require future payment, buyers and sellers undertake an exchange-rate risk involving the dollar value of bitcoins. This will greatly reduce, or perhaps eliminate entirely, using bitcoins for settling future payments, which is the principal use of money.
Some bitcoin zealots reject the effect of triggering taxable events on the theory that bitcoin transactions are anonymous. That is arguable. What is not arguable is that one who doesn't report a taxable bitcoin gain is guilty of tax fraud, which is a felony.
In other words, the future of bitcoins depends on users willing to log all transactions, report them at tax time, and pay a tax or to engage in tax fraud. As soon as one of them ends up in prison, that will be the end of it.
Why bitcoins to begin with? We already have a virtual currency, the dollar, which has the purported benefit of being the world's "reserve currency."
Some people see a problem because dollars can be created at the whim of the Federal Reserve, and as former Fed Chairman Alan Greenspan once put it, "without limit." This depreciates the purchasing power of dollars saved or promised for future payment, such as pensions. At least the quantity of bitcoins is supposedly limited by the mathematical algorithm that creates them. As an interesting aside, the bitcoin folks call the creation process "mining," an allusion to real money.
Bitcoin supporters understand that dollars are no longer money in the classical sense, i.e., something that has a unit of dimension defined in the physical world, as Sir Isaac Newton put it circa 1699 when he was England's Warden of the Mint. With neither debate nor anyone voting for it, the dollar has been transmogrified into an ethereal concept of money without any tie to the physical world, created out of nothing, and forced into circulation with legal tender laws.
As Australian comedian Michael Connell so brilliantly put it, what we used to call money has been transformed into "the idea of money." Mr. Connell's metaphor is that it's like playing musical chairs, but instead of chairs there is the "idea of chairs." It is absurd.
This brings to mind a related issue: U.S. Gold and Silver Eagles, which are legal tender for their face amounts under Title 31 of the United States Code. Yet as with bitcoins, the IRS arbitrarily treats these coins not as currency but as property, thereby preventing their use as money.
Consider: If you pay your taxes with a $50 Gold Eagle, you get credit for $50. No mystery there. However, if you spend a $50 Gold Eagle (or a $1 Silver Eagle), you trigger a taxable event on the difference between what you paid for the Gold Eagle and the market value of the gold in the coin when you spend it. Two recent cases challenging the IRS on this matter went up to the Supreme Court, but the court declined to hear the cases.
It is thanks to the IRS that no one uses so-called gold clauses, which would give creditors the right to demand Gold Eagles as payment in contracts. In other words, IRS policy that has no statutory authorization has rendered inoperative gold clause legislation passed by Congress in 1977.
Bitcoins have neither the advantage of being legal tender nor laws enabling their use. Folks who are accumulating bitcoins should take note.
Mr. Parks is the executive director of the Foundation for the Advancement of Monetary Education.
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http://www.jammiewf.com/2014/obama-seeks-death-blow-to-economy-with-absurd-carbon-proposal/
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Ummm , , , as best as I can tell that belongs in a Green thread or Political Economics, , ,
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The Velocity Of Money In The U.S. Falls To An All-Time Record Low
Monday, 02 June 2014 16:16 Michael Snyder - www.alt-market.com
This article was written by Michael Snyder and originally published at The Economic Collapse
When an economy is healthy, there is lots of buying and selling and money tends to move around quite rapidly. Unfortunately, the U.S. economy is the exact opposite of that right now. In fact, as I will document below, the velocity of M2 has fallen to an all-time record low. This is a very powerful indicator that we have entered a deflationary era, and the Federal Reserve has been attempting to combat this by absolutely flooding the financial system with more money. This has created some absolutely massive financial bubbles, but it has not fixed what is fundamentally wrong with our economy. On a very basic level, the amount of economic activity that we are witnessing is not anywhere near where it should be and the flow of money through our economy is very stagnant. They can try to mask our problems with happy talk for as long as they want, but in the end it will be clearly evident that none of the long-term trends that are destroying our economy have been addressed.
Discussions about the money supply can get very complicated, and that can cause people to tune out, but it doesn’t have to be that way.
To put it very basically, when there is lots of economic activity, there is lots of money changing hands.
When there is not very much economic activity, the pace at which money circulates through our system slows down.
That is why what is happening in the U.S. right now is so troubling.
First, let’s look at M1, which is a fairly narrow definition of the money supply. The following is how Investopedia defines M1…
A measure of the money supply that includes all physical money, such as coins and currency, as well as demand deposits, checking accounts and Negotiable Order of Withdrawal (NOW) accounts. M1 measures the most liquid components of the money supply, as it contains cash and assets that can quickly be converted to currency. It does not contain “near money” or “near, near money” as M2 and M3 do.
As you can see from the chart posted below, the velocity of M1 normally declines during a recession. Just look at the shaded areas in the chart. But a funny thing has happened since the end of the last recession. The velocity of M1 has just kept falling and it is now at a nearly 20 year low…
Velocity Of Money M1
Next, let’s take a look at M2. It includes more things in the money supply. The following is how Investopedia defines M2…
A measure of money supply that includes cash and checking deposits (M1) as well as near money. “Near money” in M2 includes savings deposits, money market mutual funds and other time deposits, which are less liquid and not as suitable as exchange mediums but can be quickly converted into cash or checking deposits.
In the chart posted below, we can once again see that the velocity of M2 normally slows down during a recession. And we can also see that the velocity of M2 has continued to slow down in the “post-recession era” and has now dropped to the lowest level ever recorded…
Velocity Of Money M2
This is a highly deflationary chart.
It clearly indicates that economic activity in the U.S. has been steadily slowing down.
And if we are honest, we have to admit that we are seeing signs of this all around us. Major retailers are closing down stores at the fastest pace since the collapse of Lehman Brothers, consumer confidence is down, trading revenues at the big Wall Street banks are way down, and the steady decline in home sales is more than just a little bit alarming.
In addition, the employment situation in this country is much less promising than we have been led to believe. According to a report put out by the Republicans on the Senate Budget Committee, an all-time record one out of every eight men in their prime working years are not in the labor force…
“There are currently 61.1 million American men in their prime working years, age 25–54. A staggering 1 in 8 such men are not in the labor force at all, meaning they are neither working nor looking for work. This is an all-time high dating back to when records were first kept in 1955. An additional 2.9 million men are in the labor force but not employed (i.e., they would work if they could find a job). A total of 10.2 million individuals in this cohort, therefore, are not holding jobs in the U.S. economy today. There are also nearly 3 million more men in this age group not working today than there were before the recession began.”
Never before has such a high percentage of men in their prime years been so idle.
But since they are not counted as part of “the labor force”, the government bureaucrats can keep the “unemployment rate” looking nice and pretty.
Of course if we were actually using honest numbers, the unemployment rate would be in the double digits, our economy would be considered to have been in a recession since about 2005, and everyone would be crying out for an end to “the depression”.
And now we are rapidly approaching another downturn. In my recent articles entitled “Has The Next Recession Already Begun For America’s Middle Class?” and “27 Huge Red Flags For The U.S. Economy“, I detailed much of the evidence for why this is true.
And those that run the Federal Reserve know all of this.
That is one of the reasons for all of the “quantitative easing” that they have been doing. The folks at the Fed know that the U.S. economy would probably drift into a deflationary depression if they just sat back and did nothing. So they flooded the system with money in a desperate attempt to revive economic activity. But instead, most of the new money just ended up in the pockets of the very wealthy and further increased the divide between those at the top and those at the bottom in this country.
And now Fed officials are slowly scaling back quantitative easing because they apparently believe that the economy is getting “back to normal”.
We shall see.
Many are not quite so optimistic.
For example, the chief market analyst at the Lindsey Group, Peter Boockvar, believes that the S&P 500 could plummet 15 to 20 percent when quantitative easing finally ends.
Others believe that it will be much worse than that.
Since 2008, the size of the Fed balance sheet has grown from less than a trillion dollars to more than four trillion dollars. This unprecedented intervention was able to successfully delay the coming deflationary depression, but it has also made our long-term problems far worse.
So when the inevitable crash does arrive, it will be much, much worse than it could have been.
Sadly, most Americans do not understand these things. Most Americans simply trust that our “leaders” know what they are doing. And so in the end, most Americans will be completely blindsided by what is coming.
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The Velocity Of Money In The U.S. Falls To An All-Time Record Low
Monday, 02 June 2014 16:16 Michael Snyder - www.alt-market.com
This article was written by Michael Snyder and originally published at The Economic Collapse
When an economy is healthy, there is lots of buying and selling and money tends to move around quite rapidly. Unfortunately, the U.S. economy is the exact opposite of that right now. In fact, as I will document below, the velocity of M2 has fallen to an all-time record low. This is a very powerful indicator that we have entered a deflationary era, and the Federal Reserve has been attempting to combat this by absolutely flooding the financial system with more money. This has created some absolutely massive financial bubbles, but it has not fixed what is fundamentally wrong with our economy. On a very basic level, the amount of economic activity that we are witnessing is not anywhere near where it should be and the flow of money through our economy is very stagnant. They can try to mask our problems with happy talk for as long as they want, but in the end it will be clearly evident that none of the long-term trends that are destroying our economy have been addressed.
Discussions about the money supply can get very complicated, and that can cause people to tune out, but it doesn’t have to be that way.
To put it very basically, when there is lots of economic activity, there is lots of money changing hands.
When there is not very much economic activity, the pace at which money circulates through our system slows down.
That is why what is happening in the U.S. right now is so troubling.
First, let’s look at M1, which is a fairly narrow definition of the money supply. The following is how Investopedia defines M1…
A measure of the money supply that includes all physical money, such as coins and currency, as well as demand deposits, checking accounts and Negotiable Order of Withdrawal (NOW) accounts. M1 measures the most liquid components of the money supply, as it contains cash and assets that can quickly be converted to currency. It does not contain “near money” or “near, near money” as M2 and M3 do.
As you can see from the chart posted below, the velocity of M1 normally declines during a recession. Just look at the shaded areas in the chart. But a funny thing has happened since the end of the last recession. The velocity of M1 has just kept falling and it is now at a nearly 20 year low…
Velocity Of Money M1
Next, let’s take a look at M2. It includes more things in the money supply. The following is how Investopedia defines M2…
A measure of money supply that includes cash and checking deposits (M1) as well as near money. “Near money” in M2 includes savings deposits, money market mutual funds and other time deposits, which are less liquid and not as suitable as exchange mediums but can be quickly converted into cash or checking deposits.
In the chart posted below, we can once again see that the velocity of M2 normally slows down during a recession. And we can also see that the velocity of M2 has continued to slow down in the “post-recession era” and has now dropped to the lowest level ever recorded…
Velocity Of Money M2
This is a highly deflationary chart.
It clearly indicates that economic activity in the U.S. has been steadily slowing down.
And if we are honest, we have to admit that we are seeing signs of this all around us. Major retailers are closing down stores at the fastest pace since the collapse of Lehman Brothers, consumer confidence is down, trading revenues at the big Wall Street banks are way down, and the steady decline in home sales is more than just a little bit alarming.
In addition, the employment situation in this country is much less promising than we have been led to believe. According to a report put out by the Republicans on the Senate Budget Committee, an all-time record one out of every eight men in their prime working years are not in the labor force…
“There are currently 61.1 million American men in their prime working years, age 25–54. A staggering 1 in 8 such men are not in the labor force at all, meaning they are neither working nor looking for work. This is an all-time high dating back to when records were first kept in 1955. An additional 2.9 million men are in the labor force but not employed (i.e., they would work if they could find a job). A total of 10.2 million individuals in this cohort, therefore, are not holding jobs in the U.S. economy today. There are also nearly 3 million more men in this age group not working today than there were before the recession began.”
Never before has such a high percentage of men in their prime years been so idle.
But since they are not counted as part of “the labor force”, the government bureaucrats can keep the “unemployment rate” looking nice and pretty.
Of course if we were actually using honest numbers, the unemployment rate would be in the double digits, our economy would be considered to have been in a recession since about 2005, and everyone would be crying out for an end to “the depression”.
And now we are rapidly approaching another downturn. In my recent articles entitled “Has The Next Recession Already Begun For America’s Middle Class?” and “27 Huge Red Flags For The U.S. Economy“, I detailed much of the evidence for why this is true.
And those that run the Federal Reserve know all of this.
That is one of the reasons for all of the “quantitative easing” that they have been doing. The folks at the Fed know that the U.S. economy would probably drift into a deflationary depression if they just sat back and did nothing. So they flooded the system with money in a desperate attempt to revive economic activity. But instead, most of the new money just ended up in the pockets of the very wealthy and further increased the divide between those at the top and those at the bottom in this country.
And now Fed officials are slowly scaling back quantitative easing because they apparently believe that the economy is getting “back to normal”.
We shall see.
Many are not quite so optimistic.
For example, the chief market analyst at the Lindsey Group, Peter Boockvar, believes that the S&P 500 could plummet 15 to 20 percent when quantitative easing finally ends.
Others believe that it will be much worse than that.
Since 2008, the size of the Fed balance sheet has grown from less than a trillion dollars to more than four trillion dollars. This unprecedented intervention was able to successfully delay the coming deflationary depression, but it has also made our long-term problems far worse.
So when the inevitable crash does arrive, it will be much, much worse than it could have been.
Sadly, most Americans do not understand these things. Most Americans simply trust that our “leaders” know what they are doing. And so in the end, most Americans will be completely blindsided by what is coming.
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The Velocity Of Money In The U.S. Falls To An All-Time Record Low
Monday, 02 June 2014 16:16 Michael Snyder - www.alt-market.com
This article was written by Michael Snyder and originally published at The Economic Collapse
When an economy is healthy, there is lots of buying and selling and money tends to move around quite rapidly. Unfortunately, the U.S. economy is the exact opposite of that right now. In fact, as I will document below, the velocity of M2 has fallen to an all-time record low. This is a very powerful indicator that we have entered a deflationary era, and the Federal Reserve has been attempting to combat this by absolutely flooding the financial system with more money. This has created some absolutely massive financial bubbles, but it has not fixed what is fundamentally wrong with our economy. On a very basic level, the amount of economic activity that we are witnessing is not anywhere near where it should be and the flow of money through our economy is very stagnant. They can try to mask our problems with happy talk for as long as they want, but in the end it will be clearly evident that none of the long-term trends that are destroying our economy have been addressed.
Discussions about the money supply can get very complicated, and that can cause people to tune out, but it doesn’t have to be that way.
To put it very basically, when there is lots of economic activity, there is lots of money changing hands.
When there is not very much economic activity, the pace at which money circulates through our system slows down.
That is why what is happening in the U.S. right now is so troubling.
First, let’s look at M1, which is a fairly narrow definition of the money supply. The following is how Investopedia defines M1…
A measure of the money supply that includes all physical money, such as coins and currency, as well as demand deposits, checking accounts and Negotiable Order of Withdrawal (NOW) accounts. M1 measures the most liquid components of the money supply, as it contains cash and assets that can quickly be converted to currency. It does not contain “near money” or “near, near money” as M2 and M3 do.
As you can see from the chart posted below, the velocity of M1 normally declines during a recession. Just look at the shaded areas in the chart. But a funny thing has happened since the end of the last recession. The velocity of M1 has just kept falling and it is now at a nearly 20 year low…
Velocity Of Money M1
Next, let’s take a look at M2. It includes more things in the money supply. The following is how Investopedia defines M2…
A measure of money supply that includes cash and checking deposits (M1) as well as near money. “Near money” in M2 includes savings deposits, money market mutual funds and other time deposits, which are less liquid and not as suitable as exchange mediums but can be quickly converted into cash or checking deposits.
In the chart posted below, we can once again see that the velocity of M2 normally slows down during a recession. And we can also see that the velocity of M2 has continued to slow down in the “post-recession era” and has now dropped to the lowest level ever recorded…
Velocity Of Money M2
This is a highly deflationary chart.
It clearly indicates that economic activity in the U.S. has been steadily slowing down.
And if we are honest, we have to admit that we are seeing signs of this all around us. Major retailers are closing down stores at the fastest pace since the collapse of Lehman Brothers, consumer confidence is down, trading revenues at the big Wall Street banks are way down, and the steady decline in home sales is more than just a little bit alarming.
In addition, the employment situation in this country is much less promising than we have been led to believe. According to a report put out by the Republicans on the Senate Budget Committee, an all-time record one out of every eight men in their prime working years are not in the labor force…
“There are currently 61.1 million American men in their prime working years, age 25–54. A staggering 1 in 8 such men are not in the labor force at all, meaning they are neither working nor looking for work. This is an all-time high dating back to when records were first kept in 1955. An additional 2.9 million men are in the labor force but not employed (i.e., they would work if they could find a job). A total of 10.2 million individuals in this cohort, therefore, are not holding jobs in the U.S. economy today. There are also nearly 3 million more men in this age group not working today than there were before the recession began.”
Never before has such a high percentage of men in their prime years been so idle.
But since they are not counted as part of “the labor force”, the government bureaucrats can keep the “unemployment rate” looking nice and pretty.
Of course if we were actually using honest numbers, the unemployment rate would be in the double digits, our economy would be considered to have been in a recession since about 2005, and everyone would be crying out for an end to “the depression”.
And now we are rapidly approaching another downturn. In my recent articles entitled “Has The Next Recession Already Begun For America’s Middle Class?” and “27 Huge Red Flags For The U.S. Economy“, I detailed much of the evidence for why this is true.
And those that run the Federal Reserve know all of this.
That is one of the reasons for all of the “quantitative easing” that they have been doing. The folks at the Fed know that the U.S. economy would probably drift into a deflationary depression if they just sat back and did nothing. So they flooded the system with money in a desperate attempt to revive economic activity. But instead, most of the new money just ended up in the pockets of the very wealthy and further increased the divide between those at the top and those at the bottom in this country.
And now Fed officials are slowly scaling back quantitative easing because they apparently believe that the economy is getting “back to normal”.
We shall see.
Many are not quite so optimistic.
For example, the chief market analyst at the Lindsey Group, Peter Boockvar, believes that the S&P 500 could plummet 15 to 20 percent when quantitative easing finally ends.
Others believe that it will be much worse than that.
Since 2008, the size of the Fed balance sheet has grown from less than a trillion dollars to more than four trillion dollars. This unprecedented intervention was able to successfully delay the coming deflationary depression, but it has also made our long-term problems far worse.
So when the inevitable crash does arrive, it will be much, much worse than it could have been.
Sadly, most Americans do not understand these things. Most Americans simply trust that our “leaders” know what they are doing. And so in the end, most Americans will be completely blindsided by what is coming.
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Thank you Obj for making an empirical case for what I have been saying is deductively obvious.
http://dogbrothers.com/phpBB2/index.php?topic=2402.msg71776#msg71776
http://dogbrothers.com/phpBB2/index.php?topic=2402.msg71294#msg71294
http://dogbrothers.com/phpBB2/index.php?topic=1023.msg76322#msg76322
http://dogbrothers.com/phpBB2/index.php?topic=985.msg70088#msg70088
1) Start with Milton Friedman's bumper sticker, MV=PQ [Money Supply, Velocity, Price Level, Total Output]
2) Price level P have been amazingly constant.
3) Total output Q is extremely flat with real growth almost exactly at zero.
4) Therefore MV Money Supply M times Velocity V has also been constant, while the money supply M has been exploding by something like 3/4 Trillion dollars per year. Pathetically low Velocity is the only explanation for what we are seeing.
Obamanomics has brought us the worst, standstill economic velocity in our lifetime. And it won't get better, Brian Wesbury, until we undo some of the destructive policies that are the cause.
Another monetary point: our monetary policy is not just enabling, but CAUSING our deficit spending. While everyone else argues that fiscal policy causes the need for monetary expansion. I believe that if not for irresponsible accommodation by the Fed, we would not be spending anywhere near this far beyond our means. Not in the later Bush years and not in the Obama Presidency. If the US government had to borrow money at market interest rates through bond sales (borrowing) in advance of every dollar of deficit spending, the reckless spending would have been corrected in the political process - long ago, IMHO.
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http://mobile.reuters.com/article/idUSBREA4M06620140523?irpc=932
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Worth watching and sharing with those who are ignorant about the Fed:
www.youtube.com/watch?v=j282JKnmeVo
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Who Is The New Secret Buyer Of U.S. Debt?
This article was written by Brandon Smith and originally published at Alt-Market.com - May 23, 2014
On the surface, the economic atmosphere of the U.S. has appeared rather calm and uneventful. Stocks are up, employment isn’t great but jobs aren’t collapsing into the void (at least not openly), and the U.S. dollar seems to be going strong. Peel away the thin veneer, however, and a different financial horror show is revealed.
U.S. stocks have enjoyed unprecedented crash protection due to a steady infusion of fiat money from the Federal Reserve known as quantitative easing. With the advent of the “taper”, QE is now swiftly coming to a close (as is evident in the overall reduction in treasury market purchases), and is slated to end by this fall, if not sooner.
Employment has been boosted only in statistical presentation, and not in reality. The Labor Department’s creative accounting of job numbers omits numerous factors, the most important being the issue of long term unemployed. Millions of people who have been jobless for so long they no longer qualify for benefits are being removed from the rolls. This quiet catastrophe has the side bonus of making it appear as though unemployment is going down.
U.S. Treasury bonds, and by extension the dollar, have also stayed afloat due to the river of stimulus being introduced by the Federal Reserve. That same river, through QE, is now drying up.
In my article The Final Swindle Of Private American Wealth Has Begun, I outline the data which leads me to believe that the Fed taper is a deliberate action in preparation for an impending market collapse. The effectiveness of QE stimulus has a shelf-life, and that shelf life has come to an end. With debt monetization no longer a useful tool in propping up the ailing U.S. economy, central bankers are publicly stepping back. Why? If a collapse occurs while stimulus is in full swing, the Fed immediately takes full blame for the calamity, while being forced to admit that central banking as a concept serves absolutely no meaningful purpose.
My research over many years has led me to conclude that a collapse of the American system is not only expected by international financiers, but is in fact being engineered by them. The Fed is an entity created by globalists for globalists. These people have no loyalties to any one country or culture. Their only loyalties are to themselves and their private organizations.
While many people assume that the stimulus measures of the Fed are driven by a desire to save our economy and currency, I see instead a concerted program of destabilization which is meant to bring about the eventual demise of our nation’s fiscal infrastructure. What some might call “kicking the can down the road,” I call deliberately stretching the country thin over time, so that any indirect crisis can be used as a trigger event to bring the ceiling crashing down.
In the past several months, the Fed taper of QE and subsequently U.S. bond buying has coincided with steep declines in purchases by China, a dump of one-fifth of holdings by Russia, and an overall decline in new purchases of U.S. dollars for FOREX reserves.
With the Ukraine crisis now escalating to fever pitch, BRIC nations are openly discussing the probability of “de-dollarization” in international summits, and the ultimate dumping of the dollar as the world reserve currency.
The U.S. is in desperate need of a benefactor to purchase its ever rising debt and keep the system running. Strangely, a buyer with apparently bottomless pockets has arrived to pick up the slack that the Fed and the BRICS are leaving behind. But, who is this buyer?
At first glance, it appears to be the tiny nation of Belgium.
While foreign investment in the U.S. has sharply declined since March, Belgium has quickly become the third largest buyer of Treasury bonds, just behind China and Japan, purchasing more than $200 billion in securities in the past five months, adding to a total stash of around $340 billion. This development is rather bewildering, primarily because Belgium’s GDP as of 2012 was a miniscule $483 billion, meaning, Belgium has spent nearly the entirety of its yearly GDP on our debt.
Clearly, this is impossible, and someone, somewhere, is using Belgium as a proxy in order to prop up the U.S. But who?
Recently, a company based in Belgium called Euroclear has come forward claiming to be the culprit behind the massive purchases of American debt. Euroclear, though, is not a direct buyer. Instead, the bank is a facilitator, using what it calls a “collateral highway” to allow central banks and international banks to move vast amounts of securities around the world faster than ever before.
Euroclear claims to be an administrator for more than $24 trillion in worldwide assets and transactions, but these transactions are not initiated by the company itself. Euroclear is a middleman used by our secret buyer to quickly move U.S. Treasuries into various accounts without ever being identified. So the question remains, who is the true buyer?
My investigation into Euroclear found some interesting facts. Euroclear has financial relationships with more than 90 percent of the world’s central banks and was once partly owned and run by 120 of the largest financial institutions back when it was called the “Euroclear System”. The organization was consolidated and operated by none other than JP Morgan Bank in 1972. In 2000, Euroclear was officially incorporated and became its own entity. However, one must remember, once a JP Morgan bank, always a JP Morgan bank.
Another interesting fact – Euroclear also has a strong relationship with the Russian government and is a primary broker for Russian debt to foreign investors. This once again proves my ongoing point that Russia is tied to the global banking cabal as much as the United States. The East vs. West paradigm is a sham of the highest order.
Euroclear’s ties to the banking elite are obvious; however, we are still no closer to discovering the specific groups or institution responsible for buying up U.S. debt. I think that the use of Euroclear and Belgium may be a key in understanding this mystery.
Belgium is the political center of the EU, with more politicians, diplomats and lobbyists than Washington D.C. It is also, despite its size and economic weakness, a member of an exclusive economic club called the “Group Of Ten” (G10).
The G10 nations have all agreed to participate in a “General Arrangement to Borrow” (GAB) launched in 1962 by the International Monetary Fund (IMF). The GAB is designed as an ever cycling fund which members pay into. In times of emergency, members can ask the IMF’s permission for a release of funds. If the IMF agrees, it then injects capital through Treasury purchases and SDR allocations. Essentially, the IMF takes our money, then gives it back to us in times of desperation (with strings attached). A similar program called ‘New Arrangements To Borrow’ (NAB) involves 38 member countries. This fund was boosted to approximately 370 billion SDR (or $575 billion dollars U.S.) as the derivatives crisis struck markets in 2008-2009. Without a full and independent audit of the IMF, however, it is impossible to know the exact funds it has at its disposal, or how many SDR’s it has created.
It should be noted the Bank of International Settlements is also an overseer of the G10. If you want to learn more about the darker nature of globalist groups like the IMF and the BIS, read my articles, Russia Is Dominated By Global Banks, Too, and False East/West Paradigm Hides The Rise Of Global Currency.
The following article from Harpers titled “Ruling The World Of Money,” was published in 1983 and boasts about the secrecy and “ingenuity” of the Bank Of International Settlements, an unaccountable body of financiers that dominates the very course of economic life around the world.
It is my belief that Belgium, as a member of the G10 and the GAB/NAB agreements, is being used as a proxy by the BIS and the IMF to purchase U.S. debt, but at a high price. I believe that the banking elite are hiding behind their middleman, Euroclear, because they do not want their purchases of Treasuries revealed too soon. I believe that the IMF in particular is accumulating U.S. debt to be used later as leverage to absorb the dollar and finalize the rise of their SDR currency basket as the world reserve standard.
Imagine what would happen if all foreign creditors abandoned U.S. debt purchases because the dollar was no longer seen as viable as a world reserve currency. Imagine that the Fed’s efforts to stimulate through fiat printing became useless in propping up Treasuries, serving only to devalue the domestic buying power of our currency. Imagine that the IMF swoops in as the lender of last resort; the only entity willing to service our debt and keep the system running. Imagine what kind of concessions America would have to make to a global loan shark like the IMF.
Keep in mind, the plan to replace the dollar is not mere “theory”. In fact, IMF head Christine Lagarde has openly called for a “global financial system” to take over in the place of the current dollar based system.
The Bretton Woods System, established in 1944, was used by the United Nations and participating governments to form international rules of economic conduct, including fixed rates for currencies and establishing the dollar as the monetary backbone. The IMF was created during this shift towards globalization as the BIS slithered into the background after its business dealings with the Nazis were exposed. It was the G10, backed by the IMF, that then signed the Smithsonian Agreement in 1971 which ended the Bretton Woods system of fixed currencies, as well as any remnants of the gold standard. This led to the floated currency system we have today, as well as the slow poison of monetary inflation which has now destroyed more than 98 percent of the dollar’s purchasing power.
I believe the next and final step in the banker program is to reestablish a new Bretton Woods style system in the wake of an engineered catastrophe. That is to say, we are about to go full circle. Perhaps Ukraine will be the cover event, or tensions in the South China Sea. Just as Bretton Woods was unveiled during World War II, Bretton Woods redux may be unveiled during World War III. In either case, the false East/West paradigm is the most useful ploy the elites have to bring about a controlled decline of the dollar.
The new system will reintroduce the concept of fixed currencies, but this time, all currencies will be fixed or “pegged” to the value of the SDR global basket. The IMF holds a global SDR summit every five years, and the next meeting is set for the beginning of 2015.
If the Chinese yuan is brought into the SDR basket next year, if the BRICS enter into a conjured economic war with the West, and if the dollar is toppled as the world reserve, there will be nothing left in terms of fiscal structure in the way of a global currency system. If the public does not remove the globalist edifice by force, the IMF and the BIS will then achieve their dream – the complete dissolution of economic sovereignty, and the acceptance by the masses of global financial governance. The elites don’t want to hide behind the curtain anymore. They want recognition. They want to be worshiped. And, it all begins with the secret buyout of America, the implosion of our debt markets, and the annihilation of our way of life.
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Worth watching and sharing with those who are ignorant about the Fed:
www.youtube.com/watch?v=j282JKnmeVo
Plenty is wrong over at the Fed but the video is misleading in many ways.
They find the name 'Federal Reserve" deceptive, but the motto "In God We Trust" implies an even larger backing...
One feature of the Federal Reserve that always seems to get overlooked in these attacks is that the Federal Reserve returns the profit it makes to the Treasury.
http://blogs.wsj.com/economics/2014/01/10/fed-sent-77-7-billion-in-profits-to-treasury-last-year/
http://www.nytimes.com/2013/01/11/business/economy/feds-2012-profit-was-88-9-billion.html?_r=0
Another overlooked feature is that the selection of the people running it is a process nearly the same as Judiciary / Supreme Court selections (though not lifetime appointments). Indirect control is intentional! What is the alternative they propose that is better?
Conspiracy is implied at the founding but it is bankers who know banking. Should the Federal Reserve Act have been drawn up by plumbers, electricians or a random cross-section like a jury? The Act was passed by the elected representatives, and not repealed in all those years.
The video does not address the largest problems IMHO, such as the Humphrey-Hawkins Act, where lawmakers assigned the Fed a "dual mandate" making them believe they are in charge of "full employment", something well beyond its control that greatly weakens their real mandate which is to manage a stable and reliable money supply. This is what politicians did in their 1970s economic wisdom and still have not repealed. Other changes in direction came earlier in the 70s, Friday the 13th in August 1971: http://www.federalreservehistory.org/Events/DetailView/33 Those were your elected officials acting.
The video implies that running the money supply at arms length from politicians is worse than giving Pelosi-Reid-Obama-Ford-Bush-Dole et al direct control. Really? Do we want it run more like the V.A.?
The Fed under Yellen (and Bernancke etc.) is being run the way the politicians who chose them want it run. A change of direction could easily be done within the current Federal Reserve system if that mandate came from the people through their representatives. As simple as passing Humphrey Hawkins, a new Act could repeal the dual mandate, or prohibit QE activities and things like covering deficit spending without borrowing, bailing out uninsured non-financials, and other irresponsible activities. No eery, conspiratorial music, just a change of direction coming out of new, elected, national leadership.
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Re: Video on the Federal Reserve System:
This is no conspiracy theory. These are facts. The Constitution states very clearly that money shall consist ONLY of gold and silver coinage. Paper money was used under the Articles of Confederation with disastrous results, and the Founders well understood this.
Fiat money was NEVER intended to be allowed by the Founders - and for good reason. There are many relevant quotes from Jefferson, et. al. on this subject, and how devaluing the currency would enslave the people.
Far too many people accept the fiction that the Federal Reserve is a necessary evil. Its actions actually greatly exacerbated the Great Depression, and it is now on the verge of destroying the dollar altogether. No conspiracy theory. Just the facts.
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Do you propose to eliminate the Federal Reserve and eliminate paper and electronic money? If so, good luck.
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Absolutely I advocate eliminating the Federal Reserve. It's nothing more than a legalized cartel that steals wantonly from American citizens at will. This country's economy ran just fine without it up until 1913, and there was actually much less volatility, and MUCH less debt - as the Fed by definition incentivizes the creation of massive amounts of debt. This way - Congress doesn't have to raise taxes nearly as much to fund its wild spending sprees.
And yes - fiat money needs to be eliminated as well. At the very least - a gold standard needs to be re-introduced, and it needs to have teeth. Otherwise we are at the mercy of international bankers who will create money as they see fit to manipulate markets and economies. This is where we are at now - and we're about to reap the whirlwind...
The Founders also understood that ancient Rome faced the same dilemma before its collapse, as their coinage had been debased to the point where it was virtually worthless by the Emperors. They steadily reduced the amount of precious metals in the coins until rampant inflation occurred in the general marketplace.
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Absolutely I advocate eliminating the Federal Reserve. It's nothing more than a legalized cartel that steals wantonly from American citizens at will. This country's economy ran just fine without it up until 1913, and there was actually much less volatility, and MUCH less debt - as the Fed by definition incentivizes the creation of massive amounts of debt. This way - Congress doesn't have to raise taxes nearly as much to fund its wild spending sprees.
And yes - fiat money needs to be eliminated as well. At the very least - a gold standard needs to be re-introduced, and it needs to have teeth. Otherwise we are at the mercy of international bankers who will create money as they see fit to manipulate markets and economies. This is where we are at now - and we're about to reap the whirlwind...
The Founders also understood that ancient Rome faced the same dilemma before its collapse, as their coinage had been debased to the point where it was virtually worthless by the Emperors. They steadily reduced the amount of precious metals in the coins until rampant inflation occurred in the general marketplace.
I am with you in spirit, but see a different way forward. Unlike putting toothpaste back in a tube, reforming the mission of the Fed is do-able, right now, eliminating the Fed is not.
The US inflation rate is currently 2%: http://www.tradingeconomics.com/united-states/inflation-cpi
We target it to be no less than 1%. It averaged 3.33 Percent from 1914 until 2014. It could be targeted lower - today - and we could hit lower targets if we were not trying to solve non-monetary problems with monetary tools and QE nonsense. We could require the Treasury to borrow funds (sell T-bills) in advance of all deficit spending checks issued eliminating the need for QE (currency flooding). We could pass a balanced budget amendment with a percent of GDP spending limit in it easier than closing the Fed IMHO and that would remove the need for the Fed to behave the way it is.
Without changing the current structure, the Fed could and should be targeting the value of the dollar to keep the price level stable for a basket of goods with the price of gold having the heaviest weight of all goods and commodities tracked.
Making every dollar including electronic dollars and all our "fiat currency" convertible to gold or made of gold, after all this inflating, is easier said than done. For one thing, we don't even know how many dollars (or measure anything else accurately) we have and if we did, it changes every second.
Quite a few complex functions go on down at the 12 districts of the Federal Reserve Bank. My experience was at the 9th District; Hermann Cain's was Chairman of the 8th. How do I say this delicately. You are trying to accomplish something that has 1% support right while we fail to accomplish things that have 60% support. Herman Cain did not propose elimination of the Fed. Is he too liberal, or part of the Cartel? I don't think so. He thought cutting 2/3 of the federal income tax, even on the rich, in the middle of the Obama years, would be easier to achieve!
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Herman Cain also advocated repealing the Humphrey-Hawkins Law, which added full employment to the Fed's mission of price stability. This seems to me a VERY good idea.
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Doug,
I never said I advocate eliminating the Fed as a top priority, or that it should be done in one fell swoop. I'm simply saying it's a desirable ultimate goal. I'm quite familiar with Herman Cain and his ideas - having lived here in Atlanta for many years and listened to and even infrequently chatted with him. He is ultimately in favor of eliminating the IRS and instituting the Fair Tax. His 9-9-9 plan is an incremental step in that direction. He has told me this in person. Obviously the elimination of the Federal Reserve would have to be done in an incremental fashion as well.
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Thanks. We aren't very far apart on any of this.
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Monday Morning Outlook
________________________________________
The ECB Wants a Free Toaster To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/9/2014
Banks used to give toasters away to customers who opened checking or savings accounts, but the world is changing. Soon, customers may need to give toasters to the bank. Last week, the European Central Bank (ECB) created a “negative” interest rate of 0.1% annually on bank reserves. In other words, banks must pay the ECB to hold excess reserves. The reason for this maneuver is to give banks an incentive to lend. European bank loans fell by 0.6% in 2012, 2.3% in 2013 and 2.5% during the year-ended in April 2014. Inflation is also so low in Europe that the ECB is worried about deflation. Many analysts are comparing Europe to Japan.
But it all may backfire. If banks are forced to pay the ECB to hold reserves, banks may start charging customers to hold deposits (with negative rates, more fees, or maybe even a toaster). Doing this would boost the incentive for bank customers to hold more cash and fewer deposits. In turn, more cash and fewer deposits mean a shrinking money supply, which, in turn, can cause deflation. In other words, by trying to fight deflation, the ECB could actually cause deflation.
The real problem with Europe has nothing to do with money. It has to do with heavy labor regulations, high tax rates, government spending, and excessive redistribution. All of this is caused by political sclerosis, which then causes economic sclerosis. And, like Japan, European population growth has slowed precipitously and is actually falling in some countries. Like we said, none of this has anything to do with a lack of liquidity from the ECB. European banks hold €104 billion in required reserves and €92 billion in excess reserves. While M2 growth has slowed, it is still positive – up 2.5% in 2013 and 2.0% in the past 12 months.
In other words, Mario Draghi is being asked to do the impossible. The ECB doesn’t have the authority to cut government regulation, spending, or tax rates. Draghi has provided lots of liquidity, but the demand for loans (driven by economic growth) is just not there. Europe, America, Japan, the world – none of these economic entities have a problem with liquidity.
The “myth” that central banks saved the world from calamity in 2008 has become conventional wisdom. The result is that people think central banks can impose their will. If only they get loose enough, their economies (real GDP) will grow faster, the theory goes. But central banks can’t do this.
Trying to force banks to lend, building massive balance sheets, manipulating interest rates…all of it…is futile. If the problems in the economy were actually due to a lack of liquidity, then some, or maybe all of these policies might help. But, liquidity is not the problem. The money supply is growing faster than loans. Central banks are pushing on a string.
What Keynesians call a liquidity trap is in reality a “fiscal policy trap.” Governments are just too big, they tax too much, they regulate too much, and they distort investment incentives in massive ways. If the world wants faster growth it needs a massive fiscal overhaul. The best thing to do would be to sunset every law on the books and re-think fiscal policy from the ground up.
Anarchists are few and far between. We don’t know any and think the government should provide basic services which it can do more efficiently than other societal institutions. The problem is that governments around the world exceeded those limits long ago and never looked back.
Using central banks to fix problems caused by fiscal mistakes just creates bigger problems. Negative interest rates are just such a policy. “Let them give toasters” is not much different than “let them eat cake.”
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"The real problem with Europe has nothing to do with money. It has to do with heavy labor regulations, high tax rates, government spending, and excessive redistribution." ...
"Using central banks to fix problems caused by fiscal mistakes just creates bigger problems. Negative interest rates are just such a policy."
Reminds me of points people here have been making about US monetary policy:
http://dogbrothers.com/phpBB2/index.php?topic=1948.msg79953#msg79953
"It isn't a Monetary Problem"
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"The real problem with Europe has nothing to do with money. It has to do with heavy labor regulations, high tax rates, government spending, and excessive redistribution." ...
"Using central banks to fix problems caused by fiscal mistakes just creates bigger problems. Negative interest rates are just such a policy."
Reminds me of points people here have been making about US monetary policy:
http://dogbrothers.com/phpBB2/index.php?topic=1948.msg79953#msg79953
"It isn't a Monetary Problem"
I'd bet he has. If you Google Wesbury, this forum pops up.
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http://michaeljdaugherty.com/2014/06/09/ftc-takes-gloves-just-getting-started/
Michael J. Daugherty
Folks, the Federal Trade Commission has only just begun to take off their gloves in their 21st Century updating of medieval torture. While their old machines are in the museums, their new tactics have gone high tech and LabMD is tightly strapped to their slab.
All professional tyrants and bullies have plenty of tricks up their sleeves. This nest is no exception. For starters, the FTC seduced Congress into allowing the FTC to make their own rules and have their own Administrative Court . This is very handy when the judge makes an adverse decision, as the commissioners sit above him and can flip his decision like a Sunday morning omelette. Yes, we spend months and millions in an Administrative Court and if the FTC jailers don’t like the ruling they can just overturn it. Prosecutors in the real world would kill for this type of power, and with that in their back pocket, off the FTC goes choosing from their smorgasbord of tricks and tactics, due process and fair notice be damned. Here is a sampler:
Trick One: Use the court (inside the FTC building called the Administrative Court) to drain the victim dry by making him spend millions defending himself. Always good to starve the victim to get a nice loose skin. The courts have ruled repeatedly that they won’t interfere until this bloodletting is completed. Once this is over, off you go to Federal court to pay the game again.
Trick Two: Allow the media to assume, using the very well worn FTC habit of lying through omission, that the judge decides on motions to dismiss. This is a lie. The FTC decides what the judge sees. The FTC likes to keep a bag over the judge’s head because cowards don’t deign to play fair.
Trick Three: Break every rule in the book if you have to, as the FTC banks on your very short attention span. For example, in our trial the FTC has rested their case. Does that stop them from trying to enter additional evidence as their case implodes? Why don’t be silly! Rules don’t apply to the Gods. They are just laying bread crumbs on the trail to flipping Judge Omelette.
Trick Four: Scare every future organization into early submission by making the execution of LabMD particularly dirty and gruesome. Show no shame. Sink as low as possible. Destroy a cancer detection center. Kill jobs. Trample into healthcare like a bull in a china shop. Lie, cheat, and be so outrageous that the mention of your name makes every CEO run for cover. After all, this is America. The FTC knows all too well the odds of their being held accountable are laughably low.
While this is just a sampler from the FTC’s menu, let me assure you that they aren’t done with me. Hell hath no fury like cowards caught in the act.
Is Congress beginning to wonder what the hell is going on over at the FTC? Congress rarely acts, the media doesn’t report and the American people don’t pay attention. The FTC banks on it. But so far we have pleading of the 5th and more fun to come. The FTC’s utter lack of integrity will be put on display for all the world to see. Maybe this time things will be different.
I understand you may find my acid words over the top and dramatic. To this I implore, “Watch and remember.” As I mentioned to an FTC lawyer just this past weekend: Shameless.
P.C.
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The Consumer Price Index Increased 0.4% in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/17/2014
The Consumer Price Index (CPI) increased 0.4% in May versus consensus expectations of a 0.2% rise. The CPI is up 2.1% versus a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) rose 0.4% in May and is up 2.0% in the past year.
Food prices increased 0.5% in May, while energy rose 0.9%. The “core” CPI, which excludes food and energy, increased 0.3%, above consensus expectations of 0.2%. The gain in core prices was led by shelter and core prices are up 2.0% versus a year ago.
Real average hourly earnings – the cash earnings of all employees, adjusted for inflation – declined 0.2% in May, and are down 0.1% in the past year. Real weekly earnings are also down 0.1% in the past year.
Implications: The long-awaited acceleration in inflation is finally here and is sure to be a hot topic of conversation at the Federal Reserve meeting both today and tomorrow. Consumer prices increased 0.4% in May, the most in fifteen months. Energy and food led the way higher, but were not the whole story. The “core” CPI, which excludes food and energy, was up 0.3% in May, the largest gain since 2009. The trend in inflation is starting to show the influence of prolonged loose monetary policy. Although consumer prices are up a moderate 2.1% from a year ago, they’re up at a 3.3% annual rate in the past three months. Core prices are up 2% from a year ago, but up at a 2.8% annual rate in the past three months. In addition, owners’ equivalent rent (the government’s estimate of what homeowners would charge themselves for rent), which makes up about ¼ of the overall CPI, is up 2.6% from a year ago but up at a 2.8% annual rate in the past three months. This measure will be a key source of the acceleration in inflation in the year ahead, in large part fueled by the shift toward renting rather than owning. Plugging today’s CPI data into our models suggests the Fed’s preferred measure of inflation, the PCE deflator, probably increased 0.3% in May. If so, it would be up 1.8% from a year ago, barely below the Fed’s target of 2%. We expect to hit and cross the 2% target later this year, consistent with our view that the Fed starts raising short-term interest rates in the first half of 2015. Expect tomorrow’s Fed announcement to include a continued taper of quantitative easing, keeping the Fed on pace to finish expanding its balance sheet this Fall. Also pay close attention to how Fed Chair Janet Yellen talks about inflation in her press conference. A lack of concern would bolster the case that, despite a public target of 2% inflation, the Fed intends to let inflation move and stay higher. If so, that’s a bad sign for bonds and, at least in the near term, a good one for equities.
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"The long-awaited acceleration in inflation is finally here"
Wesbury is the expert, my my thoughts...
Inflation is / was the increase of the money supply we all saw happen while growth in goods and services was approximately zero. Price increases are what most certainly follow excess money growth as a consequence.
CPI is a notoriously inaccurate economic measure (like almost all other highly reported economic measures). The real amount of inflation is unknown.
The above quote is surprising; long awaited, like we all knew this was coming. I don't recall him warning us much of the dangers of what we were doing with our money supply. I thought it was us warning him! Maybe it's just me, but what I was hearing from the optimists was denial of what was most certainly happening.
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Doug:
I am going to challenge you here. Go back and you will see him consistently warning that this would come.
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http://www.humanevents.com/2008/02/25/brian-wesbury-sees-no-recession-ahead/
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I met a few people who sold within the year before 2009. They seemed to see something coming.
I read the housing situation is now being duplicated with bad loans on the housing thread.
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Doug: I am going to challenge you here. Go back and you will see him consistently warning that this would come.
You are right he has warned that QE has gone on too long, should have tapered sooner, and we are risking price increases ahead. At the same time he seemed to be in denial that the money supply was going up at an alarming rate all this time. He denies that the stock market's remarkable (nominal) rise was largely more money chasing the same old companies in a stagnant economy. He keeps giving us other reasons for the equity increases, but growth in actual goods in services has been at a fraction of the rate of monetary expansion over the last 5 years.
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Energy Markets Are On The Brink Of Crisis
Thursday, 19 June 2014 04:17 Brandon Smith www.alt-market.com
The multitudes of people, especially Americans, who view U.S. government activity in a negative light often make the mistake of attributing all corruption to some covert battle for global oil fields. In fact, the average leftist seems to believe that everything the establishment does somehow revolves around oil. This is a very simplistic and naïve view.
Modern wars are rarely, if ever, fought over resources, despite what the mainstream gatekeepers might tell you. If a powerful nation wants oil, for instance, it lines the right pocketbooks, intimidates the right individuals, blackmails the right officials or swindles the right politicians. It has no need to go to war when politicians and nations are so easily bought. Modern wars, rather, are fought in order to affect psychological change within a particular country or population. Wars today are fought to cover up corrupt deals and create desperation. Oil is used as an all-encompassing excuse for war, but it is never the true cause of war.
In reality, oil demand has become static and is even falling in many parts of the world, while new oil and gas-producing fields are discovered on a yearly basis. Petroleum is not a rare resource — at least, not at the present. And the propaganda surrounding the “peak oil” Armageddon scenario is pure nonsense. Oil prices, unfortunately, do not rise and fall according to supply - instead they rise and fall according to market tensions and, most importantly, the value and perceived safety of the U.S. dollar. Supply and demand have little to do with commodity values in our age of fiat manipulation and false investor perception.
That said, certain political and regional events are currently in motion that could, in fact, change investor perception to the negative, and convince the world of a false fear of reduced supply. While supply is more than ample, the expectation of continued supply can be jilted, shocking commodities markets into running for the hills or rushing into mass speculation, generally resulting in a sharp spike in prices.
A very real danger within energy markets is the undeniable threat that the U.S. dollar may soon lose its petrodollar status and, thus, Americans may lose the advantage of relatively low gas prices they have come to expect. That is to say, the coming market crisis will have far more to do with the health of the dollar than the readiness of supply.
In the span of only a few years, as the derivatives crisis took hold and the fed began its relentless bailout regime, petroleum costs have doubled. It wasn’t that long ago that someone could fill his vehicle's tank with a $20 bill. Those days are long gone, and they are not coming back. The expectation has always been that prices would recede as the overall economy began to heal. Of course, our economy will not be healed until it is allowed to crash, as it naturally should crash. And as it crashes, because of our currency's unique place in history, the price of oil will continue to climb.
The petrodollar has always been seen as invincible — a common denominator, a mathematical constant. This is a delusion propagated by a lack of knowledge and common sense amongst establishment economists.
As I have covered in great detail in numerous articles, the U.S. dollar’s world reserve status is nearing extinction. Multiple major economies now trade bilaterally without the use of the dollar; and with foreign conflicts on the rise, this trend is going to become the norm.
In the past week alone, Putin adviser Sergey Glazyev recommended to the Kremlin that a coalition of nations be formed to end the dollar's reserve status and initiate a form of economic warfare to stop "U.S. aggression". Of course, anyone familiar with the escapades of international banking cartels knows that it is the money elite that dictate U.S. aggression, just as they dictate the policy initiatives of Russia. I would note that there is only ONE currency exchange structure that could be used at this time to shift global forex reserves away from the dollar system, and that is the IMF's Special Drawing Rights.
The argument has always been that the IMF is a U.S. controlled institution, however, this is a faulty assumption. The IMF is a GLOBAL BANKER controlled institution, a front organization for the Bank of International Settlements, which is why the recent refusal by the U.S. Congress to vote on new capital allocations for the IMF has resulted in the world's central bank threatening to remove U.S. veto power. Globalists have no loyalty to any single nation, and the reality is, the fall of the dollar actually benefits these financiers in the long term.
Russia’s historic oil and gas deal with China, just signed weeks ago, removes the dollar as the petroleum reserve currency.
Russia’s largest gas company, Gazprom, has all but excluded the dollar in all transactions with foreign nations. In fact, nine out of 10 of Gazprom’s foreign clients were more than happy to buy their products without using dollars. This fact cripples the arguments of dollar cheerleaders who have always claimed that even if Russia broke from the dollar, no one else would go along.
Gazprom and the Russian government have followed through with their threats to cut off gas pipelines to Ukraine, and now, some analysts fear this strategy may extend to the EU, in which many countries are still 30% dependent on Russian energy.
China is currently striking oil deals not only with Russia but also with Iran. New oil deals are being signed even after a $2 billion agreement fell through this spring. And, despite common misinformation, it was actually China that was reaping the greatest rewards through the reopening of Iraqi oil fields, not the U.S., all while U.S. military assets were essentially wasted in the region.
Now, any U.S. benefits are coming into question as Iraq disintegrates into chaos yet again. With the speed of the new Islamic State of Iraq and Syria (ISIS) insurgency growing, it is unclear whether America will have ANY access to Iraqi oil in the near future. If ISIS is successful in overrunning Iraq, it is unlikely that Iraqi oil will ever be traded for dollars again. Unrest in Iraq has already caused substantial market spikes in oil prices, and I can say with considerable confidence that this trend is going to continue through the rest of the year.
Interestingly, mainstream news sources suggest that Saudi Arabia has been a primary funding source for the ISIS movement. It is true that the Saudis have warned for years that they would fund and arm Sunni insurgents if America ever pulled out of the country. But, I would point out that the U.S. has also been covertly supporting such extremist groups in the Mideast for quite some time, and this is not discussed at all in the MSM storyline. The mainstream narrative is painting a picture of betrayal by the Saudis against the U.S. through subversive groups designed to break the foundations of nations opposed to its policy views. When, in fact, the destabilization of Iraq has been nurtured by money and weapons from both America and Saudi Arabia.
It was the CIA which trained ISIS insurgents secretly in Jordan in preparation for their subversive war in Syria. It was an agreement signed by George W. Bush and delegated under Obama's watch that allowed ISIS leader, Abu Bakr al-Baghdadi, to be set free in 2009. Saudi Arabia has been openly arming the Sunni's for years with the full knowledge of the U.S. government. So then, why is the narrative being created that America and Saudi Arabia are at odds over ISIS?
Such a development would place the U.S. squarely in conflict with the Saudi government, our only remaining toehold in the global oil market. Without Saudi Arabia’s patronage of the dollar, most OPEC nations will follow (including Kuwait), and the dollar WILL lose its petrodollar status. Period.
In the past few days, Saudi Arabia has demanded that the foreign interests refrain from any military intervention in Iraq. While Barack Obama has repositioned an aircraft carrier, armed troops, and special forces in the area.
Now, my regular readers understand that this was going to happen eventually anyway. The Federal Reserve’s quantitative easing bonanza has destroyed true dollar value and spread unknown trillions of dollars in fiat across the planet. The dollar’s death has been assured. It has been slated for execution. This is why half the world is positioning to dump the currency altogether. My regular readers also know that the destruction of the dollar is not an accident; it is part of a carefully engineered strategy leading to the centralization of all economic power under the umbrella of a new global currency basket system controlled by the International Monetary Fund.
I believe Saudi Arabia may be a near term trigger in the next great shift in petroleum markets away from the dollar. Renewed U.S. involvement in Iraq, diplomatic tensions over ISIS, and more lucrative offers from Eastern partners have been edging Saudi Arabia away from strict petrodollar ties. This shift is also not limited to Saudi Arabia.
“Abu Dhabi, the most influential member of the United Arab Emirates,” has suddenly ended its long-standing exclusive relationship with Western oil companies and has signed a historic deal with China’s state-owned China National Petroleum Corporation (CNPC).
Russia has formed the new Eurasian Economic Union with Belarus and Kazakhstan, two countries with freshly discovered oil fields.
On the surface, it appears as though the world is huddling itself around oil resources in an environment of East versus West conflict. However, these changes are not as much about petroleum as they are about the petrodollar. The reality is the dollar’s reserve-status days are numbered and this is all part of the plan.
What does this mean for us? It means much higher gas prices in the coming months and years. Is $4 to $5 per gallon gasoline a burden on your pocketbook? Try $10 to $11 per gallon, perhaps more. Do you think the economy is straining as it is under the weight of current gas prices? Imagine the earthquake within our freight-based system when the cost of trucking shipments triples. And guess who will end up paying for the increased costs? That’s right: you, the consumer. High energy prices affect everything, including shelf prices of retail goods. This is just the beginning of what I believe will be ever expanding inflation in oil prices, leading to the end of the dollar’s petroleum reserve status, then it's world reserve status by default, and the introduction of a basket currency system that will ultimately benefit a select few global financiers while diminishing the quality of living for millions, if not billions, of people.
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Monday Morning Outlook
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Dollar Ain't Losing Its Reserve Status To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/23/2014
A staple of the doomsday crowd is the idea that the US is on the verge of losing its “reserve currency” status. It’s held that prominent financial position since the end of World War II. But, now, the doomsday crowd argues the US economy is in a bubble, the Fed is printing money like crazy, government spending and regulation on the rise, so it’s just a matter of time.
Get ready they say, the dollar will plummet in value and interest rates will skyrocket, even above where US economic fundamentals suggest they should go, hurtling the economy back into deep recession.
Over the centuries, the world has typically had one key currency - the Greek drachma or Roman denari in ancient times or the British Pound or US Dollar in modern times. Other currencies get their value in comparison and have used these currencies as reserves. Perhaps the best thing for a country issuing the world’s reserve currency is that it attracts capital from abroad, which lets it run prolonged trade deficits with the rest of the world.
The one thing they all have in common – at least, all the ones that preceded the dollar – is that they eventually lost their status. So, it’s easy to believe this could happen to the US, especially with all the bad things going on.
Other countries in competition with the US like to egg these stories on and, sometimes, wish they could dislodge the US from its pedestal. So, Russia, or China, or some OPEC countries talk about re-denominating transactions.
But this is just talk. The US reserve currency status doesn’t hinge on how countries denominate their transactions. They could do the accounting in dominoes or tiddlywinks. In the end, what matters is what foreigners want to own when the deal is done. And that’s still dollars.
The dollar share of foreign central bank reserves – what foreign central banks hold to back up their own currencies – has gradually declined since 1999, to about 61% from 71%. But that decline follows a large spike in the 1990s. The dollar share of reserves today is actually higher than it was in 1995, before the Euro was created. Seriously, what currency could compete?
The Chinese Yuan? It’s not traded outside China. The country is not free, and the currency is really just 30-years old.
The Euro? In a crisis, Germany could leave the currency union, as was rumored a couple of years ago. It’s hard to imagine a Germany-less Euro holding its value over time.
The British Pound? One key reason the pound lost its reserve currency status is that the empire dissolved. That’s not coming back and the GDP of the UK isn’t large enough.
The Yen? That train left the station when population and the economy peaked years ago.
The US doesn’t have to issue the best currency in human history to keep its reserve currency status; it just has to issue what’s most likely to be the best among its current competitors.
We do have to admit that the Swiss Franc is one darn good currency. Over the past several decades it has generally gained value versus the dollar and we wouldn’t at all be surprised if that trend continued. But Switzerland has a population of 8 million people with a GDP of about $650 billion and a national debt of roughly $125 billion. The world needs much more debt and GDP for foreign central banks to use the Swiss Franc to back up their currencies in a responsible fashion.
In other words, you can look all across the globe and not find a worthy successor to the US Dollar. This won’t stop the doomsday stories, but, hopefully, it will help you ignore them. The dollar is here to stay, for a long time to come.
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Refer back to Wesbury's 2008 prediction.
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Here is the "money quote" (pun intended) from Brandon Smith's article I posted earlier:
As I have covered in great detail in numerous articles, the U.S. dollar’s world reserve status is nearing extinction. Multiple major economies now trade bilaterally without the use of the dollar; and with foreign conflicts on the rise, this trend is going to become the norm.
In the past week alone, Putin adviser Sergey Glazyev recommended to the Kremlin that a coalition of nations be formed to end the dollar's reserve status and initiate a form of economic warfare to stop "U.S. aggression". Of course, anyone familiar with the escapades of international banking cartels knows that it is the money elite that dictate U.S. aggression, just as they dictate the policy initiatives of Russia. I would note that there is only ONE currency exchange structure that could be used at this time to shift global forex reserves away from the dollar system, and that is the IMF's Special Drawing Rights.
The argument has always been that the IMF is a U.S. controlled institution, however, this is a faulty assumption. The IMF is a GLOBAL BANKER controlled institution, a front organization for the Bank of International Settlements, which is why the recent refusal by the U.S. Congress to vote on new capital allocations for the IMF has resulted in the world's central bank threatening to remove U.S. veto power. Globalists have no loyalty to any single nation, and the reality is, the fall of the dollar actually benefits these financiers in the long term.
Russia’s historic oil and gas deal with China, just signed weeks ago, removes the dollar as the petroleum reserve currency.
Russia’s largest gas company, Gazprom, has all but excluded the dollar in all transactions with foreign nations. In fact, nine out of 10 of Gazprom’s foreign clients were more than happy to buy their products without using dollars. This fact cripples the arguments of dollar cheerleaders who have always claimed that even if Russia broke from the dollar, no one else would go along.
One of these guys is wrong. Note well that Wesbury has a paid advisory relationship with the Federal Reserve Bank of Chicago, and thus a vested interest in promoting the idea that the dollar is stable, along with the U.S. economy...
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He also has a FAR better track record than we do over the last six years.
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He also has a FAR better track record than we do over the last six years.
I agree with Wesbury on the reserve currency debate. If we keep going down the tubes while other nations get their act together, then that status shifts to the next USA of the world. In the 1960s-1970s, the communists didn't buy oil from the Arabs in US Dollars because somebody liked us. It was a reluctant business decision, based on stability and predictability of value. At the point where we lose reserve currency status, it will be a symptom, not a cause, of everything that is wrong.
Obama, Pelosi-Reid years aside, the IMF and the yuan are no contest for a healthy US economy. (http://www.imf.org/external/country/Index.htm) And if they ever do get their collective act together, that only helps us all the more.
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"Healthy" is the operative word there. I don't see any reason to believe the U.S. economy will become "healthy" before it crashes. Thus the very real risk that the dollar will lose its reserve status.
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"Healthy" is the operative word there. I don't see any reason to believe the U.S. economy will become "healthy" before it crashes. Thus the very real risk that the dollar will lose its reserve status.
You may be right. But we will lose that status when we deserve to lose it, not because of other entities or events around the globe. I looked at the IMF list of countries with Albania, Algeria, Angola, etc. and I don't see a perfect data set coming from there either. IMF without the USD and a few other strong and free countries isn't anything formidable. Japan had what we are trying to avoid, China isn't without risk, and Europe has some dead wood: Portugal, Italy, Ireland, Greece and Spain.
The US economy will be healthy the instant we repeal the current nonsense and destructiveness. Whether that is before or after the crash is up to the voters.
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He also has a FAR better track record than we do over the last six years.
Aside from missing the 2008 crash, he predicted 8 of last zero recoveries since then.
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Well, he got that the market was going up big time whereas we clever folks here missed a move of over 150%. I sure wish I had done nothing and let me investments sit in simple conservative things. I would be in distinctly different shape now if I had. Profit over prophet!
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Amazing what prescience knowledge of the Fed's massive inflation of the money supply will give one in the SHORT-TERM, isn't it? I'll say it again - if you timed things right, and you got out NOW, and put your earnings into gold and silver, yeah - you'd be in a better position. But you wouldn't do that. You'd continue to ride it until it crashed and then you'd be looking at a 50% loss from your ORIGINAL position. Be careful what you wish for, Crafty.
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http://www.bizzyblog.com/2014/06/25/1q14-gross-domestic-product-3rd-reading-062514/
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http://www.bizzyblog.com/2014/06/25/1q14-gross-domestic-product-3rd-reading-062514/
1st Qtr US contraction is now at 3%.
GDP growth in North Dakota was 13%. It is as if we are not all pursuing th same policies.
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EXACTLY, Doug - this contraction, this devastation of the economy is a DIRECT RESULT OF POLICY. Sadly, most Americans evidently don't blame the Obama administration.
With the assistance of the traitorous establishment media, Obama has been able to portray himself as detached and above all this. Why, he's doing everything in his power to turn things around and make them better! If it weren't for those nasty, evil Republicans - all would be well.
This is the sad state of our present voter base - a large percentage of them believe this crap. Why? 40 years of government education.
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A less optimistic view than we have been seeing:
No Bubble?
June 27, 2014 by Doug Nolan, Prudent Bear
http://www.prudentbear.com/2014/06/no-bubble.html#.U7HYc1OJVld
Fed hawks are beginning to make some noise.
...the Bubble is so comprehensive – so systemic – that the greatest financial Bubble in human history somehow goes largely unappreciated – hence unchecked.
...The past 25 years have been unique in financial history. Indeed, the world is trapped in a perilous experiment with unfettered finance - with no limits on either the quantity or quality of Credit created. Closely associated with this trial in unchecked electronic finance (“money” and Credit) has been runaway experimentations in “activist” monetary management. Just as crucial is the experiment in unconventional economic structure – including the deindustrialization of the U.S. economy, with the corresponding unprecedented expansion of industrial capacity throughout China and Asia. This has engendered a period of unmatched global economic and financial imbalances – best illustrated by the massive and unrelenting U.S. Current Account Deficits and the accumulation of U.S. IOU’s around the globe.
...there has been no effort to reform either a patently flawed global financial “system” or a reckless policymaking doctrine. Instead, global central bankers have turned only more “activist,” drifting further into the bizarre (that passes for “enlightened”). The world’s leading central banks have resorted to rank inflationism, massive “money” printing operations specifically to inflate global securities markets. And the resulting raging “bull” markets ensure bullishness and a positive spin on just about everything. The sophisticated market operators play the speculative Bubble for all its worth, while the unsuspecting plow their savings into stock and bond Bubbles.
Credit is inherently unstable. Marketable debt instruments exacerbate instability. A financial system where Credit expansion is dominated by marketable debt (in contrast to “staid” bank loans) is highly unstable - I would argue unwieldy, whimsical and prone to manipulation. And a monetary policy regime that specifically nurtures and backstops a system dominated by marketable securities and associated speculation is playing with fire. Importantly, the more deeply central bankers intervene and manipulate such a system and the longer it is allowed to inflate – the more impossible for these central planners to extricate themselves from the financial scheme.
I’m fond of a relatively straightforward analysis that does a decent job of illuminating the state of ongoing U.S. (marketable securities) Bubbles. From the Fed’s Z.1 “flow of funds” data, I tally Total Marketable Debt Securities (TMDS) that includes outstanding Treasury securities (not the larger Federal liabilities number), outstanding Agency Securities (MBS & debt), corporate bonds and municipal debt securities.
My calculation of TMDS began the 1990’s at $6.28 TN, or an already elevated 114% of GDP. Led by explosive growth in GSE and corporate borrowings, TMDS ended the nineties at $13.59 TN, for almost 120% growth. Over this period, GSE securities increased $2.65 TN, or 209%, to 3.916 TN. Corporate bonds jumped 185% to $4.564 TN. It is worth noting that total Business borrowings expanded 9.2% in 1997, 11.5% in 1998 and 10.4% in 1999, excess that set the stage for the inevitable bursting of the “tech” Bubble.
The Fed’s aggressive post-tech Bubble reflation ensured already dangerous excess was inflated to incredible new extremes. On the back of a doubling of mortgage borrowings, TMDS expanded 102% in the period 2000 through 2007 to $27.50 TN. Over the mortgage finance Bubble period, Agency Securities jumped 89% to $7.40 TN. Corporate bonds surged 154% to $11.577 TN. Municipal bonds rose 135% to $3.425 TN.
This unprecedented Credit expansion fueled various inflationary manifestations, including surging asset prices, spending, corporate profits, investment, GDP and trade/Current Account Deficits. After beginning the nineties at $6.227 TN, the value of the U.S. equities market surged 409% to end the decade at $19.401 TN. As a percentage of GDP, the nineties saw TMDS jump from 114% to 147%. Spurred by crazy technology stock speculation, Total Securities – TMDS plus Equities – jumped from 183% of GDP to end 1999 at 356%. Although Total Securities to GDP retreated to 284% by 2002, mortgage finance Bubble excesses quickly reflated the Bubble. Total Securities ended 2007 at a then record 378% of GDP.
A “funny” thing happened during the post-mortgage Bubble’s so-called “deleveraging” period. Since the end of 2008, total TMDS has jumped $8.348 TN, or 29%, to a record $37.542 TN. As a percentage of GDP, TMDS ended Q1 2014 at a record 220%. Even more importantly from a Bubble analysis perspective, in 21 quarters Total Securities (debt & equities) inflated $27.2 TN, or 61%, to end March 2014 at a record $72.039 TN. To put this in context, Total Securities began 1990 at $10.0 TN, ended 1999 at $33.0 TN and closed 2007 at a then record $53.01 TN. Amazingly, Total Securities as a percent of GDP ended Q1 at 421%. For comparison, Total Securities to GDP began the nineties at 183%, ended Bubbly 1999 at 356% before peaking at 378% in a more Bubbly 2007. No Bubble today? “Valuations in historical range”?
Let’s return to “A Bubble is predicated on leverage.” Yes, Total Household Liabilities declined $715bn from the 2008 high-water mark (much of this from defaults). Yet over this period federal liabilities increased almost $10.0 TN. Corporate borrowings were up more than $2.3 TN. On a system-wide basis, our system is inarguably more leveraged today than ever.
Many contend there is significantly less speculative leverage these days compared to the heyday (“still dancing”) 2007 period. I’m not convinced. Perhaps there’s less leverage concentrated in high-yielding asset- and mortgage-backed securities. However, from today’s vantage point, there appears to be unprecedented “carry trade” leverage on a globalized basis. I’ve conjectured that the “yen carry trade” – using the proceeds from selling (or borrowing in) a devaluing yen to speculate in higher-yielding securities elsewhere – could be one of history’s biggest leveraged bets. Various comments also suggest that there is enormous leverage employed in myriad Treasury/Agency yield curve trades. I suspect as well that the amount of embedded leverage in various securities and derivative trades in higher-yielding corporate debt is likely unprecedented.
When it comes to leverage, the Federal Reserve’s balance sheet is conspicuous. Fed Assets will end the year near $4.5TN, with Federal Reserve Credit having expanded about $3.6 TN, or 400%, in six years. Few, however, appreciate the ramifications from this historic monetary inflation from the guardian of the world’s reserve currency. I find it astonishing that conventional thinking dismisses the market impact from this unprecedented inflation of central bank Credit.
Over the years, I have argued that “money” is integral to major Bubbles. A Bubble financed by junk debt won’t inflate too far before the holders of this debt begin to question the rationale for holding rapidly expanding debt of suspect quality. In contrast, a Bubble fueled by “money” – a perceived safe and liquid store of nominal value – can inflate for years. The insatiable demand enjoyed by issuers of “money” allows protracted excesses and maladjustment to impart deep structural impairment (financial and economic).
I’m convinced history will look back and view 2012 as a seminal year in global finance. Draghi’s “do whatever it takes,” the Fed’s open-ended QE, and the Bank of Japan’s Hail Mary quantitative easing will be seen as a fiasco in concerted global monetary management. The Fed’s QE3 will be viewed as an absolute debacle. After all, QE3 incited an unwieldy “Terminal Phase” of speculative Bubble excesses throughout U.S. equities and corporate debt securities, along with global securities markets more generally. It unleashed major distortions throughout all markets, including sovereign debt.
A quick one-word refresher on “Terminal Phases:” Precarious. Their inherent danger arises from egregious late-cycle speculative excess and attendant maladjustment coupled with timid policymakers. Over recent years I have repeatedly invoked “Terminal Phase” in my analyses of a progressively riskier Chinese Bubble backdrop impervious to hesitant policy “tinkering.”
Here at home, we’re beginning to hear the apt phrase “The Fed is behind the curve.” Traditionally, falling “behind the curve” indicated that the central bank had been too slow to tighten policy in the face of mounting inflationary pressures. “Behind the curve” dictated that more aggressive tightening measures were required to rein in excesses. These days, “behind the curve” is applicable to an inflationary Bubble that has taken deep root in stock and bond markets. With the Yellen Fed seen essentially promising to avoid even a little baby-step 25 bps rate bump for another year, highly speculative Bubble markets can blithely disregard poor economic performance, a rapidly deteriorating geopolitical backdrop and the approaching end to QE. Worse yet, market participants are emboldened that “behind the curve” and the resulting dangerous market Bubbles preclude the Fed from anything but the most timid policy responses. A dangerous market view holds that, after instigating inflating securities markets as a direct monetary policy tool to stimulate the economy, the Fed would not in any way tolerate a problematic market downturn.
June 26 – Bloomberg (Steve Matthews and Jeff Kearns): “Federal Reserve Bank of St. Louis President James Bullard predicted the central bank will raise interest rates starting in the first quarter of 2015, sooner than most of his colleagues think, as unemployment falls and inflation quickens. Asked about his forecast for the timing of the first interest-rate increase since 2006, he said: ‘I’ve left mine at the end of the first quarter of next year.’ ‘The Fed is closer to its goal than many people appreciate,’ Bullard said… ‘We’re really pretty close to normal…’ If his forecasts bear out, ‘you’re basically going to be right at target on both dimensions possibly later this year… That’s shocking, and I don’t think markets, and I’m not sure policy makers, have really digested that that’s where we are.’”
The same day Bullard was talking hawk-like, Federal Reserve Bank of Richmond President Jeffrey Lacker was also making comments that should have the markets on edge. Countering uber-dove Yellen, Lacker stated that the recent jump in inflation was not entirely “noise.” Interestingly, he suggested that the Fed follow closely the FOMC’s 2011 exit strategy. “It’s not obvious to me a larger balance sheet should change any of our exit principles. I still think we should, as our exit principles say, be exiting from mortgage backed securities as soon as we can...” And following the lead of Kansas City Fed head Esther George, Lacker believes the Fed should allow its balance sheet to begin shrinking by ending the reinvestment of interest and maturity proceeds. Bullard also said the Fed should consider ending reinvestment.
Market ambivalence notwithstanding, I’m sticking with my analysis that the Fed can’t inflate its balance sheet from $900bn to $4.5 TN – and then end this massive monetary inflation without consequences. Things get even more interesting when talk returns to the Fed’s 2011 “exit strategy” road map. Regrettably, instead of exiting the Fed doubled-down – literally. And Dr. Bernanke may now say (while earning $250k) that the Fed’s balance sheet doesn’t have to shrink even “a dime.” Yellen and Dudley likely agree. But there’s now a more hawkish contingent that has other things in mind, and I don’t believe they will be willing to simply fall in line behind Yellen as officials did behind Greenspan and Bernanke.
Actually, I believe the so-called “hawks” (i.e. responsible central bankers) are gearing up to try to accomplish something that might these days appear radical: normalize monetary policy. Read “Systematic Monetary Policy and Communication” presented this week by Charles Plosser. Read Esther George’s “The Path to Normalization.” Re-read Richard Fisher. While you’re at it, read John Taylor’s op-ed from Friday’s WSJ: “The Fed Needs to Return to Monetary Rules.” http://online.wsj.com/articles/john-taylor-the-fed-needs-to-return-to-monetary-rules-1403823464 I’m with Taylor (and Plosser!) on having and following rules. I’m also with Bullard: “I don’t think markets… have really digested… where we’re at.”
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http://etfdailynews.com/2014/07/07/why-the-almighty-dollar-is-so-vulnerable-right-now/
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http://www.ftportfolios.com/Commentary/EconomicResearch/2014/7/10/the-fed-ends-qe-but-stays-easy
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http://www.ftportfolios.com/Commentary/EconomicResearch/2014/7/10/the-fed-ends-qe-but-stays-easy
June, 2014, Wesbury: The Fed is Flying by the Seat of its Pants
July, 2014, Wesbury: Fed Still Easy
Both Grannis and Wesbury have opposed QE as it was carried out. Both believe Fed Policy has been too easy for far too long. (As do we, I think.) If the monetary or liquidity policy has been far too expansive for far too long, then what (do they say) is the consequence for that? Nothing? A large mistake has a large consequence, it seems to me, unless there is some other factor offsetting that imbalance.
Curious, what was Wesbury's forecast for Q1? What is his Q2 forecast? Q2 is over and if the problem turns out to be weather, again, we should know that by now! Other pros estimate Q2 growth at 2.3% (about the same as they forecasted in Q1, off by more than 5 points.) http://businessroundtable.org/resources/ceo-survey/2014-Q2 But if after months of revisions it turns out growth was negative, again, then we have been in a recession since December of last year - and no one knew! If the economy hits the estimate, then combining the two quarter still means this is a no-growth, slightly contracting economy. If we had hit all the positive estimates all along (and we didn't!) then we would still only be growing at half the rate we should be under better policies (that both Wesbury and Grannis would favor). That is a little like hitting on 4 cylinders with a V8 engine. We know we have all these new taxes and all these new mandates and yet we are so surprised to see the economy under-performing. It is quite sad in many ways.
The countries we are emulating have half their younger workers not working. Printing more euros and more dollars doesn't address any of what is wrong.
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The Producer Price Index Rose 0.4% in June To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/16/2014
The Producer Price Index (PPI) rose 0.4% in June, coming in above the consensus expected increase of 0.2%. Producer prices are up 1.9% versus a year ago.
The increase in producer prices was due to both services, up 0.3%, and goods, up 0.5%
In the past year, prices for service are up 1.9% while goods prices are up 2.1%. Private capital equipment prices were flat in June but are up 1.5% in the past year.
Prices for intermediate processed goods rose 0.4% June, and are up 1.5% versus a year ago. Prices for intermediate unprocessed goods declined 0.9% in June, but are up 4.2% versus a year ago.
Implications: The volatility in producer prices continues as we reach the half way mark for 2014, but the underlying trend points to some acceleration in inflation. Following a large jump in April and dip in May, producer prices rose 0.4% in June, more than making up for last month’s decline. The gains in producer prices were broad based, with both goods and service prices moving higher. The rise in the final demand goods index was nearly all due to energy, which rose 2.1% in June. Excluding food and energy, goods prices rose 0.1%. Through the first six months of the year, producer prices are up at a 2.8% annual rate, well above the 1.1% rate over the same period last year. The acceleration is most prevalent in prices for goods, which account for nearly 35% of the total index. Goods prices are up 2.1% in the past year but have climbed at a 3.4% annual rate so far in 2014. By contrast, services are up 1.9% from a year ago and have climbed at a 2.4% rate in the past six months. Prices further back in the production pipeline (intermediate demand) do not yet confirm a continued acceleration in inflation. Prices for processed goods are up at a 1.4% annual rate in the past three months, nearly identical to the 1.5% gain over the past year. Prices for unprocessed goods are down at a 2.1% annual rate in the past three months versus a 4.2% gain from a year ago. Taken as a whole, the trend in producer price inflation is hovering around 2%. Given loose monetary policy, this trend will likely move higher in the year ahead. If anything, the Federal Reserve should be tapering quantitative easing faster than it already is. We expect the Federal Reserve to start raising short-term rates in the first half of 2015, not the second half as many now expect.
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Scott Grannis: Buying up trillions of forex and gold reserves is not necessarily a smart thing to do, especially when your currency has been appreciating against almost every other currencies for over 20 years. China's forex losses alone could be staggeringly large. And I'll bet they bought a lot of gold at higher prices than today's. Not to mention what they might lose on their trillions of Treasury holdings if Treasury yields jump.
Japan did something similar back in the day, and it proved to be extraordinarily painful.
On Jul 18, 2014, at 4:43 AM, "XYZ" wrote:
I can only say, that Chinese gold holdings are rising, their aim is to exceed US reserves, or at least have the second highest gold reserve. Their sole goal is to compete and beat the US in every sphere. ..ie be superpower number 1. Whether they succeed, is open to discussion.
"ABC" wrote:
Thanks to all for your comments and articles. Not too long ago I was told by a devoted conspiracy theorist sleuth that China was buying up tons of gold in order to make the Yuan 'gold based' and a (the) potential reserve currency. I told him that wasn't likely and sent the following article which I post below.
http://www.forbes.com/sites/kitconews/2013/08/12/rumors-of-a-chinese-gold-standard-are-overblown-cpms-christian-and-author-jim-rickards/
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The PRC gov't actually has infomercials exhorting the citizenry to buy gold. I think because the anticipate the collapse of the dollar and the rest of the global economic system.
The communists won the Chinese civil war in part because the Nationalists created hyperinflation. This is still remembered in China.
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The Consumer Price Index (CPI) Increased 0.3% in June
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 7/22/2014
The Consumer Price Index (CPI) increased 0.3% in June, matching consensus expectations. The CPI is up 2.1% versus a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) rose 0.3% in June and is up 1.9% in the past year.
Most of the increase in the CPI in June was due to a 1.6% rise in energy prices. Food prices increased 0.1%. The “core” CPI, which excludes food and energy, increased 0.1%, below consensus expectations of a 0.2% rise. The gain in core prices was led by shelter and core prices are up 1.9% versus a year ago.
Real average hourly earnings – the cash earnings of all employees, adjusted for inflation – were flat in June, and are down 0.1% in the past year. Real weekly earnings are also down 0.1% in the past year.
Implications: In her last press conference, Janet Yellen said recent higher inflation readings weren't a problem because the data are "noisy." But, lately, that noise all seems to be coming from the direction of higher inflation. Consumer prices increased 0.3% in June, following a large 0.4% rise in May. Although consumer prices are up a moderate 2.1% from a year ago, this year-over-year number masks a real acceleration. Over the past three months, the CPI is up 3.5% at an annual rate. And if you think three months is just noise, how about the first half of the year? In the first six months of 2014, consumer prices are up 2.7% at an annual rate, a clear acceleration from the 1.5% rate seen through the first six months of 2013. Energy led the way in June, with gasoline prices, up 3.3%, accounting for two-thirds of the increase in the overall index. And while a 0.1% increase in "core" prices in June means core prices are up only 1.9% from a year ago, they are still up an annualized 2.5% in the past three months. In addition, owners’ equivalent rent (the government’s estimate of what homeowners would charge themselves for rent), which makes up about ¼ of the overall CPI, is up 2.6% over the past 12 months. This measure will be a key source of the acceleration in inflation in the year ahead, in large part fueled by the shift toward renting rather than owning. The worst news in today’s report was that “real” (inflation-adjusted) average hourly earnings remained flat in June and are down 0.1% in the past year. Plugging today’s CPI data into our models suggests the Fed’s preferred measure of inflation, the PCE deflator, probably increased 0.2% in June. If so, it would be up 1.7% from a year ago, barely below the Fed’s target of 2%. We expect to hit and cross the 2% target later this year, consistent with our view that the Fed starts raising short-term interest rates in the first half of 2015.
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The President of the Dallas Fed says there are dangers from having monetary policy be too loose for too long. Both Wesbury and Scott Grannis think the Fed has already been "too loose for too long'. Why do we think there will be no consequence from that?
http://online.wsj.com/articles/richard-fisher-the-danger-of-too-loose-too-long-1406499266
The Danger of Too Loose, Too Long
With an improving labor market and an uptick in inflation, the danger now is to wait too long to tighten.
By RICHARD W. FISHER
July 27, 2014 6:14 p.m. ET
I have grown increasingly concerned about the risks posed by current monetary policy.
First, we are experiencing financial excess that is of our own making. There is a lot of talk about "macroprudential supervision" as a way to prevent financial excess from creating financial instability. But macroprudential supervision is something of a Maginot Line: It can be circumvented. Relying upon it to prevent financial instability provides an artificial sense of confidence.
Second, I believe we are at risk of doing what the Fed has too often done: overstaying our welcome by staying too loose, too long. We did a good job in staving off the deflationary and depression risks that were present in the aftermath of the 2007–09 financial crisis. But we now risk fighting the last war.
Given the rapidly improving employment picture, developments on the inflationary front and my own background as a banker and investment and hedge fund manager, I am increasingly at odds with some of my respected colleagues at the policy table of the Federal Reserve as well as with the thinking of many notable economists. The economy is reaching the desired destination faster than we imagined.
Third, should we overstay our welcome, we risk not only doing damage to the economy but also being viewed as politically pliant.
The Fed has been running a hyper-accommodative monetary policy to lift the economy out of the doldrums and counteract a possible deflationary spiral. Much of what we have paid out to purchase Treasurys and mortgage-backed securities has been put back to the Fed in the form of excess reserves deposited at the Federal Reserve banks. As of July 9, $2.517 trillion of excess reserves were parked on the 12 Fed banks' balance sheets, while depository institutions wait to find eager and worthy borrowers to lend to.
But with low interest rates and abundant availability of credit in the nondepository market, the bond markets and other trading markets have spawned an abundance of speculative activity.
There are some who believe that "macroprudential supervision" will safeguard us from financial instability. I am more skeptical. Such supervision entails the vigilant monitoring of capital and liquidity ratios, tighter restrictions on bank practices and subjecting banks to stress tests. All to the good. But whereas the Federal Reserve and banking supervisory authorities used to oversee the majority of the credit system by regulating depository institutions, depository institutions now account for no more than 20% of the credit markets.
I am not alone in worrying about this. In her recent lecture at the International Monetary Fund, Fed Chair Janet Yellen said, "I am also mindful of the potential for low interest rates to heighten the incentives of financial market participants to reach for yield and take on risk, and of the limits of macroprudential measures to address these and other financial stability concerns." She added that "[a]ccordingly, there may be times when an adjustment in monetary policy may be appropriate to ameliorate emerging risks to financial stability."
I believe that time is fast approaching.
Some are willing to tolerate the risk of financial instability because the Fed has yet to fulfill the central bank's mandate of "promot[ing] effectively the goals of maximum employment and stable prices." Where do we stand on those two fronts? Answer: closer than many think.
While it is difficult to define "maximum employment," labor-market conditions are improving smartly, quicker than the principals of the Federal Open Market Committee expected. The commonly cited household survey unemployment rate has arrived at 6.1% a full six months ahead of the schedule predicted only weeks ago by the central tendency of the forecasts of FOMC participants. The U.S. Bureau of Labor Statistics' so-called Jolts (Job Openings and Labor Turnover Survey) data indicate that job openings are trending sharply higher, while "quits" as a percentage of total separations continue to trend upward—a sign that workers are confident of finding new and better opportunities if they leave their current positions.
Wages are beginning to lift. Median usual weekly earnings collected as part of the Current Population Survey are now growing at a rate of 3%, roughly their pre-crisis average. In short, the key variable of the price of labor, which the FOMC feared was stagnant, is beginning to turn upward. It is not doing so dramatically, but wage growth is an important driver of inflation.
The FOMC has a medium-term inflation target of 2% as measured by the personal consumption expenditures (PCE) price index. The 12-month consumer-price index (CPI), the Cleveland Fed's median CPI, and the so-called sticky CPI calculated by the Atlanta Fed have all crossed 2%, and the Dallas Fed's Trimmed Mean PCE inflation rate has headline inflation averaging 1.7% on a 12-month basis, up from 1.3% a few months ago. PCE inflation is clearly rising toward our 2% goal more quickly than the FOMC imagined.
I do not believe there is reason to panic on the price front. But given that the inflation rate has been accelerating, this is no time for complacency either. Some economists have argued that we should accept overshooting our 2% inflation target if it results in a lower unemployment rate. But the notion that we can always tighten policy to bring down inflation after overshooting full employment is dangerous. Tightening monetary policy once we have pushed past sustainable capacity limits has almost always resulted in recession, the last thing we need.
So what to do? My sense is that ending our large-scale asset purchases this fall will not be enough. The FOMC should consider tapering the reinvestment of maturing securities and begin incrementally shrinking the Fed's balance sheet. Some might worry that paring the Fed's reinvestment in mortgage-backed securities might hurt the housing market. But I believe the demand for housing is sufficiently robust to continue improving despite a small rise in mortgage rates. Then early next year, or potentially sooner depending on the pace of economic improvement, the FOMC may well begin to raise interest rates in gradual increments. (more at link)
Mr. Fisher is president of the Federal Reserve Bank of Dallas. This article is excerpted from his speech on July 16 at the University of Southern California's Annenberg School for Communication & Journalism.
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http://www.caseyresearch.com/cdd/western-delusions-vs.-chinese-realities
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Interesting, but I remain a skeptic. Rising interest rates will kill gold, just as they did in the late 70s.
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This isn't the 70's, it's the reset.
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The Fed’s Massive Power Grab
Take your pick of these two jobs. You get to manage a $4+ trillion bond portfolio and have omnipotent control over banks and other financial institutions. Or, you can manage an $800 billion portfolio, control the level of the federal funds rate and manage some regulatory issues. Is this really a hard choice? Well, it certainly doesn’t seem to be for the Federal Reserve.
The Fed has seamlessly morphed from an institution that occasionally intervened in financial markets to a monster that apparently wants to control a great deal of the US financial system. Federal Reserve Board Chair, Janet Yellen, and her fellow central bankers, with virtually no pushback from Congress, are in the process of adopting an entirely new economic management technique called “macroprudential regulation.”
The definition of macroprudential regulation is hard to pin down. In short, it means managing systemic risks. This is done by regulating specific financial system behavior in an attempt to avoid cascading economic problems. The idea is that the Fed can reduce the risks of financial instability for the economy as a whole by regulating certain behaviors.
In practice, what this really means is that the Fed wants to run a monetary policy that it believes is appropriate for the economy as a whole – to keep unemployment low. But, if this overall monetary policy causes too much financial risk, the Fed wants to micro-manage that risk by deeming it a macro-risk. At its root, this is hypocritical.
Everyone knows that when the Fed holds rates too low, this encourages some investors to leverage up more than they would otherwise. For example, in 2004-05, the Fed held the federal funds rate at 1% which helped cause a bubble in housing. But, rather than raising rates at that point, the Fed wants to have the right to regulate home lending activity. It could do this in any number of ways, by raising the capital required by banks to make home loans or possibly putting a limit directly on certain types of loans. That’s macroprudential regulation.
In effect – and the Fed has argued this – the Fed blames banks for bubbles, not its strategy of holding interest rates artificially low. This is central planning to the second degree. The Fed wants to set rates first and then police the impact of those rates as if these decisions are not related.
This is a very dangerous precedent and it moves the US away from the free market while continuing to concentrate the power in the hands of the Fed. In a true free market, monetary policy should not be used to manage the economy. Rather, monetary policy should have one goal – to keep the value of the currency stable.
Unfortunately, as is true with all government institutions, the Fed is always looking to expand its influence and power. Remember when Rahm Emmanuel said, “never let a crisis go to waste.”? The Fed has taken this to heart. In the thirty years, between 1977 and 2007, its balance sheet (the monetary base) averaged 5.4% of US GDP. Today, it’s 22.4%. (!!!!!!!!!!!!!!!!!!!!!!!!) Never, in the history of the United States, outside of the military in World War II, has one government institution been so dominant.
And, under Janet Yellen, the Fed is making a steady, insistent and disciplined argument that growing the Fed’s power is necessary for economic stability. The Fed wants to keep its balance sheet large, hold interest rates low, and regulate banking activities. From a distance this behavior looks awfully like that of the Bank of China.
The alternative would be for the Fed to shrink its balance sheet, hold interest rates where economic fundamentals and the Taylor Rule suggest they should be, and have faith that the free market will police excessively risky behavior. But, the US has entered a new era of doubt about free markets.
This was pre-ordained when Congress passed the Troubled Asset Relief Plan (TARP) in October 2008 – a $700 billion slush fund for the government that was sold as a way to save the world from Wall Street. As President Bush later said, “[We] abandoned free market principles to save the free market system.”
But, by violating free market principles, politicians created conditions which allowed the Fed to justify regulation of the economy in new and broadly expansive ways. Republicans were always the defenders of free markets, but TARP signaled a new era. Now, because the GOP won’t say TARP was a mistake, it has no effective argument against the Fed grabbing more power.
What this means for the economy is that flawed economic models, combined with the very visible hand of regulation, are distorting economic activity and leading the US toward more politicized control of financial markets. What could keep the Fed from lowering capital requirements on clean energy and raising them on fossil fuels? After all, many argue that fossil fuels are destabilizing.
But even more dangerous is that the Fed will hold rates down at artificially low levels for long periods of time in order to bring unemployment back down, all the while believing it can control the risks of easy money by using macroprudential regulation tools.
There are many reasons to disagree with this policy, but the most important is that artificially low rates distort decision making. High-return businesses will lever up unnecessarily and probably show up as bubbles. But some low-return enterprises will wrongly assume that borrowing to expand is still profitable. If resources flow too heavily to low return businesses, the economy will be less efficient and have more danger of inflation.
When rates eventually rise, both these behaviors will be tested and perhaps crack. Rather than trying to figure out where dangerous leverage is being employed, the Fed should put rates at the correct level and keep the whole boom-bust process from happening in the first place.
Congress needs to push back hard against macroprudential regulation, but it’s highly doubtful they will because they don’t understand it. The Fed is expanding its mandate in massive and unprecedented ways. Who is going to stand up and say stop?
Brian S. Wesbury, Chief Economist
Click here for PDF version
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https://s3-eu-west-1.amazonaws.com/nomadcapitalist/7-new-safe-havens.pdf
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The Fed’s Massive Power Grab
...The Fed has seamlessly morphed from an institution that occasionally intervened in financial markets to a monster that apparently wants to control a great deal of the US financial system.
...
I like the Brian Wesbury who speaks out boldly against failing policies much better than the one who tells us things will be just fine no matter how badly we screw things up.
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The Fed’s Massive Power Grab
...The Fed has seamlessly morphed from an institution that occasionally intervened in financial markets to a monster that apparently wants to control a great deal of the US financial system.
...
I like the Brian Wesbury who speaks out boldly against failing policies much better than the one who tells us things will be just fine no matter how badly we screw things up.
Me too.
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Improving Economy, Weaker Guideposts To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/30/2014
Apparently, an improving labor market and higher inflation are not enough to get any signal from the Federal Reserve that short-term interest rates should be higher or QE should end faster than they thought before.
The Fed did what almost everyone expected, leaving short-term rates unchanged and continuing to taper by $10 billion per meeting. As a result, the Fed will buy $25 billion in bonds in August and remains on a path to end quantitative easing at the end of October.
The Fed did make some important changes to the wording of its statement. On the labor market, it removed language saying the jobless rate “remains elevated.” It’s about time considering how consistently the unemployment rate has been dropping faster than the Fed has anticipated.
But the Fed also added important new language, saying “a range of labor market indicators suggests that there remains significant underutilization of labor resources.” So, despite the jobless rate approaching the Fed’s long-term objective, the Fed isn’t going to provide any firm guideposts on how changes in the labor market are going to influence monetary policy. This is very opaque – the opposite of transparency.
Meanwhile, the Fed acknowledged inflation is approaching its long-term target of 2% and removed language about how inflation running persistently below 2% could hurt the economy. However, it’s important to note that what matters most to the Fed isn’t actual inflation but its own forecast of future inflation. And the Fed has yet to issue a forecast that shows inflation higher than 2%.
Unlike the last meeting in June, there was one dissent from a Hawk. Philadelphia Fed bank President Charles Plosser, who thought the Fed shouldn’t pre-commit to leaving rates low for a “considerable period” after QE ends. After his editorial in the Wall Street Journal, we thought Richard Fisher, President of the Dallas Fed would dissent, but surprise, surprise, he voted with the majority. We assume he was mollified by the minor changes in language to the Fed statement.
Overall, today’s statement is consistent with our view that the Fed is already behind the curve and will end up accepting higher inflation in the longer-run than its current 2% target. Fed policy is easy, the Fed is making a commitment to keep its balance sheet larger for longer, and it sees no real urgency to raise rates. All of this will create a boost for equity markets and the economy over the next 12-24 months. And we still think the bond market does not appreciate the danger it faces.
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Monday Morning Outlook
Jackson Hole: A Recipe for Inflation To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/18/2014
On Thursday, The Federal Reserve Bank of Kansas City’s annual retreat in
Jackson Hole, WY will start. The topic of discussion is: “Re-Evaluating Labor
Market Dynamics.”
The title itself says a lot about the Fed’s current mindset. Economists have
been studying labor market dynamics for many, many decades, if not centuries. So,
why does the Fed need to do any re-evaluating?
The answer: the unemployment rate is still 6.2% and other measures of the labor
market are far from robust. This is true even though the Fed has spent trillions on
bonds, boosted its balance sheet to record levels and cut interest rates to zero.
Maybe the Fed should “re-evaluate monetary policy,” or study “the
impact of fiscal policy on the economy” or find “the actual efficacy of
QE.” With all those juicy, and important, policy topics available, why study
the labor market?
Back when Ben Bernanke was Chairman of the Fed, he targeted a 6.5% unemployment rate
to start tightening. Now, Fed Chair Janet Yellen says it’s more complicated
than that. There are more important measures of labor market health.
What’s interesting about all of this is that the Fed is becoming a poster
child for “mission creep.” When the Fed first started in 1913, its job
was to protect the value of the US currency. Then, with passage of the Federal
Reserve Reform Act of 1977, the Fed received a dual mandate – to keep
“the unemployment rate” and inflation low.
This dual mandate was a mistake. The Fed has control over one thing – the
amount of money circulating in the economy. But, money itself cannot create jobs, or
fewer part-time jobs, or increase the labor force participation rate. If printing
money actually created wealth, then we should allow every citizen to counterfeit
their own currency. Of course, this would not work. Counterfeiting is illegal
because you get something for nothing.
No monetary policy expert has argued that the US experienced the crisis of 2008
because the Fed was too tight. And no one, with credentials, argues now that the US
economy is growing slowly because money is scarce.
In other words, monetary liquidity was not, and has not been, a problem for the
economy. As a result, any findings by the Fed that the labor market is not
performing at its full potential can be seen as proof that monetary policy is not
the tool for the job.
As the US learned in the 1980s, over the long-term, a single policy lever cannot
accomplish more than one policy objective. Monetary policy controls inflation in the
long run. Fiscal policy impacts the real economy (GDP and unemployment).
The Fed has now been easy for over five years, so it is impossible to argue that
monetary policy is being used as a short-term tool. If the labor market is still
having problems it must be because fiscal policy is harming potential growth. With
government spending, and especially redistribution, much higher than in the 1990s,
regulation a huge and growing burden, Obamacare, and higher tax rates, it’s no
wonder employment and incomes are lagging.
Unfortunately, the Fed does not see it this way. It is willing to maintain
abnormally, and artificially, low interest rates because the US hasn’t reached
so-called full employment. But those artificially low rates may cause other
problems, like a bubble in some sector, which the Fed has now decided to deal with
using “macro-prudential policy tools.” It sounds really technical, but
it's essentially playing “whack-a-mole” once excesses from easy money
pop up. In effect, the Fed wants to use monetary policy as a long-term policy tool
and deal with short-term monetary problems by using regulatory tools.
In reality, the existence of financial market excesses should prove that Fed policy
is being mishandled. But the Fed will choose to view excesses as a mistake by
financial institutions themselves. Blame the other guy, always.
This is a recipe for falling behind the curve. The Fed is already there and is
likely to stay there for some time to come.
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second post
StealthFlation Defined………………by BDI
StealthFlation:
An intractable economic condition that inevitably arises as unlimited units of
currency compulsively pursue nonproductive wealth assets in a grossly over-leveraged
economy which has been artificially reflated in a desperate and misguided attempt by
monetary authorities to synthetically engineer growth via extreme monetization.
Preventing the real economy on the ground from seeking the healthy normalization and
natural balance of free market forces necessary for genuine productive economic
growth.
Also known as; wishful thinking, and robbing Peter to pay Paul.
This entirely synthesized approach to capital formation has brought us the following
disastrous results:
1) Stealth incendiary inflationary risks to the economy due to latent money velocity
2) Repeat massive unstable asset bubble dislocations
3) Gross misallocation of genuine productive investment capital, stifling the
crucial SME sector
4) Excessive market volatility which stymies business development and trade
5) Lethargic economic activity and growth
6) Massive off-shoring of the manufacturing base
7) Facilitates fantastic fiscal deficit spending sprees
8) Decreases income & real job creation
9) Extreme income inequality
10) Eviscerates the very essence of money itself
Brought to you by The Savant @ StealthFlation , Stop by for Shelter from the Storm
http://slopeofhope.com/2014/08/stealthflation-defined-by-bdi.html#more-37227
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Data Watch
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The Consumer Price Index Increased 0.1% in July To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/19/2014
The Consumer Price Index (CPI) increased 0.1% in July, matching consensus expectations. The CPI is up 2.0% versus a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) was unchanged in July and is up 1.8% in the past year.
Food prices increased 0.3% in July, while energy prices declined 0.3%. The “core” CPI, which excludes food and energy, increased 0.1%, below the consensus expected 0.2%. The gain in core prices was led by owners’ equivalent rent. Core prices are up 1.9% versus a year ago.
Real average hourly earnings – the cash earnings of all employees, adjusted for inflation – were unchanged in July and unchanged in the past year. Real weekly earnings are up 0.3% in the past year.
Implications: Consumer prices continued to move higher in July, though only at the tepid 0.1% pace the consensus expected. Although consumer prices are up a moderate 2% from a year ago, the year-over-year number masks an acceleration. The CPI is up at a 2.5% annual rate in the past six months and up at a 2.8% rate in the past three months. (!!!) Since the start of 2014, consumer prices are up 2.4% at an annual rate versus the 1.2% pace in first seven months of 2013. Owners’ equivalent rent (what homeowners would pay if they were renting their homes from soemone else) led the way in July, up 0.3%, accounting for most of the increase in the overall index. Owners’ equivalent rent, which makes up about ¼ of the overall CPI, is up 2.7% over the past 12 months and will be a key source of the acceleration in inflation in the year ahead, in large part fueled by the shift toward renting rather than owning. And while energy prices declined 0.3% in July, muting the rise in the overall CPI, we expect this measure to move higher in the months ahead, continuing the trend higher we have seen over the past twelve months. The worst news in today’s report was that “real” (inflation-adjusted) average hourly earnings remained flat in July and are unchanged in the past year. Plugging today’s CPI data into our models suggests the Fed’s preferred measure of inflation, the PCE deflator, probably increased 0.1% in July. If so, it would be up 1.6% from a year ago, barely below the Fed’s target of 2%. We expect to hit and cross the 2% target later this year, consistent with our view that the Fed starts raising short-term interest rates in the first half of 2015.
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Hawks Crying Wolf
By PAUL KRUGMAN
AUG. 21, 2014
According to a recent report in The Times, there is dissent at the Fed: “An increasingly vocal minority of Federal Reserve officials want the central bank to retreat more quickly” from its easy-money policies, which they warn run the risk of causing inflation. And this debate, we are told, is likely to dominate the big economic symposium currently underway in Jackson Hole, Wyo.
That may well be the case. But there’s something you should know: That “vocal minority” has been warning about soaring inflation more or less nonstop for six years. And the persistence of that obsession seems, to me, to be a more interesting and important story than the fact that the usual suspects are saying the usual things.
Before I try to explain the inflation obsession, let’s talk about how striking that obsession really is.
The Times article singles out for special mention Charles Plosser of the Philadelphia Fed, who is, indeed, warning about inflation risks. But you should know that he warned about the danger of rising inflation in 2008. He warned about it in 2009. He did the same in 2010, 2011, 2012 and 2013. He was wrong each time, but, undaunted, he’s now doing it again.
And this record isn’t unusual. With very few exceptions, officials and economists who issued dire warnings about inflation years ago are still issuing more or less identical warnings today. Narayana Kocherlakota, president of the Minneapolis Fed, is the only prominent counterexample I can think of.
Now, everyone who has been in the economics business any length of time, myself very much included, has made some incorrect predictions. If you haven’t, you’re playing it too safe. The inflation hawks, however, show no sign of learning from their mistakes. Where is the soul-searching, the attempt to understand how they could have been so wrong?
The point is that when you see people clinging to a view of the world in the teeth of the evidence, failing to reconsider their beliefs despite repeated prediction failures, you have to suspect that there are ulterior motives involved. So the interesting question is: What is it about crying “Inflation!” that makes it so appealing that people keep doing it despite having been wrong again and again?
Well, when economic myths persist, the explanation usually lies in politics — and, in particular, in class interests. There is not a shred of evidence that cutting tax rates on the wealthy boosts the economy, but there’s no mystery about why leading Republicans like Representative Paul Ryan keep claiming that lower taxes on the rich are the secret to growth. Claims that we face an imminent fiscal crisis, that America will turn into Greece any day now, similarly serve a useful purpose for those seeking to dismantle social programs.
At first sight, claims that easy money will cause disaster even in a depressed economy seem different, because the class interests are far less clear. Yes, low interest rates mean low long-term returns for bondholders (who are generally wealthy), but they also mean short-term capital gains for those same bondholders.
Continue reading the main story Continue reading the main story
But while easy money may in principle have mixed effects on the fortunes (literally) of the wealthy, in practice demands for tighter money despite high unemployment always come from the right. Eight decades ago, Friedrich Hayek warned against any attempt to mitigate the Great Depression via “the creation of artificial demand”; three years ago, Mr. Ryan all but accused Ben Bernanke, the Fed chairman at the time, of seeking to “debase” the dollar. Inflation obsession is as closely associated with conservative politics as demands for lower taxes on capital gains.
Continue reading the main story
Recent Comments
libdemtex
false
Sooner or later we will have some inflation and the wingers can say they were right.
Larry Hoffman
25 minutes ago
Mr. Krugman, once again, points out the prognosticators who keep making the same "WRONG" prediction. The most amazing thing about them is...
Bob Burns
25 minutes ago
Great column. I've been having this same argument with my investment advisor for 6 years and so far he's been left to manufacturing "facts"...
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It’s less clear why. But faith in the inability of government to do anything positive is a central tenet of the conservative creed. Carving out an exception for monetary policy — “Government is always the problem, not the solution, unless we’re talking about the Fed cutting interest rates to fight unemployment” — may just be too subtle a distinction to draw in an era when Republican politicians draw their economic ideas from Ayn Rand novels.
Which brings me back to the Fed, and the question of when to end easy-money policies.
Even monetary doves like Janet Yellen, the Fed chairwoman, generally acknowledge that there will come a time to take the pedal off the metal. And maybe that time isn’t far off — official unemployment has fallen sharply, although wages are still going nowhere and inflation is still subdued.
But the last people you want to ask about appropriate policy are people who have been warning about inflation year after year. Not only have they been consistently wrong, they’ve staked out a position that, whether they know it or not, is essentially political rather than based on analysis. They should be listened to politely — good manners are always a virtue — then ignored.
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Rate Hikes Approaching To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/17/2014
We count five major takeaways from today’s activity at the Federal Reserve.
First, quantitative easing (QE) still looks on track for winding down at the end of October. As expected, the Fed announced it would cut its purchases of Treasury securities and mortgage-backed securities to $15 billion in October and expects to announce an end to QE at the next meeting, which is October 29th.
Second, the median view among Fed officials is for a slightly faster increase in short-term rates. Back in June, the consensus was for the top of the federal funds target range to be 1.25% at the end of 2015; now it’s 1.5%. Previously the consensus was around 2.5% for the end of 2016, now it’s 3%. As a result, it now looks like the Fed will start raising rates by April 2015, perhaps even as early as the first quarter. To confirm this, look for the Fed to dump the “considerable time” language later this year.
Third, once it starts raising rates, the Fed will try to control the federal funds rate by using the interest it pays banks for holding excess reserves. It will also use reverse repos to help control the funds rate, but only as much and as long as needed. The Fed says it won’t use reverse repos for other purposes.
Fourth, the Fed isn’t going to outright sell securities from its portfolio to unwind its bloated balance sheet. After starting to raise the funds rate, the Fed will eventually allow its balance sheet to shrink in a passive way, by letting securities gradually mature without full reinvestment. The Fed is particularly reluctant to sell mortgage-backed securities (MBS), but may eventually do so several years down the road to clean up some long-dated securities on its books that won’t mature anytime soon. Long-term, the Fed intends to go back to holding almost all Treasury securities, not a large portfolio of MBS.
Last, where there’s smoke, there’s fire. Two Fed officials dissented from the statement, both Philadelphia Fed Bank President Charles Plosser and Dallas Bank President Richard Fisher. More importantly, both dissents were from hawks, which suggests that if the Fed makes any changes in policy or projections at the next couple of meetings, it’s more likely to get more hawkish than more dovish.
The Fed also made some minor changes to the language in its statement, noting that the unemployment rate is little changed since the last meeting and the economy is expanding moderately after the downside surprise in Q1 and sharp rebound in Q2.
The bottom line is that the Fed has been and will remain behind the curve. Nominal GDP – real GDP growth plus inflation – is up 4.2% in the past year and up at a 3.7% annual rate in the past two years. A federal funds target rate of nearly zero is too low given this growth. It’s also too low given well-tailored policy tools like the Taylor Rule.
Hyperinflation is not in the cards; the Fed will keep paying banks enough to keep the money multiplier depressed. But, given loose policy, we expect gradually faster growth in nominal GDP for the next couple of years. In turn, the bull market in equities will continue to prevail and the bond market is due for a fall.
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http://dealbook.nytimes.com/2014/09/25/buoyant-dollar-underlines-resurgence-in-u-s-economy/?emc=edit_th_20140926&nl=todaysheadlines&nlid=49641193
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Monday Morning Outlook
________________________________________
Inflation: What Inflation? To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 10/6/2014
Who hasn’t heard forecasts of “Hyperinflation?” They’ve been all over the web and TV ever since the Federal Reserve started a huge expansion in its balance sheet, called Quantitative Easing, back in 2008. Among other things, these forecasts called for a dollar collapse, dire problems for the banking system and 1970s, or Weimar Republic-like, inflation.
We have consistently disagreed with these forecasts. Yes, the monetary base has expanded rapidly. But banks have held the vast majority of this QE as excess reserves. These reserves just sit at the Fed, earning 25 basis points, but other than that, gathering electronic dust. They haven’t boosted inflation as feared. And we don’t believe they are responsible for economic growth, or the rising stock market, either.
In economic terms, the velocity of money collapsed in the Panic of 2008 and, although there are some recent signs of a revival, it’s nowhere near bouncing back to where it was before the Panic. What QE has accomplished is reducing the money multiplier in a significant way.
To be clear, even though we never expected hyper-inflation, we did expect inflation to rise more than it actually has over the past few years. We thought inflation would be at least 3% by now, maybe even 4%. And yet, the Consumer Price Index is up only 1.7% in the past year while the Fed’s preferred measure, the PCE deflator, is up only 1.5%.
We still don’t expect inflation to stay this low, but for a number of reasons, we now expect any move higher over the next few years to be very gradual, maybe half a point per year. This isn’t enough, all by itself, to get the Fed to move rates much higher than it currently projects.
Here’s why we expect only a gradual rise in inflation.
First, the Fed is fully prepared to increase the interest rate it pays on excess reserves. And while this doesn’t guarantee the money supply won’t expand, the Fed is also ready to use higher capital standards and Chinese-like bank rules to hold back lending, which will contain money growth and loans.
Second, real economic growth should pick up over the next couple of years to close to 3% versus the average of roughly 2% growth per year since the recovery started in 2009. This extra growth could help soak up some of the loose monetary policy.
Third, and lately the most important reason for a very gradual slog higher in inflation, is the huge headwind coming from the energy sector, where the combination of horizontal drilling and fracking is transforming production. Supply is simply booming and prices are falling. Back in 2005, the US was importing ten times as much oil (petroleum and petroleum products) as it was exporting; now that ratio is down to 1.9 and headed lower. In the next few years, the US could easily become a net exporter of petroleum.
These forces are creating disarray in OPEC. Saudi Arabia is willing to accept lower prices for oil, undercutting other oil exporters in the Middle East as well as Russia. West Texas Intermediate, which was $104/barrel in late June is now below $90/barrel, and probably has further to fall.
Gold is below $1,200/oz., a clear sign that inflationary fears are receding. We still think it has further to fall.
As a result, even though the Fed will start to raise short-term rates next year, the rate hikes will be gradual. We don’t expect 50 basis point hikes at any single meeting anytime soon. More likely, the Fed will raise rates at one meeting and then pause at the next, in an attempt to damp volatility.
In turn, long-term rates will work their way higher, but not by leaps and bounds. We expect both equities and the 10-year Treasury yield to move higher later this year. While we look for 10-year yields to end this year below 3%, we look for something like 3.5% by the end of 2015 and 4% in 2016.
Most important for investors, is to understand that a 4% yield on the 10-year Treasury (the equivalent of a 25 price-earnings ratio) is not a headwind for the stock market. Based on next year’s forecasted earnings, the S&P 500 P-E is less than 15 today. That leaves plenty of room for equities to rally.
And even if the Treasury yield goes above 4%, that’s OK for equities as long as interest rates rise primarily because of improvement in real GDP growth rather than inflation.
The bottom line is that our outlook for inflation has shifted downward, but not dramatically. We still expect more inflation, just not enough to cause serious concern for at least the next couple of years. This is good news for the stock market and the economy.
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Risk of Deflation Feeds Global Fears
Falling Commodities Prices Pressures Central Banks
By Jon Hilsenrath and Brian Blackstone
Oct. 15, 2014 8:26 p.m. ET
Behind the spate of market turmoil lurks a worry that top policy makers thought they had beaten back a few years ago: the specter of deflation.
A general fall in consumer prices emerged as a big concern after the 2008 financial crisis because it summoned memories of deep and lingering downturns like the Great Depression and two decades of lost growth in Japan. The world’s central banks in recent years have used a variety of easy-money policies to fight its debilitating effects.
Now, fresh signs of slow global economic growth, falling commodities prices, sagging stock markets and declining bond yields suggest the deflation risk hasn’t gone away, particularly in the often-frenetic eyes of investors. These emerging threats come as the Federal Reserve is on track this month to end a bond-buying program that has been one of the main tools in its fight against falling prices.
The deflation concern is particularly pronounced in Europe and Japan, two economies where policy makers are struggling to come up with solutions to counter especially slow economic growth.
However, recent declines in commodities prices suggest that downward pressure on inflation—if not all-out deflation—could become a wider-ranging phenomenon, and one with some mixed implications for economies like the U.S. and emerging markets.
Investor worries about the global economy appeared to gather force Wednesday. European stock markets sagged; the Stoxx Europe 600 index fell 3.2% to its lowest level since last December. U.S. stocks pared steep losses, but still finished down for the fifth straight day; after falling more than 450 points at one point, the Dow Jones Industrial Average fell 173.45, or 1.1%, to 16141.74.
Meantime, yields on 10-year U.S. Treasury notes fell to 2.091%, their lowest level since June 2013, and are down nearly a percentage point from the beginning of the year. Bond yields fell to new lows in Germany, too. Crude-oil prices dropped further; crude futures on the New York Mercantile Exchange fell to $81.78 a barrel, the lowest level since June 2012.
The deflation concerns are particularly acute in Europe, where annual inflation in the 18 nations that use the euro was 0.3% last month, a five-year low that is far below the European Central Bank’s target of just under 2%.
With inflation so low, it wouldn’t take much of a shock—such as weakness in Germany’s economy or geopolitical tensions in nearby Ukraine—to tip the whole region into a deflationary downturn. Some eurozone countries, such as Italy, have already tipped into deflation. Even countries outside the currency bloc are feeling the pain. Sweden’s statistics agency said Tuesday that consumer prices fell 0.4% in annual terms last month after a 0.2% fall in August, well below its central bank’s 2% target.
The risk of deflation in Europe is “a real worry,” Harvard University professor and former Federal Reserve governor Jeremy Stein said in an interview. “The right prescription [for policy makers] is to be aggressive.”
ECB President Mario Draghi acted against deflation risks in June and September, pushing the central bank to slash interest rates to record lows each time—including a negative rate on bank deposits at the ECB—and unveiling new bank-lending and asset-purchase plans for asset-backed securities and covered bonds.
But there is little consensus for more-dramatic measures—the kind of monetary stimulus the Fed, the Bank of England and the Bank of Japan have deployed—namely large-scale purchases of government bonds to raise the money supply.
The head of Germany’s central bank, Jens Weidmann, has signaled his opposition to such bond buying, and other members of the ECB’s governing council appear sympathetic to his argument that with government and corporate borrowing costs already superlow, the policy wouldn’t even do much good.
“I am very much for a steady-hand approach, and I think this is what we are doing,” Austria’s central bank governor, Ewald Nowotny, said in an interview last week.
Hard fiscal problems are part of Europe’s problem. Last week, Standard & Poor’s stripped Finland of its triple-A credit rating and downgraded France’s outlook. On Tuesday, Fitch put France on review for a possible downgrade.
Struggling economies such as France and Italy face a tough choice: Take additional austerity measures to shrink budget deficits, inflicting more pain on their economies, or attempt to flaunt the EU’s budget rules calling for low deficits, which could damage their credibility in Europe.
ECB chief Mario Draghi, shown in Washington this past weekend, faces opposition to further measures to combat deflation in the eurozone.R Reuters
The resistance Mr. Draghi faces has shaken the faith of some investors that policy makers in Europe will address the threat.
“Market valuations, especially for rich countries, have been well above what was warranted by fundamentals. What kept them up there was a belief that central banks were markets’ best friends,” said Mohamed El-Erian, chief economic adviser at Allianz Group. “Most people now recognize that the ability of central banks to address what ails the global economy is weaker than they believed.”
Meanwhile, Japan had recently begun to stir sustained growth, which helped to push its inflation rate above 1%, after years of on-again, off-again deflation. But inflation decelerated again in recent months as the economy softened after an April sales-tax increase meant to restrain mounting government debt. Many private economists forecast a slip back below 1% this year.
Japanese officials must now decide whether to follow through on another planned sales-tax increase that could dent growth even more. And the Bank of Japan is weighing whether it needs to provide even more stimulus. BOJ Governor Haruhiko Kuroda launched new asset purchase programs last year to reverse two decades of deflation and has pledged to persist until he reaches the 2% target.
Japan’s struggles to exit deflation, even with massive central-bank stimulus, illustrate just how difficult it is for an economy to pull out of the trap, once it has settled in.
A weak global outlook “has to be a worry for every economy,” Reserve Bank of India Governor Raghuram Rajan told The Wall Street Journal in an interview last week.
The U.S. confronts much different circumstances than Europe and Japan. U.S. inflation had been rising toward the Fed’s 2% objective earlier this year but now faces a downward tug amid the weakening global growth and a strengthening U.S. dollar. The Labor Department reported Wednesday that producer prices in the U.S. fell in September. Sharp drops in commodities prices this month could add to downward pressure.
Yet falling commodities prices have silver linings. For one, the decline is being driven in part by a U.S. energy production boom—not just sagging global demand for goods. Moreover, falling gasoline prices are a boon to U.S. consumers: One rule of thumb is that every one-cent drop in the price of gasoline amounts to a $1 billion boost to U.S. household incomes, and gasoline prices have dropped by 13 to 17 cents from a year ago, according to the automobile group AAA.
“All else equal, when energy gets cheaper, we benefit,” Mr. Stein said.
Meanwhile, the Fed is on track this month to end its bond-buying stimulus program launched in September 2012. And Fed officials have largely stuck to their line that they expected to start raising short-term interest rates by the middle of 2015. Still, traders in futures markets have been pushing up the prices of contracts tied to the Fed’s benchmark interest rate—a sign they see diminishing odds that the Fed will follow through on that plan.
Harvard’s Mr. Stein said he didn’t think the U.S. central bank needed to alter its thinking much in light of recent developments. “I wouldn’t dramatically revise my expectations,” he said. “The balance of the job-market news in the U.S. has been very positive.”
A Commerce Department report Wednesday showed U.S. retail sales dropped in September, but many economists are sticking to estimates that the U.S. economy expanded at a rate in excess of 3% in the third quarter, potentially the fourth time in the past five quarters it exceeded 3%. Moreover job growth has been stronger than Fed officials expected.
Write to Jon Hilsenrath at jon.hilsenrath@wsj.com and Brian Blackstone at brian.blackstone@wsj.com
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Yes, I'm looking for the post.
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So yesterday the Fed hinted it might continue easing. It is so hard not to be cynical that this is just another political stunt before and election to buttress the markets.
Any comments? I mean Yellen is a liberal as are many of the Fed people. :|
Could this be any more convenient for the Crats and the self chosen One?
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http://www.themercury.com.au/china-to-start-direct-trading-between-yuan-singapore-dollar/story-fnj3twbb-1227104025083
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Peter Schiff says what goes up must come down and that the end of QE will plunge the market and the economy into recession. Though he is labeled an eternal and extreme pessimist, the Fed must agree somewhat with his view noting their fear and reluctance over all these years to right-size money supply and interest rates.
http://etfdailynews.com/2014/10/22/rick-santelli-ending-qe-will-plunge-u-s-into-severe-recession/
On the other side of the coin, I don't agree with this but found it to be a strong defense of QE and at least partly true:
(The writer owns a private equity investment company.)
I want to offer some perspective on QE. As an investor and professional participant in the markets and a conservative, I thought I would try to offer something of a defense of the Fed and its decision to pursue what has been called QE, printing or what I remember being called open market purchases in my macroeconomic classes. The opposing case is typically what I think of as a populist case that doesn’t really reflect an understanding of some important topics which inhere to a functioning capitalist economy and, very importantly, our fractional reserve banking system and the need for liquid (i.e. functioning) markets with a bid and offer.
Let’s first consider a world without the Fed and without QE. In effect this is what we experienced, briefly, when Lehman went bankrupt, when Washington Mutual was seized by the FDIC (and lots of other banks essentially became insolvent). If you think about it, when that happens – markets freeze and liquidity evaporates — savers lose all of their savings. Depositors at a bank are savers. Buyers of money market mutual funds are savers. When Lehman went bankrupt, their related money market mutual funds “broke the buck” – they were worth less than par.
The only thing that prevented this phenomenon from spreading was the willingness of the Fed and the Treasury to replace the banks as providers of liquidity and backstop deposits and so forth.
During the Depression, the Fed did nothing like QE and the Treasury wanted to force liquidation of excess assets and inventories and debts. The result is economic cataclysm, especially in a leveraged economy with a fractional reserve banking system. Banks cannot liquidate and satisfy their depositors need for cash. Deposits are borrowings for the bank. They in turn lend out the money they have on deposit to generate a return, and this pays savers a return. But when an economy goes into recession, this system malfunctions because the credit that originally justified the loan can no longer support it. This is the natural course of the business cycle. But the banking system on the way down is equivalent to the problem of a fire in a crowded theater. Everybody cannot get out at once. Not even close. It’s a fire in a vault really. Those lines of depositors waiting to take their money out cannot be satisfied.
It is easy to castigate the Fed and the Treasury for “bailing out” lenders and management teams, but the truth is more complicated. They were backstopping a system which holds the savings for the vast majority of Americans. As for the continuance of QE, I would revert to the Depression data and again observe that the Fed allowed the money supply to collapse by 1/3. This was devastating to the economy. Allowing monetary contraction through forced liquidation (which is the policy antidote to QE) would be beyond cataclysmic – it would make the Depression or today’s Greece a walk in the park. Unemployment would be 30%, people’s savings would be wiped out all at once – and the beneficiaries would be a tiny fraction of wealthy who would be able to buy assets for pennies from desperate sellers.
The primary criticism viz QE is that we are destroying the dollar and sowing the seeds of inflation. Maybe. But we are currently not inflating. At all. Commodity prices are falling or have fallen dramatically – gold, oil, you name it. The dollar has strengthened viz its alternative currencies, including gold and silver. There may be particular areas of price rises, but that means it’s not a uniform monetary phenomenon. Measured inflation is tame. One of the “inputs” which drives inflation is something called monetary velocity, or the speed with which people spend their money on items. As it did in the depression, it has collapsed. During the depression, it was this particular input which was responsible for the collapse in the money supply. You can think of QE as effectively offsetting the decline in velocity.
Monetary authorities always dance on the head of a pin in this way, trying to balance all of these inputs and avoid catastrophe. It’s a difficult task.
The truth is, the deflationary forces in the global economy are extraordinary. Technology, innovation, credit, freer movement of capital and labor – all of these forces have combined to create massive excess capacity in most of the world. This is fundamentally deflationary. Those who long for deflation are being a bit glib (which we would get without monetary intervention, believe me). William Jennings Bryan railed about being nailed to a cross of gold. That’s deflation that arises from the gold standard – truly hard money). He was a populist. In today’s world, modest deflation would – as it always does – redound to the benefit of lenders (unless it also consumed them to in a deflationary spiral , as it likely would in the end). Rapid inflation is to the benefit of borrowers at the expense of lenders. There is a reason why all of these quasi populist, socialist third world countries inflate and destroy their currencies rather than deflate. Stable, predictable and modest inflation is probably best for us all, dancing on the head of the pin.
All in all, while he gets tremendous criticism (as did Volker, Greenspan and now does Yellen), Bernanke probably deserves a great deal of credit and a big thank you from all of us, wealthy, middle and lower classes. Middle classes have been more significantly damaged by tax policy and Obamacare than anything else (i.e. fiscal transfers away from them). But the Fed really has preserved the stability of the banking and monetary system from which we all derive extraordinary benefit.
(more at link)
http://www.powerlineblog.com/archives/2014/10/in-defense-of-qe.php
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To follow a post of what I disagree with, I would like to post Steve Hayward of Powerline (famous people reading the forum?) expressing my view:
"One factor that ought to be mentioned as to why the enormous monetary growth hasn’t led to inflation, in addition to the factors mentioned above, is the collapse in “velocity,” i.e., the speed with which money turns over in the economy basically. This factor—”V” in the famous basic equation of monetarism that Friedman made famous, “MV=PQ”—fell sharply during the recession of 2008-2010, and has kept falling since then. You can see the chart from the Federal Reserve below. I believe this is unprecedented in the history of Post-WWII recessions, but I haven’t gone back and looked. There are some reasons to think a new, lower level of velocity might endure, but if it doesn’t?"
http://www.powerlineblog.com/archives/2014/10/in-defense-of-qe.php
(http://3-ps.googleusercontent.com/x/www.powerlineblog.com/i1.wp.com/www.powerlineblog.com/admin/ed-assets/2014/10/xVelocity.jpg,qresize=580,P2C389.pagespeed.ic.guQaa7KfaH.webp)
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The collapse of velocity will endure until economic policies change. The policies we call Obamanomics really started with political-electoral shift that elected Pelosi-Reid majorities (see hayward's velocity chart or any other economic chart). This shift of power ensured that higher levels of taxes and regulations were coming zapped the energy our of the economy - what economists measure as "velocity". The new levels of ever-expanding money supply are not too great for this continually collapsing economy, but it is a case of applying the wrong "solution" to the wrong problem. It is what I call putting more gas in the tank when two or three tires are flat and what Brian Wesbury calls the "Plowhorse economy". Moving forward without velocity. When we do re-energize this economy with pro-growth policies we also have to address the oversupply of money that was poured in for this period of doldrums. If you squeeze the money supply before the pro-growth policies fully take hold, you will get what those like Peter Schiff predict. Witness the recession of 1981-1982. If you wait even longer to fix what is really wrong while pouring in more and more money, the correction later will be all the more difficult.
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Interesting posts Doug.
With regard to the proffered justification of protecting savers, unless I am missing something the author fails to address the protections in place by FDIC, SIPIC, and the like.
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Interesting posts Doug.
With regard to the proffered justification of protecting savers, unless I am missing something the author fails to address the protections in place by FDIC, SIPIC, and the like.
Yes, savings would have been insured but I don't think the author was referring to the small amount of savings that the little guy doesn't have anyway. I think he is saying that in a complete meltdown the little guy would lose everything else too, such as his job, his home, and the local businesses. His argument has possible merit when looking at the moments of panic, where total financial collapse was possible, and maybe he justifies the extra-constitutional response we took, bailing out investment houses that were not federally guaranteed, and providing unprecedented liquidity. He is assuming FDIC would have been overwhelmed as well. But I agree with you that it is wrong to ignore the corrosive cultural effect that comes from punishing savings over such a long period of time that new generations now have no idea why they should save. We are not in a panic meltdown economy; this is a "plowhorse economy". )
He also misses the damage done by QE. We overinflated stock returns (more money chasing a fixed number of shares of a fixed number of businesses) while we pushed interest rates on savings down to zero. The small to medium player has to put funds at risk that otherwise would be insured, or else receive no return and no benefit of compounding interest.
Also, a point inferred in the original piece is that accommodative monetary policy enabled irresponsible fiscal policy. If not for the extreme actions of the Fed, the fiscal policy makers would have been forced to make better choices. We don't even borrow all the money that we spend but don't collect from taxes. How does anyone see that as anything other than unsustainable? And that takes us back to Peter Schiff's point, what happens when QE ends?
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Research Reports
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Fed Ends QE, Rate Hikes Now on Radar To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Senior Economist
Date: 10/29/2014
We count five key takeaways from today’s policy statement from the Federal Reserve.
First, the Fed clearly raised its assessment of the economy. Most notably, it deleted its long-standing reference to “significant underutilization” in the labor market, changing it to say that the underutilization in the labor market is “gradually diminishing.” This may not seem like much, but at the Yellen Fed a better assessment of the job market is a necessary step before raising rates and that hurdle is now much closer to being cleared. In addition, the Fed strengthened its language on consumer spending and completely deleted a reference to fiscal policy restraining economic growth.
Second, quantitative easing is finished by the end of the week, as previously projected. This doesn’t mean the Fed’s balance sheet will suddenly go back to normal. Instead, the Fed will keep reinvesting principal payments from its holdings to maintain the balance sheet at roughly $4.4 trillion. Look for the Fed to keep reinvesting principal through at least late 2015.
Third, the Fed is taking a more nuanced view on inflation, comparing market-based measures (such as the five-year forward inflation rate), which have diminished recently, to survey-based measures, which have remained stable. The Fed pointed out that energy prices should hold inflation down in the near term but inflation should still head back up toward its target of 2%.
Fourth, the Fed maintained its commitment to keep rates at current levels for a “considerable time,” but added language saying rate hikes could happen sooner or later depending on how closely actual economic data match its forecast. We think this means the Fed is getting very close to removing the “considerable period” phrase. Look for the Fed to remove the language at the mid-December meeting, when Chairwoman Yellen will have a chance to fully explain the Fed’s reasoning at the post-meeting press conference.
Last, the two hawkish dissenters at the September meeting are now back on board with Fed policy while the lone dissent at today’s meeting was a dovish one from Minneapolis Fed president Narayana Kocherlakota, who wants the Fed to commit to keeping rates low until inflation hits 2% and wants to keep quantitative easing going at the current slow pace at least through the end of the year.
The bottom line is that the Fed has been and will remain behind the curve. We believe the first rate hike could come in the second quarter of next year. But nominal GDP – real GDP growth plus inflation – is up 4.3% in the past year and up at a 3.8% annual rate in the past two years. A federal funds target rate of nearly zero is too low given this growth. It’s also too low given well-tailored policy tools like the Taylor Rule.
In the meantime, hyperinflation is not in the cards; the Fed will keep paying banks enough to keep the money multiplier depressed. But, given loose policy, we expect gradually faster growth in nominal GDP for the next couple of years. In turn, the bull market in equities will continue and the bond market is due for a fall.
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http://www.telegraph.co.uk/finance/commodities/11226240/Putin-stockpiles-gold-as-Russia-prepares-for-economic-war.html
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Interesting , , ,
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http://www.telegraph.co.uk/finance/commodities/11226240/Putin-stockpiles-gold-as-Russia-prepares-for-economic-war.html
Yes, Putin is an interesting adversary, very calculating. With low oil costs I'm surprised he has excess currency. I suppose he can't buy dollars or euros right before he triggers the next crisis to drive oil prices up.
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Do crises drive prices up in the current context? The middle east is in an accelerating burn, and oil prices are falling , , ,
Off the top of my head this looks more like a play to play for time if/when there is a run on the ruble.
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Do crises drive prices up in the current context? The middle east is in an accelerating burn, and oil prices are falling , , ,
Off the top of my head this looks more like a play to play for time if/when there is a run on the ruble.
Great points. In other crisis, in Iraq, Iran, the Gulf, Libya, threat of war anywhere, it seems that all crisis drive up the price of oil. Why not now?
In Iraq, ISIS the aggressor wants control of the oil production and revenue, not disruption. It's quiet in Iran while they build their nuclear arsenal without objection. America is gushing with oil from fracking and Saudi is boosting supply while global demand is likely flattening.
For Russia, their crisis is the falling price of oil. Their current conflict is Ukraine today and maybe the Baltic States tomorrow. Since the Russian side is both the energy producer and the attacker, I guess there is no current threat of disruption to make the oil futures market nervous. Ukraine relies on Russian gas and oil, so they would not attack those supply lines even if they could.
Agree, he is setting aside reserves as safely as possible to protect the Ruble, or for himself somehow. What we never know is what global trouble Putin has in mind next.
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Data Watch
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The Consumer Price Index (CPI) was Unchanged in October To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 11/20/2014
The Consumer Price Index (CPI) was unchanged in October versus the consensus expected decline of 0.1%. The CPI is up 1.7% versus a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) declined 0.1% in October, but is up 1.3% in the past year.
Energy prices declined 1.9% in October, while food prices increased 0.1%. The “core” CPI, which excludes food and energy, rose 0.2% versus consensus expectations of 0.1%. Core prices are up 1.8% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – rose 0.1% in October, and are up 0.4% in the past year. Real weekly earnings are up 0.9% in the past year.
Implications: Next time you see an energy engineer, remember to give them a hug. They deserve it. Energy prices fell for a fourth straight month in October and continue to mute rising prices elsewhere for consumers. Consumer prices are up a modest 1.7% in the past year and the key reasons is America’s booming energy production and, as a result, lower world oil prices. The gasoline index is down 5% in the past year and now stands at the lowest level since February 2011. Given the continued drop in oil prices in the first half of November, look for another tame reading on overall price gains in next month’s report. However, there are sectors where inflation is moving higher. Food and beverage prices are up at a 3.1% annual rate in the past six months and up 2.9% in the past year. So if you only use the supermarket to gauge inflation, we understand thinking the headline reports are too low and that “true” inflation is higher. In addition, housing costs are going up. Owners’ equivalent rent, which makes up about ¼ of the overall CPI, rose 0.2% in October, is up 2.7% in the past year, and will be a key source of any acceleration in inflation in the year ahead. One of the best pieces of news in today’s report was that “real” (inflation-adjusted) average hourly earnings rose 0.1% in October. These earnings are up 0.4% from a year ago and workers are also adding to their purchasing power because of more jobs and more hours worked. Plugging today’s CPI data into our models suggests the Fed’s preferred measure of inflation, the PCE deflator, was probably unchanged in October. If so, it would be up 1.4% from a year ago, still below the Fed’s target of 2%. We expect this measure to eventually hit and cross the 2% target, but given the bonanza from fracking and horizontal drilling, not until next year. In other news this morning, new claims for unemployment insurance declined 2,000 last week to 291,000. Continuing claims fell 73,000 to 2.33 million, a new low for the recovery. Plugging these figures into our employment models suggests nonfarm payrolls are growing 200,000 in November, with private payrolls up 191,000.
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The Producer Price Index (PPI) declined 0.2% in November To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Dep. Chief Economist
Date: 12/12/2014
The Producer Price Index (PPI) declined 0.2% in November, coming in below the consensus expected decline of 0.1%. Producer prices are up 1.4% versus a year ago.
Energy and food prices led the index lower, down 3.1% and 0.2% respectively. Producer prices excluding food and energy were unchanged in November (-0.1% among just goods).
In the past year, prices for services are up 1.9%, while prices for goods are up 0.4%. Private capital equipment prices rose 0.2% in November and are up 1.4% in the past year.
Prices for intermediate processed goods declined 1.0% in November, and are down 0.3% versus a year ago. Prices for intermediate unprocessed goods fell 1.3% in November, and are down 1.7% versus a year ago.
Implications: Still no sign of inflation in producer prices. After a surprise to the upside in October, producer prices declined 0.2% in November coming in slightly lower than the consensus expected. The decline in overall producer prices was all due to the goods sector, where prices fell 0.7%, primarily due to energy. Energy prices fell 3.1% in November and are down 6.7% in the past three months (-24% at an annual rate), a testament to fracking and horizontal drilling. Although energy prices have dropped further in December and may decline into early 2015, that trend won’t last forever. As a result, our forecast is that the US suffers neither hyperinflation nor deflation for the next few years. Instead, it’s going to be a slow slog upward for inflation. Prices further back in the production pipeline (intermediate demand) show that it will take a while for inflation to move up. Prices for intermediate processed goods are down 0.3% in the past year while prices for unprocessed goods are down 1.7%. Regardless, with the labor market improving rapidly now that extended unemployment benefits are done, the Fed is still on track to start raising rates around the middle of next year. These rate hikes will not hurt the economy; monetary policy will still be loose and will likely remain that way for the first couple of years of higher short-term rates. Counterintuitively, higher short term rates may boost lending as potential borrowers hurry up their plans to avoid even higher interest rates further down the road. In other words, the Plow Horse economy won’t stop when the Fed shifts gears.
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Monday Morning Outlook
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The Myth of QE: Why Rates Are Headed Higher To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 12/8/2014
It’s a myth; an abused narrative. Those who disagree are called economic heretics. What are we talking about? The idea that Quantitative Easing (QE) drives interest rates down. This myth has a fervent following even though virtually no evidence supports it.
Yes, the Federal Reserve has done a massive amount of QE. And, yes, interest rates have been low. But, correlation does not equal causation. Just look at Europe, where the European Central Bank (ECB) has allowed its balance sheet to contract in recent years – Quantitative Tightening. Yet, interest rates are even lower than they are in the U.S. Not just German and French 10-year bond yields, but Italian and Spanish as well.
Federal Reserve Chair Janet Yellen understood this back in December 2008, when she said, “As Japan found during its quantitative easing program, increasing the size of the monetary base above levels needed to provide ample liquidity to the banking system had no discernible economic effects aside from those associated with communicating the Bank of Japan’s commitment to the zero interest rate policy.”
In other words, by ending QE, the Fed is implicitly ending its commitment to low rates. As a result, the 2-year Treasury yield has jumped from 0.31% in mid-October to 0.64%. Not because of tapering, but because rate hikes are now expected.
There is no mystery here. QE signals a low interest rate policy. In Europe, the ECB keeps threatening to start QE again, which is the same thing as saying don’t expect rate hikes.
It’s the promise to hold interest rates low that matters, not the actual bond buying. When the Fed (or any central bank) indicates it will hold overnight rates at zero for one year, then 1-year yields will be close to zero. The same holds true if the promise is for two years.
In other words, QE is just another version of “forward guidance.” As that guidance shifts, interest rates will rise. That’s happening in the U.S. right now.
Since mid-October, the Fed has increased its holdings of bonds with 1 to 5-year maturities by $58 billion. At the same time it has decreased its holdings of Treasury bonds with maturities five years and longer by $52 billion.
Nonetheless, the 2-year Treasury bond yield is soaring, while the 10-year Treasury bond yield has remained stubbornly stable. The yield curve is flattening – exactly the opposite result that supporters of QE have claimed would happen.
It’s a magic elixir. In Europe, by not doing enough QE, the ECB is supposedly causing deflation, which, in turn, holds bond yields down. In the U.S., QE itself was supposedly holding interest rates down. In Japan, interest rates were already low, and QE was supposed to boost growth, but instead a renewed recession is underway. It’s the Wizard of Oz. Please don’t look behind the curtain.
What does all this mean? Well, first it means QE isn’t magical. We do not believe QE boosted economic activity or equity values in the US, nor did it keep interest rates down. All it did was boost bank holdings of excess reserves.
This is why tapering has not hurt the U.S. economy or equities. Job growth has accelerated, GDP, too, and the stock market has reached record highs.
What’s missing from just about every conversation about central banks is their inability to offset the damage done by excessive taxes, government spending, or regulation. Europe and Japan will continue to underperform the U.S. as long as their governments spend more as a share of GDP.
The bottom line: The U.S. has turned the corner. Government policy is headed in a better direction, growth is picking up and interest rates are now headed higher, probably for quite some time. But, it’s not because QE is over, it’s because the Fed can no longer justify a zero percent overnight interest rate. “Forward guidance” is kaput. That means higher interest rates are on their way.
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Oil Price: Looks Reasonable To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 12/15/2014
A former economic colleague, and mentor, used to say: “In the Bible, it says an ounce of gold will buy a fine suit of clothing.” We have read the Bible, and we haven’t found this, although there could be some high-powered math, using talents, cubits, frankincense and myrrh that make it true.
Nonetheless, the point stands – over long periods of time, relative value remains somewhat constant. Gold is trading at $1,210/oz. today and that’s about the cost of a fine suit.
There are suits that cost more, and less, but, well, you get the point.
The reason we bring this up, is that the same “relative price relationship” should hold true for other commodities over time. The gold-oil ratio (using West Texas Intermediate crude prices) has averaged 15.8 over the past 30 years – meaning one ounce of gold would buy 15.8 barrels of oil.
In 2005, the ratio reached a low of 6.7; in 1986, it hit a high of 30.1. From 1990-1999 oil prices averaged $19.70/bbl and gold prices averaged $351/oz – a ratio of 17.8. Today, oil is $57/bbl and gold is $1,210/oz., meaning an ounce of gold will buy 21.2 barrels of oil.
In other words, relative to history, either oil is cheap or gold is expensive. Looking at other commodity price relationships, like silver, shows the same thing. One interesting fact is that in the past 30 years, the CPI is up 126%, while oil is up 116%, showing that, right now, with oil prices down almost $50 from their recent peak, oil has risen about the same as a broad basket of consumer goods.
This doesn’t mean that oil prices can’t fall further. After all, markets do what markets do. What it does mean is that the recent collapse in oil prices is not a sign of broad deflation. It is result of a shift in the “oil supply curve” to the right, due to new technologies in energy – horizontal drilling and hydraulic fracturing. Remember, the supply curve slopes upward from the lower left to the upper right. When a new technology increases supply at any price, like the invention of the tractor did with crops, the entire supply curve shifts. When this happens, output rises and prices fall, unless there is a shift in demand.
These days, two things are happening to keep a lid on demand. First, developing economies, like China and Russia are experiencing slower growth. Second, new technologies – like LED lighting, more efficient computer chips and less waste in office buildings, homes and manufacturing – are reducing energy consumption. For example, an iPad uses $1.36 of electricity every year, while a desktop computer uses $30 of electricity per year.
So, a right-ward shift in the supply curve is occurring at the same time demand is falling short of what was previously expected. In other words, the decline in oil prices is due to macro-economic forces, and those forces are mostly good, not bad. As a result, the drop in oil prices is a good sign, not one that indicates economic problems. The drop in stock prices last week, if it was based on the idea that falling oil prices are a negative thing, is temporary.
More importantly, most relative price indicators suggest the oil price decline has gone too far. Using the current price of gold, a barrel of oil is fairly valued near $77. Alternatively, comparing oil to multiple different prices, including a fine suit of clothing, oil is fairly valued somewhere between $55 and $70/bbl.
Bottom line: stocks and oil have fallen too much. Stocks should rebound soon and, barring a collapse in gold, we look for stability and then rising prices for oil in the years ahead.
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Crafty is trying to stir it up again... :wink:
Stocks are up because corporate profits are up; P/E's are up also. Corporate profits are up for reasons like being able to hire fewer workers to achieve the same output (improved productivity), while over-regulation is locking out competing startups and disruptive innovation, and more money is chasing fewer companies. It's not like the US or world economic growth is on fire.
Wesbury was right about stocks - they went up during all this time of zero interest rates and unprecedented QE. Good for him. (Said with a little Elizabeth Warren-style sarcasm.)
Now we have "tapering", which is even more QE (at a slower rate) on top of all previous QE. It is not a reversal of QE.
Wesbury: "Yes, the Federal Reserve has done a massive amount of QE. And, yes, interest rates have been low. But, correlation does not equal causation."
Proof of causation isn't the question or issue. Correlation is enough. Low interest rates accompanied QE, and if we are done with QE, then we are done low interest rates. No Latin lecture on Post hoc, ergo proptor hoc is required. If QE and low interest rates are coming and going hand in hand, what difference does proof of causation make?
Look at it more closely. When the federal government was in deficit in amounts of a trillion a year for multiple years, it did not have to go out and find willing buyers for all those bonds. If they did have to, they also would have had to raise the yield way up to do that, which is the interest rate. QE was the government "buying" their own bonds with an accounting entry, without having to first secure the funds anywhere and without having to offer an attractive interest rate to a buyer. That looks like causation of lower interest rates to me. Oh well.
Here is Scott Grannis trying to explain how QE is not money creation: "I suspect that a great number of market participants and observers do not fully understand how QE works. The myth that QE means the Fed is "printing money" persists. All the Fed can do is buy bonds from banks and "pay" for them by crediting the banks' reserve account at the Fed. This is equivalent to the banks selling bonds to the Fed and simultaneously lending the money to buy them. (Zero interest is lending? Sounds more like crony graft.) It is also equivalent to the Fed acting like a massive hedge fund, borrowing money at a short-term interest rate (0.25%) that it sets in order to buy notes and bonds. It is also equivalent to the Fed "transmogrifying" notes and bonds into T-bill substitutes. (Gruber, is that you?) No money creation is involved in the QE process. Money is only created if banks use their reserves to back up an increase in lending. Banks have only recently started to do this in earnest."
http://scottgrannis.blogspot.com/2014/03/saving-lending-and-tapering-combine-in.html (Quote is from the comments section.)
Reserves are created out of thin air (an accounting entry) but that isn't money creation unless someone, by chance, uses that money created as money, which they are now starting to do (as of last March). So QE IS money creation?
Wesbury quoting Janet Yellen (December 2008): “As Japan found during its quantitative easing program, increasing the size of the monetary base above levels needed to provide ample liquidity to the banking system had no discernible economic effects aside from those associated with communicating the Bank of Japan’s commitment to the zero interest rate policy.” [Japan has been having nothing but economic trouble before and since Dec. 2008. Zero interest rates screws up nearly everything and so does a lot of other unforced errors they are committing.]
(Back to Wesbury) "In other words, by ending QE, the Fed is implicitly ending its commitment to low rates. As a result, the 2-year Treasury yield has jumped from 0.31% in mid-October to 0.64%. Not because of tapering, but because rate hikes are now expected. There is no mystery here. QE signals a low interest rate policy."
Splitting hairs to me, that sounds like causation.
"[QE is ending,] ... interest rates will rise. That’s happening in the U.S. right now." - Wesbury again.
On a better note, here is Wesbury caught reading the forum:
Wesbury: "What’s missing from just about every conversation about central banks is their inability to offset the damage done by excessive taxes, government spending, or regulation.
Doug, preciously: [That is] "applying the wrong solution to the wrong problem", "like putting more gas in the tank when the tires are flat". http://dogbrothers.com/phpBB2/index.php?topic=1948.msg84398#msg84398
Wesbury closes: [QE is over] That means higher interest rates are on their way.
- Right.
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Good post :-D
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I'm claiming an I-told-y'all-so on this one :lol:
http://www.wsj.com/articles/the-double-edged-dollar-1420589991
The Double-Edged Dollar
The rising buck is good for consumers, but watch out for overshooting.
ENLARGE
Photo: Getty Images
Jan. 6, 2015 7:19 p.m. ET
0 COMMENTS
The most important economic story these days is the relentless rise of the dollar, with effects good and ill. We’d be more confident of the benefits if the world’s central bankers appeared to be navigating this monetary weather with any kind of rudder.
Opinion Journal Video
Editorial Page Editor Paul Gigot on foreign exchange trends and why a stronger greenback helps the U.S. economy. Photo credit: Getty Images.
As notable as the magnitude of the greenback’s rise has been its rapidity: 13% against the euro and some 15% against the yen since the end of June. Capital that had flowed into emerging markets since the world financial panic is now heading back to the land of the free and its relative economic strength.
In some ways this is good news for the U.S. because it marks a recovery from the weak-dollar Bush and Obama years and echoes of the strong-dollar mid-1980s and late 1990s. Both strong-dollar eras featured disinflation, falling interest rates, investment flows into the U.S. and economic booms. They were also notable for falling prices for commodities traded in dollars, such as oil, which nearly reached $10 a barrel in 1998 as the dollar soared. One reason Bill Clinton survived impeachment is that gasoline sold for 89 cents a gallon.
The greenback’s current rise is contributing more than is commonly understood to a similar plunge in oil, with the world price falling to $51 a barrel from $112 as recently as June. Gasoline has fallen by more than $1 a gallon in much of the country. This is great news for consumers who can now devote less of their after-tax income to energy.
All other things being equal, we prefer a strong and stable dollar to a falling one. But note the word stable. Currency volatility has costs, as Nobel laureate Robert Mundell teaches, and movements as far and fast as the dollar’s could create some economic wreckage.
One consequence is the rush out of emerging markets of the kind that hasn’t been seen since the late 1990s. Energy- and commodity-related stocks and bonds are also taking a hit, and there may be major casualties. The U.S. Farm Belt and oil patch will suffer. While the pain follows an extended boom, this will be small consolation to over-leveraged companies and investors. Texas and other oil boom states should adjust their budgets now.
ENLARGE
Photo: wsj
Readers may recall that the late 1990s saw the Asia currency crisis, the collapse of Long-Term Capital Management, and the first run on the ruble. Bad things happen amid rapid price shifts. In the 1990s the Federal Reserve could and did help the economy adjust to those shocks by cutting interest rates, but the Fed has no such leeway today with its short-term rate set at near-zero.
Perhaps the best reason for mixed feelings is that much of the dollar’s rally is rooted more in economic weakness overseas than in U.S. strength. The global economy has slowed sharply, with Japan, France and Russia in recession, China decelerating as it adjusts to previous malinvestment, and Europe overall barely growing.
Japan and Europe are contributing to the dollar’s surge by actively pursuing yen and euro devaluation—cheered on by the U.S. Treasury. The play is to help their exporters ride on the back of what they hope will be an accelerating U.S. expansion. For Europe and Japan, monetary policy has become the default alternative to supply-side economic reform.
But as Japan has shown since Prime Minister Shinzo Abe and the Bank of Japan began their weak-yen policy in 2013 (see nearby chart), devaluation may help some exporting companies but it can’t stimulate domestic competition and demand. It isn’t likely to work much better for Mario Draghi and the European Central Bank.
The U.S. Federal Reserve, meanwhile, is signaling a possible monetary move in the opposite direction, getting off zero-bound interest rates for the first time in more than six years. This lack of central bank coordination contributes to currency volatility, as each nation pursues what it sees as its own economic interests, no matter the impact abroad.
San Francisco Fed President John Williams gave currency traders a jolt on Monday by saying the strong dollar means there is less urgency for the Fed to raise rates or begin reducing its $4.5 trillion balance sheet. But delay runs the risk of increasing the distortions in financial markets caused by the Fed’s monetary exertions, especially if U.S. growth accelerates. And the irony of the last year is that U.S. growth has increased even as the Fed ended its program of bond purchases.
The biggest danger would be if the dollar overshoots on the strong side, as it arguably did in the 1990s. This could mean far more destruction here and abroad, in the commodity economy in particular, including to the U.S. energy boom. As U.S. companies suffer from Japanese and European competition, protectionist pressure could increase just as President Obama and Republicans are trying to pass trade-opening legislation.
All of which is a reminder that there is no free market in currencies, because their supply is controlled by the world’s central banks. The major central bankers need to pay attention as much to currency fluctuations as they do to their national economies. A stronger dollar would help the world more if it were also stable.
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We Are Entering an Era of Shattered Illusions
By Brandon Smith - www.alt-market.com - January 7, 2015
The structure of history is held together by two essential and distinct kinds of links, two moments in time to which no one is immune: moments of epiphany, and moments of catastrophe. Sometimes, both elements intermingle at the birth of a singular epoch. Men often awaken to understanding in the midst of great crisis; and, invariably, great crises can erupt when men awaken. These are the moments when social gravity vanishes, when the kinetic glue of normalcy melts away, and we begin to see the true foundations of our world, if a foundation exists at all.
Catastrophe occurs when too many people refuse to accept that around us always are two universes at work. There is the cold, hard reality that underlies everything. And on the surface is a veil of deceit and compromise. The more humanity compromises vital truths in order to enjoy the comfort of illusions, the more mind-shattering it will be when those illusions fall away. These two worlds can coexist only for short periods of time, and they will always and eventually collide. There is no other possible outcome.
I think it could be said that the more polarized our realities become, the more explosive and disastrous the reaction will be when the separation is removed. I feel it absolutely necessary to relate this danger because today humanity is living so historically far from the bedrock of reality, political reality, social reality and economic reality that the stage has been set for a kind of full spectrum destabilization that has never been seen before.
Though my analysis tends to lean toward the economic side of things, I am not only speaking of shattered illusions in the financial realm. In my next article, one last time I plan to go over nearly every mainstream economic statistic used today to misdirect the public (from national debt to unemployment to inflation to retail sales and corporate profits) and expose why they are false while giving you the real numbers. Most of my regular readers are familiar with much of this information, but I think it important to consolidate it all in a single article so that we can take stock of where our society sits fiscally as we enter 2015. For now, though, I want to discuss the core problem of self-deception, the problem that makes all the rest of our problems possible.
When the initial phase of the global collapse was triggered in 2007 and 2008, there was a substantial explosion in interest and education in terms of liberty issues and alternative economic awareness. I remember back in 2006 when I had just begun writing for the movement that the ratio of people on any given Web forum or in any given public discussion was vastly opposed to alternative viewpoints and information — at least 50-1 by my observations. We were at the height of the real estate frenzy; everyone was buying houses with money they didn’t have and borrowing on their mortgages to purchase stuff they didn’t need. Life was good. The shock of the credit crisis came quickly and abruptly for most people, and there has been a considerable shift in the kinds of discussions many are willing to entertain about our future. Yet the idea that such things can happen despite a consensus of social and geopolitical health does not seemed to have soaked into the thick skulls of average people.
Time, unfortunately, has a magical ability to erase vigilance. It’s not that the public has necessarily forgotten that danger can strike anytime anywhere (though some of them have). Many of them know full well that our culture is floating on a paper-thin ship in a turbulent sea. However, the disturbing trend today reveals that people have decided they do not care. “Taking the blue pill” is the rising rally cry from the so-called “new normal.” Yes, the economy is an illusion, the political system is an illusion and the various global conflicts our society participates in are mostly illusions. But we “can’t do anything about it,” so we might as well profit from these illusions while we can, right?
It has been said that during the economic collapse of the 1930s that the Great Depression was a depression only for the 30 percent of people that had lost everything. For the employed and the financially secure, the depression was much like any other time. This is the point at which we stand today in the collective mindset. With nearly a third of the U.S. population kicked off the unemployment rolls and approximately half the country dependent on a government check of some kind for their survival, the current depression is only now beginning to feel like a depression for anyone. The soup lines have received a fresh candy coating of EBT cards and welfare payments, but the illusion is finally fading, and this should be of great concern to us all in 2015.
Even more frightening is our culture’s deluded sense of what a collapse actually looks like. For many, collapse is a cinematic and overnight affair, with zombies, nuclear bombs and mass panic. In real life, and throughout history, collapse is a process. Since at least 2008, the U.S. and the rest of the world have been experiencing that process. Everyone is waiting for equities to implode and for social unrest to erupt before they take the threat seriously, but these are not signals of collapse. These are the things that occur when a collapse has run its course. Collapse never occurs overnight. It takes years for the effects of social and fiscal breakdown to be visibly felt. And when they are felt, many people refuse to notice. Eighty years ago, America was halfway through the Great Depression, and mainstream economists were STILL claiming that recovery was right around the corner. Illusion and self-deception can be so powerful that the worst miseries can be normalized, at least for a little while.
And it isn’t only the general public that is stricken with crippling bias. There are those within the liberty movement who have bought into false paradigms for various reasons, and this threatens any progress we have made over the past several years. There are those who still think that the “conflict” between Eastern and Western politicians and banking elites is somehow real. There are those who believe that Russia and China, despite their numerous and undeniable ties to the global banking syndicate (information I have covered in multiple articles over the years), are the "good guys", while Western nations are the "bad guys", rather than them all being mere subsidiaries and franchises of the same monstrous globalist machine.
They hold onto this illusion, I think, because it is much more frightening to accept the reality that we are alone, that the liberty movement is the first and last line of defense against centralization, that the responsibility for the future of independence and individual freedom rests on our shoulders. It is much easier to fantasize that there are others out there, nations and governments with armies and capital, that are on our side and will fight our battles for us. This illusion will be a painful one for many in the movement as they begin to realize that the East is actually working in tandem with international financiers instead of working against them.
There are also those in the liberty movement who cling to the notion that the fight against globalism will be won without physical conflict. They believe that if we simply protest long enough, play the political and legal game long enough, nullify long enough, refuse to participate long enough, that the elitist edifice, an edifice which has existed for centuries and has manipulated historical precedence for just as long, will suddenly disappear in a puff of fairy dust.
The first problem with this strategy is that it relies on the assumption of time. Sure, anything is possible given ample opportunity. Perhaps the movement could grind away at the New World Order over the course of several decades until the majority of the masses are awake and aware (which is exactly how long it would take). However, I think it infinitely foolish to presume that we have decades to accomplish such a task. If the past has shown us anything, it is that tyranny does not respect reason and, at a certain point, couldn’t care less about image. Tyranny respects only power. It does not respect the protestations of ants it can crush under foot, but it will make a wide path around a rattlesnake ready to strike. While there is utility in the pursuit of intellectual and philosophical combat, if you are not willing to be the rattlesnake as well, then you are not going to affect change against such an opponent. You will eventually be stepped on.
The refusal to accept responsibility for one’s own defense is yet another product of fear — fear that the enemy is too powerful, that all resistance is futile. But resistance is only assured failure if resistance is never undertaken. Sheeple defeat themselves within their own minds before they ever stand up, and so they never stand. This is the only reason totalitarian elements ever achieve success. Again, many in the liberty movement are going to face a rude awakening when they realize they have relied too much on the notion of the system policing itself, instead of preparing for the worst-case scenario.
And finally, the globalists themselves suffer from a veritable fog of illusions to which I can speak only briefly.
We are stepping over the threshold of an age that will shatter the illusions of everyone, and the internationalists are no exception. The root pillar of elitist globalism itself is that some men are born to rule, while other men are born to serve. Some men are born kings, and other men are born slaves. The psychopathy of this belief system should be evident, but psychopathy also elicits blinding ego and hubris, which smothers any inherent questions of motive. I do not think the elites ever actually consider the validity of their own philosophies. I am relatively certain their manner of viewing the world is much like that of a cult, a religious sect driven by the brutality of zealotry rather than the empowering nature of understanding.
Such men cannot be reasoned with. In fact, zealots often revel in their ability to trample all other world views as they grasp for complete dominance of their ideology. The illusion of rightness is far more important to them than actual truth, and this is their greatest weakness. Hidden under all the posturing and power grabbing, deep in the recesses of their own assumed omnipotence, I sense an ever present terror within the globalist culture. I sense a brand of terror that comes only from the seed of doubt.
The incredible array of propaganda leveled at the public, the constant war gaming and mind gaming against the citizenry, the endless hailstorm of legal maneuvering designed to erase our sense of connection with our natural rights and liberties, the tidal wave of fearmongering, and all the manipulations and scapegoats and elaborate theatrical displays, all reek of fear. For if the globalists were truly as omnipotent as they pretend to be — if they really were all-knowing philosopher kings born to rule — then they would already have their New World Order. They would not need lies. They would not need the threat of force. The undeniable power of their ideology would be enough if their ideology actually had any validity. Lies are designed to hide lack of validity and lack of strength. The globalists are, at bottom, a hollow shell desperately clamoring for substance.
What may appear to be the "thoroughness" of the elitist con is actually a form of micro-management that exhibits a fundamental doubt of success. The globalists wish they could predict the future, but they cannot. So they are just as afraid as most of humanity. I believe we are entering an era in which they will feel the stark pain of shattered illusions and the destruction of their own fantasies, no less felt than the pain of the rest of the world.
Our mission as an opposing force to globalism is to come to terms with our own illusions and to erase them, to stop compromising and to stop waiting for the final shoe to drop and to take positive action now rather than after the endgame develops. This means preparation and organization for the worst-case scenarios. This means making one’s family, neighborhood and community as self-reliant and secure as possible. The excuses have to stop. The distractions and intellectualized silver bullet solutions have to stop. Hard work and risk are all that are left, all that matters. If we do this, and if we do this now, then victory is possible. In any contest of strength and will, he who knows himself best, he who sheds all illusion, will be the winner.
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http://blogs.wsj.com/briefly/2015/01/15/what-happened-with-the-swiss-franc-the-short-answer/
The Swiss National Bank shocked markets Thursday by abandoning the cap it had set for the past three-and-a-half years on the Swiss franc’s value against the euro.
The decision came despite repeated assurances from SNB officials in recent months that the central bank was committed to defending the currency cap, which has been credited with protecting Switzerland’s export-dependent economy from turmoil in the neighboring eurozone, and limiting the risks of deflation.
Yet the costs and risks associated with keeping the franc from strengthening too much against the euro—which requires the SNB to purchase assets denominated in non-franc currencies, particularly the euro—have become too great. In ditching the cap, the SNB sparked a dramatic rally in the franc, and raised doubts about its own credibility.
Here are five questions about Thursday’s move.
Why did the SNB cap the franc’s value?
During the eurozone’s debt crisis, the Swiss franc, long considered a safe haven in times of stress, appreciated sharply against the euro. That threatened the country’s manufacturers, which sell a significant share of their exports to the eurozone. In September 2011, the SNB set a goal of keeping its currency from rising beyond 1.20 francs to the euro.
Did it work?
The Swiss economy has expanded more rapidly than the eurozone’s in recent years, but inflation remains near zero, suggesting the economy hasn’t escaped the risks of deflation.
Why scrap the peg?
The SNB said that while the franc is still strong, “the overvaluation has decreased as a whole” since they set the cap. Analysts also said the target would have come under increased pressure in coming weeks, particularly if the European Central Bank launches quantitative easing next week as most analysts expect, increasing the supply of euros and likely leading to further euro depreciation.
What does it mean for the SNB?
The central bank faces two immediate problems: its credibility and the potential for major losses on its balance sheet. The reversal may make it harder in the future for Swiss policymakers to persuade investors that its declared intentions are its real intentions. In addition, because the SNB holds a big chunk of its balance sheet in assets denominated in foreign currencies that will have fallen in franc terms, it faces large losses on those holdings.
What are the lessons for other central banks?
The Swiss case shows how hard it is for central banks to maintain supposedly temporary, emergency measures for long periods, and insulate their economies against major external developments. It also underscores how hard it is for smaller central banks such as Switzerland’s to hold back the tide of markets that are driven by the policies of larger central banks such as the ECB and the U.S. Federal Reserve.
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second post
Data Watch
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The Producer Price Index Declined 0.3% in December To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 1/15/2015
The Producer Price Index (PPI) declined 0.3% in December, coming in above the consensus expected decline of 0.4%. Producer prices are up 1.1% versus a year ago.
Energy prices led the index lower, down 6.6%. Food prices declined 0.4%. Producer prices excluding food and energy rose 0.3% in December (+0.2% among just goods).
In the past year, prices for services are up 2.2%, while prices for goods are down 1.2%. Private capital equipment prices rose 0.1% in December and are up 1.6% in the past year.
Prices for intermediate processed goods declined 1.7% in December, and are down 2.3% versus a year ago. Prices for intermediate unprocessed goods fell 5.0% in December, and are down 8.6% versus a year ago.
Implications: Still no sign of inflation as producer prices fell for the fourth time in five months. The decline in overall producer prices can all be attributed to energy, which fell 6.6% in December and is down 12.9% versus a year ago, a testament to fracking and horizontal drilling. Although energy prices have dropped further in January, that trend won’t last forever. As a result, our forecast is still that the US suffers neither hyperinflation nor deflation. Instead, it’s going to be a slow slog upward for inflation. “Core” prices, which exclude food and energy, show deflation is not setting in. Core prices rose 0.3% in December and are up 2.1% in the past year. However, prices further up the production pipeline remain quiet. Prices for intermediate processed goods are down 2.3% in the past year while prices for unprocessed goods are down 8.6%. Regardless, with the labor market improving, the Fed is still on track to start raising rates around the middle of the year. These rate hikes will not hurt the economy; monetary policy will still be loose and will likely remain that way for the first couple of years of higher short-term rates. Counterintuitively, higher short term rates may boost lending as potential borrowers hurry up their plans to avoid even higher interest rates further down the road. In other words, the Plow Horse economy won’t stop when the Fed shifts gears. In other news this morning, new claims for unemployment benefits increased 19,000 last week to 316,000. We wouldn’t make too much of this as claims are often very volatile in January. Continuing claims fell 51,000 to 2.42 million. Plugging these numbers into our models suggests January will be another solid month with payroll growth again exceeding 200,000. On the manufacturing front, two separate measures of factory sentiment went in different directions in January, but both signal continued growth. The Empire State index increased to +10.0 in January versus -1.2 in December, while the Philadelphia Fed index fell to +6.3 from +18.7.
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If you want to find it, go shopping for food.
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Much of that can be attributed to the California drought.
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The Consumer Price Index Declined 0.4% in December To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 1/16/2015
The Consumer Price Index (CPI) declined 0.4% in December, matching consensus expectations. The CPI is up 0.8% versus a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) declined 0.5% in December, and is up only 0.1% in the past year.
Energy prices declined 4.7% in December, while food prices increased 0.3%. The “core” CPI, which excludes food and energy, was unchanged - the consensus expected a gain of 0.1%. Core prices are up 1.6% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – rose 0.1% in December and are up 1.0% in the past year. Real weekly earnings are up 1.9% in the past year.
Implications: The sharpest decline in energy prices in more than six years pushed overall consumer prices lower in December at the fastest pace since the Panic of 2008. But it wasn’t just energy prices keeping a lid on inflation in December. Even excluding energy, consumer prices were unchanged for the month, with declines in clothing, airfares, and auto prices offsetting increases in rent, medical care, and food. Consumer prices rose only 0.8% in 2014, largely due to plummeting energy prices, which have now declined for six straight months. Gas is below $2.60 per gallon in all of the lower 48 states (including high-tax Illinois, New York and even California). Given the continued drop in oil prices in the first half of January, look for another tame reading on inflation in next month’s report. However, the underlying trend in inflation is higher than the overall number. Although unchanged in December, “core” consumer prices, which exclude food and energy, were up 1.6% in 2014. Also, there are sectors where prices are rising faster. Food prices rose 3.4% in 2014, the largest gain since 2011. So if you only use the supermarket to gauge inflation, we understand thinking the headline reports are too low and that “true” inflation is higher. Meanwhile, housing costs are going up. Owners’ equivalent rent, which makes up about ¼ of the overall CPI, rose 0.2% in December, was up 2.6% in 2014, and will be a key source of higher in inflation in the year ahead. In other words, even though overall prices remain subdued, there is no broad, tight-money, induced deflation out there. One of the best pieces of news in today’s report was that “real” (inflation-adjusted) average hourly earnings rose 0.1% in December after a 0.6% jump in November. These earnings are up 1% from a year ago, signaling that living standards are increasing, but still at a slow pace.
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Bitcoin and the Digital-Currency Revolution
For all bitcoin’s growing pains, it represents the future of money and global finance.
Paul Vigna and Michael Casey discuss their new book "The Age of Cryptocurrency" as well as the mystique and challenges facing Bitcoin and the virtual currency business. P.
Jan. 23, 2015 12:44 p.m. ET
About a half-billion dollars worth of it vanished from an online exchange in Tokyo. A prosecutor in Manhattan arrested the 24-year-old vice chairman of its most prominent trading body on drug-related charges of money laundering. Its founder’s identity remains a mystery, and last year, it shed two-thirds of its value, losing an additional 44% in just the first two weeks of January. In his year-end letter to investors, Warren Buffett’s advice about it was emphatic: “Stay away.”
The digital currency known as bitcoin is only six years old, and many of its critics are already declaring it dead. But such dire predictions miss a far more important point: Whether bitcoin survives or not, the technology underlying it is here to stay. In fact, that technology will become ever more influential as developers create newer, better versions and clones.
No digital currency will soon dislodge the dollar, but bitcoin is much more than a currency. It is a radically new, decentralized system for managing the way societies exchange value. It is, quite simply, one of the most powerful innovations in finance in 500 years.
If applied widely to the inner workings of our global economy, this model could slash trillions in financial fees; computerize much of the work done by payment processors, government property-title offices, lawyers and accountants; and create opportunities for billions of people who don't currently have bank accounts. Great value will be created, but many jobs also will be rendered obsolete.
Bitcoin has some indisputable flaws, at least in its current iteration. Its price fluctuates too wildly. (Who wants the cost of their groceries to vary by 10% from week to week?) Its anonymity has made it a haven for drug dealers. “Wallets” (as the individual software applications that manage bitcoin holdings are known) have proven vulnerable to cyberattack and pillaging, including the wallets of big exchanges such as Tokyo’s Mt. Gox and Slovenia’s Bitstamp.
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Even though the core program that runs bitcoin has resisted six years of hacking attempts, the successful attacks on associated businesses have created the impression that bitcoin isn’t a safe way to store money. Until these perceptions are overcome or bitcoin is replaced by a superior digital currency, the public will remain suspicious of the concept, and regulators will be tempted to quash it.
Like any young technology, bitcoin is a work in progress, but its groundbreaking core software program is constantly being improved. It is open-source and copyright-free, and thus accessible to anyone who wants to peer inside it, copy it, suggest improvements or create applications for it.
Inspired by this potential, “probably 10,000 of the best developers in the world are working on bitcoin,” estimates Chris Dixon, a partner at the venture-capital firm Andreessen Horowitz. This volunteer army has developed military-grade encryption to make bitcoin wallets more secure and insurable and also new trading tools to help stabilize the price. The faults of digital currency are being resolved.
The workings of bitcoin and other digital currencies can be confusing. When we think of a currency in the abstract, we tend to think of a physical currency in the offline world—a dollar bill or a gold coin—so we imagine bitcoin as some sort of digitally rendered equivalent, much as a Word document is a digital stand-in for a physical page of text.
But there is no such thing as the digital equivalent of a dollar bill. Bitcoins exist purely as entries in an accounting system—a transparent public ledger known as the “blockchain” that records balances and transfers among special bitcoin “addresses.” Owning bitcoin doesn’t mean having a digital banknote in a digital pocket; it means having a claim to a bitcoin address, with a secret password, and the right to transfer its balances to someone else.
Whether bitcoin survives or not, the technology underlying it is here to stay. ENLARGE
Whether bitcoin survives or not, the technology underlying it is here to stay. Photo: Bloomberg News
This ledger is what gives bitcoin its potential to disrupt global finance. In the current dollar-based monetary system, we entrust banks and other fee-charging intermediaries to act as gatekeepers to nearly every transaction. Those centralized institutions maintain closely guarded in-house ledgers and, with that information, determine whether their customers have enough credit to write checks, buy goods with credit cards or wire money.
With bitcoin, the balances held by every user of the monetary system are instead recorded on a widely distributed, publicly displayed ledger that is kept up-to-date by thousands of independently owned, competing computers known as “miners.”
To understand how it works and why it is more efficient and less expensive than the existing system, let’s take a single example: buying a cup of coffee at your local coffee shop. If you pay with a credit card, the transaction seems simple enough: You swipe your card, you grab your cup, you leave.
In fact, the financial system is just getting started with you and the coffee shop. Before the store actually gets paid and your bank balance falls, more than a half-dozen institutions—such as a billing processor, the card association ( Visa , MasterCard , etc.), your bank, the coffee shop’s bank, a payment processor, the clearinghouse network managed by the regional Federal Reserve Banks—will have shared part of your account information or otherwise intervened in the flow of money.
If all goes well, your bank will confirm your identity and good credit and send payment to the coffee shop’s bank two or three days later. For this privilege, the coffee shop pays a fee of between 2% and 3%.
Now let’s pay in bitcoin, assuming that your favorite coffee shop accepts it (more than 82,000 merchants world-wide already do). If you don’t already have bitcoins, you will need to buy some from one of a host of online exchanges and brokerages, using a simple transfer from your regular bank account. You will then assign the bitcoins to a wallet, which functions like an online account.
Once inside the coffee shop, you will open your wallet’s smartphone app and hold its QR code reader up to the coffee shop’s device. This allows your embedded secret password to unlock a bitcoin address and publicly informs the bitcoin computer network that you are transferring $1.75 worth of bitcoin (currently about 0.0076 bitcoin) to the coffee shop’s address. This takes just seconds, and then you walk off with your coffee.
What happens next is crucial. In contrast to the existing system, your transaction is immediately broadcast to the world (in alphanumeric data that can’t be traced to you personally). Your information is then gathered up by bitcoin “miners,” the computers that maintain the system and are compensated, roughly every 10 minutes, for their work confirming transactions.
The computer that competes successfully to package the data from your coffee purchase adds that information to the blockchain ledger, which prompts all the other miners to investigate the underlying transaction. Once your bona fides are verified, the updated blockchain is considered legitimate, and the miners update their records accordingly.
It takes from 10 minutes to an hour for this software-driven network of computers to formally confirm a transfer from your blockchain address to that of the coffee shop—compared with a two- to three-day wait for the settlement of a credit-card transaction. Some new digital currencies are able to finalize transactions within seconds.
There are almost zero fees, and the personal information of users isn’t divulged. This bitcoin feature especially appeals to privacy advocates: Nobody learns where you buy coffee, the name of your doctor or—if you’re into that sort of thing—where you buy your illegal drugs.
Because the fees in the current credit-card system are paid by merchants and because banks indemnify cardholders against theft of their personal data, such savings and privacy benefits often don't impress American consumers. But even if we don’t bear those costs directly, we pay them through hidden fees and pricier cups of coffee.
The advantages of digital currency are far more visible in emerging markets. It allows migrant workers, for example, to bypass fees that often run to 10% or more for the international payment services that they use to send money home to their families.
Bitcoin’s unidentified creator—a person or persons operating under the pseudonym of Satoshi Nakamoto —has provided a novel solution to a problem that has dogged societies for centuries: the distrust among strangers in commercial transactions with one another. In any exchange, how could someone feel secure unless there is a face-to-face handover of physical currency or some other valuable good?
When banks were invented in Florence in the late 1400s, a centralized solution emerged: People didn’t have to worry about trusting strangers anymore; they could just trust their banks to absorb the credit risk. Using internal ledgers to keep track of everyone’s balances, banks became the middlemen through which exchanges could now occur.
Banking unleashed the Renaissance, the Industrial Revolution and the modern age. But a new problem arose: As the world’s monetary intermediaries, banks became powerful—perhaps overly powerful—repositories of information and influence. The financial system was and remains vulnerable to bank failures, as we were painfully reminded during the financial crisis of September 2008.
One month after that meltdown, Satoshi Nakamoto released the initial document describing bitcoin. For the first time, people had a decentralized solution to the financial-trust problem. Here was a new form of currency that could be transferred online without involving fee-imposing, third-party institutions.
But many still ask: How can a bitcoin have value if it isn’t “backed” by gold or a government? If you can’t hold a currency in your hands, if it doesn’t bear some central authority’s insignia, how can it be worth anything?
Here we have to remind ourselves of some economic fundamentals: Money’s essence doesn’t reside in tangible currencies, which have no intrinsic value—beyond, say, a dollar bill’s modest usefulness as a bookmark. Much the same can be said of bitcoins, which are made up of bits and bytes.
In the broadest sense, money is, instead, an all-encompassing, society-wide system for keeping up with who owns or owes what. Physical currencies are simply symbols or tokens in that system, representing a shared standard of value for tracking wealth holdings. What Nakamoto’s blockchain invention offers is an online, decentralized and fully public mechanism for recording those shifting balances. It deals directly with the essence of money.
As promising as that idea may seem, there hasn’t been much public buy-in, largely because of the concerns about volatility, insecurity and criminality that have continued to dog bitcoin. Although many companies now accept bitcoin (the latest and biggest being Microsoft Corp. ), global usage of the digital currency averaged just $50 million a day in 2014. Over that same period, Visa and MasterCard processed some $32 billion a day.
Still, a “Who’s Who” of Internet pioneers is betting on a bright future for bitcoin. Ignoring its careening exchange rate, such investors as Netscape founder Marc Andreessen and LinkedIn founder Reid Hoffman put $315 million into bitcoin-related projects last year—triple the venture-capital investment of 2013, according to the digital-currency news site Coindesk. And 2015 has kicked off with an announcement by the digital wallet provider Coinbase of a $75 million injection of new funds by investors including the New York Stock Exchange and the venture arm of the Spanish banking giant Banco Bilbao Vizcaya Argentaria SA .
What most excites these investors is bitcoin’s promise as a platform whose future applications are almost unimaginably broad. They see a precedent in the core Internet protocols adopted in the 1980s, when no one foresaw such things as Facebook , Twitter or Netflix . Already, hundreds of specialized apps are being built on top of the digital-currency blockchain software, which is seen in this context as a kind of base operating system.
Some developers are building digital-currency tools for the world’s 2.5 billion “unbanked” people, in a bid to bring them into the global financial system. Others are packing additional information into the core programs to create applications well beyond currency transfers: software-managed “smart contracts” that need no lawyers, automated databases of digital assets and copyright claims, peer-to-peer property transfers and electronic voting systems that can’t be rigged.
A key idea here is that data in a blockchain ledger is made irrefutable by the computing consensus that goes into it. A blockchain is distributed across many independent computers rather than residing on a central server. So, unlike bank- or merchant-based data, such information is, in theory, invulnerable to attack or corruption. It is considered impossible for an outsider to hack thousands of computers simultaneously and there are no insiders to manipulate the central server’s software. This, in theory, makes blockchain data reliable and incontrovertible.
As innovation in digital currency accelerates, it will matter less whether Mom and Pop own bitcoin or even know what it is. Big multinationals and financial institutions could incorporate its decentralized technology into their payment and database systems while we obliviously keep using our dollars or euros.
If bitcoin thus becomes an ubiquitous if largely invisible part of the world economy, many believe that its price will rise. A small but growing number of hedge funds and family investment offices are betting on just that, taking stakes in bitcoin-investment vehicles.
But the growth of digital-currency technology has even more profound implications. It could reduce financial costs overall and leave more money in people’s pockets. At the same time, it could spell job losses—potentially rendering obsolete millions of positions in traditional intermediary services.
These aren’t idle concerns. Wall Street bankers and Federal Reserve staffers are discussing ways that this technology could make the financial system more efficient. Regulators in New York’s Department of Financial Services and elsewhere are designing rules to reduce the risks from digital currencies even as they encourage innovation. The governments of the U.K. and Mexico are exploring the use of blockchain technology to enhance financial networks and strengthen economic governance.
Despite the scandals and price swings in bitcoin’s brief history, the financial establishment is taking notice. One key reason, as former U.S. Treasury Secretary Lawrence Summers told us, is that the “substantial inefficiencies” of an outdated financial system make it “ripe for disruption.” That alone means it would be “a serious mistake to write off [digital currencies] as either ill-conceived or illegitimate,” Dr. Summers said.
In the end, the rise of digital currency may be a matter of evolutionary destiny. The Internet has disrupted and decentralized much of the world economy, but the centralized world of finance remains stuck in the 15th century. Digital currency can help it adapt and survive.
Adapted from “The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order,” to be published Tuesday by St. Martin’s Press.
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Monday Morning Outlook
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Dual Mandate Achieved: Rate Hikes Coming To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/9/2015
From 45,000 feet, it certainly looks like the Federal Reserve has achieved, or is very close to achieving, its Dual Mandate of price stability and full employment.
What this means is that the Fed can declare victory. After all the grief it has taken, this must feel pretty darn good. However, it also suggests the Fed has some major decisions to make. According to Keynesian models when the economy hits “full employment,” inflationary pressures start to build and the Fed must cut those off before they start.
This is especially important when monetary policy is very accommodative and interest rates are near zero. We think this is why the Fed is still on track to hike interest rates this year.
It’s true that overall consumer prices are likely to plummet by around 1% in January and the CPI will be down from a year ago. Some call this “deflation,” but we all know it’s driven by huge declines in gas prices. “Core” inflation – which excludes food and energy – is up 1.6% from a year ago as of December, and has remained very stable the past few years. We have always thought the term “price stability” should mean zero inflation, but many Keynesians say it should be about 2%. So, if we go with their definition, the US is very close to price stability.
Some argue this means the Fed should hold rates steady – until it sees a true increase in inflation. But the Fed doesn’t have that luxury. It must cut off inflation before it starts. The Fed worries about inflation expectations and its models suspect wages are a driving force.
Given the strength of recent employment reports, those models have to be moving future inflation forecasts upward.
Nonfarm payrolls are up more than one million in the past three months, the largest gain for any three-month period in either the current expansion or the one under President Bush in the prior decade. You’d have to go back all the way to late-1990s to find the kind of job growth we’re getting now.
Also, the current recovery in jobs has been broad-based. A diffusion index shows that 66.2% of industries have increased employment in the past year, the highest since 1998. More labor competition is pushing up wages. In January, average hourly earnings rose 0.5% in spite of what everyone expects will be a huge decline in the consumer price index. The Employment Cost Index has also accelerated, while the “quit rate” – those feeling confident enough about the job market to quit their jobs – is up to 9.5%, the highest level since 2008. To top it off, the labor force is up 1.4 million from a year ago.
Some argue the job market is not healthy and we have some sympathy for this view. Full-time workers were 52.3% of the civilian non-institutional population (16+) before the recession started. Now they’re only 48.3%. But that doesn’t mean it’s not up since the recession ended. The low was 46.6% in late 2010 and it’s been trending up the past four years. Moreover, it was 48% on average in the 1970s, back before the mass entry of women into the workforce.
One reason job growth and the labor force were slow to mend in the current recovery is that redistribution is on the rise. Social Security Disability rolls have doubled in a decade and that means many can retire even earlier than they would normally. Student aid (loans, grants and subsidies) are also booming, pulling many younger people from the labor force.
These forces may not be “good,” but they are “real” and with unemployment under 6% of the labor force, the US is close to “full employment.” That’s why the labor force and wages are starting to grow more rapidly. This is the Fed’s conundrum. Policy has been extremely loose for a very long time and moving to normalize it at this point has minimal risk.
On top of all this, the Fed doesn’t know for sure whether it can actually push rates up when the banking system has record levels of excess reserves. It must find this out sooner or later.
Fed Chair Janet Yellen is set to testify to Congress on monetary policy in two weeks. Look for her to put extra emphasis on improvements in the labor market and downplay recent inflation readings as “statistical noise.” The coming rate hike cycle is likely to be gradual, but it’s coming, sooner than many think.
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The new normal (projection) after 8 years of Obama: 100 million American adults not working is now "full employment".
The policies succeeded.
Good grief!
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First this political observation: Assuming Republicans take back the White House in 2016, see my previous post, the economic record of Barack Obama with 8 years of expansionary monetary policy that included interest rates roughly at zero will be compared with his successor who no doubt will have to deal with the adjustment back to real world rates.
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Interesting piece by Robert Samuelson today:
A new economic mystery: Negative interest rates
http://www.jewishworldreview.com/0215/samuelson021915.php3#ZGmsaiASfufFxD56.99
By Robert J. Samuelson
Published Feb. 19, 2015
To the long list of economic mysteries can now be added interest rates. They've been at rock bottom, as everyone knows. But now we've encountered something novel: negative interest rates. Lenders are actually paying for the privilege of allowing someone to borrow their money. It's occurring outside the United States, and the Federal Reserve's next move is expected to be raising rates. Still, there's no ironclad reason it couldn't happen here.
Low rates are old hat. Here's what Bloomberg showed as of this column's publication: Deposit rates for U.S. savers averaged 0.73 percent for one-year certificates of deposit and 1.5 percent for five-year CDs. On a 10-year U.S. Treasury bond, the yield was 2.12 percent. Abroad, some rates were lower. German 10-year bonds were 0.38 percent, British 10-year bonds were 1.8 percent and Spanish 10-year bonds were 1.6 percent.
Meanwhile, borrowers benefit. Rates on five-year auto loans were 3 percent; on 30-year fixed rate home mortgages, rates were 3.8 percent. But negative rates? How can that be?
In practice, here's what happens. Bonds are traded on markets, just like stocks. Their prices can rise or fall depending on economic conditions or political events. When the price of a bond rises, its interest rate falls. Consider a $1,000 bond that was initially issued with a 3 percent interest rate. If the bond's market prices subsequently rises to $1,500, the bond's effective interest rate drops to 2 percent.
This is how bond interest rates can turn negative. If a bond's price rises high enough, its original interest payments won't cover the bond's full market cost. "I buy a bond for $1,000 and get back $950 -- that's a negative interest rate," says Moody's Analytics economist Mark Zandi. In January,as much as $3.6 trillion worth of government bonds -- mostly European and Japanese -- had developed negative interest rates, estimate London-based analysts for JPMorgan.
Broadly speaking, there were two explanations for this, though they are not mutually exclusive.
The first is that negative interest rates, though unexpected, result from the easy-money policies of government central banks. Their bond-buying (known as "quantitative easing," or QE) has poured money into financial markets, driving down rates. Although the Federal Reserve has halted new bond-buying, the Bank of Japan and the European Central Bank (ECB) continue their programs. The ECB has pledged to buy $1.3 trillion of bonds by September 2016.
Earlier in 2012, the ECB promised to stand behind the bonds of eurozone countries; this helped bring down their rates sharply. (Greece remains an exception, because its new government declines to endorse a rescue plan accepted by the previous government.) But hardly anyone anticipated that these measures would produce negative interest rates.
The second explanation is that the weak world economy has quashed inflation and the demand for credit. Businesses don't want to expand; consumers fear too much debt. Weak global demand could produce a broad-based fall in prices ("deflation"), oil being a harbinger. Depending on deflation's severity, negative interest rates could then be profitable because investors would be repaid in more valuable money.
The evidence for this theory is mixed. True, the sluggish world economy has suppressed price pressures. In the euro zone, consumer prices (minus energy) are up a mere 0.4 percent in the past year. But credit demand, while not robust, hasn't collapsed. A study by the McKinsey Global Institute finds that worldwide credit grew 40 percent from the end of 2007 to mid-2014.
Just because bonds are traded at negative interest rates doesn't mean there's much buying at those rates. "I don't understand why anyone would put up with negative interest rates," says Richard Sylla, a financial historian at New York University and co-author of "A History of Interest Rates." "You could do better by holding cash." Some European banks now charge for holding cash deposits; in those cases, buying negative-interest bonds instead might make sense, says Sylla.
Capital flight by wealthy investors explains some demand for government bonds, says Zandi. "Every time there's a hotspot you can see the cash flows into U.S. Treasury bonds -- the safest assets," he asserts. U.S. Treasuries aren't yet in negative territory, but some other government bonds that play the same role are, Zandi says. Investors want to protect their principal and may regard slightly negative rates as an insurance premium against larger losses.
For the moment, negative interest rates are a market-driven curiosity. But what happens if governments or corporations begin selling bonds that start with negative rates? Then we're in completely unchartered waters.
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This is worth paying attention to:
www.alt-market.com/articles/2518-alan-greenspan-warns-there-will-be-a-significant-market-event-something-big-is-going-to-happen
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If I'm reading correctly, this is hearsay. Yes?
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I suppose it depends on your definition of "hearsay." Brien Lundin is the source. I am honestly not familiar with his credentials.
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Interalia, hearsay is taking someone else's word for what someone said.
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The Consumer Price Index Declined 0.7% in January To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/26/2015
The Consumer Price Index (CPI) declined 0.7% in January, coming in slightly below consensus expectations of -0.6%. The CPI is down 0.1% versus a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) declined 1.0% in January, and is down 1.0% in the past year.
The drop in the CPI in January was all due to energy, which fell 9.7%. Food prices were unchanged. The “core” CPI, which excludes food and energy, increased 0.2% in January versus a consensus expected gain of 0.1%. Core prices are up 1.6% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – rose 1.2% in January and are up 2.4% in the past year. Real weekly earnings are up 3.0% in the past year.
Implications: With the exception of the Panic in late 2008, consumer prices fell in January at the fastest pace since 1949. As a result, the CPI is now lower than it was a year ago. Some analysts are going to use these data to warn about “Deflation” and say the Federal Reserve should hold off on raising rates. But the details of the report show we are not in the grips of deflation and the Fed should stay on track to start raising rates in June. True deflation – of the kind we ought to be concerned about – is caused by overly tight monetary policy and price declines that are widespread, not isolated to one sector of the economy. Think of the Great Depression. But we are not experiencing widespread declines in prices. The drop in consumer prices in January was all due to energy. Excluding energy, prices rose 0.1% in January and are up 1.9% from a year ago, very close to the Fed’s 2% inflation target. “Core” prices, which exclude food and energy, increased 0.2% in January and are up 1.6% from a year ago. Moreover, energy prices have turned higher in February, so this sector will soon be pushing the CPI up rather than holding it down. And, there are sectors where prices are rising faster. Food prices have risen 3.2% in the past 12 months, so if you only use the supermarket to gauge inflation, we understand thinking the headline reports are too low and that “true” inflation is higher. If you love eating steak, you’ve been out of luck, with prices up almost 15% from a year ago. In addition, housing costs are going up. Owners’ equivalent rent, which makes up about ¼ of the CPI, rose 0.2% in January, is up 2.6% in the past year, and will be a key source of higher inflation in the year ahead. The best pieces of news in today’s report was that “real” (inflation-adjusted) average hourly earnings rose 1.2% in January, the fourth consecutive month of gains and the largest monthly rise since 2008. These earnings are up 2.4% from a year ago and up at a faster 4.9% annualized rate over the past six months, signaling that consumer purchasing power continues to grow.
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Crafty,
To repeat - I haven't researched Brien Lundin's credentials. Under your definition, anything reported by any third party (news source) could be considered hearsay.
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I get that, but with a reporter whose word I do take, I know his track record or that of his publication.
I've not seen any other reports of these words from AG and have never heard of this guy or this site , , ,
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Crafty,
I can't speak to the reliability of the source. All I can tell you is that I've seen this reported in other places on the web - mainly sites with a vested interest in promoting gold as an investment, granted. I also know that an "appeal to authority" is the most common logical fallacy - so I'm not suggesting that even if Greenspan were on tape saying this, he would necessarily be right about it. I'm simply offering this to the community for consideration along side the verifiable facts we have at hand regarding the exponential growth of the money supply since Obama took office.
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As Crafty asks, why aren't WE attacking the crony corruption link between big government and big business.
Citigroup CEO Michael Corbat announced last week that Citi is going deep in green technology. Citi “will lend, invest and facilitate $100 billion over 10 years for projects ranging from energy, to clean tech, to water, to green infrastructure. Simply put, it is a $100 billion investment in sustainable growth.” That all this reflects the No. 1 domestic priority of the Obama Administration is no doubt a coincidence.
Citigroup says it has already met a 2007 objective of raising $50 billion for “climate friendly projects.” With Mr. Corbat’s announcement it will add $100 billion by looking for “opportunities to finance greenhouse gas (GHG) reductions and resource efficiency in other sectors, such as sustainable transportation.”
We don’t doubt there will be such projects worthy of financing when the planets of market economics align. But green projects not subsidized by taxpayers have been at a price disadvantage for years, and their competitiveness isn’t likely to improve as the price of oil and natural gas declines.
Shaping a lending policy around a green agenda while the politics and science of climate change remain controversial and the technology of fossil-fuel extraction is advancing rapidly seems like a recipe for raising risk.
WSJ Editorial
http://www.powerlineblog.com/archives/2015/03/is-the-government-mandating-incompetent-banking.php
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Don’t Audit It: Reign It In
Some in Congress want to “Audit the Fed.” But an audit, unless the word is used in a very broad sense, would be redundant and basically irrelevant. The Fed is already audited, by Deloitte & Touche LLP and it releases an annual report that includes the auditor’s opinion, each year.
Wild-eyed conspiracy theories have cropped up that suggest the Fed may not actually own the bonds it says it does or that it pays too much to certain banks when buying them. But none of this is true; there is no evil accounting going on. In a financial sense the Fed is almost certainly squeaky clean. The Fed doesn’t need another audit, what it needs is more responsible and effective oversight from Congress, a smaller balance sheet and less ability to interfere with private business decisions.
The Fed has become the biggest financial entity in the world, with bond holdings that have ballooned to $4.25 trillion. Fed assets, six years after the Panic of 2008 ended, exceed the annual budget of the US government and are equal to 24% of GDP.
During the Great Depression, 1930-39, the Fed’s balance sheet averaged 13.2% of GDP. It peaked at the end of the Depression, in 1940, at 16% of GDP and then averaged 12.6% from 1941-45, during World War II. If the Great Depression and WWII didn’t require balance sheets as large as the current one, then something has gone terribly awry.
What’s interesting is that during the boom years of the 1980s and 1990s, the Fed’s balance sheet averaged 5.2% of GDP. So, it’s impossible to make the case that the Fed needs such a large balance sheet in order for the economy to create jobs with low inflation.
Lest we forget, Congress already has oversight of the Fed, and the past six years happened under its watch. Only a few members of Congress have enough knowledge of monetary policy to be effective at oversight. The same is true of voters. The Fed typically wins political battles because most people find monetary policy boring, complicated and difficult to grasp.
Nonetheless, the simple fact that the Fed is bigger, more powerful and more intrusive than ever imagined by any of its creators in Congress suggests that the Fed needs to answer more questions from more people. This does not mean the press, which has a conflict of interest, due to the fact that it wants access. Critical questioning risks losing access.
Moreover, the Fed is about to embark on a rate hiking campaign even though there are still excess reserves in the banking system. This has never been done before. Typically, the Fed makes reserves scarce in order to drive up interest rates.
But because the Fed wants a bigger balance sheet, it is trying to have its cake and eat it too. The Fed thinks it can pay banks more interest on those reserves and through a process of reverse repos drain money from the system. In other words, the Fed thinks that it can keep the balance sheet huge and manipulate interest rates even though the banking system is swimming in excess liquidity.
The Fed does have a back-up plan. If banks won’t let the Fed sop up those reserves, and instead they decide to lend them, potentially creating inflation or bubbles, the Fed believes it can use “Macro-Prudential Policy Tools” to manage the money multiplying process. Macro-prudential tools would allow the Fed to stop banks from lending, by raising capital standards, or by limiting growth in certain types of loans or by certain types of banks. And, it allows the Fed to expand its reach to “systemically important financial institutions” that could potentially include insurance companies, brokerages, money managers and even hedge funds.
It’s true that monetary policy should be independent of the political process. Whenever politicians take over the money supply, inflation results. But the corollary argument is just as important. Whenever bureaucrats take over the banking system, everything becomes political. Why? Because the bureaucrats are dependent on the politicians for their existence. The Fed must please enough members of Congress, and the right members, to keep new rules from passing that will limit its power.
The Fed missed the bubble in housing partly because Washington’s political mindset was focused on boosting homeownership any way it could. So, bubbles in politically-correct industries, like housing or green initiatives, are tolerated or even encouraged. Also, risk-taking in private decisions is discouraged because bank losses become political problems. In other words, the bigger and more powerful the Fed becomes, the more dependent it is on the political process.
The easiest way out of this mess is for Congress to force the Fed to sell its assets and limit the Fed’s power to bank oversight, not bank management and macro-prudential policy tools. Don’t audit the Fed, don’t create conspiracy theories, but reign in the overreach and force a smaller balance sheet. If we really want an independent Fed, make it smaller and less powerful. The bigger it gets, the more political, and less independent, it becomes.
Brian S. Wesbury, Chief Economist
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Six years ago, Paul Ryan, who has since become the chairman of the House Ways and Means Committee and the G.O.P.’s leading voice on matters economic, had an Op-Ed article published in The Times. Under the headline “Thirty Years Later, a Return to Stagflation,” he warned that the efforts of the Obama administration and the Federal Reserve to fight the effects of financial crisis would bring back the woes of the 1970s, with both inflation and unemployment high.
True, not all Republicans agreed with his assessment. Many asserted that we were heading for Weimar-style hyperinflation instead.
Needless to say, those warnings proved totally wrong. Soaring inflation never materialized. Job creation was sluggish at first, but more recently has accelerated dramatically. Far from seeing a rerun of that ’70s show, what we’re now looking at is an economy that in important respects resembles that of the 1990s.
To be sure, there are big differences between America in 2015 and America in the ’90s. TV is much better now, the situation of workers much worse. While stocks are high and there is talk of a new technology bubble, there’s nothing like the old euphoria. There is also, unfortunately, no sign that the great productivity surge of 1995-2005, brought on as businesses adopted information technology, is coming back.
Still, we’re now adding jobs at a rate not seen since the Clinton years. And it goes without saying that low inflation combined with rapid job growth makes nonsense of all those predictions that Obamacare, or maybe just the president’s bad attitude, would destroy the private sector.
But pointing out yet again just how wrong the usual suspects on the right have been about, well, everything isn’t the only reason to note parallels with the 1990s. There are also implications for monetary policy: Recent job gains have brought the Fed to a fork in the road very much like the situation it faced circa 1995. Now, as then, job growth has taken the official unemployment rate down to a level at which, according to conventional wisdom, the economy should be overheating and inflation should be rising. But now, as then, there is no sign of the predicted inflation in the actual data.
The Fed has a so-called dual mandate — it’s supposed to achieve both price stability and full employment. At this point price stability is conventionally taken to mean low but positive inflation, at around 2 percent a year. What does it mean to achieve full employment? For the Fed, it means reaching the Nairu — the nonaccelerating inflation rate of unemployment, which is consistent with that inflation target.
The Fed currently estimates the Nairu at between 5.2 percent and 5.5 percent, and the latest report puts the actual unemployment rate at 5.5 percent. So we’re there — time to raise interest rates!
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Or maybe not. The Nairu is supposed to be the unemployment rate at which the economy overheats and an inflationary spiral starts to kick in. But there is no sign of inflationary pressure. In particular, if the job market really were tight, wages would be rising quickly, whereas they are in fact going nowhere.
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The thing is, we’ve been here before. In the early-to-mid 1990s, the Fed generally estimated the Nairu as being between 5.5 percent and 6 percent, and by 1995, unemployment had already fallen to that level. But inflation wasn’t actually rising. So Fed officials made what turned out to be a very good choice: They held their fire, waiting for clear signs of inflationary pressure. And it turned out that the United States’ economy was capable of generating millions more jobs, without inflation, than it would have if the Fed had reined in the boom too soon.
Are we in a similar situation now? Actually, I don’t know — but neither does the Fed. The question, then, is what to do in the face of that uncertainty, with no inflation problem yet in sight.
To me, as to a number of economists — perhaps most notably Lawrence Summers, the former Treasury secretary — the answer seems painfully obvious: Don’t yank away that punch bowl, don’t pull that rate-hike trigger, until you see the whites of inflation’s eyes. If it turns out that the Fed has waited a bit too long, inflation might overshoot 2 percent for a while, but that wouldn’t be a great tragedy. But if the Fed moves too soon, we might end up losing millions of jobs we could have had — and in the worst case, we might end up sliding into a Japanese-style deflationary trap, which has already happened in Sweden and possibly in the eurozone.
What’s worrisome is that it’s not clear whether Fed officials see it that way. They need to heed the lessons of history — and the relevant history here is the 1990s, not the 1970s. Let’s party like it’s 1995; let the good, or at least better, times keep rolling, and hold off on those rate hikes.
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As Katrina approaches, it's a brilliant sunny day in New Orleans. How could anything go wrong? Why - the birds are singing, the sun is shining, all those Chicken Littles predicting a devastating storm of epic proportions sure are idiots, aren't they? Let's go party in the French Quarter!
We know how that ended.
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What did we predict? From my point of view, we predicted a high risk of inflation AFTER demand and velocity return to the economy. But that hasn't happened. We predict that that it will difficult to phase out years of monetary insanity. That has proved true. Even Krugman expresses fear of returning interest rates to normal after all this phenomenal, artificial growth. What specifically did we predict? That pouring more gas in the tank won't repair the three flat tires we are riding on, nor get us where we wish to go. What else? That low interest rates helps one side while obliterating the other, namely savings and new investment in the economy. We were right on that!
What did Krugman, who knows better, omit?
We now have the worst workforce participation rate since women widely entered the workforce. It is the worst workforce participation rate EVER for men, since before caveman days. And now the lowest workforce participation for women in modern time. Obama-Krugman policies also caused the worst startup rate in our lifetimes for businesses with the capability of growing to employ future generations, leaving behind economic expectations on a par with the Soviet Union in its last decade - if we don't change course.
By the end of the Obama era, to put a number on it, 100 million adults in the US won't work, out of 244 million. That is 41% real unemployment as the intentionally deceitful Nobel prize winner tells you we are now hitting full employment. http://rt.com/usa/jobs-us-employment-welfare-749/
If the economy really was back on rock-solid footing, why would an award winning economist want interest rates held artificially lower even longer yet? That makes no sense.
Nothing is holding up this economy and holding down overall price levels more than the fracking revolution that all these leftists still vehemently oppose. Yet they blabber on about their successes.
The economic issue they ran on when they took political power was to address and correct income inequality, not to fight against 1-2% inflation. So they stepped on economic growth in the pursuit of fairness. But everything they did made the disparities grow even wider. Go figure.
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Pretty good Doug :-D
but , , , I have come to think Scott Grannis has it right and that I (ahem, we?) did not. What we saw as vast printing of money was not and that important elements of our hypothesis may have been wrong.
Of course I get the declining work force participation rate, but OTOH there is this:
http://blogs.wsj.com/economics/2015/03/10/job-openings-rise-to-the-highest-level-in-14-years/?mod=WSJ_hpp_MIDDLENexttoWhatsNewsFifth
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The Producer Price Index Declined 0.5% in February To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 3/13/2015
The Producer Price Index (PPI) declined 0.5% in February, coming in below the consensus expected gain of 0.3%. Producer prices are down 0.7% versus a year ago.
Food prices fell 1.6% in February while energy prices were unchanged. Producer prices excluding food and energy declined 0.5% in February, led by service prices.
In the past year, prices for services are up 1.3%, while prices for goods are down 4.3%. Private capital equipment prices declined 0.3% in February but are up 0.7% in the past year.
Prices for intermediate processed goods declined 0.6% in February, and are down 6.5% versus a year ago. Prices for intermediate unprocessed goods fell 3.9% in February, and are down 25.0% versus a year ago.
Implications: If you’re looking for inflation, you’re not going to find it in producer prices, at least not yet. Producer prices fell 0.5% in February following a 0.8% drop in January. As a result, producer prices are down 0.7% from a year ago. The huge drop in energy prices since mid-2014 is the key reason producer prices are down in the past year. Energy prices are down 22.4% from a year ago, while everything excluding energy is up 1%. This suggests that when oil prices stabilize for a prolonged period of time that the overall producer price index will start rising again. However, that didn’t happen in February as prices for services fell 0.5%, the largest one-month decline since the new series began in 2009. The decline in services was led by trade services, which measure changes in the margins received by wholesalers and retailers. Prices for goods also fell in February, and have now declined for eight consecutive months. Most of the decline in goods prices in February can be attributed to food, which fell 1.6%. The new version of the producer prices index, which includes services, appears to be much more volatile than the old one, which suggests analysts and investors should not reach conclusions based on short-term gyrations in the numbers, including the fact that overall prices are now down from a year ago. Monetary policy remains loose and will continue to be loose even when the Federal Reserve starts raising rates this June. For this reason, these rate hikes will not hurt the economy. Fed policy will not become tight for at least a few years. Counter-intuitively, higher short term rates may boost lending as potential borrowers hurry up their plans to avoid even higher interest rates further down the road. In other words, the Plow Horse economy won’t stop when the Fed shifts gears. As a result, we believe producer price inflation will soon go positive again and then gradually move higher from there. In the meantime, prices further up the production pipeline remain subdued. Prices for intermediate processed goods are down 6.5% in the past year while prices for unprocessed goods are down 25%. Regardless, with the labor market improving, we still believe the Fed is on track to start raising rates in June.
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One Last Look At The Real Economy Before It Implodes - Part 3
Wednesday, 18 March 2015 Brandon Smith www.alt-market.com
In the previous installments of this series, we discussed the hidden and often unspoken crisis brewing within the employment market, as well as in personal debt. The primary consequence being a collapse in overall consumer demand, something which we are at this very moment witnessing in the macro-picture of the fiscal situation around the world. Lack of real production and lack of sustainable employment options result in a lack of savings, an over-dependency on debt and welfare, the destruction of grass-roots entrepreneurship, a conflated and disingenuous representation of gross domestic product, and ultimately an economic system devoid of structural integrity — a hollow shell of a system, vulnerable to even the slightest shocks.
This lack of structural integrity and stability is hidden from the general public quite deliberately by way of central bank money creation that enables government debt spending, which is counted toward GDP despite the fact that it is NOT true production (debt creation is a negation of true production and historically results in a degradation of the overall economy as well as monetary buying power, rather than progress). Government debt spending also disguises the real state of poverty within a system through welfare and entitlements. The U.S. poverty level is at record highs, hitting previous records set 50 years ago during Lyndon Johnson’s administration. The record-breaking rise in poverty has also occurred despite 50 years of the so called “war on poverty,” a shift toward American socialism that was a continuation of the policies launched by Franklin D. Roosevelt’s 'New Deal'.
The shift toward a welfare state is the exact reason why, despite record poverty and a 23 percent true unemployment rate (as discussed here), we do not yet see the kind of soup lines and rampant indigence witnessed during the Great Depression. Today, EBT cards and other welfare programs hide modern soup lines in plain sight. It should be noted that the record 20 percent of U.S. households now on food stamps are still technically contributing to GDP. That’s because government statistics make no distinction between normal grocery consumption and consumption created artificially through debt-generated welfare.
This third installment of our economic series will be the most difficult. We will examine the issue of government debt, including how true debt is disguised from the public and how this debt is a warning of a coming implosion in our overall structure. National debt is perhaps one of the most manipulated fields of economics, and the layers surrounding what our country truly owes to foreign creditors and central banks are many. I believe this confusing array of disinformation is designed to discourage average Americans from pursuing the facts. Here are the facts all the same, for those who have the patience...
First, it is important to debunk the mainstream lies surrounding what constitutes national debt.
“Official” national debt as of 2015 is currently reported at more than $18 trillion. That means that under Barack Obama and with the aid of the private Federal Reserve, U.S. debt has nearly doubled since 2008 — quite an accomplishment in only seven years’ time. But this is not the whole picture.
Official GDP numbers published for mainstream consumption do NOT include annual liabilities generated by programs such as Social Security and Medicare. These liabilities are veiled through the efforts of the Congressional Budget Office (CBO), which reports on what it calls “debts” rather than on the true fiscal gap. Through the efforts of economists like Laurence Kotlikoff of Boston University, Alan J. Auerbach and Jagadeesh Gokhale, understanding of the fiscal gap (the difference between our government’s projected financial obligations and the present value of all projected future tax and other receipts) is slowly growing within more mainstream circles.
The debt created through the fiscal gap increases, for example, because of the Social Security program - since government taxes the population for Social Security but uses that tax money to fund other programs or to pay off other outstanding debts. In other words, the government collects "taxes" with the promise of paying them back in the future through Social Security, but it spends that money instead of saving it for the use it was supposedly intended.
The costs of such unfunded liabilities within programs like Social Security and Medicare accumulate as the government continues to kick the can down the road instead of changing policy to cover costs. This accumulation is reflected in the Alternative Financial Scenario analysis, which the CBO used to publish every year but for some reason stopped publishing in 2013. Here is a presentation on the AFS by the St. Louis branch of the Federal Reserve. Take note that the crowd laughs at the prospect of the government continuing to “can kick” economic policy changes in order to avoid handling current debt obligations, yet that is exactly what has happened over the past several years.
Using the AFS report, Kotlikoff and other more honest economists estimate real U.S. national debt to stand at about $205 trillion.
When the exposure of these numbers began to take hold in the mainstream, media pundits and establishment propagandists set in motion a campaign to spin public perception, claiming that the vast majority of this debt was actually “projected debt” to be paid over the course of 70 years or more and, thus, not important in terms of today’s debt concerns. While some estimates of national debt include future projections of unfunded liabilities in certain sectors this far ahead, the spin masters' fundamental argument is in fact a disingenuous redirection of the facts.
According to the calculations of economists like Chris Cox and Bill Archer, unfunded liabilities are adding about $8 trillion in total debt annually. That is $8 trillion dollars per year not accounted for in official national debt stats. For the year ending Dec. 31, 2011, the annual accrued expense of Medicare and Social Security was $7 trillion of this amount.
Kotlikoff’s analysis shows that this annual hidden debt accumulation has resulted in a current total of $205 trillion. This amount is not the unfunded liabilities added up in all future years. This is the present value of the unfunded liabilities, discounted to today.
How is the U.S. currently covering such massive obligations on top of the already counted existing budget costs? It’s not.
Taxes collected yearly in the range of $3.7 trillion are nowhere near enough to cover the amount, and no amount of future taxes would make a dent either. This is why the Grace Commission, established during the Ronald Reagan presidency, found that not a single penny of your taxes collected by the Internal Revenue Service is going toward the funding of actual government programs. In fact, all new taxes are being used to pay off the ever increasing interest on current debts.
For those who argue that an increase in taxation is the cure, more than 102 million people are unemployed within the U.S. today. According to the Bureau of Labor Statistics and the Current Population Survey (CPS), 148 million are employed; about 20% of these are considered part-time workers (about 30 million people). Around 16 million full time workers are employed by state and local government (meaning they are a drain on the system whether they know it or not). Only 43 percent of all U.S. households are considered “middle class,” the section of the public where most taxes are derived. In the best-case scenario, we have about 120 million people paying a majority of taxes toward U.S. debt obligations, while nearly as many are adding to those debt obligations through welfare programs or have the potential to add to those obligations in the near future if they do not find work due to the high unemployment rate that no one at the BLS wants to acknowledge.
Looking at reality, one finds a swiftly shrinking middle class paying for an ever larger welfare class. Do the math, and an honest person will admit that no matter how much taxes increase, they will still never make up for the lack of adequate taxpayers.
Another dishonest argument given to dismiss concerns of national debt is the lie that Domestic Net Worth in the U.S. far outweighs our debts owed, and this somehow negates the issue. Domestic Net Worth is calculated using Gross Domestic Assets, public and private. It's interesting, however, that Domestic Net Worth counts 'Debt Capital' as an asset, just as GDP counts debt creation as production. Debt Capital is the “capital” businesses and governments raise by taking out loans. This capital (debt) is then counted as an asset toward Domestic Net Worth.
Yes, that’s right, private and national debts are “assets.” And mainstream economists argue that these debts (errr… assets) offset our existing debts. This is the unicorn, Neverland, Care Bear magic of establishment economics, folks. It’s truly a magnificent thing to behold.
Ironically, debt capital, like the official national debt, does not include unfunded liabilities. If it did, mainstream talking heads could claim an even vaster supply of “assets” (debts) that offset our liabilities.
This situation is clearly unsustainable. The only people who seem to argue that it is sustainable are disinformation agents with something to gain (government favors and pay) and government cronies with something to lose (public trust and their positions of petty authority).
With overall Treasury investments static for some foreign central banks and dwindling in others, the only other options are to print indefinitely and at ever greater levels, or to default. For decades, the Federal Reserve has been printing in order to keep the game afloat, and the American public has little to no idea how much fiat and debt the private institution has conjured in the process. Certainly, the amount of debt we see just in annual unfunded liabilities helps to explain why the dollar has lost 97 percent of its purchasing power since the Fed was established. Covering that much debt in the short term requires a constant flow of fiat, digital and paper. Not only does REAL debt threaten our credit standing as a nation, it also threatens the value and full faith in the dollar.
The small glimpse into Fed operations we received during the limited TARP audit was enough to warrant serious concern, as a full audit would likely result in the exposure of total debt fraud, the immediate abandonment of U.S. Treasury investment, and the destruction of the dollar. Of course, all of that will eventually happen anyway...
I will discuss why this will take place sooner rather than later through the issues of Treasury bonds and the dollar in the fourth installment of this series. In the fifth installment, I will examine the many reasons why a deliberate program of destructive debt bubbles and currency devaluations actually benefits certain international financiers and elites with aspirations of complete globalization. And in the sixth and final installment, I will delve into practical solutions - and practical solutions only. In the meantime, I would like everyone to consider this:
No society or culture has ever successfully survived by disengaging itself from its own financial responsibilities and dumping them on future generations without falling from historical grace. Not one. Does anyone with any sense really believe that the U.S. is somehow immune to this reality?
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Hi Objectivist.
Thanks for the article.
I see construction like crazy near me in NJ. New shops stores etc. The vast majority seem to be large chains and mega companies like Walmart, chipotles, dunken donuts, etc. Many are manned by people with accents.
It seems there are 2 economies.
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The stock market success is NOT based on QE or our easy money policies, we are told, but when the Fed talks of ending the absurdity of zero interest rates, the market falls and when they talk of continuing it even longer, the market continues to rise.
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https://orders.cloudsna.com/chain?cid=MKT033949&eid=MKT045058&snaid=&step=start##AST03347
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Monday Morning Outlook
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The Fed: Under Attack To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/11/2015
Never before has the Federal Reserve been so large and so actively involved in the US financial system. The Fed’s balance sheet (at $4.4 trillion) is now 25% of GDP – four times larger than its 1952-2007 average.
Meanwhile, the Fed’s regulatory role in the banking system has grown, too. Smaller community banks have been squeezed by rules intended to make very large banks less likely to fail. Only in Washington, DC could they draw up rules designed to limit the big banks and end up making it easier for them to compete against the small banks.
The massive expansion in Fed power is a direct result of government’s response to the Panic of 2008. The Troubled Asset Relief Plan (TARP) implicitly blamed the panic on the banking system and made government the savior. President Bush told CNN in December 2008 “I have abandoned free market principles to save the free market system.” This created an environment of regulatory overreach that is finally being noticed by Congress.
In fact, we have never seen so much attention being paid to Fed decisions and activity. Senate Banking Committee Chairman Richard Shelby (R-Alabama) is suggesting a law to bind monetary policy to a policy rule, like the Taylor Rule, which would make the likelihood and direction of the Fed’s policy changes much more predictable and transparent. If the Fed had followed the Taylor Rule in 2003-04, it would have never lowered interest rates to 1% and the US might have avoided the housing bubble altogether.
Another Senate idea, this one from a bipartisan duo of David Vitter (R-LA) and Elizabeth Warren (D-MA), would decentralize authority at the Fed by making sure all the Senate-appointed governors had their own staff. Vitter and Warren would also make it tougher for the Fed to bailout banks and require a recorded vote on large fines for banks.
Yet another idea, this one from former Dallas Fed Bank President Richard Fisher, would end the New York Fed’s permanent seat on the committee that sets monetary policy. At present, the other Fed bank presidents rotate their membership every year while the NY president never loses his seat. So Fisher’s proposal would be a demotion for the bank president perceived most responsive to Wall Street and the biggest banks.
In addition, Congress is now investigating whether the Fed, including Janet Yellen herself, leaked valuable information about future decisions on monetary policy to Medley Global Advisors, a forecasting firm that trades in access, or at least the perception of access, to key political decision-makers.
And if the Fed thinks it’s getting lots of attention now, just wait a few years when short-term interest rates are higher. Last year, the Fed turned over close to $100 billion in interest earnings to the US Treasury Department. But when short rates go up, the Fed will be paying banks money that it used to pay the Treasury, just so the banks won’t lend their excess reserves.
Perhaps the worst part of all this is that it might call future policy decisions into question. For example, what if the Fed raises rates in June? We think that policy action is justified by economic fundamentals. But some investors might think Yellen was just trying to appease GOP lawmakers. So even making the “right” call can cause problems.
Free market supporters should be careful about casually treading on the independence of the Fed. But it’s easy to see why Congress is so focused – the larger and more active the Fed gets, the more attention it attracts.
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The Producer Price Index Declined 0.4% in April To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/14/2015
The Producer Price Index (PPI) declined 0.4% in April, coming in below the consensus expected gain of 0.1%. Producer prices are down 1.3% versus a year ago.
Energy prices dropped 2.9% in April while food prices fell 0.9%. Producer prices excluding food and energy declined 0.1%.
In the past year, prices for services are up 0.9%, while prices for goods are down 5.2%. Private capital equipment prices declined 0.3% in April but are up 0.1% in the past year.
Prices for intermediate processed goods declined 1.1% in April, and are down 7.6% versus a year ago. Prices for intermediate unprocessed goods increased 0.9% in April, but are down 26.7% versus a year ago.
Implications: Forget about producer prices for a minute. The most important economic news today was new claims for unemployment insurance dropping 1,000 last week to 264,000. The four week average declined to 272,000, the lowest level in 15 years. Continuing unemployment claims were unchanged at 2.23 million, also the lowest since 2000. These data point to another solid payroll number in May. On the inflation front, as Milton Friedman used to say, the relationship between monetary policy and inflation is long and variable. And in this cycle, it’s longer than usual. After several years of loose monetary policy, inflation is still not a problem for producers. The producer price index declined 0.4% in April, falling for the fifth time in the past six months. Food and energy prices, which are volatile, fell 0.9% and 2.9% respectively, in April. Energy prices are now down 24% versus a year ago, so it shouldn’t be any surprise that overall producer prices are down 1.3% from last year. But even prices outside the food and energy sectors remain relatively quiet for now. Service prices have increased 0.9% in the past year while “core” goods, which exclude food and energy, are up 0.4%. Given the extended period of loose monetary policy and the recent (partial) rebound in oil prices, we expect producer price inflation to be more of an issue in the year ahead. Other factors may play a role as well. For example, April price declines were also seen in trade, transportation and warehousing, which might be a temporary hangover from the West Coast port strikes. As a result, we expect inflation to pick up in the year ahead and should do so more quickly than most investors expect. In turn, this likely means higher bond yields and a more aggressive Fed than is right now priced into market expectations.
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Meanwhile, back in reality....
http://www.mybudget360.com/not-in-labor-force-one-third-americans-carry-rest-of-country-financially/
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The most important economic news today was new claims for unemployment insurance dropping 1,000 last week to 264,000. The four week average declined to 272,000, the lowest level in 15 years. Continuing unemployment claims were unchanged at 2.23 million, also the lowest since 2000. These data point to another solid payroll number in May.
Without even addressing the rest of the complete bulls**t that is Wesbury's analysis, the statement above is asinine. He presents this as some sort of good news. "another solid payroll number in May"? REALLY??? There are over 92 MILLION working-age Americans who have DROPPED OFF THE UNEMPLOYMENT ROLLS. THEY ARE NOT BEING COUNTED. AS FAR AS WESBURY AND THE BUREAU OF LABOR STATISTICS ARE CONCERNED - THEY DON'T EXIST. THE LABOR PARTICIPATION RATE IS THE LOWEST IT HAS BEEN SINCE 1978. HOW IS THIS GOOD NEWS?
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www.zerohedge.com/news/2015-05-18/san-francisco-fed-just-gave-green-light-june-rate-hike
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BREAKING NEWS Wednesday, May 20, 2015 10:32 AM EDT
5 Big Banks to Pay Billions and Plead Guilty in Currency and Interest Rate Cases
Adding another entry to Wall Street’s growing rap sheet, five big banks have agreed to pay more than $5 billion and plead guilty to multiple crimes related to manipulating foreign currencies and interest rates, federal and state authorities announced on Wednesday.
The Justice Department forced four of the banks — Citigroup, JPMorgan Chase, Barclays, and the Royal Bank of Scotland — to plead guilty to antitrust violations in the foreign exchange market as part of a scheme that padded the banks’ profits and enriched the traders who carried out the plot. The traders were supposed to be competitors, but much like companies that rigged the price of vitamins and automotive parts, they colluded to manipulate the largest and yet least regulated market in the financial world, where some $5 trillion changes hands every day.
Underscoring the collusive nature of their contact, which often occurred in online chat rooms, one group of traders called themselves “the cartel,” an-invitation only club where stakes were so high that a newcomer was warned “mess this up and sleep with one eye open.” To carry out the scheme, one trader would typically build a huge position in a currency and then unload it at a crucial moment, hoping to move prices. Traders at the other banks agreed to, as New York State’s financial regulator put it, “stay out of each other’s way.”
As part of the criminal deal with the Justice Department, a fifth bank, UBS, will plead guilty to manipulating the London Interbank Offered Rate, or Libor, a benchmark that underpins the cost of trillions of dollars in credit cards and other loans.
READ MORE »
http://www.nytimes.com/2015/05/21/business/dealbook/5-big-banks-to-pay-billions-and-plead-guilty-in-currency-and-interest-rate-cases.html?emc=edit_na_20150520
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http://www.telegraph.co.uk/finance/economics/11625098/HSBC-fears-world-recession-with-no-lifeboats-left.html
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Interesting , , , and disconcerting.
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http://www.caseyresearch.com/articles/why-most-gold-bugs-are-dead-wrong
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http://www.telegraph.co.uk/finance/economics/11625406/The-world-is-drowning-in-debt-warns-Goldman-Sachs.html
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Something to keep in mind , , ,
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http://www.telegraph.co.uk/finance/economics/11625406/The-world-is-drowning-in-debt-warns-Goldman-Sachs.html
It looks to me like Greenland and Libya are the main areas with workable debt ratios. We should learn more about the healthcare system and entitlement guarantees in Benghazi...
Countries that have a good history of producing their own energy tend to have manageable debt, Russia, Norway, Saudi. We could learn from that too.
If my religion forbids me from taking on egregious debt, I wonder if I can I opt out of participation in the US unfunded liabilities scheme.
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Inflation: Dormant, Not Dead To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/26/2015
Last month we explained why the dreaded threat of hyperinflation hasn’t materialized, and likely wouldn’t materialize, in spite of the huge expansion of the Federal Reserve’s balance sheet the past several years, including QE1, 2, and 3.
The April inflation report, released Friday, underscored this theme. Consumer prices rose a tepid 0.1% in April and were down 0.2% from a year ago. With the exception of the Panic of 2008 and its immediate aftermath, that year-to-year decline was the lowest reading for inflation in 60 years.
However, this doesn’t mean the US is experiencing deflation, or that inflation is dead. Quite the contrary. We expect inflation to pick up over the next few years, faster and further than most investors anticipate.
To see why, just look at the details of the April report. Yes, the very same report some thought was proof that inflation would never return.
First off, inflation data has been dominated by energy prices, which are down 19.4% from a year ago. Excluding energy, consumer prices are up 1.8% in the past twelve months (the same if we exclude food and energy). But energy prices were not going to fall forever and have already bounced back somewhat. As a result, the underlying trend of consumer prices should move back toward the “ex-energy” measure in the year ahead – to roughly 2%, or more.
But there are other reasons to believe inflation outside the energy sector should pick up. Normally, lower energy prices, because they boost purchasing power outside of energy, lead to an increase in demand for non-energy goods and rising prices in these other sectors.
But the drop in energy prices has been so sharp, consumers appear to be taking their time deciding how to spend the windfall. At the same time, tax receipts have soared which has drained purchasing power from many consumers. This temporary dip in demand has a short-term effect on inflation measures.
But people don’t work for the heck of it; they work to generate purchasing power. And the gains from lower energy prices will eventually help sales in other sectors, which should also lead to higher prices in those sectors as well. We may be seeing signs of this already. In the past three months, “core” prices are up at a 2.6% annual rate and in the past two months they are up 2.9% annualized – the fastest pace in seven years.
In addition, housing costs, which make up almost one-third of overall consumer prices, continue to gradually accelerate. These prices were up 0.3% in 2009, 0.4% in 2010, then 1.9%, 2.2%, 2.5% and 2.9% from 2011 to 2014. In the past twelve months (thru April, they’re up 3%). Meanwhile, with home builders still constructing too few homes to meet population growth and scrappage rates, supply constraints should help generate even faster rent hikes in the year ahead.
The bottom line is that monetary policy is too loose. The Fed has kept short-term rates near zero for more than six years. The last time the unemployment rate was falling to 5.4% (where it is today) during an economic expansion was in August 2004 and the Fed then had short-term rates at 1.5% and heading higher. If you go by the more expansive U-6 definition of the jobless rate (also includes marginally attached and part-time workers), which is 10.8%, it was also there in May 1994, when the fed funds rate was 4.25%.
The current looseness of monetary policy will eventually generate higher inflation. It may not be hyperinflation, but it’s more than many investors are prepared for.
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"The current looseness of monetary policy will eventually generate higher inflation. It may not be hyperinflation, but it’s more than many investors are prepared for."
- Now Wesbury sounds like he agrees with us! The monetary expansion happened (inflation, more money for the same quantity of goods and services) but price increases require some level of demand to materialize. Who raises prices when they already lack customers? Also the fall of energy prices is masking or offsetting negative factors and forces in the economy.
The key problems are slow growth, low participation, and the extermination of new business startups. We have mustered nothing more than a 2% growth rate, when 3.1% is normal long term average and twice that would be a healthy growth rate coming out of a hole this deep. There is so much stalled productive capability; roughly ONE HUNDRED MILLION ADULTS don't work!
Our problem was not monetary so neither was the solution. Imagine what our near zero growth rate over the last 6 years would be without the stimulus of near zero interest rates! Instead we had just enough growth in the productive half of the economy to mask failure, reelect the status quo, and avoid reform.
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He is saying what he has always said; you guys have misapprehended him quite a bit along the way.
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The Producer Price Index Rose 0.5% in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/12/2015
The Producer Price Index (PPI) rose 0.5% in May, coming in above the consensus expected gain of 0.4%. Producer prices are down 1.0% versus a year ago.
Energy prices rose 5.9% in May while food prices increased 0.8%. Producer prices excluding food and energy were up 0.1%.
In the past year, prices for services are up 0.6%, while prices for goods are down 4.1%. Private capital equipment prices declined 0.1% in May and were unchanged in the past year.
Prices for intermediate processed goods increased 1.0% in May, and are down 6.8% versus a year ago. Prices for intermediate unprocessed goods increased 3.3% in May, but are down 23.4% versus a year ago.
Implications: If the Fed was looking for reassurance that “transitory factors” holding down inflation may be starting to give way, they got it just in time for next week’s meeting. Energy prices, which have been the key driver pushing prices lower since mid-2014, were up 5.9% in May and are up 18.7% at an annual rate over the past three months. As a result, overall prices have been moving higher as well. The 0.5% increase in overall producer prices in May was the largest gain for any month since 2012. Since March, producer prices are up at a 1.5% annual rate. Prices outside the volatile food and energy sectors have been relatively quiet over the past year. Service prices have increased 0.6% while “core” goods, which exclude food and energy, are up 0.5%. However, given the extended period of loose monetary policy and the recent (partial) rebound in oil prices, we expect inflation to pick up in the year ahead and to do so more quickly than most investors expect. The Fed can see this too, and it is their expectations for future inflation, more than the rearview mirror, that guide their decisions. If they believe inflation is starting to turn higher, a June rate hike could certainly be on the table. Other factors may play a role in their decision as well. For example, May saw price declines in trade, transportation and warehousing, which may still be hangover from the West Coast port strikes. These effects won’t last, though, and when they fade inflation will move higher. In turn, this likely means higher bond yields and a more aggressive Fed than is right now priced into market expectations.
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Famous people caught reading the forum. )
Inflation was the expansion of the money supply; it already happened. Price increases are coming IF/WHEN economic demand and velocity ever recover. At zero or negative growth, that time could be never, or we could have a return of stagflation (see Jimmy Carter's first term) or deflation (see Japan last 20 years) which is potentially even more perilous.
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I was surprised to see Fed Chair Janet Yellen use such strong words to rip wrong headed optimists like Brian Wesbury.
Who could have seen this coming? (http://dogbrothers.com/phpBB2/index.php?topic=985.msg87900#msg87900)
The following facts and truths were excerpted away from the all positive bs in this Washington Post story: http://www.washingtonpost.com/blogs/wonkblog/wp/2015/06/17/federal-reserve-rate-hike-likely-before-year-end/?hpid=z4
Officials at the nation’s central bank voted unanimously to leave the benchmark federal funds rate unchanged at zero during their regular policy meeting in Washington.
Since 2008, it has been at virtually zero in the (mistaken) hope that easy money would stimulate demand among consumers and businesses and bolster the recovery. Raising the rate (which they did NOT do) would amount to a vote of confidence in the country’s economic health. (A confidence they do not have.)
The central bank acknowledged that businesses have been wary of investing and exports are weak. (I wonder what happened to American competitiveness during these failed redistribution years.)
The Fed... downgraded forecasts for the economy this year. The central bank lowered its forecast for growth. Meanwhile, it raised the forecast for the unemployment rate.
“The various headwinds that are still restraining the economy will likely take some time to fully abate (Huh?!), and the pace of that improvement is highly uncertain,” ('ya think?) Fed Chair Janet Yellen said in a speech last month.
IT'S BEEN SIX AND A HALF YEARS!! WHY DOES ANYONE THINK RESULTS WILL GET BETTER UNDER ALL THE SAME DESTRUCTIVE POLICIES??!! It's insane - by definition. Why doesn't Democrat Yellen honestly admit that it is not EVER going to get better unless and until we throw out all the current bums along with all their failed policies.
Wesbury apologizes, resigns. (Just kidding.)
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That plow horse don't smell too good...
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http://www.breitbart.com/big-government/2015/06/17/treasury-to-replace-alexander-hamilton-with-woman-on-10-bill/
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http://www.breitbart.com/big-government/2015/06/17/treasury-to-replace-alexander-hamilton-with-woman-on-10-bill/
Bruce Jenner?
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Hah!
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The Consumer Price Index Increased 0.4% in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/18/2015
The Consumer Price Index (CPI) increased 0.4% in May, coming in slightly below consensus expectations of 0.5%. The CPI is unchanged from a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) rose 0.5% in May, but is down 0.8% in the past year.
Energy prices rose 4.3% in May, while food prices were unchanged. The “core” CPI, which excludes food and energy, increased 0.1% in May, below the consensus expected 0.2%. Core prices are up 1.7% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – declined 0.1% in May, but are up 2.2% in the past year. Real weekly earnings are up 2.3% in the past year.
Implications: In the past four months the CPI has grown at a 3% annualized rate, the fastest pace since 2012. This is not just due to the recent (partial) rebound in energy prices: excluding the volatile food and energy sectors, the CPI is up at 2.4% annualized rate over the same period. Either way you look at it, the recent pace of inflation has been running above the Fed’s 2% target and could eventually put pressure on the Fed to raise rates faster than the market expects. Overall consumer prices rose 0.4% in May but are unchanged over the past twelve months. The lack of headline inflation in the past year is due to energy prices, which rose 4.3% in May but remain down 16.3% from a year ago. “Core” prices, which exclude food and energy, increased 0.1% in May, are up 1.7% in the past twelve months, 2.1% annualized in the last six months, and 2.4% annualized since January. In other words, core prices are gradually accelerating upward. With core prices so close to the Fed’s two percent inflation target, policymakers should remain concerned about future increases in inflation, even with overall consumer prices near zero. “Core” consumer prices in May were led higher by housing. Owners’ equivalent rent, which makes up about ¼ of the CPI, rose 0.3% in May, is up 2.8% in the past year, up at a 3.2% annual rate in the past three months, and will be a key source of higher inflation in the year ahead. Some analysts will use the fact that overall prices are flat from a year ago to warn about “Deflation.” But true deflation – of the kind we ought to be concerned about – is caused by overly tight monetary policy and price declines that are widespread, not isolated to one sector of the economy. Think of the Great Depression. On the earnings front, “real” (inflation-adjusted) average hourly earnings declined 0.1% in May, but are up a healthy 2.2% in the past year. In other news this morning, initial claims for unemployment insurance fell 12,000 last week to 267,000, the 15th straight week below 300,000. Continuing claims for regular state benefits dropped 50,000 to 2.22 million. These figures are consistent with payroll growth of about 230,000 in June. Meanwhile, the Philadelphia Fed index, a measure of strength in East Coast manufacturing, jumped to 15.2 in June, the highest so far this year, from 6.7 in May, supporting the case that the economy is reaccelerating after temporary headwinds in the first quarter.
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The Consumer Price Index (CPI) increased 0.3% in June, matching consensus
expectations. The CPI is up 0.1% from a year ago.
“Cash” inflation (which excludes the government’s estimate of what
homeowners would charge themselves for rent) rose 0.3% in June, but is down 0.6% in
the past year.
Energy prices rose 1.7% in June, while food prices increased 0.3%. The
“core” CPI, which excludes food and energy, increased 0.2% in June, also
matching consensus expectations. Core prices are up 1.8% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for
inflation – declined 0.4% in June, but are up 1.7% in the past year. Real
weekly earnings are up 1.8% in the past year.
Implications: Consumer prices increased in the second quarter at the fastest pace
since 2011. Not just overall prices, driven by a rebound in energy prices, but
“core” prices as well, excluding both food and energy. At 3.5%, the
three-month annualized rate of overall inflation is well above the Federal
Reserve’s 2% long-term target. Even core prices are up at a 2.3% annual rate
in the past three months and the past six months as well. Either way, the recent
pace of inflation has been running above the Fed’s 2% target and should
eventually put pressure on the Fed to raise rates faster than the market expects.
Overall consumer prices rose 0.3% in June and showed positive year-over-year growth
for the first time in 2015. The lack of headline inflation in the past year is due
to energy prices, which rose 1.7% in June (following a 4.3% increase in May) but
remain down 15% from a year ago. Core prices increased 0.2% in June, are up 1.8% in
the past twelve months, and have risen at a 2.3% annualized since the start of the
year. In other words, core prices are gradually accelerating upward. With core
prices so close to the Fed’s two percent inflation target, policymakers should
remain concerned about future increases in inflation, even with overall inflation
near zero in the past twelve months. Core consumer prices in June were led higher by
housing. Owners’ equivalent rent, which makes up about ¼ of the CPI,
rose 0.4% in June, is up 2.9% in the past year, up at a 3.6% annual rate in the past
three months, and will be a key source of higher inflation in the year ahead. While
some scaremongers warn about deflation, others stoke fears of hyperinflation. But
the truth is that neither is a threat at present. What we have is low inflation that
is likely to gradually work its way upward over the next few years. On the earnings
front, “real” (inflation-adjusted) average hourly earnings declined 0.4%
in June, but are up a moderate 1.7% in the past year. Taken as a whole, recent
trends in both consumer and producer prices suggest that the long awaited rise in
inflation is starting to take shape, adding further credence to calls for a
September rate hike from the Fed.
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Copper Follows Gold to Multi-Year Lows
Weak manufacturing data out of China and a stronger dollar pummeled prices
By
Ese Erheriene
Updated July 24, 2015 7:51 a.m. ET
0 COMMENTS
LONDON—Gold and copper prices fell to multi-year lows in London on Friday, in the latest in a series of sharp price drops across commodities markets.
Significantly weaker-than-expected manufacturing data out of China, together with a stronger dollar, pummeled prices. The data tapped into underlying fears that demand for copper is slowing, while the greenback’s gains cemented the view that a U.S. interest rate rise is on the cards.
The London Metal Exchange’s three-month copper contract was down 0.6% at $5,242 a metric ton in morning European trading—having traded earlier in the session at the lowest level since July 2009, at $5,191 a ton. Spot gold prices were down 0.9% at $1,080 a troy ounce, having tumbled to a five-year low at 1,077.40 an ounce for the second time in a week.
The Caixin China Manufacturing Purchasing Managers’ Index’s initial reading for July weighed in at 48.2—the lowest level in 15 months and the fifth month in a row that the index remained below the 50 level—indicating economic contraction.
“There are definitely concerns of how the Chinese economy will develop going forward,” said Daniel Briesemann, a metals analyst at Commerzbank.
The PMI figure was far below market participants’ expectations and sparked the sell-off. China is the biggest global consumer of copper and prices tend to mirror its economic trajectory. When its economy is seen to be ailing, demand for copper often tails off and prices slump.
Meanwhile, the dollar was stronger against a range of currencies, including the euro and sterling, which put pressure on gold prices. Much of the dollar’s strength has been driven by the prospect of higher interest rates in the U.S.: last week, Federal Reserve Chairwoman Janet Yellen gave the strongest indication yet that U.S. interest rates will rise by the end of the year.
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“That means either in September or December there will be a rate rise,” said Clive Burstow, a fund manager at Baring Asset Management is $39.7 billion. “And that’s kind of spooked people because what does a rising interest rate mean? A stronger U.S. dollar.”
Concerns about China’s slowing economy, an impending Fed interest rate rise and issues of production outpacing consumption have led to sharp declines in commodities prices this week. Investors said gold is one of the most affected.
“Gold is probably the most challenged of all the main commodities because of that dollar, Fed, interest rate conundrum. There doesn’t seem to be an appetite for buying in the market as it currently stands,” said Mr. Burstow.
Consumption of industrial metals by China fueled a more-than decade-long rally in prices after the turn of the century. But concern over the nation’s slowing economic growth has caused metals prices to slide over the past 12 months. Currency-market moves have put further pressure on dollar-priced metals, as they becomes more expensive for foreign buyers when the U.S. dollar rises.
Looking ahead, investors are concerned that Chinese demand will remain a thorn in the side of prices, with lackluster consumption from the Chinese state grid—a key buyer—weighing on investors.
“We’re worried that it isn’t going to materialize over the second half of the year,” said James Sutton, a fund manager at J.P. Morgan Asset Management, which has $1.8 trillion in assets under management.
—Biman Mukherji contributed to this article.
Write to Ese Erheriene at ese.erheriene@wsj.com
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http://www.mybudget360.com/credit-card-debt-us-household-average-credit-card-debt-outstanding/
Outstanding!
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http://www.mybudget360.com/credit-card-debt-us-household-average-credit-card-debt-outstanding/
Outstanding!
"credit card debt up 1,760%."
Don't we all know that credit card debt is now how we measure wealth and confidence, while available credit has replaced savings as your rainy day fund.
Credit card transactions are for those purchases that the government won't pay for directly, like taxes on the middle class. While the government may not pay for everything, they have the power to wipe out all of your debts, ... except those owed to the government.
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Contrary to what people like Wesbury would have you believe:
U.S. Recession Imminent - World Trade Slumps By Most Since Financial Crisis
Friday, 24 July 2015 03:48 www.zerohedge.com - see link for graphic.
As goes the world, so goes America (according to 30 years of historical data), and so when world trade volumes drop over 2% (the biggest drop since 2009) in the last six months to the weakest since June 2014, the "US recession imminent" canary in the coalmine is drawing her last breath...
As Wolf Street's Wolf Richter adds, this isn’t stagnation or sluggish growth. This is the steepest and longest decline in world trade since the Financial Crisis. Unless a miracle happened in June, and miracles are becoming exceedingly scarce in this sector, world trade will have experienced its first back-to-back quarterly contraction since 2009.
Both of the measures above track import and export volumes. As volumes have been skidding, new shipping capacity has been bursting on the scene in what has become a brutal fight for market share [read… Container Carriers Wage Price War to Form Global Shipping Oligopoly].
Hence pricing per unit, in US dollars, has plunged 14% since May 2014, and nearly 20% since the peak in March 2011. For the months of March, April, and May, the unit price index has hit levels not seen since mid-2009.
World-Trade-Monitor-Unit-Price-2012-2015_05
World trade isn’t down for just one month, or just one region. It wasn’t bad weather or an election somewhere or whatever. The swoon has now lasted five months. In addition, the CPB decorated its report with sharp downward revisions of the prior months. And it isn’t limited to just one region. The report explains:
The decline was widespread, import and export volumes decreasing in most regions and countries, both advanced and emerging. Import and export growth turned heavily negative in Japan. Among emerging economies, Central and Eastern Europe was one of the worst performers.
Given these trends, the crummy performance of our heavily internationalized revenue-challenged corporate heroes is starting to make sense: it’s tough out there.
But not just in the rest of the world. At first we thought it might have been a blip, a short-term thing. Read… Americans’ Economic Confidence Gets Whacked
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Oh yeah - PLOWHORSE!!! LOL.
Homeownership rate drops to 63.4%, lowest since 1967
Diana Olick | @DianaOlick - CNBC News
The U.S. homeownership rate fell to 63.4 percent in the second quarter of 2015, according to the U.S. Census. That is down from 63.7 percent in the first quarter and from 64.7 percent in the same quarter of 2014. It marks the lowest homeownership rate since 1967.
Homeownership peaked at 69.2 percent at the end of 2004, when the housing market was in the midst of an epic boom. The 50-year average is 65.3 percent.
"It is now just five-tenths from the record low seen in 1965 in data going back also to 1965," noted Peter Boockvar, an analyst with The Lindsey Group. "All the governmental attempts (certainly aided and abetted by many players in the private sector) at boosting homeownership has gotten us to this point in time with all the havoc it wreaked over the past 10 years. It's just another governmental lesson never learned, of don't mess with the free market and human nature."
Household formation, however, is rising. The number of occupied housing units grew, but all on the renter side. The number of owner-occupied units fell from a year ago. No wonder both rents and occupancies continue to soar.
"Our results for the second quarter and year to date exceeded our original outlook," noted Tim Naughton, chairman and CEO of AvalonBay, one of the nation's largest apartment REITs, in the company's second-quarter earnings release out Monday. "For the balance of the year, we expect accelerating apartment demand to support stronger performance across our business."
Multifamily apartment starts soared 55 percent in June from June of 2014, according to the U.S. Census. This, as single-family housing starts rose 15 percent. Apartment supply is still far lower than demand. Annual rent growth hit 5 percent in the second quarter of this year, according to Axiometrics, a real estate analytics company. Apartment occupancy hit 95.2 percent, a near record high.
Home sales have been increasing modestly this year, but first-time buyers are still playing a historically small part in the market. Still-rising home prices and tight lending standards are keeping these buyers on the sidelines. Home prices in some markets are hitting new highs and prices are gaining the most on the low end of the market, where first-time buyers mostly start.
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Due to the bursting of the bubble, it makes perfect sense that lots of people no longer believe owning a home is a good investment.
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In response to Obj's post asserting a recession is imminent, here is this from Scott Grannis:
http://scottgrannis.blogspot.com/2015/07/credit-spread-update.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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Due to the bursting of the bubble, it makes perfect sense that lots of people no longer believe owning a home is a good investment.
Non performance of the housing market does not explain worst homeownership rate in nearly a half century, IMHO. I ask rental applicants all the time, why don't you just buy this house? They laugh and then explain about needing years to get their income up and their credit rating restored.
Housing is tied to employment and income, and also spending choices that show up on credit reports. Homeownership rate is tied to worforce participation rate, not the badly understated unemployment rate. 100% of the 37% of adults not in the workforce and 11% of the others are unemployed or underemployed. The new, part time economy does not lend itself well to home ownership or credit restoration - as costs keep going up. Housing demand will bump up if/when real employment and take-home income bumps up.
Almost NO ONE prefers renting to owning, waiting for the landlord to fix something, waiting for the landlord to raise your rent, having their house sold out from under them or their lease non renewed. Renting isn't cheaper than buying when interest rates are below 4%.
99% of renters I meet rent because they can't buy right now, not because of a risk averse investment strategy. While interest rates went down for the best borrowers, every other borrowing requirement went up.
For those owning real estate without debt, the last downturn changed nothing. I sold nothing, bought a couple more, and now the values are most of the way back in most locations. Meanwhile rental demand increased making ownership even more desirable.
- Rental Manager, Ulysses Up (pronounced: yo lease is up)
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Doug,
I agree with you 100%. You articulated the case better than I would have. I happen to be one of those less than 1% that prefer to rent, but I am keenly aware that I am in a tiny minority. I have my own reasons, which include not wanting to be tied down to one location, but you are correct that MOST people who are not buying, aren't doing so because they CAN'T. It's not because they think buying is a poor investment decision.
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Well argued Doug, point taken.
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Thanks Crafty. One more example: The US bought Alaska (Someone's Folly) and Britain leased Hong Kong. 99 years goes by quickly. Who has the strategic advantage now?
If not for property taxes, debt, and a hundred other problems that could come up, it's better to own than rent.
Objectivist: Yes, it is rare (but can be done) for people to be smart and disciplined enough to rent beneath their means and accumulate wealth outside of real estate. My advice to some in similar situations is to rent inexpensively where you live but buy and own the land under your red state, dream home getaway where you plan to live either in retirement or economic collapse.
I know that you know this, but savings in dollar based investments may not be savings at all. Real estate has ups and downs but like is partly limited in quantity and independent from the currency.
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http://elleseconomy.com/2015/08/02/gdp-numbers-keep-getting-worse/
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http://elleseconomy.com/2015/08/02/gdp-numbers-keep-getting-worse/
Major media reporting preliminary number of 2.3% as "major acceleration". Really?
This economy governed with good policies could easily handle 4-5% sustained growth. And that's the catch. Not under these policies and we don't necessarily have a majority of the people who even want economic growth.
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Monday Morning Outlook
________________________________________
IMF Can't End Dollar's Reign To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/10/2015
Ever since Quantitative Easing began, a group of so-called Monetarist/Austrian thinkers have predicted “hyper-inflation” and the demise of the dollar as the world’s “reserve currency.”
In spite of the fact that gold has fallen and inflation remains low, scare stories about other countries dumping their Treasury securities, US interest rates skyrocketing, and a return of the trauma of 2008 proliferate. And, if that’s not enough, according to the pouting pundits of pessimism, the Federal Reserve won’t able to address the problem because long-term rates will be headed up, rather than down.
Now, these pundits have another flash point of fear because the International Monetary Fund is considering adding the Chinese currency, the yuan, to the basket of currencies it recognizes as “reserve currencies.” The yuan would bring the IMF’s list of key currencies to five, along with the dollar, yen, euro, and British pound. (Notice how no one is worried that the euro, yen, and pound already have that status.)
The idea that the IMF’s decision could trigger a selloff of US dollars and Treasuries makes no sense. The IMF’s “currency,” called Special Drawing Rights (SDRs), is an accounting tool only; it’s not used as a store of value across time. By contrast, the key issues that decide whether the dollar maintains its status are the foreign appetite to own dollar-denominated securities, particularly Treasury debt, and the dollar’s share of international transactions. And in those two areas, the dollar is doing better than ever.
Back in 2005, foreign entities – foreign central banks, foreign companies, foreign individuals – were willing to own $2 trillion of US Treasury securities, equivalent to about 15% of US GDP and 4.5% of global GDP. Today, foreign entities are willing to hold about $6.2 trillion in Treasury debt, 35% of the US GDP and 7.9% of global GDP.
Even with these large holdings, there is likely more growth ahead. Imagine what’s going to happen as India’s economy continues to expand. As the Indian central bank issues more local currency, it must decide how to back it, and will likely choose dollars. Right now, India owns just $100 billion of US Treasuries, while China owns about $1.3 trillion. As India grows, demand for US Treasury securities will rise.
SWIFT – a global transaction settlement platform - tracks the share of global bank activity settling in various currencies. Since early 2012, the share settling in US dollars has risen to 45% from 31%. Meanwhile, the share settling in euros has dropped to 28% from 42%. The share in the Chinese yuan is up, but is still only 2%. This low level for the yuan suggests that it is not yet used enough for the IMF to include it in its SDR basket, but more importantly it means no matter what the IMF does, the Yuan is not a threat to the dollar.
No one should become completely complacent. The dollar “could” eventually lose its reserve currency status. But to lose that status, another country (or region) has to issue a currency that is stronger and safer than the dollar over long periods of time. The Swiss Franc probably passes that test, but the Swiss economy is just too small relative to the world economy for it to be a key reserve currency.
The dollar’s status as the world’s key reserve currency isn’t going away, and neither are the stories about the imminent demise of that special status (see Wesbury 101 on the topic).
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http://scottgrannis.blogspot.com/2015/08/chinas-currency-move-not-big-deal.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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Stratfor has a different perspective from Grannis:
The People's Bank of China jarred international markets on Tuesday when it lowered the yuan's daily fix against the dollar by 1.9 percent, leading to the biggest plunge in the currency's value since the mid-1990s. Beijing's decision comes at a time when the country's economy is showing signs of weakening and in the wake of export data for July that showed a decline of 8.3 percent. The move is certain to stir up political concerns in Washington, Tokyo and Brussels about China protecting its export competitiveness. However, Beijing is in the midst of the slow process of liberalizing the yuan's exchange rate and loosening its ties to the dollar in hopes of establishing it as a global reserve currency. Thus, China is trying to spin Tuesday's currency change as a one-off move and place it in the context of exchange rate policy liberalization.
In March 2014, Beijing increased the daily amount that it allows the yuan to deviate from the daily fix from 1 percent to 2 percent. At the end of July 2015, the Chinese State Council announced that it intended to widen that trading band to 3 percent. This underlines perhaps the most important part of Tuesday's People's Bank of China statement: that effective immediately, its daily fix will be based on the previous day's spot market (or cash market), supply and demand, and the price movement of major currencies. The inclusion of the spot market is the aspect that Beijing is emphasizing because, in theory, it could allow the yuan's value to be more responsive to spot market tendencies. For example, so far in 2015, the yuan's spot market has been near the bottom of its trading band (the daily fix has been consistently higher than the spot market) and has at times tested the 2 percent trading band.
What is a Geopolitical Diary?
Of course, while Beijing's intention may be to liberalize the yuan's value and allow it to float more freely against the dollar in the long run, currency traders and market watchers are still concerned that Beijing's political influence on the daily fix will remain and interventions will occur — the question is how often Beijing will intervene. Regardless, the currency move is signaling a policy change in Beijing, even if it is one we already knew would happen eventually.
Beijing's policy of having the yuan track close to the dollar has had several important side effects over the past year. In Europe and Japan — home of the other two paramount global currencies — quantitative easing and other forces have resulted in a depreciation of the euro and yen against the dollar. The yen has fallen by about a third since the last half of 2012, and the euro has fallen by a fifth since early 2014. Meanwhile, the yuan has essentially remained stable against the dollar. This means that the yuan's real effective exchange rate, or its exchange rate weighted against its trading partners, has appreciated dramatically over the past year. In fact, since June 2014 the yuan's real effective exchange rate has been the world's strongest, increasing by 13.5 percent — more than that of the U.S. dollar (12.8 percent) and the Swiss franc (11.4 percent).
From Beijing's perspective, maintaining the strong link with the U.S. dollar has, in a sense, undermined China's competitiveness with its major trading partners — Japan and Europe. July's poor export figures and a 47.8 manufacturing purchasing managers index — the lowest in several years — is a consequence of this strong link and of China's overall economic slowdown. The devaluation of the yuan's fix to the dollar merely puts it in line with the spot market for the past few months. It will not bring any relief to China's export sector. Moreover, a 2 percent devaluation pales in comparison to the 10-20 percent appreciation the yuan has experienced over the past year relative to many of China's trading partners.
The important point is the market's perception of the move and Beijing's clear choice to break with the strong U.S. dollar. Countries around the world have been weakening their currencies while Beijing has attempted to maintain a strong currency. However, with July's U.S. job report being somewhat encouraging and all signs pointing to the U.S. Federal Reserve increasing interest rates in either September or December, China is clearly signaling that it will not move in step with the United States and will allow its currency to trade lower if need be.
Beijing must change its exchange rate policy in order to achieve its broader objective of increasing China's stature in the global financial system. Internationalizing the yuan and establishing it as a global reserve currency requires a more transparent and hands-off exchange rate policy. The next step in that process is for the International Monetary Fund to place the yuan into its Special Drawing Rights currency basket, and just last week an IMF review recommended delaying including the yuan in the basket until September 2016, saying that the yuan does not meet the definition of a "freely usable" currency. Making the daily fix more responsive to spot market forces would certainly begin easing those concerns.
However, the Chinese economy is at a crossroads. Clearly China's export-oriented economic model is shifting toward a consumption-oriented model, but that transition is not an easy one, and some companies will shut down as the country makes the transition. A consistent reduction in the yuan's value will make imports more expensive, making the transition more painful while heightening concerns about Beijing's currency policy and whether its Aug. 11 move is a one-off. The only way that Beijing can assuage these fears is by simply doing what it says — allowing the market forces to act on the yuan. Either way, Beijing is continuing to show a substantive change in its foreign exchange policy, and that alone is worth keeping a keen eye on.
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The Producer Price Index Rose 0.2% in July To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/14/2015
The Producer Price Index (PPI) rose 0.2% in July, coming in above the consensus expected gain of 0.1%. Still, producer prices are down 0.8% versus a year ago.
The rise in producer prices was led by prices for final demand services, up 0.4% in July. Energy prices declined 0.6% in July while food prices declined 0.1%. Producer prices excluding food and energy were up 0.3%.
In the past year, prices for services are up 0.6%, while prices for goods are down 3.7%. Private capital equipment prices increased 0.4% in July and are up 0.3% in the past year.
Prices for intermediate processed goods declined 0.2% in July and are down 6.5% versus a year ago. Prices for intermediate unprocessed goods declined 2.9% in July, and are down 22.6% versus a year ago.
Implications: Producer prices rose faster than the consensus expected for a third straight month and have now risen at the fastest three-month pace since early 2011. The service sector led the way in July, rising 0.4% as prices for guestroom rentals, up 9.9%, accounted for nearly half the increase. Prices for goods took a breather in July, down 0.1%, but have continued to show a clear acceleration of late. While goods prices remain down 3.7% from a year ago, they are up at a 2% rate over the past six months, and up a faster 8% rate over the past three months. Energy prices, which have been the key driver behind goods prices since mid-2014, dipped 0.6% in July, but are up 35% at an annual rate over the past three months. Meanwhile, the outbreak of the bird flu that has pushed food prices higher also showed some relief in July, highlighted by a 24.8% decline in the price of eggs. While producer prices are down from a year ago, the 0.2% increase in overall producer prices in July comes on the back of a 0.4% rise in June and a 0.5% jump in May. Combined, these represent the fastest three-month rise in prices in more than four years, and show a trend in inflation above the Fed’s 2% target. And while the Fed is more focused on its own expectations for future inflation, the recent trend gives them ample basis to begin raising rates in September. Further down the chain, prices remain volatile. Prices for intermediate processed goods are down 6.5% in the past year, but are up at a 6.3% annual rate over the past three months. Prices for intermediate unprocessed goods show a similar picture, down 22.6% in the past year, but up at a 5.9% rate in the past three months. Inflation is certainly not a major problem right now, but given the prolonged period of monetary looseness, expect inflation to move gradually higher over the next few years.
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Financial System Healing To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/17/2015
Every month, the National Association of Realtors reports on existing home sales, which are closings on previously-owned homes. These sales have been doing very well lately, up in four of the past five months and up almost 10% from a year ago. We expect further gains when the next report comes out Thursday morning.
But these solid headlines are missing what is probably the most important point about existing home sales. In the past year, all-cash buyers have dropped to 22% of sales from 32% a year ago. So, even as total sales have risen almost 10%, mortgage-backed purchases have risen more than 25%.
In our view, there’s no better sign that the financial system, at least as it relates to consumers, is getting closer to normal.
Meanwhile, the average household is in the best financial shape in a generation. The financial obligations ratio measures the share of after-tax income that households need to service their debts and other recurring obligations, so it covers mortgages, rent, car loans and leases, as well as debt service on credit cards, student loans, and other lending arrangements, like signature loans.
Back in late 2007, just before recession started, these payments were the largest share of after-tax income on record, going back to 1980. But after the huge consumer debt reduction during and after the recession, for the past few years, these payments have been the smallest share of after-tax income since the early 1980s.
Payment rates on credit cards – the share of principal balances and finance charges that consumers are paying every month – are the highest on record (starting in 1992), according to Standard & Poor’s. At the same time, delinquency rates are at an all-time low.
And remember the wave of foreclosures that was supposed to bring down the economy? Well, according to the NY Federal Reserve Bank, the number of consumers with new foreclosures showing up on their credit reports is the lowest on record going back to 1999, even lower than during the housing boom.
In other words, consumers are in a position to borrow more while banks are finally starting to boost lending.
No wonder auto sales have fully recovered from the disaster in 2008-09. In the past twelve months, Americans have bought cars and light trucks at a 17 million annual rate. For 2015 as a whole, a pace of 17.5 million is within reach, which would top the previous record of 17.4 million set back at the peak of the internet boom in 2000.
This doesn’t mean everything is right with the financial system. Far from it. The private system could have healed earlier and faster without Dodd-Frank and federal micromanagement. Someone needs to explain to the Fed that having a Ph.D. in economics doesn’t mean you know how to run a bank, not even close. This is one reason why the US economy remains a Plow Horse several years into recovery.
Meanwhile, the public portion of our financial system – a part of it we wish didn’t even exist – is trying to expand again, regardless of the disaster it caused in the prior decade. For example, the Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac and is led by a presidential appointee, has encouraged loans where the down-payment is as low as 3%. Luckily, so far, Fannie and Freddie haven’t expanded in any noticeable way, at least not yet.
The bottom line is that the US financial system still has a way to go before it’s fully healed, but like most of the rest of the economy it’s also clearly moving in the right direction.
________________________________________
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Orwellian economics? I know the point he is making, but still... homes are more affordable and the financial system is healthier because more people are borrowing more money to buy them while all cash sales plummet.
Might I ask our friend Brian a bit of economic trivia, how does the default rate with all cash buyers compare that of the "closer to normal", highly leveraged home purchases?
So, getting this straight, paying with cash is a sign of dysfunction while borrowing to the hilt with payments required every month for the next 30 years is lower risk and a sign of good economic health.
'Red is grey, and yellow white. But we decide which is right. And which is an illusion.'
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Doug,
Thanks for the blast from the past - just put on my recording of "Nights in White Satin" by The Moody Blues - amazing...
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http://scottgrannis.blogspot.com/2015/08/tips-see-more-growth-less-inflation.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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http://finance.yahoo.com/news/stock-market-endures-worst-day-202043583.html?soc_src=mail&soc_trk=ma
Naptime.
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http://finance.yahoo.com/news/stock-market-endures-worst-day-202043583.html?soc_src=mail&soc_trk=ma
Naptime.
Do you know if anyone saw this coming? :wink:
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http://finance.yahoo.com/news/stock-market-endures-worst-day-202043583.html?soc_src=mail&soc_trk=ma
Naptime.
Do you know if anyone saw this coming? :wink:
:-D :cry:
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http://pamelageller.com/2015/08/the-islamic-state-returns-to-the-gold-standard-to-break-us-federal-reserve.html/
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http://pamelageller.com/2015/08/the-islamic-state-returns-to-the-gold-standard-to-break-us-federal-reserve.html/
Not the last.
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http://www.alt-market.com/articles/2684-russia-is-going-to-pass-a-law-formally-dumping-the-us-dollar
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The Consumer Price Index Declined 0.1% in August To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/16/2015
The Consumer Price Index (CPI) declined 0.1% in August, matching consensus expectations. The CPI is up 0.2% from a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) fell 0.2% in August, and is down 0.6% in the past year.
Energy prices declined 2.0% in August, while food prices increased 0.2%. The “core” CPI, which excludes food and energy, increased 0.1% in August, matching consensus expectations. Core prices are up 1.8% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – rose 0.5% in August, and are up 2.0% in the past year. Real weekly earnings are up 2.3% in the past year.
Implications: The final inflation report heading into today’s Fed meeting went off with a wimper, not a bang. Headline prices declined 0.1%, but all of the decline (and then some) was due to energy prices, which declined 2% in August and are down 15.0% in the past year. Excluding energy, consumer prices rose 0.1% in August and are up 1.8% in the past year. And while overall inflation is up a mere 0.2% in the past year, prices have risen 2.3% at an annual rate over the past six months. Core prices, which remove the volatile food and energy components, continue to hover around 2% inflation from a year ago, very close to the Fed’s inflation target. So regardless of the outcome of tomorrow's decision, inflation should eventually put pressure on the Fed to raise rates faster than the market expects. Core consumer prices in August were led higher by housing. Owners’ equivalent rent, which makes up about ¼ of the CPI, rose 0.2% in August, is up 3% in the past year, up at a 3.5% annual rate in the past three months, and will be a key source of higher inflation in the year ahead. While some scaremongers warn about deflation, others stoke fears of hyperinflation. But the truth is that neither is a threat at present. What we have is low inflation that is likely to gradually work it’s way upward over the next few years. On the earnings front, “real” (inflation-adjusted) average hourly earnings rose 0.5% in August, and are up a modest 2.0% in the past year. In other words, increases in consumer spending have been driven by higher earnings, not consumers loading up on debt. Taken as a whole, recent trends in both consumer and producer prices, paired with solid employment growth and a 5.1% unemployment rate, suggest the Fed has solid grounds to announce the start to rate hikes in tomorrow’s statement.
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Wesbury is speculating on Fed hikes, but in effect he is saying that in spite of trillion of dollars of accumulated QE rounds, we still see no price increases. How can that be?
I wonder if Wesbury buys into Milton Friedman's monetary equation, MV = PQ.
Price and Quantity/output is flat, Money is up, then velocity - the speed in which money is spent - is still down.
If Economic Velocity is stuck in neutral, it means this economy is a Fallen Horse, not a Plow Horse.
Everyone but Wesbury and Obama seems to know this.
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How can that be? Because it was bank reserves that were increased, not m-1 or m-2 etc much beyond the usual.
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How can that be? Because it was bank reserves that were increased, not m-1 or m-2 etc much beyond the usual.
I owe Crafty a reply on this.
Yes, this is the Wesbury and Grannis position. After trillions of dollars of quantitative expansion of the monetary supply and a decade and a half of near zero interest rates, the monetary supply measured by M1 and M2, which by definition do not include bank reserves, did not go up.
Poverty measures don't measure poverty and our unemployment measures don't measure unemployment. PP has pointed out how our housing measures don't measure housing. It is not surprising that M1 and M2 don't measure the money supply.
M0: In some countries, such as the United Kingdom, M0 includes bank reserves, so M0 is referred to as the monetary base, or narrow money.
MB: is referred to as the monetary base or total currency. This is the base from which other forms of money (like checking deposits, listed below) are created and is traditionally the most liquid measure of the money supply.
M1: Bank reserves are not included in M1.
M2: Represents M1 and "close substitutes" for M1 M2 is a broader classification of money than M1. M2 is a key economic indicator used to forecast inflation.[14]
M3: M2 plus large and long-term deposits. Since 2006, M3 is no longer published by the US central bank. However, there are still estimates produced by various private institutions.
MZM: Money with zero maturity. It measures the supply of financial assets redeemable at par on demand. Velocity of MZM is historically a relatively accurate predictor of inflation.
(https://en.wikipedia.org/wiki/Velocity_of_money)
If we concede the Grannis point, we should still consider the basics of fractional reserve banking in the context of escalating bank reserves. Gasoline in the tank or even the carburetor doesn't affect combustion when the engine is turned off. Even though that money is sitting still, uncounted, isn't it already toothpaste out of the tube that will not easily go back in? (My own Wesbury cliches and mixed metaphors.)
If my take on the current state of MV = PQ is wrong, then the right answer is that all 4 variables are flat and stuck. Only if you like the status quo is that good news.
Think of physics to understand economics. When a huge, massive, giant object like the US economy is stuck in place with zero acceleration and near zero velocity, that isn't going to change sped or direction by taking a wait and see, leave-the-policies-the-same approach. Like stagflation followed by Reaganomics, it will require a very large force. But if and when we do turn a giant ship around, and demand, velocity and dynamism are all restored, the already escalated bank reserves will enter the monetary supply through fractional reserve system by way of a large multiplier effect. That is when the effects of the policies of the last 15 years will show up in the monetary measures. Not now.
No one knows how that will turn out. What we do know is that these measures they point to now don't measure it.
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The Uber-Dove vs Black Swans To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/21/2015
You couldn’t have missed it. Only stages full of GOP presidential candidates or the Super Bowl have ever had more media attention. Yes, we are talking about the Federal Reserve’s thundering announcement on Thursday – of nothing. The Fed decided to keep interest rates at zero, for at least the next few months, after holding them near zero for over six years.
In one sense, this is a non-event. We have been in this same spot for quite some time. In spite of three rounds (and $3.6 trillion) of Quantitative Easing and very low interest rates, the US economy remains in a Plow Horse, low-inflation recovery. Japan has been doing QE for decades and its economy isn’t growing, while the European economy is weak and its stock markets are down since QE II started back in March.
In other words, all the gnashing of teeth about the Fed seems like a huge waste of time. This is especially true when we consider the fact that raising interest rates wouldn’t be actually changing monetary policy at all.
Over time, investors have been confused (as happens during a street-side shell game) about what monetary policy really is and how it works. Many people have come to believe the transmission mechanism of Fed policy is interest rates, but this isn’t true and never has been.
Monetary policy works as the Fed adds or subtracts reserves from the banking system, and by adding or subtracting reserves they are able to increase or decrease “aggregate demand” or what we can think of as “total spending.”
When a counterfeiter puts more money into a neighborhood, the economy gets a temporary pop. When the FBI takes the money away, it slumps. The reason QE never worked as advertised is that when the Fed “printed money” in exchange for bonds, the banks that sold the Fed the bonds held the money in “excess reserves.” The neighborhood never spent the counterfeiter’s money. The Fed’s balance sheet has grown 26% annualized over the past seven years, but the M2 measure of money (total deposits in all banks) has grown only 6.6% per year.
All those excess reserves are still out there, un-multiplied. That’s why all the crazy forecasts of hyper-inflation, $5,000 gold and a collapsing dollar never came true.
And here’s the rub. The Fed does not intend to reduce those reserves anytime soon, and would not have reduced them by one dime last week even if they had raised interest rates.
Throughout history, when the Fed wanted the federal funds rate to rise, it withdrew reserves from the banking system by selling bonds to banks. Yes, interest rates would rise because liquidity was withdrawn, but the impact on the economy was from the slowdown in money growth, not the rise in rates.
If the Fed would have raised rates last week, reserves would have stayed exactly the same. All the Fed would have done is announce that it was paying more to banks on excess reserves, as an enticement not to lend them. Every dollar of excess reserves would have remained in the system. A rate hike would not rip away the punch bowl, in fact the punch bowl would still be overflowing with excess reserves waiting for someone to slurp them up.
In the past, when the Fed has raised rates, banks did not hold any significant amount of excess reserves. So higher short-term rates meant it was tougher for banks to acquire the funds they wanted to lend. Now, many banks are filled to the brim with excess reserves and are barely trading federal funds among each other.
Sometimes they say, “follow the money,” but we suggest “follow the profits” to understand Fed actions that confuse you. So let’s do it. Right now the Fed owns $4.2 trillion in bonds which pay whatever they pay, while it gives banks ¼% on reserves. The “spread” generated a profit last year of roughly $100 billion, which the Fed then turned over to the Treasury. If the Fed would have increased what it paid banks on reserves to ½%, this would have reduced the Treasury cash inflow by about $7 billion over the next year and this money would have gone to banks. In other words, the Fed and Treasury have an incentive to keep rates very low so that their profits stay high.
The biggest problem the US has now with its economic management team (including the Fed) is that it has spread the narrative that only QE and other government programs saved the economy during the crisis. We do not believe this one iota. In fact, we believe government rules forced Fannie Mae and Freddie Mac to buy sub-prime mortgage bonds. That created the crisis. Yet, it serves government interests to blame it on banks and the private sector.
This has helped create a cottage industry of Black-Swan birdwatchers. Instead of looking for an answer, they just claim 2008 was like a severe earthquake that was
undetectable. The pessimists create fear as they find a new Black Swan every week, which, for investors who believe this stuff, is terrifying. But they have also enhanced the narrative to include the idea that if the Fed raises rates, the only support for growth will be ripped away.
This is also a misconception. Does anyone with common sense really believe that QE and zero percent rates invented the Apple Watch, or increased the efficiency of fracking, or created Uber, vertical farming, 3-D printing, the cure for Hep-C, or any of the other massively wonderful new technologies and inventions we have seen put in place in the past six years?
The Fed does not cause real, long-term wealth creation. It never has and it never will. It either accommodates growth by printing the right amount of money, therefore avoiding deflation, or it prints too much money, which won’t stop growth but will cause inflation. It can cause harm by allowing the money supply to collapse, but once mark-to-market accounting was fixed in March 2009, that possibility evaporated.
There is an argument running around that says if the Fed wouldn’t, or couldn’t, raise interest rates, then there must really be something wrong with the economy. This argument is sophomoric. It gives the Fed some kind of supreme, omnipotent power of knowledge that no one else has. But, other than private bank information and probably some foreign government secrets, the Fed has access to the same data that we do and none of it suggests the US economy needs zero percent interest rates. Initial claims have been below 300,000 for 29 straight weeks. And anyone who claims 173,000 new jobs is a clear sign of economic problems, especially in August (which is so often revised higher), is spinning the data.
Yes, China’s growth has slowed to 7%, from 10.6%. So what? Japan collapsed in 1990 when it was the #2 economy in the world, and the next ten years were fabulous for US investors.
All in all, what is really going on is that so many people think there are Black Swans flying around everywhere, and that the only way to protect the US economy from them is with an Uber-Dove. It looks like Janet Yellen has decided she is that Uber-Dove, despite a real lack of evidence that Fed policy has protected the US at all in the past six years.
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The Worst Part Is Central Bankers Know Exactly What They Are Doing
Wednesday, 23 September 2015 Brandon Smith
The best position for a tyrant or tyrants to be in, at least while consolidating power, is tyranny by proxy. That is to say, the most dangerous tyrants are those the people do not recognize: the tyrants who hide behind scarecrows and puppets and faceless organizations. The worst position for the common citizen to be in is a false sense of security and understanding, operating on the assumption that tyrants do not exist or that potential tyrants are really just greedy fools acting independently from one another.
Sadly, there are a great many people today who hold naïve notions that our sociopolitical dynamic is driven by random chaos, greed and fear. I’m sorry to say that this is simply not so, and anyone who believes such nonsense is doomed to be victimized by the tides of history over and over again.
There is nothing random or coincidental about our political systems or economic structures. There are no isolated tyrants and high-level criminals functioning solely on greed and ignorance. And while there is certainly chaos, this chaos is invariably engineered, not accidental. These crisis events are created by people who often refer to themselves as “globalists” or “internationalists,” and their goals are rather obvious and sometimes openly admitted: at the top of their list is the complete centralization of government and economic power that is then ACCEPTED by the people as preferable. They hope to attain this goal primarily through the exploitation of puppet politicians around the world as well as the use of pervasive banking institutions as weapons of mass fiscal destruction.
Their strategic history is awash in wars and financial disasters, and not because they are incompetent. They are evil, not stupid.
By extension, perhaps the most dangerous lie circulating today is that central banks are chaotic operations run by intellectual idiots who have no clue what they are doing. This is nonsense. While the ideological cultism of elitism and globalism is ignorant and monstrous at its core, these people function rather successfully through highly organized collusion. Their principles are subhuman, but their strategies are invasive and intelligent.
That’s right; there is a conspiracy afoot, and this conspiracy requires created destruction as cover and concealment. Central banks and the private bankers who run them work together regardless of national affiliations to achieve certain objectives, and they all serve a greater agenda. If you would like to learn more about the details behind what motivates globalists, at least in the financial sense, read my article 'The Economic Endgame Explained.'
Many people, including insiders, have written extensively about central banks and their true intentions to centralize and rule the masses through manipulation, if not direct political domination. I think Carroll Quigley, Council on Foreign Relations insider and mentor to Bill Clinton, presents the reality of our situation quite clearly in his book “Tragedy And Hope”:
"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations. Each central bank … sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."
This "world system of financial control" that Quigley speaks of has not yet been achieved, but the globalists have been working tirelessly towards such a goal. The plan for a single global currency system and a single global economic authority is outlined rather blatantly in an article published in the Rothschild owned 'The Economist' entitled 'Get Ready For A Global Currency By 2018'. This article was written in 1988, and much of the process of globalization it describes is already well underway. It is a plan that is at least decades in the making. Again, it is foolhardy to assume central banks and international bankers are a bunch of clumsy Mr. Magoos unwittingly driving our economy off a cliff; they know EXACTLY what they are doing.
Being the clever tyrants that they are, the members of the central banking cult hope you are too stupid or too biased to grasp the concept of conspiracy. They prefer that you see them as bumbling idiots, as children who found their father’s shotgun or who like to play with matches because in your assumptions and underestimations they find safety. If you cannot identify the agenda, you can do nothing to interfere with the agenda.
I have found that the false notion of central bank impotence is growing in popularity lately, certainly in light of the recent Fed decision to delay an interest rate hike in September. With that particular event in mind, let’s explore what is really going on and why the central banks are far more dangerous and deliberate than people are giving them credit for.
The argument that the Federal Reserve is now “between a rock and a hard place” keeps popping up in alternative media circles lately, but I find this depiction to be inaccurate. It presumes that the Federal Reserve "wants" to save the U.S. economy or at least wants to maintain our status quo as the “golden goose.” This is not the case. America is not the golden goose. In truth, the Fed is exactly where it wants to be; and it is the American people who are trapped economically rather than the bankers.
Take, for instance, the original Fed push for the taper of quantitative easing; why did the Fed pursue this in the first place? QE and zero interest rate policy (ZIRP) are the two pillars holding up U.S. equities markets and U.S. bonds. No one in the mainstream was demanding that the Fed enact taper measures. And when the Fed more publicly introduced the potential for such measures in the fall of 2013, no one believed it would actually follow through. Why? Because removing a primary support pillar from under the “golden goose” seemed incomprehensible to them.
In September of that year, I argued that the Fed would indeed taper QE. And, in my article “Is The Fed Ready To cut America’s Fiat Life Support?” I gave my reasons why. In short, I felt the Fed was preparing for the final collapse of our economic system and the taper acted as a kind of control valve, making a path for the next leg down without immediate destabilization. I also argued that all stimulus measures have a shelf life, and the shelf life for all QE and ZIRP is quickly coming to an end. They no longer serve a purpose except to marginally slow the collapse of certain sectors, so the Fed is systematically dismantling them.
I received numerous emails, some civil and some hostile, as to why I was crazy to think the Fed would ever end QE. I knew the taper would be instituted because I was willing to accept the real motivation of central banks, which is to undermine and destroy economies within a particular time frame, not secure economies or kick the can indefinitely. In light of this, the taper made sense. One great pillar is gone, and now only ZIRP remains.
After a couple of meetings and preplanned delays, the Fed did indeed follow through with the taper in December of that year. In response, energy markets essentially imploded and stocks became steadily more volatile over the course of 2014, leading to a near 10% drop in early fall followed by foreign QE efforts and false hints of QE4 by Fed officials as central banks slowed the crisis to an easier to manage pace while easing the investment world into the idea of reduced stimulus policies and reduced living standards; what some call the "new normal".
I have held that the Fed is likely following the same exact model with ZIRP, delaying through the fall only to remove the final pillar in December.
For now, the Fed is being portrayed as incompetent with markets behaving erratically as investors lose faith in their high priests. This is exactly what the bankers that control the Fed prefer. Better to be seen as incompetent than to be seen as deliberately insidious. And who knows, maybe a convenient disaster event in the meantime such as a terrorist attack or war (Syria) could be used to draw attention away from the bankers completely.
Strangely, Bloomberg seems to agree (at least in part) with my view that the taper model is being copied for use in the rate hike theater and that a hike is coming in December.
Meanwhile, some Federal Reserve officials once again insinuate that a hike will be implemented by the end of the year while others hint at the opposite.
Other mainstream sources are stating the contrary, with Pimco arguing that there will be no Fed rate hike until 2016. Of course, Pimco made a similar claim back in 2013 against any chance of a QE taper. They were wrong, or, they were deliberately misleading investors.
Goldman Sachs is also redrafting their predictions and indicating that a Fed rate hike will not come until mid-2016. With evidence indicating that Goldman Sachs holds considerable influence over Fed policy (such as exposed private meetings on policy between Fed officials and banking CEO's), one might argue that whatever they “predict” for the rate hike will ultimately happen. However, I would point out that if Goldman Sachs is indeed on the inside of Fed policy making, then they are often prone to lying about it or hiding it.
During the taper fiasco in 2013, Goldman Sachs first claimed that the Fed would taper in September. They lost billions of dollars on bad currency bets as the Fed delayed.
Then, Goldman Sachs argued that there would be no taper in December of that year; and they were proven to be wrong (or disingenuous) once again.
Today, with the interest rate fiasco, Goldman Sachs claimed a Fed rate hike would likely take place in September. They were wrong. Now, once again, they are claiming no rate hike until next year.
Are we beginning to see a pattern here?
How could an elitist-run bank with proven inside connections to the Federal Reserve be so wrong so often about Fed policy changes? Well, losing a billion dollars here and there is not a very big deal to Goldman Sachs. I believe they are far more interested in misleading investors and keeping the public off guard, and are willing to sacrifice some nominal profits in the process. Remember, these are the same guys who conned nations like Greece into buying toxic derivatives that Goldman was simultaneously betting against!
The relationship between international banks like Goldman Sachs and central banks like the Federal Reserve is best summed up in yet another Carroll Quigley quote from “Tragedy And Hope”:
"It must not be felt that these heads of the world’s chief central banks were themselves substantive powers in world finance. They were not. Rather, they were the technicians and agents of the dominant investment bankers of their own countries, who had raised them up and were perfectly capable of throwing them down. The substantive financial powers of the world were in the hands of these investment bankers (also called “international” or “merchant” bankers) who remained largely behind the scenes in their own unincorporated private banks. These formed a system of international cooperation and national dominance which was more private, more powerful, and more secret than that of their agents in the central banks."
Goldman Sachs and other major banks act in concert with the Fed (or even dictate Fed actions) in conditioning public psychology as much as they manipulate finance. First and foremost, globalists require confusion. Confusion is power. What better way to confuse and mislead the investment world than to place bad bets on Fed policy changes?
Heading into the end of 2015, we are only going to be faced with ever mounting mixed messages and confusion from the mainstream media, international banks and central banks. It is important to always remember, though, that this is by design. A common motto of the elite is “order out of chaos,” or “never let a good crisis go to waste.” Think critically about why the Fed has chosen to push forward with earth-shaking policy changes this year that no one asked for. What does it have to gain? And realize that if the real goal of the Fed is instability, then it has much to gain through its recent and seemingly insane actions.
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I find Samuelson to be more insightful and honest than Bernanke:
Samuelson writes in closing: "Up to a point, all this rings true. Still, as a theory of the crisis, it's incomplete. Financial crises are not entirely random events. The system has to be vulnerable to a shock. Bernanke identifies one vulnerability, wholesale funding. But there was a larger source of vulnerability: the very prosperity that Americans had enjoyed for a quarter of a century. During this period, there were only two mild recessions. Inflation and interest rates declined. Stock and home prices increased. Feeling richer, Americans borrowed more and spent more. From 1982 to 2007, consumer spending went from 62 percent of the economy (gross domestic product) to 67 percent.
The good fortune had consequences. It nurtured overconfidence. The economy appeared to be less risky, in part because the Fed seemed capable of quickly defusing any serious threat to prosperity. The behaviors that ultimately led to the crisis -- lax lending standards, more borrowing -- were encouraged, because the economic landscape seemed less threatening. Too much pleasing prosperity led to crippling instability. That's a central lesson of the crisis. Bernanke doesn't acknowledge the troubling implications; in fairness, hardly anyone else does either"
http://www.twincities.com/columnists/ci_28964469/robert-samuelson-bernanke-file
Robert Samuelson: The Bernanke file
By Robert Samuelson
Reading former Federal Reserve Chairman Ben Bernanke's new memoir of the financial crisis -- "The Courage to Act" -- you are reminded how lucky we are. Despite a disappointingly slow economic recovery, it could have been much, much worse. The conventional wisdom is that we have dodged a second Great Depression, when the unemployment rate reached 25 percent. Nothing in Bernanke's account contradicts that conclusion.
If ever Main Street depended on Wall Street -- an unpopular reality that Bernanke kept repeating during the crisis' darkest days -- this was it. Businesses need credit to finance new investment, to smooth seasonal fluctuations and to cover daily expenses. As firms lost access to credit, or feared doing so, they saw their survival at stake. They conserved cash by any means available. They stopped hiring, started firing and delayed investment projects. From September 2008 to February 2010, payroll employment fell by 7.1 million.
The Fed helped check this downward spiral before what we now call the Great Recession became another Great Depression. With private lenders on strike, the Fed temporarily provided funds as "lender of last resort." Its complex lending programs supported banks, securities dealers, money market funds, foreign lenders and the commercial paper market. The amounts were stupendous. At one point, lending through the traditional "discount" window approached $900 billion.
How does Bernanke's memoir add to our knowledge?
For starters, it gives new credibility to his claim that the Fed couldn't have prevented Lehman Brothers' bankruptcy in September 2008. Recall that Lehman's collapse triggered the financial panic. Recall also that Bernanke had argued that the Fed couldn't lend to Lehman because the Fed needed collateral and Lehman didn't have any (it was insolvent; its debts exceeded its assets). What makes this claim more believable now are the results of Lehman's bankruptcy, which Bernanke cites. Losses were estimated near $200 billion and many creditors got only 25 cents on the dollar. (The subsequent $85 billion Fed loan to AIG, the giant insurer, did not suffer this defect; there was collateral.)
Next, Bernanke provides instructive numbers to explain why the financial system was so vulnerable. Years ago, banks dominated the system and got their funds mainly from household and business deposits. These were largely immune to panic because most were government insured. But in recent decades, a "wholesale" market for funds had developed consisting of the spare cash of corporations, pension funds, wealthy individuals and others. These uninsured funds were lent to banks and other financial institutions for short periods, often overnight. By late 2006, wholesale funds totaled $5.6 trillion, exceeding insured deposits of $4.1 trillion. It was the abrupt withdrawal of these funds that drove panic and threatened the financial system with collapse.
Finally, Bernanke convincingly argues that this financial panic -- and not defaults on subprime home mortgages -- was the crux of the crisis. Subprime loans represented about 13 percent of outstanding home mortgages, he says. Though they triggered the crisis, their losses alone could have been absorbed by the financial system. The real economic damage, he contends, stemmed from the chaotic side effects of the mortgage write-downs: fears of more losses in other types of loans (credit card debt, auto loans); falling bond prices as financial institutions dumped "toxic" securities; and the flight of wholesale funds from banks, investment banks and others (much of their cash went into U.S. Treasury securities).
Thus battered, the financial system became comatose. It no longer provided credit where it was needed. The calamitous chain reaction for spending, production, jobs and confidence followed. The "financial turmoil," writes Bernanke, "had direct consequences for Main Street."
Up to a point, all this rings true. Still, as a theory of the crisis, it's incomplete. Financial crises are not entirely random events. The system has to be vulnerable to a shock. Bernanke identifies one vulnerability, wholesale funding. But there was a larger source of vulnerability: the very prosperity that Americans had enjoyed for a quarter of a century. During this period, there were only two mild recessions. Inflation and interest rates declined. Stock and home prices increased. Feeling richer, Americans borrowed more and spent more. From 1982 to 2007, consumer spending went from 62 percent of the economy (gross domestic product) to 67 percent.
The good fortune had consequences. It nurtured overconfidence. The economy appeared to be less risky, in part because the Fed seemed capable of quickly defusing any serious threat to prosperity. The behaviors that ultimately led to the crisis -- lax lending standards, more borrowing -- were encouraged, because the economic landscape seemed less threatening. Too much pleasing prosperity led to crippling instability. That's a central lesson of the crisis. Bernanke doesn't acknowledge the troubling implications; in fairness, hardly anyone else does either.
Robert Samuelson writes a column for the Washington Post.
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Hugh Hewitt interviewed Ben Bernanke yesterday for 2 hours of his show. I'm amazed by how little I learned from it - for whatever that means.
Fastest way through it is probably to read the transcript: http://www.hughhewitt.com/dr-ben-bernanke-on-the-courage-to-act/
Most striking phrase that came out of it for me was "not knowable". It was 'not knowable' what the consequences would have been if they had failed to act as they did in the crisis, TARP, etc.
He was very careful to say that everything they did was legal, bailing out insurance companies and uninsured assets, etc. Separately he talked about "moral hazard', defined it and put it in the context of the crisis. Hmmm...
I thought he was quite vague about the failed policies and events leading up to the crisis, saying there was plenty of blame to go around, including with the Fed without saying what they did wrong.
Regarding foreign policy and potential crises from overseas, etc. he was asked how the Fed plans for these emergencies. He said something like let's hope that doesn't happen. Reassuring.
Along with "Too Big to Fail" now comes the expression "Too Interconnected to Fail". The whole Keynesian liberalism vision of intentional deficits, stimulative spending and monetary flooding somehow comes back to rest on my economic view of the interconnected economy. The policy makers seem to grasp the interconnectedness of it all only in failure, not in their vision of how to grow the economy for the benefit of everyone..
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"The courage to kick the can down the road"
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The U.S. dollar is going to lose its status as the world's reserve currency within 12 months. A wise person is transferring his cash-based assets into physical gold and silver NOW.
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The U.S. dollar is going to lose its status as the world's reserve currency within the year. A wise person is transferring his cash-based assets into physical gold and silver NOW.
And beans, bullets and bandages. And put some of your money to work outside the US.
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"The courage to kick the can down the road"
Funny that they can't say exactly what they did that honestly - and sell books.
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"The courage to kick the can down the road"
Funny that they can't say exactly what they did that honestly - and sell books.
The public isn't interested in unpleasant reality.
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http://www.washingtontimes.com/news/2015/aug/18/l-todd-wood-day-china-says-its-currency-backed-gol/
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I might point out that Brian Wesbury tries to use the objections this author refutes to argue the U.S. government is not bankrupt.
He is well-aware of these facts, and in my view is a liar working to deceive the public and serve his own interests.
Yes, The U.S. government Really Is Bankrupt - Here’s Proof...
Monday, 19 October 2015 05:54 Simon Black
I’ve long-stated that the government of the United States is completely insolvent.
And that is 100% true statement.
The government’s own numbers show that official liabilities, including debt held by the public and federal retirement benefits, total $20.7 trillion.
Yet the government’s assets, including the value of the entire federal highway system, the national parks, cash balances, etc. totals just over $3 trillion.
In total, their ‘net worth’ is NEGATIVE $17.7 TRILLION… a level that completely dwarfs the housing crisis.
If you include the government’s own estimates of the Social Security shortfall, this number declines to NEGATIVE $60 TRILLION.
And it gets worse every year.
Now, is this balance sheet an accurate reflection of reality? Do we really trust the bean counters to tell us what the United States of America is really worth?
Surely there must be significant intrinsic value to the United States military, for example.
Or the US government’s ability to collect taxes.
Or what about the value of all the natural resources underground?
These must all be HUGELY positive and would swing the government’s net worth back in the right direction.
Guess again.
The US military is certainly one of the best-trained and most effective forces in history.
But it’s difficult to place a substantial value on it when the government can no longer afford to use it.
And even when they do use it, the overall cost of doing so is negative.
The wars in Iraq and Afghanistan have cost the taxpayers $4 trillion. But where’s the financial benefit?
Aside from a few defense contractors profiting handsomely, the Chinese got most of the oil.
ISIS ended up with much of Iraq. And Iran made out like a bandit, with the US government taking out its most threatening neighbors free of charge.
Mission accomplished.
Bottom line, even the best asset in the world can end up being a big liability if it’s used improperly.
So what about the tax authority of the US government? If Uncle Sam can collect $3 trillion in tax revenue each year, surely that must count as a huge asset.
And it absolutely is. If you conduct a Present Value calculation of the future tax revenue of the US government discounted by the official 2% rate of inflation, the US government’s ability to tax its citizens is ‘worth’ $150 TRILLION.
But… if you’re going to count the government’s tax authority as an asset, you have to be intellectually honest and consider the expenses as liabilities.
Think about it: yes, the government brings in tax revenue every single year. But for nearly every year over the last seventy years, they’ve spent far more money to deliver on the promises they’ve made to their citizens.
Those promises are liabilities. And given the government’s spending history since the end of World War II, the liabilities far exceed the tax authority asset.
More importantly, though, isn’t it a little bit scary to consider that the government’s #1 asset is its ability to steal money from you?
Or that the only way the government can make its liabilities go away is by defaulting on the promises it has made to its citizens?
That’s their only way out: steal from you, and default on you.
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The clock is ticking....
The hour is late.
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"If you conduct a Present Value calculation of the future tax revenue of the US government discounted by the official 2% rate of inflation, the US government’s ability to tax its citizens is ‘worth’ $150 TRILLION."
That is a lot of money in today's dollars. The point is simply we cannot continue on a path where fewer and fewer work at all, fewer and fewer pay in, and more and more sign up in one way or another for a government funded life.
Social security was supposed to be an insurance plan for outliving your expected longevity and savings, not a universal retirement plan. Likewise for having a US government safety net at all. It is there for when all better ways to do that fail, someone with a real need but without a family, church, community, city, county or state that can step up, for example.
The war example weakens the point the author is trying to make, IMO. National defense and dealing with foreign threats is proper function of the federal government. Most of the rest is not. Both wars were about dealing with foreign threats whether we got it right or not.
"isn’t it a little bit scary to consider that the government’s #1 asset is its ability to steal money from you?
Or that the only way the government can make its liabilities go away is by defaulting on the promises it has made to its citizens?
That’s their only way out: steal from you, and default on you."
No it isn't. The stealing is partly consensual, and secondly, we could have reformed entitlements at any step along the way including during the Clinton years while we were balancing the budget and experiencing prosperity, during the Bush years when it was proposed but not pursued, during the Obama years including now, or after the next election. We need to get the issues right and we need to win elections. More likely that happens with a positive message. People who only see economic collapse are probably going to vote for more government support rather than less.
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Doug,
We are driving this country into the ground like a lawn dart and there is no longer a political fix.
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Doug,
We are driving this country into the ground like a lawn dart and there is no longer a political fix.
If I gave you 150 Trillion Dollars and the power to re-write the rules of taxation, spending, program eligibility and entitlements, you couldn't make a go of it?
I could. )
In rough proportions, we could double the size of the economy over a relatively short period by running it better and we could cut the number of people not productively participating in it in half, dramatically reducing the number of people needing a check and free phone etc. from the government.
Decline is a choice. Maybe the political fix won't happen, but I don't believe it wouldn't work if tried.
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Sure, I could. But the majority in the country have joined the Free Sh*t Army and will vote for a living.
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Sure, I could. But the majority in the country have joined the Free Sh*t Army and will vote for a living.
It comes down to an argument I've offered previously. We need to chip away a small amount of support from each of the opposing demographic groups on the basis of a better life for their children and grandchildren, not based on how wonderful their current, below subsistence, government paycheck is. If after 8 years of Obama failure, instead of winning 5% of the black vote, we could get just a few percent more of black, inner city matriarchs to change their allegiance, then there is a momentum shift. More than 10% of blacks want a better life for their families; they just aren't seeing our vision as that solution. Same for gays, Jews, yoga moms, young people in parent's basements, Hispanics, Asian Americans, and whoever I am forgetting.
You don't just promise to cut spending or squeeze eligibility. You have to sell the whole package, the American dream. And we don't need all of them, we need about 2-3% who are already near the middle, the persuadables, to switch sides to see a 4-6% shift. If no one on the free shit side of it will buy the American Dream anymore, then it is gone.
Mostly we have lost the argument by default, choosing candidates who don't, won't or can't make the case.
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Doug,
What you are missing is that the U.S. dollar only enjoys its present value because other nations are using it as the world's reserve currency. With our massive debt, and no political solution happening (this is reality) it's only a matter of time - and I believe a short time - before the dollar loses this reserve status. If we are lucky, at that point it may be worth 50 cents. It will quickly decline from there. Financial collapse, civil unrest and starvation will then ensue - and there is NOTHING that any politician is going to be able to do to stop this from happening. We've backed ourselves into a corner with massive devaluation through money printing to the point that there is no way out other than collapse and rebuilding. This is why I and many others have been advising that you prepare for the worst, with stocks of food, ammo, and PHYSICAL gold and silver, as well as barterable commodities. The BEST we can hope for, assuming a Trump or a Cruz gets elected, is that the damage can be somewhat reduced. The collapse, however - will NOT be avoidable.
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At least Trump has experience with bankruptcy. :-D
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Doug,
What you are missing is that the U.S. dollar only enjoys its present value because other nations are using it as the world's reserve currency. With our massive debt, and no political solution happening (this is reality) it's only a matter of time - and I believe a short time - before the dollar loses this reserve status. If we are lucky, at that point it may be worth 50 cents. It will quickly decline from there. Financial collapse, civil unrest and starvation will then ensue - and there is NOTHING that any politician is going to be able to do to stop this from happening. We've backed ourselves into a corner with massive devaluation through money printing to the point that there is no way out other than collapse and rebuilding. This is why I and many others have been advising that you prepare for the worst, with stocks of food, ammo, and PHYSICAL gold and silver, as well as barterable commodities. The BEST we can hope for, assuming a Trump or a Cruz gets elected, is that the damage can be somewhat reduced. The collapse, however - will NOT be avoidable.
Thanks, good points. For all we've been through under Obama, the other currencies are mostly doing worse so I think the upside is quite tremendous IF we are to turn this around now in a positive way. That said, I am 100% in hard goods, low income rental property. If there is any rule of law left in the collapse, people will still have to live. If there is no currency, they can pay me in baked bread and ammunition. And if things turn upward, I will turn it into high income property. )
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Experts Fear A Stealth Crash Has Already Begun: “Risk Is Flashing Red”
Monday, 02 November 2015 Mac Slavo
It is more clear than ever that the Federal Reserve’s quantitative easing program will eventually bring destruction to the planet.
The world doubled down on risk after the 2008 crisis with nearly unlimited liquidity, and now debt is threatening to drown the global financial market. Cheap credit is about to saddle down those who got themselves overextended. Many private borrowers and states alike face default, bankruptcy and/or a failure to pay their obligations. Mathematically, the problem is just waiting to explode.
It is just a matter of when the music stops. But has it already?
Some are suggesting that things are already so bad that a crash has already set in, but without the headlines and fanfare.
This stealth crash is evidenced by conditions so bad they precipitate a chain reaction of further financial destruction. According to the London Guardian things are simply too far gone: “the debt levels are too high, productivity growth too weak and financial risks too threatening.”
Via the London Guardian:
A predicted global meltdown passed without event. But there are enough warning signs to suggest we are sleepwalking into another disaster
The 1st of October came and went without financial armageddon. Veteran forecaster Martin Armstrong, who accurately predicted the 1987 crash, used the same model to suggest that 1 October would be a major turning point for global markets. Some investors even put bets on it. But the passing of the predicted global crash is only good news to a point. Many indicators in global finance are pointing downwards – and some even think the crash has begun. Let’s assemble the evidence.
First, the unsustainable debt. Since 2007, the pile of debt in the world has grown by $57tn (£37tn). That’s a compound annual growth rate of 5.3%, significantly beating GDP. Debts have doubled in the so-called emerging markets, while rising by just over a third in the developed world.[…] What we’ve done with credit since the global crisis of 2008 is expand it faster than the economy – which can only be done rationally if we think the future is going to be much richer than the present.This summer, the Bank for International Settlements (BIS) pointed out that certain major economies were seeing a sharp rise in debt-to-GDP ratios, which were well outside historic norms. In China, the rest of Asia and Brazil, private-sector borrowing has risen so quickly that BIS’s dashboard of risk is flashing red. In two thirds of all cases, red warnings such as this are followed by a major banking crisis within three years.The underlying cause of this debt glut is the $12tn of free or cheap money created by central banks since 2009, combined with near-zero interest rates. When the real price of money is close to zero, people borrow and worry about the consequences later.Oil collapsed first, in mid 2014, falling from $110 a barrel to $49 now, despite a slight rebound in the interim.
[…]
In short, as the BIS economists put it, this is “a world in which debt levels are too high, productivity growth too weak and financial risks too threatening”. It’s impossible to extrapolate from all this the date the crash will happen, or the form it will take.
No one knows when an official “crash” is going to take place, or if they would recognize it if it were already here, but wealth is being transferred at an incredible rate that is driving people into poverty, dependence and desperation.
What is clear is that the financial system that has been put in place is apparently not even capable of holding things together for a decade before they fall apart again.
The same Federal Reserve that was supposedly put in place to end volatile booms and busts is today directly creating them. Monetary policy is perhaps the driving force of today’s misfortune. The situation is reaching a dangerous quickening point, if it has not already arrived. As the article noted,
“When the real price of money is close to zero, people borrow and worry about the consequences later.”
But the consequences are piling up. The entire economy rests on the actions of the Fed, which is engaged in massive market manipulation – albeit legal under the powers assumed by this private agency. Admittedly, the Fed is inflating the stock market, all while destroying the jobs, business, savings, investments and opportunities of regular people.
If Yellen raises rates, the debt crunch begins, and there may be nothing that can hold back the bloods-in-the-streets level of crisis that will occur when people across the world can no longer pay, and can’t borrow any more. There may be higher rates within a year.
Meanwhile, the Fed continues to float enormous volumes of money to feed the looming disaster. It is worsening, and many are already over the edge. As financial experts put it months ago, the market today is “uniquely crash prone.”
Things have been set-up to fail, and giving the Federal Reserve more power than ever to control the markets has only assured the next phase of the collapse will be even worse.
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The Producer Price Index Dropped 0.4% in October To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/13/2015
The Producer Price Index (PPI) dropped 0.4% in October, coming in well below the consensus expected gain of 0.2%. Producer prices are down 1.7% versus a year ago.
The drop in producer prices in October was led by final demand services, down 0.3%. Food prices declined 0.8% in October while energy prices were unchanged. Producer prices excluding food and energy were down 0.3%.
In the past year, prices for goods are down 5.0%, while prices for services are up 0.1%. Private capital equipment prices rose 0.2% in October and are unchanged in the past year.
Prices for intermediate processed goods declined 0.4% in October and are down 7.6% versus a year ago. Prices for intermediate unprocessed goods were unchanged in October, and are down 23.6% versus a year ago.
Implications: Producer prices continued to plummet in October, as margins for wholesalers and falling food costs led the drop. The 0.4% decline in October comes on the back of September’s 0.5% decline, but unlike last month, energy wasn’t the culprit. Final demand service prices accounted for more than two-thirds of the drop in October, as margins for wholesalers and retailers fell 0.7%. Despite the fall in service prices over the past two months, prices for services are essentially unchanged in the past year, up a modest 0.1%. Goods prices also fell in October led by a 0.8% decline in food prices. Prices for goods are down 5% from a year ago. While energy prices were unchanged in October (after three consecutive months of declines), they still account for nearly the entire decline in producer prices over the past year. Excluding just energy, producer prices are down 0.1% in the past year, compared to a 1.7% decline when energy is included. The Fed has reiterated that falling energy prices are a transitory factor. So we think these declines will not play a significant role when they decide whether to raise rates in December. Core producer prices, which take out both the volatile food and energy components, declined 0.3% in October but are up 0.1% in the past year. In other words, we are not in a persistent deflationary environment. We’d like to see the Fed raise rates and think a rate hike in December remains likely. Holding short-term rates near zero distorts the nature and timing of economic and financial activity and our economy will eventually pay a price for that. In other recent economic news, still no sign of inflation in the trade sector. Import prices declined 0.5% in October and are down 10.5% from a year ago. The drop is mostly from petroleum, but not all of it; import prices are down 3.4% from a year ago even excluding petroleum. Export prices declined 0.2% in October and are down 6.7% from a year ago.
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By Mark Fleming-Williams
It may not be the top subject of discussion around the average family dinner table, but China's Nov. 30 entry into the International Monetary Fund's Special Drawing Rights (SDR) currency basket marks the start of a new era in the global economic structure. The accession will not immediately bring about seismic changes in the yuan's usage, rocketing it up to international reserve currency status in one glorious surge. That kind of usage growth, if indeed it ever does happen, will take years to come about. The more immediate change is actually subtler and has more to do with what China is — or more specifically, what it is not. The yuan has become the first SDR basket currency to belong to a country that is not a clear U.S. ally — the other slots are filled by Japan, the United Kingdom and the eurozone. This is important because it is part of a wider trend, reflecting increased economic power in new parts of the world. The IMF (along with the World Bank) is the key institution of the world order that was designed by the United States and its allies at Bretton Woods in 1944. The IMF's including the yuan in the SDR coincides with an attempt to reform this system in favor of these new powers — an attempt that the United States has stalled with a veto for five years. The important question, then, is how the United States, as the architect and leader of the existing system, will cope with these new challenges.
Origins of the SDR
But before we get into the Nov. 30 developments, it is important to first understand the basis of the current system. When the United States crafted today's economic order at Bretton Woods in 1944, it was acting, as is so often the case, with an eye toward avoiding the mistakes of the past. The United States is blessed with the most favorable real estate and geographical positioning of any country in the world, with extensive fertile lands and river systems, access to both major oceans and sizable barriers against any major threats. But these gifts have been both a blessing and a curse, for while they enable immense productivity, and hence power, they also create a temptation toward isolationism; Americans tend to retreat behind their ocean buffers and enjoy their continental paradise. This temptation was so strong that for the first 150 years of its history, the United States did exactly that — fighting engagements to protect trade routes and secure its own strategic position, but rarely interfering in the politics of other continents. It was forced out of this comfortable position by World War I and again by World War II. By 1944, the lesson the United States had learned was that it needed to be present to prevent these situations from arising in the first place, and the most sensible strategy was to exert its own power to block the rise of any single large challenging bloc or competitor. With some estimates putting U.S. gross domestic product at 50 percent of the world share in 1945, the United States was in a position to do so.
The resulting global order was quite a departure from the one it replaced largely because of the differences between the United States and the United Kingdom, its predecessor as global hegemon. By surface area, the British Isles are a 30th the size of the United States. The British Empire's strength came from its accrual and skillful management of overseas possessions, in keeping with the colonialist climate of the times; the empire ultimately covered a quarter of the world's surface. Colonies were used mainly for their resources to the benefit of the colonizer, somewhat constraining their potential development. Even China, which notionally escaped colonization, was invaded and carved up first by Western powers and then by Japan.
The United States, by contrast, had escaped from colony status only 170 years before and, though Washington flirted with colonialism with its possessions in the Philippines, it was a U.S. president, Woodrow Wilson, who lit the flash paper that ultimately ended imperialism. Thus, the U.S. style of world leadership was much closer to leading by normative pressure than forceful imposition of will (though admittedly it was not averse to the use of manipulation and coups to promote its interests). It promoted self-determination and democracy wherever possible, encouraged free trade by guaranteeing the sea-lanes with its dominant navy and challenged the Soviet Union in its attempts to dominate Eurasia. The price the United States charged for this service was control. It poured money into Western Europe and Japan and developed these powers as useful lieutenants to its global policeman role; together these industrial nations have shaped today's world, partly through the institutions that were created at Bretton Woods, such as the IMF.
As these institutions were being developed, the United States was also cornering the international currency market. Another part of the new order was the re-creation of a gold standard based on the dollar, which made it the global reserve currency by definition. This role gives its holder great power, since external demand for its currency allows it to print itself out of trouble in ways that others cannot. Though the United States ultimately followed that course it initially did not want to devalue its currency by printing more dollars, and as a result there was a global shortage of available dollars for foreign central banks to hold. The SDR was created in 1969 as a new kind of global reserve currency, a sort of "paper gold" that could be used to settle accounts between central banks in place of the dollar. (SDR notes could be held by official institutions and exchanged upon request for a set amount of gold; the currency was meant to facilitate lending between debtor and creditor countries at the state level).
But the SDR never really took off, partly because a new floating currencies system emerged after 1971, when the now devalued dollar made the gold standard untenable. This new system undermined the SDR's dollar-replacement role because with no gold standard to keep to, the United States was free to print more dollars, alleviating the previous shortage. The SDR itself became exchangeable not for gold but for a set quantity of a selected group of recognized currencies. This is the elite group the yuan just joined. As the floating currencies system emerged, and the dollar was freed from its golden shackles, the international central banks stuck with it, leaving the SDR somewhat in the shadows. In its history, the SDR, which is issued by the IMF itself, has never made up more than 6 percent of overall international reserves.
Dealing With New Realities
But the domination of the global economic system by the United States and its wealthy friends always had an expiration date, because of the rule of thumb that, when given the opportunity, lower-income countries can grow much faster than wealthy ones. Lower-income countries have the wealthy ones as guides. A wealthy country must develop new technologies and techniques to help it grow — an often lengthy process. Lower-income countries, however, can devote their energies to applying the tried and tested methods and technologies that made the rich countries rich. Of course, one must also be aware of the law of small numbers, in which the growth effect is exaggerated by the fact that a percentage increase in a small number is in reality a smaller rise than the equivalent growth in a larger economy. This means that sometimes high growth figures are not as impressive as they first appear. Nevertheless, the first rule has outweighed the second rule in this case, and many lower-income countries have made strong gains on the wealthier ones. In previous centuries, lower income countries were liable to be taken over by wealthier colonizers, but even if they escaped that fate, there was still no guarantee that they would be able to acquire the expertise and capital needed to develop themselves (Japan is a notable exception).
The new U.S.-led system put an end to all that; globalization, security and free trade gave the world's lower income countries the opportunity to make something of themselves, provided they could first get themselves facing in the right direction. The last 70 years have been broadly a story of development, particularly in the 25 years since the end of the Cold War, when the U.S.-led system was truly let loose. Thus, as a natural result of growth around the world — first from the United States' allies, but then in Latin America, Asia and most recently Africa — the United States saw its share of global GDP fall to 22 percent in 2015.
The United States is therefore having to come to terms with the fact that while it remains incredibly successful, it is no longer as economically dominant as it was when it first took up its role, largely as a result of developments elsewhere. In itself, this is not a unique situation. The United States and Germany overtook the United Kingdom economically long before London lost its role as global leader. The United States has yet to experience this feeling, and given its geographical advantages, perhaps that will not be its fate in this century. But like the United Kingdom before it, the United States has incumbent advantages: dispersed naval bases and an overwhelmingly powerful military, and the "exorbitant privilege" of commanding the international reserve currency. These strengths are unlikely to disappear any time soon. But there are other arenas in which the status quo is being challenged and where some of these new voices are demanding their say. The important question is how the United States will cope with these challenges, and the evidence thus far is mixed.
During the latest phase of global growth, specifically from 2000 to 2008, the economic heft of some of the world's poorer countries — led by the "BRICS" (Brazil, Russia, India, China and South Africa) — has risen dramatically. The crisis of 2008, which struck the United States and its industrial allies particularly hard, reinforced the importance of the IMF's bailout and aid attributes in the global economy. It also exacerbated the imbalance that had been emerging in the IMF's voting systems, particularly Europe's powerful position, which no longer reflects its financial strength. (Indeed, in the last five years, Europe has received unprecedented quantities of IMF funds.)
In 2010, a reform was crafted that would both double the IMF's funding from all of its members and rebalance some of the voting shares, boosting China and Russia and bringing India and Brazil into the top 10. But for five years, the United States — the only country with a veto — has failed to ratify the reform. The reasons given are most revealing: The United States is unwilling to commit more funds to finance this international venture or to vote for a reform that will reduce its power on the global scene. Washington appears to be reverting to its isolationist instincts and its desire to remain in control of the global system. Accordingly, the BRICS has created alternative institutions as a direct challenge to the Bretton Woods institutions and the U.S. dominance over them. Various development banks and IMF-style reserve arrangements have emerged. Even more worrying for the United States, most of its former lieutenants have joined one of these institutions — the Asian Infrastructure Investment Bank — expressly against Washington's wishes. And finally, the G-20 meeting in April 2015 saw various discussions over ways to sidestep the United States on the issue, allowing the reform to go ahead without its assent.
All of which gives extra importance to China's accession into the SDR basket of currencies. The fact that China lobbied so hard to be included demonstrates that its preference is to continue to develop within the existing global system — a recognition that the BRICS is not currently strong enough to truly go it alone. (There is a marked difference in the funds available to the fledgling institutions against the existing ones: The IMF currently has access to around $850 billion of funding while the BRICS equivalent has access to about $100 billion.) That the United States, which remains the strongest voice in the institution, also gave it the green light demonstrates a willingness to allow the new challengers an opportunity to develop in the current system, possibly also using the opportunity to try to further shape the development of the Chinese economy to follow and fit within the U.S. system, thus co-opting China rather than directly competing with it.
This willingness is notable when compared to the reform holdup, but that is because it comes from a different part of the U.S. government. This SDR green light and the original shaping of the 2010 reform were both the work of the overall administration, which appears to be taking a more accommodative stance to these issues, whereas the 2010 reform holdup is the responsibility of the U.S. Congress. These two voices, administration and Congress, thus represent options for how the United States can choose to deal with the new realities: It can either fall back to isolationism, refusing to engage or accommodate, whereupon the rest of the world will likely start to make its own plans, as we have seen, or it can help to reform the institutions it created.
Either way, if the U.S. share of world GDP continues to shrink, China's accession to the SDR basket could prove to become even more important with time. China's economy has many of its own issues, and may be about to hit its own buffers, but it is also the leading edge of a broader wave of developing economies. Under such circumstances, the U.S. dollar's position as global reserve currency could gradually become more anachronistic. In a world without a clear hegemon, perhaps it would no longer make sense for a single country to have as much power over its peers as the reserve currency affords. In such a scenario, the SDR, or perhaps some derivation of it (possibly involving some of Bitcoin's attributes), may step up to the role for which it was first designed: as the international reserve. If that were to happen, the day China entered its currency basket would surely be remembered as a key moment.
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Re-posting this here from the Economic thread:
What Will Happen When the Dollar Collapses?
Dave Hodges
June 2nd, 2014
This article has been generously contributed by Dave Hodges and was originally published at The Common Sense Show.
currency-collapse1 (1)Will It Be a False Flag Attack Or a Currency Collapse?
Hitler initiated a false flag event and burned down the Reichstag to gain control over the German government. Could the same happen here in the United States? My initial response to that question is, does it really matter? The pattern of societal collapse and subsequent governmental enslavement of the American people will be largely the same whether the precipitating incident is a false flag attack or a currency collapse. For the purpose of simplicity, let us call the precursor event to all-out martial law, a currency collapse.
The Federal Reserve Is the Enemy of Humanity
The Federal Reserve has been bleeding this country to death for a century. What the dollar bought 100 years ago, can only buy three cents of product today. This means that 97% of the value of our currency has gone into the pockets of the Federal Reserve investors for the past 100 years.
I am amazed at the abject ignorance of the American people and that they think the Federal Reserve is actually part of the federal government. As we like to stay in the alternative media, the Federal Reserve is no more federal than Federal Express. For the record, the Federal Reserve is a privately held corporation which sells stock to preferred insiders. In 1913, a small majority of Congress commissioned the Federal Reserve to control banking in the United States. Without a doubt, this was the worst decision ever made by an act of Congress.
The Dollar Is Diving
The world is running from the dollar, or should I more accurately state the Petrodollar. Until recently, our dollar was used as the currency of international trading. Further, the dollar was also the reserve currency for oil. All foreign countries wishing to purchase oil from the Middle East, first had to purchase dollars from the Federal Reserve. After FDR took us off the gold standard during the Great Depression and Richard Nixon finished the task of providing America with a totally Fiat currency, the only backing that our dollar enjoys is that of being the reserve currency for both trading and for oil (i.e. the Petrodollar scam).
The major cause of the present economic calamity is fractional reserve banking. When the government goes to the private Federal Reserve and asks for one trillion dollars, the federal reserve gets to print one trillion for the government, at interest, and $10 trillion dollars for themselves and to lend out at high interest rates. This inflationary practice erodes the value of your dollar while enriching our Federal Reserve investors. Ultimately, the currency upon which we depend on will be destroyed and life as we know it will be changed forever.
The practice of fractional reserve banking should be wholly illegal because it creates a state of permanent inflation for the benefit of a few and sets up economic demise for the many.
A Changing of the Financial Guard
The nations presently running from our petrodollar are India, China, Iran, Japan, South Africa and Australia have signed their own trade agreements and their currency of choice is no longer the dollar!
When the collapse of the dollar occurs, it will literally and figuratively come like a thief in the night, and I do mean overnight!
We are all familiar with the concept of inflation, which is the intentional byproduct of the Federal Reserve. But I am not just talking inflation, I’m speaking about hyperinflation which is caused by the collapse of the value of the currency resulting in runaway prices. Here are three examples of how quickly a currency collapse can occur when a nation’s money when its money no longer holds it value:
1. In Weimar Germany, from 1922 – 1923, prices doubled every three days.
2. In the modern era, in Yugoslavia from 1992-94, witnessed prices doubling every 34 hours.
3. In Zimbabwe, in the two year period from 2007 – 2008, prices doubled every 25 hours.
History is replete with examples of currency collapses and they typically follow very predictable patterns in which a nation unravels and social chaos, and many times, widespread violence and even genocide becomes part of the national landscape.
What Does a Currency Collapse Look Like?
It can accurately be stated that a lot has been written and rehearsed by the federal government on the topic of the effects of a currency collapse and its subsequent impact on society. NORTHCOM, DHS and FEMA as well as other federal entities have practiced for this eventuality. In each and every scenario, the facts remain the same, human beings and society follows a very predictable pattern of decline when the currency of the day collapses. And normally, the currency collapse comes without any warning to the general public.
When George Soros recently pulled his money from the S&P 500 and from Bank of America, Citibank and JP Morgan, all Americans should have sat up and taken notice. Generally, when the currency collapses, a stock market crash is right on its heels. Because of the repeal of Glass-Steagall, a banking meltdown will immediately occur following the collapse of the stock market because since Clinton’s presidency, banks are now allowed to loan money for investment in the stock market and for down payments for homes. It was irresponsible of Congress to repeal Glass-Steagall, because it made surviving an economic Armageddon a near impossibility just as it did during the 1929 crash.
In a currency collapse, your life savings will be wiped out. From this point on, the effect cascades like a roaring tsunami racing across the open ocean.
Hurricanes Katrina and Sandy demonstrated that gas stations will be bone dry within two days following a complete collapse. Subsequently, commerce will not move. If you are on vacation, you may not make it home. On the second day following a currency collapse, being on the road will be a risky endeavor because of other desperate motorists who will lie in wait to rob other motorists of essential supplies and resources.
With no available fuel, the grocery and drug stores will be empty within one to three days. There will be no food to be had except for that which is decaying in your refrigerator and that in which you can beg, borrow and steal from your neighbors who will also be begging, borrowing and stealing. from your other neighbors. If you have an adequate food and water supply, you better have an adequate gun and ammo supply in order to defend your assets. And when will you sleep? The protection of your critical assets is a 24/7 proposition. Therefore, having a cooperative survival plan is critical.
Without gas, people will stop going to work. Corporations will disappear overnight. Hurricane Katrina showed America that the police cannot be expected to stay on the job more than 48-72 hours as they will be home protecting their families and foraging for food and water like everyone else. The emergence of former police, now operating as gangs, will become common in an effort to secure the products which will ensure survival. Therefore, when your home is under attack, there will nobody to call. Everyone will be on their own.
The elderly and the chronically ill will be the first to die. Too old to defend their assets, the elderly will find themselves overpowered as they will make easy preys of opportunity for the roving gangs. The chronically ill will have no way to procure their medication and even if they survive the looting rampage which will follow a currency collapse, these poor souls will perish without access to their life-sustaining prescriptions.
The money in your wallet will be useless. Cell phones will not work. Heating and air conditioning will not work either and depending on the time of year, the environment could prove deadly to untold numbers of people.
Water treatment plants will stop operating for the same reasons that you will not be able to find a cop during this crisis nobody will be manning the water treatment plants. Toilets will back up and diseases will spread like wildfire. Cholera will become the leading cause of death even surpassing homicide. Something as simple as toilet paper will become a prized commodity. There will be no trash pickup and more disease will result due to the increased rodent population.
Clean drinking water and hunger will become the dominant motivator in society. Roving bands of looters, turned murderers, will sweep through neighborhoods seeking to obtain these critical elements of survival. Young women will sell themselves for a can of food for their children. Society will see the widespread loss of human dignity and self-respect.
Infanticide and euthanasia of the weak will become common events because there will be decided efforts to reduce the amount of mouths to feed. There will be the stark realization that the lights are not coming back on and the ensuing sense of hopelessness will lead to murder-suicides within families and simple incidences of suicide will be used as a means to escape the horrendous circumstances.
Humanity’s Darkest Hour
There will come a time when all the available animals will be devoured and then there will be only one place to turn to for food. History shows thatcannibalism will set in by the beginning of the third week. Extreme hunger will lead to humans hunting humans as an available food supply. There is a real possibility that this could begin to occur within 15-20 days following the currency collapse.
The Government’s Version of the Final Solution
If the establishment military has properly planned, they will move into take control but they will not move quickly. The more death there is, the fewer people there will be to control. Government will typically move in with their solutions towards the end of the second week as has been the case in past economic collapses. The earliest the military could be deployed on the streets would be about four days from the event. Even then, the military cannot be everywhere. Christians should pay particular attention for when the Roman currency was debased in the third century, there was a revolving door for Roman emperors and Christians became the scapegoats for the economic issues.
To fully understand the relationship that will exist between yourself and the government, Google “Executive Order 13603″. The reasons behind the creation of Executive Order 13603 will soon become readily apparent. You will retain ownership over nothing including food, water, guns, ammunition, your house, your car and even yourself. If you survive, you will be conscripted to work in some capacity in a specialty and location not of your choosing. The provisions for dealing with potential dissidents will go into motion under the NDAA which allows for mass arrest and secret incarcerations without due process. There is one ironclad thing that you can count on, food and water will be used to control the people following the collapse of the dollar
Who Will Help Us?
When past currency collapses occur, organizations such as the World Bank, the IMF, the UN and the US have appeared to render their predatory version of help in exchange for control of critical infrastructure and other capital considerations. Because of this aid, more people survived in the impacted areas. However, what happens when the top dog collapses? Who would be able to come and render aid in America? Even in a world disgusted by our imperialistic ways would offer help, could they? Not under the coming circumstances could anyone offer help because they will be in a worse situation.
In short, there will be nobody riding in to rescue the United States. Despite some rebelling against the dollar, the world is still dependent upon our currency. When the currency collapses it will pull the rest of world down with us. The subsequent collapse of global currencies will indeed constitute a major depopulation event and all the elite have to do is wait it out in places like the tunnels under Denver International Airport.
During this time, Americans will truly discover if there really are FEMA camps and what they will be used for. If people want to eat, they will be enticed to go where food is promised. Although you can count on the above mentioned events transpiring in the event of a currency collapse, what lies ahead is unknown to a large extent because the top dog will not have been economically obliterated in modern history.
Conclusion
In addition to what has previously been written, in an economic collapse, we can expect the government to impose travel restrictions and martial law. Life, as we know it will not be recognizable.
Obama is willing to talk about the $17 trillion dollar deficit. However, you never hear the government nor the media discuss the real debt? Our real financial obligations total $240 trillion dollars through programs like social security, Medicare, public pensions and welfare. Subsequently, I want to make one thing abundantly clear; It is not a matter if we are going to have a currency collapse, it is when. And the when is much sooner than later. It could happen tomorrow, next month and even next year. We do not have two years left in the American economic engine. A currency collapse is nothing to look forward to, and people who intend on surviving the event should be in the midst of their preparations.
Dave Hodges is an award winning psychology, statistics and research professor, a college basketball coach, a mental health counselor, a political activist and writer who has published dozens of editorials and articles in several publications such as Freedom Phoenix, News With Views, and The Arizona Republic.
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http://www.businessinsider.com/goldman-fomc-meeting-preview-2015-12
Cramer: "sell, sell, sell" :roll:
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As Fed Finally Raises Rates, Pent-Up Risks Emerge
Fed bets that low rates’ job benefits outweigh any financial disruption
A sharp decline in commodities prices amid a slowing Chinese economy and a glut of oil has upended markets. How it plays out as the Fed starts raising rates is anyone’s guess, but it bears watching. ENLARGE
A sharp decline in commodities prices amid a slowing Chinese economy and a glut of oil has upended markets. How it plays out as the Fed starts raising rates is anyone’s guess, but it bears watching. Photo: Richard Drew/Associated Press
By Greg Ip
Updated Dec. 16, 2015 12:33 p.m. ET
19 COMMENTS
The Federal Reserve always knew its unprecedented campaign to boost employment could have unsavory side effects. As that campaign comes to an end, those side effects are making themselves felt.
Seven years of near-zero interest rates caused investors to pour money into corporate debt, emerging-market bonds and commercial real estate, all in search of higher returns. Now that money has started to leave, borrowing costs are climbing, and markets have turned treacherous.
The big question is whether this is a transitory disruption, of consequence mostly to Wall Street, or the tip of a more dangerous iceberg.
Right now, the odds are it’s transitory. But history counsels caution: The scale and nature of the distortions brought on by easy monetary policy can take time to show up.
Historically, inflation was the risk the Fed worried about when it held interest rates low. This time, the Fed would actually welcome a rise in inflation, which has consistently undershot its 2% target. Its greater concern in recent years has been that low interest rates would fuel unsustainable asset bubbles. It has concluded that the boost to employment it achieved with easy policy now would outweigh the potential harm of a bursting bubble later.
It’s a calculated bet. The harm from financial disruptions is much less predictable than from inflation, because it involves linkages that are apparent only under stress.
Janet Yellen, the Fed’s chairwoman, is sanguine. Despite the recent bond market turmoil, financial conditions are “supportive” of growth she told reporters Wednesday.
Two precedents offer lessons. In early 1994, the Fed began to raise interest rates after holding them at 3% for more than a year. That soon triggered a big selloff in the bond market that bloodied Wall Street and, by year-end, bankrupted Orange County in California. Yet the broader economy barely noticed.
In 2004, the Fed began to raise interest rates after holding them at 1% for a year. Three years later, the subprime mortgage crisis began, and the economy tumbled into its worst recession since the 1930s.
Both times, the Fed was only one of many factors at work. The 1994 selloff was compounded by a surge in Japanese bond yields and U.S. mortgage hedging that amplified the Fed’s effect on Treasury bonds. In the 2000s, foreign savings, in particular from China, flooded into the U.S., holding down interest rates. The force of lower rates touched off a home-price bubble. Wall Street engineers then went to work making subprime mortgages to ever-riskier borrowers seem safe. The economic consequences didn’t show up until 2007, when the Fed had already finished tightening.
An oil glut has contributed to a tumultuous period in global markets. Here, an oilfield in California earlier this year. ENLARGE
An oil glut has contributed to a tumultuous period in global markets. Here, an oilfield in California earlier this year. Photo: Mark Ralston/AFP/Getty Images
This time, not only is the Fed tightening, but a slowing Chinese economy and unrestrained oil production from the Organization of Petroleum Exporting Countries have also sent commodity prices plunging, hammering emerging economies and U.S. companies that borrowed heavily to pump oil from shale rock in the U.S. No one knows how these factors may interact with whatever imbalances have accumulated over seven years of near-zero rates.
“You can never say a bubble or a mania has a single cause,” says Jim Bianco of Bianco Research, a 30-year veteran of Wall Street’s booms and busts. “But one common theme is a green light for risk taking, and one way you get that green light is the central bank giving you ultra cheap money and encouraging you to do something with it.”
The Fed lowers rates to encourage borrowing and, in turn, to boost employment and prices. But it has little say in who borrows. The flow of credit to less-creditworthy home buyers and small businesses has been hampered by weak demand, increased caution by banks, and new regulations.
By contrast, a gusher of credit has flowed to companies in the U.S. and in emerging markets. Banks’ loans to leveraged companies have been pooled into “collateralized loan obligations.” A large chunk of the leveraged loans held in CLOs are rated just above CCC, at which companies are considered vulnerable to default. If even a fraction is downgraded, the CLOs’ demand for new loans will contract sharply, a report by Ellington Management Group, a hedge-fund manager, recently warned. “Access to credit for weaker companies would be significantly diminished,” says Rob Kinderman of Ellington.
Between 2009 and 2014 investors poured $973 billion into corporate bond mutual funds and $219 billion into exchange-traded funds that hold corporate debt, according to Thomson Reuters Lipper. Some of those flows are now reversing.
ENLARGE
Companies have for the most part used the money not to expand their business operations, but to buy one another and their own stock. This year alone, U.S. companies have borrowed $327 billion to finance mergers and acquisitions, according to Thomson Reuters, more than double the previous full-year high in 2012. Business debt now equals 70% of annual gross domestic product, surpassing its pre-recession peak.
This alarms regulators. The Treasury, in its annual financial-stability report released Dec. 15, warned higher rates and widening spreads between corporate and Treasury rates “may create refinancing risks, expose weaknesses in heavily leveraged entities, and potentially precipitate a broader default cycle.” The extent of borrowing since the crisis means “even a modest default rate could lead to larger absolute losses than in previous default cycles.”
Leverage is often fueled by savers’ confidence that their money is safe. A decade ago, they thought triple-A rated securities and secured, overnight “repo” loans would never default, and shares in money market mutual funds would always be worth one dollar. In fact, many of the securities defaulted, there was a run on the repo loans, and a money fund “broke the buck.”
This time, the illusion has been fed by promises from mutual funds and exchange-traded funds that investors can redeem their shares daily or during the day at close to the funds’ underlying value. But those funds hold bonds that are increasingly difficult to trade as dealers become less willing to take such bonds onto their books.
Low rates have had an even bigger impact in emerging markets than the U.S.; their companies have racked up $3.4 trillion of U.S. dollar-denominated debt, more than double the pre-crisis level, according to the Bank for International Settlements. As those countries’ currencies fall, those debts become harder to repay.
These warning signs need to be taken in context. Most violent market gyrations don’t lead to crises. The global financial crisis reflected a rare confluence of factors: not just low rates and financial engineering but also weak regulation and highly leveraged financial institutions. Banks today have much more capital, fickle short-term borrowing is less prevalent and regulators are more vigilant—arguably too vigilant in some cases.
“We have a far more resilient financial system now than we had prior to the financial crisis,” Ms. Yellen said Wednesday. Many companies, she added, have reduced their debt payments and reduced their reliance on short-term debt.
Even if the flow of credit to companies were to abruptly dry up, that may not have much economic fallout. A decade ago mortgage credit financed home buying and a lot of spending elsewhere. By contrast, corporate debt has fueled mergers and share buybacks. A shutoff of credit might thus endanger share prices, which are already relatively richly valued, but not necessarily investment, or the economy.
Moreover, the more stressed the markets become, the more reluctant the Fed will be to raise rates further. Whether it will ultimately regret waiting so long to tighten—or tightening at all—won’t be known until it’s too late.
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Excellent analysis here I think by the WSJ. The coming crash if there is one isn't caused by the 'tightening', but by the distortions in the market prior to it. Those distortions continue as interest rates at 0.25% are hardly a return to normal. We want the 'correction' to be gradual, but that also means the tortured process of guessing and guessing and guessing what the Fed will do next, with all the mood swings, indecision and investment lockup that causes.
From the article: "Two precedents offer lessons. In early 1994, the Fed began to raise interest rates after holding them at 3% for more than a year. That soon triggered a big selloff in the bond market that bloodied Wall Street and, by year-end, bankrupted Orange County in California. Yet the broader economy barely noticed.
In 2004, the Fed began to raise interest rates after holding them at 1% for a year. Three years later, the subprime mortgage crisis began, and the economy tumbled into its worst recession since the 1930s.
Both times, the Fed was only one of many factors at work. ..."
Right. And as they point out, there are more factors at work now. We are still masking huge problems, tax and regulatory to name a couple, by infusing money. In 2004 we should have fixed the GSEs and CRAp. Today we should fix what is fundamentally wrong too if it isn't too late. Unfortunately the only way to fix what is wrong is to get our political-economic head on straight right now (nearly impossible) and still wait a year (likely fatal) to make the immense structural changes that are needed (difficult to do even if we sweep the elections).
So yes, interest rates should be right sized, and and yes it will trigger a crash if we are so stubborn that we refuse to see the freight train in front of our face coming at us.
Not unrelated, I just received a health care increase of 65%, more than a house payment for lousy coverage for just one person, up 20-fold since I went self employed and bought the policy. Our free economy is wrapped up in rope, tied to a stake and people are throwing spears at us - while the party in power is saying double down on the status quo - and leading in general election polling.
I don't trust any economist or analyst who doesn't admit our economic fate is all political.
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By Mark Fleming-Williams
Christmas did not offer much good cheer to the world's bankers, who have received a sustained kicking since the financial crisis erupted in 2008. In the latest blow, Switzerland announced that it would hold a referendum on a radical proposal that would strip commercial banks of the ability to create money, depriving them of a great deal of their profit-making capabilities. If the Swiss proposal catches on around the world, it could shred core business assumptions that have underpinned the banking model over the past three centuries.
From Babylon to Central Bank
The earliest banks we know of, in ancient Babylon, were temples that doubled as repositories where one could store wealth. At some point, the guardians of the stored treasure realized they could put this accumulated wealth to work, and banks accordingly began to lend capital. Borrowers would pay interest on what they borrowed, and this interest would ultimately find its way back to the lenders after the banks had taken a cut. The banks became trusted intermediaries that brought lender and borrower together and ensured neither would be cheated. Paper money emerged after people found it was easier to buy things using deposit slips from their bank than carrying gold around.
The next evolution happened when bankers realized that since depositors almost never simultaneously withdrew all their funds, banks could lend more capital than had been deposited. This allowed banks to "create" money in the sense that bankers could issue loans not necessarily backed up by hard deposits. Creating revenue in this way proved lucrative, but it brought banks into conflict with rulers, who were notionally in charge of the state's money supply and any gains to be made from it. In England, whose financial system is in many ways the progenitor of today's global system, this battle was played out between banker and ruler in the 16th and 17th centuries.
Ultimately, in 1666 King Charles II — well aware of the limits of his own power thanks to the beheading of his father 17 years earlier — put control of the money supply into private hands. The privatization of the money creation process gave birth to the system we use today, in which private or commercial bank loans are responsible for 97 percent of the money circulating in the modern global economic system. In another change, 28 years after Charles II's reform, an enterprising group of businessmen offered the government cheaper loans in exchange for certain privileges, such as a monopoly over the printing of physical currency, and so the Bank of England was born.
The benefits of the new system proved immediately apparent. Interest rates on government borrowing dropped from 10-14 percent in the 1690s to 5-6 percent in the early 1700s. This allowed Britain a great deal of leeway when it came to military spending, which it soon put to use. But the privatization of money creation also came with drawbacks, namely the economic cycle of boom and bust. Leaving the money-lending and -creating decisions up to banks resulted in a system of extremes where bankers created speculative bubbles via vast quantities of loans and money when times were good, only to refuse to lend — in a sense destroying money — once an ensuing speculative bubble burst.
This led to liquidity crises, with the South Sea Bubble of 1720 providing early evidence of this mechanism kicking into action. The fact that banks were lending more money than they could back up with capital also left them exposed to bank runs whenever the public lost confidence in them. The reserve ratio, which requires banks to keep a fraction of their loans backed by safer assets such as government debt or central bank money, is an attempt to keep this threat at bay. But it is an inherent characteristic of so-called fractional reserve banking that the risk of bank runs is ultimately inescapable.
Britain, and indeed all the other countries that came to adopt the system, grew accustomed to a regular waxing and waning of the money supply and to the consequent up-and-down economy. There were ways to palliate this cycle, with the Bank of England slowly developing into the stabilizing force it is today. In times of crisis, the Bank of England would lower interest rates and flood the market with liquidity, bailing out any solvent but illiquid banks to keep the system functioning, thus smoothing the money supply's wilder fluctuations.
As British and then American influence spread, so did banks' power, and capital flowed ever more freely around the world as domestic deposits were used to finance international projects. The system was heading for a fall, however, when World War I created great economic imbalances between Europe and the United States. In the 1920s, the Federal Reserve attempted to restore prewar parity by keeping interest rates artificially low, but this led to abundant speculative U.S. capital flooding across the Atlantic, particularly into Germany. The ensuing giant bubble finally popped in 1929, leading to the dramatic liquidity shortages of the Great Depression and creating the circumstances that culminated in World War II. The experience led to the partial reining in of banks, with the Glass-Steagall legislation in the United States in the early 1930s limiting their ability to take part in speculative investments.
Time has a way of chipping away at such precautions, however, and the banks gradually escaped their shackles and capital came to flow freely around the world once again. More countries became accustomed to the ebb and flow of bubble and crisis, though these crises tended to be more regional in scope (e.g., Latin America, Asia, Scandinavia). When global crisis finally struck again in 2008 it was different from 1929 in that there was no world war to blame for the global economic imbalances; this crisis followed an extended period of the banks having had things pretty much their own way. Instead, it was a giant version of the regular crises inherent in the system. This led to the thinking that it is the banks, and indeed the system they created around themselves, that need changing. In the eight years since 2008, layer upon layer of 1933-style regulation and restriction have thus been heaped on the banking sector.
A Radical Reform
It is into this atmosphere that the idea of stripping banks of their money-creating abilities has gained currency (regained, in fact, since calls for it date back at least to the 1930s). According to its proponents, the way to root out the instability inherent to the system is to require banks to back their loans 100 percent with reserves. This essentially would be a step back to the point where banks would again function as conduits rather than creators of capital. Under the reformed system the creation of new money would instead be the prerogative of the central bank and the government. These national institutions would in theory be motivated by the needs of the state rather than by short-term profit and would keep the money supply growing at a fixed rate, doing away with the wild fluctuations of the credit cycle. (One challenge to overcome would be politicians attempting to hijack the money supply for short-term political gain.) Proponents of such a system point to many expected benefits: bank runs would be eliminated, the proceeds of money creation would go to the government and thus the taxpayer rather than to the banking elite, government debt would be a thing of the past, and private debt would be greatly reduced. (Indeed, the predominance of debt in today's world is partly a product of it being required in the money creation process.)
But there also would be great risks involved, the main one being the fear of the evil unknown. Though the economic instabilities of the past 300 years appear to have resulted largely from the fractional reserve system, was it also responsible for the relatively breakneck growth over the same period? Moreover, the changeover from one system to the other would be extremely tricky, requiring vast quantities of central bank money-printing and debt buybacks. That would be a recipe for an extremely fraught period carrying immense risks of mismanagement. In truth, another full-blown financial crisis may have to take place before such a changeover could be made at the global level.
But the theoretical upsides are great, as are frustrations with the current system, and the idea has begun to gather momentum. In 2012, the International Monetary Fund published an influential research paper laying out the case for the proposed system, and in 2015 the Icelandic government commissioned a report on the prospect of undertaking the changes. In Switzerland, a law requiring a referendum to take place should 100,000 signatures be gathered has set the country on a course to possibly being first to undertake the great experiment. Strikingly, the revolution is being considered at both ends of the spectrum: Iceland has lately proved among the most financially adventurous players on the global economic scene, while Switzerland has long been one of the most conservative. Considering the risks involved, adoption in a smaller economy such as Iceland or Switzerland would be a useful test case from a global perspective. It would limit the cost of failure to the global economy while helping establish the best way of adopting the changes should the reforms actually work.
For banks, the prospect is of course nothing less than a nightmare scenario, especially coming on top of all of their existing woes. These have included not only increased regulation but also the threat from a disruptive new technology undercutting their basic model in the form of Bitcoin, the new electronic currency that emerged almost exactly as the financial crisis struck. While Bitcoin has suffered its own wild fluctuations in the eight years since its birth, the technology that underpins it, Blockchain, has truly historic potential. The architects appear to have created an electronic system in which both parties in a transaction can act with confidence without the need for an intermediary, though there is some added risk for the payer, since reversing transactions is more difficult than in traditional banking. The world's banks therefore face both the prospect of losing their money-creation privileges, as well as a potential usurper threatening their long-established role as the middleman through which all capital must flow. As 2015 fades into 2016, it is hard to think of a time in the past 300 years when the banker's position in society has been more at risk.
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Don't worry. The bankers will find a way to control the bitcoin. Someone has to monitor and control that no?
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Don't worry. The bankers will find a way to control the bitcoin. Someone has to monitor and control that no?
No...not really...but you know how fat cats are.... they like their scraps....they'll find a way to get their fat, little fingers into it.
Maybe we don't need fat cats.
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A recession worse than 2008 is coming
Michael Pento
The S&P 500 has begun 2016 with its worst performance ever. This has prompted Wall Street apologists to come out in full force and try to explain why the chaos in global currencies and equities will not be a repeat of 2008. Nor do they want investors to believe this environment is commensurate with the dot-com bubble bursting. They claim the current turmoil in China is not even comparable to the 1997 Asian debt crisis.
Indeed, the unscrupulous individuals that dominate financial institutions and governments seldom predict a down-tick on Wall Street, so don't expect them to warn of the impending global recession and market mayhem.
But a recession has occurred in the U.S. about every five years, on average, since the end of WWII; and it has been seven years since the last one — we are overdue.
Most importantly, the average market drop during the peak to trough of the last 6 recessions has been 37 percent. That would take the S&P 500 down to 1,300; if this next recession were to be just of the average variety.
But this one will be worse.
A major contributor for this imminent recession is the fallout from a faltering Chinese economy. The megalomaniac communist government has increased debt 28 times since the year 2000. Taking that total north of 300 percent of GDP in a very short period of time for the primary purpose of building a massive unproductive fixed asset bubble that adds little to GDP.
Now that this debt bubble is unwinding, growth in China is going offline. The renminbi's falling value, cascading Shanghai equity prices (down 40 percent since June 2014) and plummeting rail freight volumes (down 10.5 percent year over year), all clearly illustrate that China is not growing at the promulgated 7 percent, but rather isn't growing at all. The problem is that China accounted for 34 percent of global growth, and the nation's multiplier effect on emerging markets takes that number to over 50 percent.
Therefore, expect more stress on multinational corporate earnings as global growth continues to slow. But the debt debacle in China is not the primary catalyst for the next recession in the United States. It is the fact that equity prices and real estate values can no longer be supported by incomes and GDP. And now that the Federal Reserve's quantitative easing and zero interest-rate policy have ended, these asset prices are succumbing to the gravitational forces of deflation. The median home price to income ratio is currently 4.1; whereas the average ratio is just 2.6.
Therefore, despite record low mortgage rates, first-time homebuyers can no longer afford to make the down payment. And without first-time home buyers, existing home owners can't move up.
Likewise, the total value of stocks has now become dangerously detached from the anemic state of the underlying economy. The long-term average of the market cap-to-GDP ratio is around 75, but it is currently 110. The rebound in GDP coming out of the Great Recession was artificially engendered by the Fed's wealth effect. Now, the re-engineered bubble in stocks and real estate is reversing and should cause a severe contraction in consumer spending.
Nevertheless, the solace offered by Wall Street is that another 2008-style deflation and depression is impossible because banks are now better capitalized. However, banks may find they are less capitalized than regulators now believe because much of their assets are in Treasury debt and consumer loans that should be significantly underwater after the next recession brings unprecedented fiscal strain to both the public and private sectors.
But most importantly, even if one were to concede financial institutions are less leveraged; the startling truth is that businesses, the federal government and the Federal Reserve have taken on a humongous amount of additional debt since 2007. Even household debt has increased back to its 2007 record of $14.1 trillion. Specifically, business debt during that time frame has grown from $10.1 trillion, to $12.6 trillion; the total national debt boomed from $9.2 trillion, to $18.9 trillion; and the Fed's balance sheet has exploded from $880 billion to $4.5 trillion.
Banks may be better off today than they were leading up to the Great Recession but the government and Fed's balance sheets have become insolvent in the wake of their inane effort to borrow and print the economy back to health. As a result, the federal government's debt has now soared to nearly 600 percent of total revenue. And the Fed has spent the last eight years leveraging up its balance sheet 77-to-1 in its goal to peg short-term interest rates at zero percent.
Therefore, this inevitable, and by all accounts brutal upcoming recession, will coincide with two unprecedented and extremely dangerous conditions that should make the next downturn worse than 2008.
First, the Fed will not be able to lower interest rates and provide any debt-service relief for the economy. In the wake of the Great Recession, former Fed Chair Ben Bernanke took the overnight interbank lending rate down to zero percent from 5.25 percent and printed $3.7 trillion. The Fed bought longer-term debt in order to push mortgages and nearly every other form of debt to record lows.
The best the Fed can do now is to take away its 0.25 percent rate hike made in December.
Second, the federal government increased the amount of publicly-traded debt by $8.5 trillion (an increase of 170 percent), and ran $1.5 trillion deficits to try to boost consumption through transfer payments. Another such ramp up in deficits and debt, which are a normal function of recessions after revenue collapses, would cause an interest-rate spike that would turn this next recession into a devastating depression.
It is my belief that, in order to avoid the surging cost of debt-service payments on both the public and private-sector level, the Fed will feel compelled to launch a massive and unlimited round of bond purchases. However, not only are interest rates already at historic lows, but faith in the ability of central banks to provide sustainable GDP growth will have already been destroyed, given their failed eight-year experiment in QE.
Therefore, the ability of government to save the markets and the economy this time around will be extremely difficult, if not impossible. Look for chaos in currency, bond and equity markets on an international scale throughout 2016. Indeed, it already has begun.
Michael Pento produces the weekly podcast "The Mid-week Reality Check,"is the president and founder of Pento Portfolio Strategies and author of thebook "The Coming Bond Market Collapse."
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http://www.wsj.com/articles/china-sharpens-efforts-to-halt-money-outflow-1453898254
By Lingling Wei
Updated Jan. 27, 2016 11:58 a.m. ET
29 COMMENTS
China is ramping up efforts to halt a flood of money leaving the country in response to an economic slowdown, moves that risk undermining Beijing’s ambition to elevate the yuan’s profile on the world stage.
Its latest steps involve curbing the ability of foreign companies in China to repatriate earnings, shrinking the pool of Chinese yuan available for banks in Hong Kong to make loans, and banning yuan-based funds for overseas investments, people with direct knowledge of the matter said.
The measures, most of which haven’t been publicly disclosed, follow efforts by China’s central bank to discourage investors from betting against the yuan and to crack down on overseas money transfers.
“They’re sparing no effort to prevent capital outflows,” said a senior Chinese banking executive close to the central bank. “All the measures are the most aggressive I’ve seen in recent history.”
ENLARGE
The people with direct knowledge said the People’s Bank of China, the central bank, also is considering ways to lure money back to the country, including letting foreign residents and companies buy certificates of deposit for fixed periods. Currently they are restricted to ordinary deposit accounts.
The central bank didn’t respond to requests to comment.
The unusual moves come as China burns through foreign-exchange reserves to prop up its currency and stem an increasingly vicious cycle of easing credit, a weakening currency and fleeing capital. Too much outflow, Chinese officials say, could threaten the stability of the country’s financial system.
Just two months ago, the International Monetary Fund’s designated the yuan as one of the world’s reserve currencies, a nod to China as a global economic power. Still, Beijing is now retreating from its pledges to give markets more influence in setting the yuan’s value. Many investors say they are also concerned over what they consider to be inadequate communication by the central bank.
The last time central bank Gov. Zhou Xiaochuan spoke publicly was in early September, when he sought to reassure central bankers and finance ministers from the Group of 20 large economies that the rout in China’s stock markets was nearing an end.
Investors and analysts have questioned the government’s commitment to market liberalization following Beijing’s attempts to prop up the stock market this past summer and, more recently, sending mixed signals over yuan policy.
“China is aggressively reinserting capital controls,” said Scott Kennedy, a deputy director at Center for Strategic & International Studies, a bipartisan think tank in Washington. “It appears China has for the foreseeable future given up on the goal of substantial exchange-rate liberalization.”
The most obvious sign of China’s effort to stem capital outflows is a precipitous drop in its foreign-exchange reserves, which by December had fallen by about $700 billion from a record of nearly $4 trillion in mid-2014.
China had steadily accumulated reserves since the mid-1990s as its exports boomed. But the flow reversed after China devalued the yuan in mid-August, prompting the central bank to use its reserves to defend the currency. The risk was that a sharp fall could spark capital flight, as yuan-denominated assets become less attractive to hold.
In its latest efforts, the central bank instructed banks on the mainland to require more detailed documentation from corporate customers to remit profits back to their home countries. “The process is way more stringent than before,” said a U.S. property developer who has investments in Shanghai.
Meanwhile, the central bank on Monday started to impose reserve requirements on Hong Kong-based yuan deposits parked by offshore banks at a Bank of China Ltd. unit, said the people familiar with the matter.
Many foreign banks said they were surprised by the action since the reserve requirements previously applied only to yuan deposits held by offshore banks on the mainland, according to the people.
The new rule effectively reduces the amount of yuan funds in Hong Kong’s banking system by about 150 billion yuan ($23 billion), estimates China economist Larry Hu at Macquarie Securities, a Sydney-based investment bank. Yuan deposits total about 1 trillion yuan in Hong Kong.
“The central bank is squeezing liquidity in Hong Kong so it will be more expensive to wager against the yuan offshore,” Mr. Hu said.
In another effort aimed at limiting fund outflows, the central bank recently urged mainland banks to sharply raise the interest rates on any loans taken out by banks operating in Hong Kong for lending, the people said.
That has discouraged Hong Kong banks from taking yuan-based funds from the mainland, effectively making it all-but impossible to continue their yuan-lending business abroad.
“The offshore yuan-lending business is dead,” an executive at one of China’s top four state banks said.
The central bank has also forbidden foreign asset managers, including hedge funds and private-equity firms, from raising yuan-based funds aimed for overseas investment. That reversed previous efforts to promote yuan internationalization.
Write to Lingling Wei at lingling.wei@wsj.com
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Good thing that isn't happening here.
http://www.foxbusiness.com/politics/2016/01/05/irs-gets-new-powers-to-revoke-passports.html
http://www.wsj.com/articles/china-sharpens-efforts-to-halt-money-outflow-1453898254
By Lingling Wei
Updated Jan. 27, 2016 11:58 a.m. ET
29 COMMENTS
China is ramping up efforts to halt a flood of money leaving the country in response to an economic slowdown, moves that risk undermining Beijing’s ambition to elevate the yuan’s profile on the world stage.
Its latest steps involve curbing the ability of foreign companies in China to repatriate earnings, shrinking the pool of Chinese yuan available for banks in Hong Kong to make loans, and banning yuan-based funds for overseas investments, people with direct knowledge of the matter said.
The measures, most of which haven’t been publicly disclosed, follow efforts by China’s central bank to discourage investors from betting against the yuan and to crack down on overseas money transfers.
“They’re sparing no effort to prevent capital outflows,” said a senior Chinese banking executive close to the central bank. “All the measures are the most aggressive I’ve seen in recent history.”
ENLARGE
The people with direct knowledge said the People’s Bank of China, the central bank, also is considering ways to lure money back to the country, including letting foreign residents and companies buy certificates of deposit for fixed periods. Currently they are restricted to ordinary deposit accounts.
The central bank didn’t respond to requests to comment.
The unusual moves come as China burns through foreign-exchange reserves to prop up its currency and stem an increasingly vicious cycle of easing credit, a weakening currency and fleeing capital. Too much outflow, Chinese officials say, could threaten the stability of the country’s financial system.
Just two months ago, the International Monetary Fund’s designated the yuan as one of the world’s reserve currencies, a nod to China as a global economic power. Still, Beijing is now retreating from its pledges to give markets more influence in setting the yuan’s value. Many investors say they are also concerned over what they consider to be inadequate communication by the central bank.
The last time central bank Gov. Zhou Xiaochuan spoke publicly was in early September, when he sought to reassure central bankers and finance ministers from the Group of 20 large economies that the rout in China’s stock markets was nearing an end.
Investors and analysts have questioned the government’s commitment to market liberalization following Beijing’s attempts to prop up the stock market this past summer and, more recently, sending mixed signals over yuan policy.
“China is aggressively reinserting capital controls,” said Scott Kennedy, a deputy director at Center for Strategic & International Studies, a bipartisan think tank in Washington. “It appears China has for the foreseeable future given up on the goal of substantial exchange-rate liberalization.”
The most obvious sign of China’s effort to stem capital outflows is a precipitous drop in its foreign-exchange reserves, which by December had fallen by about $700 billion from a record of nearly $4 trillion in mid-2014.
China had steadily accumulated reserves since the mid-1990s as its exports boomed. But the flow reversed after China devalued the yuan in mid-August, prompting the central bank to use its reserves to defend the currency. The risk was that a sharp fall could spark capital flight, as yuan-denominated assets become less attractive to hold.
In its latest efforts, the central bank instructed banks on the mainland to require more detailed documentation from corporate customers to remit profits back to their home countries. “The process is way more stringent than before,” said a U.S. property developer who has investments in Shanghai.
Meanwhile, the central bank on Monday started to impose reserve requirements on Hong Kong-based yuan deposits parked by offshore banks at a Bank of China Ltd. unit, said the people familiar with the matter.
Many foreign banks said they were surprised by the action since the reserve requirements previously applied only to yuan deposits held by offshore banks on the mainland, according to the people.
The new rule effectively reduces the amount of yuan funds in Hong Kong’s banking system by about 150 billion yuan ($23 billion), estimates China economist Larry Hu at Macquarie Securities, a Sydney-based investment bank. Yuan deposits total about 1 trillion yuan in Hong Kong.
“The central bank is squeezing liquidity in Hong Kong so it will be more expensive to wager against the yuan offshore,” Mr. Hu said.
In another effort aimed at limiting fund outflows, the central bank recently urged mainland banks to sharply raise the interest rates on any loans taken out by banks operating in Hong Kong for lending, the people said.
That has discouraged Hong Kong banks from taking yuan-based funds from the mainland, effectively making it all-but impossible to continue their yuan-lending business abroad.
“The offshore yuan-lending business is dead,” an executive at one of China’s top four state banks said.
The central bank has also forbidden foreign asset managers, including hedge funds and private-equity firms, from raising yuan-based funds aimed for overseas investment. That reversed previous efforts to promote yuan internationalization.
Write to Lingling Wei at lingling.wei@wsj.com
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One of the academic controversies in monetary policy is whether the Fed sets interest rates or follows them.
http://nypost.com/2016/02/01/the-fed-screwed-up-by-not-raising-interest-rates-sooner/
Remember when the Federal Reserve raised interest rates on Dec. 16? It did that for the first time in years by increasing something called the discount rate, which is one of the few borrowing costs it controls.
On that date, the yield on the 10-year US government bond was 2.314 percent. Today, that yield is 1.933 percent.
So rates have actually gone down substantially since the Fed tried to raise them.
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Did I mention this is a pathetically anemic economy?
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http://straightlinelogic.com/2016/02/03/crisis-progress-report-16-its-gone-by-robert-gore/
Gone.
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http://pamelageller.com/2016/02/iran-replaces-us-dollar-with-the-euro-in-oil-sales.html/
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http://www.nytimes.com/2016/02/14/business/dealbook/chinese-start-to-lose-confidence-in-their-currency.html?emc=edit_th_20160214&nl=todaysheadlines&nlid=49641193&_r=0
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http://www.nytimes.com/2016/02/14/business/dealbook/chinese-start-to-lose-confidence-in-their-currency.html?emc=edit_th_20160214&nl=todaysheadlines&nlid=49641193&_r=0
And wisely they are looking to buy gold and other tangible items of value.
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Velocity May Be Picking Up To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/22/2016
One of the reasons the current economic expansion has been a Plow Horse rather than a Race Horse is the lack of monetary velocity, which is how fast money circulates through the economy.
Velocity has been slow for a lot of reasons, including banks rebuilding capital after 2008-09, Dodd-Frank, and the Federal Reserve paying interest on bank reserves, a new policy it started in 2008. Another key reason is that banks have operated as if they assume the huge expansion in the Fed’s balance sheet will eventually be retracted, so why lend it out?
But it’s starting to look like velocity is reviving. In the past year, “core” consumer prices, which exclude food and energy, are up 2.2%, versus a 1.6% gain in the twelve months ending January 2015. Yes, the overall CPI is up only 1.3% in the past year, but these prices were actually down 0.2% in the year that ended January 2015. Moreover, oil prices are not going to fall forever. Once they stop falling – and there are signs that we are at or near the bottom already – inflation for overall consumer prices will accelerate as well.
Meanwhile, core producer prices were up 0.4% in January, the largest increase for any month in more than a year. Put this together with consumer price data and continued Plow Horse real economic growth, and it’s consistent with an acceleration in nominal GDP growth (real GDP growth plus inflation). That’s significant because nominal GDP growth has been oddly tame recently, up only 3.4% annualized in the past two years, versus 3.6% in 2012-13 and 4.1% in 2010-11.
Yes, we’ve had temporary accelerations of inflation before, earlier in the expansion, but what makes it different this time, what signals that it’s more likely to persist is the acceleration in wages as well. In the past six months average hourly earnings are up at a 2.9% annual rate, the fastest pace for any six-month period since the expansion started.
In addition, the growth in the M2 measure of money – mostly currency, deposits in checking accounts, and savings accounts – increased at an 8.2% annual rate in the past three months, the fastest pace since the end of QE3 back in 2014.
Although velocity has shown signs before of accelerating, we think this time it’s for real. It looks increasingly likely that the Fed is going to significantly delay rate hikes. It might not raise rates again until June or maybe even December again, just like last year. In turn, that sends banks a signal that the Fed isn’t going to reduce the size of its balance sheet anytime soon. Instead, it’s more likely the Fed will just let time do their work for them, keeping the balance sheet enlarged and letting natural growth in the economy very gradually reduce the balance sheet relative to GDP.
All of this is yet another reason why the recent selloff in US equities is likely to be temporary and there’s likely to be a major correction in Treasury bond prices ahead, with yields rebounding higher for the rest of the year.
In addition, as central banks in Europe and Japan continue to experiment with negative interest rates, the US dollar may weaken as negative rates abroad lead to financial compression among foreign financial institutions and increase the appetite of Europeans and the Japanese to hold raw cash balances rather than put their money in banks.
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http://www.cnbc.com/2016/02/26/deutsche-bank-its-time-to-buy-gold.html
Don't forget the other metals.
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Currency Mayhem To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/29/2016
With both the European Central Bank (ECB) and the Bank of Japan moving to a Negative Interest Rate Policy (NIRP), conventional wisdom says the US dollar will continue to strengthen. After all, the Fed is tightening while everyone else seems to be working overtime to ease policy. But this thinking may have it exactly backward. The experimental monetary policies of quantitative easing (QE), zero interest rates (ZIRP), and NIRP have a spotty record at best. There is little evidence they have worked. After all Japan has been doing QE since 2001 – so where are the fruits?
Moreover, it’s very possible that negative interest rates will increase cash hoarding and thereby slow money growth. And if money growth slows in Europe
and Japan, while it accelerates in the US, then the dollar may actually weaken, or at least not strengthen in any significant way.
As a result, hedging European or Japanese investments for currency risk could be a costly mistake. In addition, it would be another mistake to underestimate the earnings potential of multinational US corporations due to potential currency losses.
So, how can this make sense? First, the Federal Reserve is in the midst of an incredible monetary experiment that has never been done before.
From 1913 to 2008, when the Fed wanted to raise interest rates it reduced the amount of outstanding reserves by selling bonds to banks. But this time it really is different; banks have more reserves than they know what to do with. So instead, the Fed is offering to pay a slightly higher interest rate on current bank reserves. But it’s a weak tool at best. Though the Fed has withdrawn some reserves from the banking system, there are still over $2 trillion in excess reserves system-wide.
In other words, the banking system is still awash in a massive amount of liquidity that can be turned into loans and an increased money supply. And as the Fed has lifted rates, both the M2 money supply (all deposits at all banks) and bank loans and leases have accelerated. In the three months ending in February, M2 has grown at a 6.9% annual rate versus just 5.6% in the past 12 months, while overall loans and leases have accelerated to a 9.8% growth rate in the past three months.
At the same time, there is a shortage of safes in Japan as consumers try to get cash out of banks where they may be charged interest, instead of receiving interest, in the future. At the margin this is happening in Europe as well. When people hold more cash, banks have fewer deposits, so the idea that these negative interest rates will force banks to lend and expand the money supply is suspect.
The big mistake investors are making is believing that central banks can actually manage economic growth. It’s not true and, in fact, the conventional wisdom is causing investors to make big mistakes with what we can only call very simplistic monetary analysis. Don’t always take things at face value.
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Speaking of business textbooks, where did these policies come from? Zero Interest Rate Policy was an accusation I have been making against the Fed since interest rates were artificially set below 3%, 2% and 1%. I didn't know they could actually go to zero except in a fraudulent come-on. Now it's a widely recognized acronym. In fact, the danger of having interest rates so low, like 2%, was that the Fed runs out of tools, is unable to lower them further. My bad! Now think of negative interest rates across an entire continent or the globe. We have effectively canceled the concept of savings (Crafty has been on this as well), we have repealed the time value of money and the removed most powerful force in the world, the power of compound interest. My grandfather sat me down when I started investing and showed me how 7% starts turning into real gains if you let it work over multiple years. But like the living constitution judges of today knowing more than the Founding Fathers, the people 'managing' our money supply think they know more than everyone that came before them. FYI to these new know-it-alls, there isn't a monetary trick that makes up for running your fiscal policy at accumulated deficits of at least 24 trillion before it would even be possible to turn it around if you started today.
Wesbury is right on this, just a little too low key about the dangers. This is insanity and bad policies have bad consequences. Why would we expect anything else?
Japan is running out of safes and the US is trying to ban currency. What could possibly go wrong?
...The experimental monetary policies of quantitative easing (QE), zero interest rates (ZIRP), and NIRP have a spotty record at best. There is little evidence they have worked. After all Japan has been doing QE since 2001 – so where are the fruits?
...
So, how can this make sense? First, the Federal Reserve is in the midst of an incredible monetary experiment that has never been done before.
From 1913 to 2008, when the Fed wanted to raise interest rates it reduced the amount of outstanding reserves by selling bonds to banks. But this time it really is different; banks have more reserves than they know what to do with. So instead, the Fed is offering to pay a slightly higher interest rate on current bank reserves. But it’s a weak tool at best. Though the Fed has withdrawn some reserves from the banking system, there are still over $2 trillion in excess reserves system-wide.
In other words, the banking system is still awash in a massive amount of liquidity that can be turned into loans and an increased money supply. And as the Fed has lifted rates, both the M2 money supply (all deposits at all banks) and bank loans and leases have accelerated. In the three months ending in February, M2 has grown at a 6.9% annual rate versus just 5.6% in the past 12 months, while overall loans and leases have accelerated to a 9.8% growth rate in the past three months.
At the same time, there is a shortage of safes in Japan as consumers try to get cash out of banks where they may be charged interest, instead of receiving interest, in the future. At the margin this is happening in Europe as well. When people hold more cash, banks have fewer deposits, so the idea that these negative interest rates will force banks to lend and expand the money supply is suspect.
The big mistake investors are making is believing that central banks can actually manage economic growth. It’s not true and, in fact, the conventional wisdom is causing investors to make big mistakes with what we can only call very simplistic monetary analysis. Don’t always take things at face value.
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ZIRP is a giant flashing DANGER sign that the system has been distorted beyond reason. Act accordingly.
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I am not sure if this the right thread. Could go under fascism threat or political rants:
BONGINO: THE PLOT TO STEAL THE ECONOMY
By: Dan Bongino | March 14, 2016
Janet Yellen Jacquelyn Martin | AP Photo
I’ve written a couple of books and I’ve even co-written a movie script, but nothing I have ever written tells a story as diabolical as the one I’m going to tell you here. Let’s pretend you are a socialist in training and you are looking to take over the economy, using government force and bureaucratic expansion as your weapons of choice. How would you do it if you wanted to conceal your intentions? Well, it’s already being done and here’s how.
They don’t call Japan’s decade of economic troubles the “lost decade” because it was a time marked by booming economic growth.
The first step in the economic takeover is to use taxpayer money, or taxpayer subsidies, to reward your crony friends through purchasing interests in PRIVATELY held businesses. How is this happening you ask? The European Central Bank recently followed Japan’s poor example and decided to expand its asset portfolio by purchasing corporate bonds. Take a moment to think about this. The European Central Bank is using its Euro-Zone monopoly power over money to buy stakes in non-government assets? How do they decide which businesses get to take part in this central bank largesse?
The opportunities for corruption and influence peddling here are myriad as government interference in the private economy typically ends poorly. They don’t call Japan’s decade of economic troubles the “lost decade” because it was a time marked by booming economic growth. Whenever government tries to pick economic winners and losers, it usually picks the losers, while the political winners continue to get re-elected because their campaign coffers are filled with business lobbyists eager to get their snouts in the tax-payer-funded trough.
The second step, after you have used taxpayer money to buy off private businesses, is to ensure that you can tax the private economy at confiscatory rates and use the taxpayers’ money to buy off more businesses and more votes. Also, you must ensure that there are no exit ramps to avoid this taxation. How is this happening you ask? It’s happening through two mechanisms. The first mechanism is the move towards negative interest rates. Negative interest rates are predicated on the idea that charging consumers for idle money in their bank accounts will “stimulate” the economy by incentivizing them to spend it. This farce of a policy is really a scam to ensure that big-government types and wanna-be socialists run up big government debts through their nanny-state spending plans and that the debts they run up are devalued over time. High interest rates make the money you hold worth more. But it also makes debts more difficult to pay off as the value of that debt goes up and up. This is one of the core reasons that big-government types love inflation and low interest rates. The bills can be delayed as they debase the currency and pile on the debt, which is then slowly inflated away.
Once you’ve used taxpayer money to buy off companies, and run up enormous government debts with devalued currency, you have to make sure your citizens can’t escape with their money before the pending collapse. How is this happening you ask? It’s happening through a global “war on cash.” Through capital controls, and the influence of misguided economists, governments such as Sweden have been actively promoting electronic payments in lieu of cash. When cash disappears the only way to acquire goods is through electronic transactions which, conveniently for the government, can all be monitored and taxed. And when the negative interest rates grow to punishing levels, and you begin to lose larger and larger amounts of money every day your money sits in your electronic bank account, there is nowhere for you to go because cash will be illegal to have or difficult to use.
What a deal huh? Take our money and give it to your crony business friends. Then spend all of our tax money on your big-government agenda. Then run up huge debts which will never be paid off because you are debasing the currency. And, finally, make sure the angry citizens cannot escape by pulling their money out of the failing system and moving to cash. Genius… if you’re a diabolical big-government, wanna-be socialist intent on destroying the lives and futures on hundreds of millions. Someone should write a movie script.
(Dan Bongino has also endorsed Ted Cruz for president.)
- See more at: https://www.conservativereview.com/commentary/2016/03/plot-to-steal-the-economy#sthash.gnsZUjaE.dpuf
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" But it also makes debts more difficult to pay off as the value of that debt goes up and up. This is one of the core reasons that big-government types love inflation and low interest rates. The bills can be delayed as they debase the currency and pile on the debt, which is then slowly inflated away."
:? :? :?
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I think what the author is trying to say is that the REAL VALUE of a currency-denominated debt is reduced by inflation. Thus - if you have a debt of say, $1,000 - and let's say the inflation rate over 10 years (when the debt is due) is cumulatively 100%, then you would be paying back that $1,000 debt with dollars that have an actual value of only $500. Thus, the lower you keep interest rates (even to zero) and the higher the inflation rate - the faster the actual value of the debt decreases.
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y Anne Stevenson-Yang and
Kevin Dougherty
March 14, 2016 12:17 p.m. ET
12 COMMENTS
After initial declines in the Chinese market to start the year, the past few weeks have seen signs of what some would call a rebound. Lending in China rose by 67% in January, iron-ore prices initially rallied by 64% and housing sales in the top four markets surged. The yuan gained back half of the nearly 7% it had lost against the dollar since November, sending hedge funds that had shorted on the currency running for cover. And yet there remains no sign of life in the underlying Chinese economy.
More than $800 billion in credit that had been pushed into the economy in January failed to boost production or increase sales. Producer prices remained negative, dropping 5.1% in January-February, while the manufacturing PMI fell to 48 in February from 48.4 in January, indicating worsening contraction. That’s because the rally was the result of a coordinated government effort to restore confidence in the China Dream of limitless growth at home and glory abroad. The market, apparently, isn’t so easily convinced.
From hiding capital outflows to propping up real-estate values, manipulating futures markets and squeezing short-sellers of the yuan, Chinese authorities have been trying to bring back the old, quasisuperstitious belief in Beijing’s omnipotence. But the political desperation behind these efforts betrays a different story: that an impending currency crisis is a signal of the dream’s undoing.
That’s why in China getting money out of the country is now the major preoccupation of both families and corporations. Risk-averse individuals are trading out of the wealth-management products they used to buy for 10% yields and moving their money to safety in the U.S., Australia, Canada and Europe. Chinese companies are making extravagant bids for overseas assets such as General Electric ’s appliance division, the equipment maker Terex Corp. , the near-dead Norwegian web browser Opera, the Swiss pesticides group Syngenta, technology distributor Ingram Micro and even the Chicago Stock Exchange.
In the first six weeks of 2016, Chinese firms committed to spending $82 billion on such acquisitions. Last year saw nearly $1 trillion in capital outflows, including a decline of $512.66 billion in the foreign reserves. Although no one is sure how much of China’s reserves are liquid and available, it’s safe to say that, at this rate, China can’t afford capital flight for more than another year.
One way to stem the crisis would be through depreciation. That would be sound policy for the people of China, but it’s a dreaded last resort for a leadership that wants, more than jobs for its people, to bolster buying power and save political face overseas. Yet history shows that holding the line on the currency is a losing strategy. Tightened liquidity causes more pain to the economy and simply delays the inevitable.
National leaders, when faced with a disorderly adjustment, will inevitably resist markets, promise major structural changes (which are then slow to materialize), inject liquidity into financial markets and insist that everything is under control. But these measures rarely work and in fact have never worked when imbalances are as severe as they are in China today.
In other countries, currency crises usually followed a sudden and irreversible loss of confidence. The Asian Tigers were booming and then fell apart rapidly. Same in Russia. China faces the added difficulty of having little institutional memory and few tools to manage the economy in a time of capital scarcity. And there is no sign that capital-outflow pressure will ease.
And so a painful adjustment will be unavoidable: Property values will decline by an estimated 50% from the current reported average of $142 per square foot in tier-two cities, roughly equivalent to the national average in the U.S., where incomes are much higher. (Current price-to-income ratios in China are generally over 20, while the U.S. averages about three.) Excess industrial capacity will shut down. People will lose their jobs.
But Beijing still has a choice: Either let the yuan take some of the pressure of adjustment, or let all of it fall on the domestic market. Placed in such stark terms, a currency adjustment seems inevitable.
A likely depreciation of at least 15% against the U.S. dollar would take the renminbi back to where it was on the eve of the global financial crisis, before speculative capital inflows flooded into China and drove up the currency’s value. This would be a “reset event” globally. All forecasts for inflation/deflation, interest rates, currency crosses, growth and commodity prices would have to be ripped up and recalculated. It would likely lead to an emerging-markets crash. As a percentage of global gross domestic product, China today is nearly twice the size of Asia (excluding Japan) in 1997.
Commodities, emerging-market equities and multinationals with exposure to China have already started to realize significant losses. Soon major corrections will reach other assets boosted by the Chinese economy, such as property values in Hong Kong and Singapore. When this unfolds, U.S. government bonds may be the world’s only safe haven. The end of the China story is at hand.
Ms. Stevenson-Yang is co-founder of J Capital Research Ltd. Mr. Dougherty is chief investment officer of KDGF Asset Management.
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second post:
WTF?!?
Crime Scene: Who Stole $100 Million From Bangladesh’s Account at the New York Fed?
Breach sent $81 million to accounts in Philippines, $20 million to Sri Lanka
Bangladesh’s central-bank governor, Atiur Rahman, center, at a news conference Tuesday. He resigned after money was stolen from the country’s account at the New York Fed. ENLARGE
Bangladesh’s central-bank governor, Atiur Rahman, center, at a news conference Tuesday. He resigned after money was stolen from the country’s account at the New York Fed. Photo: A.M. Ahad/Associated Press
By Syed Zain Al-Mahmood
March 15, 2016 10:42 a.m. ET
147 COMMENTS
DHAKA, Bangladesh—Someone using official codes stole $100 million from Bangladesh’s account at the New York Fed over a recent weekend. Authorities in four countries are still piecing together what happened.
The breach funneled $81 million from the country’s account at the New York Federal Reserve to personal bank accounts in the Philippines. Another $20 million was directed to a bank in Sri Lanka.
In scenes that would be right at home in Hollywood, the unknown criminals sent 35 transfer requests through the Swift interbank messaging system, a Bangladesh Bank official and an official of the Ministry of Finance have said. Whoever made the requests had the necessary codes to authorize Swift transfers and put in the payment requests on a weekend, the officials said.
The incident has led to recriminations, with Bangladesh’s finance minister accusing the Fed of irregularities, and questions being raised about the quality of security in the South Asian country. In an early sign of fallout from the breach, Bangladesh’s central-bank governor, Atiur Rahman , resigned Tuesday.
Mr. Rahman had come under fire from senior ministers who said he didn’t tell the government about the theft fast enough. Although the theft took place Feb. 5, Bangladesh Bank, the central bank, didn’t make a public announcement until last week. The country’s finance minister, Abul Maal Abdul Muhith, said he learned of the heist from news reports.
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On Tuesday, Mr. Rahman, who had been the governor of Bangladesh Bank for nearly seven years, said he was taking moral responsibility for the loss of the money. Two deputy governors of Bangladesh Bank were relieved of their duties, Mr Muhith said. He didn’t clarify why they were removed. The officials couldn’t be reached for comment Tuesday.
The Fed declined to comment Tuesday. It has said it is working with Bangladesh to investigate the incident and said none of its systems were compromised.
Interviews with several officials at Bangladesh’s Finance Ministry and its central bank depict a well-planned international caper spanning at least four countries.
The breach began on a quiet Friday last month, when a series of payment instructions arrived at the New York Fed seeking the transfer of nearly $1 billion out of the Bangladeshi account.
The transfer requests, which the Fed says were fully authenticated with the correct bank codes, asked to move the money to private accounts in the Philippines and Sri Lanka and appeared to come from the Bangladeshi central bank’s servers in the capital, Dhaka.
But Friday is the weekend in Bangladesh and the central bank’s offices were closed. By the time officials at Bangladesh Bank returned to work, five requests moving about $100 million had gone through. Further transfers totaling roughly $850 million were blocked after the Fed raised a money-laundering alert, a spokesman for Bangladesh Bank said. The fact that the money was being wired to personal bank accounts in the Philippines rang alarm bells.
The $81 million that did leave the bank for the Philippines ended up in the account of a local businessman before making its way to at least two local casinos, the executive director of the country’s Anti-Money Laundering Council, a government task force, said at a hearing at the Philippine Senate on Tuesday.
Julia Bacay-Abad, executive director of the Anti-Money Laundering Council, said the money had apparently been used to buy gambling chips. The council’s investigation ended at the casino’s doors, however. Gambling facilities aren’t covered by the Philippines’ Anti-Money Laundering Law.
“Manila has returned only $68,000 of the money which was left in the bank accounts,” said a Bangladesh Bank official close to the investigation. “Whoever planned it had thought well ahead.”
The $20 million transferred to Sri Lanka went to the account of a newly formed nongovernmental organization, according to the officials in Dhaka. The Sri Lankan bank handling the account reported the unusual transaction to the country’s central bank under that country’s money-laundering laws, and authorities reversed the transfer.
Swift uses a multilayered process to authenticate the financial institutions that are sending and receiving millions of messages each day between one another. A spokeswoman said the messaging system’s core services hadn’t been affected, and said Swift was working with Bangladesh Bank “to resolve an internal operational issue at the central bank.”
Cybersecurity experts say the theft of money from the New York Fed shows the vulnerability of emerging economies like Bangladesh, where the rapid growth of the banking system has outpaced regulations and security systems.
Bangladesh foreign-currency reserves touched a record $28 billion in February. Nearly a third of those are held in liquid form in bank accounts at the Fed and the Bank of England, according to Bangladesh Bank officials.
—Cris Larano in Manila and Katy Burne in New York contributed to this article
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Grannis:
http://scottgrannis.blogspot.com/2016/03/inflation-is-alive-and-well.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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The Consumer Price Index Declined 0.2% in February To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 3/16/2016
The Consumer Price Index (CPI) declined 0.2% in February, matching consensus expectations. The CPI is up 1.0% from a year ago.
“Cash” inflation (which excludes the government’s estimate of what homeowners would charge themselves for rent) declined 0.3% in February but is up 0.3% in the past year.
Energy prices declined 6.0% in February, while food prices increased 0.2%. The “core” CPI, which excludes food and energy, increased 0.3% in February, above the consensus expected 0.2% rise. Core prices are up 2.3% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – remained unchanged in February and are up 1.2% in the past year. Real weekly earnings are up 0.6% in the past year.
Implications: The Federal Reserve needs to pay close attention to today’s inflation report, which shows the ongoing split between energy prices and prices in the rest of the economy. While February’s headline reading for overall consumer prices posted the consensus expected decline of 0.2%, the details of the report show accelerating inflation. The cause of the decline in consumer prices in February was a 13% drop in gasoline prices, which fell to the lowest level since January 2009. Energy prices as a whole (gas plus everything else) didn’t fare much better, falling 6%. However, the “core’ CPI, which excludes food and energy, rose 0.3% in February. Core prices are up 2.3% versus a year ago, the largest gain since the last recession. In the past three months, core prices are up at a 3% annual rate. These data are a sign that monetary velocity is picking up (the speed that money circulates through the economy). It’s also why the Fed can be confident inflation is moving back toward it’s 2% target. As soon as energy prices stop falling, and that may have started in March, the headline CPI is going to move back toward the core CPI. The increase in the core CPI in February was led by housing rents and clothing. Owners’ equivalent rent, which makes up about ¼ of the CPI, rose 0.3% in February, is up 3.2% in the past year, and will be a key source of higher inflation in the year ahead. Don’t be taken by surprise by higher inflation in 2016-17. The Fed is still loose and is likely to stay that way for the foreseeable future. Although it’s unlikely, there is still a small chance the Fed hikes rates today. More likely, the next hike will come in June, with one or two more hikes in late 2016.
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Another 'Captain F'ing Obvious' moment for anyone reading the forum, now experts are telling us the Fed's wrongheaded policies of a decade ago (and now, still) are major contributors to the bubbles and crashes, then and coming...
http://economicsone.com/2016/02/22/a-firm-conclusion-about-the-role-of-fed-leading-up-to-the-crisis/
http://ftalphaville.ft.com/2016/02/08/2152624/the-bank-of-canada-admits-easy-money-can-inflate-debt-bubbles/
http://www.bankofcanada.ca/wp-content/uploads/2016/02/remarks-080216.pdf
http://www.stanford.edu/~johntayl/Onlinepaperscombinedbyyear/2007/Housing_and_Monetary_Policy.pdf
http://www.stanford.edu/~johntayl/2010_pdfs/Fed-Crisis-A-Reply-to-Ben-Berhttp://www.sppm.tsinghua.edu.cn/eWebEditor/UploadFile//20150602112635392.pdf
nanke-WSJ-Jan-10-2010.pdf
http://www.sppm.tsinghua.edu.cn/eWebEditor/UploadFile//20150602112635392.pdf
http://research.stlouisfed.org/publications/review/08/07/Jarocinski.pdf
Pretty much every economist on earth except Greenspan, Bernanke and Yellen agree on the multi-trillion dollar damage actual Fed policies have dealt on our economy. And it's still happening. (cf. ZIRP, NIRP)
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After 7 years we still haven't needed a positive thread for this administration; it all fits nicely into 'cognitive dissonance of his glibness'. I was quite hard on Jack Lew earlier for his political lying and corruption, all part of the job I'm sure. http://dogbrothers.com/phpBB2/index.php?topic=2177.msg70291;topicseen#msg70291 The IRS targeting scandal non-follow up also falls under his jurisdiction.
Here is a current interview with Lew over a range of topics relating to his job as Treas Sec. Some of what he says makes sense. Still it is amazing that someone could be doing their job as Treasury Secretary and not be screaming warnings from the rooftops about how damaging our deficits and to the future of this country.
http://www.theatlantic.com/international/archive/2016/04/jacob-lew-alexander-hamilton-clemons/477924/
Lew: The president and I tend to be very like-minded on the realist approach. If you look at something like Ukraine, in putting together support for [the government there following the country’s 2014 revolution]. The anchor was an IMF program [of $17 billion in urgent support]. It also needed to work with the Europeans [to] put in a significant amount, because [Europe] was right there. But then we went around the world, and we got countries that don’t have immediate exposure to Ukraine or Russia, [including] Canada and Japan. We put together a global effort so that with our loan guarantees, the IMF package, European support and contributions from other countries around the world, we actually helped Ukraine.
I think it gets harder and harder because everyone is feeling fiscal constraints. But I think we have a very powerful ability to cross that moral threshold, where countries know they should [contribute], and then it becomes a budget question of how much you can get them to do. Could we have put together a $25 billion package, or $20 billion [for Ukraine]? We couldn’t. But you put it all together, and it’s the world telling Russia that Ukraine will have a long enough runway to get back on its feet. That’s geopolitically of great significance.
- A good policy wonk with no principles, vision or moral character. My guess is that he will be the next Chairman of the Federal Reserve.
On China:
Lew: I think that we have to recognize there are going to be areas where we have overlapping interests; there are areas where [we’re] going to have differences. We’re going to have to make progress in the space where we agree, but [we also have to] put down really hard markers, whether it’s over [the] South China Sea or cyber theft—we can’t just gloss over those issues.
One of the things I have found in my engagements with the Chinese is that they respect the directness of that. It’s not on its face offensive to say, “You do these things that we find unacceptable.” We shouldn’t kid ourselves that just by saying it they will change. We are pulling them along as a global community to a better place. [China’s current economic transition] is one of the hardest economic transitions that any country has ever undertaken; [it’s] one of the biggest economies in the history of the world shifting from a centrally controlled, non-market, top-down structure to something that is more market-driven.
The question is not whether they intellectually understand the importance of that transition. They all understand what they need to do. Are they prepared to live with the bumps that come with making that transition? They are not small bumps. You dislocate millions of people from their manufacturing jobs. You either reposition them in different jobs in different places or provide some support because they are no longer working. Those are huge things to do.
They say the right things, but the proof of pudding is in the eating, and it’s hard. I don’t say that in a condescending way at all. If you asked me to relocate 1.5 million American workers, that would be very hard. But they have no choice because of where their economy was, and where it has to go.
They value the relationship with us. You know this whole communication thing, it’s not natural to them. Being open and transparent is new to them. They don’t intuitively know when they need to communicate. When I get on the phone with some of my counterparts and say, “You can’t surprise the world by doing something like this,” they try actually to do better going forward. But you can see from the way they have moved in the last few months that the learning curve is steep.
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(http://bmgbullionbars.com/wp-content/uploads/2015.06.24-if-government-were-a-person-1024x694.jpg)
http://bmgbullionbars.com/wp-content/uploads/2015.06.24-if-government-were-a-person-1024x694.jpg
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Brexit Vote Passes! Here's How Alt-Market Called It When No One Else Did
Friday, 24 June 2016 00:41 Brandon Smith
Yes, in case you fell asleep before the votes were tallied, the UK referendum has passed and global markets are currently in a freefall we have not seen since 2008. In this case, I'm going to have to trumpet my successful call here. For all the general flak I received in emails for my predictions of a Brexit passage including in my article 'Brexit: Global Trigger Event, Fake Out Or Something Else' which was published during the height of the polling disinformation frenzy, I think it is important to explain how I was able to discern how the vote was likely to turn out when no one else did.
Also, if there were other analysts that did predict a Brexit win and I am overlooking them, please list their names and where they made those predictions in the comments below so that we can give them their due credit.
Here's why the vast majority of analysts were caught with their pants down on the UK referendum:
1) They assumed that the Brexit will hurt globalists - In the article linked above, I outlined why the Brexit actually aids international financiers and central banks by creating a scapegoat for a market crash that was ALREADY going to happen. Rather than re-explaining my position, here is a large portion of quotations from that article:
I believe the Brexit vote may be allowed to succeed, here’s why…
1) Elites including George Soros have suddenly decided to dive into the market to place bets on the negative side. Dumping large portions of their stock holdings, shorting equities and buying up gold and gold mining shares. Soros has been preparing his portfolio for a successful Brexit vote while at the same time publicly warning of the supposed dire consequences if the referendum passes. The last time Soros put this much capital into the markets was in 2007, just before the crash of 2008.
2) The IMF and the BIS have been warning since late 2015 (for six to eight months) that a global economic downturn is on the way in 2016. We saw considerable volatility at the beginning of this year, and markets are due for another shock. The last time the BIS and IMF were so adamant about an impending crash was in late 2007, just before the 2008 market plunge.
3) While the Federal Reserve has not yet implemented a second rate hike (I still believe they could use a rate hike this year to stab markets in the back if necessary), Janet Yellen pulled a maneuver which was almost as upsetting to investors. After the Fed policy meeting last week, markets were moderately exuberant and stocks were rising, then, Yellen opened her mouth and blamed the Brexit for the rate hike delay…
Here is what the Fed has done: By delaying the second hike for another month, and then blaming the Brexit vote as a primary reason, they have created a bit of a paradox. If the Brexit vote passes, the Fed is asserting that they may not hike rates for a while, giving market investors the impression that the global economic recovery is not all that it is cracked up to be. If the Brexit vote fails, then the Fed MUST hike rates in July, otherwise, they lose all credibility. I believe Yellen’s claim that the Brexit vote was the cause of the hike delay was highly deliberate. It has triggered what may become a growing firestorm in equities and commodities.
From the point of view of investors, if the Brexit passes, then all hell breaks loose. If the Brexit fails, then the Fed will hike rates and once again, all hell breaks loose. Or, the Fed refuses to hike rates even though its number one scapegoat is out of the picture, it loses all credibility, and all hell breaks loose.
It’s a lose/lose/lose scenario for the investment world, which is probably why global markets plunged after Yellen’s remarks. Investors have been relying on the predictability of central bank intervention for so long that now when ANY uncertainty arises, they run for the hedges.
The Fed decision to blame the Brexit for their rate hike delay could indicate foreknowledge of a successful Brexit vote.
4) The recent murder of British lawmaker Jo Cox is perhaps the weirdest piece in the puzzle of the Brexit. For one thing, it makes no sense for a pro-Brexit nationalist (Thomas Mair) to attack and kill a pro-EU lawmaker when the polls for the “Leave” group were clearly ahead. One could simply argue that the guy was nuts, but I’m rather suspicious of “lone gunman,” and his insanity has yet to be proven. I see no reason for this man, insane or not, to be angry enough to kill while the Brexit side was winning in all the polls.
If someone was using him as a weapon only to discredit the Brexit vote or sway the public towards staying in the EU, you would think that they would have initiated the murder closer to the day of the referendum when it would have the most effect. The information flooded public has days to digest new data and forget Jo Cox.
My theory? Thomas Mair has handlers or he is just a mentally disturbed patsy, and his purpose is indeed to paint the Brexit movement as “angry” or crazy. But this does not necessarily mean the intent behind the assassination of Jo Cox was to break the back of the Brexit movement. Rather, the goal may only be to perpetuate a longer term narrative that conservatives in general are a destructive element of society. We kill, we’re racists, we have an archaic mindset that prevents “progress,” we divide supranational unions, we even destroy global economies. We’re storybook monsters.
Even the cultural Marxists at the Southern Poverty Law Center somehow produced documents allegedly linking Mair (a veritable unknown) to Neo-Nazi groups in 1999. Wherever the SPLC is involved, the official story is always skewed.
The murder of Jo Cox has had a minimal effect on Brexit polling numbers. In the end, the elites may find Thomas Mair more useful as a mascot for the Brexit AFTER the vote, rather than before the vote.
So now the Brexit movement, which is conservative in spirit, is labeled a “divisive” and “hateful group”, and if the referendum is triumphant, they will also be called economic saboteurs.
I thoroughly agree that the internationalists do not usually allow economic developments of a global nature to occur if those events are damaging to their base of power. The problem is, Brexit is not damaging to their base of power in the long run. In fact, the elites are aided by the Brexit because now they have British pro-sovereigns and the principle of sovereignty itself to blame for a market crash that they have actually been engineering for years.
2) They Believed The Polling Numbers - I take polling numbers into account at times but they are ultimately meaningless when you are dealing with global economic events. As I point out above, such events are thoroughly played by internationalists. What people should have been looking at instead of skewed polling numbers was the behavior of elites prior to the vote. George Soros' latest market bets were clearly on a crash (I'm sure he just raked in a handsome profit), and central bankers from around the world congregated at the Bank for International Settlements in preparation for the vote. Janet Yellen blaming the Brexit for the Fed's refusal to raise rates in June should have been a red flag for everyone. When in doubt, always look at what the elites are doing with policy and their own money.
3) They Have Grown Cynical - After eight years of constant market manipulation, the Liberty Movement in particular has grown rather cynical about whether or not the fundamentals even matter anymore. I'm here to tell you, they do matter. However, stocks today are not based on fundamentals, they are based on dubious investor psychology and algo-trading computers. When investor psychology is broken, the markets are suddenly reminded of the terrible fundamentals of our economic system and stocks begin to crash. Eventually, fundamentals will win over false financial optimism. The international banks are well aware of this, and are merely allowing circumstances by which they can crash the markets THEIR WAY instead of allowing the markets to crash naturally. Too many analysts overlooked the usefulness of Brexit to the elites because of their crippling cynicism.
4) They Missed The Bigger Picture - If all an analyst does is track equities and sometimes commodities, they are never going to grasp what is happening in the economy. Our financial system is not based entirely on numbers and graphs; it is a sociopolitical apparatus. Political and social developments can indeed signal what might happen in stocks and on mainstreet. The relations are there, but they are often indirect. In 2016, EVERYTHING is snowballing with tension. It was only a matter of time before something snapped. The timing of the Brexit amidst these tensions led me to believe it had a high probability of being a trigger for the next leg down.
So, the big question now is what happens as the circus continues? I will be writing a comprehensive article on what is likely to occur over the next few months in markets and everywhere else in response to the Brexit event. Look for that article to be published early next week. I do believe that central banks around the world are probably going to take action at some point in the near term to mitigate the market collapse and slow it down slightly. As I have always said, this is a CONTROLLED DEMOLITION of the global economy; the elites want to steam valve the system down and are probably not going to allow a complete freefall.
You will most likely see a mainstream media campaign to marginalize the importance of the Brexit. They will claim that the referendum is not necessarily binding yet. That it will take years to be instituted. Frankly, this is not relevant. Again, the markets are based on psychology first, and the damage has already been done. Watch for further market disruptions to pile on before the U.S. elections, including other EU member states suggesting their own referendums.
Stay tuned to Alt-Market for further analysis...
Regards,
Brandon Smith, Founder of Alt-Market.com
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I watched a Janet Yellen video called 'an hour of your life you will never get back' for you in case you don't want to see it:
http://gregmankiw.blogspot.com/2016/06/yellen-at-radcliffe.html
http://news.harvard.edu/gazette/story/2016/05/janet-yellen-honored-by-radcliffe-ponders-economy/
Janet Yellen is the most powerful woman in the world. Decisions she makes affect your life. If you include the long introductions and the advice to younger people, hers is an inspiring story of how she got to where she is and loves her field and her work. She believes government, in this case The Fed, can alleviate the pain caused by the ups and downs of the private sector. Something is upside down there, but let's run with it for a moment.
If you take the other side of it as I do, it is a bit creepy how this inbred group of elites has so much control over our lives. The questioner is an economist I like, Greg Mankiw, Chair of the Economics Department at Harvard. In the audience are Ben Bernanke, Loretta Lynch and others, a powerful group. It is amazing how many of the Fed people, Wall Street people, Supreme Court Justices, Presidents, all went to the same schools. Yellen went to both Harvard and Yale. So did George Bush. Bernanke went to Harvard. Chief Justice John Roberts has two degrees from Harvard, so does Merrick Garland, 3 current justices went to Yale, Crafty went to Columbia, Obama Harvard, Hillary Yale, Trump Wharton and George Will Princeton. Dorothy from Kansas was the last person of power to come from the heartland.
Bernanke wrote a book on the Great Recession (he helped cause) and Yellen praised him for his work on that. Showing up for the speech helps to keep the group in mutual back patting mode. I was patiently listening for the negatives because I believe this economy is horribly under-performing and that the Fed is enabling the fiscal insanity of the other two branches. (Whoops, the Fed is not the third branch of government even thought the judiciary is now just a rubber stamp of elected liberalism.)
Zero interest rates are bad for the economy. No one (but our Crafty) ever seems to say that. We have a zero savings rate because of it; that didn't come up in the talk. Why are interest rates still at roughly zero? Because the economy is still too weak and too fragile to handle anything near a normal cost of money - in their own opinion - and the Fed has access and control of the most wide ranging and detailed economic information anywhere on the planet. Why is the economy too weak and too fragile to handle real or normal, balanced, market interest rates? Bad policies that are not being addressed by anything in her talk. (See below.)
Of the financial collapse, Yellen says, "we didn't see it coming". No they didn't. She was on the forefront of warning about the housing bubble. "We saw trees". But they didn't see the forest by their own admission. (So we put her in charge.) She is quite humble but eager to brag about her predecessor and the team (she was head of the San Francisco Fed, 12th district). The team responded fast and creatively and courageously and so on. There should be a movie about it, starring some handsome young actor as Ben Bernanke.) Not a word about how the Fed helped cause it!
So many great things are going on in our limping economy, she hardly had time to talk about the bad things. We grew 14 million jobs since the bottom (while the population increased by more than that). Maybe I have too much math and physics background, but waves are measured peak to peak or trough to trough, but those types of measure make this 'recovery' look like 8 wasted years we will never get back. Unemployment (as measured dishonestly) dropped from 10% to 5%, now considered full employment [by others]. No mention of the weakness in that until pressed.
On the bad side, the number of people working part time who would like to be working full time is "unusually high", in the 8th year of the 'recovery'.
Not much improvement in wages (understatement of the decade), which is "suggestive of slack in the labor market", contradicting the unemployment improvement claim above.
Growth in "output" (GDP) is "remarkably slow".
Productivity growth is VERY slow, 1/2% per year, "miserably slow", "a serious and negative development".
(I would like to come back to that since she didn't.)
Inflation is below the 2% target (the target is a crime in itself) due to the plunge in oil prices (nothing to do with inflation) and the appreciation of the dollar (all to do with failure in the world around us).
She sees currently weak growth picking up (greener grass just over that fence). They intend to increase the "overnight lending rate" "gradually and cautiously" over the next few months (assuming growth picks up and it won't), and up from near zero to 3-3.25% within 5-7 years (assuming constant, uninterrupted growth, which also won't possibly happen).
She opposes negative interest rate policy for the "negative repercussions" (she is right on that) and agrees that zero interest rate policy limits the scope of policies the Fed has to address new problems and weaknesses that arise. (Right again even though that is what they are doing.) The Fed invented other tools in the face of this, "longer term asset purchases" that people like Yellen, Grannis and Wesbury don't like to call printing money (what did they purchase them with, thin air?).
As a true liberal leftist, she also believes in "greater latitude in fiscal policy" as a tool to address future downturns and weakness, as if public investment had the affect of private investment and as if $19 trillion in debt isn't already causing a burden and limiting the scope of future policy decisions.
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My own comments continued:
What did not come up at all are the underlying causes of the current malaise, over-taxation and over-regulation.
40% of people in their 20s with a college degree do not work in a job requiring a college degree. 100 million adults don't work at all. Disability and food stamp recipient needs have skyrocketed DURING THIS 'RECOVERY' (not a recovery). Wage growth is zero; productivity growth is zero; WHY?
Wages are tied to productivity growth and the demand for labor which is tied really to entrepreneurial and small business activities which are constrained (or crushed) by excessive taxes and regulations.
Productivity growth is tied to capital investment. Think of digging a hole or a ditch with a broken shovel, a clean sharp shovel with a longer handle, a bobcat or a caterpillar. Productivity goes up with better tools that cost money, in some cases lots of money, which means there has to be a good long term outlook, favorable economic conditions and a good, long term, AFTER TAX return realistically expected on that investment. And no big threat that it will soon be closed or confiscated by the government. This investment is not happening, Janet Yellen is telling us, though she is either too polite of too ignorant to criticize the administration and the congress for strangling our formerly vibrant private sector.
Productivity growth alone doesn't create higher wages, we need increased output growth too and some control over the supply of new cheap labor coming in. Exactly the opposite of our current economic policies that stifle and punish capital investment, leave the borders open and offer programs for able people to not work in lieu of real job creation. If you are the most powerful woman in the world and Chair of the U.S. Federal Reserve, get up on your bully pulpit and shout it! Instead Janet Yellen is mostly silent.
The new economic normal is for all governments have all their hands around all the throats of those who produce, and do so with the precise bureaucratic expertise that they know just how hard they can squeeze without killing us. Good luck if you believe that! We vote to give them that power and we keep voting to increase that power, to keep us moving in the wrong direction, running out of tools to keep mitigating it. Soon it will be $20 trillion in debt and more than half the people not working at all. What could possibly go wrong?
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"if you take the other side of it as I do, it is a bit creepy how this inbred group of elites has so much influence and control over our lives. "
Yes. And think Bill Gates (dropped out) Justice Roberts and Kagan and Zuckerberg and more.
these people are not separated from Wall Street. How does one think Zuckerberg got such access to funding and financial support. Between Harvard and MIT the venture capatilists are flying around like vultures ready to invest advise and get him to the next ten levels . I don't think he is the business genius Gates is. Just my take . Envy yes and no.
And yet the Left tried to deny this. Listening to the non stop Trump bashing on CNN with almost no criticism of Clinton (except by the right of center wing pundits they have including now Cory Lewandowski who are ALWAYS marginalized by the liberal news hosts) they were last night mocking the implied delusion or illusion of the concept of "elites ". With sarcastic questions as to who are the elites ? Are we elites ? etc... This is CNNs delusion of being fair and balanced. Have controlling hosts who are always left wing interviewing the right of center guests , let them have their say but always qualify and subtly disagree with facial expression or closing comments like we will need to agree to disagree or we shall see or more overtly with nasty questions about racism bigotry etc.
You know the story.
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A version of this post was published by HotGas.Net:
https://www.hotgas.net/2016/06/janet-yellen-fed-banking-monetary-policy/#disqus_thread
Clicks and comments welcome there as well.
I watched a Janet Yellen video called 'an hour of your life you will never get back' for you in case you don't want to see it:
http://gregmankiw.blogspot.com/2016/06/yellen-at-radcliffe.html
http://news.harvard.edu/gazette/story/2016/05/janet-yellen-honored-by-radcliffe-ponders-economy/
Janet Yellen is the most powerful woman in the world. Decisions she makes affect your life. If you include the long introductions and the advice to younger people, hers is an inspiring story of how she got to where she is and loves her field and her work. She believes government, in this case The Fed, can alleviate the pain caused by the ups and downs of the private sector. Something is upside down there, but let's run with it for a moment.
If you take the other side of it as I do, it is a bit creepy how this inbred group of elites has so much control over our lives. The questioner is an economist I like, Greg Mankiw, Chair of the Economics Department at Harvard. In the audience are Ben Bernanke, Loretta Lynch and others, a powerful group. It is amazing how many of the Fed people, Wall Street people, Supreme Court Justices, Presidents, all went to the same schools. Yellen went to both Harvard and Yale. So did George Bush. Bernanke went to Harvard. Chief Justice John Roberts has two degrees from Harvard, so does Merrick Garland, 3 current justices went to Yale, Crafty went to Columbia, Obama Harvard, Hillary Yale, Trump Wharton and George Will Princeton. Dorothy from Kansas was the last person of power to come from the heartland.
Bernanke wrote a book on the Great Recession (he helped cause) and Yellen praised him for his work on that. Showing up for the speech helps to keep the group in mutual back patting mode. I was patiently listening for the negatives because I believe this economy is horribly under-performing and that the Fed is enabling the fiscal insanity of the other two branches. (Whoops, the Fed is not the third branch of government even thought the judiciary is now just a rubber stamp of elected liberalism.)
Zero interest rates are bad for the economy. No one (but our Crafty) ever seems to say that. We have a zero savings rate because of it; that didn't come up in the talk. Why are interest rates still at roughly zero? Because the economy is still too weak and too fragile to handle anything near a normal cost of money - in their own opinion - and the Fed has access and control of the most wide ranging and detailed economic information anywhere on the planet. Why is the economy too weak and too fragile to handle real or normal, balanced, market interest rates? Bad policies that are not being addressed by anything in her talk. (See below.)
Of the financial collapse, Yellen says, "we didn't see it coming". No they didn't. She was on the forefront of warning about the housing bubble. "We saw trees". But they didn't see the forest by their own admission. (So we put her in charge.) She is quite humble but eager to brag about her predecessor and the team (she was head of the San Francisco Fed, 12th district). The team responded fast and creatively and courageously and so on. There should be a movie about it, starring some handsome young actor as Ben Bernanke.) Not a word about how the Fed helped cause it!
So many great things are going on in our limping economy, she hardly had time to talk about the bad things. We grew 14 million jobs since the bottom (while the population increased by more than that). Maybe I have too much math and physics background, but waves are measured peak to peak or trough to trough, but those types of measure make this 'recovery' look like 8 wasted years we will never get back. Unemployment (as measured dishonestly) dropped from 10% to 5%, now considered full employment [by others]. No mention of the weakness in that until pressed.
On the bad side, the number of people working part time who would like to be working full time is "unusually high", in the 8th year of the 'recovery'.
Not much improvement in wages (understatement of the decade), which is "suggestive of slack in the labor market", contradicting the unemployment improvement claim above.
Growth in "output" (GDP) is "remarkably slow".
Productivity growth is VERY slow, 1/2% per year, "miserably slow", "a serious and negative development".
(I would like to come back to that since she didn't.)
Inflation is below the 2% target (the target is a crime in itself) due to the plunge in oil prices (nothing to do with inflation) and the appreciation of the dollar (all to do with failure in the world around us).
She sees currently weak growth picking up (greener grass just over that fence). They intend to increase the "overnight lending rate" "gradually and cautiously" over the next few months (assuming growth picks up and it won't), and up from near zero to 3-3.25% within 5-7 years (assuming constant, uninterrupted growth, which also won't possibly happen).
She opposes negative interest rate policy for the "negative repercussions" (she is right on that) and agrees that zero interest rate policy limits the scope of policies the Fed has to address new problems and weaknesses that arise. (Right again even though that is what they are doing.) The Fed invented other tools in the face of this, "longer term asset purchases" that people like Yellen, Grannis and Wesbury don't like to call printing money (what did they purchase them with, thin air?).
As a true liberal leftist, she also believes in "greater latitude in fiscal policy" as a tool to address future downturns and weakness, as if public investment had the affect of private investment and as if $19 trillion in debt isn't already causing a burden and limiting the scope of future policy decisions.
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My own comments continued:
What did not come up at all are the underlying causes of the current malaise, over-taxation and over-regulation.
40% of people in their 20s with a college degree do not work in a job requiring a college degree. 100 million adults don't work at all. Disability and food stamp recipient needs have skyrocketed DURING THIS 'RECOVERY' (not a recovery). Wage growth is zero; productivity growth is zero; WHY?
Wages are tied to productivity growth and the demand for labor which is tied really to entrepreneurial and small business activities which are constrained (or crushed) by excessive taxes and regulations.
Productivity growth is tied to capital investment. Think of digging a hole or a ditch with a broken shovel, a clean sharp shovel with a longer handle, a bobcat or a caterpillar. Productivity goes up with better tools that cost money, in some cases lots of money, which means there has to be a good long term outlook, favorable economic conditions and a good, long term, AFTER TAX return realistically expected on that investment. And no big threat that it will soon be closed or confiscated by the government. This investment is not happening, Janet Yellen is telling us, though she is either too polite of too ignorant to criticize the administration and the congress for strangling our formerly vibrant private sector.
Productivity growth alone doesn't create higher wages, we need increased output growth too and some control over the supply of new cheap labor coming in. Exactly the opposite of our current economic policies that stifle and punish capital investment, leave the borders open and offer programs for able people to not work in lieu of real job creation. If you are the most powerful woman in the world and Chair of the U.S. Federal Reserve, get up on your bully pulpit and shout it! Instead Janet Yellen is mostly silent.
The new economic normal is for all governments have all their hands around all the throats of those who produce, and do so with the precise bureaucratic expertise that they know just how hard they can squeeze without killing us. Good luck if you believe that! We vote to give them that power and we keep voting to increase that power, to keep us moving in the wrong direction, running out of tools to keep mitigating it. Soon it will be $20 trillion in debt and more than half the people not working at all. What could possibly go wrong?
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They let you post there, despite not having a Trump colored koolaid ring around your mouth?
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Monetary Trilemmas, who hasn't suffered one of those?
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A fixed exchange rate, monetary autonomy and the free flow of capital are incompatible.
http://www.economist.com/news/economics-brief/21705672-fixed-exchange-rate-monetary-autonomy-and-free-flow-capital-are-incompatible
HILLEL THE ELDER, a first-century religious leader, was asked to summarise the Torah while standing on one leg. “That which is hateful to you, do not do to your fellow. That is the whole Torah; the rest is commentary,” he replied. Michael Klein, of Tufts University, has written that the insights of international macroeconomics (the study of trade, the balance-of-payments, exchange rates and so on) might be similarly distilled: “Governments face the policy trilemma; the rest is commentary.”
The policy trilemma, also known as the impossible or inconsistent trinity, says a country must choose between free capital mobility, exchange-rate management and monetary autonomy (the three corners of the triangle in the diagram). Only two of the three are possible. A country that wants to fix the value of its currency and have an interest-rate policy that is free from outside influence (side C of the triangle) cannot allow capital to flow freely across its borders. If the exchange rate is fixed but the country is open to cross-border capital flows, it cannot have an independent monetary policy (side A). And if a country chooses free capital mobility and wants monetary autonomy, it has to allow its currency to float (side B).
To understand the trilemma, imagine a country that fixes its exchange rate against the US dollar and is also open to foreign capital. If its central bank sets interest rates above those set by the Federal Reserve, foreign capital in search of higher returns would flood in. These inflows would raise demand for the local currency; eventually the peg with the dollar would break. If interest rates are kept below those in America, capital would leave the country and the currency would fall.
Where barriers to capital flow are undesirable or futile, the trilemma boils down to a choice: between a floating exchange rate and control of monetary policy; or a fixed exchange rate and monetary bondage. Rich countries have typically chosen the former, but the countries that have adopted the euro have embraced the latter. The sacrifice of monetary-policy autonomy that the single currency entailed was plain even before its launch in 1999.
In the run up, aspiring members pegged their currencies to the Deutschmark. Since capital moves freely within Europe, the trilemma obliged would-be members to follow the monetary policy of Germany, the regional power. The head of the Dutch central bank, Wim Duisenberg (who subsequently became the first president of the European Central Bank), earned the nickname “Mr Fifteen Minutes” because of how quickly he copied the interest-rate changes made by the Bundesbank.
This monetary serfdom is tolerable for the Netherlands because its commerce is closely tied to Germany and business conditions rise and fall in tandem in both countries. For economies less closely aligned to Germany’s business cycle, such as Spain and Greece, the cost of losing monetary independence has been much higher: interest rates that were too low during the boom, and no option to devalue their way out of trouble once crisis hit.
As with many big economic ideas, the trilemma has a complicated heritage. For a generation of economics students, it was an important outgrowth of the so-called Mundell-Fleming model, which incorporated the impact of capital flows into a more general treatment of interest rates, exchange-rate policy, trade and stability.
The model was named in recognition of research papers published in the early 1960s by Robert Mundell, a brilliant young Canadian trade theorist, and Marcus Fleming, a British economist at the IMF. Building on his earlier research, Mr Mundell showed in a paper in 1963 that monetary policy becomes ineffective where there is full capital mobility and a fixed exchange rate. Fleming’s paper had a similar result.
If the world of economics remained unshaken, it was because capital flows were small at the time. Rich-world currencies were pegged to the dollar under a system of fixed exchange rates agreed at Bretton Woods, New Hampshire, in 1944. It was only after this arrangement broke down in the 1970s that the trilemma gained great policy relevance.
Perhaps the first mention of the Mundell-Fleming model was in 1976 by Rudiger Dornbusch of the Massachusetts Institute of Technology. Dornbusch’s “overshooting” model sought to explain why the newish regime of floating exchange rates had proved so volatile. It was Dornbusch who helped popularise the Mundell-Fleming model through his bestselling textbooks (written with Stanley Fischer, now vice-chairman of the Federal Reserve) and his influence on doctoral students, such as Paul Krugman and Maurice Obstfeld. The use of the term “policy trilemma”, as applied to international macroeconomics, was coined in a paper published in 1997 by Mr Obstfeld, who is now chief economist of the IMF, and Alan Taylor, now of the University of California, Davis.
But to fully understand the providence—and the significance—of the trilemma, you need to go back further. In “A Treatise on Money”, published in 1930, John Maynard Keynes pointed to an inevitable tension in a monetary order in which capital can move in search of the highest return:
This then is the dilemma of an international monetary system—to preserve the advantages of the stability of local currencies of the various members of the system in terms of the international standard, and to preserve at the same time an adequate local autonomy for each member over its domestic rate of interest and its volume of foreign lending.
This is the first distillation of the policy trilemma, even if the fact of capital mobility is taken as a given. Keynes was acutely aware of it when, in the early 1940s, he set down his thoughts on how global trade might be rebuilt after the war. Keynes believed a system of fixed exchange rates was beneficial for trade. The problem with the interwar gold standard, he argued, was that it was not self-regulating. If large trade imbalances built up, as they did in the late 1920s, deficit countries were forced to respond to the resulting outflow of gold. They did so by raising interest rates, to curb demand for imports, and by cutting wages to restore export competitiveness. This led only to unemployment, as wages did not fall obligingly when gold (and thus money) was in scarce supply. The system might adjust more readily if surplus countries stepped up their spending on imports. But they were not required to do so.
Instead he proposed an alternative scheme, which became the basis of Britain’s negotiating position at Bretton Woods. An international clearing bank (ICB) would settle the balance of transactions that gave rise to trade surpluses or deficits. Each country in the scheme would have an overdraft facility at the ICB, proportionate to its trade. This would afford deficit countries a buffer against the painful adjustments required under the gold standard. There would be penalties for overly lax countries: overdrafts would incur interest on a rising scale, for instance. Keynes’s scheme would also penalise countries for hoarding by taxing big surpluses. Keynes could not secure support for such “creditor adjustment”. America opposed the idea for the same reason Germany resists it today: it was a country with a big surplus on its balance of trade. But his proposal for an international clearing bank with overdraft facilities did lay the ground for the IMF.
Fleming and Mundell wrote their papers while working at the IMF in the context of the post-war monetary order that Keynes had helped shape. Fleming had been in contact with Keynes in the 1940s while he worked in the British civil service. For his part, Mr Mundell drew his inspiration from home.
In the decades after the second world war, an environment of rapid capital mobility was hard for economists to imagine. Cross-border capital flows were limited in part by regulation but also by the caution of investors. Canada was an exception. Capital moved freely across its border with America in part because damming such flows was impractical but also because US investors saw little danger in parking money next door. A consequence was that Canada could not peg its currency to the dollar without losing control of its monetary policy. So the Canadian dollar was allowed to float from 1950 until 1962.
A Canadian, such as Mr Mundell, was better placed to imagine the trade-offs other countries would face once capital began to move freely across borders and currencies were unfixed. When Mr Mundell won the Nobel prize in economics in 1999, Mr Krugman hailed it as a “Canadian Nobel”. There was more to this observation than mere drollery. It is striking how many academics working in this area have been Canadian. Apart from Mr Mundell, Ronald McKinnon, Harry Gordon Johnson and Jacob Viner have made big contributions.
But some of the most influential recent work on the trilemma has been done by a Frenchwoman. In a series of papers, Hélène Rey, of the London Business School, has argued that a country that is open to capital flows and that allows its currency to float does not necessarily enjoy full monetary autonomy.
Ms Rey’s analysis starts with the observation that the prices of risky assets, such as shares or high-yield bonds, tend to move in lockstep with the availability of bank credit and the weight of global capital flows. These co-movements, for Ms Rey, are a reflection of a “global financial cycle” driven by shifts in investors’ appetite for risk. That in turn is heavily influenced by changes in the monetary policy of the Federal Reserve, which owes its power to the scale of borrowing in dollars by businesses and householders worldwide. When the Fed lowers its interest rate, it makes it cheap to borrow in dollars. That drives up global asset prices and thus boosts the value of collateral against which loans can be secured. Global credit conditions are relaxed.
Conversely, in a recent study Ms Rey finds that an unexpected decision by the Fed to raise its main interest rate soon leads to a rise in mortgage spreads not only in America, but also in Canada, Britain and New Zealand. In other words, the Fed’s monetary policy shapes credit conditions in rich countries that have both flexible exchange rates and central banks that set their own monetary policy.
Rey of sunshine
A crude reading of this result is that the policy trilemma is really a dilemma: a choice between staying open to cross-border capital or having control of local financial conditions. In fact, Ms Rey’s conclusion is more subtle: floating currencies do not adjust to capital flows in a way that leaves domestic monetary conditions unsullied, as the trilemma implies. So if a country is to retain its monetary-policy autonomy, it must employ additional “macroprudential” tools, such as selective capital controls or additional bank-capital requirements to curb excessive credit growth.
What is clear from Ms Rey’s work is that the power of global capital flows means the autonomy of a country with a floating currency is far more limited than the trilemma implies. That said, a flexible exchange rate is not anything like as limiting as a fixed exchange rate. In a crisis, everything is suborned to maintaining a peg—until it breaks. A domestic interest-rate policy may be less powerful in the face of a global financial cycle that takes its cue from the Fed. But it is better than not having it at all, even if it is the economic-policy equivalent of standing on one leg.
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For once I cannot say I disagree with Elizabeth Warren on this:
https://www.yahoo.com/finance/news/wells-fargo-ceo-full-responsibility-022343031.html
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Indeed!
Important point here-- this is why her supporters like her!!!
Even more important point-- we should be beating her to it!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
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Monday Morning Outlook
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Inflation Ready to Rise To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 10/10/2016
One of the key excuses for the Federal Reserve to hold off raising rates again and again, and to raise them very slowly, is that inflation remains extremely low.
The consumer price index is up only 1.1% in the past year. The Fed's preferred measure of inflation – for personal consumption expenditures, or PCE – is up 1.0%. The US doesn't face deflation, but the overall inflation statistics are, and have remained, low.
But the money supply is accelerating, the jobs market looks very tight, and underneath the calm exterior, there are some green shoots of inflationary pressure.
The "core" measures of inflation, which exclude volatile food and energy prices, are not nearly as contained as overall measures. And before you say everyone has to eat and drive, realize that both food an energy prices are volatile and global in nature. They don't always reveal true underlying price pressures.
The 'core" CPI is up 2.3% in the past year, while the "core" PCE index is up 1.7%. In other words, a drop in food and energy prices has been masking underlying inflation that is already at or near the Fed's 2% target. Energy prices have stabilized and food prices will rise again. As a result, soon, overall inflation measures are going to be running higher than the Fed's target.
Just look at housing costs – a non-traded good – which makes up one-third of the CPI. Government statisticians measure this as "Rent of Shelter," which includes normal rents, hotel costs, and owners' equivalent rent (the rental value of owner-occupied homes). It's up a whopping 3.4% in the past year and has accelerated in each of the past six years.
Housing makes up a smaller share of the PCE price index, but medical care costs make up a larger share of that index. Government data show medical care costs up 4.9% in the past year, the fastest increase since 2007.
Although some (usually Keynesian) analysts are waiting for much higher growth in wages before they fear rising inflation, the fact is that wage growth is already accelerating. Average hourly earnings are up 2.6% in the past year versus a 2.0% gain only two years ago. Moreover, as a paper earlier this year from the San Francisco Fed pointed out, this acceleration is happening in spite of the retirement of relatively high-wage Baby Boomers and the re-entry into the labor force of workers with below-average skills.
But we don't think wages cause inflation – money does. Inflation is too much money chasing too few goods. The Fed has held short-term interest rates at artificially low levels for the past several years while it's expanded its balance sheet to unprecedented levels. Monetary policy has been loose.
But banks have held most of the Fed's Quantitative Easing (QE) as excess reserves. Banks have record loans on their books, but they also hold $2.2 trillion in excess reserves. Most people believe QE was, and is, temporary. So banks have been reluctant to lend it out. After all the Fed could withdraw the reserves, unwind QE, and banks would be forced to "call" their loans.
But as the Fed has postponed the process of reducing its balance sheet, banks have started to expand the M2 money supply. M2 grew roughly 6% annualized between January 2009 and December 2015. But, so far this year, from January to September, M2 has expanded at an 8.6% annualized rate. More money brings more inflation.
None of this means hyperinflation is finally on its way. In the past, inflation has taken time to build, leaving room for the Fed to respond by shrinking its balance sheet and getting back to a more normal monetary policy.
In the meantime, this will be the last year in a long while, where we see inflation below the Fed's 2% target. Look for both higher inflation and interest rates in the years ahead.
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This information contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Data comes from the following sources: Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, the Federal Reserve Board, and Haver Analytics. Data is taken from sources generally believed to be reliable but no guarantee is given to its accuracy.
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In Venezuela they found the point where it is too late to prevent disaster and money buys nothing. Unable to learn from their experience, we copy them. Our economy is too great to be thrown into crisis? Does anyone remember 2008?
Money matters and maybe we should be managing according to some set of rules. Instead and because of the so-called dual mission of the Fed, our Fed is trying to fix flat tires by putting more gasoline in the carburetor, when they should be minding our currency - with some fairly consistent set of rules.
For what little any of us know about money including the Fed Chair and governors, there are some models and rules out there with varying experiences with accuracy and reputation. Best and state of the art today is the "Taylor rule".
The Fed doesn't follow its own rules. In the place of rules and rationality we see from the central banks, quantitative easing, zero interest rates, negative interest rates, and the next tool coming, "helicopter money".
"Last month Janet Yellen presented a policy framework for the future centered around a Taylor rule, noting that the Fed has deviated from such a rule in recent years. A week later, her FOMC colleague, Jeff Lacker, also showed that the Fed has deviated from a Taylor rule benchmark, adding that now is the time to get back."
https://economicsone.com/2016/08/30/jackson-hole-xxxv/
One place to look at the Taylor Rule is in the writings of Prof John B Taylor of Stanford Univ. There are formulas to use as guideposts to policy for setting the Fed Funds and the like. In this paper, he talks about the balance between discretion and rules:
http://web.stanford.edu/~johntayl/Onlinepaperscombinedbyyear/1993/Discretion_versus_Policy_Rules_in_Practice.pdf
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"The Fed doesn't follow its own rules."
Doug, I am ignorant of such matters. Why is this? Is it politics?
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"The Fed doesn't follow its own rules."
Doug, I am ignorant of such matters. Why is this? Is it politics?
Crafty and I have both warned here of the danger of the Fed's dual mission that came out of the Humphrey Hawkins Act signed into law in 1978. What happens out of it is the attempt to solve things that are not monetary in nature with monetary policy.
In the late 1970s it was believed that unemployment and inflation are offsetting phenomenon and that the Fed shouldn't just fight inflation but also take into consideration the pursuit of full employment in the economy. But in fact, the Fed contracted monetary policy curbing inflation and Reagan cut tax rates ending the stagnation and unemployment.
Having a second mission for the Fed means not paying full attention to their primary mission. Yes there is a time and place for monetary policy to coordinate with other policies, such as in the crisis of 2008, but not coordinate with the politicians every day, every year and in every situation. It makes Fed policies become political, the exact opposite of the intent of having an independent Fed.
As a consequence of this, we had expansionist monetary policies after the crisis and recession of 2001, perhaps wisely, but it continued all the way through to the financial crisis of 2008 and was most certainly one of the major causes of the bubble that became certain to burst. Our monetary policy was also expansionary all the way through the Obama years even though we are told by the highest authority this already is full employment, a contradiction I have been pointing out.
Humphrey–Hawkins Full Employment Act, 1978 (Thank you Hubert Humphrey...)
"Mandates the Board of Governors of the Federal Reserve to establish a monetary policy that maintains long
-run growth, minimizes inflation, and promotes price stability. ...
Requires the Chairman of the Federal Reserve to connect the monetary policy with the Presidential economic policy
https://en.wikipedia.org/wiki/Humphrey%E2%80%93Hawkins_Full_Employment_Act
The Fed's Bipolar Mandate
http://www.wsj.com/articles/SB10001424052748704648604575620522989880684
Lawmakers seek to change Federal Reserve's
Bove Opposes QE2, Supports Cutting U.S. Deficit and Debt
Nov. 15 (Bloomberg) -- Richard Bove, an analyst at Rochdale Securities, talks about his opposition to the Federal Reserve's policy of quantitative easing. Bove, in a group including former Republican government officials and economists, urged Fed Chairman Ben S. Bernanke in a letter to stop his expansion of monetary stimulus, saying it risks an inflation surge.
Washington Post Tuesday, November 16, 2010
Two influential Republican lawmakers called Tuesday for a fundamental remaking of the Federal Reserve's mission, arguing that the central bank should stop trying to reduce unemployment and instead focus solely on keeping inflation low.
The proposal by Sen. Bob Corker (Tenn.) and Rep. Mike Pence (Ind.) would end the three-decade-old "dual mandate" of the Fed, its legal charge from Congress to simultaneously aim for maximum employment and price stability.
http://www.washingtonpost.com/wp-dyn/content/article/2010/11/16/AR2010111606151.html
George Will: The Fed falls into a dual-mandate trap
http://www.presstelegram.com/article/ZZ/20101117/NEWS/101119392
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Thanks for detailed reply.
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BTW Herbert Cain, who was the head of one of the Fed banks for a time, made repealing Humphrey Hawkins one of the planks in his platform.
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Government Bond Rout Deepens on Trump’s Economic Plans
U.S. 10-year note’s yield briefly touched highest level since last December
By Min Zeng and
Christopher Whittall
Updated Nov. 14, 2016 11:04 p.m. ET
159 COMMENTS
The sudden surge in long-term interest rates has investors speculating once again about a turn in the long decline for bond yields—with a lot at stake for companies and consumers.
Many U.S. mortgage rates are tied to 10-year bond yields, and higher yields can mean higher borrowing costs for companies. Rising rates make the U.S. dollar more attractive, risking capital flight out of developing countries.
Bond yields shot up again Monday. The benchmark 10-year U.S. Treasury note touched 2.30%, up from a close of 1.867% on Election Day. That move would rank among the sharpest jumps for a similar period since 2008. The yield settled at 2.224%, its highest level since January.
Average rates on 30-year fixed conforming mortgages on Monday hit 4%, also the highest since January, according to MortgageNewsDaily.com, and up nearly 0.4 percentage point since the election. While still only roughly half the average over the past 45 years, according to Freddie Mac, the quick rise has lenders worried that home loans could become more expensive far sooner than anticipated.
Debt issued by U.S. companies has been hit as well. While the S&P 500 is up 1.2% since last Tuesday, the iShares iBoxx $ Investment Grade Corporate Bond ETF has fallen 2.5%. The iShares iBoxx $ High Yield Corporate Bond ETF, which tracks bonds issued by junk-rated companies, fell 2.2%.
The question is how far those markets have to run. Rates on mortgages and junk-rated debt are still low by historical standards, as are yields for benchmark Treasurys, which only now are returning to the levels at which they opened the year.
“There has been a huge repricing in the bond market, as we have a new game in town,’’ said Jason Evans, co-founder of hedge fund NineAlpha Capital LP in New York. “But there are lots of crosscurrents,” he said, including uncertain policy details from President-elect Donald Trump.
U.S. President Barack Obama, right, with U.S. President-elect Donald Trump, who has promised infrastructure spending and tax cuts leading to a rise in government bond yields, on Nov. 10. ENLARGE
U.S. President Barack Obama, right, with U.S. President-elect Donald Trump, who has promised infrastructure spending and tax cuts leading to a rise in government bond yields, on Nov. 10. Photo: Bloomberg
Mr. Evans said he pared back wagers on higher yields Monday as the pace of the rise over the past week was sharper than he had anticipated.
The jump in yields was kicked off by the surprise election-night victory by Mr. Trump, who has advocated infrastructure spending, tax cuts and lighter regulation to promote jobs and boost the U.S. economy.
Analysts have interpreted those remarks as a signal Mr. Trump would push the U.S. government to borrow and spend. Recent survey data also has shown an upturn in global manufacturing. Those things have counterbalanced the voracious demand for safe government debt spurred by central-bank bond buying and political shocks like the U.K.’s vote to leave the European Union.
The world should welcome higher long-term bond yields insofar as they signal a brighter outlook for economic growth and a return to moderate inflation after years of fear about falling consumer prices. Central banks have been trying hard—especially in Europe and Japan, without much success—to drag inflation higher.
The long run of low rates also has battered banks, pension funds and insurance companies.
But metrics that use market data to gauge inflation expectations are rising. In the U.S., the 10-year break-even rate—the yield premium investors demand to hold the 10-year Treasury note relative to the 10-year inflation-protected security, rose to 1.93 percentage points during Monday’s session, a two-year high. At that level, it suggests that investors are expecting the U.S. inflation rate to be 1.93% on average over the next 10 years.
The break-even rate fell below 1.4% shortly after the Brexit referendum, but is now moving toward the Fed’s 2% inflation target.
Investors are betting that expectations for higher inflation and growth could push the Federal Reserve to raise interest rates at a faster clip than previously anticipated.
Fed-funds futures, used by hedge funds and money managers to place bets on U.S. interest-rate policy, suggested an 86% probability of a rate increase at the Fed’s December meeting, according to data from CME Group. The chances were pegged at 81% last week.
The yield on the two-year Treasury note, highly sensitive to the Fed’s policy outlook, rose above 1% Monday morning to the highest level since January. It later was at 0.984%, up from 0.906% Thursday. Treasury markets were closed Friday.
The sharp rise in bond yields has been painful for investors who bought at record-low yields this summer.
This year through July 8, when the 10-year yield settled at a record low, the Treasury market had handed investors a total return of 6.23%, according to Bloomberg Barclays US Treasury index.
But in the first 10 days of November, the index logged a decline of 1.57%, pulling the return for 2016 down to 2.29%. Total return includes bond price gains and interest payments.
Some investors expect the bond rout to subside. Sluggish global growth and easy-money policies are powerful forces keeping yields down. Even after spiking, the 10-year German bund yields a mere 0.3%. Japan’s extreme monetary policy has kept its 40-year bond yielding just 0.6%. Previous yield jumps, most notably in the spring of 2015, quickly melted away.
Mitul Patel, head of interest rates at Henderson Global Investors, said the unexpectedly poor performance from bond markets has the potential to lead to outflows from the asset class. That in turn could raise yields to the point investors start buying again, he said.
Some analysts say higher yields would attract interest from pension funds and life-insurance firms, which need high-grade long-term debt to match their obligations such as paying retired workers.
“Until there is greater clarity on the issues, we are advising investors not to overreact,” said James DeMasi, chief fixed-income strategist at Stifel Nicolaus Co.
Related
Corrections & Amplifications:
Treasury yields, which rise as prices fall, are hovering around their highest level since early January after recording their largest one-week gain in more than three years following Mr. Trump’s victory. An earlier version of this article incorrectly stated that the gain was the largest in more than three months. (Nov. 14)
Write to Min Zeng at min.zeng@wsj.com and Christopher Whittall at christopher.whittall@wsj.com
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The Consumer Price Index Increased 0.4% in October To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/17/2016
The Consumer Price Index (CPI) increased 0.4% in October, matching consensus expectations. The CPI is up 1.6% from a year ago.
"Cash" inflation (which excludes the government's estimate of what homeowners would charge themselves for rent) rose 0.4% in October and is up 1.1% in the past year.
Energy prices rose 3.5% in October, while food prices were unchanged. The "core" CPI, which excludes food and energy, increased 0.1% in October, coming in below the consensus expected rise of 0.2%. Core prices are up 2.1% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – rose 0.1% in October and are up 1.2% in the past year. Real average weekly earnings are up 0.9% in the past year.
Implications: Consumer prices surged in October, rising 0.4%, coming on the heels of healthy increases in both August and September. Although consumer prices are up only a tame 1.6% in the past year, they're up at a 2.5% annual rate in the past six months and a 3.5% annual rate in the past three months (the fastest three-month pace since 2012). Energy prices led the index higher in October, as gasoline jumped 7%. As we saw earlier this week in retail sales as well as both import and producer prices, consumer energy prices turned positive on a year-to-year basis for the first time since mid-2014. In other words, the key headwind on inflation we have seen over the past two years is now turning into a tailwind. Conversely, food prices, unchanged in October for a fourth consecutive months., remain a slight drag on overall inflation, and are down 0.3% in the past year. Stripping out the typically volatile food and energy components, "core" consumer prices rose 0.1% in October and are up 2.1% in the past year. The October increase in "core" consumer prices was led by housing. Owners' equivalent rent, which makes up about ¼ of the CPI, rose 0.3% in October, is up 3.4% in the past year, and will be a key source of higher inflation in the year ahead. Medical care costs took a breather in October but continue to be an area to watch, up 4.3% in the past year and showing acceleration over the past three- and six-month periods. In addition to rising inflation, "real" (inflation-adjusted) average hourly earnings also rose in October, up 0.1%, and are 1.2% higher in the past year. Along with other recent readings on inflation - and employment continuing to show health gains - today's CPI report should remove any doubt in the Fed's mind that a December rate hike is needed.
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Cash and Kashkari
The consensus grows that Dodd-Frank won’t stop the next financial crisis.
Neel Kashkari, president and chief executive officer of the Federal Reserve Bank of Minneapolis, speaks at the Economic Club of New York in New York, U.S., on Wednesday, Nov. 16, 2016. ENLARGE
Neel Kashkari, president and chief executive officer of the Federal Reserve Bank of Minneapolis, speaks at the Economic Club of New York in New York, U.S., on Wednesday, Nov. 16, 2016. Photo: Bloomberg News
Updated Nov. 21, 2016 7:37 p.m. ET
As President Obama prepares to leave town, the world is learning that his reforms aren’t holy writ. The latest evidence is Minneapolis Federal Reserve President Neel Kashkari’s plan to end too-big-to-fail banks.
Mr. Kashkari, who rolled out his proposal last week, starts with an understanding that the 2010 Dodd-Frank Act’s vast regulatory superstructure isn’t the protector of taxpayers that its authors claim. “I start with the assumption that regulators are going to miss the next crisis,” he said in a visit to the Journal. “We’re going to miss it.”
That’s refreshing modesty in a federal regulator, and it has the added advantage of being true. Financial manias become panics because everyone assumes there’s no problem while the good times roll. Exhibit A was the New York Fed’s failure to rein in Citigroup’s off-balance sheet vehicles before the 2008 panic. Tim Geithner’s Fed regulators were as clueless as anyone.
Mr. Kashkari knows the territory. A Goldman Sachs alum, he helped design and implement the Troubled Asset Relief Program for Treasury Secretary Hank Paulson in 2008. The Minneapolis Fed chief was also in the room in 2008 when federal officials decided to make taxpayers stand behind the subordinated debt of mortgage monsters Fannie Mae and Freddie Mac—though that debt was never supposed to be guaranteed.
The lesson he drew is that if you want to reduce the risk that taxpayers will have to finance another rescue, financial giants need to be much better fortified before the next panic hits. And that means they need to have much more equity and less debt.
He is proposing that the biggest banks vastly increase the amount of equity capital they hold. The plan doesn’t require any big banks to shrink, merely to raise more capital over five years so that it reaches 15% of assets. At that point, if the Treasury Secretary refuses to certify that a giant bank is no longer a systemic risk, capital would rise to 24%. By contrast the Fed now requires 5%. The practical implication is that some banks would shrink on their own unless the economies of scale are valuable enough to justify their size.
Mr. Kashkari and his team want to make the chances of a bailout extremely small. They calculate that under the pre-crisis regulations there was an 84% chance of a crisis requiring taxpayer bailouts over a 100-year period, and that Dodd-Frank reduced that risk only to 67%. They want a plan that would bring the risk below 10% while still passing a cost-benefit test, and they claim to have done it. Let the debate over statistics and methodology begin.
There should be skepticism about other parts of the Kashkari plan, such as his maintenance of much of the existing regulatory structure and his desire to control large financial firms that aren’t banks. Bank regulators call these firms “shadow banks,” meaning every finance business they don’t control. But there’s no reason to make taxpayers stand behind hedge funds.
We prefer the trade-off between capital and regulation offered by House Financial Services Chairman Jeb Hensarling, who would give banks the choice of raising more capital in return for less Dodd-Frank micromanagement. Mr. Kashkari says that may well be the result down the road of his plan too. The larger point is that a consensus is growing that Dodd-Frank is flawed and has stymied economic growth without making the financial system safer. The Kashkari plan is a welcome addition to this debate.
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Dollar to Benefit if $2.5 Trillion in Cash Stashed Abroad Is Repatriated
President-elect Donald Trump has said he would propose a one-time cut of the repatriation tax to 10% to lure money back to U.S.
By Chelsey Dulaney
Updated Nov. 25, 2016 1:29 p.m. ET
65 COMMENTS
Part of $2.5 trillion in profits held overseas by companies such as Apple Inc. and Microsoft Corp. could be heading back to the U.S., a move analysts say could further fuel the U.S. dollar’s powerful rally.
U.S. corporations have been holding billions in earnings and cash abroad to avoid paying a 35% tax that would be levied whenever the money is brought home. President-elect Donald Trump has said he would propose a one-time cut of the repatriation tax to 10% to lure money back to the U.S. that can be spent on hiring, business development and funding Mr. Trump’s fiscal stimulus proposals.
Market optimism that the stimulus plan can generate U.S. economic growth and push the Federal Reserve to raise interest rates has buoyed the dollar against a basket of major trading partners toward 14-year-highs since the Nov. 8 presidential election.
Now, some say the prospect of companies repatriating perhaps hundreds of billions of dollars could offer more impetus to the U.S. currency’s rally.
“However small, however big this flow of money will be, it will be positive for the case of dollar strength,” said Daragh Maher, head of U.S. foreign-exchange strategy for HSBC Holdings. “There will most likely be an inflow into dollars.”
When a company repatriates earnings from abroad, it may have to exchange the local currency for the U.S. dollar. The $2.5 trillion hoard of overseas earnings is highly concentrated in the technology and pharmaceutical sectors, according to Capital Economics. Microsoft held about $108 billion in earnings overseas as of 2015, while pharmaceutical giant Pfizer Inc. had $80 billion. General Electric Co. had $104 billion overseas, according to Capital Economics. Analysts note that many companies already hold their overseas earnings in U.S. dollar assets, which would mute the demand for dollars.
Representatives for Microsoft, Pfizer and GE declined to comment. A representative for Apple didn’t immediately respond to a request for comment.
ENLARGE
Though companies typically don’t disclose the composition of their overseas earnings, analysts expect the euro, British pound and Japanese yen would come under pressure if repatriations pick up.
The U.S. last introduced a one-time tax cut for repatriations a decade ago, under the Homeland Investment Act of 2004. More than $360 billion was repatriated, according to Internal Revenue Service data, helping drive the dollar up 13% against a basket of six major peers in 2005, along with tighter U.S. monetary policy.
A similar tax cut “is probably the lowest hanging fruit of all the fiscal measures Mr. Trump has proposed,” said Mark McCormick, head of North American foreign-exchange strategy at TD Securities. “Democrats, Republicans, many people have found this a very easy policy to pursue.”
Mr. McCormick thinks the repatriation tax could be passed by Congress as early as 2017, though he expects the impact on the dollar to be relatively modest since many companies already hold their earnings in U.S. dollars.
A 2011 report from Congressional Research Service, drawing on data from 27 U.S. multinational companies, said that 46% of their overseas earnings were in U.S. dollar assets.
TD estimates that a repatriation “holiday” would spur around $330 billion in inflows, though the bank thinks only $100 billion would need to be swapped for the dollar.
Analysts at Bank of America Merrill Lynch estimate closer to $400 billion in foreign currencies would need to be exchanged for the dollar. Given the “potentially significant” foreign-exchange moves, they have recommended clients make bets that the dollar will rise against European and Asian currencies.
If Congress makes the repatriation tax mandatory, unlike the optional Homeland Investment Act tax, both banks say inflows into the dollar would be much larger.
Mr. McCormick sees another reason why the repatriation tax would be a boon for the dollar. It would likely shrink the U.S.’s $120 billion current-account deficit, making assets in the U.S. more attractive to overseas investors and supporting the dollar.
“Growth and interest rates are already favoring the U.S.,” he said. “If you get more capital inflows, that’s going to be very good for the dollar.”
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com
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Yellin should be kissing Trump's feet. She waited till after the election (just coincidence of course) and a huge market rally due only to Trump's proposed growth policies to raise the rate a tad.
Can he get rid of her?
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Yellin should be kissing Trump's feet. She waited till after the election (just coincidence of course) and a huge market rally due only to Trump's proposed growth policies to raise the rate a tad.
Can he get rid of her?
Not until early 2018.
"Trump will have to coexist with Yellen until early 2018. But what happens after that?
There is speculation Trump could appoint Stanford professor John Taylor, Columbia Business School dean Glenn Hubbard, or Greg Mankiw, former chair of the Council of Economic Advisers under President George W. Bush, to succeed her.
All are considered to be more conservative economists than Yellen."
http://money.cnn.com/2016/12/14/investing/donald-trump-federal-reserve-janet-yellen/index.html?iid=hp-stack-dom
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Might as well pick Taylor since the state of the art rule for monetary policy is the "Taylor Rule".
Trump wanted interest rates to rise. That doesn't mean it will make things easier for him. QE and zero interest rate policy masked the depths of the Obama malaise. There CANNOT be a delay between other reforms enacted and the rate hikes of the Fed or we could see a 1981-1982-like recession revisited.
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The Consumer Price Index Increased 0.3% in December To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 1/18/2017
The Consumer Price Index (CPI) increased 0.3% in December, matching consensus expectations. The CPI is up 2.1% from a year ago.
"Cash" inflation (which excludes the government's estimate of what homeowners would charge themselves for rent) rose 0.3% in December and is up 1.7% in the past year.
Energy prices rose 1.5% in December, while food prices were unchanged. The "core" CPI, which excludes food and energy, increased 0.2% in December, matching consensus expectations. Core prices are up 2.2% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – rose 0.1% in December and are up 0.8% in the past year. Real average weekly earnings are up 0.2% in the past year.
Implications: A fitting reading on consumer prices for the final month of 2016, as December's 0.3% rise in prices pushed the twelve-month increase above the Fed's 2.0% target for the first time in more than two years. That is a significant pickup from the 0.7% increase we saw in 2015, and we expect 2017 will continue to see prices move gradually higher. Year-to-year prices have been steadily on the rise over recent months as energy prices, up 1.5% in December and rising at a 27.4% annual rate in the past three months, have turned into a tailwind after serving as a headwind for much of the past two-and-a-half years. Energy prices will likely average at modestly higher prices than 2016, but even stripping out energy and food prices – the latter of which have now been unchanged for six consecutive months – shows inflation up 2.2% in the past year, just a tad higher than the 2.1% gain in 2015. The "core" measure was once again led higher by housing prices in December. Owners' equivalent rent, which makes up about ¼ of the CPI, rose 0.3% in December, is up 3.6% in the past year – the largest annual rise going back to 2007 - and will be a key source of higher inflation in the year ahead. On the earnings front, today's report shows real average hourly earnings rising 0.1% in December. Real earnings rose a modest 0.8% in 2016, a slower pace than the 1.9% gain in 2015, but given continued employment gains this should move higher over the next year. With prices - both including and excluding food & energy costs – rising at or above the Fed's 2% target and continuing a steady climb higher, paired with continued strength in employment, we expect the Fed to raise rates three (and possibly four) times in 2017.
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https://www.conservativereview.com/commentary/2017/01/the-20-trillion-question-republicans-must-answer
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The Producer Price Index Rose 0.6% in January To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/14/2017
The Producer Price Index (PPI) rose 0.6% in January, coming in well above the consensus expected increase of 0.3%. Producer prices are up 1.7% versus a year ago.
Energy prices increased 4.7% in January, while food prices were unchanged. Producer prices excluding food and energy rose 0.4%.
In the past year, prices for goods are up 3.2%, while prices for services are up 0.9%. Private capital equipment prices declined 0.1% in January but are up 0.8% in the past year.
Prices for intermediate processed goods rose 1.1% in January and are up 3.9% versus a year ago. Prices for intermediate unprocessed goods increased 3.8% in January and are up 17.4% versus a year ago.
Implications: Producer prices rose at the fastest monthly pace in more than four years to start 2017. And this comes after healthy increases in November and December as well. Some will point out that energy prices, which rose 4.7% in January and are up 14.0% in the past year, have been a key contributor to the rise in consumer prices in recent months. But even stripping out the volatile food and energy components shows "core" prices accelerating from a 1.2% increase in the past year to a 3.7% annual rate in the past three months. Goods prices once again led the index higher in January, rising 1.0% on the back of energy prices. Meanwhile, service prices have shown consistent, if moderate, inflation, rising 0.3% in January. We expect this trend to continue in the coming months, which will push overall inflation toward, and eventually above, the Fed's 2% inflation target. The Fed, to no surprise, held off on action at their meeting earlier this month. However, if data continue on the track of today's inflation reading and the consensus-beating January jobs report, the Fed could be pushed to move before the market projected June meeting. Expect three, if not four, rate hikes in 2017. In other recent inflation news, import prices rose 0.4% in January and are up 3.7% from a year ago. Petroleum import prices jumped 5.2% in January following December's 6.8% rise. While the long decline in energy prices that began in mid-2014 appears to be over, don't be surprised if we see fits and starts on the road higher. Export prices also rose in January, up 0.1%, and have increased 2.3% in the past year. The Fed has plenty to watch before they meet again in March, and all eyes will be on the wording of that statement to see if the Fed will risk falling behind the curve.
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http://scottgrannis.blogspot.com/2017/02/reflections-on-economy-and-inflation.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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A good article today about economist David Malpass, a friend/collaborator of our own Scott Grannis.
Another great Trump pick, the new undersecretary for international affairs at the U.S. Treasury.
http://www.realclearmarkets.com/articles/2017/03/21/the_us_treasury_and_the_exciting_arrival_of_david_malpass_102597.html
While it’s fun to imagine Malpass eventually replacing Yellen, the great news for now is that he’s been appointed undersecretary for international affairs at the U.S. Treasury. His arrival is essential. That’s the case because the U.S. Treasury is the mouthpiece for the U.S. dollar, and Malpass knows dollar policy as few do.
What’s crucially important is that Malpass understands that money is decidedly not wealth. If every dollar in the world were vaporized today, the U.S. would remain the world’s richest country tomorrow. Malpass views money as Adam Smith did, as a medium of exchange that facilitates the exchange of actual wealth. Wealth is what we humans produce, while money is but a measure that speeds our exchange of the goods and services we create.
The above matters a great deal now simply because the understanding of money within the political class is arguably at an all-time low. More and more economists, pundits and politicians think the value of money can be tinkered with on the way to artificially grand economic outcomes. Call it economic fabulism. While in the real world money merely facilitates exchange and investment, to the fabulists who increasingly dot the economic landscape, money is the wealth. And changes in its value can alter reality to our betterment. To the fabulists, dollar devaluation is the path to prosperity. They couldn’t be more incorrect.
What’s important is that Malpass expertly knows why the fabulists are incorrect. He knows that the U.S. economy is but a collection of individuals, and individuals earn dollars. By extension, he’s well aware that the American people aren’t made better off if the dollars they’re earning are being stripped of their value by monetary officials.
Taking this further, Malpass knows well that companies and jobs spring from investment. That the latter is true explains why Malpass has written voluminous columns and reports, and has given countless speeches over the years preaching the virtue of money that is actually money. Getting more specific, Malpass has long favored a dollar that is the same today as it is tomorrow, one year from now, and ten years from now.
When a dollar holds its value over time much as a foot will be twelve inches tomorrow and twelve years from now, those with wealth can most comfortably direct it toward future wealth creation. They can invest. Malpass knows that when savers put money to work as investment, they’re buying dollars in the future. But when money is being shrunken, the cost of delaying consumption in favor of investing in future Apples, Walmarts and Microsofts becomes prohibitive. While investment is the tautological source of new companies and jobs, why invest if any potential returns will come back in severely devalued dollars?
Malpass knows all of the above, and much, much more. With the U.S. Treasury focused on dollar and tax policy, Malpass understands that taxes are nothing more than a price, or a penalty placed on work. He knows that taxes raise the cost of getting up and going to work, and since he’ll be the international face of Treasury, he knows that country taxes amount to a daily competition for the investment that authors all advance. Malpass knows that investment goes where it’s treated well; specifically investment migrates to where it’s not being devalued through currency machinations, or through nosebleed capital gains taxes that suffocate intrepid investing in the first place.
How does all this apply to the American voter? It says here that more than most in the punditry realize, voters have long been clamoring for the policies that Malpass has been preaching for decades. Plainly stated, voters want economic growth, and to reap the benefits of growth through ever-increasing living standards.
What’s important is that all of the above can be achieved through the modest policy ideas that Malpass will bring with him to Washington. Malpass does not come with arrogant solutions as much as he’ll bring common sense to the policy conversation.
Malpass will remind all around him that the average voter earns dollars, and as such is not made better off when those dollars buy less and less. The average voter craves opportunity, and he’ll remind those in his orbit that dollar destruction is anti-opportunity because it’s anti-investment.
Most of all, the internationalist in Malpass will remind those in his midst that a global economy speaks to global options when it comes to investing. Malpass will alert those around him to the simple truth that dollar devaluation and excessive taxation stateside will cause investment to exit the U.S., and with it the economic opportunity that individuals want regardless of Party affiliation.
Simply put, David Malpass understands economic growth intimately. What a great development it is that he’ll be bringing his expertise to the U.S. Treasury.
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Worth noting is the Scott Grannis has been underlining the key role of the balance sheet since 2008.
WSJ Leak: Fed May Shrink Balance Sheet To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 4/3/2017
If you read us regularly, and we hope you do, you know that we write each week about a topic we think is both important and timely. Last week, we were either clairvoyant, or extremely persuasive.
We argued that unless and until the Federal Reserve reduced the size of its balance sheet (and unwound quantitative easing), it would not be in control of inflation. Rate hikes alone wouldn't be effective. Last week, it didn't seem like the Fed shared our concern. But, this week is a different story.
Last week, all anyone talked about was whether the Fed would hike interest rates two or three more times in 2017, after hiking them by a quarter-point in mid-March. As we argued, as long as there are excess reserves in the financial system, higher inflation will remain a threat, even if the Fed hiked rates.
This week the world has changed. Fed Chair Janet Yellen apparently allowed a leak to the Wall Street Journal, published on March 31st, suggesting the Fed understands the problem. The Fed is taking off the table the idea there might be four rate hikes this year, but is putting on the table the idea that it will eventually pause on rate hikes and start reducing the size of its balance sheet as the normalization process continues.
At this point, the Fed is being slow and cautious and only planning on doing one thing at a time – rate hikes or bond sales. Later, it might do both at the same time.
So what should investors expect? Before the leak, it looked like the Fed would raise rates two or three more times this year, once in June and another time in either September or December, with some possibility of hiking rates in both September and December.
Now we think the Fed will raise rates in June and September and then take the following six months to start the "Great Unwinding" of the balance sheet. To begin, the Fed will take baby steps. It's not outright and actively going into the financial markets selling bonds from its balance sheet. Instead, it will take a portion (but not all) of maturing principal payments on its bond portfolio (Treasury or mortgage-backed securities) and not reinvest them into new securities, instead using that portion to extinguish excess reserves.
This cautious approach will not disrupt the bond market, but it will allow inflation to become more entrenched. As we argued last week, as long as excess reserves exist, rate hikes will make it more profitable for banks to lend those excess reserves. This expands the money supply and creates inflation.
In other words, the Fed has a long way to go. But like any government entity, unwinding its actions always proceeds at a much slower pace than the speed of its interference. This is why monetary policy is almost always biased toward inflation.
What this means for the economy and financial markets is that the Fed is highly unlikely to become a drag on growth anytime in the near future. And since the number one cause of recession is an excessively tight Fed, we think investors should watch this process carefully, but not be alarmed by it.
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The political leadership at the Fed is done trying to prop up and cover up the failure of Obamanomics - and they aren't being subtle about the timing.
Doing the right thing with monetary policy now, suddenly, after doing the wrong thing for a good part of two decades, may have negative, short term consequences.
The Trump agenda has three stimulative components, reforming our tax system, repealing Obamacare and easing the burden of excessive regulations, of which he has so far made no progress on two out of three. But on come the monetary brakes anyway...
In a perfect world, these corrections with offsetting consequences should all be made at once.
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The Producer Price Index was Unchanged in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/13/2017
The Producer Price Index (PPI) was unchanged in May, matching consensus expectations. Producer prices are up 2.4% versus a year ago.
Energy prices declined 3.0% in May, while food prices declined 0.2%. Producer prices excluding food and energy rose 0.3%.
In the past year, prices for goods are up 2.8%, while prices for services are up 2.1%. Private capital equipment prices rose 0.2% in May and are up 1.1% in the past year.
Prices for intermediate processed goods rose 0.1% in May and are up 4.7% versus a year ago. Prices for intermediate unprocessed goods declined 3.0% in May but are up 7.5% versus a year ago.
Implications: In spite of no change in producer prices in May, the Fed is still poised to raise short-term interest rates by another quarter of a percentage point tomorrow. The reason overall producer prices were unchanged in May was because energy prices fell 3% while food prices – led by falling costs for fruits, vegetables and eggs - declined 0.2%. Take out these two volatile sectors, and you are left with "core" prices, which rose 0.3% in May (following a 0.4% rise in April), and have now risen 2.1% in the past twelve months. That's the first move above 2% since 2014. With both headline and "core" producer prices above the Fed's 2% inflation target, there can be little doubt that a rate hike is warranted. The increase in core prices in May was led by margins to wholesalers, which increased 1.1% and pushed prices for services up 0.3%. Goods prices were pulled lower by food and energy, but rose 0.1% in May when excluding those sectors. A look further back in the pipeline shows that prices for intermediate demand are also rising. Intermediate unprocessed goods prices declined 3.0% in May but are up 7.5% in the past year. Meanwhile prices for intermediate processed goods rose 0.1% in May and are up 4.7% over the last twelve months. The Fed will keep these prices, which give a hint to the direction final demand prices will follow in future months, in mind as they plan the path for monetary policy. We expect the Fed to raise rates one more time this year, after tomorrow's hike, while also starting the process of unwinding its bloated balance sheet later this year. The pouting pundits may paint a pessimistic picture of the Fed becoming tight, but as we noted in yesterday's MMO, the Fed has plenty of room for further rate hikes before risking recession or a bear market. If anything, the Fed should be concerned about staying too loose for too long.
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Monday Morning Outlook
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QE Didn't Work To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/19/2017
Last week the Federal Reserve hiked the federal funds rate by ¼ of a percentage point for the fourth time since December 2015. The funds rate is still below the rate of inflation, which means the Fed is still a long way from becoming tight.
The Fed also presented a relatively detailed plan to begin unwinding its balance sheet. However, this plan means that fully ending QE will take at least a few years, probably more. In a policy environment where banking rules are (hopefully) moving away from the irrational toughness of the last several years, these reserves have the potential of spurring more economic growth and more inflation even as the Fed raises rates. In other words, it's hard to see the Fed making monetary policy "tight" anytime soon.
While these slow-motion maneuvers grab all the headlines, the real news is that QE didn't work. It was very hard to convince anyone of that between 2008 and 2015, but maybe now more people will listen to the evidence.
Yes, the Fed bought bonds. Lots of them. $3.5 trillion of them. And, yes, the Fed created new money – bank reserves – to pay for them. Most of those reserves, about 90%, ended up being stored as Excess Reserves – money that exists but is not circulating in the economy.
Those reserves did not boost the money supply. Those reserves did not boost stock prices. Those reserves did not boost bond prices. QE did not work. How do we know? Because the Fed stopped Quantitative Easing and the stock market continued to move higher – to record highs. Because the Fed stopped buying bonds and interest rates have not moved higher. Because the Fed has now announced that it will reduce its bond holdings and the stock and bond markets yawned.
More specifically, we know QE didn't work because M2 never accelerated when the Fed bought $3.5 trillion in bonds. Between January 1995 and September 2008, the M2 measure of money – all deposits in all banks – grew 6% at an annual rate. From September 2008 (the month the Fed started QE) to today, the M2 measure of money has grown at a 6% rate.
Milton Friedman said, "watch M2!" And the growth rate of M2 has not changed. What's more important is that economic growth actually slowed. Between January 1995 and September 2008 (which includes the 2001 recession), real GDP expanded at a 2.9% annual rate. During the current recovery, in spite of QE, real GDP has grown just 2.1% at an annual rate.
If QE was effective, then real GDP would have accelerated. Don't be fooled when political economists say the reason real GDP hasn't accelerated is because businesses aren't investing.
C'mon, think about it. First, if there wasn't enough investment, there would be shortages of something. Second, if zero percent interest rates and all the free money in the world can't make people invest more, what can? And, third, excluding the energy sector, US corporations are earning record profits. They must be investing, and that investment must be profitable. But, it's not low interest rates that make them do it, it's the return on high-tech inventions, which get cheaper every day.
The decline in prices of high-tech goods are masking an investment boom. Over the past three years, real (inflation-adjusted) business investment as a percent of overall real GDP is the highest it has ever been. The benefits of those investments have caused profits to boom.
That's why stocks are up. Because profits are up. Not because of QE. QE didn't work.
There are those who say foreign QE took over when the Fed stopped. But if this were the case, then US QE would have driven foreign stock markets higher. It didn't.
So many analysts have been blinded by an obsession with QE that they have missed the forces that are truly driving the underlying economy. More to the point, by ignoring the great things going on with new technology, and crediting the Fed with causing stock prices to rise, many conservative economists are undermining their own beliefs.
By saying QE, not entrepreneurial success, lifted stocks, they are setting the stage for the Fed to do it all over again in the next recession. This would be a mistake. Government interference in the economy causes slow growth and slow recoveries. Giving credit to the Fed encourages more of it.
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Are there no Republicans who can run the Fed? They are always crats as far as I know:
http://www.politico.com/story/2017/07/11/trump-cohn-yellen-fed-240421
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Are there no Republicans who can run the Fed? They are always crats as far as I know:
http://www.politico.com/story/2017/07/11/trump-cohn-yellen-fed-240421
Grreenspan, Republican in name only, was chosen for his independence from the Reagan administration, meaning he openly disagreed with Reagan's (successful) economic policy.
Bernanke and Yellen are definitely Dems in my book.
The correct choice for Trump is ...
http://www.johnbtaylor.com/
https://en.wikipedia.org/wiki/John_B._Taylor
He favors rules-based monetary policy, as opposed to the current system of whim-based policies.
https://en.wikipedia.org/wiki/Taylor_rule
http://www.investopedia.com/articles/economics/10/taylor-rule.asp
http://www.frbsf.org/education/publications/doctor-econ/1998/march/taylor-rule-monetary-policy/
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https://web.stanford.edu/~johntayl/Onlinepaperscombinedbyyear/2007/Housing_and_Monetary_Policy.pdf
Interest rates held unjustifiably low from 2003 to 2006 along with lack of accountability for mortgage originators, what could possibly go wrong.
On the 'lessons learned' section he should have left it blank.
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Beware the tin foil , , ,
http://moneywise411.com/chinas-war-on-bitcoin-fb/
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John Taylor will hopefully take Yellen's place...
"The Fed’s “quantitative easing” was in effect a monetary policy of “competitive devaluation,” and he added that “other countries have now followed and been even less circumspect about the fact that they were engaging in competitive devaluation. Competitive devaluation was tried in the 1930s, and unsuccessfully, and the result was that around that time major countries agreed they would not engage in competitive devaluation ever again.” - Allan Meltzer
...
Prof. John B Taylor of Stanford:
The resulting movements in exchange rates can be a source of instability in the global economy as they affect the flow of goods and capital and interfere with their efficient allocation. They also are a source of political instability as concerns about currency manipulation are heard from many sides. They are another reason to normalize and reform the international monetary system. In my view a rules-based international system is the way to go, as I discuss here:
https://web.stanford.edu/~johntayl/2016_pdfs/Rethinking_the_International_Monetary_System-Cato-2016.pdf
https://economicsone.com/2017/09/22/new-results-on-international-monetary-policy-presented-at-the-swiss-national-bank/
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https://www.cnbc.com/2017/10/11/china-will-compel-saudi-arabia-to-trade-oil-in-yuan--and-thats-going-to-affect-the-us-dollar.html
China will 'compel' Saudi Arabia to trade oil in yuan — and that's going to affect the US dollar
"I believe that yuan pricing of oil is coming and as soon as the Saudis move to accept it — as the Chinese will compel them to do — then the rest of the oil market will move along with them," Carl Weinberg, chief economist and managing director at High Frequency Economics, told CNBC
In recent years, several nations opposed to the dollar being the world's reserve currency have progressively sought to try and abandon it
OPEC kingpin Saudi Arabia is at the crux of the petrodollar
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I just forwarded that to Scott Grannis. Let's see what he says.
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I just forwarded that to Scott Grannis. Let's see what he says.
I look forward to his response.
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________________________________________
The Producer Price Index Rose 0.4% in September To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 10/12/2017
The Producer Price Index (PPI) rose 0.4% in September, matching consensus expectations. Producer prices are up 2.6% versus a year ago.
Energy prices rose 3.4% in September, while food prices were unchanged. Producer prices excluding food and energy rose 0.4%.
In the past year, prices for goods are up 3.3%, while prices for services are up 2.1%. Private capital equipment prices rose 0.4% in September and are up 2.5% in the past year.
Prices for intermediate processed goods rose 0.5% in September and are up 4.3% versus a year ago. Prices for intermediate unprocessed goods declined 0.4% in September but are up 7.0% versus a year ago.
Implications: The impact of Hurricane's Harvey and Irma can be felt throughout today's report on producer prices. The most significant impact from the storms was on supply chains, where increased demand for machine and equipment parts, paired with a limited supply, pushed up margins to wholesalers. Meanwhile storm-related refinery shutdowns along the Gulf Coast led energy prices 3.4% higher in September, including a 10.9% jump in gasoline prices. Food prices, however, showed little impact, unchanged in September and down at a 0.5% annual rate in the past six months. Looking beyond food and energy, "core" prices rose 0.4% in September. In addition to higher wholesaler margins, most major categories of goods and services also rose in September. In the past year, producer prices have increased 2.6%, the largest twelve month rise since early 2012. This is certainly elevated in September by the hurricanes, but producer prices have been at or above 2% on a year-to-year basis in seven of the last eight months. And a look further down the pipeline shows the trend higher should continue in the months to come. Intermediate processed goods rose 0.5% in September and are up 4.3% from a year ago, while unprocessed goods declined 0.4% in September but remain up 7.0% in the past year. In other words, the "data dependent" Fed has clear evidence that inflation has met or exceeded their 2% target. In employment news this morning, new claims for unemployment benefits declined 15,000 last week to 243,000, while continuing claims fell 32,000 to 1.89 million, the lowest level since 1973. The temporary storm-related dip in employment looks to have passed, and we expect a very strong rebound in payrolls in October.
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Or else?! They will buy their oil from the US? Venezuela (Venezuelan Bolívar)? Japan, lol.
Maybe Russia, which of these countries needs a flood of Yuan for their consumer purchases? Angola?
If they partner up with Iran, how 'bout we do the same with Taiwan?
Does anyone remember when over-reliance on unreliable oil sources was a finance and national security nightmare - for the importer?
http://dailycaller.com/2016/03/21/china-buying-lots-of-oil-from-saudi-arabia-iran-and-russia/
China surpassed the United States as the world’s largest net importer of petroleum in 2013. Within the next few decades, it is expected to buy roughly 70 percent of its oil from foreign sources, much of which will come from countries known for instability. Sudan alone provides 7 percent of China’s oil imports, and over one-third of Chinese oil imports come from Sub-Saharan Africa. Some of China’s largest oil suppliers are Angola, Sudan, Nigeria, and Equatorial Guinea, which are all known for political instability.
“Iran could also be a big supplier to Beijing in the months and years to come, as well as a partner that Tehran could call on to supply important loans, technology, and resources to develop Iran’s oil and natural resource sectors,” Kazianis concluded.
China is already heavily investing in Iranian oil, according to The New York Times and has been Iran’s largest trading partner for six years in a row. The two largest suppliers of Chinese oil, Russia and Saudi Arabia, are politically stable but are involved in Middle Eastern conflicts. China prefers to avoid being drawn into such confrontations, especially given recent tensions with its own Muslim minorities.
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Let's see what Scott G says. It seems to me that: a) none of these countries were using the US$ by choice. They used it because it was in their best interest to do so. If so, then switching makes them worse off. b) Currency is a medium of exchange, doesn't change underlying fundamentals.
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Can’t see how this will make much of a difference. Money is fungible. The value of the dollar is determined not by transactional demand for oil, but for by the demand to hold dollars.
On Oct 12, 2017, at 12:59 PM, Marc Denny <craftydog@dogbrothers.com> wrote:
https://www.cnbc.com/2017/10/11/china-will-compel-saudi-arabia-to-trade-oil-in-yuan--and-thats-going-to-affect-the-us-dollar.html
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https://www.realclearpolitics.com/articles/2017/10/28/president_trump_needs_a_stable_dollar_along_with_tax_cuts_to_maximize_growth_135392.html
He compares Taylor and rules based monetary policy to Volcker. This is not about high versus low rates; it is about getting it right.
"President Trump Needs a Stable Dollar Along With Tax Cuts to Maximize Growth"
...
" Taylor is working on a study that argues for a return to a rules-based international currency system. Several years ago, former Fed Chair Paul Volcker, who used gold and commodities as leading inflation indicators while appointed, argued for a rules-based monetary policy at home and new international currency cooperation abroad."
...
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I predicted Trump would pick Taylor and I was wrong. Trump picked the less qualified alternative although he is already a member of the Fed Board of Governors. The result of this pick will probably be okay, no worse than Yellen. Powell was one who argued with Yellen to ease off of quantitative easing. The Trump camp thinks Powell will be slower to raise interest rates, giving his economy continued, nominal and artificial boost, like Yellen did for Obama, and not be too obsessed or pure with what is right and responsible for the dollar and interest rates. Powell will be easier for the administration to influence, they think.
Drawbacks to this:
a) artificially low interest rates are killing off savings and have other bad effects.
b) Instead of having the leading mind on monetary policy at the top, the new chair of this most crucial organization will mostly rely the advice of outsiders and underlings, aka the swamp.
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True digital currencies were more common in science fiction than in reality until quite recently. The big stumbling block for electronic money that doesn't have a physical form is the issue of ownership. How can you truly possess something of intrinsic value that can be effectively copied ad nauseam? In 2008, a paper published under a pseudonym, Satoshi Nakamoto, introduced the world to the digital currency bitcoin, a groundbreaking development in its own right. But more important, however, was the underlying algorithm that made the cryptocurrency work.
The technology that anchors bitcoin, known as the blockchain, was the truly revolutionary development. Commonly referred to as distributed ledger technology, blockchain is already considered to be a disruptive technology and will affect a number of different industries beyond the financial sector, including but not limited to shipping and logistics, aerospace and defense, retail, health care, and manufacturing.
Distributed ledger technology is a truly revolutionary development.
In the case of digital currencies such as bitcoin, which pioneered the technology, transactions are recorded in a shared public ledger — the ubiquitous blockchain. The currency (or contract or other exchange of information) is not controlled by a central entity like a bank but is instead managed by an online community. Members with powerful computers are encouraged to maintain the transactional register by "verifying the blockchain" — in other words, by solving complex mathematical equations and adding another "block" of transactions to the existing chain. With bitcoin, the process is known as "mining" because the verifier is rewarded with new bitcoins.
Ultimately, the key attribute of the technology is its ability to ensure and enshrine an often undervalued commodity: trust. The only way the protocol itself can be hacked and a false transaction entered is if a group of actors control more than 50 percent of the nodes verifying the blockchain in order to collude with one another.
To be quite clear, first-mover offerings such as bitcoin, Ethereum or Ripple that are popular today might easily die a quick death tomorrow. For now, the technology remains in its infancy and new applications are still being developed. There are a number of technological challenges to be surmounted as well as regulatory hurdles to overcome before potential sectors of the economy adopt this technology — or not, as the case may be.
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True digital currencies were more common in science fiction than in reality until quite recently. The big stumbling block for electronic money that doesn't have a physical form is the issue of ownership. How can you truly possess something of intrinsic value that can be effectively copied ad nauseam? In 2008, a paper published under a pseudonym, Satoshi Nakamoto, introduced the world to the digital currency bitcoin, a groundbreaking development in its own right. But more important, however, was the underlying algorithm that made the cryptocurrency work.
The technology that anchors bitcoin, known as the blockchain, was the truly revolutionary development. Commonly referred to as distributed ledger technology, blockchain is already considered to be a disruptive technology and will affect a number of different industries beyond the financial sector, including but not limited to shipping and logistics, aerospace and defense, retail, health care, and manufacturing.
Distributed ledger technology is a truly revolutionary development.
In the case of digital currencies such as bitcoin, which pioneered the technology, transactions are recorded in a shared public ledger — the ubiquitous blockchain. The currency (or contract or other exchange of information) is not controlled by a central entity like a bank but is instead managed by an online community. Members with powerful computers are encouraged to maintain the transactional register by "verifying the blockchain" — in other words, by solving complex mathematical equations and adding another "block" of transactions to the existing chain. With bitcoin, the process is known as "mining" because the verifier is rewarded with new bitcoins.
Ultimately, the key attribute of the technology is its ability to ensure and enshrine an often undervalued commodity: trust. The only way the protocol itself can be hacked and a false transaction entered is if a group of actors control more than 50 percent of the nodes verifying the blockchain in order to collude with one another.
To be quite clear, first-mover offerings such as bitcoin, Ethereum or Ripple that are popular today might easily die a quick death tomorrow. For now, the technology remains in its infancy and new applications are still being developed. There are a number of technological challenges to be surmounted as well as regulatory hurdles to overcome before potential sectors of the economy adopt this technology — or not, as the case may be.
Digital currencies are just another fiat currency, and can be killed off quite easily by nation-states. I'm not adverse to using them, but I wouldn't store much in that format that I couldn't afford to lose.
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https://www.alt-m.org/2017/10/26/blockchain-gold/
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Also see:
Cyrptocurrencies aren't currencies. They have become speculative vehicles bought on credit. The growth rate of Bitcoin, or any individual "currency," is convincingly limited by the technology, but the number of "currencies" has exploded.
"All of this should make it very plain to buyers of any cryptocurrency that it’s greatest selling point, it’s limited supply, has been completely debunked and in the most preposterous way possible. In fact, the growth rate in the creation of new cryptocurrencies makes central bank money printing in recent years look utterly conservative by comparison."
The following article, of course, is now wildly out of date, having been posted about 35 days ago, but consider the arguments. The extremes have only become more extreme and the insanity more insane.
Tom
(Bold highlighting below is mine. Tom)
This is not the store of value you are looking for
Posted by Jesse Felder on 9/1/2017
[Omitting a lot of talk about Warren Buffett and Ben Gramham's thinking about bubbles]
Essentially, a bubble starts with a compelling premise and then the prices start going up and greed takes over. And I think this is exactly what is going on with Bitcoin today.It all started with a compelling premise. Out of the depths of the financial crisis a group of cyber punks came up with the idea of a decentralized, digital form of cryptocurrency with limited supply that could not be manipulated by any central authority. The idea really had its foundations a decade or so earlier but it took the financial crisis to precipitate its actual creation in early 2009. As central banks around the world began to pursue incredible amounts of money printing the premise only became that much more compelling. Then the price started to take off and greed took over.
Eight years later and Bitcoin is now worth nearly $100 billion. It has soared 20-fold to $4,800 per Bitcoin over just the past two years, since Buffett’s partner Charlie Munger called it, “rat poison.” To get a sense of just how overvalued this is, the Wall Street Journal surmised if Bitcoin took over the entire credit card transaction market, putting Visa and MasterCard out of business, it would be worth about $100. Even more egregious, the Bitcoin Investment Trust (GBTC) now trades at more than a 115% premium to the underlying value of its Bitcoin assets. Buyers here thus need Bitcoin to trade over $10,000 to begin to break even on today’s purchases.
Bitcoin is only part of the story. There are now more than 800 different cryptocurrencies with a combined market cap of $166 billion. “ICO Unicorns” are now a thing (companies whose initial coin offerings are now worth more than a billion dollars). Burger King introduced the Whopper Coin last week and Doge Coin, which was created as a joke based upon a popular internet meme, is now worth nearly a quarter billion dollars. There’s now a Dentacoin for patients to use in paying their dentists. There’s a Titcoin for porn and a Potcoin for marijuana.
All of this should make it very plain to buyers of any cryptocurrency that it’s greatest selling point, it’s limited supply, has been completely debunked and in the most preposterous way possible. In fact, the growth rate in the creation of new cryptocurrencies makes central bank money printing in recent years look utterly conservative by comparison. And all of this still ignores the fact that a bitcoin is even less tangible than a tulip bulb. There is literally nothing to it.
That hasn’t stopped investors from buying in, however. More than 50 hedge funds have been formed to take advantage of the crypto gold rush. And it’s not just high net worth, folks, either. NBC news ran a story recently carrying this headline: “Middle America Is Crazy In Love With Bitcoin.” The first line reads, “If you’re not buying Bitcoin, you’re not keeping up with the Joneses.” And when you run a google search for “buy bitcoin with” the first suggested result is “PayPal.” The second is “credit card.” Middle America now famously has no savings to speak of so they are buying Bitcoin in their credit cards.
If this doesn’t fit Mr. Buffett’s criteria of a bubble, I don’t know what does. Much of this is just your standard bubble greed but it’s interesting that the premise, the story of Bitcoin, has resonated with people so much. They are clearly buying into the proposition that central banks have gone nuts and they need something to act as a store of value amid the madness. It’s just another signpost in the anti-technocrat, anti-elitist movement. Sadly, these folks have been deceived as to the merits of their chosen store of value.
And it’s terribly ironic that the store of value they have chosen is simply a bad knock-off one that has been around for as long as humans have needed one. I am, of course, referring to gold. In fact, one of the early predecessors of Bitcoin was called Bitgold and it was essentially a digital currency that attempted to mimic gold’s virtues. Think back to the Bitcoin premise presented at the beginning of this discuss: “a decentralized, digital form of cryptocurrency with limited supply that could not be manipulated by any central authority.” The only difference between Bitcoin and gold is that the latter is not digital or encrypted; it’s tangible. Oh, and unlike cryptocurrencies it’s supply is truly limited.
It’s almost as if, in the aftermath of the financial crisis, investors went looking for gold, stared directly at it and then were somehow hypnotized into thinking, “this is not the store of value you’re looking for.” A painful bear market, like that we have witnessed in gold since 2011, can have just that sort of effect. And the most powerful bull market in history in what is plainly a digital pyramid scheme played a not insignificant role, as well.
Still, the popularity of the Bitcoin premise will eventually be very bullish for gold. When the bubble in the former bursts (which will likely coincide with a bursting of the bubbles in other risk assets), investors will realize their error and rush once again to the latter, understanding that it is the genuine article and truly fulfills the promise of a “store of value.” At that point, prices will rise and we will start to see greed at work again in the gold markets.
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Data Watch
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The Producer Price Index Increased 0.4% in October To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/14/2017
The Producer Price Index (PPI) increased 0.4% in October, well above the consensus expected rise of 0.1%. Producer prices are up 2.8% versus a year ago.
Food prices rose 0.5% in October, while energy prices were unchanged. Producer prices excluding food and energy rose 0.4%.
In the past year, prices for goods are up 3.2%, while prices for services are up 2.4%. Private capital equipment prices rose 0.3% in October and are up 2.7% in the past year.
Prices for intermediate processed goods rose 1.0% in October and are up 5.0% versus a year ago. Prices for intermediate unprocessed goods were unchanged in October but are up 7.7% versus a year ago.
Implications: Producer prices rose much faster than expected in October, with nearly every category moving higher. Prices for services led the way, rising 0.5% in October as margins for fuel and lubricant dealers surged 24.9% (it's not unusual to see large swings in this category from month-to-month). In fact, nearly every category in today's report shows inflation pressures that are likely to flow through to consumer prices in the months ahead. Goods prices rose 0.3% in October, with pharmaceuticals and industrial chemicals leading the way. Food prices rose 0.5% following three months of flat or declining prices, while energy prices (typically one of the more volatile components month-to-month) was unchanged in October. "Core" producer prices – which exclude both food and energy – rose 0.4% in October and are up 2.4% in the past year. That represents the fastest twelve-month rise since early 2012. There may still be remnants of hurricane impacts in the pricing data, but that's starting to subside, and producer prices have now been at or above 2% on a year-to-year basis in seven of the last nine months. In other words, prices were moving higher well before the storms touched down in Texas and Florida. A look further down the pipeline shows the trend higher should continue in the months to come. Intermediate processed goods rose 1.0% in October and are up 5.0% from a year ago, while unprocessed goods were unchanged in October but remain up 7.7% in the past year. Given these figures, it would be difficult for the "data dependent" Fed to cite current inflation trends as a reason to hold off on continued rate hikes. And with employment growth remaining strong, Chairwoman Yellen, and her successor Jerome Powell, look to have a clear runway for gradual but steady rate hikes into 2018.
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By Steven Russolillo
Updated Dec. 7, 2017 7:15 p.m. ET
126 COMMENTS
More than $70 million worth of bitcoin was stolen from a cryptocurrency-mining service called NiceHash following a security breach, causing the company to halt operations for at least 24 hours.
Andrej P. Škraba, head of marketing at NiceHash, said to The Wall Street Journal that approximately 4,700 bitcoin had been stolen from a bitcoin wallet, an online account that stores the digital currency. Bitcoin wallets, like other online bank accounts, have been targets of hackers in the past.
“It was a professional attack,” Mr. Škraba said. He declined to elaborate further, saying more information will be revealed at a later date.
In a six-minute video posted on Facebook, Marko Kobal, chief executive and co-founder of NiceHash, said either a hacker or group of hackers started infiltrating its internal systems through a compromised company computer on Tuesday at 6:18 p.m. Eastern Time. Within two hours, funds were stolen from accounts, he said.
NiceHash has notified major exchanges and mining pools about the breach “to help us track and possibly even recover the stolen funds,” Mr. Kobal said.
“We are doing really everything we can right now. However, this will take time,” he said. “As soon as we have a solution in place, we’ll reach out, hopefully in the next few days.”
The hack came as the price of bitcoin surged yet again to new highs. Through Thursday morning in New York, the digital currency soared 40% in about 40 hours, hurdling through five separate $1,000 barriers. It recently traded near its all-time high, at about $16,600, according to research site CoinDesk. At current levels, those stolen bitcoin would be worth about $78 million.
“It’s a bad thing to happen, but I think it’s going to be forgotten about pretty quickly,” said Arthur Hayes, founder and chief executive of BitMEX, a bitcoin-derivatives exchange in Hong Kong, of the theft. “Everyone is still high-fiving each other” over the recent gains.
Bitcoin’s rise from around $1,000 at the start of the year has attracted crowds of eager small-time investors to what had originally been a curiosity for techies. Several exchanges in the U.S. are set to offer derivatives contracts on bitcoin such as futures, another step toward building a traditional market around the stateless digital currency.
NiceHash, which markets itself as the largest crypto-mining marketplace, said it is investigating the breach and cooperating with authorities as it seeks to restore the service “with the highest security measures at the earliest opportunity.”
Based in Slovenia, NiceHash matches people in need of computer-processing power to “mine” cryptocurrencies with people who have power to spare. Payment is made to miners in bitcoin and other cryptocurrencies as an incentive for their processing and verifying transactions through complex algorithms.
Should You Buy Bitcoin?
The price of the digital currency has soared, but experts say you should be wary.
“We are truly sorry for any inconvenience that this may have caused and are committing every resource towards solving this issue as soon as possible,” NiceHash said in a separate statement on its Facebook page. The company also advised users to change their passwords.
Security has been an issue with bitcoin for years. One of the best-known cautionary tales is that of Mt. Gox, once the world’s largest bitcoin exchange. It collapsed and filed for bankruptcy protection after losing virtual currency valued at hundreds of millions of dollars in 2014.
The NiceHash hack represents a far-smaller portion of bitcoin’s overall market capitalization, Mr. Hayes notes.
“It just goes to show that bitcoin is a really valuable asset and when you have valuable assets, people are going to try to steal them,” said Mr. Hayes, who predicts bitcoin could hit $50,000 by the end of next year. “So it’s important to be prudent and protect it the best you can.”
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https://finance.yahoo.com/quote/BTCUSD=X/
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See Decade Forecast: 2015-2025
While the world focuses on the ups and downs of bitcoin, another cryptocurrency, ripple (XRP), is making a splash. Since Dec. 27, the value of one XRP has increased by over 50 percent to as high as $1.83. This briefly pushed XRP to become the second largest cryptocurrency by market capitalization, and it's now relatively even with ethereum. Bitcoin, on the other hand, has fallen by over 10 percent since the Dec. 27 announcement by South Korea that it would increase regulations on cryptocurrency trading and could close some of the country's cryptocurrency exchanges.
What's the reason for the fascination with bitcoin and the lack of it for XRP? The answer is in the intent and purpose behind the two cryptocurrencies. In the emerging cryptocurrency and blockchain technology sphere, bitcoin is the established market leader as a currency, but it's just that: a currency. It's the first-generation application of blockchain technology. However, others, such as ripple and ethereum, are second- or even third-generation applications, which take the blockchain and cryptocurrency mechanism and build it beyond mere currency. The company behind XRP, Silicon Valley's Ripple, has designed its ripple platform as a way to clear and process payments and transactions, including cross-border transactions, using XRP and the ripple protocol as the conduit, thus lowering the costs of transactions.
These applications have caught the attention of the financial sector, and there have been a slew of announcements supporting the platform over the last two months. In November, Santander and American Express said they were working with Ripple to route payments between their respective customers in the United Kingdom and the United States. On Dec. 14, the Japan Bank Consortium, which comprises 61 banks in Japan, said that it had agreed to pilot programs with two South Korean banks to test cross-border transactions. This was followed by an announcement on Dec. 27 by SBI Ripple Asia, Ripple's branch in Asia, that it was forming a consortium with Japanese credit card companies to use the platform for payment processing. The latter has been the bigger driver in the rise in XRP's value, which has made Ripple one of Silicon Valley's largest private companies when taking into account the value the currency holds.
The idea of using blockchain technology for processing cross-border payments will continue to gain traction, through ripple or its potential successors. Cross-border payments today are typically done using the SWIFT network, which is the international mechanism that most banks communicate through to conduct transactions. Ripple would allow companies to get around that system. Moreover, ripple isn't tied to the dollar when making transactions in different currencies. The ripple platform looks for the shortest path through a number of customers both buying and selling their different currencies to complete a transaction seamlessly. This could weaken one aspect of the dollar's global pre-eminence.
So, while bitcoin continues to rise in value (though its rise has tempered over the last few weeks), newer generations of cryptocurrencies are gaining traction as they offer more promise and potential beyond what bitcoin can offer. That will be bitcoin's most important legacy in geopolitics — kicking off the process of finding new platforms and applications for blockchain technology.
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Ripple's chart is more then nuts
makes Qualcomm of 2000 look like Minnesota Mining and Manufacturing's chart:
https://finance.yahoo.com/quote/XRP-USD?ql=1&p=XRP-USD
up 40 x in ~ 8 months !
up 8 times in 1 month !
somebodies are getting fabulously rich -> FAST !
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https://www.wsj.com/articles/peter-thiels-founders-fund-makes-big-bet-on-bitcoin-1514917433
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The Consumer Price Index Rose 0.1% in December To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 1/12/2018
The Consumer Price Index (CPI) rose 0.1% in December, matching consensus expectations. The CPI is up 2.1% from a year ago.
Food prices rose 0.2% in December, while energy prices declined 1.2%. The "core" CPI, which excludes food and energy, increased 0.3% in December, above the consensus expected rise of 0.2%. Core prices are up 1.8% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – rose 0.2% in December and are up 0.4% in the past year. Real average weekly earnings are up 0.7% in the past year.
Implications: Consumer prices rose 0.1% in December, ending 2017 up 2.1% for the year, exactly the same as the increase seen in 2016. However, in the past three months CPI is up at a 2.6% annual rate, signaling that inflation is accelerating further above the Fed's 2% target. A look at the details of today's report shows energy prices declined 1.2% in December, tempering increased prices seen across nearly all other categories. Food prices increased 0.2%, while "core" prices – which exclude the typically volatile food and energy components – rose 0.3% in December. "Core" prices are up 1.8% in the past year, but are showing acceleration in recent months, up at a 2.2% annual rate over the past six-months and 2.5% annualized in the past three months. In other words, both headline and "core" inflation stand near or above the Fed's 2% inflation target, and both have been rising of late. Housing costs led the increase in "core" prices in December, rising 0.3%, and are up 2.9% in the past year. Meanwhile prices for services also rose 0.3% in December and are up 2.6% over the past twelve months. Both remain key components pushing "core" prices higher and should maintain that role in the year ahead. Add in yesterday's report on producer prices that showed rising inflation in the pipeline and we expect consumer price inflation to move to around 2.5% or higher by the end of 2018. Given the strength of the labor market, with the unemployment at the lowest level in more than a decade and headed lower, paired with a pickup in the pace of economic activity thanks to improved policy out of Washington, the Fed is on track to raise rates at least three times in 2018, with a fourth hike looking increasingly likely.
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"The Consumer Price Index (CPI) rose 0.1% in December, matching consensus expectations. The CPI is up 2.1% from a year ago."
That sounds great - compared to Venezuela - but it is inexcusable that 2% inflation is our 'target', nearly 50% higher than the interest rate for savings. What could possibly go wrong with that! With the magic of compounding interest, our dollar loses half its value in less than 30 years at the current rate. Just like the places with hyperinflation, any long term investment needs to be deflated constantly with a calculator to compensate for the ever-declining value of the dollar.
https://www.bls.gov/data/inflation_calculator.htm
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Bitcoin gripped the investing world last year like no other asset class in recent memory, minting new millionaires, sparking a pivot to blockchain technology and attracting a new wave of interest from institutional investors.
In 2018, bitcoin has been a total dud.
Bad StartBitcoin is in the midst of its worst monthlydrop in three years.Bitcoin price performanceSource: Coindesk
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The price of the cryptocurrency is down by about 30% in January, on pace for its worst monthly drop in three years, according to research site Coindesk. It fell below $10,000 on Wednesday, a two-month low. And it‘s down by about half from its all-time high of close to $20,000, reached in mid-December.
The plunge is noteworthy even by bitcoin’s standards. While it’s been known to lose over a quarter of its market value in the span of a day, those declines have typically been short lived. Over the past five years, bitcoin has fallen by over 30% in a given month only three other times, the latest in January 2015.
Bitcoin recently traded at around $10,000 after earlier falling as low as $9,627, according to Coindesk.
While several factors are driving the decline, the regulatory clampdown occurring around the world is an important reason why bitcoin and the broader cryptocurrency market have fallen on tougher times.
Bitcoin vs. Regulators: Who Will Win?
As bitcoin has emerged from the underground world of nerds and criminals to become a mainstream investment, the risk of hacks and scandals has also blossomed. What's a government to do? The WSJ's Steven Russolillo travels the world (sort of) to see how regulators are responding to the remarkable rise of cryptocurrencies.
On Tuesday, the Securities and Exchange Commission halted a $600 million initial coin offering, one of the biggest U.S. interventions yet into the world of raising money by issuing digital tokens. And earlier this month, the top U.S. derivatives regulator brought charges in three cases involving virtual currencies.
Further hurting sentiment, Facebook Inc. said Tuesday that it would stop all ads on its platform that promote cryptocurrencies and initial coin offerings. The social media giant said it wanted to eliminate promotions of “financial products and services frequently associated with misleading or deceptive promotional practices.”
In Asia, the Chinese government has taken steps to limit bitcoin mining operations, a blow to a large market for minting new bitcoin. Japan, which has held a favorable stance on cryptocurrencies, was stung by a hack last week in which $530 million worth of the currencies were swiped from exchange Coincheck Inc. And South Korea has undertaken new legislation aimed at calming its red-hot bitcoin market.
SEC Moves to Stop $600 Million Digital Coin Offering
Japan’s Cryptocurrency Whiz Kid Faces $530 Million Reckoning
Why Bitcoin? Why Now? (Dec. 9, 2017)
“All of this is frightening,” said Kim Sang-woo, a 29-year-old from Seoul who says he’s been trading cryptocurrencies for nearly a year.
Mr. Kim said he initially entered the crypto market with a $20,000 investment on local Korean exchanges, spread out over nine digital currencies including bitcoin and ethereum. Through trading in and out of these coins, he said he made 10 times his initial investment.
But now he said he’s cut his exposure to digital currencies, instead favoring Korean stocks.
“Valuations were way too high,” he said. “I still see positive catalysts and I’m sure all the regulation is just a way of eventually building up a bigger market. But it’s tough right now.”
For sure, bitcoin has still been a highly profitable investment for many investors. It remains up by some 900% from where it traded at the beginning of last year. And investors who bought bitcoin as recently as three months ago have more than doubled their money.
But in a further sign of the growing regulatory pressure, South Korea’s customs service on Wednesday said it had found illegal foreign exchange dealings amounting to 637.5 billion South Korean won ($592.9 million) carried out through cryptocurrencies.
Kim Yong-chul, a director at KSC’s Financial Investigation Division, said the figure is likely to increase as the investigation continues.
By South Korean law, any foreign remittances above $3,000 require supporting documentation, while cumulative overseas transactions that exceed $50,000 annually are also monitored carefully. Unlike flat currency remittances, which are carefully scrutinized by the country’s government, cryptocurrencies aren’t attached to any remittance restrictions.
The customs services’ findings came a day after South Korea’s government implemented stricter verification checks for cryptocurrency investors, who are now required to hold certified bank accounts in order to buy cryptocurrency using flat money.
Also Tuesday, a South Korean court for the first time made a ruling to confiscate bitcoin proceeds, as part of a judgment against an illegal pornography website. The court ruled that the website operator should forfeit some 191 bitcoin—about $1.91 million based on its current value—in addition to a separate flat money fine.
Write to Steven Russolillo at steven.russolillo@wsj.com and Eun-Young Jeong at Eun-Young.Jeong@wsj.com
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SAN FRANCISCO — Creating a new Bitcoin requires electricity. A lot of it.
In the virtual currency world this creation process is called “mining.” There is no physical digging, since Bitcoins are purely digital. But the computer power needed to create each digital token consumes at least as much electricity as the average American household burns through in two years, according to figures from Morgan Stanley and Alex de Vries, an economist who tracks energy use in the industry.
The total network of computers plugged into the Bitcoin network consumes as much energy each day as some medium-size countries — which country depends on whose estimates you believe. And the network supporting Ethereum, the second-most valuable virtual currency, gobbles up another country’s worth of electricity each day.
The energy consumption of these systems has risen as the prices of virtual currencies have skyrocketed, leading to a vigorous debate among Bitcoin and Ethereum enthusiasts about burning so much electricity.
The creator of Ethereum, Vitalik Buterin, is leading an experiment with a more energy-efficient way to create tokens, in part because of his concern about the impact that the network’s electricity use could have on global warming.
“I would personally feel very unhappy if my main contribution to the world was adding Cyprus’s worth of electricity consumption to global warming,” Mr. Buterin said in an interview.
But many virtual currency aficionados argue that the energy consumption is worth it for the grander cause of securing the Bitcoin and Ethereum networks and making a new kind of financial infrastructure, free from the meddling of banks or governments.
“The electricity usage is really essential,” said Peter Van Valkenburgh, the director of research at Coin Center, a group that advocates for virtual currency technology. “Because of the costs, we know the only people participating are serious, that they are economically invested. That creates the incentives for cooperation.”
This dispute has its foundations in the complex systems that produce tokens like Bitcoin; Ether, the currency on the Ethereum network; and many other new virtual currencies.
All of the computers trying to mine tokens are in a computational race, trying to find a particular, somewhat random answer to a math algorithm. The algorithm is so complicated that the only way to find the desired answer is to make lots of different guesses. The more guesses a computer makes, the better its chances of winning. But each time the computers try new guesses, they use computational power and electricity.
The lure of new Bitcoins encourages people to use lots of fast computers, and lots of electricity, to find the right answer and unlock the new Bitcoins that are distributed every 10 minutes or so.
This process was defined by the original Bitcoin software, released in 2009. The goal was to distribute new coins to people on the Bitcoin network without a central institution handing out the money.
Early on, it was possible to win the contest with just a laptop computer. But the rules of the network dictate that as more computers join in the race, the algorithm automatically adjusts to get harder, requiring anyone who wants to compete to use more computers and more electricity.
These days, the 12.5 Bitcoins that are handed out every 10 minutes or so are worth about $145,000, so people have been willing to invest astronomical sums to participate in this race, which has in turn made the race harder. This explains why there are now enormous server farms around the world dedicated to mining Bitcoin.
This process is central to Bitcoin’s existence because in the process of mining, all the computers are also serving as accountants for the Bitcoin network. The algorithm the computers solve requires them to also keep track of all the new transactions coming onto the network.
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A computer server farm in Iceland, dedicated to mining Bitcoin. Credit Richard Perry/The New York Times
The mining race is meant to be hard so that no one can dominate the accounting and fudge the records. In the 2008 paper that first described Bitcoin, the mysterious creator of the virtual currency, Satoshi Nakamoto, wrote that the system was designed to thwart a “greedy attacker” who might want to alter the records and “defraud people by stealing back his payments.” Because of the mining and accounting rules, the attacker “ought to find it more profitable to play by the rules.”
The rules have kept attackers at bay in the nine years since the network got going. Without this process, most computer scientists agree, Bitcoin would not work.
But there is disagreement over the real value of Bitcoin and the network that supports it.
For people who consider Bitcoin nothing more than a speculative bubble — or a speculative bubble that has enabled online drug sales and ransom payments — any new contribution toward global warming is probably not worth it.
But Bitcoin aficionados counter that it has allowed for the creation of the first financial network with no government or company in charge. In countries like Zimbabwe and Argentina, Bitcoin has sometimes provided a more stable place to park money than the local currency. And in countries with more stable economies, Bitcoin has led to a flurry of new investments, jobs and start-up companies.
“Labeling Bitcoin mining as a ‘waste’ is a failure to look at the big picture,” Marc Bevand, a miner and analyst, wrote on his blog. The jobs alone, he added, “are a direct, measurable and positive impact that Bitcoin already made on the economy.”
But even some people who are interested in all that innovation have worried about the enormous electrical use.
Mr. de Vries, who keeps track of the use on the site Digiconomist, estimated that each Bitcoin transaction currently required 80,000 times more electricity to process than each Visa credit card transaction, for example.
“Visa is more centralized,” Mr. de Vries said. “If you really distrust the financial system, maybe that is unattractive. But is that difference really worth the additional energy cost? I think for most people that is probably not worth the case.”
The figures published by Mr. de Vries have been criticized by Mr. Bevand and other Bitcoin fans, who say they overstate the energy costs by a factor of about three. Many critics add that producing and securing physical money and gold also require lots of energy, in some cases as much as or more than Bitcoin uses.
Mr. Van Valkenburgh, of the Coin Center, has argued that Bitcoin miners, who can do the work anywhere, have an incentive to situate themselves near cheap, often green energy sources, especially now that coal-guzzling China appears to be exiting the mining business. Several mining companies have opened server farms near geothermal energy in Iceland and hydroelectric power in Washington State.
But the concerns about electricity use have still hit home with many in the industry. The virtual currencies known as Ripple and Stellar, which were created after Bitcoin, were designed not to require electrically demanding mining.
Perhaps the biggest change could come from the new mining process proposed by Mr. Buterin for Ethereum, a process that some smaller currencies are already using. Known as “proof of stake,” it distributes new coins to people who are able to prove their ownership of existing coins — their stake in the system. The current method, which relies so heavily on computational power, is called “proof of work.” Under that method, the accounts and people who get new coins don’t need existing tokens. They just need lots of computers to take part in the computational race.
Energy concerns are not the only factor encouraging the move. Mr. Buterin also believes that the new method, which is likely to be rolled out over the next year, will allow for a less centralized network of computers overseeing the system.
But it is far from clear that the method will be as secure as the one used by Bitcoin. Mr. Buterin has been fiercely attacked by Bitcoin advocates, who say his proposal will lose the qualities that make virtual currencies valuable.
Mr. Van Valkenburgh said that for now, throwing lots of computing power into the mix — and the electricity that it burns — was the only proven solution to the problems Bitcoin solves.
“At the moment, if you want robust security, you need proof of work,” he said.
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The Consumer Price Index Rose 0.5% in January To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/14/2018
The Consumer Price Index (CPI) rose 0.5% in January, coming in above the consensus expected increase of 0.3%. The CPI is up 2.1% from a year ago.
Energy prices rose 3.0% in January, while food prices increased 0.2%. The "core" CPI, which excludes food and energy, increased 0.3% in December, above the consensus expected rise of 0.2%. Core prices are up 1.8% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – declined 0.2% in January but are up 0.8% in the past year. Real average weekly earnings are up 0.4% in the past year.
Implications: New Fed Chief Jerome Powell has his work cut out for him, with consumer prices in January rising at the fastest monthly pace in more than five years. The consumer price index rose 0.5% in January and is up 2.1% in the past year, marking a fifth consecutive month of year-to-year prices rising more than 2%. In the past three months, CPI is up at a 4.4% annual rate, showing clear acceleration above the Fed's 2% target. A look at the details of today's report shows rising prices across most major categories. Energy prices increased 3% in January, while food prices rose 0.2%. But even stripping out volatile food and energy prices shows rising inflation. "Core" prices rose 0.3% in January, the fastest monthly pace since 2005. Core prices are up 1.8% in the past year, but are showing acceleration in recent months, up at a 2.6% annual rate over the past six-months and a 2.9% rate in the past three months. In other words, both headline and core inflation stand above the Fed's 2% target, and both have been rising of late. Housing costs led the increase in "core" prices in January, rising 0.2%, and up 2.8% in the past year. Meanwhile prices for services rose 0.3% in January and are up 2.6% over the past twelve months. Both remain key components pushing "core" prices higher and should maintain that role in the year ahead. The most disappointing news in today's report is that real average hourly earnings declined 0.2% in January. However, these earnings are up 0.8% in the past year. And, given the strength of the labor market, with the unemployment rate at the lowest level in more than a decade and headed lower, paired with a pickup in the pace of economic activity thanks to improved policy out of Washington, expect upward pressure on wages in the months ahead. Add it all up, and the Fed is on track to raise rates at least three times in 2018, with a fourth rate hike more likely than not.
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The Producer Price Index Rose 0.4% in January To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/15/2018
The Producer Price Index (PPI) rose 0.4% in January, matching consensus expectations. Producer prices are up 2.7% versus a year ago.
Energy prices rose 3.4% in January, while food prices declined 0.2%. Producer prices excluding food and energy increased 0.4%.
In the past year, prices for goods are up 3.3%, while prices for services are up 2.3%. Private capital equipment prices increased 0.5% in January and are up 2.5% in the past year.
Prices for intermediate processed goods rose 0.7% in January and are up 4.6% versus a year ago. Prices for intermediate unprocessed goods increased 0.9% in January and are up 2.5% versus a year ago.
Implications: Producer prices jumped in January, rising 0.4% as nearly every major category showed increased prices. And producer prices are up 2.7% in the past year, exceeding the Fed's 2% inflation target. This follows suit with yesterday's CPI report that shows inflation pressures have been picking up of late, and it's not difficult to see why. The Federal Reserve is running an incredibly loose monetary policy. Yes, the Fed Funds rate is slowly and steadily on the rise, but there are still more than two trillion dollars of excess reserves in the banking system, and monetary policy won't be tight until that excess slack is removed. This is especially true because anti-bank attitudes and regulation have been reversed, which reduces the headwinds to monetary growth. To put it mildly, new Fed Chair Jerome Powell and the rest of the FOMC have their work cut out for them. Taking a look at the details of today's PPI report shows rising costs for hospital services, apparel, and gasoline leading the way. Energy, led by a 7.1% jump in gasoline prices, increased 3.4% in January. Meanwhile food prices declined 0.2% in January. Strip out the typically volatile food and energy groupings, and "core" producer prices rose 0.4% in January and are up 2.2% in the past year. For comparison, "core" prices rose 1.4% in the twelve months ending January 2017, and were up 0.8% in the twelve months ending January 2016. And a look further down the pipeline shows the trend higher should continue in the year to come. Intermediate processed goods rose 0.7% in January and are up 4.6% from a year ago, while unprocessed goods increased 0.9% in January and are up 2.5% in the past year. Both categories have seen a pickup in price increases over the past six and three-month periods. Given these figures, and with employment growth remaining strong and inflation rising, we expect four rate hikes in 2018. On the jobs front, initial jobless claims rose 7,000 last week to 230,000, while continuing claims rose 15,000 to 1.942 million. Both measures remain near the lowest levels seen in decades, so look for another solid jobs report in February, although heavy snow in parts of the country might put some temporary downward pressure on payrolls for the month. If so, don't fall into the trap of thinking the good times are over. Job gains should rebound in the following months.
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[Wesbury] Energy prices rose 3.4% in January, while food prices declined 0.2%. Producer prices excluding food and energy increased 0.4%.
These sound like ordinary fluctuations to me. Minimum wage increases however that went into effect Jan 1 in several states, more money for the same work value, are inflationary, IMHO.
https://www.usatoday.com/story/money/2017/12/19/minimum-wage-hikes-18-states-20-cities-lift-pay-floors-jan-1/961213001/
Our acceptance, goal, of 2% inflation, and willingness to drive it up further and faster than that is more damaging than we know.
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http://www.mauldineconomics.com/frontlinethoughts/inflation-and-honest-data
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The Meaning of Bitcoin’s Volatility
Cryptocurrency may be a leading indicator for traditional assets such as stocks, bonds and credit.
The Meaning of Bitcoin’s Volatility
Photo: Getty Images/iStockphoto
By Kevin Warsh
March 7, 2018 6:41 p.m. ET
21 COMMENTS
Bitcoin, despite its name, isn’t money. Its price volatility significantly diminishes its usefulness as a reliable unit of account or an effective means of payment. Bitcoin might, however, serve as a sustainable store of value, like gold. Even if you’re not buying cryptoassets, bitcoin’s boom-and-bust cycle is worth watching. It may foretell of heightened market volatility to come and significant imbalances across a broad swath of financial assets.
The underlying technology, blockchain, is a significant breakthrough. Bitcoin’s computer code was unveiled on Jan. 3, 2009, by the pseudonymous Satoshi Nakamoto. It deftly allows participants, who may not know or trust one another, to complete transactions without having to rely on any centralized governance regime. Most of us can’t read the code, but in bitcoin’s “genesis block” its creator inserted a curious bit of text, a headline from a U.K. newspaper that day: “Chancellor on brink of second bailout for banks.” Bitcoin’s founding spirit is evident, too, in what its founder wrote shortly thereafter: “The root problem with conventional currency is all the trust that’s required to make it work.”
Bitcoin’s earliest disciples included technologists and libertarians, along with a few doomsayers who feared catastrophe and currency debasement in the aftermath of the financial crisis. Still, the breadth of interest in cryptocurrencies—and bitcoin’s price—increased smartly. By Election Day 2016, one bitcoin was worth about $700.
Then last year, buyer interest in bitcoin exploded. As the price kept climbing—past $2,000, then $5,000, then $10,000—the innovators were followed by imitators. Everyone from Uber drivers to grandmothers wanted in on the action. So did Wall Street pros, in pursuit of new assets under management. The price finally peaked at nearly $20,000 in December.
What caused the bitcoin fever of 2017? Euphoria is a part of the human condition, but also important were the changing contours of the global economy and economic policy.
First, the election of President Trump reinvigorated animal spirits. Investors and CEOs began to expect pro-growth changes in regulatory and tax policy. The outlook for economic growth, both in the U.S. and abroad, improved markedly. The Fed raised short-term interest rates four times between Election Day and the end of 2017. But broader financial conditions—including the all-in cost and availability of credit across financial markets—were looser nonetheless.
This economic backdrop made bitcoin and other alt-currencies look like a one-way bet. If loose financial conditions continued, risk assets like stocks and newfangled cryptocurrencies would be bid up. If stronger growth brought higher inflation, causing the Fed to raise rates faster than expected, then bitcoin would be a haven from the volatility affecting other financial assets.
Second, investors, while decidedly upbeat overall, worried that the Trump administration’s trade policy might include a sustained bout of mercantilism, including dollar devaluation aimed at bolstering American exports in the short term. Administration authorities suggested a preference for a weaker dollar. And markets obeyed: The dollar lost 12% of its value against a trade-weighted basket of foreign currencies during 2017. Investors looking for another store of value found bitcoin and other cryptocurrencies, whose prices escalated accordingly.
Third, trust in institutions plummeted amid the 2016 election. The Edelman Trust Barometer, a survey conducted in October and November, reported that in the U.S. “trust has suffered the largest-ever-recorded drop in the survey’s history.” The trend was driven “by a staggering lack of faith in government, which fell 14 points to 33 percent among the general population.” Another boost to cryptocurrencies.
The euphoria dissipated somewhat earlier this year. Two-way volatility jumped. Bitcoin dropped more than half from its December peak, before recovering somewhat in the past month to about $10,000. The other largest alt-currencies traded similarly. Investors are now recalibrating their expectations of government policy. Mr. Trump’s mercantilist rhetoric may prove more than a negotiating tactic, auguring new tariffs and trade restrictions the world over. Economic isolationism would do great harm to our economic growth prospects. The Treasury should understand, too, that denigrating the world’s reserve currency is particularly ill-advised.
Jerome Powell, the new Fed chairman, might cause the institution to think anew about how best to conduct monetary policy. The Fed might also prudently consider introducing its own digital currency to gain the benefits of innovation without sanctioning the illicit behavior that bitcoin and its brethren have attracted. Most cryptocurrencies on the market today will turn out to be worthless. But a new generation of cryptocurrencies is on the horizon, some of which might possess more of the attributes of money, better satisfying bitcoin’s founding purpose.
Bitcoin is particularly sensitive to new uncertainties in the conduct of economic policy. Bitcoin’s surge in volatility in December and January thus presaged the past month’s volatility in more traditional and consequential financial assets, including stocks, bonds and credit. When the tide goes out, the excesses in other financial asset classes will be more apparent. And bitcoin may well have shown the way.
Mr. Warsh, a former member of the Federal Reserve Board, is a distinguished visiting fellow in economics at Stanford University’s Hoover Institution.
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1. Interest rate raised 1/4 point, sixth increase since the Fed determined that Barack Obama will not be blamed if this kills off his zero growth.
"Central bankers, led by Jerome Powell in his first meeting as chairman, approved the widely expected quarter-point hike that puts the new benchmark funds rate at a target of 1.5 percent to 1.75 percent. It was the sixth rate hike since the policymaking Federal Open Market Committee began raising rates off near-zero in December 2015."
2. Fed raises growth forecast? Why?? I thought tax cuts had nothing to do with economic growth in the eyes of these Keynesian, government interventionists.
"Fed officials raised their forecast for 2018 GDP growth from 2.5 percent in December to 2.7 percent, and increased the 2019 expectation from 2.1 percent to 2.4 percent.". (same link)
Let me get this straight. Under Obama, at least the first seven years of Obama, we got to full employment they said, had a fully recovered economy in words, but in actions the economy was too fragile in the eyes of the Fed to raise interest rates off of their zero interest rate policy. Raising interest rates could kill off fragile and miniscule growth! But yesterday the Fed raised both the interest rate again and the growth projection. Am I missing something - did something change - like that tax rate cuts do in fact cause growth?
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Flashback: The Fed’s economic forecasts have been too optimistic for the past 10 years
https://qz.com/1018721/the-us-federal-reserve-has-been-overoptimistic-about-gdp-growth-in-every-forecast-since-2007/
They are the most highly funded economic research organization in the world, are they not? They missed the crash. They over-estimated growth every quarter since Dems took congress in 2007 promising tax hikes, and over-estimated growth every year of Obama's anti-growth agenda. How did this happen? They didn't know that growing spending, tax rates and burden of government on the private sector was anti-growth.
Now that we are back to pro-growth policies and they are inching up their projections but are happy to under-estimate growth?
Among the Fed fallacies: Believing year after year that their own policies will create growth when they don't. They assumed that an economy with the worst male workforce participation in the nation's history was at full employment when it wasn't. they believed that placing punitive taxes on 'the rich', capital and employers doesn't curtail growth; that is a rejection of capitalism, is it not? Marxist, if one had to put a label on it. To keep doing that year after year is anti-science and anti-math.
Why don't we fire [agenda-based] incompetence? Instead Trump chose Yellen's right hand man to be his Fed chair. Funny that no one here has listed that as an 'accomplishment'.
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Reality Check
By Jacob L. Shapiro
The Petrodollar Has Been in Decline for Years
Global confidence in the dollar isn’t waning simply because the U.S. is buying less foreign oil.
The petrodollar is in decline. This is not because it is now possible, as of March 26, to buy yuan-denominated oil futures on the Shanghai International Energy Exchange. It is because the United States does not buy as much oil as it used to.
Since 2012, U.S. crude oil production has been increasing thanks to technological advances in hydraulic fracturing and horizontal drilling. A byproduct of the United States’ reducing its reliance on oil imports and becoming an oil exporter is that countries dependent on oil sales need new customers. The most promising new customer is China, which last year surpassed the U.S. as the world’s largest oil importer. China, understandably, would like to pay for oil in yuan rather than dollars, and beggars like Saudi Arabia can’t afford to be choosers. It would be a mistake, however, to conclude that the decline of the petrodollar also portends the decline of the dollar’s status as the world’s reserve currency.
Peak Influence
To understand the consequences of the petrodollar’s demise, it is necessary to remember that the impetus for the creation of the petrodollar system was not strictly economic – it was also strategic. The Middle East was one of the main areas of competition between the Soviet Union and the United States during the Cold War. The U.S. wanted to ensure that it would always have access to the oil produced by OPEC countries, which at the time accounted for more than half of total oil production. To do so, Washington offered Saudi Arabia and other Gulf oil producers weapons and protection. In exchange, they agreed to accept the dollar exclusively for oil sales and to invest their revenue into U.S. Treasuries. The economics benefited both sides, but Cold War strategic challenges were just as important, if not more so.
All of this has since changed. OPEC now produces only about 40 percent of the world’s oil, and the days when it could dictate global oil prices are over. The U.S. is one of the key reasons: It has surpassed Saudi Arabia in both recoverable oil reserves and total hydrocarbon production, and U.S. shale production has put a ceiling on the price of oil. In addition, the U.S. has become a significant oil exporter, increasing exports by a factor of 20 in the past four years, which means the U.S. has gone from major consumer of Saudi oil to competitor practically overnight. In 1977, the U.S. imported 1.38 million barrels of oil per day from Saudi Arabia. In 2012, that figure had not changed much – just under 1.37 million bpd. Since then, U.S. oil imports from Saudi Arabia have fallen by 30 percent to 949,000 bpd.
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Saudi Arabia’s strategic importance to the U.S. has also slipped. U.S. involvement in the Middle East is no longer about collecting allies to oppose Soviet acolytes. What the U.S. needs more than anything in the Middle East are partners strong enough to manage the region’s chaos without running to Washington for help every time the Houthis fire a missile or the Iranians develop a new proxy. The U.S. has also not forgotten Saudi Arabia’s use of radical Islamist proxies and the Saudis’ involvement in the spread of radical Islamist ideologies, which played a major role in the formation of groups such as al-Qaida and the Islamic State. The U.S., which has been trying to extricate itself from its wars in the Muslim world for 17 years, now faces an aggressive Iran and a defiantly independent Turkey, and its Saudi ally has been no help.
While the U.S. is weaning itself off foreign oil, China is growing more dependent. This does not come without certain benefits for Beijing. The U.S. is a prime example of the power consumers hold over producers, especially in a world where most countries export more than they can use. But unlike the U.S., China does not have the benefit of being able to access the world’s oceans at will. Also unlike the U.S., China cannot offer a country like Saudi Arabia much in the way of security or protection. And even as the yuan’s usage increases, countries will still value the dollar over all currencies for reasons that have nothing to do with what currency China uses to pay its oil suppliers.
Quantifying Confidence
The dollar was established as the world’s reserve currency at the 1944 Bretton Woods Conference. It is true that the rise of the petrodollar helped the dollar maintain this position in the 1970s after President Richard Nixon took steps that led to taking the U.S. off the gold standard. But just because there was once a direct link between the dollar’s position as a global reserve currency and the petrodollar system does not mean the link is still definitive.
This is not to say the decline of the petrodollar system will be without consequence. The quantity of dollars abroad matters, and since the U.S. will be buying less oil, there will be fewer dollars abroad. But the dollar will retain its position as the global reserve currency as long as it is seen as the safest and most reliable currency one can hold, and there is little reason to think global confidence in the dollar is waning simply because the U.S. is buying less foreign oil.
Confidence can be tricky to quantify, but global preference for the dollar is not abstract. The latest data from the International Monetary Fund shows that in the third quarter of 2017, 54 percent of official foreign exchange reserves were held in U.S. dollars. That was an increase of 13 percent over the previous year, which means the U.S. position is not only dominant – it is increasing. By comparison, just 1 percent of foreign exchange reserves were held in Chinese renminbi in the third quarter. The Bank for International Settlements, which produces a survey of foreign exchange turnover every three years, revealed in its latest edition in December 2016 that the yuan was used in 4 percent of foreign exchange transactions in 2016, just barely more than that of the Mexican peso. By comparison, the U.S. dollar was used in 88 percent of foreign exchange transactions.
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China can certainly strong-arm countries into using yuan to increase its global usage. But being able to force countries like Saudi Arabia or Venezuela to use yuan is very different from countries choosing to use the yuan because it is preferable to the alternatives.
To vie for global reserve currency status, China does not need an oil futures market – it needs to prove it can carry out transparent monetary policy, refrain from routinely manipulating the yuan’s value and lift capital controls. China is light-years from all three. What China can do with this move is increase the use of the yuan in the world.
Ironically, as China does this, it will become more dependent on the Middle East and on maritime trade routes to get there, just as the U.S. is becoming less dependent on the same. This will increase China’s need to develop power-projection capabilities and may bring it into conflict with the prevailing world order. In the meantime, as long as Saudis and speculators are the only ones taking yuan, the dollar’s position as global reserve currency should be safe.
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Trump picked Powell because he wouldn't move as fast to right-size interest rates where the choice of Taylor would have more certainly meant a move toward rules-based monetary policy. Nonetheless, with no Obama to protect anymore, the Fed started to talk about the Taylor rule and more objective and responsible policy making.
Squeezing all that went wrong in monetary policy out in any sudden way will have winners and losers. Happily I paid off the end of my adjustable debt just in time for these increases and am now making over 1% on my savings.
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https://economicsone.com/2018/03/13/monetary-policy-getting-back-on-track/
On January 18 of last year, former Chair Janet Yellen described the Fed’s strategy for the policy instruments, saying that “When the economy is weak…we encourage spending and investing by pushing short-term interest rates lower….when the economy is threatening to push inflation too high down the road, we increase interest rates…” In a speech the following day, she compared this strategy with the Taylor rule and other rules, and she explained the differences.
On July 7 of last year, the Fed added, for the first time ever, a whole new section on “Monetary Policy Rules and Their Role in the Federal Reserve’s Policy Process” in its Monetary Policy Report . It noted that “key principles of good monetary policy” are incorporated into policy rules. It listed specific policy rules, including the Taylor rule and variations on that rule. It showed that the interest rate was too low for too long in the 2003-2005 period according to the Taylor rule. It showed that, according to three of the rules, the current fed funds rate should be moving up.
On February 23 of this year, the Fed, now with new Chair Jerome Powell, again included a whole section on policy rules in its latest Monetary Policy Report, elaborating on last July’s Report and thus indicating that the new approach will continue.
On February 27 and March 1 of this year, in his first testimony in the House and Senate as Fed Chair, Jerome Powell referred explicitly to making monetary policy with policy rules.
https://www.federalreserve.gov/newsevents/testimony/files/powell20180227a.pdf
https://economicsone.com/2018/03/13/monetary-policy-getting-back-on-track/
https://www.federalreserve.gov/monetarypolicy/policy-rules-and-how-policymakers-use-them.htm
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This is from Denny S' site, Software Times:
The three rules of money
Trust that people will freely accept it in payment at full value
Transferability
Security that it cannot be counterfeit
http://softwaretimes.com/files/money+2-0.html
We need to get Denny's Pearl's of Wisdom posted on the forum.
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My recollection of the three rules of money is slightly different:
1. It is better to have money than to not have it.
2. More is better than less.
3. Sooner is better than later.
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I know ccp said recently he doesn't have time for GG anymore but I would point out that for what he got wrong on some investments he also got a whole lot of things right on economics and technology.
There has long been a big divide between different conservatives on money, cf. Robert Bartley versus Milton Friedman. In the case of the Gilder, he says in the 2017 article that he was wrong in the 2016 book. In any case, this is quite interesting stuff IMHO to ponder and there is plenty of truth in these writings no matter what you think of his conclusions and proposals.
https://www.cnbc.com/2016/04/05/the-fed-is-a-god-that-has-failed-george-gilder-commentary.html
http://thefederalist.com/2017/02/06/heres-trump-can-fix-broken-international-trading-system/#.WJs6xb698P0.twitter
He is right on a number of things (if not all).
Both parties use the Fed to cover up fiscal failings. Fed Policy makes the huge budget deficits possible.
Zero interest rates, if you don't allocate money by price then you are doing it with other criteria. It all goes to government big, S&P 500 companies and doesn't finance 'mainstreet'. [I was saying during the whole Obama 'recovery' that the 'markets' are indexes for entrenched players, not for the dynamic economy.]
Venture capital investment in 2014 is one-third of what it was in 2000.
There were half as many IPOs in 2015 as in 2000, and they were mostly focused on a few large deals.
In 1999, there were seven times more IPOs than mergers and acquisitions for tech companies. Today merger and acquisitions outnumber IPOs by almost 36 to 1
[I had been saying over that period, lowest real business startup rate in history. This is data along those same lines]
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https://www.youngresearch.com/researchandanalysis/currencies-and-gold/steve-forbes-heres-why-cryptocurrencies-arent-money/?awt_l=PWy8k&awt_m=3XAKAav3Z6zlu1V
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The Consumer Price Index Rose 0.2% in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/12/2018
The Consumer Price Index (CPI) rose 0.2% in May, matching consensus expectations. The CPI is up 2.8% from a year ago.
Energy prices increased 0.9% in May, while food prices were unchanged. The "core" CPI, which excludes food and energy, increased 0.2% in May, also matching consensus. Core prices are up 2.2% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – rose 0.1% in May but are unchanged in the past year. Real average weekly earnings are up 0.3% in the past year.
Implications: Rising costs for gasoline and housing led the consumer price index 0.2% higher in May, continuing the uptrend in inflation that started in late 2015. Consumer prices are now up 2.8% in the past year, the largest twelve-month increase since early 2012. More important than reaching a recent high, consumer price inflation has now exceeded 2.0% on a twelve-month basis in each of the last nine months. In other words, this isn't a blip higher that is likely to reverse in a month or two ahead. The (modest) pickup in inflation that the Fed has been looking for is here. Now the onus is on the Fed not to fall behind the curve. Taking a deeper look at today's report, energy prices as a whole rose 0.9% in May, with a jump in gasoline prices only partially offset by declining costs for natural gas (think home heating) as the US saw the warmest May on record. Meanwhile food prices were unchanged in May as lower costs at the grocery store offset increased prices for eating out. Strip out the typically volatile food and energy components, and "core" prices increased 0.2% in May and are now up 2.2% in the past year. A closer look at "core" prices shows housing once again led the increase, and we expect housing costs to continue to be a key driver of overall inflation in year ahead. On the wages front, real average hourly earnings rose 0.1% in May. These inflation-adjusted hourly earnings have shown little movement over recent months, however this earnings data does not include irregular bonuses – like the ones paid by companies after the tax cut. We expect a visible pickup in wage pressures in the year ahead. Paired with continued strength in employment, the trend in inflation has essentially locked in a rate hike at tomorrow's Fed meeting, and we expect two more hikes (likely in September and December) to follow, for a total of four hikes in 2018.
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The Producer Price Index (PPI) Increased 0.5% in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/13/2018
The Producer Price Index (PPI) increased 0.5% in May, coming in well above the consensus expected rise of 0.3%. Producer prices are up 3.1% versus a year ago.
Energy prices rose 4.6% in May, while food prices rose 0.1%. Producer prices excluding food and energy increased 0.3% in May and are up 2.4% in the past year.
In the past year, prices for goods are up 4.4%, while prices for services are up 2.4%. Private capital equipment prices increased 0.4% in May and are up 3.1% in the past year.
Prices for intermediate processed goods rose 1.5% in May and are up 6.3% versus a year ago. Prices for intermediate unprocessed goods increased 2.5% in May and are up 6.8% versus a year ago.
Implications: Any lingering shred of doubt that the Fed will raise rates later today can be put to rest. Producer prices rose 0.5% in May, matching the largest single-month increase in more than five years. More important, producer prices are up 3.1% in the past year, a ninth consecutive month of prices rising at or above 2.5% on a year-to-year basis, and the largest twelve-month increase since January of 2012. And price gains have been accelerating, up 3.2% at an annual rate in the past six months, and up at a 3.5% annual rate over the last three. While energy prices led the rise in May, jumping 4.6%, prices rose nearly across the board. Even stripping out energy and the 0.1% increase in food prices, "core" producer prices rose 0.3% in May and are up 2.4% in the past year. The increase in core prices was led by trade services (think margins to wholesalers), as well as transportation and warehousing services. To put the rising trend in perspective, core prices rose 2.0% in the twelve months ending May 2017, and 1.2% in the twelve months ending May 2016. And a look further down the pipeline shows the trend of rising inflation is likely to continue in the months ahead. Intermediate processed goods rose 1.5% in May, and are up 6.3% from a year ago, while unprocessed goods prices increased 2.5% in May and are up 6.8% in the past year. In short, inflation is running comfortably above the Fed's 2% inflation target, and, with job growth remaining robust, pressure is on the Fed not to fall behind the curve. In addition to a 25 basis point rate hike today, look for updates in projection materials - the "dot plot" - to show a shift in FOMC member expectations towards two more hikes in 2018 (so including today's hike, four total this year), with three to four hikes anticipated in 2019. As we noted Monday, this pace of hikes is no reason to fear. Monetary policy isn't becoming tight, just a little less loose.
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https://www.wsj.com/articles/u-s-inflation-hits-six-year-high-in-may-1530278981?mod=hp_lead_pos3
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Stein, Deputy Chief Economist
Date: 7/11/2018
The Producer Price Index (PPI) increased 0.3% in June, coming in above the consensus expected rise of 0.2%. Producer prices are up 3.4% versus a year ago.
Energy prices rose 0.8% in June, while food prices declined 1.1%. Producer prices excluding food and energy increased 0.3% in June and are up 2.8% in the past year.
In the past year, prices for goods are up 4.3%, while prices for services are up 2.8%. Private capital equipment prices increased 0.3% in June and are up 3.5% in the past year.
Prices for intermediate processed goods rose 0.7% in June and are up 6.8% versus a year ago. Prices for intermediate unprocessed goods declined 1.0% in June but are up 5.8% versus a year ago.
Implications: Through the first half of 2018, producer prices rose at the fastest pace to start a year since 2011. And, at 3.4%, the increase in producer prices over the past year stands well above the Fed's 2% inflation target (for comparison, producer prices rose 1.9% in the twelve months ending June 2017 and 0.2% in the twelve months ending June 2016). While ever-volatile food and energy prices continue to play a role, stripping out those components still shows "core" prices up 2.8% in the past year. No matter how you cut it, inflation has the Fed on notice. And with our expectation of two more hikes this year (for a total of four in 2018) now the consensus – and Fed - expectation, the sights are set on 2019, where we expect to see another four rate hikes. Taking a look at the details of today's report shows producer prices rose 0.3% in June on the back of May's hefty 0.5% increase – tied for the largest monthly jump in more than five years. "Core" prices rose 0.3% in June, with the increase in core prices led by trade services (think margins to wholesalers). Given the elevated levels of order backlogs reported by both manufacturing and service sector firms in the ISM reports, we expect this trend to continue in the months to come until firms can either increase capacity or find qualified workers to fill positions – a task that has become increasingly difficult in a tight labor market. A look further down the pipeline also suggests rising inflation to come. Intermediate processed goods rose 0.7% in June, and are up 6.8% from a year ago, while unprocessed goods prices declined 1.0% in June but remain up 5.8% in the past year. In short, neither inflation nor employment – the two components of the Fed's dual mandate - give the Fed any reason to slow down the pace of raising rates. Monetary policy isn't close to being tight, and steady, gradual hikes this year and next won't change that.
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The Consumer Price Index Rose 0.1% in June To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/12/2018
The Consumer Price Index (CPI) rose 0.1% in June, coming in below the consensus expected +0.2%. The CPI is up 2.9% from a year ago.
Food prices increased 0.2% in June, while energy prices declined 0.3%. The "core" CPI, which excludes food and energy, increased 0.2% in June, matching the consensus. Core prices are up 2.3% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – rose 0.1% in June but are unchanged in the past year. Real average weekly earnings are up 0.2% in the past year.
Implications: Consumer prices increased less than the consensus expected in June, but are up 2.9% in the past year, the largest 12-month increase since 2011-12 and well above the Federal Reserve's 2.0% inflation target. While rising energy prices have certainly contributed to the trend since oil prices bottomed in early 2016, inflation has been broad-based. "Core" consumer prices – which exclude both food and energy costs – rose 0.2% in June and are up 2.3% in the past year. More important, this is a trend, not a one-month anomaly. Consumer price inflation has now exceeded 2.0% on a twelve-month basis in each of the last ten months, while "core" prices have surpassed 2.0% on a twelve-month basis for each of the last four months. To put the rise in perspective, consumer prices increased 1.6% for the twelve-months ending June 2017 and 1.0% for the twelve-months ending June 2016. Taking a deeper look at today's report shows energy prices declined 0.3% in June, as rising gasoline prices were more than offset by lower costs for natural gas and electricity. Meanwhile food prices rose in June, led higher by dairy products, fruits, and vegetables. Stripping out the food and energy components shows the 0.2% increase in core prices was once again led by owners equivalent rent (the amount an owner would need to pay in order to rent their home on the open market). On the wages front, real average hourly earnings rose 0.1% in June. These inflation-adjusted hourly earnings have shown little movement over recent periods, however this earnings data does not include irregular bonuses – like the ones paid by companies after the tax cut or to attract new hires. We expect a visible pickup in wage pressures in the year ahead. Paired with continued strength in employment, the trend in inflation has put pressure on the Fed to keep up the pace of steady rate hikes. Expect two more hikes this year (for a total of four in 2018) with four more to follow in 2019, leaving monetary policy still accommodative but at a much more appropriate level given the pace of economic growth. In other news this morning, initial jobless claims declined 18,000 to 214,000. Continuing claims declined 3,000 to 1.74 million. These figures suggest jobs creation continues at a solid clip.
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Yield Curve Inversion To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/16/2018
The yield spread between the 2-year and 10-year Treasury Note has narrowed to 25 basis points, its smallest spread since 2007. This has many investors worried the narrowing spread will lead to an inversion of the yield curve (when short-term rates exceed long-term rates) – which throughout history has often occurred prior to a recession.
In reality, an inverted yield curve simply means long-term investors expect short-term rates to fall in the future. A 2-year bond is just two 1-year bonds, one after another. So if the 2-year yield is below the 1-year yield, then investors are saying the yield on the 1-year bond, one year from now, is expected to be lower.
For the record, an inverted yield curve does not cause a recession. Typically, the yield curve inverts because the Fed drives short-term interest rates too high and over-tightens monetary policy. It's this tight monetary policy that causes the recession, the inversion is a symptom of the bigger issue. Investors, realizing the Fed is too tight, push long-term rates down because they expect the Fed to reduce short-term rates in the future. It's the overly-tight Fed that causes both the recession and the inverted yield curve.
This is why we do not believe the current narrowing yield spread signals looming recession. The Fed is far from being tight. Short-term rates remain well below the pace of nominal GDP growth, and even below many measures of inflation. As a result, rates are likely to rise in the future, not fall. If anything, the 10-year Treasury note appears overvalued – possibly in a bubble (meaning yields on the 10-year Treasury are far too low).
But just like most overvalued markets, investors seek ways to justify it. In 1999, despite weak - or no - earnings growth, the US stock market became massively overvalued. By our measures, over 60% above fair value.
This has now apparently happened to the Treasury market. Justification for low yields include low foreign yields, an imminent recession, and a belief the Fed is (or will soon become) too tight.
Nominal GDP (real growth plus inflation) grew 4.7% in the four quarters ending in March, and looks to have grown even faster in the four quarters ending in June. At 2.83%, the 10-year Treasury note yield is 187 basis points below nominal GDP growth. For comparison, over the past 20 years (1997-2017) – the 10-year Note yield averaged just 43 basis points less than nominal GDP growth. In other words, today's spread is substantially – and we think unsustainably - larger than its 20-year average.
Nominal GDP growth is a good proxy for a "natural or neutral" rate of interest because it's the average rate of growth in the economy – a reasonable proxy for investment returns. Some companies grow much faster than GDP, some grow much slower.
If interest rates are well below nominal GDP, then companies growing less than average are encouraged to borrow. But this makes no economic sense. It's "malinvestment"...investment that hurts growth and slows the creation of wealth. In other words, interest rates today are well below levels justified by fundamentals.
More importantly, the economy is accelerating, and the Fed is chasing both rising real growth and rising inflation. Even if the Fed lifts rates to 3.5% by the end of 2019 (which would require six more rate hikes at the current pace), the Fed will still not be tight relative to nominal GDP growth. So, the odds of a recession in the next few years remain very low even if we get a technical inversion.
That said, we don't expect the yield curve to invert in the near future. It may. But if it does, it just means that the bubble in long-term rates still exists. At some point that will cease. It won't be pretty for long-term bond holders, but at least it should end the inversion-recession fears.
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Good analysis by Wesbury. )
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Data Watch
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The Producer Price Index was Unchanged in July To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/9/2018
The Producer Price Index (PPI) was unchanged in July, coming in below the consensus expected rise of 0.2%. Producer prices are up 3.3% versus a year ago.
Energy prices declined 0.5% in July, while food prices declined 0.1%. Producer prices excluding food and energy increased 0.1% in July and are up 2.7% in the past year.
In the past year, prices for goods are up 4.5%, while prices for services are up 2.6%. Private capital equipment prices increased 0.3% in July and are up 3.4% in the past year.
Prices for intermediate processed goods were also unchanged in July but are up 6.8% versus a year ago. Prices for intermediate unprocessed goods rose 2.7% in July and are up 8.2% versus a year ago.
Implications: Producer prices were flat in July – the first month of 2018 not to show an increase of at least 0.2% - as declining prices in a few select sectors held down inflation. But even with the flat reading in July, the producer price index is up 3.3% in the past year, behind just last month for the largest twelve-month increase going back to late 2011. A look at the details in July shows the ever-volatile food and energy sectors declined 0.1% and 0.5%, respectively. Strip out these two components, and "core" prices rose 0.1% in July and are up 2.7% in the past year. In other words, both core and headline PPI measures show inflation easily exceeds the Fed's 2% inflation target, reinforcing our projection for two more rate hikes this year and four hikes in 2019. In addition to declines in food and energy prices, trade services prices (think margins to wholesalers and retailers) also dropped 0.8% in July. This was likely the result of companies accepting smaller margins in the short-term, rather than raise prices for consumers, as input prices increase. A look at recent ISM reports suggests strong order activity paired with difficulty finding qualified labor and freight truck drivers is putting pricing pressure on some industries. Excluding declines in food, energy, and trade services, producer prices rose 0.3% in July. We view July as an aberration and expect monthly data to show higher inflation in the months ahead. In other news this morning, initial jobless claims declined 6,000 last week to 213,000. Continuing claims rose 29,000 to 1.76 million. These figures suggest job creation continues at a healthy pace in August.
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This information contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Data comes from the following sources: Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, the Federal Reserve Board, and Haver Analytics. Data is taken from sources generally believed to be reliable but no guarantee is given to its accuracy.
Follow Brian Wesbury
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I thought real wage growth would be much higher.
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Data Watch
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The Consumer Price Index Rose 0.2% in July To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/10/2018
The Consumer Price Index (CPI) rose 0.2% in July, matching consensus expectations. The CPI is up 2.9% from a year ago.
Food prices increased 0.1% in July, while energy prices declined 0.5%. The "core" CPI, which excludes food and energy, increased 0.2% in July, also matching the consensus. Core prices are up 2.4% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – were unchanged in July but are down 0.2% in the past year. Real average weekly earnings are up 0.1% in the past year.
Implications: Consumer prices continue to march higher, rising 0.2% in July and, at 2.9%, matched June's reading for the largest 12-month increase going back to 2011-12. While rising energy prices have certainly contributed to the trend since oil prices bottomed in early 2016, inflation has been broad-based. "Core" consumer prices – which exclude both food and energy costs – also rose 0.2% in July and are up 2.4% in the past year. More importantly, this is a trend, not a one-month anomaly. Consumer price inflation has now exceeded 2.0% on a twelve-month basis in each of the last eleven months, while "core" prices have surpassed 2.0% on a twelve-month basis for each of the last five months. To put the rise in perspective, consumer prices increased 1.7% for the twelve-months ending July 2017 and 0.8% for the twelve-months ending July 2016. Taking a deeper look at today's report shows energy prices fell 0.5% in July, as prices for gasoline, natural gas, and electricity all declined. Meanwhile food prices rose 0.1% in July, led higher by costs for fruits and vegetables. Stripping out the food and energy components shows the 0.2% increase in core prices was once again led by owners' equivalent rent (the amount an owner would need to pay in order to rent their home on the open market). On the wages front, real average hourly earnings were flat in July and are down 0.2% in the past year. These inflation-adjusted hourly earnings have been stubbornly slow to move, however this earnings data does not include irregular bonuses – like the ones paid by companies after the tax cut or to attract new hires. We expect a visible pickup in wage pressures in the year ahead. Paired with continued strength in employment (see the sneaky-strong July data released last Friday), the trend in inflation has put pressure on the Fed to keep up the pace of steady rate hikes. Expect two more hikes this year (for a total of four in 2018) with four more to follow in 2019, leaving monetary policy still accommodative but at a much more appropriate level given the pace of economic growth.
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Retail Sales Rose 0.5% in July To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/15/2018
Retail sales rose 0.5% in July (+0.1% including revisions to prior months) versus a consensus expected gain of 0.1%. Retail sales are up 6.4% versus a year ago.
Sales excluding autos increased 0.6% in July (+0.4% including revisions to prior months), beating the consensus expected 0.3% gain. These sales are up 7.2% in the past year. Excluding gas, sales were up 0.5% in July and are up 5.1% from a year ago.
The gain in sales in July was led by restaurants & bars, non-store retailers (internet & mail order), and general merchandise stores. The largest decline was for health & personal care stores.
Sales excluding autos, building materials, and gas rose 0.6% in July. If unchanged in August/September, these sales will be up at a 4.6% annual rate in Q3 versus the Q2 average.
Implications: A strong jobs market, growing economy, and higher take-home pay thanks to the tax cuts have consumers feeling great. Retail sales grew for the sixth consecutive month, rising 0.5% in July. And the gains in July were broad-based, with nine of thirteen major categories showing rising sales, led by restaurants & bars, internet & mail order sales, and general merchandise stores. Retail sales are up a strong 6.4% from a year ago (and up an even stronger 7.2% excluding auto sales). Today's report suggests consumer spending started off the third quarter on a strong note, supporting our projection of 4.0 - 4.5% real GDP growth for Q3. Given the tailwinds from deregulation and tax cuts, we expect an average real GDP growth rate of 3%+ in both 2018 and 2019, a pace we haven't seen since 2005. Jobs and wages are moving up, tax cuts have taken effect, consumer balance sheets look healthy, and serious (90+ day) debt delinquencies are down substantially from post-recession highs. Some may point to yesterday's NY Federal Reserve Bank report showing household debts at a record high as reason to doubt that consumption growth can continue. But what the negative headlines didn't mention is that household assets are at a record high, as well. Relative to assets, household debt levels are the lowest in more than 30 years. In other words, there's plenty of room for consumer spending – and retail sales – to continue to trend higher in the months to come. In other news today, the preliminary reading on Q2 nonfarm productivity growth came in at a 2.9% annual rate, beating the consensus expected 2.4%. Productivity is up 1.3% versus a year ago and we expect it to accelerate in the year ahead. Companies have increased business investment, which should generate more output per hour. Meanwhile, the tight labor market should encourage firms to find more efficient ways to produce. On the inflation front, import prices were unchanged in July, while export prices declined 0.5%. The drop in export prices was due to farm products, with soybean prices falling 14.1% and farm products down 5.3% overall, likely the result of recent trade disputes. However, the trend in import and export prices is still upward. Import prices are up 4.8% in the past year, versus a 1.2% gain the year ending July 2017; export prices are up 4.3% in the past year versus a 0.9% increase in the year ending July 2017. Cutting through recent gyrations, more inflation is on the way.
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The Consumer Price Index Rose 0.1% in September To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 10/11/2018
The Consumer Price Index (CPI) rose 0.1% in September, coming in below the consensus expected increase of 0.2%. The CPI is up 2.3% from a year ago.
Energy prices declined 0.5% in September, while food prices were unchanged. The "core" CPI, which excludes food and energy, increased 0.1% in September, below the consensus expected increase of 0.2%. Core prices are up 2.2% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – rose 0.3% in September and are up 0.5% in the past year. Real average weekly earnings are up 1.1% in the past year.
Implications: Consumer prices rose less than expected in September, but the upward trend in inflation remains intact. Consumer prices rose only 0.1% in September, compared to the 0.2% the consensus expected. But in the past eight Septembers (2010-2017), consumer prices have risen as much as expected four times, while rising less than expected four times, so September data may be influenced by some seasonal issues. In other words, investors shouldn't see tepid inflation in September as a shift in the overall upward trend. Look for a rebound in inflation reported a month from now. Even with the soft inflation reading for September, consumer prices are up 2.3% from a year ago and have exceeded the Fed's 2% inflation target for thirteen consecutive months. To put it in a longer-term perspective, consumer prices rose 2.2% for the twelve-months ending September 2017, 1.5% for the twelve-months ending September 2016, and were unchanged for the twelve-months ending September 2015. So, after running stubbornly below the Fed's inflation target for the first five years of the recovery, the question has shifted from "will the Fed wait on raising rates?" to "can the Fed wait on raising rates?" No, this isn't runaway inflation, but with the federal funds rate well below the pace of nominal GDP growth, the odds of higher inflation – paired with a tight labor market and widespread strength in economic data - should be enough to keep the Fed on track for slow-but steady hikes through at least the end of 2019 (think one more this year, and four next year). Energy prices fell in September, declining 0.5% on the back of lower prices for electricity and natural gas. That said, energy prices are still up 4.8% in the past year. Food prices, meanwhile, were unchanged in September. "Core" consumer prices – which exclude both food and energy costs – rose a modest 0.1% in September but are up 2.2% in the past year. Taking a deeper dig into today's report shows the 0.1% increase in core prices was once again led by owners' equivalent rent (the amount an owner would need to pay in order to rent their home on the open market). Meanwhile, a 3% drop in used car and truck prices – which tied the steepest decline for any month since 1969 – as well as declines in prices for hospital services and prescription drugs held down the overall increase in core prices. The best news in today's report was that real average hourly earnings rose 0.3% in September. While these wages are up just 0.5% in the past year, there is clear acceleration, with wages up 1.3% at an annual rate in the past six months, and up at a 1.9% annual rate over the past three months. And importantly, these earnings do not include irregular bonuses – like the ones paid by companies after the tax cut or to attract new hires – or the value of benefits. It's an imperfect measure (to say the least), but we still expect a visible pickup in wage pressure in the year ahead. In employment news this morning, initial jobless claims rose 7,000 last week to 214,000, while continuing claims rose 4,000 to 1.66 million. Both measures stand near multi-decade lows, reiterating the strength of both the labor market and the economy. Note that Hurricane Michael will influence claims reports for at least the next couple of weeks and may temporarily limit job gains in the October employment report, as well.
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What she said :
https://www.cnbc.com/2018/10/30/yellen-says-rising-us-deficit-unsustainable-if-i-had-a-magic-wand-i-would-raise-taxes.html
About her :
https://www.investopedia.com/articles/personal-finance/081315/janet-yellen-success-story-net-worth-education-top-quotes.asp
How CNBC reported what she said:
"'If I had a magic wand, I would raise taxes"
and OF COURSE (fake news) conveniently left out the first part of it:
" Yellen says rising deficit is unsustainable: "
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What she said :
https://www.cnbc.com/2018/10/30/yellen-says-rising-us-deficit-unsustainable-if-i-had-a-magic-wand-i-would-raise-taxes.html
About her :
https://www.investopedia.com/articles/personal-finance/081315/janet-yellen-success-story-net-worth-education-top-quotes.asp
How CNBC reported what she said:
"'If I had a magic wand, I would raise taxes"
and OF COURSE (fake news) conveniently left out the first part of it:
" Yellen says rising deficit is unsustainable: "
Good catch on that ccp, playing half a quote to suit their purposes is what they do.
"If I had a magic wand, I would raise taxes and cut retirement spending,"
"Yellen says rising deficit is unsustainable"
CNBC dropped the cut retirement spending part too for the headline. It has been demonstrated over and over again that the deficit problem is on the spending side.
Besides the selective headline, I would focus on the magic wand admission. Presumably that means, if I were Trump and congress, but it also means that if Leftist policies worked.
Much like 'banning' guns in churches doesn't stop shootings, perhaps makes them worse, raising tax rates on productive activities does not directly or automatically make revenues go up. Past a certain level of taxation, higher tax rates diminish productive activity. 4600 businesses left this country during the recent, punitive corporate tax rate chapter of our tax history and the new business startup rate plunged to a historic low. Exactly right that it would have taken a magic wand to squeeze more money out of them. Compel business activity and lock the exits. They could not compete paying punitive taxes in a global economy without a magic wand.
Federal spending has gone from rob Peter to pay Paul to keep paying Paul with paper long after Peter has nothing more to pay. Yellen only notices retirement spending but that would be a start. Hold all spending programs accountable to needs, results and the constraint of limited resources.
Both the Fed and the elected government have come to believe that spending and deficits have no real limits.
Leftist utopia of unlimited spending while decimating the private economy requires a magic wand and more because it doesn't work in the real world. Look at the socialist disaster in Venezuela for the most recent failure. Absent the magic wand, Leftism requires coercion and even that doesn't work.
Funny how Yellen was able to hold the line on the near zero interest rates she opposed all the way through to the 2016 election to partially cover up the failed policies of the Obama administration and then, in an instant, up they go. The Fed Discount rate held at 0.5% through Obama's failed recovery and is 2.25% now, a 350% increase, and scheduled to keep going up.
https://www.thebalance.com/fed-funds-rate-history-highs-lows-3306135
The Fed enables and accommodates deficit spending and plays favorites with Presidents. Where is that in their mission and oath of office?
I outed Janet Yellen a couple of years ago in a DB post that I gave to our pp to publish at Sparta Report:
https://www.spartareport.com/2016/06/janet-yellen-fed-banking-monetary-policy/
... and then Trump did not reappoint her. Famous people caught reading the forum.
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Good point too CD
and to clarify my post
What multimillionaire Yellin also said was
"If I had a magic wand, I would raise taxes and cut retirement spending," Which CNBS fake news cut out the part they do not like and pasted the part that makes case for leftist agenda
*Personally if I had magic wand or was married to Barbara Eden I would simply make the debt disappear.*
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*Personally if I had magic wand or was married to Barbara Eden I would simply make the debt disappear.*
When do we tell Leftists there isn't a magic wand that makes the bad consequences of bad policies go away.
If we could just convince centrists, moderates, independents that Leftists have no magic wand, they would never get power again. We'd all be stuck with common sense conservatism: you have to work hard to get ahead, pay for what you spend, don't make someone else pay for what you wouldn't pay for, etc. We'd have balanced budgets and low tax rates forever.
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The Producer Price Index Rose 0.1% in November To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 12/11/2018
The Producer Price Index (PPI) rose 0.1% in November, above the consensus expectation of no change. Producer prices are up 2.5% versus a year ago.
Energy prices fell 5.0% in November, while food prices increased 1.3%. Producer prices excluding food and energy rose 0.3% in November and are up 2.7% in the past year.
In the past year, prices for goods are up 2.2%, while prices for services are up 2.6%. Private capital equipment prices were unchanged in November but are up 2.9% in the past year.
Prices for intermediate processed goods fell 0.7% in November but are up 4.3% versus a year ago. Prices for intermediate unprocessed goods fell 5.3% in November and are down 0.7% versus a year ago.
Implications: After posting the largest single-month increase in more than six years in October the producer price index continued its climb higher in November, though at a slower pace. The main source of strength in today's report came from final demand services where prices rose 0.3%, offsetting the 0.4% decline in prices for final demand goods, keeping the headline index positive for the month. Looking at the details of final demand services shows that prices were driven higher by increased margins to wholesalers, which rose 0.3%. More specifically, margins for fuels and lubricants retailing soared 25.9%, probably the result of wholesalers not fully passing on November's 14% drop in gasoline prices to their customers. Recent increases in wholesaler margins could be a sign of rising demand paired with limited supply; ISM reports have shown strong order and business activity, but companies struggling to hire and ship products due to a tight labor market. Or it could simply be companies adjusting prices higher following months of rising input costs cutting into margins; remember, these wholesaler margins fell overall in Q3. The biggest source of weakness in today's report was the 5% decline in final demand energy, which represents the largest monthly drop for that index since the oil price crash of 2015. This was driven by the decline in gasoline prices mentioned above and resulted in an overall drop of 0.4% in final demand goods for November. Some analysts have recently been citing falling energy prices as a reason for the Federal Reserve to hold off on continued rate hikes in 2019. However, no matter which way you cut it – headline prices up 2.5% in the past year or "core" prices up 2.7% -- trend inflation clearly stands above the Fed's 2% target. These data support our expectation for one more hike this year and up to four more hikes in 2019.
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An alternative to five more rate hikes in the next year when there were none during Obama's recovery would be for the Fed to hold steady while the high stakes trade negotiations with China are taking place.
Once a new agreement is in place, the growth and velocity of the resulting economic surge will help us to afford the boiling water shock of all these coming rate increases.
Zero Interest Rate Policy by the Fed under Obama was wrong, stupid, ineffective, counter-productive and everyone knew all along that the bill for the damage accruing would come due at some future date and that, in their view, might as well happen under Trump.
It would be nice - once - if the Fed would announce with their policy explanations that the real reason these increases are necessary is because we were so wrong for so long.
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Strange that the Fed is hell-bent on right-sizing interest rates under Trump when they left them at 0.25% for the entire Obama 'recovery'. Nine rate increases since the election. The federal funds rate has now ten-fold higher than under Obama - - - and no one in the academia-media complex admits the economy is better.
(https://d3fy651gv2fhd3.cloudfront.net/charts/united-states-interest-rate.png?s=fdtr&v=201812191924a1)
Trump appointed the current Fed chair. If he had made a better pick as I and others suggested, rates might have gone up even faster.
Did anyone tell the Fed we are in the midst of a stock market crash, a trade war and a political crisis? I called for a pause in the increases until after China caves first in the trade stalemate. This is a rare example of famous and powerful people NOT reading the forum.
Wesbury coming, this increase was expected, nothing to worry about, plowhorse economy is plowing ahead, we are still bullish on equities, some great buys out there. )
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Strange that the Fed is hell-bent on right-sizing interest rates under Trump when they left them at 0.25% for the entire Obama 'recovery'. Nine rate increases since the election. The federal funds rate has now ten-fold higher than under Obama - - - and no one in the academia-media complex admits the economy is better.
(https://d3fy651gv2fhd3.cloudfront.net/charts/united-states-interest-rate.png?s=fdtr&v=201812191924a1)
Trump appointed the current Fed chair. If he had made a better pick as I and others suggested, rates might have gone up even faster.
Did anyone tell the Fed we are in the midst of a stock market crash, a trade war and a political crisis? I called for a pause in the increases until after China caves first in the trade stalemate. This is a rare example of famous and powerful people NOT reading the forum.
Wesbury coming, this increase was expected, nothing to worry about, plowhorse economy is plowing ahead, we are still bullish on equities, some great buys out there. )
This is being done on purpose.
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"This is being done on purpose."
Unfortunately yes. Lend freely to Obama and make Trump pay for it.
I'm not for ending the Fed, not even for re-structuring it, but it's sad to see it run by swamp creatures from the resist movement.
Trump was caught in a bind when he appointed the current Fed Chair. He thought Powell would raise interest rates less and less quickly than if he had made a more principled choice like Prof John Taylor of Stanford who in the world of rules-based monetary policy authored the Taylor Rule.
Turns out they both would have raised interest rates the same amount at maybe the same speed but for very different reasons, Taylor because it's the long overdue, right thing to do and Powell to undermine Trump and the Trump economy.
Fed policy was wrong for a long long time; interest rates were way too low for the entire Obama Presidency. That said, 9 increases so far and at least 4 more promised in a very short time is not easing us out of their massive error. It is more like dumping it on our heads for electing Trump, kill off the market gains and advantage our adversaries in trade negotiations.
Trump loud public criticisms likely made it harder for the Fed to back off of this policy.
https://www.thebalance.com/fed-funds-rate-history-highs-lows-3306135
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"and Powell to undermine Trump and the Trump economy. "
not disagreeing, but why do you think this Doug?
Looking at Wikipedia I don't obvious signs in his general background to support this .
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"and Powell to undermine Trump and the Trump economy. "
not disagreeing, but why do you think this Doug?
Looking at Wikipedia I don't obvious signs in his general background to support this .
From wikipedia:
Under Secretary of the Treasury for Domestic Finance under George H.W. Bush
Powell was nominated to the Federal Reserve Board of Governors by President Barack Obama.
"In his time at the Fed, Powell never cast any dissenting votes"
https://www.washingtonpost.com/news/wonk/wp/2017/10/31/jerome-powell-trumps-pick-to-lead-fed-would-be-the-richest-chair-since-the-1940s/?utm_term=.9d00779ef18f
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Good question ccp. For me, it's the timing of all this. He is of the same mindset as Janet Yellen as far as we know, see above. They went through the whole Obama so called recovery without flinching from ZIRP zero interest rate policy. He was not a dissenting voice in her policies. The Fed funds rate was at ZERO.25% for nearly all that time. Everyone knew that was unsustainable but for Obama they would have gone lower yet at times if they knew how to. That policy and all of QE required paying a price for it later, a big price and everyone knew it. GDP growth had some good quarters around 2014-2015 but the Fed didn't move. http://www.multpl.com/us-real-gdp-growth-rate/table/by-quarter The 'later' they chose to pay the price was to wait out the Obama presidency and let the successor [especially if it's a Republican?]pay for it. That's what I see in the timing. It looks like swamp to me. They didn't learn from Paul Volcker, 1979-1982. They didn't wait for the tax rate cuts. They didn't wait for deregulation. They didn't wait for better growth numbers though those all were coming. Instead they just started raising interest rates in conjunction with the changing of the sign on the door of the Oval Office. That is what I saw.
Someone else like John Taylor would have raised interest rates because that is what they were calling for all along. Not Powell. His fingerprints are all over the past policy.
Stimulating the economy through QE and ZIRP was a costly mistake and we should prepare to pay the deferred price. As I wrote at that time, these policies were like flooding the carburetor with gas because 2 or 3 tires are flat and the car doesn't drive right. Fix what's wrong not make faux stimulus through other means.
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very reasonable answer.
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https://www.theblaze.com/video/its-big-corrupt-government-glenn-beck-on-why-its-time-to-audit-the-federal-reserve?utm_content=bufferd8d41&utm_medium=social&utm_source=facebook.com&utm_campaign=theblaze
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" But as the article explains, the Federal Reserve has a policy of keeping secrets. Information compiled by the Fed about U.S. banks is exempt from the Freedom of Information Act and is therefore filed away for 30 years, then promptly destroyed."
Beck makes some good points and makes some serious charges
What does Grannis think.
Lets say we publicize all the Feds theories and graphs charts tables etc . to second guess what they are doing . Would that really help? I mean economists of high caliber often disagree anyway .
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https://www.nbcnews.com/politics/politics-news/trump-nominate-fed-critic-stephen-moore-fed-n986321?cid=sm_npd_nn_tw_ma&fbclid=IwAR2dULlbwMXzXLcd3LqM7JtGM8Nh-py3z8PX0WeMqjPVBiBm22V_odysyH0
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I forget which media and Lefties (redundancy alert) I have heard say these possible picks are ridiculous, not serious, etc, even Greg Mankiw former Bush Econ chair made that point.
Steve Moore is often co-author with Art Laffer on policy and position articles, former economic opinion writer for the WSJ. They say he is obsessed with cutting tax rates, OMG!
Herman Cain was chair of the Kansas City Fed, not a figurehead, a real contributor. He was frontrunner for President briefly as well. His me-too moment that took him down was low to medium believable, very old and worst case implied infidelity to his wife, unheard of I'm sure in Washington.
My point I guess is that these ivy league snobs who accept no one outside their club are mere mortals as well, with mediocre records of forecasts and competence. Only Ben Bernancke could have injected 10 trillion cash into crony companies to rescue us from collapse? No. ANYONE could have diluted our currency by 10 trillion to buy us out of collapse.
You can be the top of the profession outside their club and expect these kinds of horrific attacks on your lousy miserable existence.
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Alan Reynolds who some of us here respect as an economist writes about Herman Cain: "Cain is one of the brightest men I've known." They served together on Jack Kemp's National Commission on Economic Growth and Tax Reform in the 1990s.
https://pbs.twimg.com/media/D3ZRN16XsAEcxrK.jpg
I say, both are better than the picks HRC or Bernie would have made.
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John Oliver ripped into both these choices this week, but failed to mention that Cain had headed the Kansas City Fed. :roll: :-P :-o He also thought it prima facie absurd that Cain liked a Gold Standard.
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John Oliver ripped into both these choices this week, but failed to mention that Cain had headed the Kansas City Fed. :roll: :-P :-o He also thought it prima facie absurd that Cain liked a Gold Standard.
Gold standard is absurd - as compared to Yellen's what, political standard? Former head of a regional Federal Reserve Bank is not qualified to be on the Federal Reserve Board of Governors, but let me guess, mayor of South Bend Indiana with a good record of fixing potholes is fine to be leader of the Free world. No partisan blinders showing there!
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John Oliver ripped into both these choices this week, but failed to mention that Cain had headed the Kansas City Fed. :roll: :-P :-o He also thought it prima facie absurd that Cain liked a Gold Standard.
Gold standard is absurd - as compared to Yellen's what, political standard? Former head of a regional Federal Reserve Bank is not qualified to be on the Federal Reserve Board of Governors, but let me guess, mayor of South Bend Indiana with a good record of fixing potholes is fine to be leader of the Free world. No partisan blinders showing there!
Yes, but he engages in sodomy! That's the best thing he could do to prove his virtue, since he can't have an abortion.
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https://www.theguardian.com/us-news/2019/mar/30/trump-stephen-moore-federal-reserve-board
Interestingly, his ex-wife thinks higher of the marriage now than she did during the divorce.
Disclaimer, not all claims made in divorce proceedings are true.
On radio, he was questioning the relevance more than he was denying it.
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The Big Picture and the Fed To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/6/2019
If you take a long hike up a mountain, there's plenty to appreciate along the way. But, sometimes, you just have to stop and enjoy the view. With that in mind, let's forget about the April employment report – which saw a combination of very fast payroll growth and moderate wage growth – and think about where the labor market stands in general.
Nonfarm payrolls have grown by 2.6 million in the past year, well ahead of the roughly 2.0 million jobs the consensus was forecasting a year ago.
Due to the rapid job creation, the unemployment rate has dropped to 3.6%, the lowest level since 1969. Some analysts claim the jobless rate is being artificially suppressed by lower labor force participation, but participation is higher now than it was in the late 1960s, when 3.6% was considered full employment.
Regardless, the labor force is up 1.4 million from a year ago, and the labor force participation rate has been essentially flat since late 2013. And that's in spite of an aging population.
The unemployment rate for those with less than a high school degree has averaged 5.6% in the past twelve months, the lowest on record, and well below the previous cycle low of 6.3% reached during the internet boom two decades ago
The Hispanic unemployment rate has averaged 4.6% in the past year, while the Black unemployment rate has averaged 6.4%, both also record lows.
Meanwhile, wage growth has accelerated. Average hourly earnings are up 3.2% from a year ago, versus the gain of 2.8% in the year ending in April 2018, and 2.5% in the year ending in April 2017. And the gains in wages are not just tilted toward the rich. Among full-time workers age 25+, usual weekly earnings are up 3.5% for those in the middle of the income spectrum. But wages are up 4.9% for workers at the bottom 10% of earners, while up 1.7% for those at the top 10% of income earners. A rising tide is lifting all boats.
Some observers are claiming we should discount strong job creation because workers are taking multiple jobs. But, in the past year, multiple job holders have been just 5.0% of the total number of employed workers; that's lower than at any point during the 2001-07 expansion, or during the previous longest recovery on record during the 1990s. Meanwhile, part-time jobs are down since the expansion started, meaning, on net, full-time jobs account for all the job creation during the expansion.
What's interesting is that President Trump, Vice President Pence and NEC Chief Larry Kudlow all think things could be even better if the Fed hadn't raised interest rates. President Trump, in fact, is calling for a 1% interest rate cut. This puts the Administration at odds with Fed Chair Jerome Powell, who thinks interest rates are at appropriate levels.
We don't disagree with the theory behind the thinking of Trump, Pence and Kudlow who say faster economic growth, by itself, doesn't have to cause higher inflation. A "permanent" supply-side boost to "real" growth from deregulation and marginal tax rate cuts is not inflationary. In fact, as we've previously written, the growth potential of the US economy has accelerated. Productivity (output per hour) is up 2.4% in the past year, deep into this recovery, when normally productivity growth should slow.
But "nominal" GDP (real growth plus inflation) is still up 4.8% at an annual rate in the past two years, and is set to equal, or exceed, that in the year ahead. If we think of nominal GDP as the average growth rate of all businesses in the economy, then a federal funds rate of 2.375% is not holding anyone back. Even projects with a below-average return could justify borrowing, which is a recipe for disaster – what Ludwig von Mises called "mal-investment" – when people push investment into areas that are unsustainable at normal interest rates. Remember the housing bubble?
That's why we want Powell and the Fed to resist calls to cut rates. The Fed is not tight. Interest rates are not discouraging investment. If anything, the Trump administration should work to cut government spending, which has grown so large it's crowding out private sector growth.
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At various times on this thread the dollar was reportedly losing its global importance partly true but I have been the skeptic that Europe or China or anyone else can rise above it, even under Obama. Now this:
There are now more US$100 bills in circulation (demand) than $1 bills, right as supposedly head into a cashless society, and 80% of those $100 bills is being held outside the country.
https://www.ft.com/content/a8de3894-afa7-11e9-8030-530adfa879c2
https://newsitems.substack.com/
A curious thing has happened,” the IMF observed in a blog post last week, noting that the $100 bill had overtaken the $1 bill in circulation for the first time. The number of $100 bills has doubled since the global financial crisis. This climb has surprised some because of the march towards a cashless society, in which nearly a third of Americans use no cash at all on a weekly basis, Pew Research Center data show. Nearly 80 per cent of these bills are held overseas, according to the Federal Reserve Bank of Chicago. Ruth Judson, an economist at the Fed board of governors, said the trend can be attributed, at least in part, to geopolitical instability. “Overseas demand for US dollars is likely driven by its status as a safe asset,” she said. “Cash demand, especially from other countries, increases in times of political and financial crisis.”
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The Future of Cryptocurrencies
By Ksenia Semenova
A visual representation of bitcoin on display on April 3, 2019, in Paris.
(CHESNOT/Getty Images)
Contributor Perspectives offer insight, analysis and commentary from Stratfor’s Board of Contributors and guest contributors who are distinguished leaders in their fields of expertise.
Highlights
Cryptocurrencies hold tremendous potential as an alternative over traditional banking, but they deeply concern many governments, including lawmakers in the United States.
Growing geopolitical instability will increase the desire for a decentralized nonsovereign digital currency no matter what the United States wants. And interest in digital assets can increase when a country such as Zimbabwe is undergoing economic upheaval.
But as developments in the Marshall Islands and elsewhere indicate, cryptocurrencies need not be nonsovereign, nor have benefits limited to individuals.
More than 10 years since the first bitcoin transaction in January 2009, and almost two years since a speculative spike pushed the price per bitcoin to almost $20,000, cryptocurrencies are moving beyond cypherpunks and anti-government culture into the world of governments and traditional institutions. The transition is impossible to ignore. While some governments, central banks and financial companies see cryptocurrencies as a threat, others want to harness the advantages they offer. And some governments see cryptocurrencies as a way to save their own struggling economies.
To understand whether nonsovereign currencies can serve as a default currency and what threat they pose to governments or how beneficial they might become, it's useful to examine some of the most interesting geopolitical and corporate use cases available.
United States
The media outlets that specialize in cryptocurrency magnify, at least momentarily, the importance of any news concerning blockchain and bitcoin, Ethereum and other digital currencies. The problem is, the rest of the world often has trouble understanding what's what or is confused about what developments in that realm mean.
That's what happened in May when U.S. Rep. Brad Sherman of California urged his colleagues to "nip bitcoin in the bud." Sherman pointed out that "an awful lot of our international power comes from the fact that the U.S. dollar is the standard unit of international finance and transactions. It is the announced purpose of the supporters of cryptocurrency to take that power away from us, to put us in a position where the most significant sanctions we have against Iran, for example, would become irrelevant. So, whether it is to disempower our foreign policy, our tax collection enforcement or traditional law enforcement, the advantage of crypto over sovereign currency is solely to aid in the disempowerment of the United States and the rule of law."
The cryptocurrency community reacted to Sherman's remarks swiftly, generally equating them to the opinion of the whole of the U.S. government. Investor, influencer and podcaster Anthony Pompliano reminded readers of his Off the Chain blog that Sherman wasn't as ignorant of nonsovereign currencies as some of their defenders were claiming and instead "knows exactly what is happening. He sees the increased probability that we are moving to a world where nonsovereign currencies are the default, and it sounds like he is scared." But what Sherman doesn't understand, Pompliano wrote, is "the improbability of being able to ban ownership of these decentralized digital currencies. The laws could be created but they would be nearly impossible to enforce." Groups on Telegram, the instant-messaging platform of choice for most blockchain companies and for discussions related to cryptocurrencies, vigorously debated whether U.S. officials had declared cryptocurrencies an existential threat to the United States' global financial dominance or not.
The mainstream media reacted more modestly — when it reacted at all. Bloomberg, The New York Times and The Washington Post, for example, did not report about Sherman's statement. To try to say why would be nothing more than a guess. The position of the U.S. dollar in the global economy remains solid. But by imposing sanctions on Russia, Venezuela and Iran, and by deepening its trade war with China, the United States has motivated those countries and others to attempt to find a substitute for the dollar.
Other recent cryptocurrency news couldn't be ignored. Widespread attention greeted Facebook's announcement in June that it will launch a proprietary cryptocurrency, Libra, in 2020. Libra will be a so-called stablecoin, a digital asset backed by a basket of international currencies, such as the dollar, euro and yen. Facebook has formed the Libra Association to oversee the cryptocurrency's development and governance. The Libra Association will be based in Geneva, Switzerland, and will be run as an independent, not-for-profit organization with more than two dozen founding partners, including Mastercard, Visa, PayPal, eBay, Uber, Lyft, Spotify, Vodafone and Coinbase.
By imposing sanctions on Russia, Venezuela and Iran, and by deepening its trade war with China, the United States has motivated those countries and others to attempt to find a substitute for the dollar.
Opinions vary. Despite Facebook's privacy failures and monopoly superpower, the cryptocurrency community sees Libra's potential to drive global acceptance of nonsovereign currencies. Meanwhile, Chris Hughes, a Facebook co-founder who has been critical of the company's recent decisions, worried in a Financial Times op-ed that a currency like Libra "could threaten the ability of emerging market governments to control their monetary supply, the local means of exchange, and, in some cases, their ability to impose capital controls." Lawmakers and central bankers are wary, too. U.S. Rep. Maxine Waters, chairwoman of the U.S. House Financial Services Committee, asked Facebook to stop Libra's development until it can clarify questions about potential privacy violations concerning consumer data. Numerous questions during a U.S. Senate Banking Committee hearing on July 16 centered on whether Facebook can be trusted to run its own cryptocurrency. Central bankers in the United Kingdom, France, Germany and Australia agreed with their U.S. counterparts that Libra must answer many regulatory questions to ensure it will not jeopardize financial systems or be used to launder money.
News about Facebook's plans has played out well for bitcoin so far. Bitcoin's value remains volatile, but as a decentralized currency beyond the control of governments or corporations, bitcoin suggests new options for countries tired of the dollar's dominance. Growing geopolitical instability will increase the desire for a decentralized currency infrastructure no matter what the United States wants or whether Facebook succeeds with Libra.
Russia
Russian authorities have given mixed signals about cryptocurrencies. On the one hand, for example, there have been reports that Russia is exploring the creation of a gold-backed cryptocurrency; on the other, there have been statements by Elina Sidorenko, chairwoman of the State Duma's cryptocurrency group, that "the Russian Federation is simply not ready to combine its traditional financial system with cryptocurrencies. And to say that this idea can be implemented in Russia for at least the next 30 years is unlikely." Russian officials have also leveled the usual accusations about money laundering, tax evasion and supporting terrorism against the use of bitcoin and other digital currencies.
During his annual televised "Direct Line" with the public in June, President Vladimir Putin was asked if Russia would have its own cryptocurrency. "Russia cannot have its own cryptocurrency by definition — just as any other country cannot have its own cryptocurrency," Putin said. "Because if we are talking about cryptocurrency, this is something that goes beyond national borders." He added that the government treats issues like mining cryptocurrency "very carefully," even if they aren't yet regulated, and said that "the central bank believes that cryptocurrency cannot be a means of payment, settlements, cannot be a means of accumulation, and they are not secured in any way." But Putin also said the Russian government was carefully analyzing this "phenomenon" to understand how it can participate and use it.
The rate of adoption of bitcoin and other cryptocurrencies is rather low in Russia, and a year of official bearish sentiment toward them combined with the country's economic struggles has decreased Russian interest in cryptocurrencies. But interest in using blockchain and digital assets can increase when a country is undergoing a social-economic ordeal. Such is the case with Zimbabwe.
Zimbabwe
Many Zimbabweans are tech-savvy despite the country's poor technological development, and many have embraced bitcoin. The country's hyperinflation is one factor behind that trend. The government abandoned its national currency after a trillion-Zimbabwean dollar note was introduced in 2009, allowing the use of foreign money, including the U.S. dollar, euro and South African rand. (Zimbabwe reintroduced the Zimbabwean dollar this year and enacted other fiscal changes that have reinforced interest in bitcoin.) This decision, in turn, created other problems such as shortages of foreign cash. To address that problem, the government tightly controlled the amount of U.S. dollars available for withdrawal. So, Zimbabweans started to look for ways to control their money without government restrictions. For many, bitcoin, delivered by Zimbabwe's cryptocurrency exchange Golix, was the answer.
Argentina
With an inflation rate above 50 percent, a falling peso and tumbling markets, Argentines (at least those in the tech industry) have shown an increased interest in bitcoin and other digital currencies. So has the government. In March, Deputy Finance Minister Felix Martin Soto said the Argentine government should use cryptocurrencies and blockchain technology to reduce the country's demand for U.S. dollars and encourage global investment. (Half of Argentina's population doesn't have bank accounts and prefers to keep savings in dollars.) President Mauricio Macri has met with cryptocurrency investor and advocate Tim Draper, who argues that Argentina could disrupt the devaluation of the peso and other economic problems by embracing blockchain and legalizing bitcoin. The Argentine government has co-invested in blockchain projects and promoted the use of bitcoin to sell exports. (In February, for example, Argentina sold pesticides and fumigation products to Paraguay, settling the transaction using bitcoin.) Though the cryptocurrency may be volatile, it's less volatile than the Argentine peso and other South American sovereign currencies, which makes it an attractive alternative.
Venezuela
Venezuela is the first country to introduce its own cryptocurrency, El Petro. Venezuela's traditional currency, the bolivar, has become practically worthless as the country's economy has spiraled downward. But economic despair can encourage bitcoin adoption and Venezuelans, motivated by the country's strict capital controls, instability and financial insecurity, have turned to cryptocurrencies, which are more stable than the hyperinflated bolivar and can be fully owned.
Petro, supposedly backed by Venezuelan oil assets, also should be more stable than the bolivar and help Venezuela weather U.S. sanctions and its economic crisis. So far, it hasn't worked out as promised. Experts criticize Petro for lacking transparency and global exposure, and for it being fully centralized with all control in the government's hands. For instance, whether or not Venezuelan oil actually backs it remains an unknown. U.S. officials have warned that Petro is a "scam" perpetrated by President Nicolas Maduro's government to undermine democracy in Venezuela. There is little evidence of Petro's actual use. As Reuters reported last year, it's not traded on any major cryptocurrency exchange and apparently, no shops accept it. Meanwhile, bitcoin usage continues to grow in Venezuela.
Marshall Islands
Real progress with a decentralized sovereign cryptocurrency — and a positive and promising use case — is being made in the Marshall Islands. Last year, the Pacific nation announced its plan to create an independently governed digital currency called the Sovereign (SOV). In June, the government said it has established a not-for-profit organization to develop and manage the SOV, which will circulate alongside the U.S. dollar, the currency currently in use in the Marshall Islands. A decentralized, government-supported cryptocurrency designed with transparency and security can become an important point of adoption. Success in the Marshall Islands might prove that cryptocurrencies can substitute for the U.S. dollar.
Whither Cryptocurrencies?
When government control over currency is too tight, disaster can follow. A famous example of this occurred on Sept. 16, 1992, when George Soros and other speculators took advantage of an overregulated British pound to short the currency. The pound collapsed, and the United Kingdom was forced to withdraw from the European Exchange Rate Mechanism, which was designed to stabilize European currencies. Meanwhile, "breaking" the Bank of England reportedly earned Soros more than $1 billion in a single day. For a contemporary example, consider Venezuela. Its government's tight control over the economy has fostered inflation so intense that Venezuelans become poorer every minute. The International Monetary Fund projected that Venezuela's inflation rate could reach 10 million percent by the end of the year.
Cryptocurrencies don't need to be non-sovereign, with their benefits limited to individuals. Countries can benefit, too.
Instability and uncertainty stir distrust in government. And for many who feel excluded from a central financial system, who lack economic opportunity or have no banking account (more than 1.7 billion adults remain unbanked worldwide), or resent third parties chewing into their profits, a currency that doesn't depend on a government or authoritative leader, and which allows anonymity, simplifies transactions and minimizes third-party interference, is appealing.
Government concerns about cryptocurrencies are understandable. They are a new form of money not limited by national borders or controlled by central banks. They conjure visions of individual control over earnings, investments and transactions free of government interference. But they don't need to be nonsovereign, with benefits limited to just individuals. Countries can benefit, too. For small countries like the Marshall Islands, Malta or Estonia, establishing a proprietary sovereign cryptocurrency or adopting bitcoin as the main currency can be a means of attracting innovative companies and entrepreneurs, which in turn can boost economic and technological development.
Still, in their early stages of development and acceptance, cryptocurrencies hold tremendous potential as an alternative to traditional banking. It seems inevitable they will only gradually strengthen that position.
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https://www.ftportfolios.com/Commentary/EconomicResearch/2019/9/11/negative-interest-rates-are-fools-gold
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https://www.ftportfolios.com/Commentary/EconomicResearch/2019/9/11/negative-interest-rates-are-fools-gold
He does a nice job of explaining this. QE and negative interest rates are a 'solution' that doesn't at all address what is wrong with any of these economies.
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Paul Volcker Was Inflation’s Worst Enemy
As Fed chairman, he shored up the dollar and set the stage for decades of economic growth.
By John B. Taylor
Dec. 9, 2019 7:26 pm ET
Paul Volcker with President Reagan in the Oval Office, July 26, 1981. PHOTO: APPLEWHITE/ASSOCIATED PRESS
Paul Volcker, who changed the course of economic history dramatically for the better, died Sunday at 92. He was appointed chairman of the Federal Reserve Board in 1979 by Jimmy Carter and was reappointed in 1983 by Ronald Reagan. But his influence on policy wasn’t limited to his chairmanship of the Fed. In a public career spanning seven decades, he served the Nixon administration as undersecretary of the Treasury for international monetary affairs and advised President Obama during the aftermath of the 2008 financial crisis.
With his 6-foot-7 frame, his big cigar and his candid assessments, Volcker was one of the most colorful characters in American government during the latter half of the 20th century. Graduating summa cum laude from Princeton in 1949, he learned early on how to get things done—very big things—and get them done he did.
Volcker was at the August 1971 Camp David meeting where President Nixon decided to impose wage and price controls and abandon the international monetary system by closing the gold window. Soon after that meeting, Treasury Secretary George Shultz assigned Volcker to work out a strategy to fix what had been done to the monetary system. Milton Friedman’s ideas about flexible exchange rates were to be part of the plan: Countries would allow the value of their exchange rates to depreciate when they had a trade deficit and let their exchange rates rise when they had a surplus. The U.S. had an economic strategy, but Volcker implemented it by making other countries think it was their idea.
The approach worked, and the international monetary system was on its way to restoration. The course of economic history had been changed.
The job Mr. Carter gave Volcker in the late 1970s was even more important and more difficult. The wage and price controls imposed in 1971 had led to an inflationary monetary policy at the central bank under Chairman Arthur Burns. Inflation and unemployment skyrocketed and economic growth fell. That was the state of the economy when Volcker took the reins at the Fed in the summer of 1979.
Financial markets welcomed his appointment. Volcker’s Treasury experience was well known, and he convincingly argued against the view espoused in many academic circles that higher inflation rates would reduce unemployment. He said he wanted lower inflation. He said that monetary policy could do it. And he meant it.
Nevertheless, on Sept. 18, 1979, he only narrowly got support from his Fed colleagues for a decision to change monetary policy by raising the interest rate by a relatively small amount. This created doubts about his ability to change the Fed’s inflationary ways. Markets appeared to lose confidence.
So, reflecting on his experience at Treasury, he designed a whole new monetary policy aimed at marshaling consensus among his Fed colleagues. The policy was to raise the discount rate by 100 basis points, impose new reserve requirements on banks, and create a new procedure for setting interest rates that emphasized the money supply. His approach was to get buy-in from everyone on the Federal Open Market Committee. And he did. The FOMC approved the new policy unanimously, and it was announced Oct. 6, 1979.
With his emphasis on the money supply, Volcker could say that it was the market that determined the interest rate, and thus he could allow the interest rate to go higher, which he did. The federal-funds rate reached 20% in 1981.
In an off-the-record conversation I had during the early 1980s with Volcker and James Tobin, the Nobel laureate economist from Yale, Tobin asked Volcker to lower the interest rate. Volcker answered that he didn’t set the interest rate, the market did.
The higher interest rate did slow the economy, but Volcker showed a great deal of courage. Construction workers sent him two-by-fours in the mail. Farmers circled the Fed building. Yet Volcker stuck with it. He appeared on “Face the Nation” and was asked when he would stop fighting inflation. He simply answered that he couldn’t stop fighting inflation until he ended it. Volcker won Reagan’s support, and his efforts paid off. Inflation fell dramatically and created conditions for a quarter-century of strong economic growth. His successor at the Fed, Alan Greenspan, maintained Volcker’s focus on keeping inflation low.
Volcker deserves credit for slaying inflation in the early ’80s, and he was later called on frequently to serve in government. He worked hard to document and weed out corruption at international institutions such as the World Bank and the United Nations’ oil-for-food program in Iraq. He weighed in on the causes of the global financial crisis, arguing for higher capital requirements and for what would be called the “Volcker rule” to curtail proprietary trading.
“While zero interest rates may be necessary at the moment, they lead to some dangerous possibilities in terms of breeding more speculative excesses,” he told attendees at a Stanford University conference in 2009. He became an outside adviser to President Obama although, as his own experience had shown, change often comes from knowledgeable policy-making leaders on the inside.
The American economy still needs change. Despite tax and regulatory reforms, the federal deficit remains large and the federal debt is rising. The answers are as simple as they were in Volcker’s time: Get back to sound and predictable budget policy. Paul Volcker’s career shows the way. Good economics leads to good policy, which leads to good results.
Mr. Taylor is a professor of economics at Stanford, a senior fellow at the Hoover Institution, and co-author, with George P. Shultz, of “Choose Economic Freedom: Enduring Policy Lessons From the 1970s and 1980s,” forthcoming next month.
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I am not knowledgeable about this
does anyone have any thoughts of this money pumping
expanding the debt
is this just to keep the stock market high?
endless Fed money just seems crazy
just putting off the eventual day of reckoning
Anyone here have thoughts?
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Anything that can't go on on forever, won't.
I am not knowledgeable about this
does anyone have any thoughts of this money pumping
expanding the debt
is this just to keep the stock market high?
endless Fed money just seems crazy
just putting off the eventual day of reckoning
Anyone here have thoughts?
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I am not knowledgeable about this
does anyone have any thoughts of this money pumping
expanding the debt
is this just to keep the stock market high?
endless Fed money just seems crazy
just putting off the eventual day of reckoning
Anyone here have thoughts?
Good question. PP asked a similar one a few weeks back. The Fed provides 'overnight' liquidity to banks in amounts that both fluctuate and look scary big to us. Then I look at the blogs of the economists I trust most and see nothing about it, nothing of alarm. Search 'liquidity crisis' and it points you back to 2007-2008, nothing today. There is good, bad and neutral in the outlook, but nothing I see says we are in trouble or crisis.
Here is article on 'repos' around the time PP mentioned it, for background/perspective:
https://seekingalpha.com/article/4292772-despite-repo-rate-debacle-liquidity-isnt-issue
When you hear a big number of lending, borrowing or buybacks, say $200B, remember the GDP is 100 times that, $20T and rising rapidly.
The Treasury stays liquid, avoids panic, by funding everything within their policies and authority. Just watched a play based on 'It's a Beautiful Life'. We don't have 'bank runs' in our lifetime. The Fed is able to fund everything (so far). They funded all the negligence and incompetence of Clinton, Bush, Obama and Trump without hardly a hiccup. For whatever we think of that, inflation is under their target. I'm way more worried about other things, budgets, programs, disincentives to produce.
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quote author=G M
Anything that can't go on on forever, won't.
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https://twitter.com/TalebWisdom/status/1205728168344244224
Nassim Nicholas Taleb
"You never cure structural defects; the system corrects itself by collapsing." - @nntaleb
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I know only that I do not know.
I cannot explain why the current numbers elicit no concern and have no discernible effect.
I remember government deficits in the late 70s crowding out private borrowing and driving up interest rates. I cannot explain why that does not happen now.
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Somehow I feel that phrase is only a mirage.
https://www.realclearpolitics.com/articles/2019/01/10/unfunded_govt_liabilities_--_our_ticking_time_bomb.html
Take for example a . person has an estate worth 1 million
but only owes 20 or 30 thousand . Ok he sells to raise the capital to pay it off.
If all the governments owe 24 trillion . Whose part of the GDP are they going to sell? They just going to print 24 trillion?
They going to sell NJ California NY? (maybe not a bad idea)
Comparing our GDP to the government debts does not make sense to me. If we are a country where WE OWN property then one is saying the the collateral is our property or what we produce the we are the bag holders.
The value of GDP or all property in the US dwarfs the debt ( though maybe not unfunded liabilities ) but WE are the bag holders not the government .
So I don't get how that argument work that we should not worry because the debt is dwarfed by the GDP .
It is like all one's worth is being managed by a financial managers and they basically mismanages it and that person loses everything . Now to pay off the debt they the debtors take your house
your car etc.
I don't remember his name but Mark Levin had and economist on and he asked about all this debt. The economist said , his opinion, we will never be able to pay it down . We will eventually default.
The only good part is that the fund managers, in this case the politicians and their families will suffer like the rest of us when it does occur.
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If all the governments owe 24 trillion . Whose part of the GDP are they going to sell? They just going to print 24 trillion?
First, I'm not pro-debt at all, just trying to explain what we face.
Of the $23 trillion, 26% is the govt owing itself, leaving $17 trillion (and rising) owed.
https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124
Unfunded liabilities are way worse.
The debt never gets paid off. Worse to me than 23T owing is the current deficit; we should not be running a deficit in good economic times by anyone's theory.
Right, GDP does not measure the assets of the govt, it is the income of the people paying the debt burden. It gives the size of the debt service perspective.
If you put a 100% tax on national income, you would collect next to nothing, not pay off the debt. You are right, GDP doesn't pay off the debt
I wonder what the assets of the federal govt are? No one knows? They own office buildings, defense assets and half the land in the west. But that also is not the key point. We aren't building infrastructure with our excess spending; we are robbing Peter and just printing money to pay Paul, Jill, Julia, Doug and Julio. Nothing in the numbers matters until we stop doing that. Selling off (some) federal assets might be a good idea, but also not solve the debt problem.
I don't get how that argument work that we should not worry because the debt is dwarfed by the GDP.
We survived it so far. We can live with this level of debt even after Obama doubled it. But we can't keep doubling it. If we continue to mismanage recklessly, it will all collapse. If interest rates just returned to normal at this level of debt we would have perhaps double the burden. We are causing other big problems by not letting interest rates rise.
This is as simple of the law of holes: stop digging. We should have had 100% support for a balanced budget once the economy grew out of last financial crisis. Then we could survive all of this. Both parties have declined that and still do.
This whole thing is caused by Democrat thinking - and Republicans who join with them. It is the voters' fault. Someone needs to tell the public this is wrong and can't go on.
Our best bet for reform on all fiscal issues is a second term of Trump. If he wanted to use his political capital that way and had a mandate, he could possibly enact major reforms.
As a (small time) real estate developer I can say, you use debt to your advantage and then pay it off so that you aren't all burdened in it when the next opportunity comes along - also so you don't collapse in it.
You are not wealthy if you cannot survive the next downturn. See N. Taleb: antifragile.
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Doug,
you make numerous good points.
Trump did indicate it would something he would address if he gets second term
Thanks
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I know only that I do not know.
I cannot explain why the current numbers elicit no concern and have no discernible effect.
I remember government deficits in the late 70s crowding out private borrowing and driving up interest rates. I cannot explain why that does not happen now.
“How did you go bankrupt?"
Two ways. Gradually, then suddenly.”
― Ernest Hemingway, The Sun Also Rises
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If you can print the money with which you pay off the loans, the issue will not be bankruptcy, but rather something else-- inflation.
With the dollar as the reserve currency and the international currency, what does that look like?
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quote author=Crafty_Dog
"If you can print the money with which you pay off the loans, the issue will not be bankruptcy, but rather something else-- inflation."
Yes. Or as our friends Scott Grannis and Brian Wesbury say, quantitative expansion is not the equivalent of printing money, hard to figure that one out. It's what you might call results-based monetary policy, if prices don't rise, it isn't printing money. The money supply is now something immeasurable, not printed dollars in circulation. The money supply needs to accommodate the size, number and velocity of the transactions.
"With the dollar as the reserve currency and the international currency, what does that look like?"
Turmoil, chaos, trouble. The rest of the world leaves the US$ as fast as they can as soon as it isn't the best currency. We've been hearing that cry of doom for a long time, that the world is leaving the dollar, but the euro isn't better, the yuan isn't better, the bitcoin isn't better. When that changes, when we act too much like a third world country for too long and destroy the dollar's value, we will need to borrow in someone else's currency, like Argentina, Brazil and third world countries do, and make promises to someone else to limit our deficits, etc.
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The Consumer Price Index (CPI) Rose 0.1% in January To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/13/2020
The Consumer Price Index (CPI) rose 0.1% in January, coming in below the consensus expected increase of 0.2%. The CPI is up 2.5% from a year ago.
Food prices increased 0.2% in January, while energy prices declined 0.7%. The "core" CPI, which excludes food and energy, increased 0.2% in January, matching consensus expectations. Core prices are up 2.3% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – rose 0.1% in January and are up 0.6% in the past year. Real average weekly earnings are unchanged in the past year.
Implications: Consumer prices increased 0.1% in January, with prices rising in nearly every major category. Prices for housing, medical care, and food led the index higher in January, partially offset by a decline in the cost of gasoline. Consumer prices are up 2.5% in the past year, tied for the largest twelve-month increase going back to August of 2018. Strip out the typically volatile food and energy sectors, and "core" prices rose 0.2% in January. In addition to housing and medical care, prices for apparel, recreation, education, and airline fares pushed the core reading higher. Core prices are up 2.3% in the past year, just a tick off the highest annual increase we have seen since the recovery started. And "core" prices have hovered at or above the Fed's 2% inflation target for twenty-three consecutive months. Add in employment data continuing to show strength and it makes sense the Fed doesn't expect further rate cuts unless we see a material change in the economic outlook. On the wage front, average hourly earnings rose 0.2% in January and have increased 3.1% in the past year. Take out inflation, and "real" earnings rose 0.1% in January and are up a modest 0.6% in the past year. With the strength of the labor market, we believe earnings will trend higher in 2020. Healthy consumer balance sheets, a strong job market, inflation in-line with Fed targets, and the continued tail winds from improved tax and regulatory policy, all reinforce our belief that the economy will continue to grow at a healthy pace in the year ahead. In other news this morning, new claims for unemployment benefits rose 2,000 last week to a very low 205,000. Continuing claims fell 61,000 to 1.698 million. These figures are consistent with continued solid payroll growth in February.
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By Liz Hoffman, Amrith Ramkumar and Joe Wallace
March 27, 2020 2:10 pm ET
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It’s an honest-to-God doomsday scenario and the ultimate doomsday-prepper market is a mess.
As the coronavirus pandemic takes hold, investors and bankers are encountering severe shortages of gold bars and coins. Dealers are sold out or closed for the duration. Credit Suisse Group AG, which has minted its own bars since 1856, told clients this week not to bother asking. In London, bankers are chartering private jets and trying to finagle military cargo planes to get their bullion to New York exchanges.
It’s getting so bad that Wall Street bankers are asking Canada for help. The Royal Canadian Mint has been swamped with requests to ramp up production of gold bars that could be taken down to New York.
With staff reduced at the Royal Canadian Mint because of the virus, the government-owned company is only producing one variation of bullion bars, according to Amanda Bernier, a senior sales manager. She said the mint has received “unprecedented levels of demand,” largely from U.S. banks and brokers.
The price of gold futures rose about 9% to roughly $1,620 a troy ounce this week—that is 31.1034768 grams, per the U.K. Royal Mint—and neared a seven-year high. Only on a handful of occasions since 2000 have gold prices risen more in a single week, including immediately after Lehman Brothers filed for bankruptcy in September 2008.
“When people think they can’t get something, they want it even more,” says George Gero, 83, who’s been trading gold for more than 50 years, now at RBC Wealth Management in New York. “Look at toilet paper.”
Worth its weight in Purell
Gold has been prized for thousands of years and today goes into items ranging from jewelry to dental crowns to electronics. For decades, the value of paper money was pinned to gold; tons of it sat in Fort Knox to reassure Americans their dollars were worth something. Today they just have to trust. President Nixon unpegged the dollar from gold in 1971.
The government still holds lots of gold in Fort Knox, though not as much as it did decades ago. The Federal Reserve Bank of New York has a massive gold stash. That gold isn’t released on the open market, though; it’s held as national reserve. London is the hub of physical gold trading that often changes hands.
Gold is popular with survivalists and conspiracy theorists but it is also a sensible addition to investment portfolios because its price tends to be relatively stable. It is especially in-demand during economic crises as a shield against inflation. When the Federal Reserve floods the economy with cash, like it is doing now, dollars can get less valuable.
“Gold is the one money that can’t be printed,” said Roy Sebag, CEO of Goldmoney Inc., which has one of the world’s largest private stashes, worth about $2 billion. (He’d rather not say where, for obvious reasons.)
SHARE YOUR THOUGHTS
Would you rather have gold or cash or an unlimited supply of Clorox Wipes? Join the conversation below.
There are two ways to own gold: in bars or coins or jewelry stored in bank vaults, or in futures contracts traded on an exchange, which guarantee the holder a certain amount of gold at a certain price on a certain date.
Those contracts trade on CME Group Inc.’s Comex division of the New York Mercantile Exchange. The problem? Much of the world’s gold is in London and has been since the 17th century, when the Bank of England set up a vault.
The Bank of England holds much of the world’s gold.
PHOTO: HENRY NICHOLLS/REUTERS
Today, the Bank of England says it has the second-largest collection of gold in its vault, behind only the New York Fed.
The disruptions this week pushed the gold futures price, on the New York exchange, as much as $70 an ounce above the price of physical gold in London. Typically, the two trade within a few dollars of each other.
That gulf sparked a high-stakes game of chicken in the New York futures market this week. Sharp-eyed traders started snapping up physical delivery contracts, figuring banks would have trouble finding enough gold to make good and they would be able to squeeze them for cash. That set off a scramble by banks.
Goldmoney’s Mr. Sebag said bankers were offering him $100 or more per ounce over the London price to get their hands on some of his New York gold.
Wade Brennan, a former gold trader at Scotiabank who now runs an investment firm called Kilo Capital, said he had heard from bankers in the U.S. who were literally checking the corners of their vaults for any gold that might have been overlooked.
“Everyone’s looking through the cupboard,” he said.
As of November, London housed 8,263 metric tons of gold, valued at $387.9 billion, according to the London Bullion Market Association. The biggest hoard is kept by the Bank of England, which looks after around 400,000 gold bars on behalf of the U.K. government, commercial banks and central banks in other countries, hidden in nine vaults under the narrow streets of the City of London.
Getting gold to New York, where it can be sent on to gold dealers, jewelers, dentists and electronics makers, is a heavy lift in the best of times, and, it turns out, quite tricky during a pandemic.
Most gold bars are stowed in the cargo hold of passenger planes. Security firms such as Loomis Group, which arrange the flights and meet planes on the tarmac, don’t like to move more than about five tons on any flight, in case the plane crashes and because of high insurance costs. From there, the haul is trucked under heavy guard to New York warehouses.
International flights are largely grounded now.
What’s more, there is limited new supply. Mines in countries such as Peru and South Africa are also shut down because of the coronavirus. Once-busy Swiss refineries that turn raw metal into gold bars closed earlier this week as the country’s coronavirus cases neared 10,000.
There is still a lot of gold in the world, some $10 trillion worth, but “it’s not in the right place,” said Simon Mikhailovich, co-founder of the Bullion Reserve, which holds on to gold for investors.
David Smith owns a wristwatch business in northern England and said Tuesday his bullion dealers weren’t taking any more orders. He has been scouring social media for individuals who might sell to him.
“You can’t really get physical gold and silver anywhere at the moment,” he said.
He began investing personally in metals a few years ago after watching videos from Mike Maloney, creator of the website goldsilver.com. Like other online dealers, the site currently has a notice saying products are back-ordered up to 12 weeks and that there is a $1,000 delivery order minimum.
The title of Mr. Maloney’s latest podcast: “Unaffordium and unobtanium.” (The latter has popped up in the plots of science fiction movies).
Queen Elizabeth II views stacks of gold as she visits the Bank of England in London in 2012.
PHOTO: EDDIE MULHOLLAND/WPA POOL/GETTY IMAGES
The Bank of England on Wednesday emailed banks that keep gold in its vault to reassure them it still had access to deliveries and airports. Bankers with gold vaults in Canary Wharf, on the city’s eastern edge, are worried by the closure of nearby London City Airport, a popular hopping-off point for flights that move gold to and from Switzerland and Luxembourg.
An employee inspects a Canadian one dollar coin, also known as a Loonie, at the Royal Canadian Mint manufacturing facility in 2019.
PHOTO: SHANNON VANRAES/BLOOMBERG NEWS
For those able to deliver, though, there is big money to be made. In normal times, it costs around 20 cents to fly an ounce of gold, just under 20 cents to melt the bars down and refabricate them to match New York’s delivery standards, and another 10 cents or so in financing costs, according to a retired senior gold trader. (London bars are heavier than those in demand in New York.)
So if New York prices are $1 an ounce higher than in London, a bank can make $80,000 moving five metric tons of gold—almost risk-free.
At Tuesday’s prices, the same load would net $11 million in profit, minus the cost of chartering the jet.
——Anna Isaac, Jacquie McNish and Alistair MacDonald contributed to this article.
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The Consumer Price Index Declined 0.4% in March To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 4/13/2020
The Consumer Price Index (CPI) declined 0.4% in March, versus a consensus expected -0.3%. The CPI is up 1.5% from a year ago.
Energy prices declined 5.8% in March, while food prices rose 0.3%. The "core" CPI, which excludes food and energy, declined 0.1% in March, matching consensus expectations. Core prices are up 2.1% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – rose 0.8% in March and are up 1.6% in the past year. Real average weekly earnings are up 0.7% in the past year.
Implications: Consumer prices declined 0.4% in March, led lower by the largest monthly drop in energy costs in more than five years. Outside of energy, prices were also pushed lower by airfares, lodging away from home (hotels and motels), as well as apparel (clothing). This shouldn't come as a surprise given the impact of the Coronavirus and government-mandated shutdowns. The virus will continue to bring volatility to the data over the next few months, but keep in mind that these impacts are temporary. Consumer prices are up 1.5% in the past year, a marked slowdown versus the upward trend in inflation prior to the Coronavirus. Strip out the typically volatile food and energy sectors, and "core" prices declined 0.1% in March, the first monthly drop since 2010. Core prices are still up 2.1% versus a year ago, but may continue to face some downward pressure in the near term. The best news in today's report was that "real" (inflation-adjusted) average hourly earnings rose an impressive 0.8% in March and are up 1.6% in the past year. However, the gain in wages was at least in part caused by greater layoffs at lower-paying jobs, which makes average earnings look better. In the months ahead, real earnings per hour may continue to grow in spite of much higher unemployment as very generous unemployment benefits for the next four months (an additional $600 per week, on top of normal benefits) makes it tough for businesses to hire workers unless they boost wages. A combination of disincentives for work while the Federal Reserve maintains a loose monetary policy will lead to a rebound in inflation rates later this year.
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Monday Morning Outlook
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The Economy, Inflation, and Interest Rates To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 4/20/2020
With each passing week, the economic damage wrought by the Coronavirus and the resulting shutdowns grows larger. It's not just businesses, both small to large, feeling the pain. Educational institutions, hospitals, churches, not-for-profits, and state and local governments are all finding it hard to remain financially viable.
The US has essentially turned off broad swaths of the private sector – the ultimate and only source of income and wealth creation. Without the private sector, there is no money to pay for government, schools, healthcare, or charitable organizations. To make up for it, the US has resorted to an open-ended expansion of the Federal Reserve's balance sheet (and expanded their power) and huge increases in government borrowing and spending, the likes of which the US has never seen outside of wartime.
As in 2008, many are worried that huge increases in Quantitative Easing and money growth, along with the purchasing of debt directly from the market, will lead to much higher inflation. However, for today, that doesn't appear to be a problem. The consumer price index (CPI) fell 0.4% in March and is up only 1.5% from a year ago. This morning, West Texas Intermediate (WTI) oil was trading at $11 per barrel, the lowest level since the late 1990s, and 64% lower than its March average of $30.45. This suggests another negative number for the CPI in April.
But the drop in measured consumer prices in March was not just driven by lower energy prices. Other factors included lower prices for hotels, airline fares, and clothing. What do all these categories have in common? A massive drop in customers due to the shutdown.
Sure, hotels are cheap today, but almost no one is using them; hotel occupancy rates are down about 70% from a year ago. Yes, anyone who flies can get cheap seats, but the number of people going through TSA checkpoints is down 96% from a year ago. Clothing prices fell 2% in March as sales at clothing & accessory stores fell 50%. Who had time to buy clothes when you had to stock up on groceries and toilet paper?!?
In other words, prices for the actual items people bought in March probably did not fall as much as the CPI report suggested, and the same argument will probably apply to April, as well. Bottom line: in the near term, while it may look like deflation, that's not true for the average consumer.
As we look further out, official measures of prices will eventually turn back up. We see multiple broad forces at work on consumer price inflation, which should prevent us from lurching into either high inflation or Great-Depression-style persistent deflation.
Obviously the Fed's actions will boost various measures of the money supply. And the unusually generous unemployment benefits for many workers who have recently lost their jobs means those businesses that are trying to ramp up production will have to offer higher wages than usual to attract workers, which could feed through to higher end-prices.
However, in spite of these reasons to fear higher inflation, there is one big reason to avoid fearing hyperinflation: the demand for holding money balances, by both individuals and companies, is going sky high. The precedent of shutting down the economy will make cash King. That's the only way to survive. So, yes, the money supply will be much higher, but velocity will be much lower; people will hold cash dear.
While we think inflation measures will head back towards 2% - 2.5% in 2021, not much different than where they were immediately prior to the Coronavirus, hyperinflation is unlikely.
Interest rates will go up eventually, too, but don't expect a sharp rebound. After the Great Recession, the Fed didn't raise short-term rates again until late 2015, when the unemployment rate hit 5.0%. After the expected spike in joblessness in the next couple of months, it'll be a long time before we get back to 5.0% unemployment. Meanwhile, having witnessed two massive recessions in a row, investors will place an even larger premium on safety and risk-aversion than they have for the past decade, which will hold the 10-year yield down relative to the economic fundamentals we'll see in the eventual recovery.
We've never seen an economic shutdown like this before. The ability of people and government to panic like this changes nearly every economic calculation. For inflation, there are forces going both ways. Only time will ultimately tell.
-
"It’s just another QE episode: QE4. 1, 2, 3 were also huge monetary expansions, with no resulting inflation. Why? because the Fed was simply accommodating increased money demand. Same as now. It might be inflationary in the future, but that remains to be seen."
- Is it even debt anymore? Did we issue bonds before the last 2 trillion went out the door? Did we borrow the money? From whom?
We went through this argument before, it's not just printing money? Really? Congress passes a spending bill (unanimously?), loans that become grants and money into people's pockets, the President signs it and the money goes out the door. Direct deposits and checks. On what account? We were a trillion a year in deficit and 23 trillion in 'debt' before this hit. Who is buying the US 'debt'? Not China. Not Europe. Not Russia. Not Saudi. Not Americans, as far as I know. It's not covered by some surplus coming out of the payroll tax, with the economy largely shut down. It's just 'money' 'printed' to match the 'demand for money'. Whatever that is.
MV = PQ, some say.
http://econmentor.com/college-macro/associated-macroeconomic-topics/money/equation-of-exchange-mv=pq--quantity-theory-of-money/text/362.html
M (money supply), V (velocity) and Q (GDP/output) are changing radically and Price level is presumed to stay constant. Meanwhile oil goes to zero. Airplanes and hotels are empty. Vegas, Disneyland, sports stadiums, empty. Retail closed.
Uncharted waters.
-
Wasn't 2008 a mortgage debt crises?
so flooding banks with money to stop a run on banks
now it is for different problem - a halt to production and many sectors of the economy
no production etc
passing out cash for people /business to pay bills and eat.
while they all sit on their assess at home
Why just award me a billion so I can go on buying spree
I need lots of cash.
I just don't get it the idea debt does not matter concept. That is why I keep my day job.
-
One more crisis and we get one more opinion that the era of the US dollar being the reserve currency of the world is coming to an end.
When the initial bailout package came out at $2 Trillion while the deficit was already out of control at $1 Trillion /year, with no hope or plan to cover the new spending with new revenues, one might think the US didn't even want to be the currency the world turns to for stability.
The following opinion tells us all about how the era of the USD is over. Only problem with that is the same reason it didn't really happen last time, the alternatives are worse.
-------------------------------------------------------------------
https://www.bloomberg.com/opinion/articles/2020-06-08/a-crash-in-the-dollar-is-coming?srnd=premium&sref=nXmOg68r
Stephen Roach: "The era of the U.S. dollar’s “exorbitant privilege” as the world’s primary reserve currency is coming to an end. Then French Finance Minister Valery Giscard d’Estaing coined that phrase in the 1960s largely out of frustration, bemoaning a U.S. that drew freely on the rest of the world to support its over-extended standard of living. For almost 60 years, the world complained but did nothing about it. Those days are over. Already stressed by the impact of the Covid-19 pandemic, U.S. living standards are about to be squeezed as never before. At the same time, the world is having serious doubts about the once widely accepted presumption of American exceptionalism. Currencies set the equilibrium between these two forces — domestic economic fundamentals and foreign perceptions of a nation’s strength or weakness. The balance is shifting, and a crash in the dollar could well be in the offing." (via Bloomberg Opinion)
-
https://www.zerohedge.com/economics/us-public-pensions-run-out-money-2028-finds-alarming-new-study
taxes will skyrocket
as is debt
defaults
.......................
-
Data Watch
________________________________________
The Producer Price Index Rose 0.4% in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/11/2020
The Producer Price Index (PPI) rose 0.4% in May versus a consensus expected +0.1%. Producer prices are down 0.8% versus a year ago.
Food prices increased 6.0 % in May, while energy prices rose 4.5%. Producer prices excluding food and energy declined 0.1% in May, but are up 0.3% in the past year.
In the past year, prices for goods are down 3.3%, while prices for services have increased 0.3%. Private capital equipment prices fell 0.3% in May and are unchanged in the past year.
Prices for intermediate processed goods rose 0.1% in May but are down 6.8% versus a year ago. Prices for intermediate unprocessed goods increased 8.9% in May, but are down 19.4% versus a year ago.
Implications: The impacts of the Coronavirus continued to play a dominant role in the producer price data, as shutdowns at meat packing plants – a hotbed for COVID outbreaks – pushed meat prices, and the producer price index, higher in May. The 40.4% jump in the meat index led the 6.0% increase in food prices in May, while a 43.9% surge in gas prices (the largest single-month increase on record dating back to the early 1970s) pushed energy prices higher by 4.5%. Outside of the typically volatile food and energy categories, producer prices declined 0.1% in May. The decline in "core" prices was led by final demand trade services (which measures margins received by wholesalers and retailers), down 0.8%. That decline was partially offset by higher costs for transportation and warehousing services, which rose 1.5%. Core producer prices as a whole are up 0.3% over the past twelve months. Both the recent oil-market turmoil and supply chain (and general business) disruptions related to COVID-19 will muddy the data over the coming weeks and months, and likely create excess volatility. Once the dust finally settles – and it eventually will – we expect inflation to trend back toward 2% and then higher. The Federal Reserve is loose and, as the Fed made abundantly clear yesterday, plans to stay that way for the foreseeable future. Meanwhile, a combination of business shutdowns (or operating at limited capacity) and unusually generous unemployment benefits remain a headwind to economic activity. The result will eventually be too much money chasing too few goods (and services), meaning higher – but not hyper – inflation. Further down the pipeline, prices for intermediate demand processed goods rose 0.1% in May, while intermediate demand unprocessed goods jumped 8.9%. In spite of the movement higher in May, both intermediate demand categories continue to show prices broadly lower compared to year-ago levels. The data is starting to shift higher, tracking the emergence of the economy from what was a severe – but short – recession. We still have a long way to go to get back to where we were at the start of 2020, but the initial steps of recovery are under way. On the employment front this morning, initial jobless claims declined for a tenth consecutive week, coming in at 1.542 million last week, down 355,000 from the week before. Continuing claims, which lag initial claims by a week, declined 339,000 to a reading of 20.929 million. Last week's employment report surprised virtually everyone by showing nonfarm payrolls rose 2.5 million in the month of May, following April's historically large job losses. Continue to watch the claims data for a pulse on the labor market recovery as the US gets gradually back to work.
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https://apnews.com/85dd675f8e2689120aca13fecd6e953a
has this ever been done.
encouraging more transfer of wealth from safer investments to higher risk stocks
more and more like a crap shoot
the trend lines are already over a cliff.................
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https://www.stamfordadvocate.com/business/article/Inspectors-general-warn-Congress-that-Trump-15340999.php
:x
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Sounds genuinely bad.
What is the explanation from the Trump Administration?
-
https://apnews.com/85dd675f8e2689120aca13fecd6e953a
has this ever been done.
encouraging more transfer of wealth from safer investments to higher risk stocks
more and more like a crap shoot
the trend lines are already over a cliff.................
Definition of Communism, socialism, government owning the means of production. How exactly was this done in other bailouts, Chrysler, GM, investment banks of the financial crisis, I don't know.
Partial and gradual takeover of the private economy is unequal treatment under the law, unconstitutional IMHO.
-
It stinks of desperation.
https://apnews.com/85dd675f8e2689120aca13fecd6e953a
has this ever been done.
encouraging more transfer of wealth from safer investments to higher risk stocks
more and more like a crap shoot
the trend lines are already over a cliff.................
Definition of Communism, socialism, government owning the means of production. How exactly was this done in other bailouts, Chrysler, GM, investment banks of the financial crisis, I don't know.
Partial and gradual takeover of the private economy is unequal treatment under the law, unconstitutional IMHO.
-
Steven Pearlstein: "In essence, the Fed has adopted a strategy that works like a one-way ratchet, providing a floor for stock and bond prices but never a ceiling. The result in part has been a series of financial crises, each requiring a bigger bailout than the last. But when the storm finally passes and it’s time to begin sopping up all that emergency credit, the Fed inevitably caves in to pressure from Wall Street, the White House, business leaders and unions and conjures up some rationalization for keeping the party going. Testifying Tuesday before the Senate Banking Committee, Fed Chair Jerome H. Powell was pressed on that very point by Sen. Patrick J. Toomey (R-Pa.), who asked why the Fed was continuing to intervene in credit markets that are working just fine. “If market functioning continues to improve, then we’re happy to slow or even stop the purchases,” Powell replied, never mentioning the possibility of selling off the bonds already bought. What Powell knows better than anyone is that the moment the Fed makes any such announcement, it will trigger a sharp sell-off by investors who have become addicted to monetary stimulus. And at this point, with so much other economic uncertainty, the Fed seems to feel it needs the support of markets as much as the markets need the Fed."
- Washington Post today
https://www.washingtonpost.com/business/2020/06/17/fed-is-addicted-propping-up-market-whether-it-needs-help-or-not/
I hate to overuse this, but - what could possibly go wrong?
-
should be buying gold silver or platinum?
could parker and his crew use a primary care doctor on their prospecting site :-o
Trump's prescription has been the Fed
and remove regulations
What are the Dems prescription : raise taxes , demolish the military, open the borders for more cheap labor, make health care college housing
"free"
Either way it looks really bleak
As the economist on LEvin show when asked what it going to happen , said the US will eventually default.
living off the grid sounds like the only answer , but an old city slicker like me ? :roll:
-
Contact me directly if you'd like advice.
should be buying gold silver or platinum?
could parker and his crew use a primary care doctor on their prospecting site :-o
Trump's prescription has been the Fed
and remove regulations
What are the Dems prescription : raise taxes , demolish the military, open the borders for more cheap labor, make health care college housing
"free"
Either way it looks really bleak
As the economist on LEvin show when asked what it going to happen , said the US will eventually default.
living off the grid sounds like the only answer , but an old city slicker like me ? :roll:
-
50% of total GDP
https://townhall.com/columnists/stephenmoore/2020/06/23/stop-the-madness-of-congressional-spending-n2571099
Dems : let the rich pay.
Trump : gotta get re elected
Republicans : not cool , but what we gonna do about it?
-
The new monarch of the bond market is undoubtedly Jay Powell, head of the Federal Reserve. Led by the Fed, central banks have now committed $17 trillion to fight the economic devastation wrought by the coronavirus pandemic, according to estimates from JPMorgan Asset Management. That even overshadows the scale of measures taken through the entirety of the financial crisis in 2008-09. The aggressiveness has led some investors to declare that central banks have in practice nationalized the bond market — fears the Fed chairman sought to allay in Congressional testimony last week. “I don’t see us as wanting to run through the bond market like an elephant or snuff out price signals,” Mr Powell said. Whatever Mr Powell may say, the Fed elephant has been doing a tap-dance all over markets. Just last week, the average yield of US investment-grade corporate bonds hit the lowest ever level, at a time when many companies are seeing their revenues shredded. This may be a short-lived recession, but even optimistic economists reckon it could take years before activity is back at the levels reported when the last bond yield low was seen in early February. (via Financial Times)
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John Dizard: "Like submariners watching the depth gauge swing down to crush depth, bond traders and the Fed are trying to calculate when sinking yields on five and 10-year bonds will get within 10 or 20 points of zero. Right now they are about 60 basis points, having reached a high of 90 after the March Covid-19 crisis. When the 10-year gets close to zero, transaction costs will keep even the big banks from making any margin by buying Treasuries. Then the system breaks down. Maybe just after Election Day. Nobody is sure." (via Financial Times)
--------------------
Macroeconomics
Governments must beware the lure of free money
https://www.economist.com/leaders/2020/07/23/governments-must-beware-the-lure-of-free-money
--------------------
Crisis? What Crisis?
(https://upload.wikimedia.org/wikipedia/en/f/f5/Supertramp_-_Crisis.jpg)
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A Golden Rule from a Golden Fool
The yellow metal has been white hot this year. But those who rush to buy it could still end up in the red.
by Jason Zweig
July 24, 2020 10:00 am ET
Almost five years ago to the day, a market commentator with a prominent platform called gold “a pet rock.” Since then, gold has risen nearly 70%, hitting an all-time high this week.
That market commentator? Yours truly. How wrong was I, and what can we learn from my mistake?
Oh, was I ever wrong. The yellow metal didn’t sit inert. Since I wrote that column five years ago, gold has returned an average of 10.5% annually—barely below the gains on U.S. stocks. And so far in 2020, it’s up 24% even as stocks are as flat for the year as…pet rocks.
A Golden Era
Almost immediately after The Wall Street Journal’s Jason Zweig called gold ‘a petrock,’ it began showering investors with big gains.
Gold price performance since July 17, 2015
Source: FactSet
Note: Most-active futures contract
%
July 2366.7%
2016
'17
'18
'19
'20
-20
0
20
40
60
80
Even so, traders and investors who are perennial fans of the yellow metal have a flaw in their thinking, too. They always believe gold is cheap, no matter what, even though they seldom have the same reasons for believing that it’s cheap. That is its own sort of mistake.
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Gold is attracting a lot of money in a hurry. Exchange-traded funds, which had $118 billion in gold assets a year ago, now command $215 billion. One-fifth of all that money has flowed in since Jan. 1, according to the World Gold Council, accounting for nearly half of global demand for gold. In the first half of 2020, gold-backed ETFs lured in a record $40 billion, up from $5 billion in last year’s first half.
Such hot money isn’t always sparked by the same thinking. Depending on what worked at the time, gold has been regarded as a buffer against high inflation, protection against a falling dollar or a universal currency that shines brightest when the news is darkest.
“The factors that drive gold prices tend to fluctuate,” says Suki Cooper, head of precious-metals research at Standard Chartered Bank in New York. “It is a fickle kind of asset.”
In the aftermath of the 2008-09 global financial crisis, investors piled into gold on the belief that low interest rates and trillions of dollars in government spending would ignite hyperinflation and make gold more valuable.
Gold shot up close to $1,900 in the summer of 2011, but the hyperinflation never materialized. In real, inflation-adjusted terms, gold gained about 6% annually in both 2011 and 2012, then lost 38% from 2013 through 2015, according to Christophe Spaenjers, a finance professor at the HEC Paris business school in Jouy-en-Josas, France. By late 2015 the gold price had sagged to $1,050.
SHARE YOUR THOUGHTS
Are you an investor in gold? If so, what do you think makes it a good investment? Join the conversation below.
Gold is, in fact, a poor hedge against inflation. Accounting for changes in the cost of living, gold has returned an average of minus 0.4% annually since 1980, versus positive annualized returns of 7.9% for U.S. stocks, 6.2% for U.S. bonds and 1.2% for cash, according to Prof. Spaenjers.
Adjusted for inflation, he reckons, gold would still have to rise approximately 52% from this week’s prices to match its level of January 1980. That is when it peaked in inflation-adjusted terms.
So you hear less about gold’s purported inflation-fighting powers nowadays. Instead, fans argue the dollar is losing value and, above all, that low interest rates in the U.S. and negative rates elsewhere will drive gold higher.
Join Jason Zweig as he answers your questions about investing in uncertain times
That makes some sense. It costs money to store and insure gold, which—unlike cash or bonds—produces no income. When the return on cash is nil or negative after inflation, gold’s income disadvantage disappears. Investors then become more willing to “look to assets where the value will at least be retained, which benefits gold,” Ms. Cooper says.
Although I expected interest rates to stay low for a long time, I never thought they would go this low, with even 30-year U.S. Treasury bonds yielding less than 1.3%. Such low rates have fueled high returns for gold.
So the yellow metal, once considered a hedge against an overheated economy, has become a bet against a return to economic growth.
That’s not a sure thing. “The main downside risk to gold is that interest rates may not remain low for a prolonged period,” says Ms. Cooper. A surprisingly swift or unexpectedly strong economic recovery could push interest rates back up, hurting gold.
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The Japanese Yen is now SO close to 100 to 1, why not lock it there?
(https://pbs.twimg.com/card_img/1300495784035708933/jHJiLwlj?format=png&name=900x900)
AlanReynoldsEcon
@AlanReynoldsEcn
·
Aug 31
Related to the above article, the Japanese yen is so close to 100 per dollar, they could do worse than to create a currency board to fix it at 100-to-1. A lower yen just raises the yen price of oil and other commodities; a higher yen is no help either.
https://fred.stlouisfed.org/series/DEXJPUS
"A growing body of evidence suggests that the dollar’s prominence in trade undermines the advantages which flexible exchange rates are meant to offer. And when the dollar strengthens, global trade tends to contract."
https://www.economist.com/schools-brief/2020/08/29/global-trades-dependence-on-dollars-lessens-its-benefits
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Monday Morning Outlook
________________________________________
The Fed Gambles on Inflation To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 10/5/2020
Over the past couple of decades, the Federal Reserve has coalesced around an idea about inflation that is little more than theoretical, with no real data to back it up. That "idea" is that 2% inflation is the "correct" amount of inflation.
The target is not just a one-year target, it is seemingly a permanent, long-term target. We find this idea very problematic. For example, the Fed's favorite measure of inflation, the PCE deflator, has averaged 1.5% over the past decade. But the Fed now says it could let inflation in the future run high so that the long-run average rises to 2%. No one knows exactly what this means, but one interpretation is that the Fed is willing to have inflation run at 2.5% for the next ten years so that the 20-year average is 2%.
Really? Why? If we look back over the past ten years, low inflation didn't hurt the economy, it helped it. Unemployment had fallen to 3.5% in February, the lowest since the 1960s. Yes, we know we're just emerging from the problems related to COVID-19, but that's an outside shock to the economic system, not something monetary policy can plan for ahead of time. It had nothing to do with the Fed or the level of inflation.
We have always believed that the underlying reason for the existence of the Fed was to maintain a stable value of the dollar. The most stable environment is one with no inflation. As Steve Forbes has always said, if a carpenter shows up at a job site and his yardstick is a different length than it was the day before, it is awfully hard to build a house, maybe impossible.
The same is true for the value of the dollar. It's far more complicated to make an investment, build a plant, or sell goods to a foreign country if the value of your currency changes over time making the value of revenues and investment change with it.
This is what worries us about the commitment to 2% long-run inflation. No one knows exactly what it means, or for that matter, why it is appropriate. Again, inflation averaged 1.5% over the past ten years with no serious consequences to the economy. By allowing inflation to average 2.5% over the next ten years, how does that change the past? The answer: it can't!
What it does do is change the future. In essence, the Fed is saying they really don't have a 2% inflation target, they have a target above 2% for the foreseeable future. And this is worrisome. The money supply has exploded in recent months as the Fed has monetized federal debt. Inflation is on the way higher. For example, this year the Fed said the PCE Deflator would be 0.8%, but it is already 1.4%, and looks more likely to rise than fall.
And if it rises to 2.5%, the Fed will say that is OK, because the average over some period of time (which it can make up by using any number of years of history) is still 2%. Back in the 1970s, the Fed kept saying inflation was rising, but it was all because of temporary factors (like oil) and it would fall later. But, once inflation is out of the bottle, it doesn't come down until the Fed tightens, like Paul Volcker did in the late 1970s and early 1980s.
So, letting inflation rise above 2% is potentially very dangerous. The Fed has created an artificial target and given itself an excuse for causing more inflation. If 2% is really the target, the Fed should claim victory when it is less than that and fight to keep it from rising above.
Unfortunately, the Fed is making arguments about inflation that are designed to give it freedom to do whatever it wants and that may actually lead to a devaluation of the US dollar. This is a violation of the real reason for the Fed and it worries us about the future of inflation in the United States.
-
I agree with Wesbury on this. This is a very bad thing and there are many perverted incentives to continue it. It devalues our debt and allows them to tax "gains" that aren't gains. Putting debt as a priority over savings is dangerous and counter productive.
-
buy cryptocurrency
(disclosure - I am dipping my toes)
wonder what Wesbury thinks of it
some say "ponzi"
others - the "future"
-
How do you actually buy the cryptocurrency?
-
Katherine did the leg work
there are various ways from exchanges
to some Financial Companies
I think for example you can through Fidelity
We transferred some IRA money into Bitcoin IRA which is a fully qualified IRA .
it has high up front fees though not much later on in the back end due to requirement you buy insurance in case of a bad even, like Chinese Nigerian Iran N Korea or Eastern Block hacks ets.
There are different cryptos one can buy into
They are talking about a small yield before the end of the yr.
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https://scottgrannis.blogspot.com/2020/10/on-demand-for-money-and-other.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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maybe decoupling from the broader market
though I have only been following for few months
previously was going up or down with market during that time
of course tomorrow it could be half..............
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https://www.zerohedge.com/markets/jpmorgan-sees-bitcoin-rising-10x-millennials-flood-alternative-currency?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
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some cryptos seem to be offering yields
ethereum is rumored to be offering one by end of yr
but everything is with risk
there are hundreds of these things now
everyone banks Freakbook etc all getting their own
paypal
will offer one next yr is rumored
Gilder FWI rec. bitcoiin ehtereum and lite coin - for now. I think
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Per my research at this point, Bitcoin is where i'm putting my money.
some cryptos seem to be offering yields
ethereum is rumored to be offering one by end of yr
but everything is with risk
there are hundreds of these things now
everyone banks Freakbook etc all getting their own
paypal
will offer one next yr is rumored
Gilder FWI rec. bitcoiin ehtereum and lite coin - for now. I think
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CCP: What can you tell us about Gilder here? He, or people purporting to be him, made a big splash some months back, but as I kept an eye on it, it smelt fishy.
-
https://www.cnbc.com/2020/11/04/1-billion-of-bitcoin-linked-to-silk-road-is-on-the-move-elliptic.html
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second post
https://stockcharts.com/h-sc/ui?s=gbtc
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https://www.nationalreview.com/2020/11/hankes-inflation-dashboard-measurements-vs-forecasts/?utm_source=Sailthru&utm_medium=email&utm_campaign=NR%20Daily%20Monday%20through%20Friday%202020-11-05&utm_term=NRDaily-Smart
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https://tomluongo.me/2020/11/13/market-friday-biden-bitcoin-right-to-privacy-coins/
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"in your" facebook is getting into crypto
but centralized chains like that will NOT be private
they will monitor everything you do
same with any Google crypto
I have tons to learn about cryptos
Just read there are about 7,000 and we really need knowledgeable experts to guid a layman like me through the maze
it is still to early go go days of the internet
picking lot of various ones with low investments seems to be the way to go , hoping a few take off
bitcoin is still the big banana now but it is very slow to make transactions
so many think it will eventually be disrupted
Again this can be a full time job understanding this stuff
but it is becoming more and more apparent to me this is going to be the stuff of the future
who wants , if you live in S America ( and maybe here in future ) to carry a trunk full of crash to the store to buy groceries
-
Please keep us posted on the results of your research.
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BTC is king. Buy and hold for 10-20 years depending on age. Learn self custody on a device such as Trezor. Read, Read more. As simple as that.
Stay away from altcoins, 5000 of them, 99% wont survive. Even ETH is suspect.
For noobs
https://www.dropbox.com/s/azli0pdo88y4jhl/Bitcoin%201%20Pager%20V2.docx?dl=0
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coindesk
is free and has pretty good information
there are some others with a paid subscription
there are some cryptocurrencies that pay interest
but they do not have insurance if hacked- not common but has happened
-
https://www.zerohedge.com/markets/mexicos-3rd-richest-man-puts-10-net-worth-bitcoin
-
sometimes hard to tell bullishness from raw self interest in promoting bitcoin
but this article does point out negatives risks and recommends not more then needed to allow you to sleep at night during periods of lows or lulls:
https://www.coindesk.com/complete-case-for-100k-bitcoin
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I would be suspicious
had some XRP at 28 cents
decided to sell at 26 cents to add to bitcoin total
now XRP is 61 and still climbing in about a week or so. :-o :cry:
https://www.coindesk.com/janet-yellen-treasury
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My Yellen post June 2016 was published at SpartaReport:
https://dogbrothers.com/phpBB2/index.php?topic=1948.msg97013;topicseen#msg97013
Sorry, nothing about Bitcoin.
If she tries to ban cryptos, will the value just go up?
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I would not think so
but now you are making me think too hard!
:-o
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The TPTB are going to learn that banning and enforcing a ban are two very different things.
My Yellen post June 2016 was published at SpartaReport:
https://dogbrothers.com/phpBB2/index.php?topic=1948.msg97013;topicseen#msg97013
Sorry, nothing about Bitcoin.
If she tries to ban cryptos, will the value just go up?
-
GBTC up nicely.
-
https://www.nysun.com/editorials/treasury-secretary-yellen-so-much-for-fed/91346/?utm_campaign=Unleash%20Prosperity%20Hotline%20%23167&utm_medium=email&utm_source=Mail
Yellen to Treasury essentially amounts to a merger.
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https://cointelegraph.com/news/stack-funds-hails-bitcoin-s-healthy-correction-predicts-euphoria-ahead
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A Beginner beginning some research:
Starting with the name Teeka Tewari, coming well recommended. My first search on Duck brought up this:
https://highincomesource.com/is-teeka-tiwari-a-scam/
Upon reading it what I get is a useful description of TT and an effort at bait & switch by the author, who has a competing product to sell.
=====================================
This is a friendlier source: https://forexvestor.com/teeka-tiwari-review
====================================
https://insidebitcoins.com/bitcoin-robot/teeka-tiwari
======================================
This sounds bad , , ,
https://www.bbb.org/us/fl/delray-beach/profile/publishing-consultant/palm-beach-research-group-0633-90059502
=========================================
TT's newsletter itself:
https://www.palmbeachgroup.com/
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https://www.holysmoke.org/scam/teeka-tiwari/
https://brokercheck.finra.org/individual/summary/1995398
A Beginner beginning some research:
Starting with the name Teeka Tewari, coming well recommended. My first search on Duck brought up this:
https://highincomesource.com/is-teeka-tiwari-a-scam/
Upon reading it what I get is a useful description of TT and an effort at bait & switch by the author, who has a competing product to sell.
=====================================
This is a friendlier source: https://forexvestor.com/teeka-tiwari-review
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https://insidebitcoins.com/bitcoin-robot/teeka-tiwari
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This sounds bad , , ,
https://www.bbb.org/us/fl/delray-beach/profile/publishing-consultant/palm-beach-research-group-0633-90059502
=========================================
TT's newsletter itself:
https://www.palmbeachgroup.com/
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https://www.realclearmarkets.com/articles/2020/12/08/the_biggest_red_flag_about_janet_yellen_is_george_akerlof_652274.html
"people do not do what is really good for them, they do not choose what they really want.”
- A different branch of economics than I was taught.
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https://thediplomat.com/2020/12/chinas-new-surveillance-currency/
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https://thediplomat.com/2020/12/chinas-new-surveillance-currency/
I trust it like I trust Chinese infant formula.
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Duh :-)
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https://www.breitbart.com/tech/2020/12/13/coinbase-ceo-brian-armstrong-sounds-alarm-over-cryptocurrency-rule-that-could-empower-financial-censors/
Would not. a Biden administration beholden to WS not be more aggressive in regards to this?
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https://www.zerohedge.com/personal-finance/doug-casey-what-happens-when-suspension-evictions-ends
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https://www.zerohedge.com/personal-finance/doug-casey-what-happens-when-suspension-evictions-ends
Best guess is that they extend the suspension.
"The longer the government kicks the can down the road, the bigger the inevitable bust will be."
And then the backlog begins. You don't try 16 million cases at once.
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https://www.zerohedge.com/personal-finance/doug-casey-what-happens-when-suspension-evictions-ends
Best guess is that they extend the suspension.
"The longer the government kicks the can down the road, the bigger the inevitable bust will be."
And then the backlog begins. You don't try 16 million cases at once.
2008/2009 will pale in comparison.
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https://www.zerohedge.com/markets/mexicos-3rd-richest-man-puts-10-net-worth-bitcoin
https://stockcharts.com/h-sc/ui?s=GBTC
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Look at GBTC now!
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BTC touched $ 24K today. Looks like the train has now left the station. Hope some took the opportunity to get on board since I last discussed it around 16 K on this board. Buying a whole bitcoin has become unaffordable for most. I would like to share the link below for more information on BTC. The predicted price for 2021 year end is a 100K conservative estimate, 200K+ likely. The institutions are coming in big time, all the naysayers are converting..JP Morgan, Paul Tudor Jones, Ray Dalio etc. Gold is being sold for BTC, BTC is the new digital gold.
https://100trillionusd.github.io/
The other point to make is that 1 BTC=100 million satoshis. We have to start thinking in satoshis and it is possible to buy BTC in small fractions. To get the rewards, the holding period will now need to be long, a decade or atleast until 2025 when the next halving followed by up cycle will occur. Conservatively, if the hopium infused predictions are correct, 2025 will give you 1 million $/BTC.
Buying GBTC is not my preferred option but better than not buying anything. GBTC buyers are like buying an ETF for paper gold, vs gold the metal. What BTC gives you is freedom, something that cannot be confiscated. The govts the world over are moving to CBDC's (Central Bank Digital Currencies) and away from paper currency. The CBDC's will be used to inflate your $ away, and once they get rid of paper currency, the only money will be digital. Imagine, if the govt did not like you for some reason, they could put a lien on your acct and you would not have a single cent that you could withdraw from under your mattress. BTC avoids this, actually the supply or inflation rate drops 50 % every 4 years, which is better than for gold. Wrt gold, the miners mine more gold if the price goes up. BTC is capped at 21 million coins and many million coins from the early days are lost. There is not enough bitcoin for the 45 million millionaires worldwide to even have 1 BTC each!.
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Thank you very much for that YA.
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https://gab.com/system/media_attachments/files/060/834/718/original/23a47d06ee06381f.jpeg
(https://gab.com/system/media_attachments/files/060/834/718/original/23a47d06ee06381f.jpeg)
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You got it :-D
I see Bitcoins and Satoshis, with a few altcoins.
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I have heard about needing a "wallet" for bitcoin and other crypto currencies. What is that and how does it work?
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".Buying GBTC is not my preferred option but better than not buying anything. GBTC buyers are like buying an ETF for paper gold, vs gold the metal."
good analogy
but this has advantages
rather then worrying about storing physical gold this in some ways safer;
could have a way of buying the rights to owning physical gold
with the option of having gold delivered as requested (though I think it would have to be a large value for that
not simply a few ounces).
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https://tech.hindustantimes.com/tech/news/pornhub-is-now-only-accepting-cryptocurrency-for-its-premium-service-71608100015604.html?fbclid=IwAR1ajvuBGCottHb1G5o0CqTG6K1JgQNPIdZ5GaHsnUWY7APY2tVx4QWO8vU
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I have heard about needing a "wallet" for bitcoin and other crypto currencies. What is that and how does it work?
You need to buy a Trezor which is the simplest one for non-technical people, there are other options too. https://blog.trezor.io/trezor-stories/home
Never buy it from anyone, except the dealer in Czech, never enter any keys on a computer. Trezor usually has a sale around Christmas (Model T is what you should get). Most dont know, but the Trezor wallet actually does not hold the BTC, the BTC are on the block chain network. You could lose your wallet and get a new one, as long as you hold the keys (codes). If you lose a Trezor, its wise to immediately change your codes as a real Pro could potentially hack your wallet given a lot of time and access to it. I tend to think of the Trezor as something like a Debit card. It is used to access your bank acct on the blockchain, where the pin represents the password.
Not to confuse..but the Trezor has a PIN as well as the ability to have an additional passphrase besides the 12 or 24 code words for additional security.
A Trezor is not needed, if the coins are stored on the Exchange, either on their main exchange, or free in their custodial acct. Takes 2 days to withdraw if you need them. To avoid the hassle of not dealing with wallets and if you trust the US govt and the exchange, the BTC can be left on the exchange. This is a good way to start for most people.
The BTC ethos is to not rely on exchanges, since these can be hacked and they can put a hold on your acct, which they do if you try to mix your coins (a procedure that makes your coins untraceable to the US govt). Treasury sec Mnuchin and the SEC are adding new rules re: wallets, the safest is to hold them yourself. The upside is that the US govt is not trying to ban BTC, just regulate it.
However, if you lose your keys, the coins are lost. The coins are lost, also if you send it to the wrong address (account). The keys (codes) are stored in a cryptosteel type metal cassette, which is indestructible and can stand heat, acid, fire etc and these keys are entered on the Trezor as required.
https://jlopp.github.io/metal-bitcoin-storage-reviews/
lopp.net is a great resource for those who wish to go down the rabbit hole. It is not as complicated as this sounds.
The main thing is to get off zero and then slowly learn using baby steps. Hold it for a decade, but invest only that which will not dent your retirement (if BTC goes to zero). Currently about 1.5 % of the world's population holds BTC, due to exponential growth in 5 years, it is anticipated that a billion users will be found. Reminds me of 1990 in the internet era. BTC is very volatile, but as more users come on board, volatility is decreasing (85 % draw downs). Good luck..
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(https://pbs.twimg.com/media/Eps90FyXYAAKViW?format=jpg&name=large)
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https://stockcharts.com/h-sc/ui?s=gbtc
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https://www.theverge.com/2020/12/22/22195834/cryptocurrency-fincen-regulations-private-wallets
this was inevitable
everyone knows the government is NOT going to allow people to move or make (or lose money) w/o them knowing it.
not sure how this will effect bitcoin long term
since privacy was always a draw
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https://www.theverge.com/2020/12/22/22195834/cryptocurrency-fincen-regulations-private-wallets
this was inevitable
everyone knows the government is NOT going to allow people to move or make (or lose money) w/o them knowing it.
not sure how this will effect bitcoin long term
since privacy was always a draw
It used to be that the Feds tracked any movement of cash 10,000 and above.
https://blog.fraudfighter.com/bid/80625/Bank-Secrecy-Act-The-10-000-Rule
Playing off that I tried to keep any movement of funds below 9k, such as a transfer from checking to savings etc.
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If you want to be optimistic, they are not trying to ban it. They just want a cut of the moolah. This is bad rule making by the govt. No point closing the barn door at this time. BTC cannot be banned, even by the USA.
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https://www.goldinglawyers.com/what-is-smurfing-example-of-how-smurfing-differs-from-structuring/
https://www.theverge.com/2020/12/22/22195834/cryptocurrency-fincen-regulations-private-wallets
this was inevitable
everyone knows the government is NOT going to allow people to move or make (or lose money) w/o them knowing it.
not sure how this will effect bitcoin long term
since privacy was always a draw
It used to be that the Feds tracked any movement of cash 10,000 and above.
https://blog.fraudfighter.com/bid/80625/Bank-Secrecy-Act-The-10-000-Rule
Playing off that I tried to keep any movement of funds below 9k, such as a transfer from checking to savings etc.
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Pro and cons?
https://www.paypal.com/us/webapps/mpp/crypto
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Pro and cons?
https://www.paypal.com/us/webapps/mpp/crypto
I trust PP about as much as FaceHugger. They will fcuk you for daring to be to the right of Stalin.
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Paypal is good for BTC, they have like 350 mill customers. However, I heard functionality is limited. They might improve over time. It is still early in some respects. Current estimates are 1.5 % of the world population owns BTC.
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I'm hearing Ameritrade deals in crypto.
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paypal started
but limited to bitcoin ethereum and litecoin I have heard
and risk of hack into paypal is real
and can get "reversed "
"square" does bitcoin.
"coinbase" had decent security
"gemini" may have best security but some limitations on number of coins
fidelity has said they will do it but not up yet
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some wallets currencies pay dividends
for crypto holders
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some wallets currencies pay dividends
for crypto holders
Why risk giving your coins to someone, when BTC gives you several hundred percent every year. If my understanding is correct, 1 million/BTC is not out of the question in 5 years. The focus should be on building opsec, so that a "5$ wrench attack" (google) is not a concern.
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China Envisions Its Digital-Currency Future, With Lotteries and a Year’s Worth of Laundry
In the latest trial, residents in the city of Suzhou won a share of 20 million “digital yuan” to spend on online or offline purchases
Signage for the digital yuan at a checkout counter in a supermarket in Shenzhen, China, in November.
PHOTO: YAN CONG/BLOOMBERG NEWS
By Jonathan Cheng
Dec. 27, 2020 6:00 am ET
BEIJING—The People’s Bank of China on Sunday concluded its second digital-currency pilot program, as the central bank moves closer to a formal rollout that would make China the first major world economy to introduce such a system.
This month, authorities in the eastern Chinese city of Suzhou handed out 20 million digital yuan, equivalent to $3.1 million, to local residents via a lottery. Each of the 100,000 winners received 200 yuan in the new digital currency, which could be spent on online or offline purchases.
The Suzhou pilot included twice as many residents and three times as many merchants as one conducted in October in the southern Chinese city of Shenzhen, the first such trial of the government-backed digital currency.
The trial in Suzhou also expanded the scope of the pilot program by testing the digital yuan on online stores and by introducing an electronic-payment method that doesn’t require an internet connection.
Wang Ju, a 39-year-old Suzhou resident who was selected to participate in the pilot, was impressed to find a pastel-colored replica of a yuan bank note featuring state founder Mao Zedong in her digital-wallet app after following the instructions.
CHINA’S PUSH FOR A DIGITAL YUAN
“It’s amazing,” said Ms. Wang, who spent all of her allotted currency buying enough laundry detergent to keep her family’s clothes clean for a whole year. Ms. Wang chose to spend the money at JD.com Inc.’s online shopping platform, which was offering big discounts during its annual “Double Twelve” shopping festival that began on December 12.
Chinese authorities also teamed up with other technology giants, including Meituan and Didi Chuxing Technology Co., to test the use of digital yuan for services such as food delivery and ride hailing respectively.
To buy all that detergent, Ms. Wang had to top up with five yuan from her account at Industrial & Commercial Bank of China Ltd. , since it exceeded the 200 yuan she received from the central bank. “It went through smoothly, like other online payments we did,” she said.
In the first 24 hours of the Suzhou trial, JD.com recorded nearly 20,000 orders paid in the digital yuan, the company said this month.
Besides testing payment on online stores, Suzhou also experimented with the digital currency’s offline-payment function, a feature touted by officials to differentiate the new platform from the electronic payment services already ubiquitous in China, a country where payments are already increasingly cashless.
Unlike payments made through Ant Group’s Alipay and Tencent Holdings Ltd. ’s WeChat Pay, the central bank’s offline-payment feature doesn’t require an internet connection, which could facilitate payments in areas with poor cellular service, officials said. A brief tap of devices between consumer and vendor can process the transaction.
Perhaps even more enticing for many merchants is that the new digital currency offered by the central bank doesn’t involve transaction fees, unlike Alipay, WeChat Pay and Chinese commercial banks.
‘I don’t think it’s about seeing who’s buying diapers or cigarettes today. It’s about having more of a real-time understanding of how money is moving in the economy for more of a macro targeting procedure.’— Martin Chorzempa, research fellow at the Peterson Institute for International Economics
One Suzhou merchant who participated in the pilot program welcomed both functions. Located on the ground floor of a shopping mall, the nut store often encountered problems with poor cellphone signals when consumers used WeChat Pay or Alipay.
After the nut vendor was chosen to take part in the Suzhou trial, China Construction Bank Corp. , the country’s No. 2 lender by assets, which also assisted the government in experimenting with the new currency, gave the store a domestically-produced smartphone that enables offline payments.
“We just needed a few touches of two cellphones to make the payment go through. It happened in the blink of an eye,” said the store’s manager, Mr. Ma, who declined to give his full name.
The lack of processing fees was another inducement, he said, saving him the three or four yuan for every 1,000 yuan processed that banks and payment firms generally charge. “To be frank, I prefer the digital currency which is backed by the government and charges no payment fee,” Mr. Ma said. “It saves a lot of money.”
China’s central bank said it began work on its digital currency—known as “digital currency/electronic payment,” or DC/EP—in 2014. It has said that the new yuan is a digital extension of physical fiat money endorsed by the government, describing the new currency’s purpose as being to replace some of China’s monetary base—cash in circulation.
Similar to China’s existing commercial digital-payment platforms, consumers must first download a digital wallet onto their smartphones, where they can store money and generate a QR code that is then scanned for payment during each transaction, according to the Suzhou and Shenzhen trials.
For the central bank, part of the appeal of the new digital currency is to create a public alternative to Alibaba and Tencent’s payments duopoly, and to gain more access to transaction data, says Martin Chorzempa, a research fellow at the Washington-based Peterson Institute for International Economics.
“I don’t think it’s about seeing who’s buying diapers or cigarettes today,” he said. “It’s about having more of a real-time understanding of how money is moving in the economy for more of a macro targeting procedure.”
Once it is in widespread use, the digital yuan could also give Chinese regulators more information on money flows, they have said, helping authorities track money laundering and terrorist financing.
Analysts have separately predicted the new currency could allow the central bank to put negative interest rates on cash in extreme economic circumstances, to encourage consumers to spend.
Though it has conducted several rounds of trials, both in public and in private, Chinese government officials haven’t offered a concrete timetable for a full rollout. Chinese central bank Gov. Yi Gang has said only that more rules and regulations are needed.
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Re: China's CBDC or any other CBDC, offering a lottery, it is fiat currency. It can be printed ad infinitum with a few key strokes. Even cheaper to print than the fiat it replaces.
The govts love CBD (Cannabidiol) and CBDC (Central Bank Digital Currency). Both will lead to UBI (Universal Basic Income). What more could a politician want for continued re-election.
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In the process of giving this a proper read:
https://reason.com/2020/12/24/money-is-social-media/
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https://finance.yahoo.com/video/associate-professor-finance-bitcoin-rally-155915462.html
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https://www.bloomberg.com/opinion/articles/2020-12-29/bitcoin-hits-new-high-but-cryptocurrency-s-future-is-uncertain?sref=KgEBWdKh
================================
USA Today:
In May 2019, NFL offensive lineman Russell Okung wrote on Twitter that he wanted his salary to be paid in bitcoin, a type of digital currency.
On Tuesday, he indicated that his wish had been granted.
“Paid in Bitcoin,” he wrote on Twitter.
Okung is receiving half of his $13 million base salary for the 2020 season in bitcoin, according to a news release from Strike, a company that helps users convert traditional money to the cryptocurrency. The company claims that Okung, who is now with the Carolina Panthers, is the first player in league history to receive part of his annual paycheck in the form of a digital currency.
============================
https://finance.yahoo.com/video/associate-professor-finance-bitcoin-rally-155915462.html
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https://decrypt.co/52303/bitcoin-by-the-numbers-2020-recap
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A provisional liquidation order has been granted against a South African Bitcoin trading company that is said to have received about 9.45 billion rand ($644 million) from as many as 280,000 investors, Business Day reported.
https://www.news24.com/fin24/companies/financial-services/just-in-court-grants-provisional-liquidation-order-against-stellenbosch-bitcoin-trader-mti-20201229
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29,400
I find these predictions hard to believe but it is fun to think about:
https://cointelegraph.com/news/top-6-bitcoin-price-predictions-to-watch-in-2021
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Hard to believe ?...it is ordained. See the numbers...where things are going. In the next 3-4 years a billion people will be using it.
https://blog.lopp.net/bitcoin-2020-annual-review/
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https://www.lopp.net/bitcoin-information.html
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YA:
That seems to be a very good read. Thank you. Still working on it.
This caught my attention:
"While you may think of bitcoin as being a cryptocurrency, some users think of it as a trust anchor. By embedding data into Bitcoin’s blockchain, other systems can gain new properties such as tamper evidence and immutability."
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Bitcoin and related product development is currently like being at the start of the dotcom/internet development stage, circa 1990. We cannot even imagine where this will lead to. Most of us will do fine if we just hodl and not trade. There will be big drawdowns...but so far BTC has always recovered to higher highs.
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https://www.cnbc.com/2020/11/05/1-billion-worth-of-bitcoin-linked-to-the-silk-road-seized-by-the-us.html
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8,397 to 1 in 2013
28.95 now
see lower right corner
https://www.usdebtclock.org/
is crypto rising
or dollar descending ?
Mostly the former
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33K
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From Twitter
Bitcoin going up is fun
- There will be price crashes
- They can be nasty crashes
- Sometimes 30% in days
- Buy what you’re ok losing
- Hold through the volatility
- Don’t try day trading
- Be patient & breathe
Welcome to Bitcoin.
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https://www.investopedia.com/news/short-bitcoin/#:~:text=One%20of%20the%20easiest%20ways,order%20to%20make%20a%20trade.
we can be sure all the shorts will out en mass Monday all over message boards CNBC
screaming
about what a scam it all is
and they will have their favorite bankers and billionaire's giving their take as to the whole thing being a ponzi scheme
and hype and tulip mania
etc.
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Breaking major news from US Treasury OCC, the largest US banking regulator (@USOCC), with new guidance allowing US banks to use public blockchains and dollar stablecoins as a settlement infrastructure in the US financial system. This is great news for the space.
The risk of banning BTC is now effectively zero. Bank settlement networks such as SWIFT are on the way out as banks have permission to use public blockchain networks..the best example is BTC.
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Wow.
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Wow.
It's like they are anticipating the collapse of a currency.
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https://stockcharts.com/h-sc/ui?s=gbtc
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https://www.cnbc.com/2020/12/17/mark-cuban-bitcoin-is-a-store-of-value-that-is-more-religion.html
https://news.bitcoin.com/mark-cuban-bitcoin-plan-btc-1-million-free-satoshis-for-every-citizen/
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Let's start keeping an eye on https://news.bitcoin.com/ and reporting on selected items here.
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https://www.dailymail.co.uk/news/article-9136005/200-BILLION-wiped-cryptocurrency-market-24-hours-Bitcoin-value-plunges-22.html
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BTC used to have large draw downs in the past, 30 % pull backs are to be expected in a bull run. Nothing out of the ordinary so far.
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https://wilderwealthywise.com/the-big-hangover-finland-and-bikini-economics/
Excellent story and excellent analogy. Bitcoin at the moment is absolutely the prime example of free money blasting up prices. (Well, except for maybe Tesla). In particular, Greyscale has absolutely gone crazy using the flood of free money to buy crypto assets, and is currently in control of 25 billion dollars of Bitcoin value. This is all a bubble and it will pop.
https://s3.cointelegraph.com/uploads/2021-01/9b2cf5b6-2c98-461b-bae2-9dfbdeefad63.jpeg
Bitcoin is a prime example of a Finnish corporal on meth. I personally have a technical aversion to Bitcoin because it has an unbelievably insane (and unnecessary) level of electricity use behind the scenes that people just don’t get. Bear with me, the tech details are fascinating to a geek like me…
Bitcoin is compared to gold and the term “mining” is applied to both. But (as is seen on the great blue collar TV program Gold Rush) once you burn the diesel fuel energy to get gold out of the ground, it requires no more energy to maintain its existence – it just sits quietly in a vault. In contrast, every bitcoin in existence requires electricity to propagate its existence forward another ten minutes. Just how much meth, er, electricity?
You gotta divide “the total worldwide Bitcoin system hash rate” by “the hash rate of the most energy efficient mining computer” to get “the number of mining computers in the world”, and multiply that number by “energy required to run each mining computer”. Then multiply that amount of energy by “the average cost of electricity” which we are going to say here is roughly ten cents per kilowatt hour.
Here’s the worldwide Bitcoin system hash rate in trillions of hashes per second (TH/sec – and I’ll explain just what a hash is later below):
https://www.blockchain.com/charts/hash-rate
Here’s arguably the best individual computer to stack up in warehouses to generate Bitcoins, the Antminer S9i:
https://www.amazon.com/gp/product/B07CY1J6KJ/ref=as_li_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=B07CY1J6KJ&linkCode=as2&tag=bitrawr07-20&linkId=6121a78976ad626c0da3e1dfd24d1ffd
So we see that keeping Bitcoin alive requires 150 million TH/sec, and a single Antminer can generate 14.5 TH/sec using 1320 watts to do it.
As Jesse Pinkman says, let’s do the math, bi*ch.
The worldwide Bitcoin system takes 150/14.5 = over 10 million Antminer computers out there in warehouses to keep going. The worldwide Bitcoin system uses 10 million * 1320 W = over 13 billion continuous watts of power to keep running. THIS IS FOUR TIMES MORE POWER THAN IS PRODUCED BY PALO VERDE NUKE PLANT IN ARIZONA WHICH HAS NOT ONE BUT THREE REACTORS AND IS THE LARGEST NUKE PLANT IN THE WORLD. This electricity cost for the worldwide Bitcoin system is thus (13 billion / 1000) * $0.10 = $1.3 million dollars per hour. There’s only 18 million bitcoins in existence, so EACH AND EVERY SINGLE Bitcoin requires 1.3/18 = 7 cents per hour of electricity JUST TO STAY IN EXISTENCE. There’s 8760 hours in a year, so the eternal maintenance overhead cost to maintain a single Bitcoin is over $630 per year. Each and every year from now on to eternity. And this is just the bottom floor for cost estimates – the real numbers are actually higher because not all miners run S9is, etc etc etc.
Key point – the Bitcoin price HAS to keep going up to cover the ever-increasing sunk costs in electricity. Until it all becomes more trouble than it’s worth, at which point the whole system collapses.
So if you like the crazy con the Fed is running, you gotta LOVE bitcoin.
So – what’s a hash? All these 10 million S9i computers are like a linked worldwide casino of slot machines. They are all trying to hit the jackpot every ten minutes (the “blocktime”) and be the single winner that earns the right to issue 6.5 new bitcoins they get to keep for themselves and will sell later to the public, er, Greyscale for a profit. What is the game they are playing? They are all creating “hashes” – data files containing an encrypted list of all worldwide bitcoin transactions made in the past ten minutes. Each individual S9i computer is creating literally 14.5 trillion versions of this hash / data file every second.
From a security standpoint, and in contrast to the propaganda Bitcoin miners feed the public, there is absolutely no need for all of these trillions upon trillions of trial data files to be generated. They all contain the same transaction data and each and every one of them is equally secure (or insecure) against tampering by hackers or the NSA. BUT. There has to be a winner every ten minutes – and that winner is the one whose data file starts with an agreed-upon number of zeros in its randomly generated data structure. The exact number of zeros required is proportional to the gigantic number of computers trying to hit it.
So really Bitcoin is driven by greed of geeks linking up a higher and higher pile of computers to throw dice in a back alley on the internet.
Bitcoin is data meth that has become money.
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YA:
What say you?
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well bitcoin has value that is beyond how each one costs and I think the author is missing that
the ability of transactions privately
without google fb and amazon following us.
blockchain may well be the disruptive tech that breaks the stranglehold on the big tech titans that now control the online world
some cryptos are already paying out dividends and payments for profits made from transactions
I have feeling as the cryptos mature they will probably all pay some sort of dividend
at least to those who make a stake
as for mining
using electricity
and eventually when the cost of mining becomes more than the cost of the electricity
I think there are other reasons that give bitcoin its value
Case in point - we get value from using our computers despite the marginal cost of the electricity to use them
I mean what is the cost of the electricity?
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quote author=ccp
"bitcoin has value that is beyond how each one costs and I think the author is missing that
the ability of transactions privately
without google fb and amazon following us."
That was my understanding of it from the beginning, but I don't see how it can be a speculative with a wildly fluctuating value and also be a currency for routine transactions.
"blockchain may well be the disruptive tech that breaks the stranglehold on the big tech titans that now control the online world"
Yes. I would think blockchain would be great for health records and other things that require security and privacy - if our government allows us security and privacy.
"I mean what is the cost of the electricity?"
The vast majority of the electricity cost in my state goes to foolish mandates on power companies. If electricity is the crucial resource in mining bitcoin, that activity will have to go off shore or to development of some form of black market energy. Cheap energy is mostly illegal in the US.
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To understand Bitcoin, it takes about a year or more of reading. Icons of wall street (Paul Tudor Jones, druckemiller, gugenheim, JP Morgan etc) are now big supporters of BTC. Dan Held from the Kraken exchange has a website in simple language explaining various facets of BTC. It answers questions like is BTC wasteful of energy, can govt ban it etc. It is one of the better sites by an expert. It requires a free log-in, but is worth it.
https://danheld.substack.com/p/pow-is-efficent
https://danheld.substack.com/archive?utm_source=menu-dropdown
The short answer is that BTC is not wasteful as compared to gold mining or other activities.. Not only that, these days the trend is to use recycleable or wasted energy for mining. Texas is developing one of the largest mining operations in the world, it will use energy from methane and other oil byproduct gases that are currently burnt off into the air. Many cold countries set up mining equipment near water falls, where the energy is cheap and electricity costs due to transport of electricity are not there. Other central asian republics plan to use nuclear power to mine BTC!
Once you go down the BTC rabbit hole.. there is no turning back, you will learn of the immaculate conception of BTC. All I can say is that all the issues raised on this board have been addressed by experts and are not a concern atleast to me..
eg volatility: BTC is only 11 years old, as the value increases, it is becoming less volatile. Once it reaches a few hundred thousand or a million $, it becomes a store of value and will have little volatility. BTC needs another decade before it becomes a stable currency.
BTC is perhaps the first time in history where Main St got in before Wall St!. The risk is that by the time BTC is widely accepted, it will be too late to buy. Already its hard for normal people to buy a whole BTC, but each BTC has 100 million satoshis, so everyone can afford some sats.
I advise everyone to do their own research and invest only what you can afford to lose.
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https://www.zerohedge.com/markets/yields-surge-stunned-traders-learn-biden-propose-massive-2-trillion-stimulus
Best comment on the above article:
"An Illinois pension fund manager just took the gun barrel out of his mouth."
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https://www.zerohedge.com/markets/yields-surge-stunned-traders-learn-biden-propose-massive-2-trillion-stimulus
Best comment on the above article:
"An Illinois pension fund manager just took the gun barrel out of his mouth."
Looking forward to our new currency:
https://external-content.duckduckgo.com/iu/?u=https%3A%2F%2Ftse2.mm.bing.net%2Fth%3Fid%3DOIP.2_A3CW8rtoX3SLTSXR2hTQHaEK%26pid%3DApi&f=1
(https://external-content.duckduckgo.com/iu/?u=https%3A%2F%2Ftse2.mm.bing.net%2Fth%3Fid%3DOIP.2_A3CW8rtoX3SLTSXR2hTQHaEK%26pid%3DApi&f=1)
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we should be able to buy two , not one packs of chewing gum for that big sum
at the rate we are going
Plus we could get the "rich" to pay for it all so it is "free" for all Democrat voters.
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gold is not without costs other than mining
cost of storing
in safe
safe deposit box
with secondary
such as brinks or fund etc
fees
supply not fixed (compared to some crytos such as bitcoin)
also remember what a retail buyer pays for gold
who then tries to sell it to wholesaler
will get less than current market value
-
gold is not without costs other than mining
cost of storing
in safe
safe deposit box
with secondary
such as brinks or fund etc
fees
supply not fixed (compared to some crytos such as bitcoin)
also remember what a retail buyer pays for gold
who then tries to sell it to wholesaler
will get less than current market value
I went flying this morning, and was also thinking about this last night.
The entire concept is wrong.
The dollar isn't backed by gold or anything....at all.
Even if the dollar was backed by gold, the gold is useless by 94% of the earth's population outside of dentistry and electronics. They certainly won't be eating gold or using it directly to clothe themselves or build a house with it.
Anything outside of a sustenance based economy is artificial and fickle. King Midas. The US Dollar being backed by something....Bitcoin too for that matter....all fairy tales.
-
gold is not without costs other than mining
cost of storing
in safe
safe deposit box
with secondary
such as brinks or fund etc
fees
supply not fixed (compared to some crytos such as bitcoin)
also remember what a retail buyer pays for gold
who then tries to sell it to wholesaler
will get less than current market value
I went flying this morning, and was also thinking about this last night.
The entire concept is wrong.
The dollar isn't backed by gold or anything....at all.
Even if the dollar was backed by gold, the gold is useless by 94% of the earth's population outside of dentistry and electronics. They certainly won't be eating gold or using it directly to clothe themselves or build a house with it.
Anything outside of a sustenance based economy is artificial and fickle. King Midas. The US Dollar being backed by something....Bitcoin too for that matter....all fairy tales.
FYI, the use of gold in dentistry has dwindled, not really needed anymore.
Would you rather have your teeth gold or white?
https://yourdentalhealthresource.com/when-is-gold-used-in-dentistry/
The trend is down in electronics too.
https://www.delltechnologies.com/en-us/blog/how-much-gold-is-in-smartphones-and-computers/
Silver is more conductive. Copper is cheaper. Gold is more resistant to corrosion.
The main 'uses' of gold are a store of value and jewelry, also a store of value.
https://www.physicalgold.com/insights/15-uses-gold/
-
[quote author=DougMacG
FYI, the use of gold in dentistry has dwindled, not really needed anymore.
Would you rather have your teeth gold or white?
https://yourdentalhealthresource.com/when-is-gold-used-in-dentistry/
The trend is down in electronics too.
https://www.delltechnologies.com/en-us/blog/how-much-gold-is-in-smartphones-and-computers/
Silver is more conductive. Copper is cheaper. Gold is more resistant to corrosion.
The main 'uses' of gold are a store of value and jewelry, also a store of value.
https://www.physicalgold.com/insights/15-uses-gold/
[/quote]
Thank you. I didn't realize that.
-
Sometime back I was in India at a gold shop. If you want to sell gold, they melt it and check on a spectrophotometer for purity. Thats an added expense and hassle. There were several reports over the last year on Zero Hedge, where they showed the gold bars deposited in NY banks were filled with tungsten.
-
Sometime back I was in India at a gold shop. If you want to sell gold, they melt it and check on a spectrophotometer for purity. Thats an added expense and hassle. There were several reports over the last year on Zero Hedge, where they showed the gold bars deposited in NY banks were filled with tungsten.
It wouldn't surprise me.
The Chinese are even making counterfeit "junk silver" now.
-
https://straightlinelogic.com/2021/01/14/the-gray-curtain-descends-part-2-by-robert-gore/
Read it all.
-
The study of Gold and other safe havens outside the productive economy is in part an inverse study of the US dollar.
'The dollar isn't backed by ... anything at all'.
The dollar is backed by the 'full faith and credit of the US government', which unfortunately does not contradict the statement above.
Debt halfway into coronavirus is now 27.8 trillion, and will pass 30 trillion instantly at the first act of the new Congress and President.
Debt service is paid out of income. In 2018 we had the best income growth in 20 years. Whether by voters or by vote fraud, the country changed course. Income growth has been cancelled and reversed. Other priorities replace it. Shrinking income doesn't support escalating debt very long.
Default Plan: The other way you shrink debt in your own currency is inflation. The devaluing of our currency devalues the debt, but it also devalues our wealth. People flee for safe haven.
-
***'The dollar isn't backed by ... anything at all'.
The dollar is backed by the 'full faith and credit of the US government', which unfortunately does not contradict the statement above.***
crying and laughing out loud
-
https://news.yahoo.com/exclusive-large-bitcoin-payments-to-rightwing-activists-a-month-before-capitol-riot-linked-to-foreign-account-181954668.html
Can anyone imagine the Democrat Communists ignoring this?
-
Gillian Tett: “What was the best-performing asset class in 2020? If you think ‘tech stocks’ or ‘bitcoin,’ think again. Instead, as the Bridgewater hedge fund recently wrote to its clients, ‘among the more interesting and least recognized outcomes’ of 2020 was that US inflation-linked bonds beat other assets by delivering a 35 per cent return, on a risk-adjusted basis, as investors hedged against inflation risks….(T)he reason why investors have rushed to hedge against inflation is due to a concern that inflation might prove to be a ‘black swan’ event, with a low-probability but high-impact risk.” (via Financial Times)
https://www.ft.com/content/d50304b4-45d3-47d8-b793-4a58a0e9fd59?
-
***'The dollar isn't backed by ... anything at all'.
The dollar is backed by the 'full faith and credit of the US government', which unfortunately does not contradict the statement above.***
crying and laughing out loud
"I'll gladly pay you Tuesday, for a hamburger today."
-
The institutions are massively buying BTC. see page 14 in Grayscale report
https://grayscale.co/wp-content/uploads/2021/01/Q4-Grayscale%C2%AE-Digital-Asset-Investment-Report.pdf (https://grayscale.co/wp-content/uploads/2021/01/Q4-Grayscale%C2%AE-Digital-Asset-Investment-Report.pdf)
-
Far out 8-)
-
The institutions are massively buying BTC. see page 14 in Grayscale report
https://grayscale.co/wp-content/uploads/2021/01/Q4-Grayscale%C2%AE-Digital-Asset-Investment-Report.pdf (https://grayscale.co/wp-content/uploads/2021/01/Q4-Grayscale%C2%AE-Digital-Asset-Investment-Report.pdf)
What would they be doing if they thought the USD was going to crash and burn?
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As BTC goes up, the FUD will increase.
Recent example IMF Chief Christine Lagarde a convicted criminal casting doubts on BTC.
Here's Dan Held busting FUD
https://www.coindesk.com/podcasts/the-breakdown-with-nlw/breakdown-bitcoin-fud-dan-held (https://www.coindesk.com/podcasts/the-breakdown-with-nlw/breakdown-bitcoin-fud-dan-held)
Bitcoin is for criminals
Bitcoin is backed by nothing/has no intrinsic value
Tether manipulation
Energy consumption
Government bans
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https://www.powerlineblog.com/archives/2021/01/the-geek-in-pictures-pre-crash-edition.php
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Seth Klarman, the founder of hedge fund Baupost Group, has told clients central bank policies and government stimulus have convinced investors that risk “has simply vanished”, leaving the market unable to fulfill its role as a price discovery mechanism. The private letter to investors in his fund, which was seen by the Financial Times, amounts to a damning critique of recent market behavior by one of the world’s foremost value investors. Mr Klarman criticized the Federal Reserve for slashing rates and flooding the financial system with money since the onset of the coronavirus pandemic, arguing that the central bank’s moves have made it difficult to gauge the health of the US economy. “With so much stimulus being deployed, trying to figure out if the economy is in recession is like trying to assess if you had a fever after you just took a large dose of aspirin,” he wrote. “But as with frogs in water that is slowly being heated to a boil, investors are being conditioned not to recognize the danger.”
https://www.ft.com/content/9c3ecb09-c4bd-4066-a462-af496725105d
investors conditioned to not recognize danger? What could go wrong?
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https://markets.businessinsider.com/currencies/news/bitcoin-price-cryptocurrency-should-be-curtailed-terrorism-concerns-yellen-2021-1-1029985692
unless they can get their hand on it to confiscate funds from it they will simply
curtail cryptos
of course
"f..k " dems as usual
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(https://lawliberty.org/app/uploads/2021/01/DG-Chart-2-1024x791.jpg)
https://lawliberty.org/app/uploads/2021/01/DG-Chart-2-1024x791.jpg
The price of gold is not that unpredictable.
---------------------------------------------
The 10-year TIPS yield explains about 80% of the change in the gold price during the past thirteen years (the r2 of regression of gold against the 10-year TIPS yield is 0.8). That is no surprise, because the two assets have similar functions. Gold is not a currency (because most governments do not make it legal tender), but it is a sort of shadow currency, a “primitive relic” (Keynes) to which countries must fall back if the value of fiat currency collapses. In effect, gold is an insurance policy against currency collapse. Inflation-indexed Treasuries perform a similar function; if the dollar collapses and inflation rises sharply, they will protect investors. They also offer protection in the case of extreme deflation (because their coupon rise when the Consumer Price Index rises, but does not fall if the Consumer Price Index turns negative).
The close relationship between real interest rates and gold makes clear that the risk to the monetary system has increased drastically as the deficit rose during the past decade and a half. The decline in real interest rates thus reflects a higher price for hedges against extreme movements in the value of the national currency (as the price of inflation-indexed securities rises, the yield falls). We observe the same pattern in the long-term relationship between the US federal deficit (expressed as a percentage of nominal GDP) and gold. The greater our deficit, the more the world is willing to pay for insurance against the collapse of our currency.
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(Doug's favorite economist)
on government spending:
World in awash in cash
spend like banchies !!! Go full steam Joe and the crats ; :-o
for governments debt means nothing :
https://www.cnn.com/videos/tv/2021/01/18/amanpour-krugman-biden-stimulus.cnn
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(Doug's favorite economist) [sarcasm alert]
"on government spending:
World in awash in cash"
----------------------------------------
Then why "borrow" $3-6 Trillion this year (in one country alone) when you are awash in cash.
Washington has taken a significant of all income for our entire lives. WHAT DID THEY DO WITH IT?
People and businesses are in need now because the government shut their businesses and jobs down.
Left answer: More Fascism and Socialism. Because it works so well. [sarcasm alert]
The Left has 'thought leaders' mostly in academia, intermixed with media, who are not elected officials but wield more real power than the politicians who follow their lead. Krugman is in that group. Lawrence tribe, Robert Reich, Gruber - the MIT health guy, Cass Sunstein, Ben Rhodes, etc. These types and many more. Example:
https://www.forbes.com/sites/michaelcannon/2014/11/30/grubergate-part-2-gruber-admits-obamacare-is-one-giant-deception-from-beginning-to-end/?sh=698c53124db9
Forbes: Gruber Admits ObamaCare Is One Giant Deception From Beginning To End
https://thefederalist.com/2019/12/26/paul-krugman-said-markets-would-never-recover-from-trump-the-dow-is-up-10000-points-since-2016/
Krugman: "Market will never recover." Reality: Dow up almost 100% since then.
https://www.5yearcharts.com/dow-jones-5-years-charts-of-performance/
Nobel Prize winner? Maybe for past work, but, Dumbf*ck of the year winner more recently.
-
BTC may have bottomed...lets see.
-
YA:
What do you see as the implications of Yellen's statement?
How do you read the volume numbers?
-
Yellen is good for BTC. I have not been listening to her, have lost interest in the Biden admin.
BTC is not ideal for conventional technical analysis. One needs to do on-chain analysis. One of the indicators is the adjusted SOPR. Per Willy Woo, Coins moving between investors per hour (24h MA) no longer carry profit on average. To push SOPR lower, investors would have to be willing to sell at a loss. There are many such indicators, some proprietary.
(https://pbs.twimg.com/media/EscIrI-VEAAiU14?format=jpg&name=large)
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Well, that went right over my head.
What is the SOPR?
Can you make your point so simple that even I can understand?
Thank you :-)
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there are two lines on the graph that mimick one another
but that doesn't mean one can predict movement before it happens
to me it appears it simply follows unpredictable movements
-
What implications from the big divergence in January?
-
Yes
January the lines spread apart
I didn't see the x axis scroll bar
------------------------------------------------
eventually
the government will do away with coin and paper money and move all commerce onto digital platforms
with digital dollars
that way they can track all commerce
and monitor it
and control us
-
https://www.coindesk.com/andrew-bailey-fiat-crypto-davos
I think this portends what the governments are going to do
issue government digital fiat money (eventually will ditch paper or metal currencies)
than they will be able to monitor (and control ) all commerce
tax the shit out of it and monitor money flows and in the case of the Deamoncrat Party police opposition
-
Well, that went right over my head.
What is the SOPR?
Can you make your point so simple that even I can understand?
Thank you :-)
On chain analytics is a new way to look at BTC. I let the professionals do it. Here is something defining SOPR (there are a couple of versions of SOPR), but the gist is as follows.
Spent Output Profit Ratio (SOPR)
Dips like we are seeing now are common and expected in bull markets. Full resets pave the way for further growth. SOPR measures whether coins were on average sold at a profit (SOPR > 1) or at a loss (SOPR <1).
As shown above, when Bitcoin price increases a lot, longer term HODLers tend to sell some coins at a profit. The higher the price gets, the more they sell. This changing hands of coins increases SOPR and, critically, also increases selling pressure. The rising selling pressure continues until the average Bitcoin transaction is at a loss (SOPR<1). In the previous bull market, when this ratio hit 1, it was the best time to buy as it demonstrates a clean reset of speculative behaviour.
HODL= Bitcoin terminology for HOLD
Please scroll to the right, to see the dip to SOPR of 1.
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https://media.gab.com/system/media_attachments/files/063/579/248/original/d03ec6b83561e546.jpeg
(https://media.gab.com/system/media_attachments/files/063/579/248/original/d03ec6b83561e546.jpeg)
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Thank you YA for the SOPR explanation.
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"It's almost like there are different rules for different people!"
big competition between US Wall Street and China's CCP
who can buy more US politicians?
I think China is catching up to us in that department too.
-
GBTC looks to be bouncing off the 50 day.
-
n/a
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Cryptocurrency Platforms Struggle With Demand From WallStreetBets Fervor
Coinbase’s website went down on a day of intense trading in cryptocurrencies
An engineer at the Evobits crypto farm in Cluj-Napoca, Romania, this month.
PHOTO: AKOS STILLER/BLOOMBERG NEWS
By Caitlin Ostroff
Jan. 29, 2021 2:20 pm ET
A swell of cryptocurrency trading coincided with a major bitcoin exchange outage and led to curbs on other platforms, mirroring the difficulties traditional brokers have had with a frenzy of stock-market activity.
Digital-currency exchange website Coinbase Global Inc. said it was investigating an outage Friday that prevented customers from trading on its web and mobile apps. Another exchange, Bittrex Global GmbH, said an increase in traffic created technical problems on its platform.
Coinbase later said that trading was back up and that it was monitoring for further issues. A spokesperson for Coinbase said that a sharp uptick in trading caused the technical issues that disrupted trading. Bittrex declined to comment.
Bitcoin rallied 4.8% Friday, with one bitcoin worth $34,436. The most popular cryptocurrency has risen sharply over the past year, winning converts from investors worried that central banks and governments, in their efforts to counter the economic effects of the coronavirus, risk devaluing fiat currencies.
Robinhood Markets Inc., which is under fire for suspending trading of popular stocks, also curbed activity in its cryptocurrency platform. Robinhood said it temporarily disabled instant deposits for cryptocurrency purchases citing extraordinary market conditions, according to its website.
A Robinhood spokeswoman said that customers can still use funds that have already been received by Robinhood from their bank accounts to buy cryptocurrencies.
Wall Street is in an uproar over GameStop shares this week, after members of Reddit’s popular WallStreetBets forum encouraged bets on the video game retailer. WSJ explains how options trading is driving the action and what’s at stake.
The Coinbase outage comes at a delicate time. The company said this week it planned to go public through a direct stock listing. Coinbase was started in 2012 and is the biggest exchange for cryptocurrency in the U.S. The San Francisco-based company was recently valued at around $8 billion and has more users than Charles Schwab Corp.’s platform.
Wall Street struggled to cope with the crescendo of activity in financial markets this week. Several retail brokerages dealt with outages and high-speed traders reported trading glitches.
For cryptocurrency exchanges, outages aren’t anything new. The platforms tend to be lightly regulated, dominated by retail investors, and prone to breakdowns when activity spikes.
Heightened activity in cryptocurrencies Friday came as popular online brokerages restricted trading in highly traded stocks including GameStop Corp. and AMC Entertainment Holdings Inc. on Thursday. They were reacting to huge volumes of trading spurred on by investors who congregate in online platforms such as Reddit’s WallStreetBets forum.
Some digital-currency proponents think investors unable to trade their favorite stocks moved to crypto instead.
“What happened this week with GameStop and other highly volatile momentum-traded stocks—these platforms restricting trading—has driven people to trade other assets,” said Meltem Demirors, chief strategy officer at London-based asset management firm CoinShares. “It avoids many of the issues we’ve seen in legacy financial markets and so we’ve seen retail investors shift.”
One actively traded cryptocurrency Friday was Dogecoin, which was created in 2013 to poke fun at the burgeoning cryptocurrency industry. It was named after a popular internet meme about a dog who couldn’t spell.
Dogecoin was up 250% by 11:30 a.m. ET Friday, according to CoinDesk. By 4:45 p.m. it had slid back to be up 125%.
Dogecoin features an image of the doge meme mascot, a Shiba Inu dog that has been digitally altered to appear on everything from astronauts to Twinkies. Dogecoin has also become a popular topic on Reddit’s WallStreetBets and SatoshiStreetBets due to its cheap cost relative to bitcoin.
Sparking a sudden interest in the coin, Tesla CEO Elon Musk tweeted a fake magazine cover that read “DOGUE” on Thursday. After its rise, one Dogecoin was worth $0.05 on Friday. All the Dogecoins in circulation are currently worth $7 billion, according to CoinDesk.
Mr. Musk also updated his Twitter bio page to say “#bitcoin.” That came after Bridgewater Associates founder Ray Dalio called bitcoin “one hell of an invention” in a letter published on Thursday.
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https://techcrunch.com/2021/01/30/india-plans-to-introduce-law-to-ban-bitcoin-other-private-cryptocurrencies/
Good thing that can't happen here!
-
but it quite large
wouldn't surprise me if the pay in bribes then they do taxes :-P
So yeah Modi would be pissed the government is not getting theirs I would think:
https://www.thehindubusinessline.com/info-tech/india-lost-185-b-due-to-digital-blackmarkets/article26439915.ece
-
India has tried banning crypto once, the Supreme Court forced them to remove restrictions. China has banned BTC several times, even though ironically most of the BTC mining is done in China.
Bans dont work.
India plans to roll out its own CBDC. The Indian legislation talks about banning private currencies and will allow exceptions so that technological innovations may continue.
I would imagine BTC will likely get an exemption, its hard to put the BTC CEO in jail.
Label this as FUD. 99 % of Altcoins will not survive.
-
So for my simple Boomer Roadkill mind,
Holding GBTC for the long play is still a good idea?
-
Appears that Michael Burry was behind the GameStop debacle.
He bought up over 5% stake in the company. Forced the company to buyback it's shares using around 200 million dollars. The buyback caused shorted stock to go over 100% of available stocks in the market.
Then he created the news cycle that lead to threads about undervalued stock and hedge funds shorting over 100% of the company's stock. Buying the stocks at $2-4 per share, he made perhaps billions in the trades.
Burry was the one who also led to the issuance of Credit Default Swaps (CDS) on Mortgage Backed Securities. He noticed the problems with MBS and recognized that at some point, they would begin to fail and default. Convinced Deutsche Bank to issue CDS in 2005 then all the banks started doing it thinking it was easy money to be made.
It was easy money, at least for Burry, when the loans began to fail. Reportedly made over $1b on CDS.
-
From earlier bitcoin explanation, SOPR = 1:
"clean reset of speculative behaviour"
------------------------------------------
A clean reset of speculative behavior to me might be Bitcoin = zero. :wink:
No bitcoin offense intended. I have jealousy for those who saw the rise coming.
Gold is speculative too. https://goldprice.org/gold-price-history.html
This is money invested outside the (un)productive economy.
I'm looking for a safe place to bet against the Dem economy too. Ruling these out, I'm not finding much.
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".I'm looking for a safe place to bet against the Dem economy too. Ruling these out, I'm not finding much."
A very wise man recently told me ammunition is a good investment
so when Susan Rice and the rest of the mob ban guns and ammo
prices should skyrocket - at least in black market. 8-)
-
If you can find ammo to buy these days...
".I'm looking for a safe place to bet against the Dem economy too. Ruling these out, I'm not finding much."
A very wise man recently told me ammunition is a good investment
so when Susan Rice and the rest of the mob ban guns and ammo
prices should skyrocket - at least in black market. 8-)
-
https://media.gab.com/system/media_attachments/files/063/921/654/original/4150a74226cfa352.png
(https://media.gab.com/system/media_attachments/files/063/921/654/original/4150a74226cfa352.png)
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So for my simple Boomer Roadkill mind,
Holding GBTC for the long play is still a good idea?
GBTC is buying a lot of BTC daily (much more than the daily mined BTC=900/day). The name of the game is to accumulate and hold BTC, Paypal is doing so, as well as many companies are putting it on their balance sheets instead of cash. So GBTC will be a very valuable fund someday.
The problem with GBTC in my mind is, it goes against the BTC ethos of sovereignity and self reliance. You never really own your BTC. However, owning BTC is not for everyone. It does require some basic technical expertise. For the average person, a BTC ETF (not yet available) or GBTC gives you the investment returns of BTC. But if the SHTF, having some of your own BTC will prove to be a boon. Think of BTC as monetary insurance, that you will be fine if the $ depreciates away. Some think inflation is around 2 % in the USA, Michael Saylor (CEO Microstrategy) says the actual rate is like 15 % because of all the money printing. A 15 % inflation rate will depreciate your cash pretty quickly. That is the reason tangible assets are rising (art, houses, stocks etc).
There is a clear progression in the mindset of BTC holders, buying GBTC--->buying BTC from exchange and keeping BTC on exchange--->self storage in hardware wallet--->running a BTC node. It is a fascinating world. Anyone thinking of buying BTC needs to be ready for extreme volatility and a minimum 5 year time horizon (2025 end of year), possibly holding 10 years or even think of intergenerational wealth transfer. Due to the high price of BTC, good returns will require long holding periods. Everyone thinks they are late to the BTC party. In 5-10 years when BTC is a million, 34K will sound reasonable.
As BTC rises in fiat currencies, govts will try to ban it, create FUD, so one needs to be convinced about its merits and be able to hold it through thick or thin. Only invest what you are willing to lose with no impact on your retirement. The way to gain confidence is to read about it.
Owning GBTC=relying on the police, which is a good option for most
When SHTF, having a gun=owning BTC
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https://www.zerohedge.com/markets/yes-virginia-system-clearly-rigged
Fake justice system. Fake elections. Fake economy.
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Here are the BTC outflows from exchanges, ie going to Hodlers (institutional wallets or individuals). Very bullish. When inflows increase to exchanges, it is bearish and most likely it is to sell.
(https://pbs.twimg.com/media/EtGyf1WUYAASihI?format=jpg&name=large)
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TY
-
To figure out if you’re in a bubble, you need to find the source of the hot air. Obvious for GameStop, but for bitcoin, not so much.
In July 2018, we wrote about the cryptocurrency company Tether, which issues tokens called tethers that trade under the symbol USDT and should be valued at $1—making the currency a “stablecoin.” Tether’s creators might have manipulated bitcoin, a University of Texas paper suggests, by issuing tokens willy-nilly unbacked by real dollars and then buying bitcoin to jack up its price. (The company claims the research is flawed.)
At the time, Tether’s total value was some $2.7 billion, and its website claimed: “Every tether is always backed 1-to-1 by traditional currency held in our reserves.” So somewhere there should have been $2.7 billion in real money—that’s how a stablecoin is supposed to work. In November 2018, New York state Attorney General Letitia James invoked the Martin Act to begin an investigation into iFinex, which owns Tether and the Bitfinex cryptocurrency exchange, “in connection with ongoing activities that may have defrauded New York investors.” The company has disputed the attorney general’s claims, denied it misled customers, and said it will fight any action. An appellate court last year rejected its challenge to the probe.
Bitcoin peaked at the end of 2017 at $19,000 and over the next year collapsed to $3,200. Well—they’re baaack! On Friday Elon Musk was the latest to pump Bitcoin, which briefly reached almost $38,000. And there are now some $26.4 billion of USDT tokens, $18 billion of which were created since March 2020. Why the increase? No one has a good explanation.
All that glitters is not gold. In 2019 Tether subtly updated its claim to say reserves “may include other assets and receivables from loans made by Tether to third parties.” Tether has even admitted it only has 74% of the cash or cash equivalents to back its stablecoin. Hmmm. Basically unbacked.
In October 2019, a separate lawsuit was filed against Bitfinex claiming the exchange’s alleged market manipulation “likely surpasses $1.4 trillion,” which Bitfinex denies. Yes, that’s trillion with a T. Bahamas-based Deltec Bank & Trust, where Tether has an account, recently claimed “every tether is backed by a reserve and their reserve is more than what is in circulation.” OK, but it turns out “reserves” may include an $850 million loan to Bitfinex. Is that the hot air? Oh, and reserves may include bitcoin too. Audit, anyone?
Pay no mind: “Momo” momentum investors dived in anyway. Bitcoin ran from $7,000 in January 2020 to almost $42,000 this Jan. 8. But the bitcoin bulls and bears are brawling. On Medium a few weeks ago, a poster named Crypto Anonymous (for what it’s worth, know your customer) did some digging and found that as much as two-thirds of bitcoin buys on any given day were purchased with tether, though crypto bulls insist that Chinese crypto investors use tether as a way to buy bitcoin. Try verifying that! The chart of bitcoin vs. tether issuance sure looks correlated, but a study published at the Center for Economic and Policy Research found no correlation. And I should note that wallet provider Coinbase, the largest holder of Bitcoin, says it “does not support USDT.” Do they know something?
Meanwhile, more than two years later, the New York attorney general’s office may get the documents it needs. I hope that includes an audit of Tether looking for the now $24.5 billion in cash, or even $19 billion if it’s 74% backed. I doubt all that cash exists. The attorney general claimed in a press release that some fishy money, maybe $850 million now part of Tether’s reserves, was taken from Tether to cover losses at Bitfinex. Yikes.
I contacted the attorney general’s office asking for the status of the investigation and what information it has received. I was pointed to the original filing for the scope of the investigation. It includes an accounting of all of Tether’s transactions. On Jan. 19, a letter from iFinex’s counsel said it had “largely completed the document production” and would “contact the Court in approximately 30 days” with a status update. So we’ll know something soon.
Meanwhile, lo and behold, around the same time as that letter, Tether temporarily stopped creating any more currency. That might explain bitcoin’s quick mid-January price drop from $42,000 to under $30,000. If fraud is uncovered, look out below.
Normally I wouldn’t care. Bitcoin is nothing, it’s vapor, a concept of an idea. Transactions using bitcoin are few and far between. It’s not a store of value—anything that drops 30% in a week can’t play that role. But we get Bloomberg Wealth stories saying: “Newbie Bitcoin investors tell us what inspired them to buy at record prices.” A lot of folks who can’t afford it may get hurt badly. Robinhood curbed some crypto purchases on Friday.
So all crypto eyes are on mid-February. The power of the subpoena is strong. I have no insight into what New York’s attorney general will find. She might close the investigation and go on her merry way because there’s no crime, or uncover a fraud that could make Bernie Madoff look like he was stealing from a lemonade stand. We know what happens to bubbles when the hot air runs out.
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https://www.zerohedge.com/markets/yes-virginia-system-clearly-rigged
Fake justice system. Fake elections. Fake economy.
Good story. It's rigged when the government intervenes and when people collude behind closed doors. Otherwise let these players, large and small, place their bets and make and lose money wherever it falls. Unless you screw with it, it's called a market, hopefully a free market.
Assume Gamestop, whoever they are, was overvalued at the start of this. Anyone who buys it above value wants and deserves to lose money if they are caught holding when the music stops.
Shutting down trading is anti-market.
Bailouts are anti-market.
Collusion is anti-free market.
Free market does not mean no rules. Free market means government enforces level playing field, does not take sides.
Maybe something good will come out of this.
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Robinhood, E*Trade, Interactive Brokers and others restricted trading in GameStop and other names last week after GameStop surged to $483 intraday—a 10,000% increase since August for a historically brick-and-mortar company with declining revenues and a now-downloadable product. The brokers came in for swift, intense—and misguided—criticism.
As with everything else, social media took an extraordinarily complex situation—involving technical aspects of the financial markets, unclear legal standards, and public and private sector actors with valid but differing agendas—and produced a simple morality tale with the online brokers as the evil empire crushing plucky rebels like “u/-_Han-Yolo_-” to protect the hedge-fund Jabba the Hutts who shorted GameStop. Redditors showered Robinhood with vitriol and one-star reviews.
Political and social-media opportunists jumped in. Rep. Alexandria Ocasio-Cortez deemed GameStop trading restrictions “unacceptable” and demanded an investigation. Rep. Rashida Tlaib of the Financial Services Committee accused Robinhood of “stealing millions of dollars from their users.” Sen. Ted Cruz took to Twitter to “fully agree” with AOC: “Let the people trade.” Elon Musk “absolutely” agreed that Robinhood should be investigated, and called for short selling to be banned as “a scam.” Dave Portnoy, Barstool Sports founder and frozen-pizza reviewer, said to Robinhood executives: “You deserve to be behind bars.”
It must be unsettling when most of the internet wants your head in a basket, but Robinhood and the other brokers are in a no-win situation. Brokers are financially liable to the “clearinghouses” that clear and settle U.S. stocks and options, whether or not the clients can pay for their losing trades (so that those clearinghouses can pay the winners on the other side when the trade settles one or two days later).
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When clients trade, especially on margin, they use the broker’s money to play. Imagine a client buys 100 shares of GameStop for $400 a share, using $20,000 of his own money and borrowing $20,000 from Robinhood. If the stock drops from $400 to $120 (as it did on Jan. 28), the client’s position may be sold for $12,000 due to the margin violation, leaving Robinhood trying to collect an unsecured $8,000 debt from “u/Thicc_Ladies_PM_Me.” Good luck. Multiply this by hundreds or thousands of similar clients. Option trading is worse because the leverage is much greater.
The broker’s risk is asymmetrical: If half its clients are winning big by buying during a short squeeze, while its short clients are suffering losses they can’t pay, the broker can’t offset these gains and losses, but must pay the winning clients while possibly eating the losing trades. It is rare, but brokers go bankrupt during market events like this.
Brokers therefore are subject to strict financial requirements, including that they maintain large security deposits at the clearinghouses. When risk rises, clearinghouses raise their requirements, even intraday. On Jan. 28, when GameStop dropped from $483 to $112, the clearinghouse DTCC raised requirements by an aggregate $7.5 billion. Brokers had to post that money to DTCC whether or not their clients had it.
Brokers facing liquidity crunches have two options: raise capital (which Robinhood apparently did) or reduce clients’ risky trading. This is a more plausible explanation for their actions last week than any desire to protect hedge funds. Brokers love their clients and want them to flourish. But they don’t want to go bankrupt.
The second factor possibly weighing on brokers’ minds is the prospect of eye-watering fines if clients engage in manipulative activity. Whereas social-media platforms are protected from liability for miscreant users, online brokerage platforms face opposite rules. Under federal anti-money-laundering regulations, firms must conduct “reasonable surveillance” for client fraud or criminality. The SEC and other regulators have fined banks and brokers (including E*Trade, Interactive and Schwab) hundreds of millions in total over recent years for failing to detect and prevent client misbehavior. While the legal standard is allegedly negligence (“reasonable surveillance”), regulators routinely employ 20/20 hindsight to second-guess broker due diligence of their clients after the fact, effectively imposing strict liability. To the regulators, fraudulent schemes are always perfectly obvious in retrospect.
Among client high jinks that brokers are to prevent is market manipulation. But to quote David St. Hubbins of Spinal Tap: “It’s such a fine line between stupid and clever, isn’t it?” So it is with market manipulation, which has no precise definition. Worse for brokers, clients don’t have to be found guilty of manipulation for the broker to be fined. “Potentially” suspicious activity is enough to put the broker in the soup.
Bubbles like GameStop are terrible for markets. When they inevitably burst, it is not only the speculators who get covered in goo, but the market itself and the retirees and publicly traded businesses that rely on it. The U.S. stock market is like an online dating site. If too many profiles are fake, the real users will go away. Regulators like Treasury Secretary Janet Yellen know this. They want this GameStop nonsense to stop, and soon.
Mr. Battan was general counsel of Interactive Brokers, 1998-2020, and holds stock in the company. He has also served as a senior counsel in the Division of Enforcement at the Securities and Exchange Commission and chief counsel of the Division of Trading and Markets at the Commodity Futures Trading Commission.
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https://www.entrepreneur.com/article/364547
ethereum above all time high at 1600 +
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https://www.entrepreneur.com/article/364547
ethereum above all time high at 1600 +
"3.7 million BTCs are already lost or irrecoverable. One analyst estimates that 1,500 BTCs are lost every day. What lost means is that they are in unrecoverable wallets. We know where they are on the blockchain but no one can get to them for 1 of 2 reasons. The first is that they are really lost due to password protection and/or lost devices. Those coins will never come back to the market"
- Sounds like something I would do. Not exactly no risk of loss. That's $150 Billion in losses right there.
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yes
if one has private wallet and is holder of code/key
and it gets lost
you will lose it all
one can go through a intermediary that holds the key for you
of course they can all die and their company could crash and burn
and if you do not also have key then you lose too
it is like lost gold and treasures that can never be found
such as the rumored Nazi gold ..........
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Actually, the details are not completely accurate.
1. If you lose the hardware wallet, its no big deal just buy another wallet. What matters is to keep the private keys safe. The wallet is actually like pass key to the block chain, one still needs private keys to access funds. Having said that, loss of a hardware wallet can be problematic and potentially be broken into by a real pro.
2. The second point you allude to, likely deals with multi-sig (multiple signatures). eg one needs 2/3 or 3/5 keys to access acct. These keys can be distributed to different individuals you trust, and loss of one key is not a problem.
3. Another option is to store in free cold storage available at exchanges. It will be immune from hacks, but the exchange/IRS/Govt can potentially put a hold over your acct. When coins are in cold storage, they are moved to "vaults" outside the exchange.
4.The riskiest is a hot wallet, i.e. store live on an exchange, which is susceptible to hacking. When we hear of exchanges/BTC being hacked, these are hacked from the hot wallet/live account of an exchange. There are no hacks reported from cold storage of an exchange.
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Good info, ya.
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https://www.dailymail.co.uk/news/article-9225081/Elon-Musk-breaks-brief-Twitter-silence-tout-meme-cryptocurrency-DogeCoin.html
the first we heard Elon Musk tout Dogecoin. (apparently the Shiba Inu breed)
it was shortly after he trashed bitcoin. as worthless.
https://www.independent.co.uk/life-style/gadgets-and-tech/features/dogecoin-cryptocurrency-elon-musk-b1797619.html
At that time a dogecoin was selling for 0.0009 cnets a share . and bitcoin at one point then went to ~ 30,000 ( though the latter was not due to Musk)
Now A dogecoin sells for 0.05 cents - a gain of ~ 55 times
a $1,000 amount of dogecoin would now be $55,000.
Then later Musk touts bitcoin .....
So as a joke did he bash bitcoin then tout Dogecoin and buy the latter and later take the profits and buy bitcoin and start touting that?
Just trying to connect the dots here .
Truly a giant farce no matter how one looks at it.
PS : I didn't buy dogecoin - it is a joke - but in restrospect it would have been a very profitable one. Market cap for dogecoin in 6.5 billion.
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dogecoin is a joke coin..
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yes
it is a joke
yet the joke is bringing in joksters who run it up 55 times with 6.5 billion in real money (if sold for US dollars in time)
I hope when the balloon pops it doesn't drag all the other cryptos down
into a heap like reminiscent of the WTC.
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There are supposedly 5000 altcoins...99% of them will not survive. rather than guess which ones will survive, the safe thing to do is buy BTC. I know..calling BTC safe is an oxymoron...but if anthing survives it will.
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from my post on 2/6:
***the first we heard Elon Musk tout Dogecoin. (apparently the Shiba Inu breed)
it was shortly after he trashed bitcoin. as worthless.
https://www.independent.co.uk/life-style/gadgets-and-tech/features/dogecoin-cryptocurrency-elon-musk-b1797619.html
At that time a dogecoin was selling for 0.0009 cnets a share . and bitcoin at one point then went to ~ 30,000 ( though the latter was not due to Musk)
Now A dogecoin sells for 0.05 cents - a gain of ~ 55 times
a $1,000 amount of dogecoin would now be $55,000.
Then later Musk touts bitcoin .....
So as a joke did he bash bitcoin then tout Dogecoin and buy the latter and later take the profits and buy bitcoin and start touting that?
Just trying to connect the dots here .
Truly a giant farce no matter how one looks at it. ***
--------------------------------------------------------------------------------------
NOW WE see this in news
first he bashes it then touts the absurd dogecoin
than of course touts bitcoin after he bought in.
oh, perfectly legal........
https://www.marketwatch.com/story/tesla-says-it-has-invested-1-5-billion-in-bitcoin-prices-surge-to-record-above-42-000-11612790314
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go to coindesk and click "all" on the chart
How long can this go straight up?
Ok Tesla is in
amazon and Fuck book will of course have their own coins to keep people in their universe and control them
will apple accept BC
and will amazon and shit book eventually have to take BC too if they want the business
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go to coindesk and click "all" on the chart
How long can this go straight up?
The secret to reviewing BTC charts is to use log scale and not linear scale.
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Tesla Buys $1.5 Billion in Bitcoin
Cryptocurrency’s price soars after electric-vehicle maker says it soon expects to accept customer payments in bitcoin
Tesla founder Elon Musk has demonstrated an interest in cryptocurrency.
PHOTO: ODD ANDERSEN/AGENCE FRANCE-PRESSE/GETTY IMAGES
By Caitlin Ostroff and Rebecca Elliott
Updated Feb. 8, 2021 6:04 pm ET
Tesla Inc. TSLA 1.31% said Monday that it bought $1.5 billion in bitcoin, a disclosure that follows Chief Executive Elon Musk’s promotion of the cryptocurrency and other digital-currency alternatives on Twitter.
The electric-vehicle company also said it expects to start accepting bitcoin as payment for its products soon. Bitcoin prices jumped more than 10% after the announcement, according to cryptocurrency research and news site CoinDesk.
Tesla disclosed its bitcoin purchase in its latest annual report, saying the move aims to “diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity.” Tesla said a board committee had approved changes to company rules on investments, adding that it can also invest cash in gold bullion and gold exchange-traded funds among other assets.
One bitcoin, in dollars
Source: CoinDesk
As of Feb. 8, 5 p.m. ET
Feb. 2
Feb. 8
32,000
34,000
36,000
38,000
40,000
42,000
44,000
$46,000
The bitcoin purchase, likely among the largest by a public company, comes after a rally in 2020 when the price more than quadrupled. Tesla is joining a handful of other companies that have disclosed bitcoin holdings. Software developer MicroStrategy Inc. acquired about $425 million worth of bitcoin last summer, and its CEO, Michael Saylor, has become an outspoken proponent.
Companies holding bitcoin in their treasuries face an accounting risk: Because bitcoin and other digital assets are considered “indefinite-lived intangible assets,” rather than currencies, any decrease in their value below what the company paid for them—even a temporary one—can force a company to write down the value, taking an impairment charge. MicroStrategy posted a net loss in the third quarter of 2020 because the price of bitcoin dropped temporarily in September.
Tesla said it would analyze its holdings in the cryptocurrency each quarter to see whether impairments are warranted based on bitcoin prices. “If we hold digital assets and their values decrease relative to our purchase prices, our financial condition may be harmed,” the company said.
Sharp changes in the digital currency’s valuation might be why companies have acquired millions, rather than billions, of dollars’ worth of the cryptocurrency, said Michel Rauchs, founder of Luxembourg-based digital-assets consulting firm Paradigma Sarl: “It is definitely greater risk but greater reward there.”
Bitcoin recently traded Monday at $43,602.68, according to CoinDesk. Its price averaged $34,730.12 in January and is currently more than eight times higher than bitcoin’s 2020 low of a little under $5,000.
Mr. Musk has shown growing interest in bitcoin in recent years, after tweeting in 2018 that the only cryptocurrency he owned was one-quarter of a bitcoin a friend had given him—which today would be worth more than $10,000. Around Jan. 29 the Tesla chief changed his Twitter biography to “#bitcoin,” which sent prices for it higher, before removing that reference.
“I think bitcoin is really on the verge of getting broad acceptance by sort of the conventional finance people,” he said last week on the social-networking app Clubhouse. Mr. Musk said he needed to be cautious with his public statements about cryptocurrencies because “some of these things can really move the market.”
Tesla didn’t respond to a request for comment. The company said in its report that it updated its investment policy in January but didn’t disclose the exact timing of either its board decision or its bitcoin purchase.
“He’s already telegraphed it to the market,” said Meltem Demirors, chief strategy officer at London-based asset management firm CoinShares, referring to Mr. Musk’s mentioning bitcoin in his Twitter biography. “One of the world’s largest corporations doing this—I think it opens the floodgates.”
After tweets from Tesla CEO Elon Musk and rapper Snoop Dogg, the cryptocurrency Dogecoin, which started as a joke, topped $10 billion in market value. WSJ looks at why online investors are pouring money into the meme-inspired virtual currency. Photo: Yuriko Nakao/Aflo/Zuma Press
Recently, Mr. Musk’s tweets about dogecoin, a cryptocurrency started as a joke in 2013, have helped drive up that virtual currency’s price.
Tesla has struggled to maintain cash while ramping up vehicle production, but its shares soared some 480% in the year ended Friday as investors piled into electric-vehicle makers and the company reported a string of quarterly profits. Tesla took advantage of that surge by selling billions of dollars in new stock, shoring up its cash position. The company’s cash holdings totaled around $19.4 billion at the end of last year, up from around $6.3 billion at the end of 2019.
Mr. Musk’s tweets have drawn regulatory scrutiny, including from the Securities and Exchange Commission over a 2018 post in which the CEO said he had secured funding to take Tesla private. Mr. Musk and the SEC later settled in a deal requiring the company to sign off on any written statements he made that could be deemed material. He has since mocked the regulator on Twitter.
The SEC is unlikely to challenge Mr. Musk over his bitcoin tweets, said John Coffee Jr., a Columbia University law professor who specializes in securities law, especially after a federal judge rebuked the commission when it sought to hold the CEO in contempt in 2019. Tesla didn’t respond to a request for comment about whether Mr. Musk had sought approval for his bitcoin commentary.
Tesla shares
Source: FactSet
As of Feb. 8, 12:10 p.m. ET
Feb. 2021
Feb. 8
780
800
820
840
860
880
$900
Mr. Musk’s online remarks can move markets. After touting online shopping site Etsy Inc. in January, the stock rose more than 8% on the open. Shares in CD Projekt SA, the maker of the troubled Cyberpunk 2077 game, rose more than 15% after Mr. Musk praised the game. Both stocks retreated later. Last year, Mr. Musk tweeted that he thought Tesla’s share price was too high. The market agreed, and the stock fell before recovering.
An affinity for bitcoin seems a natural fit for Mr. Musk, who has bristled at government constraints. Last year he battled local authorities in California that ordered his lone U.S. car plant closed as part of broader measures to curb the pandemic. Mr. Musk reopened the facility after several weeks, daring authorities to arrest him. They didn’t.
Part of bitcoin’s appeal for some holders is that it isn’t circulated or controlled by a government or nation. Unlike opening up a bank account to store dollars, euros or yen, starting a bitcoin account doesn’t require providing identifying information. Bitcoin is effectively anonymous, and law enforcement can’t freeze a bitcoin account as they could a bank account.
Payments company Square Inc., which shares bitcoin advocate Jack Dorsey as its CEO with Twitter Inc., acquired about $50 million worth for its corporate treasury in October. Massachusetts Mutual Life Insurance Co. acquired $100 million worth in December to hold in its general investment account.
Companies might have grown more optimistic about bitcoin after the March 2020 selloff, when it recovered faster than the broader stock market, said Joel Kruger, a currency strategist at LMAX Group.
The added wrinkle with Tesla is the plan to accept bitcoin from customers. Few companies now accept bitcoin directly as payment; Overstock.com Inc. is among the few that do. Some large companies experimented with bitcoin payments in 2014 and 2015, like Dell Technologies Inc. and Expedia Group Inc., but most later dropped it for lack of use.
While Tesla’s move would be high profile, a more substantial development is expected later this year, when PayPal Holdings Inc. plans to allow its customers to use their bitcoin holdings for payments.
Mr. Musk’s ties to the financial-services industry date to the 1990s, when he invested most of the $22 million he earned from the sale of an internet business into a new startup, X.com, that became PayPal. EBay Inc. bought PayPal for $1.4 billion in 2002.
As the largest shareholder, a 31-year-old Mr. Musk collected more than $100 million. He used the money to start Tesla and Space Exploration Technologies Corp., the rocket company he also runs, as well as solar-cell company SolarCity, now part of Tesla.
—Micah Maidenberg and Paul Vigna contributed to this article.
Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Rebecca Elliott at rebecca.elliott@wsj.com
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Appeared in the February 9, 2021, print edition as 'Tesla Makes Big Bet In Bitcoin.'
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esla Buys $1.5 Billion in Bitcoin: What Could Possibly Go Wrong?
Elon Musk’s bitcoin purchase for Tesla is another warning for investors in the wake of GameStop mania
Social media posts by Tesla boss Elon Musk already have helped drive bitcoin’s price to a record.
GameStop mania was a wake-up call, but now the capital markets have truly reached ludicrous mode.
Electric-car maker Tesla TSLA 1.31% said in a securities filing Monday that it has purchased $1.5 billion worth of bitcoin and that it expects to begin accepting payment in the cryptocurrency for its products in the future. Tesla shares and bitcoin both traded higher after the announcement. This follows social media posts by the auto maker’s influential boss, Elon Musk, that already had helped drive bitcoin’s price to a record. All told, the rally spurred by the announcement on Monday added more than $100 billion to bitcoin’s market value, while Tesla shares also rose yet again.
The investment is more than symbolic for the company, being equivalent to Tesla’s research-and-development tab for 2020. And while uniting two of the most popular investment themes under one roof is undoubtedly a winner today, the decision introduces even more risk to owning what is already one of the most speculative stocks of the current bull market.
Higher and HIgher
Tesla stock and bitcoin returns
Sources: FactSet (stocks); CoinDesk (cryptocurrencies)
%
Tesla Inc.
Bitcoin USD
March 2020
'21
-100
-50
0
50
100
150
200
250
300
350
400
450
500
As Tesla itself said in the filing, prices for digital assets such as bitcoin have been volatile in the past. Cryptocurrencies are a fairly recent development and their long-term adoption by consumers, investors and businesses is highly uncertain. That adds to the speculative fervor already gripping Tesla’s stock price in a feedback loop. Indeed, the manager of the most popular active fund recently, Cathie Wood of ARK Invest, has made big bets on both Tesla and a trust that owns bitcoin, fueling a record pace of inflows.
At a market value of about $800 billion, Tesla trades at about 6.5 times the combined value of Ford and General Motors, despite controlling a small fraction of the global auto market. And Tesla lately has been losing market share in Western Europe to competitors including Volkswagen, which has begun to compete aggressively in the electric category. The news of Tesla’s bitcoin investment eclipsed a negative headline for the company Monday about quality issues identified in the important Chinese market.
While digital assets are relatively new, a tour of financial history suggests similar speculative use of an industrial company’s funds aren’t—and they have ended badly. About a century ago, General Motors required a bailout due to the stock speculation activities of founder William Durant. In the 1980s, widespread corporate speculation on Japanese land prices helped drive a stock bubble that eventually collapsed.
Those cautionary tales aren’t likely to concern investors who are enjoying a giant stock-market party. But Tesla’s monetary experiment, coupled with the individual-investor-driven stock-market madness of recent weeks, should have investors concerned that the consequences of staying at the party too late will be worse than leaving early.
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On Twitter, Elon Musk Has Mused About Bitcoin
‘Bitcoin is almost as bs as fiat money,’ CEO said in December. Tesla now says it purchased $1.5 billion worth of the cryptocurrency.
Close watchers of Elon Musk’s tweets may not have been surprised by Tesla’s decision to buy bitcoin.
PHOTO: MIKE BLAKE/REUTERS
By Micah Maidenberg
Feb. 8, 2021 4:51 pm ET
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Elon Musk talks about a lot of things on Twitter, but Tesla Inc.’s TSLA 1.31% disclosure Monday about the company’s investment in bitcoin casts new light on a series of tweets he made about the cryptocurrency in December.
Among other bitcoin-related tweets on Dec. 20, the Tesla chief executive used his Twitter account to post an explicit meme showing what appears to be a bearded monk with the words “Me trying to live a normal productive life” pasted over him. The monk is standing near a woman with the word bitcoin pasted over her.
That graphic elicited a response from Michael Saylor, founder and chief executive of MicroStrategy Inc., a publicly traded enterprise-software company that has invested in bitcoin and made it the company’s reserve asset.
Dogecoin: Elon Musk, Snoop Dogg Tweets Fuel Crypto Price Rally
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Dogecoin: Elon Musk, Snoop Dogg Tweets Fuel Crypto Price Rally
Dogecoin: Elon Musk, Snoop Dogg Tweets Fuel Crypto Price Rally
After tweets from Tesla CEO Elon Musk and rapper Snoop Dogg, the cryptocurrency Dogecoin, which started as a joke, topped $10 billion in market value. WSJ looks at why online investors are pouring money into the meme-inspired virtual currency. Photo: Yuriko Nakao/Aflo/Zuma Press
“If you want to do your shareholders a $100 billion favor, convert the [Tesla] balance sheet from [U.S. dollars to bitcoin]. Other firms on the S&P 500 would follow your lead & in time it would grow to become a $1 trillion favor,” Mr. Saylor said in a tweet.
“Are such large transactions even possible?” Mr. Musk said in response to him. Tesla didn’t immediately respond to a request for comment.
On Monday, Tesla said it bought $1.5 billion in bitcoin and plans to start accepting the digital currency as payment for its products soon.
Mr. Saylor said in a tweet Monday, “Congratulations & thank you to @elonmusk & @Tesla on adding #Bitcoin to their balance sheet. The entire world will benefit from this leadership.” A spokesman for MicroStrategy confirmed Mr. Saylor’s Twitter account.
Close watchers of Mr. Musk’s musings on Twitter, where he has of late discussed space projects, Tesla vehicles, videogames and other topics, may not have been surprised by the Silicon Valley car company’s decision to buy bitcoin. In January, Mr. Musk changed his Twitter biography to read, “#bitcoin.” His biography no longer references it.
Mr. Musk “has a tendency to hint at future developments at Tesla through his Twitter account [and] recent commentary there has been geared to bitcoin and other digital currencies,” a Robert W. Baird & Co. analyst said Monday.
Mr. Musk had other things to say about the cryptocurrency on Dec. 20, beginning with the comment, “Bitcoin is my safe word.” He then added, “Just kidding, who needs a safe word anyway.”
To a user who responded to his first tweet by predicting bitcoin would crash and also would reach $50,000 each in the five years, Mr. Musk said, “Sounds about right.”
Later, he said, “Bitcoin is almost as bs as fiat money.” Fiat currency is money issued by a central authority, such as a country’s central bank, but isn’t linked to an underlying commodity like gold, according to a definition from a unit of the World Bank.
On Monday, Mr. Musk again discussed bitcoin. He communicated with another Twitter user about the Dogecoin cryptocurrency and referenced bitcoin’s “BTC” symbol: “Doge appears to be inflationary, but is not meaningfully so (fixed # of coins per unit time), whereas BTC is arguably deflationary to a fault. Transaction speed of Doge should ideally be a few orders of magnitude faster.”
He also said Monday that he was ready to move on to other topics: “Back to work I go …”
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".The secret to reviewing BTC charts is to use log scale and not linear scale."
https://medium.com/@CryptoKea/bitcoin-to-90k-in-2020-32364f318903
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".The secret to reviewing BTC charts is to use log scale and not linear scale."
https://medium.com/@CryptoKea/bitcoin-to-90k-in-2020-32364f318903
It can only go up, right? Or is the downside exponential too? Yikes.
Money that Elon Musk puts it bitcoin is money not available to build EV manufacturing facilities, battery production, R & D, or space travel, unless he sells his bitcoin. Can he pledge bitcoin as collateral for business lending? If he sells, does it have a similar downside effect as his buy?
Going up exponentially does not make it a stable trading currency, which I thought was the original point of it.
If it's going to 90k shortly, it's a good buy at 40k. If it hits 90, is it still a good buy, a hold or a sell. All rhetorical questions. No one knows.
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https://www.zerohedge.com/commodities/apple-about-announce-5-billion-bitcoin-purchase-one-bank-thinks-so?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
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https://media.gab.com/system/media_attachments/files/064/993/478/original/fd91788abce4b28a.jpeg
(https://media.gab.com/system/media_attachments/files/064/993/478/original/fd91788abce4b28a.jpeg)
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Also check this BTC adoption rate, 1 billion in 4 yrs vs 7.5 yrs for the internet adoption. Pl. scroll to the right
(https://pbs.twimg.com/media/Et0WOyyXcAAPQMe?format=jpg&name=large)
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Are you concerned that you are too late to the party..
https://www.swanbitcoin.com/am-i-too-late-for-bitcoin/
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https://www.wsj.com/articles/bitcoin-to-come-to-america-s-oldest-bank-bny-mellon-11613044810
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YA:
Great stuff!
Your thoughts please on:
1) GBTC vs. BTC for a "low tech boomer who really does not understand the technology investor" like me?
2) Yellen's comments and related regulatory/legal issues.
Thank you,
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second post
Can You Get Rich With Bitcoin? Sure, but Slowly
Cryptocurrency is rising on a wave of enthusiasm. Yet its fundamentals have genuine value.
By Max Raskin
Feb. 10, 2021 1:05 pm ET
Chances are in the past few weeks someone has given you a stock tip—maybe to buy bitcoin or invest in GameStop. In part because of Covid-induced boredom, the country is witnessing an unprecedented interest in financial speculation. This craze is fueled by business celebrities like Elon Musk, who announced Monday that his company Tesla had purchased $1.5 billion of bitcoin. Last Thursday Mr. Musk tweeted in support of the cryptocurrency dogecoin, which was created as a joke in 2013.
What is the average investor to make of all this? When stocks shift by hundreds of percentage points in a day, there’s only so much the government can do to protect you. Instead, investors should look past the tweets and Reddit posts and get back to fundamentals.
Yes, even bitcoin has fundamentals. There are two stories you can tell about Mr. Musk’s promotion of bitcoin. The first is a cynical one, in which he is using his media platform to pump an inherently speculative asset that he will dump, enriching himself at others’ expense.
The second story is honorable: Mr. Musk has keyed in on bitcoin’s value as an asset that can’t be manipulated by central banks. He understands bitcoin’s fixed supply, and in a world of seemingly unlimited monetary stimulus he’d like to promote the separation of money and state. The value of all money, even traditional currencies, is determined in part by public demand, and Mr. Musk’s driving up bitcoin’s price is no scandal in itself. Perhaps that’s what he meant when he tweeted, “Bitcoin is almost as bs as fiat money.”
Though bitcoin may be rising on a thin wave of enthusiasm, its fundamentals have real value. I teach a course on cryptocurrency, and I urge my students to look past the allure of easy money and focus on the philosophy, technology and political economy that differentiate bitcoin and its peers from traditional currencies.
Investing in a new, uncertain asset class can certainly be a trip. In the early days of bitcoin, I was a reporter covering the fortunes being made overnight by nerds living in their parents’ basements. I reported on accidental millionaires who happened to have left a program running on their computers to mine bitcoin. I also covered unlucky individuals who lost millions by accidentally throwing out a hard drive or losing a password. No one seemed particularly happy. Even those who made money overnight were upset that they hadn’t made more.
The only people who seemed fulfilled in the world of cryptocurrency were those like the Winklevoss twins, who were genuinely dedicated to the ideal of private money and competing currencies. This is an idea with a rich historical tradition that includes such luminaries as F.A. Hayek, Milton Friedman and Ludwig von Mises. It is true that the Winklevoss twins are reportedly billionaires because of their holdings, but it was their ideology that bound them to weather the volatility of the early days of cryptocurrency. Bitcoin’s biggest boosters have also created valuable services from the same underlying technology, such as smart contracts, which automate and authenticate complex payment arrangements. They were pioneered by Nick Szabo, an early bitcoin adopter who is less concerned with price and more concerned with the plumbing.
So if you follow cryptocurrency, be sure to keep an eye on new applications and technological developments as well as daily price swings. Stories about buying Lamborghinis with bitcoin are always going to get more clicks than pieces that explain its underlying value. But that latter type of article holds the key to why bitcoin may be an asset worth holding for the long haul.
One of my favorite stories of a crypto true believer involves an entrepreneur named Erik Voorhees. Around 2012 I asked him if he was going to cash out after becoming a millionaire. To my surprise, he said he was almost completely cashed out. He quickly clarified, “of dollars.” This is the kind of investor who doesn’t care what Elon Musk does with Tesla’s balance sheet.
Mr. Raskin is director of research at Qvidtvm Inc. and an adjunct professor at New York University School of Law.
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GBTC vs BTC, are you looking for investment gains (GBTC) only or investment gains + freedom + money that cannot be confiscated (BTC). Both are good options for different individuals.
The central banks and IMF are in a panic. Their CBDC's cannot compete with BTC, so a lot of FUD will be created. China has tried to ban BTC, I think like 4 times, they were unsuccesful. BTC is now a 900 Billion asset, it will soon be worth over 1 Trillion dollars. New money keeps pouring in.
The two areas where one should anticipate FUD is 1. A lot of terrorists and drug dealers use it. Reality is that BTC is a ledger, everything is trackable. the US $ is what is used for >90 % of drug money. Drug dealers are smart, they no longer use it. 2. BTC's energy consumption. Much has been written about it, but more and more BTC is being mined using flared gas or reusable energy.
FUD can cause a temporary fall in price, but it will not stick. As an example. the SEC recently called XRP token illegal (it is a security) and asked US exchanges to delist it. The price collapsed, but a month later it is back up again because the asian exchanges did not delist.
In 4-5 years there will be a billion users of BTC and it becomes something that cannot be banned. Even today, it cannot be banned due to game theory considerations. All one needs is one country in the world to allow its use and BTC will continue to function. If a country were to spend 100's of billions of dollars to buy and capture BTC using a 51 % attack technique, even that would not work. The block chain would be forked and a new chain would start. All the billions of dollars expended would be wasted.
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'Black Swan' Author Nassim Taleb Dumps Bitcoin
He’s advocated for crypto in the past. But for now, it has "failed," he says.
“A currency is never supposed to be more volatile than what you buy & sell with it,” he said. “You can't price goods in BTC.”
https://decrypt.co/57628/black-swan-nassim-taleb-dumps-bitcoin
------------------------------------------------------
[Doug]
On that point he is right. You can't look at its chart and say it's a currency, or a stable currency. It is a speculative store of value. Those who speculate it may still go up and up and up may be right, right now. But still it is not currency at all in the sense of all the things needed to make it a stable currency. When it goes down, what is its intrinsic bottom value?
Elon Musk, I noticed, announced his 1.5 billion dollar purchase after he made it, and the value jumped. But the price of bitcoin at the announcement already reflected his major purchase. The rest is for his news they will take bitcoin for payment, but anyone can take any currency, right to the trading desk and get dollars or whatever they need. That policy is a breakthrough for bitcoin, but gets canceled the minute bitcoin is not a rising or stable enough value for them, or the minute your all knowing government bans the use of btc for currency.
Zerohedge reports India will be the first country to ban bitcoin:
https://www.zerohedge.com/news/2021-02-12/coming-indian-bitcoin-ban
I assume that is a ban on using it as a currency. I don't see how (or why) they ban the buy and sell of it as investment (in a free country).
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https://www.investopedia.com/articles/forex/121815/bitcoins-price-history.asp
Satoshi Nakamoto, Bitcoin’s inventor, designed it for use as a medium for daily transactions and a way to circumvent the traditional banking infrastructure after the 2008 financial collapse. While the cryptocurrency has yet to gain mainstream traction as a currency, it has begun to pick up steam through a different narrative—as a store of value and a hedge against inflation.
----------------------------
It went from .0008 to .08 in 2010. It went from 900 to 20,000 in 2017? It's gone from 14,000 to 48,000 since the election of Biden Harris.
That makes sense in direction but not scale.
For comparison:
Gold Nov 3, 2020: $1914
Gold Feb 12, 2021 $1824
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There is very little supply, < 4 million coins available, most are in cold storage. There are still 499 companies in the SP 500 that still have not added BTC to their treasury.
Looks like Taleb had a bad trading day...must have shorted and got rekt (wrecked).
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See how BTC is behaving as compared to the 2 previous halvings, the average of the two and where it is now. Pl. scroll to right.
(https://pbs.twimg.com/media/EuOq0gEWgAQ-p2r?format=jpg&name=large)
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The supply is being locked up ...internationally.
(https://pbs.twimg.com/media/EuSM_XBXYAAoU8x?format=png&name=900x900)
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I'm in way over my head here. What does that mean?
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I cannot figure out the first graph
the second one I assume shows the available supply on the exchanges had been increasing till 2020
then started dropping as people are hoarding it
and we can see the price going up in the opposite direction around 2020
:|
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Both the charts are related. My explanation powers are not the greatest..
In first chart: We know that BTC goes up after the halvings (every 4 years, mining reward is cut by 50 %), i.e. supply goes down 50 % and price will go up even if demand is the same. These halvings occurred in 2012, 2016 and in May 2020. The chart shows the % increase for the 2012 post halving period (purple line), the 2016 post halving which peaked in Jan 2018 (greenish line) and the average of the two (yellow line), assuming the 2020 post-halving will behave somewhere in between the 2 halvings. We can see that the actual path being traced by the blue line post the 2020 halving, matches the yellow line so far. If this were to continue, the peak is around 200-300 K.
The second chart shows that BTC balances on exchanges are declining post 2020 halving in May. A decline in balances means that investors are withdrawing them from the exchanges for long term storage in their own private hardware wallets. When they want to sell BTC at the top, you will see that they will send their BTC's back to the exchange and the Exchange's balances will rise. This happened in 2017 and continued well after the peak in 2018, so its not a precise indicator.
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Thank you.
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https://www.businessinsider.com/twitter-ceo-dorsey-partners-with-jay-z-on-bitcoin-endowment-2021-2
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https://freebeacon.com/guns/cryptocurrency-seeks-to-lure-firearms-companies-amid-threat-banks-will-cut-off-gun-industry/
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GBTC now over 50. My first purchase was at 15 with more in the upper 20s and upper 30s.
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when it was 10 cents
now worth 51.8 million
https://www.cnbc.com/2021/02/12/how-much-youd-have-today-if-you-invested-100-in-bitcoin-in-2009.html
no one in cryptocurrency space has not thought:
"what if"
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https://www.zerohedge.com/markets/here-we-go-again-zoltan-warns-repo-market-verge-major-shock-key-funding-rate-turns-negative?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
This just in from Scott Grannis:
Seems like there is a simple solution to this problem: the Fed is going to have to lift its cap on access to the overnight RRP facility.
It’s fallout from Congress’ insane desire to send out huge checks to just about everyone. People’s desire to hold onto ever-increasing amounts of cash is limited, and the financial market’s ability to “warehouse” all that cash is limited as well, unless the Fed uncaps the RRP facility.
The real problem comes if people decide that they are simply holding way too much cash relative to their incomes and decide to reduce their cash balances. Everyone can’t do that at once, because the cash can’t just disappear from the system if the Fed doesn’t start draining cash (i.e., reversing its QE efforts). Without Fed draining cash, the market’s attempt to reduce total cash can only happen if nominal GDP (i.e., incomes) surges, which in turn means a huge increase in the price level (ie, inflation goes way up).
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The problem with the American Populist movement is that it was centralized.
Centralized movements give the enemy a central attack vector to target and overcome. One man, who took on the weight of the world, became the sole focus of both the enemy and of the American Populist movement itself for over five years.
The oligarchs removed that one man from the entire internet, then they removed him from office. Everyone knows this, we all watched it happen. What no one has clearly defined is where American Populism goes from here.
The oligarchs believe that they have destroyed American Populism by rigging an election, removing the movement’s leader from public view, and by forcing everyone to stay locked inside for a year while the country burns down around us all.
They think they have won and want to define “New Normal” under their rule as they consolidate power. What they don’t realize is that they have recruited tens of millions of Americans to the side of reason, light, and Truth. Many millions of these people didn’t even vote for Donald Trump, but they recognize what is happening to our country and want to stop it.
Over the course of the past year I’ve seen comments across the internet become increasingly “red pilled” and aware of the Big Lies being pushed by the corporate media and frauds in government. It turns out that keeping people locked inside on the internet for an entire year ends up illuminating a lot of minds.
The People are learning what the real problem is: the globalist oligarchs. Not any one politician. Not this political party or that one. The entire system is corrupt. Banks, tech companies, media companies, schools, government, and on and on.
We must exit this broken and failing system and start building a new one immediately. We are not revolutionaries. We are not violent. We are reformers. We are builders. When we up and leave the existing system in favor of our own the existing system will crumble without us lifting a finger.
“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.”― Buckminster Fuller
The way around centralized problems in the movement is to decentralize American Populism at the local level. In order to take our country back and move forward with the American Populist movement we must first take our local communities back. Here are several examples of this happening across the country:
Big Tech’s Unlikely Next Battleground: North Dakota
Montana Bill Would Designate Antifa as Domestic Terrorism
Florida restaurant goes viral for ‘face diapers not required’ mask policy
We must build our own economy. Here's how.
Pull your positions out of their useless stock market and buy bitcoin, gold, silver, food stores, and ammo. Bitcoin is free speech money. Learn what it is and how to use it. Now.
National elections are a big distraction. Members of Congress are bought and sold like cattle by the oligarchs, foreign nations, and whoever has the money. Instead center your focus on getting American Populists and Christian men and women elected mayor, to state legislatures, as judges, on school boards, etc.
Cut the cable cord. That includes both Fox and CNN. Do not watch it. Do something else with your time and money. Support alternative media outlets and individuals. Get that garbage marxist indoctrination content machine our of your home and away from your family.
Exit the Big Tech mind prison. Join Gab.
If your church has gone “woke,” leave. We have room for only one Gospel in Christian churches and that’s the Gospel of Jesus Christ. Not the imitation false gospel of “social justice.”
Leave Big Banks for local community banks.
Start supporting small local shops.
Create pro-family, pro-business, and pro-law and order policies for your local area. We can’t control DC, but we can control what happens in our backyards.
Pull your kids out of public schools where their minds are being molded at the altar of marxism. Do everything and anything you can to homeschool or attend Christian private schools or online schooling programs.
Pay attention to the brands you buy and support. Check out their websites and marketing. If they are “woke,” stop giving them your money. Period.
We must also work to unite American Populists on the left and the right. What unites the left and right wing populists, and Americans in general, is Jesus Christ.
The trasnhumanist nihilists and their technocracy are offering nothing of spiritual value. The Gospel Message of Jesus Christ, and that of American Populism, is one of redemption, hope, love, dominion, sovereignty, freedom and forgiveness. None of these things are possible with critical theory or woke consumer crony capitalism paired with a corporate techno tyranny.
What are you waiting for?
Let’s get to work, we have a new economy to build.
Andrew Torba
CEO, Gab.com
Jesus is King
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Here's a simplified chart of the above. Horizontal lines are the proposed limits based on various models. Nothing is guaranteed, ofcourse. IMHO, 100K is 95 % probable, 200K 50 % probability based on what I am seeing.
(https://pbs.twimg.com/media/EuknQ7JXYAACI3j?format=jpg&name=large)
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If it does perform as hoped
the capital gains tax under the Democrats would drastically cut into the overall gains by a good chunk
We need to win back power
and bring and keep the gains tax at reasonable (not punitive theft) levels
To just think of all the reparations , wind mills
and turning states into solar panel glaciers , teachers unions pay increases, and the rest of their ENDLESS pet projects ............. paid for by every conceivable way to squeeze every dollar out of us they can
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No, not necessarily. There are several companies now that allow you to borrow money at (6-10 %) against your BTC. You keep ownership, no sales, no capital tax. Unchained Capital charges 10 % or so, but you keep ownership (multisig), whereas Blockfi charges less interest, but rehypothecates (less safe). If one assumes that BTC is still going up 200-300 % per year, this is a great way to live off BTC without selling any.
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with regard to chart
it seems that after halving
in '12 and '16 and 5/20
the price has been going up for about 13 to 19 months then dips
so we are looking at June to December for a dip if the pattern holds
the nadir will be ~ 31 months or Dec January 22/23
any one care to trade though?
risky
and then one sells and then buys back lower
it incurs gains tax for the profit from the sell for that yr.
OTOH the dark blue ('12-20) target was 100 K and the chart shows it reached 200 K
which is clearly far from reality
so not sure how to interpret the chart
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Past performance does not predict future results :-D, due to changes in the market structure namely arrival of institutions, the drawdowns after the bull peak are not likely to be 85 % as before**. In the previous 2 bull markets, the corrections were severe because these runs were due to retail traders.
With the arrival of institutions and big money, the corrections have been only 30 % or less in this bull cycle. I expect at most a 50 % correction from the peak.
The graph below tries to compare the % gains after the halving in the 3rd cycle (ongoing) as compared to earlier cycles, using a common scale.
** If you believe you will get a deep draw down, some rich hodlers are planning to sell at the perceived peak, buy a used ferrari that will retain value, use it for a year or so and sell it to buy back BTC at the nadir.
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https://i0.wp.com/www.powerlineblog.com/ed-assets/2021/02/Screen-Shot-2021-02-15-at-8.08.37-AM.png?resize=447%2C600&ssl=1
(https://i0.wp.com/www.powerlineblog.com/ed-assets/2021/02/Screen-Shot-2021-02-15-at-8.08.37-AM.png?resize=447%2C600&ssl=1)
https://media.gab.com/system/media_attachments/files/064/993/478/original/fd91788abce4b28a.jpeg
(https://media.gab.com/system/media_attachments/files/064/993/478/original/fd91788abce4b28a.jpeg)
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Your meme is incomplete, #7 is BTC
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Ya
what do you think of ethereum?
the second largest crypto.
I have some of that
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just print more money
be happy
https://www.cfo.com/the-economy/2018/11/the-federal-government-does-not-need-revenue/
if bitcoin is a cult so is the concept we can keep paying interest
for a debt for centuries and keep printing money
is
funny how this thinking all comes to the fore just in time
for gigantic democrat partisan spending
did not hear about the new cultist theory during Trump presidency
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If they can just print more money, then no need to tax us anymore, right?
just print more money
be happy
https://www.cfo.com/the-economy/2018/11/the-federal-government-does-not-need-revenue/
if bitcoin is a cult so is the concept we can keep paying interest
for a debt for centuries and keep printing money
is
funny how this thinking all comes to the fore just in time
for gigantic democrat partisan spending
did not hear about the new cultist theory during Trump presidency
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ETH is a good trade and it has its supporters. Bitcoin maximalists, people who did some of the early work for BTC and who interacted with satoshi, so called cypherpunks dont think much of it. They think it cannot scale and it is impossible to audit how many coins there are. Another negative is the supposedly 70 % premine of coins by the Vitalik Buterin and other developers for themselves. There was no premine by Satoshi and every coin can be counted. ETH is centralized to some extent as the developers exercise a lot of control. Having said that, it is a useful coin, but is not likely to become a store of value or a currency like BTC. The standard advise when holding altcoins is to use profits from their rapid price appreciation to buy BTC. ETH is also popular because of the smaller unit of acct, these days around 2000$ for a coin vs 56000$ for BTC.
Another tip while looking at altcoins is to plot a long term chart in ETH/BTC as opposed to ETH/USD. This can be revealing.
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ccp:
That article left me befuddled!
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ccp:
That article left me befuddled!
Sort of the anti- economics, xenier of economics viewpoint.
From the article
"Kelton said that what she’s trying to do is “get us to the point where we can open a nice bottle of wine, read the headline that the national debt is at an all-time high, and feel at peace with the world. Because there is no reason to panic.”
- I don't know, does a frog in a pan of heating water have reason to panic?
Us there any example in history of a prisperous economy without a stable currenxy?
What is the check on unlimited spending if not for pursuit of a balanced budget?
Massive deficits are giant stimuli? A misreading of fiction written by Keynes.
The more government spending the better is misses something. The spending IS a tax, the removal of resources from the productive economy.
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Thought experiment:
What would happen to economic efficiency if there were no taxes and the govt self financed to the tune 20% of GPD? i.e. what the federal govt usually spends?
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Thought experiment:
What would happen to economic efficiency if there were no taxes and the govt self financed to the tune 20% of GDP? i.e. what the federal govt usually spends?
Interesting hypothetical, Gilder suggested this, but I'm afraid the idea government could self limit its spending to anything is what makes it not real, not possible.
Theoretical answer, the debt would grow and our capacity to service the debt would grow proportionally. Doesn't this assume zero (compounding) interest rates to work? A very harmful policy in itself.
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Another problem occurs to me as well-- with no taxes, how would measurement of private sector activity occur?
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https://www.zerohedge.com/markets/michael-burry-warns-weimar-hyperinflation-coming
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of course. And yes the can stop it.
https://www.cnbc.com/2021/02/22/yellen-sounds-warning-about-extremely-inefficient-bitcoin.html
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https://www.zerohedge.com/crypto/crypto-carnage-sends-bitcoin-back-below-1-trillion-market-cap?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
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10 facts that can help you understand its benefits and risks of Bitcoin...Courtesy of The Harford
Crypto What? – Cryptocurrency is a new type of digital currency that's an alternative to the US dollar and other traditional currencies. Bitcoin was created in 2009 and is the largest and oldest cryptocurrency.
Mystery Man – Bitcoin was the brainchild of Satoshi Nakamoto, a psuedonym used by the author of a white paper written in 2008. Several people have claimed to be Nakamoto, but his or her true identity remains a mystery.
Fasten Your Seatbelts – Bitcoin's dramatic daily price swings in 2020 were significantly higher than the stock market's daily price swings in 2008—the most volatile year for stocks on record due to the global financial crisis (see FIGURE 2).
Put on Your Thinking Cap – Bitcoin is created when programmers solve complex computations that are added to the blockchain—the public ledger that records all Bitcoin transactions. This process, known as mining, requires a lot of time and significant computing power.
Finite Supply Creates Scarcity – The maximum number of Bitcoins that will be created through mining is 21 million. As of January 2021, there are 2.4 million Bitcoins left to be mined.1 This finite supply is one reason why some people believe Bitcoin will eventually increase in value over time.
What's in Your Digital Wallet? – Bitcoins are purely digital and stored electronically in programs called wallets that are secured by passwords. Once you transfer Bitcoin to someone else, there's no way to retrieve it or dispute the transaction.
Save Some Gains for Uncle Sam – The IRS treats Bitcoin as property rather than currency. If you receive Bitcoin as compensation, it's considered taxable income. You also need to calculate your gain or loss every time you spend Bitcoin. Short-term gains (<1 year) are taxed as ordinary income, and long-term gains (1 year or more) are taxed as capital gains. Tax losses are treated the same as stocks.
Don't Lose Your Password! – Around 20% of Bitcoin, valued at approximately $140 billion, is lost forever because people forgot their passwords.2 Download our free "Get It Together" worksheet to organize all your financial records, including cryptocurrency passwords.
Value Is in the Eye of the Beholder – Unlike stocks and bonds, Bitcoin doesn't have any intrinsic value based on corporate earnings or cash flows. But as with traditional currency, it has value as long as people accept it as currency. Platforms such as PayPal and Square accept payments in Bitcoin, but a conversion to a fiat currency is required before the payments settle.
Growing Demand – Institutions and wealthy investors are increasingly taking positions in Bitcoin as an alternative asset class similar to gold (some call it digital gold).
Paul M. DeSisto, CFA
Executive Vice President and Managing Director
M&R Capital Management, Inc.
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GBTC down 20% so far today.
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https://www.kitco.com/news/2021-02-23/Ethereum-Bitcoin-take-huge-price-hits-should-you-be-worried-Frank-Holmes-gives-analysis.html
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https://www.kitco.com/news/2021-02-23/Ethereum-Bitcoin-take-huge-price-hits-should-you-be-worried-Frank-Holmes-gives-analysis.html
A friend I visited this past week said his son gave him a bitcoin as a birthday present, I guess like giving a lottery ticket. This was 2013 I think, valued at around $100.
https://www.in2013dollars.com/bitcoin-price-in-2013
Now he gets teased by the son, asks him who else had their kid give them a $50,000 birthday present? Um, 56,000, oops 44,000, make that 48,000, moving while I wrote this. Up 500 fold? 4000-fold from 2011?
These downturns make a good test of what others think of the question posed, is this a good time to buy? If it dropped to 24k instead of 48k is it twice as good of a buy? I don't have the tools to analyze that.
Can you ride it this far and not be hooked, just buy and sell on the lows and highs? How do you know which is which? Why would you sell if it's headed to 90k. Why would you sell then? When would you sell? Have you really made a return if you don't sell? With what percent of your portfolio do you do this? Might as well go all in (just kidding). It has the best return of anything over the last 10 years, past performance is no guarantee of ... whatever.
https://www.tradingview.com/symbols/BTCUSD/
If you bought Dec 2017, sold Nov 2018, you lost 80% of your money.
https://www.cnbc.com/2018/11/30/if-you-invested-1000-in-bitcoin-in-2011-now-you-have-4-million.html
Personally, I want to buy one of those parcels out where G M is looking.
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I haven't dipped a toe into crypto yet, but I probably will soon. Mostly as a way for my business to get paid as I anticipate all of us face de-personing.
Email me Doug, and I'll tell you where I am heading.
https://www.kitco.com/news/2021-02-23/Ethereum-Bitcoin-take-huge-price-hits-should-you-be-worried-Frank-Holmes-gives-analysis.html
A friend I visited this past week said his son gave him a bitcoin as a birthday present, I guess like giving a lottery ticket. This was 2013 I think, valued at around $100.
https://www.in2013dollars.com/bitcoin-price-in-2013
Now he gets teased by the son, asks him who else had their kid give them a $50,000 birthday present? Um, 56,000, oops 44,000, make that 48,000, moving while I wrote this. Up 500 fold? 4000-fold from 2011?
These downturns make a good test of what others think of the question posed, is this a good time to buy? If it dropped to 24k instead of 48k is it twice as good of a buy? I don't have the tools to analyze that.
Can you ride it this far and not be hooked, just buy and sell on the lows and highs? How do you know which is which? Why would you sell if it's headed to 90k. Why would you sell then? When would you sell? Have you really made a return if you don't sell? With what percent of your portfolio do you do this? Might as well go all in (just kidding). It has the best return of anything over the last 10 years, past performance is no guarantee of ... whatever.
https://www.tradingview.com/symbols/BTCUSD/
If you bought Dec 2017, sold Nov 2018, you lost 80% of your money.
https://www.cnbc.com/2018/11/30/if-you-invested-1000-in-bitcoin-in-2011-now-you-have-4-million.html
Personally, I want to buy one of those parcels out where G M is looking.
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Worth pointing out that the 2017 bull run had 9 pullbacks of about 33 % each. This cycle we have had 2 pullbacks of 20% each. Also check seasonality
(https://pbs.twimg.com/media/Eu8bTL7XcAEMUDY?format=jpg&name=large)
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https://media.gab.com/system/media_attachments/files/066/575/249/original/9a8d16bb89b4d6c4.jpg
(https://media.gab.com/system/media_attachments/files/066/575/249/original/9a8d16bb89b4d6c4.jpg)
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https://www.zerohedge.com/crypto/can-governments-stop-bitcoin?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
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Well written article
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BTC is gold 2.0. Since Microstrategy (MSTR) put BTC on its balance sheet (in part by getting low interest rate money from govt to buy BTC an appreciating asset), MSTR stock has sky rocketed. They followed up by holding a free conference that was attended by 20,000 company execs on how others can do the same and revealed their playbook to buy BTC, legal issues etc. This play book will be replicated by hundreds and thousands of companies as the US $ is printed to infinity.
The below chart shows a nice correlation, suggesting that capital may be moving from gold to BTC. Gold is no longer the store of value it once was. The dotted vertical line shows when MSTR started BTC purchases and the world started to notice.
(https://pbs.twimg.com/media/EvD1gG1VkAYEzmT?format=jpg&name=large)
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https://www.coindesk.com/podcasts/coindesk-podcast-network/governments-cant-stop-bitcoin
bad week for crypto:
https://www.coindesk.com/market-wrap-bitcoin-worst-week-since-march
Coinbase going public:
https://www.coindesk.com/coinbase-going-public
Looking into token companies now.
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On chain analysis data suggests, BTC should go up soon. Re: GBTC folks need to be wary of a few more things.
1. Fees: 2 %, these add up over time.
2. Premium over NAV, i.e. one is paying more than what the asset is worth. In return you get convenience.
3. The biggest danger lurking is that Bloomberg reported that an ETF is around the corner. Once the ETF comes out, GBTC will lose its premium, i.e. price will match NAV.
If one is concerned about these dangers, the wise thing is to consider selling on the next up swing (@around $60k BTC) and buy BTC instead.
P.S. My understanding of NAV is rudimentary at best!, so above scenario may or may not occur.
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the shark tank guy who talked down
bitcoin just last week
now tells buys on recent dip 3% of his portfolio
all these billionaire's who talk it down then buy like rabbits
https://news.bitcoin.com/shark-tanks-kevin-oleary-bitcoin-cryptocurrencies-here-to-stay-invests-portfolio/
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Fidelity is out with a positive piece on BTC. https://institutional.fidelity.com/app/literature/item/9901337.html?pos=T
Similarly Citibank has a positive research note out today. https://ir.citi.com/_tpHpW8MfaZ1QXwGmP1JGMGXXI95qXm3IMJzUJScLMb6XIjtOls6EbDehXMR3B_o9Opi7mdc5tQ%3D
Goldman is starting their crypto desk again.
Lots of positive news with Institutional investors...$70 K by end of April.
I am planning to get out of BITW a crypto fund over the next month or so. I think the ETF will be approved sometime this year, at which point any funds with high premiums (GBTC, BITW etc) will lose the premium and the price will go down.
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Here's some hopium https://www.coindesk.com/why-1-million-bitcoin-is-coming (https://www.coindesk.com/why-1-million-bitcoin-is-coming)
The author is considered a serious guy and just wrote a book.
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https://www.zerohedge.com/crypto/gold-dead-move-billionaires-bet-bitcoin-draper-sees-5mm-price?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
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BTC Fibonacci levels, pl. scroll to right
(https://cdn.substack.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F1cd293e8-7ed1-4113-9585-988a3337aea3_3094x1472.png)
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In English please?
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Simple answer BTC going up, Fibonacci level of 70K+. Every cycle in BTC has had 3 peaks so far, we just finished the first peak at 58K. With some luck 2 more peaks to be expected. HODL waves represent BTC holder peaks, the orange color shows the market peaks when the short term (1 month) hodlers peak (orange).
(https://pbs.twimg.com/media/Evyvs8pXMAEFtrJ?format=jpg&name=large)
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See how small is BTC as compared to other asset classes, all we need is a 5 % flow from the other asset classes and things will rock.
(https://pbs.twimg.com/media/EtgXDznVkAAtBz7?format=png&name=4096x4096)
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https://www.zerohedge.com/markets/why-gold-price-sinking?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
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says the NY Slimes:
https://www.nytimes.com/2021/03/09/business/dealbook/bill-gates-bitcoin.html
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Based on recent job openings at Grayscale, looks like they are preparing for a BTC ETF. They will likely convert the GBTC to an ETF. This may be a good thing for GBTC holders.
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BTC on track ..P.S; is there a way to make the pictures smaller!
(https://pbs.twimg.com/media/EwPUjL9VIAE5_mC?format=jpg&name=4096x4096)
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Really appreciate your posts YA.
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Thank you. However, my understanding of GBTC etc is rudimentary. Re: BTC I have put in my 10,000 hrs to study it :-)
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https://i2.wp.com/wilderwealthywise.com/wp-content/uploads/2021/03/THEFED.jpg?w=524&ssl=1
(https://i2.wp.com/wilderwealthywise.com/wp-content/uploads/2021/03/THEFED.jpg?w=524&ssl=1)
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There is an ETF called INFL for inflation that I started to invest in.
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BS breakout? hitting highs
ethereum near high once again
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One model is predicting a BTC high of 300 K by the end of the year. The redline shows where we are and how far still to go. Pl. scroll to rt.
(https://cdn.substack.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F36fb0a44-eb05-47f5-8a14-c1afa3e47217_2036x1178.png)
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Watch the blue line...thats the line which shows the actual path and price of BTC. The yellow is the average of the 2 previous post-halving paths.
(https://pbs.twimg.com/media/EwZtvsmW8As67Gh?format=jpg&name=large)
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What does this chart tell us?
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"What does this chart tell us?"
not clear
but could claim it is a Beeple and sell it as a token for millions. :-P
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"What does this chart tell us?" 100K in 2-3 months
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https://www.newsmax.com/finance/streettalk/cryptocurrency-insurance/2021/03/12/id/1013593/
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https://www.zerohedge.com/markets/were-bubble-thats-too-big-fail
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https://www.zerohedge.com/markets/were-bubble-thats-too-big-fail
Very interesting.
Linked in the article:
"Bitcoin’s rise reflects America’s decline"
https://www.ft.com/content/16a37710-cbff-41b1-af96-7dc8b2de0c43
You could add Europe to the area of decline.
“Bitcoin is a hole …in a burning building"
-------------------------------------------
It occurs to me that Bitcoin is the new gold of the moment, although obviously different. It is a way of putting money outside of and betting against the productive economy. I may not like it but it is obviously winning, and the productive economy is losing. It's demise might be the moment the economies of the so-called free world get their collective acts together which is somewhere between no time soon and never.
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On a negative note, experts differ on how much energy bitcoin uses or requires but the usage is high.
“Bitcoin uses more electricity per transaction than any other method known to mankind,” - Bill Gates
https://www.nytimes.com/2021/03/09/business/dealbook/bill-gates-bitcoin.html
-------------------------------
Wouldn't you think the system of paper and coins and banks with heating and AC would use more?
We may of not care about Bitcoin energy use but seems to me that adds an element of regulatory risk.
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lets see
does bitcoin or all the devices that operate MSFT software use more energy?
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If I want to take 1000 BidenDebtBux and buy BTC?
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1. BTC mining is shifting towards renewable energy or use of excess energy.
2. We can always produce more energy, read about the Kardashev scale.
3. That BTC uses a lot of energy is true, but it is less than many other activities that we are fine with me. Several articles on the topic.
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This sounds weird today...clipping from the year 2000. We are around the year 1997 in BTC terms.
(https://pbs.twimg.com/media/EwgBu7AUcAEtvhj?format=jpg&name=medium)
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Far out!
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https://www.fxstreet.com/cryptocurrencies/news/ethereum-price-forecast-eth-bleeds-as-india-revisits-the-intended-ban-on-cryptocurrencies-202103151017
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WSJ
So much for interest-rate and inflation jitters. The Federal Open Market Committee on Wednesday dismissed the recent show of market nerves and kept its foot on the monetary accelerator even as it predicts a post-pandemic economic boom this year and into 2022. Happy days are here again.
FOMC members raised their median growth estimate for 2021 to 6.5% from 4.2% in December. They predict the current 6.2% jobless rate will fall to 4.5% by year end, down from their 5% estimate in December. Robust growth will continue in 2022 at 3.3% while unemployment falls to 3.9%. This is a V-shaped recovery, and it’s nice to see the Fed finally acknowledging this now that Chairman Jerome Powell no longer feels he has to lobby for a fiscal blowout.
The monetary sages are even buoyant that long-dormant inflation will finally breach the Fed’s 2% target and hit 2.4% this year. The Fed’s PCE price deflator has risen 2.8% in the last three months at an annual rate, so hitting that target should be easy. But then the FOMC forecasts that inflation will fall back modestly and stay at 2% or above through 2023, meaning that any increase in prices will be transitory.
That’s where questions arise. The FOMC’s sunny forecasts coincide with its predictions that it will keep its interest-rate target at near zero into 2024. The Fed will also have to keep buying Treasury bonds at a gulping pace to finance soaring federal debt. In other words, the Fed is forecasting that the economy will boom, reaching nearly full employment with inflation at or above its 2% target, but it still won’t tighten monetary policy.
If this all turns out to be true, Milton Friedman will rise from the dead and rewrite his monetary history.
It’s hard to believe all of the Fed forecasters believe this, and seven of the 18 dared to predict rate increases in 2023 and (gasp) four of them even in 2022. But that’s all something for financial markets to worry about in the future. For now, and as far as Chairman Powell can see, the policy is to keep flooring it.
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https://charleshughsmith.blogspot.com/2021/03/our-dead-money-economy.html?m=1
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https://charleshughsmith.blogspot.com/2021/03/our-dead-money-economy.html?m=1
Interesting analysis. Some oversimplification [necessary to summarize 40 years in a short piece] but also some excellent points in there.
I am also interested in velocity of money, but none of these measures are perfect so it takes some analysis to know what we are looking at.
From the article: "There's one part of the definition that is often overlooked: the velocity of money only tracks domestically produced goods and services, so all the transactions that end up in a container of goods from China being unloaded in Long Beach aren't counted."
For example, the US had a phenomenal economy from 2018 through the start of covid 2020, as good as anyone could hope for given the political conditions of the country, but that barely shows in this M2 velocity chart:
https://fred.stlouisfed.org/graph/?id=M2V
Can't put toothpaste back in the tube, or un-print money. Look at M2 2020:
https://fred.stlouisfed.org/series/M2SL
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I much prefer looking at “money demand” rather than the velocity of money. M2/GDP (money demand) is just the inverse of GDP/M2 (velocity of money). When you look at it my way, instead of concluding that the banking system is “pushing on a string” you see that the demand for money is unprecedented. And obviously it is not going to remain in unprecedented territory forever. People have stockpiled tons of M2 relative to their incomes and they are going to want to reduce this at some point. And if the Fed doesn’t reduce the amount of M2 in the economy, then a decline in M2 demand can only produce one result: higher inflation.
This is what I have been talking about on my blog off and on for years. And it looks like the demand for M2 is in fact beginning to decline. Inflation expectations are increasing significantly, but they have a long way to go.
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Last time we talked about this concept, Scott, you didn't explain why you think my logic is in error. If you can, I sure would appreciate that because your argument just isn't making any sense to me. To keep it simple, I will make just two points.
First: Rising M2/GDP does not imply a high demand for money. Last time, you said that you believe it does indicate a high demand because it is being held in zero interest demand accounts and other very safe venues. My comeback was, and still is, that the aggregate amount of money in such accounts cannot change until the Fed reverses its policies. If I want to reduce my bank account, I can buy something and the money will disappear from my checking account -- but it will immediately appear in the seller's checking account. The aggregate number of dollars held in zero interest bank accounts cannot be reduced by individuals who want to hold smaller cash balances. It's impossible.
Second: People have been trying to reduce cash balances. The Fed's notion that inflation exists only when the CPI (or core CPI) is rising is pretty strange. The CPI is based on a narrow list of goods -- but people can obviously reduce their individual cash balances by buying many other things.
Until recently, all of the Fed's newly created money was going to investment security holders. Isn't it reasonable to assume that those new-money recipients would buy another investment product if they found their cash balances too high? Interestingly, when we look at securities we see rising prices in nearly every category. Yes, the very safe Treasury bills have been bid up to virtually a zero yield. But every other investment security has also been bid up to very low yields. Even "junk" bonds enjoy historically low yields, and many extremely risky "investment" products have been bid up to interesting heights: Tesla, ARKK, SPACS, ...
These facts suggest to me that people are, in fact, trying to reduce their cash balances. But every security purchase simply moves the excess cash into somebody else's bank account, and then the next transaction puts it into somebody else's account, ... and the churning continues. With excess cash in the aggregate, people will keep right on buying until some part of the population would rather hold the cash than buy more securities at current prices. As people reach that point, some may decide to increase their spending on non-investment goods -- but these investors are not going to buy more hamburger. They are going to buy luxury goods, collectibles, and countless other items that don't show up in the CPI.
As spending on goods increases, of course, the new cash recipients will increasingly be "ordinary" people. And with the distribution of COVID payments, that process may be accelerated. But even there, some people think that many COVID billions have been used by new retail "investors" to buy highly speculative securities and options -- driving selected prices to unimaginable heights for a time.
Anyway, Scott, please show me where this logic breaks down. I would appreciate it very much.
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https://bombthrower.com/articles/if-bitcoin-didnt-exist-wed-have-to-invent-it-right-now/
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second
Declining volume:
https://stockcharts.com/h-sc/ui?s=gbtc
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https://www.zerohedge.com/economics/things-are-out-control-there-shortage-everything-and-prices-are-soaring-what-happens-next?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
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"Things Are Out Of Control" - There Is A Shortage Of Everything And Prices Are Soaring: What Happens Next?"
obvious
we fight racism sexism transism muslim ism
anti semitism anti asiansim anti black and tan ism
call every white person who is not a democrat a nazi racist privileged
shut down oil and gas
spend like crazy hyenas
tax like crazy coked up hyneas
massively increae dole government
make slaves out of tax payers
make us the laughing stock overseas
and have the elites steal rob control manipulate
and jerk us around
I dont know if that is what we should do but this what those who control us are doing
time to somehow protect ourselves as GM has been saying for yrs
and pray for bitcoin :wink:
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You need to get to the reddest county in the reddest state you can find. A place where you have water and the ability to grow food.
Once things really collapse, turn kinetic, then it's too late.
"Things Are Out Of Control" - There Is A Shortage Of Everything And Prices Are Soaring: What Happens Next?"
obvious
we fight racism sexism transism muslim ism
anti semitism anti asiansim anti black and tan ism
call every white person who is not a democrat a nazi racist privileged
shut down oil and gas
spend like crazy hyenas
tax like crazy coked up hyneas
massively increae dole government
make slaves out of tax payers
make us the laughing stock overseas
and have the elites steal rob control manipulate
and jerk us around
I dont know if that is what we should do but this what those who control us are doing
time to somehow protect ourselves as GM has been saying for yrs
and pray for bitcoin :wink:
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https://www.zerohedge.com/markets/bitcoin-atms-are-landing-gas-stations-delis-and-convenience-stores-near-you
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https://www.zerohedge.com/markets/bitcoin-atms-are-landing-gas-stations-delis-and-convenience-stores-near-you
Wherever lottery tickets are sold. :wink:
That's a good idea. I remember reading about a gold bar vending machine in Dubai, but this is way more practical.
At 6 - 20% fee, who cares how much they buy, the more the better.
----------
https://btcgeek.com/buy-fractions-bitcoin/
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Unbelievable, 1 BTC=1kg Gold
(https://pbs.twimg.com/media/EuwSb7-VgAI-nWV?format=jpg&name=small)
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"Unbelievable, 1 BTC=1kg Gold"
The ingenuity of man!
since gold was discovered man tried to be able to make
i understand that it is possible today to do. but at huge cost and with atomic size results
so man decided to invent a virtual gold!
price is high . a bitcoin specialist we follow keeps raising his buy price - now to $74 K
that said , who knows of course
maybe an average retail investor like me could buy 1/10 of a coin
but is it worth it? If one believes in hundreds of thousands for a coin in yrs to come , or more, yes
tongue in cheek:
https://www.youtube.com/watch?v=JnbfuAcCqpY
waiting for the Left to announce a specific targeted crypto tax
they will do this as they spend all night dreaming of ways to pick off more personal wealth form the new members of slavery - taxpayers
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https://stockcharts.com/h-sc/ui?s=gbtc
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https://www.yahoo.com/news/lawyer-cuomo-accuser-warns-ny-202100841.html
up down left right round and round we go , where the Dreidel stops nobody knows.
A lot of talking heads all with opinions enough to make your head spin
establishing the "grain of salt " rule .
Take what they say with a grain of salt.
I remember seeing Charles Payne on a show once. They were going around the tables asking a few "analysts" including him about a particular stock and if it was a buy.
When they got to Charles he kind of hesitated they said "buy".
Next he was asked why , and he had not a clue.
Didn't even know what the company was.
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GBTC failing to meet/match previous high and turning down. Sure hope it respects the 50 day.
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https://finance.yahoo.com/news/ray-dalio-on-bitcoin-and-probability-of-ban-130008375.html
he compares it to 1933 when FDR made owning gold illegal
of course he did not mention Gerald Ford reversed it in 1974.
of course as a hedge fund owner what are the odds he is either short or actively buying BC as we speak
to me the fact this guy needs to even talk about is a plus for bitcoin
US could make it illegal
after mulling it , I would guess the Gov .especially while controlled by Dems will tax it
crypto tax
that way rather then get rid of it they get in on it and rob the rest of us as usual.
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GBTC down on increasing volume today; threatening the 50 day line.
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GBTC is having issues because there are many BTC funds now to share the wealth (Canada, Brazil Europe etc). This has lead to a decline in the premium. This is a "normal" BTC pull back so far.
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On increasing volume too!
https://stockcharts.com/h-sc/ui?s=gbtc
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Bitcoin is not a currency if the product is priced in dollars and converted to btc. Tesla is screwing the btc customer on the return policy: https://mobile.twitter.com/jordan_mcrae_/status/1374741251895988224/photo/1
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BTC supply is shrinking...BTC can only go up
(https://pbs.twimg.com/media/ExlAGjQXMAMhc77?format=jpg&name=large)
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"BTC can only go up"
- Reminds me of some things I may have said about tech in the time leading up to the tech crash. Some specific stocks come to mind. I don't want to be the naysayer or spoil any fun but I think there are at least two directions it can go at any time. Limited supply is definitely its strength, but demand, it seems to me, is the main determinant.
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So, if YA is right then what we are seeing now is a moment of consolidation to be followed by another sharp upward movement on volume triggered by some manifestation of shit heading for the fan?
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"BTC can only go up"
- Reminds me of some things I may have said about tech in the time leading up to the tech crash. Some specific stocks come to mind. I don't want to be the naysayer or spoil any fun but I think there are at least two directions it can go at any time. Limited supply is definitely its strength, but demand, it seems to me, is the main determinant.
Yes you are right theoretically...but if you scroll to the right, supply shortage has never been more acute, institutional demand is rising, pension funds are starting to take positions, sovereign states are likely getting involved. Today BNY Mellon came out with their BTC note, they will allow their clients to buy and store BTC, many other banks doing the same. Every day only 900 new BTC can be mined...the rest must come from people willing to sell.
See Institutions below
https://www.youtube.com/watch?v=y24_-GFEfsc
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Ya
you make a good case
how many times do we hear bashing of bitcoin on CNBC etc by some big shot
only to find out not long after the same big shot is buying millions or even more
all the while
My thought is US will not ban it
but they will find way to tax it is confiscate a % like they do in every other way in society
One could argue Bitcoin may not go up,
but with Dems in power NO ONE can argue taxes will not go up
or spending will not go through the roof.
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bitcoin market cap 1.1 trillion
ethereum market cap ~ 200 billion.
ethereum could go up mulitple times this yr catching up to bitcoin
is. shaping up to be the facebook or the apple app store of cryptocurrencies
near its high
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Help me understand Ethereum and its interaction/competition with BTC please.
-
https://www.theepochtimes.com/mkt_morningbrief/beijing-accelerating-plans-to-replace-us-dollar-as-world-reserve-currency-chinese-professor_3758574.html?utm_source=morningbrief&utm_medium=email&utm_campaign=mb-2021-04-02&mktids=1f427e2459d3cb32c0793c1634d1c407
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may be a buy on pullback if there is one
on its way up to $1,000,000,000,000
market cap
by end of yr ? some predict
and so far they are right about BC
(of course I have add - do not spend more than you can afford to lose :wink:)
I would have bought more but am out of cash.
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https://news.bitcoin.com/shark-tanks-mark-cuban-says-ethereum-is-closest-crypto-we-have-to-a-true-currency/
he either reads the same sources as me OR
he reads this board and saw my previous post
:wink:
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Help me understand Ethereum and its interaction/competition with BTC please.
Please see this free site https://danheld.substack.com/p/bitcoin-vs-ethereum (https://danheld.substack.com/p/bitcoin-vs-ethereum)
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Thank you CCP and YA.
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https://www.newsbtc.com/analysis/eth/ethereum-bullish-lifetime-opportunity/
100. apps now on ethereum
https://consensys.net/blog/news/90-ethereum-apps-you-can-use-right-now/
Apple has 1.96 million apps
Ethereum leads the pack on becoming the go to app store of crypto ( so I read)
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So, how do I buy Ethereum?
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Open an acct with Coinbase and Coinbase Pro. Fees are less on Coinbase pro. If you want to store them with the exchange, it can be done free at Coinbase, or you can store them yourself. Self custody is a learning curve and worth it, if you are investing a significant amount. Start with a small amount and learn the process.
ETH has its supporters, but some pros feel that it will never be money, though it will have many applications on the ETH blockchain. The reason to buy should not be unit bias, i.e. its cheaper, because one can also buy a fraction of a BTC. Plotting a long term chart of ETH-USD (expressed in $) and ETH-BTC (expressed in BTC) is instructive and eye opening, see chart from 2017 onwards Check out Tradingview.com
ETH expressed in BTC looks pathetic, ETHBTC
ETH expressed in USD looks great, ETHUSD
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BTC and the American West, a
fun serious read
https://www.citadel21.com/bitcoin-and-the-american-west (https://www.citadel21.com/bitcoin-and-the-american-west)
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The GBTC chart is at an interesting moment. The previous high failed to meet/exceed the prior high and then on increasing volume there was a test of the 50 day line. Now the chart test the previous high-- on low volume.
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China Creates its Own Digital Currency, a First for Major Economy
A cyber yuan stands to give Beijing power to track spending in real time, plus money that isn’t linked to the dollar-dominated global financial system
The digital yuan seen on a mobile phone. COSTFOTO/BARCROFT MEDIA/GETTY IMAGES
By James T. Areddy
April 5, 2021 10:48 am ET
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A thousand years ago, when money meant coins, China invented paper currency. Now the Chinese government is minting cash digitally, in a re-imagination of money that could shake a pillar of American power.
It might seem money is already virtual, as credit cards and payment apps such as Apple Pay in the U.S. and WeChat in China eliminate the need for bills or coins. But those are just ways to move money electronically. China is turning legal tender itself into computer code.
Cryptocurrencies such as bitcoin have foreshadowed a potential digital future for money, though they exist outside the traditional global financial system and aren’t legal tender like cash issued by governments.
China’s version of a digital currency is controlled by its central bank, which will issue the new electronic money. It is expected to give China’s government vast new tools to monitor both its economy and its people. By design, the digital yuan will negate one of bitcoin’s major draws: anonymity for the user.
Beijing is also positioning the digital yuan for international use and designing it to be untethered to the global financial system, where the U.S. dollar has been king since World War II. China is embracing digitization in many forms, including money, in a bid to gain more centralized control while getting a head start on technologies of the future that it regards as up for grabs.
“In order to protect our currency sovereignty and legal currency status, we have to plan ahead,” said Mu Changchun, who is shepherding the project at the People’s Bank of China.
Digitized money could reorder the fundamentals of finance the way Amazon.com Inc. disrupted retailing and Uber Technologies Inc. rattled taxi systems.
That an authoritarian state and U.S. rival has taken the lead to introduce a national digital currency is propelling what was once a wonky topic for cryptocurrency theorists into a point of anxiety in Washington.
Asked in recent weeks how digitized national currencies such as China’s might affect the dollar, Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell have said the issue is being studied in earnest, including whether a digital dollar makes sense someday.
The dollar has faced challengers before—the euro, to name one—only to grow more important when rivals’ shortcomings became apparent. The dollar far outstrips all other currencies for use in international foreign-exchange trades, at 88% in the latest rankings from the Bank for International Settlements. The yuan was used in just 4%.
Digitization wouldn’t by itself make the yuan a rival for the dollar in bank-to-bank wire transfers, analysts and economists say. But in its new incarnation, the yuan, also known as the renminbi, could gain traction on the margins of the international financial system.
It would provide options for people in poor countries to transfer money internationally. Even limited international usage could soften the bite of U.S. sanctions, which increasingly are used against Chinese companies or individuals.
Josh Lipsky, a former International Monetary Fund staffer now at the Atlantic Council think tank, said, “Anything that threatens the dollar is a national-security issue. This threatens the dollar over the long term.”
A customer pays using the digital yuan at a department store in Beijing. Some people were given small amounts of the digital currency to test it.
PHOTO: VCG/GETTY IMAGES
The digital yuan resides in cyberspace, available on the owner’s mobile phone—or on a card for the less tech-savvy—and spending it doesn’t strictly require an online connection. It appears on a screen with a silhouette of Mao Zedong, looking just like the paper money.
In tests in recent months, more than 100,000 people in China have downloaded a mobile-phone app from the central bank enabling them to spend small government handouts of digital cash with merchants, including Chinese outlets of Starbucks and McDonald’s.
“It’s pretty good,” said Tao Wei, a young woman in Beijing, after spending a test allotment. It took her just an instant to pay for her two-year-old daughter’s birthday portrait by pointing her iPhone toward a scanner. The Chinese Communist Party has also let members settle monthly dues with digital yuan.
China has indicated the digital yuan will circulate alongside bills and coins for some time. Bankers and other analysts say Beijing aims to digitize all of its money eventually. Beijing hasn’t addressed that.
Digitized money looks like a potential macroeconomic dream tool for the issuing government, usable to track people’s spending in real time, speed relief to disaster victims or flag criminal activity. With it, Beijing stands to gain vast new powers to tighten President Xi Jinping’s authoritarian rule.
China's New Digital Currency Is Easy to Use but You'll Be Watched
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China's New Digital Currency Is Easy to Use but You'll Be Watched
China's New Digital Currency Is Easy to Use but You'll Be Watched
The WSJ traveled to Chengdu, China, to see the money revolution in action. Photo: Lorenz Huber for The Wall Street Journal
Elements of this kind of control already exist in China, as digital payments have become the norm. Mr. Mu has said the central bank will limit how it tracks individuals, in what he calls “controllable anonymity.”
The money itself is programmable. Beijing has tested expiration dates to encourage users to spend it quickly, for times when the economy needs a jump start.
It’s also trackable, adding another tool to China’s heavy state surveillance. The government deploys hundreds of millions of facial-recognition cameras to monitor its population, sometimes using them to levy fines for activities such as jaywalking. A digital currency would make it possible to both mete out and collect fines as soon as an infraction was detected.
A burst of cash-accumulation in China last year indicates residents’ concern about the central bank’s eye on every transaction. Song Ke, a finance professor at Renmin University in Beijing, told a recent conference that China’s measure of yuan in circulation, or cash, popped up 10% in 2020.
What about volatility? Cryptocurrencies such as bitcoin are famous for that. But the People’s Bank of China will strictly control the digital yuan to ensure there aren’t valuation differences between it and the paper bills and coins.
That means it won’t make sense for investors and traders to speculate in the digital yuan as some do with cryptocurrencies. Anti-counterfeiting measures will be designed to make it impossible for anyone besides the People’s Bank of China to create new digital yuan.
While China hasn’t published final legislation for the program, the central bank says it may initially impose limits on how much digital yuan individuals can keep on their person, as a way to control how it circulates and provide users a dose of security and privacy.
China’s central bank won’t use the new technology as a way to get more money into circulation, since every yuan issued digitally will essentially cancel one yuan circulating in physical form.
The People's Bank of China will control the value of the digital yuan. The PBOC building in Beijing.
PHOTO: QILAI SHEN/BLOOMBERG NEWS
When bitcoin launched in 2009, most nations’ policy makers largely played down its significance. China paid attention.
Always hypervigilant to threats, the leadership feared that a cryptocurrency could undermine government power if people began using it in earnest. Zhou Xiaochuan, China’s top central banker from 2002 to 2018, has said bitcoin both dazzled and frightened him. In 2014, he launched a formal study for a possible Chinese digital currency.
China hardly looked like a currency pioneer. Its strict government control of the yuan, for instance, ran counter to the rip-roaring trade in other major currencies.
At the same time, a financial-technology revolution was under way in China, with the frenetic adoption of the AliPay and WeChat apps making cash mostly unneeded, and turbocharging startup companies with ways to pay on the go.
Then, in mid-2019, Facebook Inc. said it would pursue its own cryptocurrency. The realization this could circulate in a user base far bigger than any national population brought immediate recognition that technology could upend traditional currencies.
While U.S. regulators focused on stopping Facebook, ultimately succeeding, China accelerated its pursuit of a digitized yuan, launching trials in April 2020.
Suddenly, China’s money moves bore watching. Central bankers from the U.S. and other Western economies fret that what Facebook planned with a digital currency could now be done by China, a powerful government.
“There is a sort of Uber fear,” said a senior European central banker who has spoken to Western counterparts, referring to stress on taxi systems when the ride-hailing company arrived in cities around the world. “You don’t want another country’s currency circulating among your citizens,” the banker said.
The U.S., as the issuer of dollars that the world’s more than 21,000 banks need to do business, has long demanded insight into major cross-border currency movements. This gives Washington the ability to freeze individuals and institutions out of the global financial system by barring banks from doing transactions with them, a practice criticized as “dollar weaponization.”
American sanctions on North Korea and Iran for nuclear programs hobble their economies. Swiss banks abandoned their famous secrecy eight years ago to avoid Washington’s wrath in a showdown over taxes. After the February coup in Myanmar, the U.S. used sanctions to block the movement of top military officials’ financial assets through banks. The Treasury’s database of sanctioned individuals and firms—the “Specially Designated Nationals and Blocked Persons List”—touches virtually every nation on earth.
Beijing is especially discomfited by a fast-expanding part of the sanctions register: more than 250 Chinese names, including politicians the U.S. accuses of atrocities against ethnic minorities or of curtailing freedoms in Hong Kong. Sanctions left Carrie Lam, China’s top official in Hong Kong, with a stockpile of cash in her home because banks feared that accepting her business would risk exposing them, too, to an American freeze.
The digital yuan could give those the U.S. seeks to penalize a way to exchange money without U.S. knowledge. Exchanges wouldn’t need to use SWIFT, the messaging network that is used in money transfers between commercial banks and that can be monitored by the U.S. government.
The chance to weaken the power of American sanctions is central to Beijing’s marketing of the digital yuan and to its efforts to internationalize the yuan more generally. Speaking at a forum last month, China’s Mr. Mu, the central bank official, repeatedly said the digital yuan is aimed at protecting China’s “monetary sovereignty,” including by offsetting global use of the dollar.
In a 2019 war game at Harvard University, veteran U.S. policy makers scrambled to craft a response to a nuclear-missile development by North Korea secretly funded with digital yuan. Because of the currency’s power to undercut sanctions, the participants, including several who are now in the Biden administration, deemed it more threatening than the warhead.
Nicholas Burns, a longtime American diplomat and favorite to be ambassador in Beijing, told the group, “The Chinese have created a problem for us by taking away our sanctions leverage.”
As China’s marketing for the digital yuan kicks into high gear, an English-language animation circulated online by state broadcaster CGTN shows a man in an American-flag shirt knocked out by a golden coin depicting digital yuan.
A VIDEO FROM CHINA’S STATE MEDIA EXPLAINS THE DIGITAL YUAN
“This is one of the building blocks of China’s move toward world market status and greater involvement in setting the framework of the global economy,” the narrator says.
Initially, the digital yuan won’t change significantly how money circulates through China’s financial system. Under the central bank’s direction, the six biggest commercial banks—all government-owned—will distribute digital yuan to smaller banks and to app providers AliPay and WeChat, which are expected to manage sender-recipient interactions.
Unlike electronic transactions today, the digital yuan is designed to move from A to B instantaneously, at least in theory removing a way banks and financial apps profit off fees and brief built-in delays in such handoffs. The only necessary middleman is the central bank. Mr. Mu has said the digital yuan, because it is state-backed, will reduce risks to the financial system posed by China’s dominant payment platforms that are private companies.
When a global TV audience turns its attention to skaters and bobsledders in Beijing’s Winter Olympics next February, authorities are expected to give visiting athletes digital yuan to spend while they are in the spotlight, an indication of ambitions that stretch beyond China’s shores.
Beijing has joined an initiative to develop protocols for the cross-border use of digital currencies, working with the Bank for International Settlements and the central banks of Hong Kong, Thailand and the United Arab Emirates.
A sculpture in Guangzhou represents an ancient Chinese coin and a suanpan, a type of abacus used widely in the past. China has launched a trial of a trial of digitized money.
PHOTO: ALEX PLAVEVSKI/EPA-EFE/SHUTTERSTOCK
China’s digital strides draw attention to how the U.S. needs to modernize its own financial infrastructure, according to Kevin Warsh, a former Fed governor now at Stanford University’s Hoover Institution. “If we wait 5 or 10 years, we may well end up with some very bad policy choices,” he said.
More than 60 countries are at some stage of studying or developing a digital currency, according to research group CBDC Tracker. Digital currencies hold some of their biggest potential for the 1.7 billion people globally who the World Bank says lack a bank account. The Bahamas has already issued a digital currency to address financially underserved populations. Some central banks say such currencies would come in handy for families of migrant laborers who make tiny fund transfers that are cumbersome and expensive.
SHARE YOUR THOUGHTS
What long-term implications do you think a digital yuan might have? Join the conversation below.
The senior European central banker noted that international person-to-person money transfers can take days and worried that speed and efficiency could eventually make the digital yuan a preferred currency for remittances as countries deepen financial ties with China.
China, with a working model, is offering a ready way for managing digital cash. President Xi last year called for China to seize opportunities to set international rules for digital currencies, much as Beijing has sought to influence and dominate an array of advanced-technology standards such as for 5G telecommunications, driverless cars and facial recognition.
Asked during a recent Senate appearance whether the dollar could be digitized to help the U.S. defend its supremacy, the Fed’s Mr. Powell said researching that question is a “very high-priority project.”
“We don’t need to be the first,” he said. “We need to get it right.”
—Grace Zhu contributed to this article.
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"It is expected to give China’s government vast new tools to monitor both its economy and its people."
- I don't think people are going to choose these state based currencies. Hard to imagine who you trust less to monitor you than the Chinese government. Looks like our own government wants to follow suit and monitor us more thoroughly. The cash economy is their enemy. If Bitcoin is a way around them, they will fight it. From my point of view, finding all the ways to track us more thoroughly is evil and dangerous.
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Crypto market cap exceeds that of banks
(https://pbs.twimg.com/media/EyQlVgJWgAkGl5G?format=jpg&name=medium)
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Wildly bullish. The BTC peak is far away. Outflows from exchanges means no one is selling. The peak inflow, corresponds to 2017 BTC peak.
(https://pbs.twimg.com/media/EyWVpQLVgAMtV5S?format=jpg&name=small)
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GBTC chart continues to look weak. Even the past two days up were on really low volume.
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GBTC price is messed up due to its premium. Need an ETF ASAP. I have some BITW which has the same issue. Am planning to sell on this spike and then wait for the ETF. I read somewhere that Fidelity acct holders can buy the Canadian ETF, but you have to call their international desk.
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Confused. GBTC is an ETF, yes?
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No, there is no ETF in the USA.
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Then what is GBTC?
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https://www.rogueeconomics.com/bill-bonner-diary/advice-for-holders-of-government-bonds/
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https://www.rogueeconomics.com/bill-bonner-diary/advice-for-holders-of-government-bonds/
"the feds are causing inflation intentionally, by passing out too much money."
- True and they have no shame about it anymore. With end of "stepped up basis",, they tax the inflation they create. In the long run there is no hedge against it. It is wealth destroying. A taking without trial or compensation.
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https://cryptoslate.com/youd-have-to-shut-down-the-internet-to-ban-bitcoin-says-secs-hester-peirce/
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Then what is GBTC?
GBTC is considered a Trust. For example, they dont allow withdrawals at all times. However, there is a very high probability it is in the process of being converted into an ETF, it might become the largest ETF because of their massive BTC holdings.
Below is a chart model predicting 300 K for the top. Scroll to the right.
(https://cdn.substack.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F11425288-c1e0-4ab9-9b31-10a754ed14f6_1896x1176.png)
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https://cryptoslate.com/youd-have-to-shut-down-the-internet-to-ban-bitcoin-says-secs-hester-peirce/
They have a plan for that.
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Thank you YA.
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Looking at the $2 Trillion "infrastructure" bill from a [former] Treasury Secretary's perspective:
Larry Summers, right, called Democrats' $1.9 trillion relief package "the least responsible macroeconomic policy we've had in the last 40 years"
Former Obama economic adviser Larry Summers continues to blast the Biden administration’s stimulus plan and warns it will result in a major inflation crisis.
https://nypost.com/2021/03/29/obamas-economic-adviser-blasts-bidens-stimulus-plan-says-it-could-trigger-high-inflation/
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https://www.msn.com/en-us/money/markets/powell-tells-60-minutes-that-us-economy-is-at-an-inflection-point/ar-BB1fxKsa
https://www.detroitnews.com/story/news/nation/2021/04/11/fed-jerome-powell-economy-boom-ahead-covid-risk/7184515002/
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I found this interview creepy. Jay Powell on 60 Minutes. This is what our Fed Chair thinks and he has enormous power.
Fed Chair Jay Powell wants inflation to be over 2% per year to make up for the time it was too low. He wants inflation to average at least 2%.
Has anyone ever heard of the power of compounding interest? In a time of mostly low inflation, a median price home went up 1500% in 60 years. You don't get that with 2 + 2 + 2.
How does the Federal Reserve and US Government benefit from intentional inflation?
1. It devalues the debt.
2. Nothing raises tax burden like taxing inflationary gains. The legislation he refers to removes "stepped up value at death", which is proof that not only the inflation is intentional, but the tax on inflation is by design as well. It's a feature, not a bug.
Powell says the economy is ready to take off. We could have 6-7% growth or more [because last years' numbers were depressed by covid]. Powell 's reasons include the vaccine, meaning things can reopen. He says the fiscal policy [spending stimulus] is supporting the recovery, and monetary policy will as well.
On the fiscal side, Powell shows his stripes. Keynes is dead. When did demand side stimulus work? The Great Depression that went on and on was the start of it. How about shovel ready jobs? Cash for clunkers? Their story is it always failed because the stimulus wasn't big enough, so now we have this one - and the Fed Chair likes it. The other part of the fiscal policy in the bill is tax rate increases on businesses. That supports the recovery??
Powell should know, the difference between putting one time money in people's pockets and the supply side approach is as simple as handing a man a fish versus teaching him to fish. Supply side stimulus eases the disincentives and removes barriers to production. That's why we had real employment and wage growth before covid. This bill, Jay Powell is touting, reverses what was working great.
Raising taxes on businesses isn't a stimulus. Why are they trying to do that? To pay for the spending? It doesn't pay for the spending, and it will bring in less than promised because businesses don't take higher tax rates sitting down. Businesses adapt. They figure the higher tax into every financial decision, including where to locate, where to re-locate, where to expand, where to hire, where to close up shop and where to show a profit.
Fed Chair Powell is promising The Fed will support the recovery [with expansionary policies, near zero interest rates] "until the recovery complete." Even if you liked the approach, isn't that too long to artificially propping things up? What goes wrong on the other side of that?
Powell will save the contractionary monetary policies for next [Republican] President.
Powell's demonstrates how business cycles are a choice made by policy makers. The ups and downs make them more important and in control. But the economy doesn't need that/ We have the stimulus we need. We have the vaccine and we need to open the economy. Why put artificial stimulus on top of what is already working? Why binge and why bring on the inevitable hangover? It makes no sense.
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Check out this read on Hyperbitcoinization. The author has written a decent book on BTC
https://www.citadel21.com/hyperbitcoinization (https://www.citadel21.com/hyperbitcoinization)
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Wikipedia on Jay Powell:
**********
As Fed chair, Powell has been seen as a consensus-builder and problem-solver, rather than as advocate of a strong point of view on monetary matters. He has kept in close contact with Capitol Hill for next steps.[6]
Powell won bipartisan praise for the actions taken by the Fed in early 2020 to combat the financial effects of the COVID‑19 pandemic.[7] As the Fed continued to apply high levels of monetary stimulus to further raise asset prices and support growth, some observers perceived a disconnect between asset prices and the economy.[8][9][10] Powell has responded by arguing that supporting the Fed's dual mandate of stable prices and full employment outweighed concern over high asset prices and inequality.[11]
Time said the scale and manner of Powell's actions had "changed the Fed forever"[12] and shared concerns that he had conditioned Wall Street to unsustainable levels of monetary stimulus to artificially support high asset prices.[9] Politicians responded positively to his aggressive response to the crisis, with President Trump calling him the "most improved player" in his administration in August 2020 and Janet Yellen praising his "very thoughtful and methodical" approach.[13]
*********
His approach seems to jive with the Left's "scam" [my word] of going big on spending , and to justify the soaring debt , the wild spending through the roof.
He kept Trump happy (who did not seem to mind all the spending - since it kept the market up)
Now he keeps the Dems happy who want to enhance and make permanent their agenda and power.
Wonder if racial reparations will be stuffed into the "elderly" bill
or the next one somehow with another disingenuous label .
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With regard to Ya's post about bitcoin analogy of being a "lifeboat"
I can envision being on a lifeboat
owner of a treasure in bitcoin
but riding it in a storm in the middle of the ocean
Agreed though , that is better then going down on the Titanic
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coinbase IPO 4/14/21:
https://markets.businessinsider.com/currencies/news/coinbase-ipo-predictions-expert-analysis-direct-listing-bitcoin-crypto-2021-4-1030290743
would be nice if this is a Ralph Kramden :
"bang zoom!"
for cryptos
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https://www.nasdaq.com/articles/bullish-on-bitcoin-bloomberg-predicts-%24400000-price-by-2022-2021-04-12
Bloomberg must have bought
my speculation
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ex Fed prosecutor
on CNBC as I type this in on board of CoinBase
is now without a doubt the happiest richest ex prosecutor in the country today :
https://www.cnbc.com/2019/10/06/meet-the-former-prosecutor-who-became-the-face-of-crypto-vc-investing.html
with a straight face during her CNBC interview
"I was impressed with Coinbase management's commitment to regulatory law."
so she quit being a prosecutor and become a VC crypto fund manager and sit on Coinbase board
and get rich
nothing swampy to see here folks
move along
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https://www.zerohedge.com/markets/china-readying-gold-backed-yuan?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
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Good time to buy...SOPR indicator discussed before.
(https://pbs.twimg.com/media/EzQo5QAVkAI_yOY?format=jpg&name=large)
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https://www.zerohedge.com/markets/bitcoin-crashes-much-15-amid-unsubstantiated-report-money-laundering-crackdown?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
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https://www.coindesk.com/price/dogecoin
since 1/20 it is only up 175 times
reddit ponzi pyramid
deluxe
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fear of this causing near term decline?
https://www.cnbc.com/2021/04/12/bitcoin-kraken-ceo-jesse-powell-warns-of-cryptocurrency-crackdown.html
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https://www.zerohedge.com/markets/bitcoin-crashes-much-15-amid-unsubstantiated-report-money-laundering-crackdown?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
The point has been made that the US government (and other governments) cannot stop Bitcoin. But rest assured, they will try. The US government, especially under Leftist, want a cashless society to eliminate all transactions they don't have complete tracking control over. To the extent that bitcoin is a currency at least partly out of the tracking control of the IRS, our all-powerful government will fight forever to shut it down or at least shut our access to it down.
If 15% is the big drop on bad news of an investment based 100% on speculation, I would take that as a sign of strength.
1 Bitcoin = US$55k at this writing.
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GBTC down 9% today right now, breaking the 50 day line.
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correction:
on my reply post 1365. on dogecoin chart I meant the chart from inception not today
it goes nearly vertical
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https://stockcharts.com/h-sc/ui?s=COIN
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Crafty ,
your getting like Ya :))
what does this chart mean?
in "charts for idiots" terms?
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It mean it has been trading for three days and today still within the range of where it traded on Day One, albeit with a distinctly lower media price.
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https://www.zerohedge.com/markets/stunning-divergence-latest-bank-data-reveals-something-terminally-broken-financial-system?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
Scott Grannis comments:
I would say that this has been a problem all along. The market distortions caused monetary inflation are widespread. A rise in the narrow measures of consumer price inflation is not the only thing that is problematic.
On Mon, Apr 19, 2021 at 8:00 PM <sfgrannis@me.com> wrote:
This information has been known for quite some time. There has been a huge expansion of bank deposits (savings and checking) that is roughly equal to the amount of QE by the Fed, which in turn is roughly equal to the money Treasury borrowed to send out Covid checks, etc.
In effect, the banks loaned money to the Fed, instead of the usual way (loaning to individuals). In exchange, the banks received bank reserves from the Fed, which are functionally equivalent to T-bills.
This will become problematic if and when those holding all the new deposits (the public in general) decide that they don’t want to hold all that money in an account paying virtually zero interest. Attempts to make net withdrawals, if not matched by Fed actions to reverse its QE, will result in a rise in the general price level (ie inflation).
I expect we’ll begin seeing evidence of such in coming months.
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Thanks for posting this. It's not surprising to see strange occurrences in the economy and the monetary system in the year of covid and the reaction and over-reaction to it. We spend n extra $6 trillion (?) not covered in taxes or borrowings, close and shrink the private sector, and put out all kinds of disincentives to do anything.
Quoting Scott G: "In effect, the banks loaned money to the Fed, instead of the usual way (loaning to individuals). In exchange, the banks received bank reserves from the Fed, which are functionally equivalent to T-bills. This will become problematic if and when those holding all the new deposits (the public in general) decide that they don’t want to hold all that money in an account paying virtually zero interest. Attempts to make net withdrawals, if not matched by Fed actions to reverse its QE, will result in a rise in the general price level (ie inflation)."
- And we call this good governance? Besides screwing everything else up, this is inflation by design, by choice. They call it modern monetary theory; It's more like treason.
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The Basics of Money Laundering: How Criminal Organizations Move Illicit Revenue Into the Legal Economy
undefined and Global Security Analyst
Ben West
Global Security Analyst, Stratfor
8 MIN READApr 21, 2021 | 09:00 GMT
(Shutterstock)
Editor's Note: Organized criminal activity is endemic to much of the world. Whether in the form of drug trafficking, fraudulent activity or scams, no market is immune from the threat. And wherever there is organized criminal activity, there are illicit funds making their way into the financial system. While banks and financial institutions have borne the brunt of penalties related to money laundering activities, criminals use a variety of legitimate business activities to conceal the source and destination of illicit funds. Understanding how money laundering works and popular tactics can help legitimate business operations avoid becoming vehicles for the laundering of criminal proceeds. In the first of this two-part series, we will review the basics of money laundering operations. We will then examine recent case studies and consider the future of the problem in part two.
Both legitimate and illegitimate business activities generate revenue distributed to employees, organizational leaders, investors and outside vendors that provide essential services. Any legitimate business owner will be familiar with the collection and distribution of funds through standard commercial bank accounts and investment vehicles. Criminal organizations have the same concerns, but for them, the process of collecting and distributing revenue is fraught with legal challenges. In most countries, a drug cartel cannot simply open a bank account under its own name, deposit proceeds from cocaine sales, and redistribute the funds to various leaders, employees and vendors. Not only would the bank report such obvious criminal activity, but the official transaction records left behind would allow investigators to identify and arrest the entire criminal network. Instead, criminal groups have to rely on obfuscation to manage their financial resources and move them around. As evidenced by numerous investigations and penalties levied against major international banks in recent years, many criminal organizations use the same financial institutions as legitimate businesses when it comes to managing their money. With increased scrutiny on illicit financial activities, criminal groups have had to rely on more sophisticated money laundering operations to evade detection.
The share of the global economy that is laundered is significant. The U.N. Office on Drugs and Crime estimates that criminal groups launder the equivalent of somewhere between $800 billion and $2 trillion in illicit funds per year. That is the equivalent of 2-5% of global gross domestic product. But money laundering is not just a tool for criminal organizations seeking to conceal the source of their illicit funds: Groups or individuals engaged in legitimate business activity may launder their revenue in order to evade taxes. States can also engage in money laundering, whether North Korea seeking to repatriate funds from financially motivated cyberattacks or Iran seeking to evade U.S.-led sanctions on its economy.
The Three Stages of the Money Laundering Process
Money laundering can come in a variety of shapes and forms, but there are generally three phases of the process:
Placement is the deposit of illicit assets (typically cash) into a financial network where the funds can be more easily stored and transferred. While some money laundering schemes skip the placement stage and simply keep the assets in cash, storing and moving large amounts of cash presents multiple liabilities to criminal actors. Large amounts of cash can be stolen, destroyed or, if discovered by law enforcement, used as evidence against the criminal actors. Just as it is impractical for legitimate business operations to store their revenue in cash, criminal organizations also seek to store their revenue in easier to manage, more secure, bank accounts, financial instruments or other assets like real estate, precious metals or fine art.
Layering is the process of obscuring the source of the funds and where the funds ultimately end up. It can be as crude as making multiple transfers from various accounts to more sophisticated money laundering schemes that convert the funds into various instruments, from cash to physical assets and back to cash, for example. This process is meant to prevent investigators from being able to connect the illicit activity to its financial benefactors, or at least to raise enough confusion so as to avoid legal liability.
Integration is the final step that converts the illicit funds into legitimate goods and services. Once the origin of the funds has been sufficiently concealed, the receiver can use them to purchase properties or luxury items or invest them in financial products indistinguishable from goods and services purchased with legally earned funds. Prosecutions linked to money laundering typically involve the forfeiture of such goods and services.
A flowchart showing the Three Stages of the Money Laundering Process
Tactics
To achieve these steps, money laundering schemes rely on a variety of tactics. Although criminal networks are constantly developing new ones, the five highlighted below represent some of the most commonly used tactics. While not every money laundering scheme progresses cleanly through the three steps outlined above — for instance, some achieve integration in a single step, while others focus on concealing funds in the placement phase — they broadly adhere to the placement-layering-integration model:
Illicit Currency Exchanges are unregistered, black market money exchanges that are integral in the placement and layering phases of the money laundering process. These money exchanges can convert illicit funds into foreign currencies and use informal networks to move funds to foreign countries where anti-money laundering regulations are laxer. At a minimum, these exchanges can move dirty money outside of the jurisdiction where the original crime was committed. Doing so can complicate investigations by typically requiring foreign assistance that is often difficult to coordinate even among allies with robust law enforcement capabilities, let alone rival countries that lack the political desire to cooperate.
Structuring/Smurfing is also a tactic predominantly associated with the placement step of a money laundering scheme. Most countries have limits on cash deposits and when individuals exceed those limits, financial institutions are required to file a Suspicious Action Report, which can lead to further investigation. In the United States, that amount is $10,000. Money laundering schemes that involve illicit funds in excess of $10,000 often try to get around the limit by breaking up (or "smurfing," named after the miniature cartoon characters) the total into smaller amounts below the $10,000 limit. Less sophisticated schemes will involve the same person making deposits of $9,999 into the same account over consecutive days, while more sophisticated schemes will break up the amount into various sizes distributed across various accounts associated with various identities at various financial institutions over a broad geographic area.
Front Companies/Fraudulent Invoices allow money launderers to complete the placement and layering steps of the money laundering process simultaneously by disguising illicit funds as legitimate funds. The fraudulent invoice tactic is typically used in conjunction with a front company that can record thousands or millions of dollars in sales for legitimate products when the revenue is actually coming from illicit activities. Unsophisticated front companies that use fraudulent invoices are fairly easy to detect through basic auditing or due diligence practices, as they can lose significant amounts of money in the business they claim to be operating in.
The bar, restaurant and hospitality sector is popular for local money laundering operations due to high cash turnover. Given the risks associated with money laundering, criminal organizations are typically willing to accept some loss in order to secure their illicit revenue, but they will have an upper limit to their loss tolerance. More sophisticated front companies, for example, in the import/export or construction businesses, can turn into legitimate revenue-generating operations in their own right, allowing criminal actors to operate in the illicit and legitimate economies.
Shell Companies/Offshore Accounts allow individuals to separate their identity from their assets to avoid legal scrutiny during the integration step of the money laundering process by using special legal instruments and establishing financial channels to foreign jurisdictions. The 2016 leak of over 11 million documents known as the Panama Papers outlined how unscrupulous wealth management companies helped wealthy individuals and organizations avoid legal and financial obligations in their home country by putting accounts under different names and changing other key details to distance individuals from their wealth while still maintaining control over it. Such tactics are used both by individuals who earned their wealth legitimately but seek to decrease tax burdens or political pressure and individuals who obtained their wealth illegally and seek to secure it.
Trade-Based Money Laundering is a strategy that involves the placement, layering and integration steps of the money laundering process. It is especially attractive to foreign-based criminal organizations seeking to repatriate their money from the markets where they earn it — most notably, the United States. In this scheme, criminal organizations use illicit revenue to purchase durable goods such as cars, refrigerators, washing machines, etc. (placement) and export them to their home country. They then sell the items on the local market (layering) and collect the converted revenue, which has the appearance of coming from a legitimate import operation and therefore distracts from the integration phase of the process. This scheme is especially attractive because it can offer criminal organizations a way to earn money off their illicit funds by selling the legitimate products at a markup.
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The BTC level at 53 K is important, thats the 1 Trillion market cap. Strong support here. BTW, I am not selling.
(https://pbs.twimg.com/media/EzbxfuSUcBEgKK_?format=jpg&name=large)
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ether at all time highs
may run more than bitcoin at this point
for the near term
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Yes, money usually flows from large cap (BTC) to Ether to small caps..who may take profits and buy BTC. All of this can change quickly if BTC shoots up.
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GBTC and COIN looking very weak.
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A sudden weekend drop in the price of bitcoin suggests the digital currency’s yearlong rally might finally be running out of steam.
Bitcoin fell as much as 17% on Saturday to $52,149, with about half the decline occurring in about 20 minutes late in the evening Eastern Time. Although it recovered some of those losses by Monday morning, the price has steadily declined this week. It was trading at $51,843 late Thursday.
Bitcoin topped out at $64,829 on April 14, the same day Coinbase Global Inc., COIN -5.92% the biggest U.S. cryptocurrency exchange, went public in a highly anticipated offering. The two events marked the pinnacle of a heady rally for cryptocurrencies that began last year. Bitcoin’s price more than tripled in 2020 and doubled to start 2021 before slipping.
Yet that momentum lately has been showing signs of flagging, said Michael Oliver of the research firm Momentum Structural Analysis. Since bitcoin crossed $60,000 in March for the first time, its pace of gains has slowed and it has traded in a relatively narrow range. That was a sign, he said, that the rally could falter, as it finally did over the weekend.
“We think bitcoin’s broken for the time being,” he said, pointing to technical trend lines.
The dramatic weekend crash underscored the fragility of bitcoin’s recent advance. It is unclear what triggered the selloff, which according to the data provider CoinMarketCap wiped out nearly $220 billion of value in cryptocurrencies in an hour.
Some traders pointed to a rumor on Twitter that the Treasury Department was preparing to charge several financial institutions for allegedly using cryptocurrencies to launder money, which was picked up by some media outlets. A department spokeswoman declined to comment.
Whatever sparked the initial bout of selling, traders agree that it accelerated because of the implosion of enormous amounts of leveraged bets that investors had placed on overseas, lightly regulated cryptocurrency-derivatives exchanges.
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In all, traders lost $10.1 billion on Sunday to liquidations by crypto exchanges, according to the data provider Bybt. More than 90% of the funds liquidated that day came from bullish bets on bitcoin or other digital currencies, Bybt data show, and nearly $5 billion of the liquidations took place on one exchange, Binance, the world’s biggest crypto exchange by trading volume.
As the price of bitcoin tumbled, many of those bets were automatically liquidated, adding more downward pressure on the price and leading to a vicious cycle of further liquidations.
Some crypto traders were wiped out with little warning.
Jasim, an engineer in Kuwait who declined to give his last name, said he was awakened by an alert on his phone at about 5 a.m. local time Sunday. He watched anxiously as Binance liquidated some of his trades, and then he closed out others with steep losses. In all, he said he lost about $9,000.
It wasn’t a new experience for Jasim, whose positions have been liquidated several times since he got into crypto in 2017. “Being greedy is the problem,” he said. Jasim has resumed trading but plans to be more careful about risk management in the future.
Exchanges such as Binance let individual investors deposit a relatively small amount of money upfront to place an outsize bet. For instance, suppose a trader buys futures that pay off if bitcoin rises against the U.S. dollar. If bitcoin climbs, the trader’s profit could be many times greater than what could have been made simply by buying bitcoin.
But if bitcoin falls, the trader can be on the hook for big losses, and must quickly top off the account with fresh funds, or else the exchange will automatically liquidate the trader’s holdings.
“You have potential for a series of cascading liquidations, happening back to back to back,” said Chris Zuehlke, global head of Cumberland, the crypto-trading unit of Chicago-based DRW Holdings LLC.
Adding to the weekend’s chaos, some exchanges, including Binance, reported glitches in the midst of heavy trading volumes. Traders said their inability to access exchanges dried up liquidity—which was already thin over the weekend—and exacerbated price moves. A Binance spokesman said, “In instances where we may have experienced outages, we aim to learn from them to prevent further occurrence.”
Offshore crypto-derivatives exchanges offer individual investors high degrees of leverage. At Binance, for instance, investors can get leverage of 125 to 1 for some futures contracts, meaning they can deposit just 80 cents to amass the equivalent of $100 of bitcoin. By comparison, an investor trading bitcoin futures on CME Group Inc., a regulated U.S. exchange, would need to deposit at least $38 and would likely be required to post more margin by their brokerage.
What Coinbase’s Public Debut Means for Bitcoin and Crypto
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What Coinbase’s Public Debut Means for Bitcoin and Crypto
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The listing of Coinbase, the largest bitcoin exchange in the U.S., introduces a new way to invest in cryptocurrencies. WSJ explains how Coinbase is trying to distance itself from the risks of bitcoin to succeed on Wall Street. Photo illustration: George Downs
The Binance spokesman said that the exchange recently reduced the amount of leverage it offers on many products and that only a few users were using 125-to-1 leverage.
Still, traders said the swiftness of the weekend selloff underscores the role of heavily leveraged bets—many of them by individual investors—in fueling this year’s cryptocurrency rally.
“At its core, bitcoin is still heavily driven by retail, who choose to use a lot of leverage,” said Rich Rosenblum, president of the crypto-trading firm GSR.
Among other signs of bitcoin’s flagging momentum: signs of waning demand among institutional investors and the tepid performance of Coinbase since its debut last week.
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The number of large bitcoin transactions, which are typically made by professional money managers, dropped slightly in the first quarter from the fourth quarter, according to a report from the crypto exchange OKEx. And assets held under management by the industry’s fund providers fell 4.5% to $56 billion in April from March, according to the research firm CryptoCompare.
While Coinbase’s debut was a flag-planting event for the industry, it might have also been a cue for investors to take some profits. The company was the first major crypto firm to test public markets in the U.S. and fetched a monster valuation of $85 billion on its first day of trading. But its shares have fallen in six of its seven sessions as a public company, closing Thursday at $293.45, down from its opening price of $381 on April 14.
Bitcoin peaked the same day.
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https://www.youtube.com/watch?v=j6-9p9O-nYw
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https://www.zerohedge.com/crypto/dozens-arrested-after-ceo-turkish-crypto-exchange-flees-2-billion?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
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ON SECURITY
The Basics of Money Laundering: Case Studies
12 MIN READApr 28, 2021 | 09:00 GMT
Stratfor
Editor's Note: The following is part two of a two-part series on money laundering; part one may be accessed here. Part one detailed how money launderers use a variety of tactics to place, layer and integrate illicit funds into the formal economy. In the process, they invariably intersect with legitimate companies and services, ultimately seeking to obfuscate the origin of illicit funds by converting them into legal assets such as cars, properties and investments. Part two will outline recent case studies that illustrate how money launderers use their tactics in real-world situations. It will also explore how technology could change money laundering in the near future and how regulators could expand beyond the financial sector when it comes to penalizing companies for facilitating money laundering operations.
Case Studies
To illustrate how criminals use the tactics and schemes highlighted in part one of this series, the following section will review some recent money laundering cases. Criminal charges related to money laundering are typically associated with charges linked to the criminal activity that earned the illicit revenue such as fraud, theft or drug trafficking. Details of the cases laid out below suggest that authorities first became aware of the illegal activity, which then led them to evidence that supported additional charges related to money laundering. The nature of the charges highlights how money laundering can be difficult to detect on its own, especially in sophisticated cases. Money laundering operations can operate separately from the criminal activity that generates the illicit funds so that a money laundering tactic used for one type of criminal activity (e.g., drug trafficking) could also be applied to another, unrelated type of criminal activity (such as online fraud).
The first case highlights how an amateur money laundering operation facilitates a criminal investigation and allows prosecutors to directly connect illicit funds to the purchase of goods and services. In spring 2020, federal investigators arrested and charged Fahad Shah for making fraudulent applications to the Paycheck Protection Program Congress established to help businesses following the outbreak of the COVID-19 pandemic. As part of the alleged fraud, Shah grossly inflated his company's payroll in order to receive over $3 million in loans. He deposited the illicit funds into his business account (placement), skipped the layering step and proceeded directly to the integration step by purchasing a Tesla, paying off his personal mortgage and making personal investments. Based on the details provided, it is unlikely that Shah was even attempting to launder the money, but his use of illicitly acquired funds made him liable to the charges.
Since 2019, there have been at least three major anti-money laundering (AML) law enforcement actions targeting online scammers. The arrests and indictments of dozens of individuals underscore the growing focus on internet-based cybercrime that has only increased over the past year during the COVID-19 pandemic. With illicit revenue comes the need for money laundering, and cybercriminal groups have proved capable of establishing sophisticated schemes in the recent past.
In August 2019, U.S. federal investigators indicted 80 members of a Nigeria-based cybercriminal group that laundered at least $6 million in illicit funds. Two U.S.-based members of the group established dozens of front companies with associated bank accounts and business registrations — often imitating the names of legitimate businesses in an effort to trick victims. The victims completed the placement stage by transferring funds requested during the scam. The group then layered the illicit funds by transferring them to illicit money exchangers who arranged for payments to the Nigeria-based organizers in the local currency. The actors carrying out the scams and benefitting from the illicit funds presumably remain at large in Nigeria and are free to continue their operations and recruit more money laundering associates abroad.
In March 2020, federal investigators charged and arrested 24 individuals for carrying out similar online scams as outlined above that earned the group upward of $30 million by compromising online accounts and convincing individual and commercial victims to transfer up to hundreds of thousands of dollars at a time. The group used less sophisticated money laundering processes, however, making it easier for investigators to shut down the entire criminal operation rather than just the money laundering aspect. The group set up front companies in the U.S. state of Georgia and established bank accounts associated with those companies to facilitate placement of the funds. Unlike the operation above, the group skipped the layering process and simply withdrew the illicit proceeds from the fraudulent business accounts in order to integrate the funds into the formal economy. The more direct connection between the placement and integration steps of the scheme likely helped investigators capture the whole group and dismantle the entire operation.
A February 2021 indictment accused six members of a cybercriminal group of laundering and transferring $55 million in illicit funds they stole through business email compromise and fraudulent applications for COVID-19 financial relief to organizers in Ghana from 2013-2020. In addition to establishing dozens of bank accounts to handle the placement of illicit funds, the suspects also established at least nine import/export front companies that layered the funds through trade-based money laundering. The suspects used the illicit funds to purchase items such as vehicles or food products, which they then exported to Ghana via the import/export companies they had established. Once in Ghana, local co-conspirators sold the products on the local market and directed the proceeds to the criminal organizers based there for integration. The more sophisticated efforts to layer the illicit funds could explain why this group operated longer and turned over more illicit revenue than the previous two groups despite their having conducted similar online criminal activities. While police were able to arrest the six suspects based in the United States, the criminal organizers in Ghana presumably remain at large.
One of the most sophisticated money laundering operations in recent years became public in a September 2020 indictment accusing five people of laundering millions of dollars in illicit drug revenue since 2008 from the United States to Mexico via China in an elaborate trade-based money laundering operation. This scheme added an extra step in the layering process by using illicit funds to purchase goods in the United States and export them to China, where local co-conspirators used proceeds from those sales to purchase additional goods for export to Mexico and other countries in Latin America. The money launderers then sold the products in Latin America to legitimate businesses at a profit and transferred the proceeds of the sale to the drug-trafficking leaders. While this particular operation serviced illicit revenue from drug sales, similar money laundering structures could handle illicit funds from other criminal activities.
Such a money laundering operation is complicated, but this one succeeded judging from the fact that the suspects were able to carry out the scheme for 12 years. In addition to being operationally secure by disguising the money laundering operation as a legitimate trans-Pacific import/export business, it provided several other advantages:
By distributing the money laundering scheme in the United States and China, it contained the damage done from the arrests in the United States. Even though those members were taken out of the operation, which likely led to disruptions, the Chinese and Latin American nodes of the network likely remain intact.
As a major global producer, China maintains sizable trade relationships with countries around the world, making it easier to conceal illicit activity within the larger stream of legitimate trade. The United States and China conducted $558 billion in trade in 2019 while Mexico and China conducted $90 billion.
Finally, the scheme turned a profit by selling the products converted from illicit funds at a markup. Money laundering operations generally result in a net loss due to the costs associated with obfuscating sources of illicit revenue and moving funds around.
New Technology
The proliferation of new technology has benefited criminals, creating entirely new fields of financially motivated crime that allow them to exploit email and social media and scam victims on the other side of the world. Money launderers have also exploited new tools such as money-transferring applications, encrypted communication platforms and cryptocurrencies to hide and move illicit funds. Like legitimate users of the technologies, criminals use the new tools because they are convenient, cheap and widely adopted throughout the world. Additionally, money laundering operations benefit from the higher degree of anonymity such platforms provide, which supports plausible deniability in case of law enforcement scrutiny.
New technology, however, also presents liabilities for criminals. Reliance on private companies for communications and money transfers means that investigators can access records through warrants presented to the host companies.
Cryptocurrencies that operate on blockchain technology (such as Bitcoin) are also open to scrutiny since transaction amounts and account numbers are essentially public information. Finally, the centralization of activities and information on personal electronic devices means that if investigators are able to seize a smartphone, tablet or laptop, they can typically gain access to a trove of valuable evidence and intelligence they can use to shut down larger criminal operations.
Person to Person (P2P) money transfer platforms such as Zelle, Venmo and Cash App are tools criminals can use against their victims to transfer money in the first place, facilitating the placement stage. They have gained popularity during the pandemic and their newfound acceptance is likely to persist. Additionally, P2P money transfer platforms assist money launderers in the layering process because they can move the funds across multiple accounts, obfuscating the destination of the funds and complicating investigation efforts.
An April 2021 indictment accused a Detroit-area drug trafficker of using Zelle and Venmo to transfer and conceal illicit funds.
Encrypted communication services such as WhatsApp, Telegram and other custom services allow criminals and money launderers to communicate among themselves and coordinate financial activities.
In August 2020, U.S. law enforcement agencies dismantled an al Qaeda-led money laundering operation that used WhatsApp to reach out to followers and solicit Bitcoin donations to support terrorist networks in Syria.
In March 2021, a federal grand jury returned an indictment against the chief executive officer of Canada-based Sky Global, a company investigators accuse of providing customized, encrypted electronic devices specifically designed to allow criminals to evade law enforcement detection. The indictment alleges that Sky Global facilitated the distribution of heroin, cocaine and methamphetamine to markets around the world and laundered illicit funds from those markets to the criminal organizers. Among the services Sky Global allegedly provided was the ability to remotely delete communications or other files that could be used as evidence of the illegal activities.
Cryptocurrencies such as Bitcoin help anonymize financial assets and make them easily transferable worldwide, facilitating an increase from approximately $1 billion in laundered money in 2018 to $2.8 billion in 2019, according to Chainanalysis. Cryptocurrencies are immensely helpful to money launderers in the placement and layering steps of the money laundering process, but vulnerabilities remain.
Chainanalysis also claims 55% of criminal cryptocurrency activity was concentrated in a small subset of 270 blockchain addresses, meaning that investigators could disrupt a majority of cryptocurrency activity by focusing on a relatively small batch of bad actor accounts.
The nature of cryptocurrencies and the blockchain technology that underpins them means that transactions and transfers are carefully documented and in most cases viewable by the public. While cryptocurrency accounts can be anonymized, they still have distinct identities linked to the individual(s) using them to conduct criminal activity. Online criminal marketplaces that sell drugs and other illicit products through the mail often rely on cryptocurrency transactions, but the steady pace of law enforcement disruptions of those marketplaces and associated arrests highlights their weak operational security. Moreover, cryptocurrency exchanges — which facilitate the purchase and sale of currencies — are under increasing scrutiny, as they serve as the bridge between virtual currencies and traditional financial markets.
In January 2021, a California man pleaded guilty to exchanging the equivalent of $13 million in Bitcoin without registering his financial activities. He was arrested after he agreed to facilitate the sale of Bitcoin for over $80,000 in cash for an undercover law enforcement officer posing as a money laundering agent for an international drug trafficking organization.
The vulnerabilities associated with new technologies mean that money launderers are unlikely to abandon more traditional money laundering tactics anytime soon. Instead, it is more likely that criminals will incorporate the new technologies into the more tried-and-true techniques. Criminals can use these technologies to augment traditional money laundering schemes, either by reducing the operating costs of front companies (and reducing losses) by making them online only; using the sale of online services to facilitate trade-based money laundering operations; and increasingly incorporating cryptocurrencies into the placement and layering stages in order to increase the obfuscation of illicit funds over various channels. As in the case studies above, money laundering operations are most successful when they link several techniques together, so adding new technologies into the mix provides more tools to obfuscate the origin and destination of illicit funds.
Threats to Business Operations
As crackdowns on the financial sector make it harder to launder money through banking institutions, criminals increasingly could target companies in other sectors for their money laundering operations. National authorities seeking to crack down on money laundering and other financial crimes penalized companies $10.4 billion in 2020 for various infractions, up from $8.14 billion in 2019, according to Fenergo. While these penalties focus almost exclusively on banks and financial institutions, any private company facilitating money laundering is potentially liable.
Understanding how money laundering schemes work and the variety of criminals involved in them can help legitimate business ventures avoid the associated risks. Whether relying on bank accounts to receive fraudulently acquired government loans, impersonating legitimate companies to conduct scams, or selling products purchased with illicit funds in legitimate retail outlets, money launderers rely on the formal economy. A recent threat assessment of organized crime in the European Union noted that 80% of criminal networks in the European Union use legal business structures to carry out their activities, including money laundering.
Trade-based money laundering, which has been shown to specifically involve attempts to launder illicit funds through the trade of legitimate commercial and retail goods, could see criminal finances and those behind them mix with legitimate businesses — posing risks to reputations and risks of legal liability.
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https://www.reuters.com/technology/digital-currency-ether-hits-record-high-2021-04-27/
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https://www.yahoo.com/news/bombshell-letter-gaetz-paid-sex-003016975.html
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https://www.youtube.com/watch?v=0h_XJagr7z4
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https://www.coindesk.com/bitcoins-success-is-disgusting-berkshires-charlie-munger
:-D
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https://www.zerohedge.com/markets/costs-are-were-seeing-substantial-inflation-admits-surprised-warren-buffett-powell-yellen?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
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Do I dare say
Jimmy Earl Biden
Georgetown alums would appreciate or remember this:
Q: What did the Key Bridge and Jimmy Carter have in common ?
A: both go in and out of Rosalyn.
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Do I dare say
Jimmy Earl Biden
Georgetown alums would appreciate or remember this:
Q: What did the Key Bridge and Jimmy Carter have in common ?
A: both go in and out of Rosalyn.
Jimmy Carter would be skewered today by the Democrat Party - for being Christian.
In conversation with a family member Biden supporter, in response to mention of the current $6 trillion spending [in addition to the 16% increase in 'ordinary' spending], the point came up, 'Have you had a pandemic like this in your lifetime'? No. But the economic damage is mostly from the shutdowns, not the virus. The economic answer is to re-open, not pay people for doing nothing most of whose incomes went up or were unaffected. The economic effects were VASTLY different in red states mostly open versus blue states mostly closed, making the payments to address that political.
The giant infusion $6 trillion is a political tool or weapon, not "infrastructure nor a cure or remedy for a virus. It does almost nothing to repair the damage done. The spending is NOT paid for, nor even borrowed from anyone in particular. How is it not inflationary, more dollars chasing fewer goods is the definition. Question back (to younger Biden supporter), have you had inflation that was economically crippling in your lifetime? We have. Young people could not buy a house. Businesses could not plan ahead. Governments could basically not govern. Everything was SPIRALING out of control. We had a Price Wage Freeze [Fascism] from a Republican administration. We were forced off the gold standard. Inflation doubled in the decade following the price wage freeze. Not such a good policy after all. We had a crippling recession when the tight money policies were finally enacted to squeeze the inflation out. People really did lose jobs and poverty and unemployment increased dramatically.
If the 1970s is too long ago to count, look at Venezuela right now. What's the difference between what they did wrong to get there and what we're doing now? Nothing. "That can't happen here." Yes. That's EXACTLY what they said.
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so what did your family member say after that?
if it was any of my biden supporting members they would frown
blow me off
come back with well Trump ballooned the deficit too......!
and not give one inch while still trying to take 3
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https://www.gingrich360.com/2021/05/03/bidens-hidden-tax-increase/
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https://www.gingrich360.com/2021/05/03/bidens-hidden-tax-increase/
He's right but it's even worse than that. $300 trillion in assets go up in nominal value by inflation alone every year and the government double taxes someone on that "gain". No moral hazard there? https://en.wikipedia.org/wiki/Financial_position_of_the_United_States
$30 trillion in national debt devalued every minute, intentionally, by the borrower. At some point lenders will demand debt be issued in a better currency - like they do right for every third world country that does that. https://usdebtclock.org/
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Builders say lumber prices have tripled. You see that a 2x4 costs this and a sheet of plywood cost that but I've been looking for numbers to quantify it overall. A senior trader at the world's largest privately held company told me lumber (wholesale) went from $400 per thousand board feet to $1100, just short of tripling. Another source says it went from $350 to $1200, more than tripling. This link shows commodity lumber now at over $1600 per 1000 bd. ft: https://markets.businessinsider.com/commodities/lumber-price?op=1
That's not inflation? More dollars chasing fewer goods, with government policies pushing or pulling on both sides of it, in something as essential as housing? Then what is?
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Hi Doug,
I don't know if you noted near the bottom
in the Wikepedia link
*Paul Krugman* is quoted or mentioned
ugghhhhhh!
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From yesterday,
ccp: "so what did your family member say after that?"
The format here allows me to finish my thought carefully in paragraphs. A contentious discussion allows maybe the first half of a sentence. The reaction is defensive, both sides lock in when challenged, then quick insistence to not talk politics leaving all issues unresolved.
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". The reaction is defensive, both sides lock in when challenged, then quick insistence to not talk politics leaving all issues unresolved."
well I guess no point letting this spoil a meal:
https://www.youtube.com/watch?v=zO2zYTTI35w
or if between spouses even more ..........
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https://www.zerohedge.com/crypto/14-americans-own-crypto-here-profile-average-hodler?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
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second
https://www.zerohedge.com/crypto/ethereum-soars-above-4100-nears-market-cap-jpmorgan?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
including this interesting datum:
As we detailed earlier, cryptocurrencies crossed a key threshold in the last week, surpassing the value of all physical US dollars in circulation...
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almost sold my bitcoin and put it all into ethereum 3 weeks ago
but just did not do it
I do own some ether though
and it has way outperformed BC for me
hope others made some in ether
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Babylon Bee is a humor site, but they are having trouble finding spoofs that are not true.
https://babylonbee.com/news/biden-proposes-2-trillion-bill-to-study-whats-causing-inflation-to-rise
Biden Proposes $2 Trillion Bill To Study What's Causing Inflation Rates To Rise
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https://www.youtube.com/watch?v=xAIcuGcxL8g
when this guy speaks I listen
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https://www.youtube.com/watch?v=xAIcuGcxL8g
when this guy speaks I listen
Yes, good concise analysis.
In other analysis, people starting to call it Carter 2.0, disappointing jobs report, higher inflation, and both Congress and White House taking actions to make it worse.
https://thehill.com/opinion/finance/552890-growing-inflation-is-bidens-hidden-tax-on-working-americans
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Federal Reserve Chairman Jerome Powell’s inflation ship has come in, albeit more rudely than he probably wanted. The consumer price index rose a remarkable 4.2% at an annual rate in April, and 3% in the core measure that excludes food and energy. Mr. Powell wanted more inflation, and now he’s got it.
The surge in prices won’t surprise most Americans, who have been paying more everywhere from the grocery store to cars to the housing market. Prices in April rose across the board, but especially for goods and services in lower demand during the lockdowns. Hotel prices increased 8.8% for the month and 8.1% year-over-year. The monthly increase of 0.9% less food and energy was the largest since 1982.
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As vaccines roll out, more people are going out and spending their savings and stimulus checks. Demand is increasing at the same time supply problems frustrate businesses. Used car and truck prices jumped 10%, which accounted for a third of the month’s CPI increase. One reason: New car production has slowed amid a global computer chip shortage. But that’s no consolation to middle-class Americans who buy used cars. The rich buy new Teslas.
Commodities have also been surging and are feeding into consumer prices. Corn prices are up 50% this year and some 125% year-over-year. Overall food prices climbed 0.4% from March and 2.4% over the past 12 months. Fresh produce and meat prices rose even more.
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A worker shortage is also pushing up wages—average hourly earnings rose 0.7% in April—and may be starting to feed into higher consumer prices. Many small businesses were reluctant to pass on their increasing cost of goods and labor when demand was lower. But that may now be changing as consumers are spending more freely.
The benign explanation for the April price surge is that it’s “transitory,” as Mr. Powell likes to say. The April surge compares to a price decline last spring at the height of the pandemic lockdowns, and the comparisons will look less ugly in coming months. Oil prices were also hitting lows last spring as demand plunged. Remove those factors and the CPI increase looks barely above 2%.
Vice Chairman Richard Clarida on Wednesday reiterated the Fed view that the economy remains a long way from full employment and that prices will moderate once supply problems ease. The Fed has said it will allow inflation to exceed 2% as long as it “averages” about 2% over the “long-run” and doesn’t plan to adjust policy until the country gets closer to full employment, which in the past has been a moving Fed target.
***
Yet inflation is always and everywhere a monetary phenomenon, as Milton Friedman put it. For more than a year the Fed has been pursuing an expansionary policy for the ages. It has been keeping rates near zero and expanding its balance sheet to record levels with bond purchases in an economy that has been growing fast for more than nine months. The Atlanta Fed’s GDPNow prediction for second quarter growth is 11%.
The money supply has been growing rapidly, and cash is chasing higher returns across the economy amid near-zero interest rates. Junk bond issuance this year is at a record pace. Asset prices have boomed. The danger is that expectations for higher inflation will rise and become embedded in business and consumer decisions. Transitory then becomes longer and the Fed might have no choice but to end the party, perhaps more abruptly than it wants.
The risk is compounded by the Fed’s political predicament, partly of Mr. Powell’s own making. The Chairman has been a cheerleader for the fiscal blowout of the last year, especially the Joe Biden-Nancy Pelosi agenda. The Fed has monetized nearly all of the new federal debt issuance of the last year, and Democrats are counting on the Fed to keep it up in the years ahead. This makes it harder for the Fed to taper its bond purchases or raise interest rates.
Mr. Powell will need the current inflation surge to be transitory, or he’ll find himself in a political jam if the markets force him to tighten. Better for the Fed to reassert its independence by moderating its policy now, rather than risk more damage down the road.
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Apparently because of coal being used (China?) to create the electricity to do the mining.
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https://stockcharts.com/h-sc/ui?s=gbtc
https://stockcharts.com/h-sc/ui
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BTC consolidation phase will end soon. So far on track.
(https://pbs.twimg.com/media/E1ZSlw4VoAQcMOu?format=jpg&name=large)
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https://www.marketwatch.com/story/elon-musk-implies-tesla-could-dump-its-bitcoin-holdings-11621200452?siteid=yhoof2
he bashes to bring price down
than announces he's in
and price goes up
then he states it is not green enough
so we get sell off
now another tweet and we retail investors get jerked around like plebes.
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(https://pbs.twimg.com/media/E1ijAMIXMAMe0WH?format=jpg&name=small)
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The Factors Driving Crypto Markets’ Boom and the Challenges Ahead
Bitcoin and other digital currencies have exploded in value during the pandemic, but hurdles to widespread adoption remain
2020
2021
$45,633
Bitcoin
$7,171
Pre-pandemic high
By Peter Santilli, Caitlin Ostroff and Paul Vigna
May 17, 2021 5:30 am ET
SAVE
SHARE
TEXT
RESPONSES
Cryptocurrencies such as bitcoin, ether and dogecoin have surged to highs that few investors would have predicted a year ago. The furious run has even the most optimistic traders asking: Can it last?
The forces underpinning the crypto mania mirror those that saw GameStop Corp. shares tear higher earlier this year. Excess money from stimulus checks aimed at helping the most vulnerable make rent has also found its way to brokerage accounts that offer free trading. Meanwhile, people globally have spent more time at home and in front of screens as the pandemic shut businesses.
Limitations on stock trading by brokerage firms earlier in the year might have pushed some Reddit day traders to crypto, investors say. Tesla Inc. Chief Executive Elon Musk’s embrace of bitcoin and other digital currencies and the U.S. listing of cryptocurrency exchange Coinbase Global Inc. added further fuel to the rally.
Beyond Bitcoin
The craze in NFTs, or nonfungible tokens, has led to a burst of activity on Ethereum, the blockchain-based computer network that backs most NFTs. Ether, the in-house currency on the platform, has risen to record levels as more people adopt the technology. NFTs are bitcoin-like tokens connected to a digital work of art or other real-world item and sold as a unique digital property.
Value in circulation, top seven cryptocurrencies
MAY 2021
Tesla says it has suspended accepting bitcoin as payment for its vehicles, pointing to the increasing use of fossil fuels in mining.
Bitcoin
Ether
Binance coin
Cardano
Dogecoin
Tether
XRP
June 2020
Oct.
2021
May
0
$1 trillion
$2 trillion
Tudor
MicroStrategy
PayPal
MassMutual
Tesla
Coinbase
Tesla
Source: CoinMarketCap
The Power of Social Media
In a year when individual investors have used social media to send asset prices soaring, no move in digital-currency markets has defined the power of memes more than the rise of dogecoin. It is a cryptocurrency that was created as a joke but has risen more than 10,000% in 2021 as of Friday.
Dogecoin’s total market value ballooned to more than $80 billion at its 2021 peak reached earlier this month, up from less than $600 million at the end of last year. Heightened attention on the joke crypto from Mr. Musk and rapper Snoop Dogg, among others, has turned social-media users into day traders who have encouraged new buyers to enter the fray with the goal of pushing it to $1. It is trading around 50 cents now.
Dogecoin’s creators never intended for it to have any meaningful value. Traders instead are speculating that it can keep climbing solely on social-media momentum. That can leave investors more vulnerable to losses and sharp price swings when the hype fades.
Dogecoin’s wild swings are a warning to bitcoin investors as well. While the first cryptocurrency’s backers point to its utility as an inflation hedge or store of value, it has no long-term history as either, and its value is closely tied to sentiment and momentum. If sentiment turns against it, the price can tumble, and a rising price is bitcoin’s biggest draw for new investors.
Tweets by subject, daily
800,000
600,000
DOGECOIN
400,000
BITCOIN
200,000
ETHEREUM
Jan.
April
Jan.
April
Jan.
April
Source: BitInfoCharts
Although bitcoin bulls like to point to widening acceptance among institutional investors as a key driver of the rally, there are signs that institutional demand has flagged in recent months even as the price has soared. The number of large bitcoin transactions, which are typically made by professional money managers, dropped slightly in the first quarter from the fourth quarter, according to a report from crypto exchange OKEx. And flows into crypto exchange-traded products have declined from a peak in January, according to London-based asset-management firm CoinShares.
Futures and Options Trading
Trading volume has climbed during the pandemic as a growing pool of investors have gained access to crypto markets through a variety of platforms. Notably, the value of derivatives volume has overtaken spot trading, with investors placing more than $200 billion in bets on digital assets on the heaviest days this year.
The growing use of cryptocurrency derivatives is significant because investors can use such markets to place outsize bets with only a small amount of money upfront, effectively taking on leverage, the practice of borrowing to amplify returns. Much of the increase in futures and options trading has occurred on lightly regulated cryptocurrency-derivatives exchanges that allow a higher degree of leverage than a U.S. exchange such as CME Group. The use of highly leveraged bets can accelerate losses for traders when prices decline.
Crypto trading volume, daily
$100 billion
0
0
$100 billion
$200 billion
2021
SPOT
DERIVATIVES
2020
2019
Source: CryptoCompare
Crypto in Context
Thanks to the prolific rise of bitcoin, ether and dogecoin, the value of the total cryptocurrency market has swelled to more than $2 trillion, up from $260 billion a year ago. Dogecoin alone—with a market value of about $67 billion—is worth more than 75% of the companies listed in the S&P 500. Although the digital currencies have surged in recent months, as an asset class, they remain a fraction of global markets for stocks, bonds and gold.
Total value of all cryptos in circulation
TOTAL: $2.2 TRILLION
Bitcoin
$902B
Cardano
$74B
Dogecoin
$67B
All others
$682B
Ether
$426B
Binance coin $89B
Total value, by asset
Cryptos
$2.2T
All gold
$12T
All bonds
$128.3T
Apple
S&P 500
$37.7T
Sources: CoinMarketCap (cryptos); World Gold Council (gold); FactSet (S&P 500); International Capital Markets Association (bonds)
Obstacles Ahead
Despite making inroads, bitcoin has struggled to find a use beyond serving as a tool for speculators. Some industry watchers say it must gain traction as a form of payment to become more ubiquitous. Spending it isn’t easy, and its use is generally limited to high-end purchases.
One of the stumbling blocks: transaction fees built into the network’s code, which change depending upon traffic. Users paying higher fees get to move their transactions to the front of the processing queue. The fees have skyrocketed as cryptocurrencies have exploded in popularity, limiting the rationale for using bitcoin for small transactions.
Many of the companies over the years that unveiled plans to accept bitcoin as a form of payment later quietly dropped them. Even Mr. Musk said Wednesday on Twitter that Tesla would suspend accepting bitcoin for electric-vehicle purchases.
He pointed to another challenge facing the industry: worries about the environmental impact of cryptocurrency mining.
Bitcoin relies on different computers competing to unlock new coins by solving mathematical puzzles to secure the network, a process known as mining. A byproduct of bitcoin’s tear higher is that more computers are vying to gain new coins, and the profitability of mining has doubled since the start of the year.
This has led to concerns that bitcoin’s rise could have a larger environmental impact than other cryptocurrencies as more computers are deployed to find bitcoin, using more electricity than previously.
Bitcoin mining electricity usage and revenue, January 2020-April 2021
160 terawatt-hours a year
For comparison, Sweden’s annual electricity consumption (2019)
April
2021
120
MINING ELECTRICITY CONSUMPTION, ANNUALIZED
Netherlands
January
2021
Bitcoin electricity
usage and mining
revenue both have
soared in the
past year.
100
Philippines
80
Chile
January 2020
60
Switzerland
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wish I had cash to buy more soon
BTC ETHER
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Doing my taxes today.
IRS 1040, 2020, just below your name and address:
------------------------------------------------------------------------------------------------------------------------------
At any time during 2020, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?
Yes No
------------------------
Who wants to know?
-
Doing my taxes today.
IRS 1040, 2020, just below your name and address:
------------------------------------------------------------------------------------------------------------------------------
At any time during 2020, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?
Yes No
------------------------
Who wants to know?
The Feral Government will try to crush cryptos to keep the US Debtbux alive.
-
BTC has undergone a correction, the 2017 bull run had many such corrections. The On-chain data does not suggest this is a bear market.
(https://pbs.twimg.com/media/E1vleCpWQAQqI1f?format=jpg&name=medium)
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https://www.reuters.com/technology/chinese-financial-payment-bodies-barred-cryptocurrency-business-2021-05-18/
The Democratic Party might do same
CCP screws US over again
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China will come out with government sponsored coin?
but then what good would that be ?
if government controlled .
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https://stockcharts.com/h-sc/ui?s=gbtc
COIN
https://stockcharts.com/h-sc/ui?s=coin
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China will come out with government sponsored coin?
but then what good would that be ?
if government controlled .
Right. In that sense, they already have one.
https://www.currency-calc.com/USD_CNY
Good luck in China trying to get out from under the control of the government. If you find a way, tell everyone.
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what a buy opportunity
of course I can never time it right
and never have cash
and did not sell prior
uggghhhhh!
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https://www.zerohedge.com/crypto/crypto-markets-lose-over-800-billion-week-bitcoin-bloodbath-accelerates?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
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The Federal Reserve is still printing money and holding short-term interest rates near zero, and today brings yet another signal that too little money is not the problem in the U.S. economy. This new report suggesting that the time for emergency monetary policy is over comes from within the Federal Reserve system itself. The latest manufacturing survey from the Philadelphia Fed finds that companies in its region are seeing the same thing that consumers are seeing all over the country: rising prices. The Philadelphia Fed reports:
Price increases were more widespread this month for the firms’ inputs and own goods. The prices paid diffusion index increased 8 points to 76.8, its highest reading since March 1980. Nearly 77 percent of the firms reported increases in input prices, while none reported decreases. The current prices received index increased 7 points to 41.0, its highest reading since May 1981.
Any comparison to 1980, when consumer price inflation was hitting its ghastly double-digit peak, is not reassuring. Fed officials keep insisting current price surges are just temporary. But the Philadelphia Fed report suggests that business executives aren’t expecting the phenomenon to end tomorrow. Firms in the survey were asked to forecast “the changes in the prices of their own products and for U.S. consumers over the next four quarters.” The Philly Fed notes:
Regarding their own prices, the firms’ median forecast was for an increase of 5.0 percent, an increase from 3.0 percent when the question was last asked in February. The firms’ actual price change over the past year was 2.3 percent. The firms expect their employee compensation costs (wages plus benefits on a per employee basis) to rise 4.0 percent over the next four quarters, an increase from 3.0 percent in the previous quarter. When asked about the rate of inflation for U.S. consumers over the next year, the firms’ median forecast was 4.0 percent, an increase from 3.0 percent in the previous quarter.
At least the firms’ forecast for long-run inflation didn’t increase since the last survey, so perhaps the people who run manufacturing companies maintain some faith that Fed officials know what they’re doing.
Meanwhile at the Fed, officials insist they know what they are doing while acknowledging the beginning of a debate about what they ought to be doing. The Journal’s Paul Kiernan and Michael S. Derby reported on Wednesday:
Several Fed officials said this week that the central bank is closely watching economic developments and will be ready to adjust policy when necessary. Minutes from the central bank’s policy meeting in late April, released Wednesday, reported that some Fed officials want to begin discussing a plan for reducing the Fed’s massive bond-buying program at a future meeting.
The massive buys amount to $120 billion per month of Treasurys and mortgage-backed securities. The Fed creates money when it makes such purchases, and its balance sheet continues to chart new highs. The Journal reporters note that officials “dropped the Fed’s first hint” that it might soon be time to begin talking about changing the policy.
Also this week, a former top economic official in the Clinton and Obama administrations continued to move way beyond hinting that the Fed is making an enormous mistake. James Politi noted on Tuesday in the Financial Times:
Lawrence Summers, the former US Treasury secretary, has sharply rebuked the Federal Reserve for its loose monetary policies, accusing the central bank of creating a “dangerous complacency” in financial markets and misreading the economy.
The comments from Summers at a conference hosted by the Federal Reserve Bank of Atlanta marked a significant escalation of his attacks on the US central bank. The Harvard University economist and former top Democratic presidential adviser had already criticised Joe Biden’s fiscal stimulus as overly excessive earlier this year.
Summers said monetary and fiscal policymakers had “underestimated the risks, very substantially, both to financial stability as well as to conventional inflation of protracted extremely low interest rates”.
***
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"too little money is not the problem in the U.S. economy."
- The beauty of understatement.
-
it is the likes of Paul Krugman that should take blame for what is coming
he will be no where to be seen
will never admit he was wrong
will explain it away somehow some way some where
people like him never accept blame
-
https://finance.yahoo.com/news/crypto-limps-weekend-hammer-blows-055114490.html
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https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq
some asshole lib paid $6.6 million for this :
https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq
probably one of the tech guys - shitbook or tweethead
-
https://www.forbes.com/sites/billybambrough/2021/05/24/13-trillion-crypto-price-crash-leaked-goldman-sachs-prediction-gives-high-chance-ethereum-will-eclipse-bitcoin/?sh=2107570d257a
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https://bayourenaissanceman.blogspot.com/2021/05/john-williams-of-shadowstats-on.html
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Ban Cryptocurrency to Fight Ransomware
The existence of bitcoin and the rest benefits nobody except criminals and speculators.
By Lee Reiners
May 25, 2021 1:13 pm ET
WSJ
No one is out of reach from ransomware attacks. The Colonial Pipeline hack made that clear, along with the nearly 2,500 cases of ransomware—a form of malware that encrypts computer files and holds them for ransom—reported to the Federal Bureau of Investigation last year, a 66% annual increase. In 2020 ransomware victims paid hackers $350 million in cryptocurrency. Since many victims pay ransom without reporting the incident, these numbers understate the damage.
The solutions floated after the Colonial hack—improved cybersecurity in the private sector and public-private collaboration to protect critical infrastructure—are pro forma and inadequate. There is a simpler and more effective way to stop the ransomware pandemic: Ban cryptocurrency.
Ransomware can’t succeed without cryptocurrency. The pseudonymity that crypto provides has made it the exclusive method of payment for hackers. It makes their job relatively safe and easy. There is even a new business model in which developers sell or lease ransomware, empowering malicious actors who aren’t tech-savvy themselves to receive payment quickly and securely. Before cryptocurrency, attackers had to set up shell companies to receive credit-card payments or request ransom payment in prepaid cash cards, leaving a trail in either case. It is no coincidence that ransomware attacks exploded with the emergence of cryptocurrency.
Banning anything runs counter to the American ethos, but as our experience with social media should teach us, the innovative isn’t always an unalloyed good. A sober assessment of cryptocurrency must conclude that the damage wrought by crypto-fueled ransomware vastly outweighs any benefits from cryptocurrency.
It isn’t obvious that cryptocurrency provides any benefit at all beyond the chance to make a quick buck. I have been studying the crypto market since its inception, and I have yet to identify a single task or process that crypto makes easier, better, cheaper or faster. Don’t take my word for it. Ask any friend why he owns cryptocurrency, and the answer will invariably be “to make money.” In other words, speculation. (The blockchain technology that underpins crypto does have promising applications in supply-chain management and other areas.)
Because I point this out, crypto enthusiasts call me a Luddite, statist, technophobe or worse. Asset bubbles are maintained by a common narrative, and anyone who dares question it must be attacked. But a growing chorus is pointing out the emperor has no clothes.
A day after the Colonial Pipeline shutdown, cryptocurrency champion and self-proclaimed “Dogefather” Elon Musk went on “Saturday Night Live” and admitted the obvious: The dogecoin cryptocurrency is a “hustle.” He then performed an encore by tweeting that Tesla was suspending the use of bitcoin for vehicle purchases due to the coin’s carbon footprint. The computer “mining” and transfer of bitcoin requires a great deal of energy, much of which comes from burning fossil fuels. In response, the narrative has now expanded to include the absurd premise that crypto encourages the development of sustainable energy.
Aside from Libra, Facebook’s initial ill-fated foray into cryptocurrency, the topic has drawn limited interest on Capitol Hill. There is a Congressional Blockchain Caucus with around 30 members, but it says it has “decided on a hands-off regulatory approach, believing that this technology will best evolve the same way the internet did; on its own.” The issue hasn’t been tarred by the brush of partisan politics, but the crypto industry is hurriedly following the well-trod path to K Street lobbying.
Lawmakers should get serious. The Colonial Pipeline incident disrupted the East Coast’s gas supply. The next attack could be deadly. Imagine one that shuts down the power grid during a heat wave or taints a municipal water supply.
Any solution must at least reduce the use of cryptocurrency. Governments and retailers should be encouraged not to accept payment in it. An outright ban could get the job done, but if it would be too difficult to enforce or get through Congress, regulators could crack down on the off-ramps and on-ramps, the points at which crypto is converted into fiat currency and vice versa.
Cryptocurrency firms serving U.S. customers are supposed to be subject to the same anti-money-laundering requirements as traditional financial institutions, but more can be done. Late last year, the Treasury Department’s Financial Crimes Enforcement Network proposed a rule to establish new reporting, verification and record-keeping requirements for certain cryptocurrency transactions. Last week Treasury proposed granting more resources to the Internal Revenue Service to address crypto and called on businesses to report receipts of more than $10,000 in cryptocurrency. Both proposals should be adopted, but they will be effective only if other countries follow suit.
So long as there are crypto exchanges abroad with lax money-laundering controls, cryptocurrency will maintain its appeal to hackers. Bloomberg reported on May 13 that money-laundering and tax officials at the Justice Department and IRS are investigating the world’s biggest cryptocurrency exchange, Binance Holdings, which is incorporated in the Cayman Islands and has an office in Singapore.
Like climate change, cryptocurrency presents a classic collective-action problem. Some policy makers recognize the dangers but are hesitant to act for fear of driving crypto companies overseas without doing much to solve the problem. Diplomacy may bear fruit in the long run, but meanwhile President Biden should sign an executive order requiring the Treasury secretary, in coordination with all federal financial regulatory agencies and the IRS, to develop a more coherent regulatory framework for cryptocurrency and identify steps each agency can take to counteract its use in financing terrorism and facilitating ransomware attacks.
We can live in a world with cryptocurrency or a world without ransomware, but we can’t have both. It is time for the adults to tell the children: Party’s over.
Mr. Reiners is executive director of the Global Financial Markets Center at Duke Law.
-
https://financefeeds.com/sec-says-xrp-is-a-security-but-ripple-launches-new-xrp-product/
-
https://www.zerohedge.com/crypto/crypto-here-stay-carl-icahn-may-take-relatively-big-stake-digital-currency-space-prefers-eth?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
-
https://bombthrower.com/articles/could-facebooks-diem-become-fedcoin-by-default/
-
buy buy buy
https://www.fool.com/the-ascent/buying-stocks/articles/why-suze-orman-says-you-should-absolutely-be-buying-bitcoin/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article
-
Following a link from the preceding article:
https://www.fool.com/the-ascent/buying-stocks/gemini-exchange-review/
-
my "sources" tell me Gemini is very good exchange
-
Bitcoin’s Reliance on Stablecoins Harks Back to the Wild West of Finance
To understand the weakness of stablecoins such as Tether, it is worth a quick history lesson from pre-Civil War American finance
An 1837 cartoon published when New York banks suspended specie payments. From left, President Martin Van Buren, Missouri Sen. Thomas Hart Benton and former President Andrew Jackson.
PHOTO: HENRY R. ROBINSON/LIBRARY OF CONGRESS
By James Mackintosh
Updated May 27, 2021 8:00 am E
This article is in your queue.Open Queue
Stablecoins are one of the weirdest things in the whole bizarro world of cryptocurrencies, because they operate on principles directly opposed to the rest of the crypto system.
Crypto true believers argue that bitcoin and its ilk will supplant “fiat” currencies issued by governments, while the whole point of the innovative blockchain that underlies them is to overcome what pseudonymous inventor Satoshi Nakamoto called “the inherent weaknesses of the trust based model.”
Yet stablecoins, and especially the largest, Tether, are thriving. Tether’s $60 billion of issuance leaves it jockeying for third place in crypto market value behind bitcoin and ethereum. There are scores of others, and Facebook’s Libra, renamed Diem last year, plans to join in with stablecoins covering several currencies.
Stablecoins are a type of cryptocurrency tied one-for-one to dollars or other traditional currencies and whose value relies on trusting the issuer.
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Stablecoins have also become central to the financial infrastructure of crypto. According to data provider Crypto Compare there’s more trading between Tether and bitcoin than between bitcoin and all fiat currencies put together. For crypto traders, at least, stablecoins are a vital tool, because of the speed with which they can be used to move money from one crypto exchange to another, and because they provide a handy way to park cash temporarily in what is basically dollars.
This creates a major vulnerability for crypto. Instead of building a new financial system immune to the problems of the old one, it is reinventing problems long-since mitigated by regulators in traditional finance.
To understand this weakness, a quick history lesson. Stablecoins are the living embodiment of free banking, the system of lightly-regulated and often fraudulent issuers of dollar bank notes that dominated U.S. finance until the government stepped in after the Civil War. Paper money was backed by the assets of these banks. But trust in those assets determined whether and how big a discount to apply to any given dollar bill. Alongside the regulated banks were thousands of issuers of small-value IOUs, such as from a Michigan barber, that were used as money in frontier towns short of cash.
There’s a good reason these stablecoins of yore were eventually junked. Users of money—that is, pretty much everyone—had to keep up-to-date on the condition, and perceived condition, of dozens of bank note issuers to avoid being duped on a transaction. The costs of this alone were incalculable, quite aside from the widespread failures and fraud.
The twin dangers to the scores of stablecoins that have been created are the same as the pre-Civil War scrip: the assets turn out to be worth less than thought, or people come to believe that the assets are worth less than thought and there’s a run.
The biggest stablecoins—from Tether, Circle and Paxos—publish reports from accountants attesting that their assets match the amount issued, in an attempt to ensure trust. So far, all three have succeeded, with their stablecoins proving remarkably stable around $1.
In Bitcoin's Shadow, Stablecoins Thrive but Face Challenges
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In Bitcoin's Shadow, Stablecoins Thrive but Face Challenges
In Bitcoin's Shadow, Stablecoins Thrive but Face Challenges
Bitcoin’s volatility has limited its adoption for payments, so entrepreneurs created stablecoins: cryptocurrencies pegged to assets such as the U.S. dollar. But the recent settlement of a probe into the most popular stablecoin, tether, shows the need for transparency in the growing industry. Photo illustration: Sharon Shi/WSJ
A glance at the free banking era should remind traders of the risks. Back in the 1830s, banks would fool auditors by shipping the same chest of coins from one to the next to be counted multiple times, or by topping up a barrel of nails with a layer of silver, according to Joshua Greenberg’s enjoyable study of the era, “Bank Notes and Shinplasters.”
The parallel is clear from the details of Tether’s $18.5 million settlement with the New York Attorney General in February. It said Tether was lying about having full backing for its issues, and when Tether tried to head off rumors about its financial situation by employing an accountant to attest to the assets, cash was put into its new account only on the day of the assessment. Tether also lent $475 million to work with Bitfinex to help it through a cash crunch, this time the day after publishing the balance of a new bank account in the Bahamas. This is the modern version of mobile chests of silver.
SHARE YOUR THOUGHTS
What do you make of stablecoins? Join the conversation below.
Stuart Hoegner, Tether general counsel, said the firm is “taking steps to obtain audits for several financial years“ and will publish them. “To be clear, these kinds of transfers are not happening,“ he said by email when asked about assets being moved just before or after an assessment.
Tether doesn’t do business in the U.S., with a few exceptions, and agreed in its February settlement not to take on customers in New York. Circle has a “bitlicense” issued by New York state, while Paxos is regulated as a trust in the city, in an effort to boost confidence. This being crypto, there is of course a full crypto stablecoin too, called Dai, which gives each user a “vault“ to store collateral; it will be liquidated by “keepers” if its value falls too low to support the Dai issued against it.
My worry is that it isn’t enough to be regulated, transparent and solvent, as the run on money-market funds in 2008 and again last year showed. Ultimately nothing beats access to Federal Reserve loans when large numbers of depositors are demanding their money back. Unlike with banks and funds, there’s no chance of the Fed helping out stablecoins in a crisis. That means the assets they hold are vital, along with their terms. Paxos’s accountants’ attestation shows it holds cash and Treasurys in accounts with unnamed U.S. banks, while Circle says it holds “cash, cash equivalents and short-duration investment-grade assets.”
As part of its legal settlement Tether disclosed more detail of its assets, showing a big exposure to commercial paper, a form of short-term lending to companies. Mr. Hoegner said the company uses in-house traders to invest in commercial paper, “always ensuring that we have an adequate amount of liquidity to meet any eventual redemptions.“
JPMorgan interest-rates strategist Josh Younger points out that Tether’s scale ranks it alongside the biggest money-market funds and companies as a major owner of commercial paper.
In one way Tether has more protection against a run than an ordinary bank if something goes wrong: Its terms allow it to suspend payments or repay with a chunk of its assets instead of dollars. That’s unlikely to be reassuring to users, however.
It surprises me that Tether is so popular given the revelations from the New York case, the ease with which it can suspend payments and the concern among regulators, including the Fed, about stablecoins. But there is a key difference to the earlier era that helps stablecoins avoid the discounts that plagued the bank notes of the Wild West.
Back then the effort of traveling to a bank’s branch to swap its notes for solid silver dollars meant it was hard to arbitrage away discounts, especially for notes from faraway banks. In the digital world it isn’t much of a hassle to cash in a stablecoin, so any discount quickly vanishes.
At least so long as the stablecoin issuer has ready money to pay back claims.
Write to James Mackintosh at james.mackintosh@wsj.com
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Appeared in the May 28, 2021, print edition as 'Stablecoins Hark Back To Wild West
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http://ace.mu.nu/archives/crypto.jpg
(http://ace.mu.nu/archives/crypto.jpg)
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Discussion on the China Ban of BTC
https://docsend.com/view/dwmgj4bhbky866bw (https://docsend.com/view/dwmgj4bhbky866bw)
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https://raconteurreport.blogspot.com/2021/05/and-another-thing.html
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https://raconteurreport.blogspot.com/2021/05/and-another-thing.html
A dollar is worth 2 cents since the Federal Reserve started - and no one sees a problem?
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Ask around in your social circles, Doug.
https://raconteurreport.blogspot.com/2021/05/and-another-thing.html
A dollar is worth 2 cents since the Federal Reserve started - and no one sees a problem?
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State of btc
(https://pbs.twimg.com/media/E2sRAY5UYAIqgr9?format=jpg&name=4096x4096)
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Uhhh , , , what is that chart telling us?
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Recent buyers (within prior 3 months) sold and are at a loss. Long term holders are accumulating, as are the miners. Miners accumulating, means they expect higher prices in the future. Miners finance their operations by selling BTC when prices are high. Overall, nothing suggests that a bear market is imminent, though the consolidation could last a while.
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Thank you. That is the level of explanation that I needed.
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Here we go
another letter acronym. ESG hoisted upon us
"Environmental Social and Governance" and its' movement:
https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp
Cath Woods blames latest coin drop on ESG movement . FWIW :
https://www.coindesk.com/video/ark-invests-cathie-woods-blames-bitcoins-drop-on-esg-movement
I guess big tobacco is off the list :wink:
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https://stockcharts.com/h-sc/ui?s=gbtc
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on ethereum platform on block chain
https://www.ledgerinsights.com/mlb-baseball-collectibles-firm-topps-launches-nfts/
Today on CNBC was noted MLB (aka BLM). is going to be selling NTFs on blockchain
first one the famous 1939 speech wherein Lou Gehrig calls himself the luckiest man on the Earth for charity
with regards to the cards I guess flipping them with friends or building skyscrapers with them is now all just ancient history
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English translation available:
https://www.rbc.ru/finances/03/06/2021/60b896829a7947ff39ed48fb?from=from_main_1
"The dollars will be 0%, the euro - 40%, the yuan - 30%, gold - 20%, pounds and yen - 5%," Siluanov said."
===========================
The Government has decided to withdraw completely from investments in dollar assets by the National Welfare Fund. This was announced to journalists at the St. Petersburg International Economic Forum by Finance Minister Anton Siluanov, RBC correspondent reported.
"We, like the Central Bank, have decided to reduce the investment of the FNB in dollar assets. If today we have about 35% of FNB investments in dollars, 35% in euros, then we have decided to withdraw from dollar assets completely, replacing investments in dollars with an increase in the euro, an increase in gold. The dollars will be 0%, the euro - 40%, the yuan - 30%, gold - 20%, pounds and yen - 5%," Siluanov said.
He said the substitution would happen "quickly enough within a month." How specifically to carry out these operations will be decided by the Bank of Russia, which acts as an agent of the government for the purchase or sale of currency, Siluanov said.
Later, the Ministry of Finance specified that the dollar in the FNB has not been available since May 20, and from June 1, the regulatory structure of liquid funds of the FNB includes gold in anonymized form with a share of 20% (i.e. gold is not in physical form, but on metal accounts in the Central Bank).
"As an alternative to assets in U.S. dollars, which until recently accounted for about 35% of liquid assets of the FNB, the Chinese yuan and the euro are defined as currencies of the countries acting as russia's leading foreign economic partners, as well as gold as an asset capable of protecting the FNB's investments from inflationary risks," the Ministry of Finance explains.
Loko-Invest Investment Director Dmitry Poleva believes that gold will be a functional equivalent of the dollar in the FNB (in particular, because it is quoted in dollars on world exchanges), which is "pretty elegant".
How the FNB is now arranged
The currency structure of the fund, which used to consist only of investments in dollars, euros and pounds sterling, the government began to change since last year - in April, Prime Minister Mikhail Mishustin signed a resolution allowing to invest funds in the FNB in yuan and Chinese government bonds. In the future, it was decided to add to the basket FNB and the Japanese yen - both currencies in the structure of the fund the Ministry of Finance included in February 2021.
The share of the yen was 5%, the yuan - 15%. At the same time, the Ministry of Finance reduced the share of dollar and Euro assets in the FNB from 45 to 35%. The level of investments in the pound sterling left unchanged. The changes were explained by the need to converge with the structure of international reserves of the Bank of Russia, which was adjusted in 2018 to minimize sanctions risks.
The Central Bank did not see a significant impact of the abandonment of dollars in the FNB on the market
economics
Now about $39.8 billion in the FNB accounts for dollars. As of May 1, 2021, the volume of liquid assets of the FNB amounted to the equivalent of 8.66 trillion rubles, or $116.4 billion, the Ministry of Finance reported. This is less than 20% of all international reserves of Russia(more than $600 billion at the end of May), which are generally managed by the Central Bank.
The reserves of the Ministry of Finance also include dollars purchased from the beginning of 2021 as part of operations under the budget rule, but not yet transferred to the FNB. According to Dmitry Kulikov, director of the sovereign ratings and macroeconomic analysis group of ACRA, from January to May it is $4.2 billion.
What explains the decision
The government directly linked the decision to zero the dollar's share in the sovereign fund with U.S. sanctions. "This is also due to the threat of sanctions, which we received and perceived from the American leadership," First Deputy Prime Minister Andrei Belousov said. The Ministry of Finance sees the risk of blocking the Russian government's dollar assets abroad. In 2019, the U.S. administration for the first time extended sanctions on the Russian Central Bank (as well as the Ministry of Finance and the FNB), prohibiting its banks to participate in the initial placement of debt obligations of these institutions, nominated in foreign currency. In April 2021, the U.S. extended such sanctions on the initial purchases of ruble bonds of the Federal Loan (FDB).
Kudrin rejected the idea of complete dedollarization due to the instability of the ruble
economics
Experts interviewed by RBC are confident that the Bank of Russia will sell the bulk of the dollars from the FNB (or all) on the market, as a result of which the share of the US currency in international reserves will decrease. "I think it will be a temporary rebalancing of the FNB and the rest of the reserves, that is, in the rest of the (owned by the Central Bank) the share of the dollar will temporarily increase. And physical sales will probably be somehow scheduled in a pre-known scheme and announced for a much longer period than one month," Dmitry Kulikov told RBC.
Dmitry Poleva believes that "the necessary conversion operations can be carried out on the market or "inside itself" with the subsequent allocation to the market for a longer period of time." The Ministry of Finance indicated that it would inform additionally about the completion of the necessary conversion operations.
"We do not comment on future decisions on gold and currency reserves. Of course, the currency structure of the government's reserves is one of the factors that we take into account ,managing international reserves," Bank of Russia Chairman Elvira Nabiullina told Interfax.
The Central Bank will not follow the Ministry of Finance and will keep the share of dollar assets in its reserves, which are necessary to ensure financial stability in the future, Poleva believes. The share of the dollar in the general reserves will decrease, but is unlikely to reach zero, Kulikov agrees. "All the same, diversification implies the widest possible set of currencies in the portfolio, and the risk that dollar investments will become illiquid for the Central Bank, in my opinion, is less likely," he points out. RBC sent requests to the Ministry of Finance and the Central Bank.
How the economy is dedollarized as a whole
In 2018, President Vladimir Putin supported the plan of dedollarization of the Russian economy, developed by the government in response to the tightening of U.S. sanctions (in particular, the blocking of assets of "Rusal" Oleg Deripaska and "Renova" Viktor Vekselberg). In 2014-2019, the dollar's share in Russia's trade and financial flows fell by an average of 15-20 percentage points, ING bank wrote, including up to 49% in exports of goods and services, 25% in imports, 37% in external debt, etc. yuan and yen.
However, the extended dedollarization (given the currency preferences of the population and private companies) is still in question, as Russian households and corporations must first see a reliable alternative to the dollar, ING stressed in December 2020.
The authorities have chosen the first projects for financing from the FNB
business
U.S. sanctions are a "constant risk" to the Russian economy, Bank of Russia Chairman Elvira Nabiullina told CNBC. To manage the risks associated with foreign exchange ownership, Russia has a policy of dedollarization, she recalled. Many countries, "not only Russia," are moving towards diversification of international reserves, but this process is not going sharply, but gradually, she noted.
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El Salvador Prez sending bill to Congress to make BTC legal tender. I dont know enough about the politics, but if that were to happen, game theory would predict that other nations would want to get in.
https://news.bitcoin.com/el-salvadors-president-nayib-bukele-plans-to-declare-bitcoin-legal-tender-next-week/ (https://news.bitcoin.com/el-salvadors-president-nayib-bukele-plans-to-declare-bitcoin-legal-tender-next-week/)
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From YA:
https://www.cnbc.com/amp/2021/06/05/el-salvador-becomes-the-first-country-to-adopt-bitcoin-as-legal-tender-.html
El Salv. is considered a banana country...but still
KEY POINTS
El Salvador President Nayib Bukele plans to introduce legislation that will make it the world's first sovereign nation to adopt bitcoin as legal tender.
Bukele broadcast his intentions on a video at the Bitcoin 2021 conference in Miami.
Bukele said the country is partnering with digital wallet company, Strike, to build modern financial infrastructure using bitcoin technology.
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Bitcoin has so many potential pitfalls (hard forks, many hundreds of competing crypto currencies, wildly unstable bitcoin/dollar exchange rate, huge potential for loss—think forgotten codes to $billions!—and the ginormous cost of mining and processing). Not to mention the fact that the US government is already mandating the reporting of all bitcoin-dollar transactions that occur at bitcoin exchanges, which in turn removes one of the key attractions (anonymity) of using bitcoin. I think it will take many, many years before it could—maybe—garner a meaningful percentage of global transaction volume. Between now and then what will be its eventual (stable?) price?
-Scott Grannis
YA: I thought you had a good response to this, chart and all. May I ask you to post it here?
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https://www.foxbusiness.com/markets/trump-bitcoin-a-scam-us-dollar-should-reign
Thanks Don
who obviously has no clue...
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https://www.zerohedge.com/economics/yellen-wrong-economist-who-wrote-book-no-flation-sounds-alarm-over-policymaker
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Looking grim for GBTC , , ,
https://worldview.stratfor.com/article/china-undercuts-its-own-efforts-make-renminbi-international-currency?mc_cid=3abad624a5&mc_eid=de175618dc
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https://www.yahoo.com/finance/news/kevin-o-leary-explains-why-bitcoin-will-beat-stocks-now-175634166.html
I like him more than Trump now :|.
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Bitcoin has so many potential pitfalls (hard forks, many hundreds of competing crypto currencies, wildly unstable bitcoin/dollar exchange rate, huge potential for loss—think forgotten codes to $billions!—and the ginormous cost of mining and processing). Not to mention the fact that the US government is already mandating the reporting of all bitcoin-dollar transactions that occur at bitcoin exchanges, which in turn removes one of the key attractions (anonymity) of using bitcoin. I think it will take many, many years before it could—maybe—garner a meaningful percentage of global transaction volume. Between now and then what will be its eventual (stable?) price?
-Scott Grannis
YA: I thought you had a good response to this, chart and all. May I ask you to post it here?
1. Hard forks: All of them are failed currencies (BCH, BSV). There is only one king.
2. Hundreds of competing currencies: Most are centralized scams, BTC is decentralized. No serious competition, BTC has13 yr history, tried and tested. Its like competing with Facebook, network effects rule.
3. Wildly unstable $ rate: Please remember 1 BTC=1BTC, but still see this list of corrections
(https://cdn.substack.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F759f645c-c96b-4455-9e90-192db9ad6953_2661x3561.png)
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BTC bill has been submitted in El Salv Congress. The Prez has a majority so the bill will likely go through.
(https://pbs.twimg.com/media/E3Z-A02XMAMUT6R?format=jpg&name=360x360)
(https://pbs.twimg.com/media/E3Z-A02XIAY4CQP?format=jpg&name=large)
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I could be wrong (not for the first or last time haha) but this seems to me to have huge implications:
Surely, the El Salvadorans did not write this. Who did? If I read correctly, there are some deep implications here-- for example Article 5 is an incredibly pithy and precise refutation of the coming US Govt push to treat BTC appreciation as a capital gain.
If I grasp correctly BTC is now the legal tender of a nation, a base of operations from which to take over the world?
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BTC is now an official asset class, It will not be criminalized or banned.
https://www.bis.org/press/p210610.htm
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Hi Ya,
thanks for post :
"Group 2 cryptoassets - are those, such as bitcoin, that do not fulfil the classification conditions. Since these pose additional and higher risks, they would be subject to a new conservative prudential treatment."
I do not know how to translate what this means into English. :-o
treated more like stocks ?
Aslo googling BIS it represents 63 national Central Banks
but I do not see the US federal reserve Central Banks on list:
https://www.bis.org/about/member_cb.htm
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for those who did not pick it up last night :
https://www.youtube.com/watch?v=HTsVHqoRfbQ
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https://www.nationalreview.com/news/consumer-price-surge-breaks-13-year-record-as-inflation-threat-looms/?utm_source=email&utm_medium=breaking&utm_campaign=newstrack&utm_term=24108767
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Hi Ya,
thanks for post :
"Group 2 cryptoassets - are those, such as bitcoin, that do not fulfil the classification conditions. Since these pose additional and higher risks, they would be subject to a new conservative prudential treatment."
I do not know how to translate what this means into English. :-o
treated more like stocks ?
Aslo googling BIS it represents 63 national Central Banks
but I do not see the US federal reserve Central Banks on list:
https://www.bis.org/about/member_cb.htm
I dont know a lot about BIS, except that its very important organization. Re:BTC they want banks who hold BTC to have fiat reserves in a 1:1 ratio. BIS thinks this ratio will discourage banks, but actually its great for BTC, as leverage will not be encouraged.
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https://bombthrower.com/articles/bitcoin-is-de-dollarization-ethereum-is-defi-nancialization/
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https://reason.com/2021/06/10/paul-krugmans-10-year-history-of-being-wrong-about-bitcoin/?utm_medium=email
Is that Krugman is against it.
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".Is that Krugman is against it"
Love the point that Krugman stated the internet no more important to the economy than a fax machine.
Then thinks he is explaining the major stupidity away by saying he said that as a "thought experiment".
:-D
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".Is that Krugman is against it"
Love the point that Krugman stated the internet no more important to the economy than a fax machine.
Then thinks he is explaining the major stupidity away by saying he said that as a "thought experiment".
:-D
He's the George Costanza of economics.
https://www.quotes.net/mquote/847510
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Bitcoin back up to near 40 K
on the news Krugman called it a waste ! :-D :-D :-D
thanks Paul
indeed you do have some utility as a 100% wrong contrarian
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Isn't that funny, the only thing we knew for sure was that Paul Krugman would be wrong.
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Central banks around the world have been scrambling to co-opt digital currencies for their own purposes. El Salvador beat them all to the punch by passing a law that makes bitcoin legal tender for all debts public and private.
Through this law, El Salvador’s legislators essentially voted to begin the process of outsourcing the country’s monetary policy to a decentralized network of computers governed by a fixed set of rules. This is an important step toward a world where money is sound, not subject to the vagaries of politics.
Most proposed central-bank digital currencies would be tightly controlled by governments. These currencies would reinforce the status quo, not revolutionize monetary systems. That’s because the overwhelming majority of money in existence issued and controlled by central banks is already digital—only a small share of global money supply exists as paper money and coins. When most people talk about a digital coin issued by the Federal Reserve, they do not have in mind a rules-based, censorship-resistant money like bitcoin, but rather a mechanism for the Fed to control the money supply directly without private banks serving as intermediaries.
One huge concern about granting the Fed this much power is the distinct possibility of weaponizing the money supply. Certain parts of the country could be targeted with lower interest rates to spur economic growth selectively, creating opportunities for partisan conflict.
El Salvador, which doesn’t have its own currency, is avoiding this risk by making bitcoin legal tender alongside the U.S. dollar. The law provides that any economic actor technologically able to accept bitcoin is required to do so for payments of goods and services. It also permits bitcoin to be used to pay taxes and exempts bitcoin transactions themselves from capital-gains taxation.
To deal with bitcoin’s wild price fluctuations, the legislation establishes a free-floating exchange rate determined by the market. If someone immediately transfers his bitcoins to dollars when he receives them, then it shouldn’t matter how volatile the exchange rate is because he’ll always have the equivalent in dollars. Salvadorans are free to hold their savings in either currency; the legislation simply puts bitcoin on par with the U.S. dollar and doesn’t disadvantage the cryptocurrency with higher transaction costs.
There are distinct advantages to this dual-track system. In a recent National Bureau of Economic Research paper, David Yermack, Fahad Saleh and I use an economic model to show that the existence of private digital currencies not controlled by the state has important implications for countries in the emerging market. They discipline the government and encourage local investment. Throughout history, central banks have devalued their currencies or tried to maintain untenable exchange rates to the detriment of investors.
This isn’t the first step El Salvador has taken away from monetary uncertainty. In 2001 the country officially dollarized its economy. The colón was taken out of circulation and all prices, including taxes and wages, became denominated in U.S. dollars. Among other effects, this decision limited the discretion of the Central Reserve Bank of El Salvador to manage monetary policy, essentially outsourcing the function to the Fed.
El Salvador has the right idea here. In “The Denationalization of Money” (1976), F.A. Hayek questioned whether government control over the money supply was necessary and argued that competition in money had the same benefits as competition in goods and services. It disciplines economic actors and gives them incentives to serve consumers better—in this case by acting as a check on governments’ tendency to inflate and forcing innovation in payment systems.
Central banks want the benefits of digital currency, but they also want to control the system and not cede their monetary tools. This makes the concept of a central-bank digital currency inherently contradictory. Bitcoin was created to provide an alternative to a currency managed by the state.
Sound monetary policy isn’t a magic solution to a country’s every economic woe. El Salvador needs to embrace the rule of law, private property and limited government. But having faith in a sound currency is going to become more and more important as the inflationary costs of monetary stimulus become known.
Mr. Raskin is director of research at Qvidtvm Inc. and an adjunct professor at New York University School of Law.
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second post
https://www.wsj.com/articles/lumber-prices-are-falling-fast-turning-hoarders-into-sellers-11623749401?mod=trending_now_news_1
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https://www.cnbc.com/2021/06/15/chinas-bitcoin-miner-exodus-.html
(how do we know they are not all spies? - We don't)
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WSJ:
How did the Justice Department recover $2.3 million of the ransom paid by Colonial Pipeline to a group of hackers known as DarkSide? Isn’t bitcoin, the cryptocurrency in which the payment was made, supposed to be untraceable? Actually, no. Bitcoin is anonymous, but it’s far from private—an important but often overlooked distinction. The Justice Department recovered more than $1 billion in bitcoin in various investigations during 2020 alone.
The blockchain—bitcoin’s historical ledger of all transactions—is publicly viewable at all times by anyone, so that there can’t be any under-the-table cash transactions. Software firms such as Chainalysis and Elliptic have supported federal investigators with a suite of analysis tools intended to help trace criminals and tax cheats, including those who try to obscure the bitcoin trail through dozens of successive transactions.
What complicates recovery is bitcoin’s anonymity. Senders and recipients are denoted by wallet addresses—a string of numbers and letters—rather than names or Social Security numbers. Other cryptocurrencies such as Monero, zCash and Haven are working on technologies that would offer both anonymity and privacy. But even then, users would face the “off-ramp” dilemma.
That arises when criminals need to spend their bitcoin or convert it into conventional currency. The final transaction deanonymizes the participant and usually triggers the jurisdiction of one or more government agencies. Thus, once criminals transfer their coins into an exchange wallet—even one that doesn’t adhere to the exchange’s Know Your Customer/Anti-Money-Laundering requirement—investigators have what they need to freeze and ultimately claim those assets. That’s likely what happened in the case of Colonial Pipeline.
Traditional currency poses problems of its own for investigators. Bank notes are untraceable unless authorities note the serial numbers in advance. Global banks amassed some $15 billion in fines in 2020 for tacitly enabling money laundering and other financial crimes. Bitcoin’s transparency may do more to mitigate fraud and theft than traditional banking and currency ever could.
Mr. Galston is managing partner of Starting Line, an early-stage venture-capital firm, and an investor in bitcoin among other cryptocurrencies.
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The US $ and currency notes in particular is the currency of choice for illegal dealings. The smart crooks dont use BTC, after all its a public ledger. There are coin mixers available, which can make your original BTC untraceable but most dont use them.
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Fascinating interview with Jack Mallers of Strike, 1 hr long but worth it. He got El salv do make the Bitcoin standard. Why BTC will be a world currency someday.
https://www.youtube.com/watch?v=yL6J56Jzvl0 (https://www.youtube.com/watch?v=yL6J56Jzvl0)
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Fascinating interview with Jack Mallers of Strike, 1 hr long but worth it. He got El salv do make the Bitcoin standard. Why BTC will be a world currency someday.
https://www.youtube.com/watch?v=yL6J56Jzvl0 (https://www.youtube.com/watch?v=yL6J56Jzvl0)
Wow, sharp kid (27 y.o.). If you're interested in this topic, this is a must see.
There are some things I still don't understand, but this is amazing. This widens economic freedom and inclusion right where it's been forever denied. Disintermediation, cross border payments, disruptive innovation for all things financial.
It's great how he describes the fight for economic freedom as the fight for humanity. I wish more could see that connection.
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" China reiterated its crypto ban last month, citing dangers associated with speculative trading."
:roll:
https://finance.yahoo.com/news/ether-drops-below-2k-bitcoin-090610954.html
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China has banned BTC many times, I think if the choice is between the Chinese CBDC and BTC, BTC will win every time. However, this is a strategic blunder by China, as all the mining is moving to the US, where most of it is done with reusable energy. This is actually good for the space and for the USA. In the past there was a concern that most of the mining was located in China. Mayor of Miami wants to provide cheap nuclear energy to miners!.
Re: BTC, there is strong support at 30K, if it breaks that, might be a rare opportunity to buy more, cheaply. Last year the low was 3500, now its about 35,000 $, not bad.
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https://stockcharts.com/h-sc/ui?s=gbtc
https://stockcharts.com/h-sc/ui?s=coin
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China Clobbers Crypto
Bitcoin has lost more than half its value since April, due in large part to a move by Chinese authorities to regulate crypto markets:
The original cryptocurrency has lost more than 50% from its mid-April high of almost $65,000, leaving it up marginally for the year. That compares with a 12% gain for the S&P 500 since the end of December. The coin started 2021 trading around $29,000 following a fourfold increase in 2020.
Chart-watchers said Bitcoin, which failed to retake $40,000 last week, could have a tough time finding support in the $20,000 range following its drop below $30,000. Still, Bitcoin had prior to Tuesday breached $30,000 during at least five separate instances this year but recuperated to trade above that level each time.
Elsewhere:
Representatives from Industrial and Commercial Bank of China Ltd., Agricultural Bank of China Ltd. and payment service provider Alipay were reminded of rules that prohibit Chinese banks from engaging in crypto-related transactions, according to a statement from the central bank on Monday.
The latest development is a sign that China will do whatever it takes to close any loopholes left in crypto trading. In May, China’s State Council – the country’s cabinet – called for a renewed crackdown on Bitcoin mining and trading activities. . . . Crypto activities “disrupt financial order and also breed risks of criminal activities like illegal cross-border asset transfers and money laundering,” according to the statement from China’s central bank.
China has been more zealous in cracking down on crypto than many market watchers expected: While it started with a ban on Bitcoin mining, the regulatory push has expanded to include trading and holding of cryptocurrencies. Because an estimated 65 percent of global Bitcoin mining is done in China, this push has had a significant effect on the processing power devoted to Bitcoin, and therefore on the functioning of Bitcoin markets.
While China has hinted at regulation in the past without following through, it seems this time is different
===================
https://www.bloomberg.com/news/articles/2021-06-21/china-s-pboc-orders-alipay-banks-not-to-assist-crypto-business?sref=KgEBWdKh&utm_source=Sailthru&utm_medium=email&utm_campaign=CAPN_20210622&utm_term=Capital-Note-Smart
https://www.bloomberg.com/crypto
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China has banned BTC many times, I think if the choice is between the Chinese CBDC and BTC, BTC will win every time. However, this is a strategic blunder by China, as all the mining is moving to the US, where most of it is done with reusable energy. This is actually good for the space and for the USA. In the past there was a concern that most of the mining was located in China. Mayor of Miami wants to provide cheap nuclear energy to miners!.
Re: BTC, there is strong support at 30K, if it breaks that, might be a rare opportunity to buy more, cheaply. Last year the low was 3500, now its about 35,000 $, not bad.
We may have seen the bottom...30-42K is the chop zone.
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BTC will rise again soon.
GBTC premiums are rising again (see chart) and secondly BTC will soon undergo its largest difficulty (decrease) adjustment due to the shift of mining capacity out of China. This is hugely bullish.
(https://cdn.substack.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ff7eec19a-fc4d-4cd7-8f03-c75a46afe758_1330x720.png)
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From Pensions & Investments in January:
All it took was a non-committal comment from Janet Yellen to persuade Treasury traders there’s a chance the U.S. will finally expand maturities in the world’s biggest bond market beyond 30 years.
The Treasury Department has pondered ultralong bonds for years, but they’ve never been introduced in part because of resistance from Wall Street. But Ms. Yellen, President-elect Joe Biden’s pick for Treasury secretary, got people buzzing about them again by discussing the topic Tuesday during her Senate confirmation hearing. Markets responded, with traders selling 30-year bonds.
“There is an advantage to funding the debt, especially when interest rates are very low, by issuing long-term debt, and I would be very pleased to look at this issue and examine what the market would be like for bonds of this maturity,” Ms. Yellen said when asked about longer-term debt, including 50-year Treasuries.
From the same story:
Just this month, former Treasury Secretary Robert Rubin cautioned against taking rock-bottom interest rates for granted and said the government should take advantage of the moment by substantially increasing the maturity of its debt, including possibly issuing ultralong bonds.
Such long-dated Treasuries would probably find takers. After all (via CNBC, from June 2017):
Argentina sold $2.75 billion of a hotly demanded 100-year bond in U.S. dollars on Monday, just over a year after emerging from its latest default, according to the government.
The South American country received $9.75 billion in orders for the bond, as investors eyed a yield of 7.9 percent in an otherwise low yielding fixed income market where pension funds need to lock in long-term returns.
Although, if it’s not impolite to mention this (from the Wall Street Journal in August):
In the restructuring agreement, the [Argentinian] 100-year bond’s maturity will shorten substantially, along with its value. Holders will end up with bonds maturing in 15 and 26 years and can expect to recover something broadly in line with the recovery value of the restructuring, on the order of 54.5 cents on the dollar.
The U.S. is not (yet) Argentina, but, speaking purely for myself (admittedly someone with no technical reason to hold long-dated dated bonds), even the yield on Uncle Sam’s ten-year bonds (roughly 1.47 percent) looks . . . unappetizing.
Nevertheless, if the U.S. can borrow long, and in size, it should. That is not what it is doing.
Riedl:
Washington is behaving like a subprime homeowner and making long-term debt commitments based on short-term interest rates. The average maturity of the U.S. debt is five years and sharply declining, which means most of the national debt would quickly roll over into any future interest rate increase.
Whether the U.S. could lengthen the maturity of its debt on a scale large enough to eliminate the longer-term problem heading its way is, to put it mildly, doubtful, but its failure to take any steps in that direction is another sign of a complacency that beggars belief and may end up beggaring us all.
Riedl:
There is simply no guarantee that interest rates won’t rise. The reasons that interest rates have not gone up as debt has risen remain much debated. But they include declining productivity and lower inflation growth, a global demand for safe assets (inspiring investment in bonds over stocks) and — relatedly — baby boomers saving more as retirement nears. In a recent post, former Obama Treasury adviser Ernie Tedeschi confirms that — all else equal — the coming 100 percent of GDP rise in the debt would ordinarily raise interest rates by approximately four percentage points. But he argues that (so far) pressure on interest rates has been offset by higher saving and the like.
But for interest rates to remain low, those offsetting factors would have to not only continue, but accelerate enough to offset all the upward rate pressure from this new debt. This seems unlikely, as productivity is unlikely to fall further, retired boomers will draw down those savings, and investors may eventually seek out higher returns than government bonds. In that context, assuming the average interest rate gradually nudges upward from 2 percent to 4.4 percent is far from outlandish.
All in all, it seems reckless for debt advocates to dismiss the possibility of interest rates returning to 4, 5 or 6 percent in the medium to long term. The past half-century has not been kind either to economic forecasters or to the pronouncements of overconfident technocratic economic managers. Just 15 years ago Wall Street’s mathematical models failed to anticipate how mortgage-backed securities and the housing market could crash. Advocates for long-term deficit spending say the low rates on 30-year bonds show that markets aren’t worried about the debt, but markets rarely predict future economic and budget crises.
Reality check: No one knows for sure what interest rates will be in five, 10 or 20 years. Yet an economic recovery and $104 trillion in new debt are likely to push rates above today’s low levels. Deficit doves would gamble America’s economic future on the hope that interest rates will never again top 4 or 5 percent. Are you feeling lucky?
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There is ZERO political will to fix things. Thus, it's not IF, but WHEN the crash happens.
From Pensions & Investments in January:
All it took was a non-committal comment from Janet Yellen to persuade Treasury traders there’s a chance the U.S. will finally expand maturities in the world’s biggest bond market beyond 30 years.
The Treasury Department has pondered ultralong bonds for years, but they’ve never been introduced in part because of resistance from Wall Street. But Ms. Yellen, President-elect Joe Biden’s pick for Treasury secretary, got people buzzing about them again by discussing the topic Tuesday during her Senate confirmation hearing. Markets responded, with traders selling 30-year bonds.
“There is an advantage to funding the debt, especially when interest rates are very low, by issuing long-term debt, and I would be very pleased to look at this issue and examine what the market would be like for bonds of this maturity,” Ms. Yellen said when asked about longer-term debt, including 50-year Treasuries.
From the same story:
Just this month, former Treasury Secretary Robert Rubin cautioned against taking rock-bottom interest rates for granted and said the government should take advantage of the moment by substantially increasing the maturity of its debt, including possibly issuing ultralong bonds.
Such long-dated Treasuries would probably find takers. After all (via CNBC, from June 2017):
Argentina sold $2.75 billion of a hotly demanded 100-year bond in U.S. dollars on Monday, just over a year after emerging from its latest default, according to the government.
The South American country received $9.75 billion in orders for the bond, as investors eyed a yield of 7.9 percent in an otherwise low yielding fixed income market where pension funds need to lock in long-term returns.
Although, if it’s not impolite to mention this (from the Wall Street Journal in August):
In the restructuring agreement, the [Argentinian] 100-year bond’s maturity will shorten substantially, along with its value. Holders will end up with bonds maturing in 15 and 26 years and can expect to recover something broadly in line with the recovery value of the restructuring, on the order of 54.5 cents on the dollar.
The U.S. is not (yet) Argentina, but, speaking purely for myself (admittedly someone with no technical reason to hold long-dated dated bonds), even the yield on Uncle Sam’s ten-year bonds (roughly 1.47 percent) looks . . . unappetizing.
Nevertheless, if the U.S. can borrow long, and in size, it should. That is not what it is doing.
Riedl:
Washington is behaving like a subprime homeowner and making long-term debt commitments based on short-term interest rates. The average maturity of the U.S. debt is five years and sharply declining, which means most of the national debt would quickly roll over into any future interest rate increase.
Whether the U.S. could lengthen the maturity of its debt on a scale large enough to eliminate the longer-term problem heading its way is, to put it mildly, doubtful, but its failure to take any steps in that direction is another sign of a complacency that beggars belief and may end up beggaring us all.
Riedl:
There is simply no guarantee that interest rates won’t rise. The reasons that interest rates have not gone up as debt has risen remain much debated. But they include declining productivity and lower inflation growth, a global demand for safe assets (inspiring investment in bonds over stocks) and — relatedly — baby boomers saving more as retirement nears. In a recent post, former Obama Treasury adviser Ernie Tedeschi confirms that — all else equal — the coming 100 percent of GDP rise in the debt would ordinarily raise interest rates by approximately four percentage points. But he argues that (so far) pressure on interest rates has been offset by higher saving and the like.
But for interest rates to remain low, those offsetting factors would have to not only continue, but accelerate enough to offset all the upward rate pressure from this new debt. This seems unlikely, as productivity is unlikely to fall further, retired boomers will draw down those savings, and investors may eventually seek out higher returns than government bonds. In that context, assuming the average interest rate gradually nudges upward from 2 percent to 4.4 percent is far from outlandish.
All in all, it seems reckless for debt advocates to dismiss the possibility of interest rates returning to 4, 5 or 6 percent in the medium to long term. The past half-century has not been kind either to economic forecasters or to the pronouncements of overconfident technocratic economic managers. Just 15 years ago Wall Street’s mathematical models failed to anticipate how mortgage-backed securities and the housing market could crash. Advocates for long-term deficit spending say the low rates on 30-year bonds show that markets aren’t worried about the debt, but markets rarely predict future economic and budget crises.
Reality check: No one knows for sure what interest rates will be in five, 10 or 20 years. Yet an economic recovery and $104 trillion in new debt are likely to push rates above today’s low levels. Deficit doves would gamble America’s economic future on the hope that interest rates will never again top 4 or 5 percent. Are you feeling lucky?
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https://bombthrower.com/articles/the-bitcoin-energy-debate-is-one-of-freedom-vs-servitude/
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The Bitcoin Energy Debate is One of Freedom vs Servitude
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BY MARK E. JEFTOVIC
July 2, 2021
If you’re arguing against Bitcoin, then you’re in favour of serfdom
In the most recent edition The Crypto Capitalist Letter I cited Elizabeth Warren’s comments in a senate banking committee meeting where she said
“Digital currency from central banks has great promise. Legitimate digital public money could help drive out bogus digital private money, bogus crypto currencies”
My remarks were that as a creature of the state she has it exactly backwards. This is predictable. For years I’ve been saying that the most oft-used criticisms against Bitcoin (backed by nothing, ponzi and tulipmania) were more accurate descriptions of the US dollar, social security, and meme stonks, in that order.
In TCC we spend a lot of time thinking about the coming bifurcation in digital money: how Central Bank Digital Currencies will be the rails for things like UBI and welfare dependency while crypto currencies will be actual stores of wealth and capital formation. If there was one distinctive feature that would enable one to tell the difference between a “bogus” digital currency and a real one, it would be this:
If you can hold your private keys, it’s real. If you can’t, it’s bogus.
Precisely the opposite of how Warren is spinning it.
The exact phrase I used in this month’s issue was :
“The era of private, cryptographically secured money is here, and there’s not a damn thing any bureaucrat, any politician or any nation state can do about it.”
That particular phrase “private, cryptographically secured money” is important. If you do not fully understand the implications of that and you unwittingly accept establishment arguments against Bitcoin, then you are tacitly ceding authority over your entire life, every transaction, every decision, every interaction with the world at large, to The State.
Warren also piled onto the energy argument, which seems to be the latest unified front against the upstart non-state currency:
“Cryptocurrency has created opportunities to scam investors, assist criminals and worsen the climate crisis”
The energy argument fails on two fronts:
There are two distinct rebuttals to this issue. One is by putting Bitcoin energy usage into perspective and showing how the benefits justify the costs. (Even the World Economic Forum recently published a remarkably clueful paper saying that the arguments against Bitcoin were mainly FUD and that the energy usage was worth it given the benefits).
The total electrical usage of all Bitcoin mining is approximately 110 TWh (Terra Watt hours) per year. It is estimated that as much as 20% of all electrical energy produced is wasted. The Energy Information Administration (EIA) puts it even higher, at 34%.
The total electrical energy usage of the world in 2018 was around 22,000 TWh and 20% of that would have been 4,400 TWh (at the higher EIA figure it would be 7,480). Seen in that context, Bitcoin mining uses somewhere between 2.5% and 1.4% of all wasted electrical energy. It’s been written up by others how Bitcoin by its nature can be moved toward sources of energy waste and thus covert otherwise lost energy into real economic value. Great American Mining is already doing it (and one of the companies we hold in our Crypto Capitalist Portfolio is in a joint venture with them).
Another example of providing context is when people like Alex Gladstein document how the US military empire is really a support structure for the US dollar, and compared to that, Bitcoin has a smaller carbon footprint and causes a lot less damage. Bitcoin is not actively conducting drone assassinations in multiple foreign countries. The petrodollar is.
The other approach to the energy usage criticism by people like Nic Carter is the categorical rejection that any Bitcoiner is under any obligation to explain or justify their energy usage. If Bitcoin and cryptos have to rationalize their energy footprint, then that follows for everything. From “Keeping Up with The Kardashians” to NASA, can anybody truly rationalize their energy expenditure over the supposed conservational benefits of that activity not occurring?
Energy as Authority:
It’s this attack on individual rights to use private, cryptographically secured money that I want to focus on in particular because to even accept that Bitcoin energy argument as valid, you are tacitly accepting that some authority other than you has the ultimate verdict over all energy usage including your own.
Isn’t watching (or being) the Kardashians an exercise in self-absorption and triviality that glamorizes wealth inequality?
Should NASA really be concerning itself with space when we have so much social justice to undertake here on Earth? We only have one Earth. Don’t those rockets use a lot of fuel and deplete the ozone layer?
There are already serious academics suggesting that we should genetically engineer humans to be less harmful to the environment. Here is a bioethicist and NYU professor in a 2016 symposium making the case for genetically engineering humans so that they are born allergic to red meat and grow up to be on average 12 cubic centimeters smaller. For climate.
In 2015 the UN adopted 17 sustainable development goals for working toward Agenda 2030. On the surface, these goals appear laudable and uncontroversial. They include objectives such as No Poverty (#1), Zero Hunger (#2), Gender Equality and Clean Water for All (#5 & 6), who isn’t in favour of any of these things?
If you’re running the list you would almost gloss over SDG-12: Responsible Consumption and Production, because “By 2050, the equivalent of almost three planets could be required to sustain current lifestyles”
You see where this is going. I’ve said it before, all this talk about Great Resets, The New Normal and Building Back Better is about getting the masses to ratchet down their lifestyles so that the managerial elites and experts can keep running the show (and maintaining theirs).
Standards of living are all about energy inputs. As people and communities become more prosperous, their per-capita energy usage rises. The official canon of the national and supra-national elites is that this has to stop. Never mind that history is the story of humanity achieving exponentially higher productivity gains and energy efficiencies, never mind that the world was already on a trajectory to achieve many of the SDGs already without overbearing government intervention (see Ana and Hans Roslings’ “Factfulness” or Matt Ridley’s “The Rational Optimist”)
All that matters is that the experts, the same technocratic class that brought you double masks, double vaccines and two years of lockdowns, have decided that this is the way things have to go. Incidentally, the COVID pandemic (which was arguably brought about by the very experts who were purportedly trying to prevent one) is the perfect opportunity to fast track new policies toward these Sustainable Development Goals.
Make no mistake, the same climate technocrats who are saying Bitcoin’s energy footprint isn’t justified are already thinking in terms of a totalitarian system of energy and carbon rationing based on purported benefits of any given activity.
If you think I’m exaggerating the extent to which the coming “resource based economy” model will subordinate your day-to-day activities and life choices to some greater good narrative, take a look at this recent research paper from multi disciplinary Sustainability institute about the cognitive dissonance and anxiety “PEBEXs” (Pro-environmental Behaviour Experts”) have to struggle with because their aspirational climate ideology clashes with the demands of everyday life.
These are the people who’s job it is to advance policy and advocate for everybody else ratcheting down their consumption patterns (SDG-12, basically).
“A practical behavior applied by participants to feel better about their consumption is to minimize it. These PEBEXs question their private and job-related consumption to acknowledge that they (and others) are better off with less. These narratives also contain social criticisms of materialism, perceived as a social norm of the Western world” (emphasis added)
One of the tensions PEBEXs experience is the seeming futility of “engag[ing] in individual sustainable practices, to avoid a suboptimal allocation of their resources”, because at the individual level, change is insignificant
“I don’t believe that much in individuals deciding to do things different. I want more the structures to be changed. I don’t know if I want to change people’s behavior, I want to change the society. So that we consume less energy. That is two different things for me.” (Emphasis added)
For a fairly short quote, there’s a lot in there, including:
the mindset that society should be restructured to accommodate these people’s feelings. The idea that the entire climate alarmist narrative is not settled science (see Steven E. Koonin’s “Unsettled”, or Michael Shellenbergers’s “Apocalypse Never” for example) is not even imaginable to them.
the compartmentalization between working for a radical structural change to society is different than ordering people’s lives on an individual level. Very similar to the progressive mindset of cost-free entitlements. Second-order effects are ignored, all policy objectives can be achieved by wishing for them to be true.
that change at an individual level is meaningless or insignificant. Again, telling. Because the overall policy is collectivist and for many of these people, individualism is a mental disorder. Suffice it to quote Samuel Konkin’s “Liberty cannot be achieved en masse. It can only happen individual by individual”)
As if to drive the entire point home for me, no sooner had I posted this when I came across a “think piece” from Time Magazine lecturing us on air conditioning:
The upshot is that air conditioning is bad for the environment and problematic, thus, it must me ‘re-imagined’ I guess…:
The troubled history of air-conditioning suggests not that we chuck it entirely but that we focus on public cooling, on public comfort, rather than individual cooling, on individual comfort. Ensuring that the most vulnerable among the planet’s human inhabitants can keep cool through better access to public cooling centers, shade-giving trees, safe green spaces, water infrastructure to cool, and smart design will not only enrich our cities overall, it will lower the temperature for everyone. It’s far more efficient this way.
To do so, we’ll have to re-orient ourselves to the meaning of air-conditioning. And to comfort. Privatized air-conditioning survived the ozone crisis, but its power to separate—by class, by race, by nation, by ability—has survived, too. Comfort for some comes at the expense of the life on this planet.
It’s time we become more comfortable with discomfort. Our survival may depend on it.“
Ok. That’s not hyperbolic at all.
And yet again we see that same diminution of individual agency and autonomy in favour of the collective. Private is bad. Public is good. I’m sure the offices at Time have the a/c switched off as do the staff remote working from home. If they don’t, then whoever wrote this may be experiencing the same anxiety as the aforementioned PEBEXs.
This kind of sanctimonious shrieking doesn’t take into account that pretty well everything being made in industrial society today is becoming more energy efficient over time. It doesn’t take into account that four times as much energy is spent on heat than on air conditioning. Or that without widespread private air conditioning, a lot of people would actually die, especially among the elderly and medically at-risk.
The idea to redesign public spaces to afford more cooling areas aren’t bad ideas, but the real solution to addressing the disparities in underdeveloped communities is to increase economic prosperity for the citizens who inhabit them. One way to do that could happen if they had access to some kind of private cryptographically secured money, whose purchasing power increases over time… or something.
Just a thought. But that would be better than marshalling them into communal herds of dependancy (which is basically what the ultimate aspiration is for everyone except the billionaires and elites zipping around the world on private jets to climate conferences).
Bitcoin today. Cars tomorrow. Then hamburgers. Heated bathroom floors Air conditioning after that. Second homes. Cottages. Excessive wardrobes. Rationing shoes. Vacations.
If you accept that anybody has the moral authority to tell you what you can and can’t do with your own wealth and how you consume energy, then you are submitting to their judgement on every aspect of your energy consumption, and thus, your entire life.
What people don’t realize is that there is an overarching framework that already mediates energy usage and consumption, one that allocates resources toward optimal outcomes. This already exists (or at least it used to), it’s called free markets that are driven by economic tradeoffs.
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https://www.zerohedge.com/markets/ethereum-20-will-supercharge-staking-industry-tens-billions-jpmorgan-estimates?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
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GBTC keeps diving , , ,
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[from political econ thread]
Who knew that continuing to print $3 trillion per year excess worthless money even after the crisis was over would affect the value of [existing] money?
https://www.cbsnews.com/news/federal-deficit-to-hit-3-trillion-congressional-budget-office-says/
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Too late
response to inflation will be too late; crash landing result:
https://www.breitbart.com/radio/2021/07/12/former-imf-economist-americas-inflation-is-beginning-to-look-like-latin-american-country/
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Stanford Professor John Taylor puts Bidenflation in historical perspective. Other than, "it's not too late", he gets it right.
My recollection from Robert Bartley, long time editor of the WSJ, Seven Fat Years, inflation was 7% when Nixon ordered the fascist price wage freeze in 1971 and was at 14% at the end of the decade. In other words, that wasn't the problem; that wasn't the solution. The smartest people in the room were not all that smart in that day. Worse today.
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https://www.project-syndicate.org/commentary/inflation-us-federal-reserve-ignoring-history-by-john-taylor-5-2021-06
Is the Fed Getting Burned Again?
Jun 25, 2021
JOHN B. TAYLOR
As in the stagflationary 1970s, the US Federal Reserve is once again denying that its own policies are the reason for a recent surge of inflation, even though there is good reason to think that they are. It is not too late to learn from past mistakes and reverse course – but the clock is quickly ticking down.
STANFORD – Fifty years ago, on June 22, 1971, US Federal Reserve Chair Arthur Burns wrote a memorandum to President Richard Nixon that will long live in infamy. Inflation was picking up, and Burns wanted the White House to understand that the price surge was not due to monetary policy or to any action that the Fed had taken under his leadership. The issue, rather, was that “the structure of the economy [had] changed profoundly.” Accordingly, Burns was writing to recommend “a strong wage and price policy”:
“I have already outlined to you a possible path for such a policy – emphatic and pointed jawboning, followed by a wage and price review board (preferably through the instrumentality of the Cabinet Committee on Economic Policy); and in the event of insufficient success (which is now more probable than it would have been a year or two ago), followed – perhaps no later than next January – by a six-month wage and price freeze.”
Perhaps owing to Burns’s reputation as a renowned scholar (he was Milton Friedman’s teacher) and his long experience as a policymaker, the memo convinced Nixon to proceed with a wage and price freeze, and to follow that up with a policy of wage and price controls and guidelines for the entire economy. For a time after the freeze was implemented, the controls and guidelines seemed to be working. They were even politically popular for a brief period. Inflation inched down, and the freeze was followed by more compulsory controls requiring firms to get permission from a commission to change wages and prices.
But the intrusive nature of the system began to wear on people and the economy because every price increase had to be approved by a federal government bureaucracy. Moreover, it soon became obvious that the government controls and interventions were making matters worse.
Ignoring its responsibility to keep inflation low, the Fed had started letting the money supply increase faster, with the annual growth rate of M2 (a measure of cash, deposits, and highly liquid assets) averaging 10% in the 1970s, up from 7% in the 1960s. This compounded the impact of the decade’s oil shocks on the price level, and the inflation rate shot into double digits – rising above 12% three times (first in 1974 and then again in 1979 and 1980) – while the unemployment rate rose from 5.9% in June 1971 to 9% in 1975.
As we know now, the US economy’s performance in the 1970s was very poor owing at least partly to that era’s monetary policies. This was when the word “stagflation” was coined to describe a strange mix of rising inflation and stagnant economic growth. As James A. Dorn of the Cato Institute recently recounted, Nixon’s “price controls went on to distort market prices” and are rightly remembered as a cautionary tale. “We should not forget that the loss of economic freedom is a high price to pay for a false promise to end inflation by suppressing market forces” (emphasis mine).
As it happens, Choose Economic Freedom is the title of a book that I published last year with George P. Shultz, who passed away in February at the age of 100. Schultz had gained decades of wisdom and experience as both a diplomat and economic policymaker, serving as the Nixon administration’s budget director when Burns wrote his audacious memo. In an appendix to our book, we included the full text of that document, because it had only recently been discovered in the Hoover Institution archives. It should now be recognized as required reading for anyone seeking to understand the recent history of US economic policymaking.
The Burns memo is a perfect example of how bad ideas lead to bad policies, which in turn lead to bad economic outcomes. Despite Burns’s extraordinary reputation, his memo conveyed a set of terrible policy recommendations. By blaming everything on putative structural defects supposedly afflicting the entire economy, the memo’s worst effect was to shun the Fed’s responsibility for controlling inflation, even though it was clearly responsible for the rising price level.
By the same token, good ideas lead to good policy and good economic performance. As Schultz and I showed, this was certainly the case in the 1980s. The Fed reasserted itself as part of a broader economic reform, and the economy duly boomed.
The message from this historical experience – and many other examples in the United States and elsewhere – should be abundantly clear. And while history never repeats itself, it often rhymes, so consider where we are midway through 2021: inflation is picking up, and the Fed is once again claiming that it is not responsible for that development. Instead, Fed officials argue that today’s surge in prices merely reflects the bounce back from the low inflation of the last year.
Worse, the Fed’s policy is even more interventionist now than it was in Burns’s day. Its balance sheet has exploded from massive purchases of Treasury bonds and mortgage-backed securities, and the growth rate of M2 has risen sharply over the past year. The federal funds interest rate is now lower than virtually any tested monetary policy rule or strategy suggests it should be, including those listed on page 48 of the Fed’s own February 2021 Monetary Policy Report.
It is not too late to learn from past mistakes and turn monetary policy into the handmaiden of a sustained recovery from the pandemic. But time is running out.
John B. Taylor, a former under-secretary of the US Treasury (2001-05), is Professor of Economics at Stanford University and a senior fellow at the Hoover Institution. He is the author of Global Financial Warriors and co-author (with George P. Shultz) of Choose Economic Freedom.
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https://stockcharts.com/h-sc/ui?s=gbtc
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Crime and Technology, Part III: Cryptocurrency
Editor's Note: Criminals have long benefited from new technologies, and the current era of digitalization has been no exception. In the first two parts of this series on crime and technology we explored how criminals have adopted new technologies to communicate and coordinate activities, as well as establish new marketplaces online. Both have facilitated the expansion of traditional criminal activity, such as drug sales, as well as the emergence of entirely new criminal activities, such as hacker-for-hire services. In the third and final article of this series, we will explore how criminals have adopted new financial instruments to facilitate old and new criminal activities. As with new forms of communications and marketplaces, new financial tools present both opportunities and vulnerabilities to the criminals who adopt them.
A cryptocurrency is a financial instrument that exists solely in digital form. Its original creators designed it as a system that allows people to send money quickly and easily to each other around the world, avoiding the fees, regulations and delays of transfers associated with traditional physical cash-based currencies. The underlying technology that made cryptocurrency possible is blockchain, a decentralized system for keeping accurate, secure digital records.
Cryptocurrency technology graduated from theory to practice in 2009 with the launch of Bitcoin, the most successful of the thousands of cryptocurrencies that have followed in its wake. A decade ago, cryptocurrencies were an untested novelty mostly for financial speculators and internet hobbyists. As of July 2021, however, the total market capitalization of all cryptocurrencies combined was $1.4 trillion, $635 billion of which is in Bitcoin, representing about half of the total cryptocurrency market by value. Since its inception, the value of a single bitcoin has risen from around $1 to over $30,000, making many of those early speculators and hobbyists millionaires in the process. Amid growth in the wider cryptocurrency market, Bitcoin's rise in value has made it a somewhat mainstream financial instrument, with financial institutions like Morgan Stanley and MasterCard incorporating Bitcoin into their services and offerings.
How Criminals Use Cryptocurrency
Contrary to popular perception, criminal activity makes up a very small percentage of the cryptocurrency market. A recent report by the blockchain data analytics firm Chainalysis on criminal exploitation of cryptocurrencies estimated that only between 1-2% of transactions by volume were linked to criminal activity, representing nearly $30 billion in 2020. The United Nations estimates that global criminal activity amounts to $1.5 trillion to $4 trillion per year, so cryptocurrency makes up a small fraction of overall criminal financial activity. More conventional financial vehicles such as cash, real estate and luxury items remain the most popular options for criminals to conduct transactions and conceal illicit gains. Furthermore, as major cryptocurrencies like Bitcoin go mainstream and regulation of the cryptocurrency market increases, criminals cannot conduct cryptocurrency transactions with impunity. Even so, cryptocurrencies still offer immense opportunities for criminal exploitation.
As noted in the first two parts of this series, cryptocurrencies have facilitated criminals' adoption of other technologies such as encrypted communications and online marketplaces. Criminals can use cryptocurrencies to complete transactions hammered out over encrypted messaging platforms, and online criminal marketplaces deal almost exclusively in cryptocurrencies. In short, these alternative currencies complement alternative communication platforms and marketplaces. Criminal uses for cryptocurrencies roughly break down into two different categories: conventional criminal activity, and new forms of criminal activity.
Conventional Criminal Uses for Cryptocurrencies
The conventional criminal uses for cryptocurrencies include the purchase of illicit goods and services, money laundering and ransom payments. In these cases, cryptocurrencies either replace or supplement conventional financial instruments that have traditionally facilitated criminal activity. As noted in part two of this series, online criminal markets have broken the billion-dollar per year mark in transactions, a volume made possible by cryptocurrencies. Online criminal marketplaces account for the second-largest volume of criminal cryptocurrency transactions behind scams (something we will address later). Cryptocurrencies provide a degree of anonymity, are easy to transfer over international boundaries and mostly do not fall directly under government regulation, thereby making them essential to the operations of online criminal marketplaces.
Cryptocurrencies have also facilitated money laundering by offering criminals an additional instrument to obscure illicit funds and move them around the world quickly and efficiently. As noted in a previous analysis on money laundering, cryptocurrencies alone are not sufficient, but when used in conjunction with traditional tactics such as structuring, fraudulent invoices and trade-based money laundering, they offer criminals a valuable tool. Criminals also appear to be increasingly adopting cryptocurrencies to facilitate money laundering, nearly tripling the estimated volume of bitcoin used in money laundering from $1 billion in 2018 to $2.8 billion in 2019 — and presumably more today, according to Chainalysis.
The third conventional criminal activity that has embraced cryptocurrencies is ransom payments, specifically with the growth of cyber ransomware attacks in recent years. The perpetrators behind the recent high-profile ransomware attacks targeting Colonial Pipeline, JBS and Kaseya all demanded ransom payments in cryptocurrency. Colonial Pipeline and JBS ended up paying ransoms of $4.4 million and $11 million, respectively, in bitcoins, and it appears that at least some of the companies impacted in the Kaseya attack are negotiating payments in bitcoins or other cryptocurrencies to regain access to their networks. In the physical world, at least some kidnapping-for-ransom gangs appear to be transitioning to cryptocurrencies as well, with the first documented case of a kidnapping gang demanding a Bitcoin ransom occurring in Costa Rica in 2015. Since then, the practice has become more common, even though for now cash and physical assets remain the preferred medium for most conventional criminal activity.
December 2020 - A gang demanded 100 bitcoins (the equivalent of $2.3 million at the time) in ransom for the return of a local businessman's son in Bengaluru, India.
January 2020 - A gang in Thailand kidnapped and tortured a Singaporean businessman, demanding a ransom of $740,000, to be paid in bitcoins.
November 2018 - A Costa Rican kidnapping-for-ransom gang murdered an American online gambling organizer despite receiving nearly $1 million in bitcoins as ransom.
New Criminal Activity Made Possible by Cryptocurrency
The most common form of criminal cryptocurrency transactions is scams, mostly related to speculative investment in new cryptocurrencies. Scams make up an estimated 73% of the $30 billion in annual criminal cryptocurrency activity, accounting for about $22 billion. Chinese authorities seized a cumulative $5.3 billion in cryptocurrencies and arrested dozens of people associated with the Plus Token and Wotoken Ponzi schemes in 2019 and 2020, respectively. Another common scam is a fraudulent initial coin offering (ICO) — or the launch of a new cryptocurrency. Fraudulent ICOs attract investors but then never actually launch the promised cryptocurrency. In June, the U.S. Securities and Exchange Commission charged three people with carrying out a $30 million ICO scam earlier in the year. The FBI and other national law enforcement agencies routinely issue warnings to cryptocurrency owners regarding scams and other fraudulent activity on exchanges. As cryptocurrencies continue to grow in number and value, more scams will exploit the hype surrounding cryptocurrencies, meaning that anyone who speculates in cryptocurrency should be well aware of the risk of being involved in such scams and factor it into their calculations when choosing to invest.
Other, far less common, criminal activities involving cryptocurrency impact people without their consent or knowing participation.
Cryptojacking involves gaining unauthorized access to a computer in order to use the device's processing power to create more units of cryptocurrency. Currencies like Bitcoin are only able to operate by solving long, complicated calculations that ensure the integrity of the blockchain — the ledger of transactions over time. Such calculations require massive amounts of processing power but are rewarded with the payment of newly generated bitcoins in a process known as mining. A recent report from the BBC estimated that bitcoin mining consumes around 121 terawatt-hours per year — the equivalent of the annual electricity consumption of Argentina. While some people have invested thousands of dollars to build their own legitimate bitcoin mining operations, others have leveraged malware packages available for as little as $30 on online criminal markets to break into other people's devices and siphon off the processing power of their machines to mine for bitcoin. The process is essentially hijacking another's computer to create cryptocurrency, thus the name "cryptojacking." Since cryptojacking exploits only the processing power of someone's computer, it can run in the background for months or years without the owner noticing the breach. Cryptojacking campaigns typically distribute mining efforts over hundreds or thousands of devices, so the increased power consumption on a single machine is barely noticeable.
Crypto wallet theft involves stealing the credentials to someone's cryptocurrency account and gaining control of its contents. Just as normal bank accounts rely on account numbers, PINs and passwords, cryptocurrency transactions rely on keys, or lines of code that allow users access to their cryptocurrency funds. If unauthorized individuals gain access to that key, they can transfer funds wherever they chose. Crypto wallets come in many forms, ranging from mobile apps to physical devices such as a USB drive. They are generally referred to as either being "hot," meaning connected to the internet, or "cold," meaning stored offline. Hot wallets tend to be more vulnerable because they can be compromised, but their internet connectivity makes them more convenient and user-friendly than the more secure, unconnected cold wallets. While physical wallets can be stolen just as any physical asset (and often are), they are less vulnerable to fraudulent crypto wallet apps or cyber hacks into legitimate apps that can compromise digital keys and the cryptocurrencies associated with them.
Crypto-exchange hacks attack the online exchanges that facilitate the purchase, transfer and sale of cryptocurrencies. Cryptocurrency holders often hold their keys on hot wallets supported by these exchanges and, while major exchanges tend to invest in security to protect their investors' keys, like everything else online, they are still vulnerable. In November 2020, for example, the KuCoin exchange suffered a hack that saw an estimated $150 million stolen. Since most countries do not have a mechanism insuring cryptocurrency holdings similar to the U.S. Federal Deposit Insurance Corp.'s commitment to back up conventional bank accounts, once cryptocurrency is lost (whether through scam, theft or otherwise) it is up to the various actors involved to figure out how to remediate losses. In the case of KuCoin, they were able to arrange for the return of $126 million in stolen funds through a complex process unlikely to be replicable at scale, so there is no guarantee that the next exchange hack will be able to do anything remotely similar. And apart from the threat of hacks against legitimate crypto exchanges, as evidenced by the prevalence of scams in the cryptocurrency world, less reputable exchanges are even less likely to recover stolen assets — and their administrators might even work with hackers to defraud customers.
How Cryptocurrencies Have Made Criminals Vulnerable to Detection
Just as with encrypted communications and online criminal marketplaces, the advantages of cryptocurrencies also come with risks to the criminals who use them. Some security experts even argue that police services have a better chance of catching illicit financial activity done through cryptocurrencies versus traditional financial vehicles because of the public nature of blockchain technology. Currencies such as Bitcoin function by adding each transaction to a publicly viewable ledger. And while the record does not specify the name of the individuals involved in the transaction, it does record an account number that can be linked to an individual with additional investigatory resources.
This is vastly different from the traditional financial sector, where transaction information is private and typically requires a warrant to view. So when, for example, criminal actors conduct a ransomware attack and demand a payment in cryptocurrency, they must provide a wallet number for the victim to direct the funds. That wallet number, and any other wallet numbers associated with it, are forever linked to criminal activity. Due to the public, open-source nature of the blockchain, anyone can conduct due diligence on an account; meanwhile, numerous websites, such as blockchain.com, provide live views of cryptocurrency transactions and the ability to search for previous transactions. The public nature of transactions at least partially explains how the FBI was able to recover $2.3 million of the $4.4 million ransom Colonial Pipeline paid to the criminal ransomware group, DarkSide, in June.
Detecting illegal activity is one thing, but stopping it and rectifying the underlying crime is another. The FBI's seizure of bitcoins linked to the Colonial Pipeline attack was an exception — most cryptocurrency ransom payments are never recovered. Instead, the biggest weak point for criminal transactions involving cryptocurrency is converting it to cash and/or other physical assets, which online crypto exchanges play a large critical role in facilitating. Nearly all (99%) of cryptocurrency transactions involve an exchange, and governments around the world are increasingly regulating the exchanges that facilitate cryptocurrency markets in order to curtail illegal activity. Banks and other financial institutions have long been subject to penalties related to money laundering and terrorist financing; as previously noted, even though only a fraction of overall criminal activity involves cryptocurrencies, there is strong potential for growth that is increasingly of concern to financial regulators and legal authorities.
Governments are using threats against cryptocurrency exchanges in an effort to get them to follow the same anti-money laundering laws and reporting requirements applied to traditional financial institutions, with some signs of success.
July 2021 - The British Financial Conduct Authority officially identified Binance, one of the largest cryptocurrency exchanges in the world, as not being authorized to operate in the United Kingdom. While the virtual nature of exchanges (and the fact that Binance is based in the Cayman Islands) means that British citizens can still use Binance, the measure has hurt Binance's standing, especially as major banks such as Barclays and Santander blocked the exchange following the ruling. Many users have left Binance to join registered and regulated exchanges, such as Gemini, to reduce their risk.
June 2021 - As Binance faced legal challenges in the United Kingdom in June, it also worked with authorities in Ukraine to identify and eventually arrest members of a ransomware group using its exchange to facilitate criminal activity.
May-June 2021 - Several Chinese financial regulatory bodies outlawed cryptocurrency mining and trading and censors blocked social media accounts that reported on cryptocurrency trends, with more legal regulations and restrictions expected later this year. Meanwhile, China's Central Bank is working on rolling out its own state-backed cryptocurrency in part to block criminal exploitation of the technology.
April 2021 - South Korea's Financial Services Commission threatened to shut down all 200 cryptocurrency exchanges operating in the country if they did not apply for licenses to operate as a Virtual Asset Service Provider, which would force them to adhere to anti-money laundering policies such as know your customer and filing suspicious activity reports. The deadline for application is September 2021, after which point unauthorized exchanges are at risk of restrictions.
April 2021 - Turkey placed restrictions on cryptocurrencies, resulting in the collapse of the Vebitcoin exchange after authorities shut down its domestic bank accounts and arrested four founders for supporting fraudulent activity. Authorities also issued an arrest warrant for the CEO of another exchange, Thodex, after he left the country with $2 billion in investors' funds.
At the heart of regulation is the cultural division within the cryptocurrency-holder community between those who want to grow it into an even more mainstream financial vehicle versus those who want to keep the market small and alternative. As major banks increasingly offer cryptocurrency services, investment firms like BlackRock look to diversify portfolios by introducing cryptocurrency and even MasterCard offers credit services based in cryptocurrency, the value of currencies like Bitcoin has risen astronomically, benefiting those who invested early. But introducing more institutional involvement in cryptocurrency markets also introduces more scrutiny and regulations, since those companies are very much liable to regulations and penalties regarding criminal financial activity. As demonstrated in the British example above, government regulatory bodies may not be able to shut down cryptocurrency exchanges, but they can certainly hurt their bottom line by disincentivizing institutional relationships. For this reason, some cryptocurrency holders want to avoid the regulations that come with mainstream adoption in order to preserve cryptocurrencies' status as a truly alternative, parallel financial vehicle — even if it means less growth in the long run.
The Future of Crime and Cryptocurrencies
Similar to online criminal markets, new cryptocurrencies are launching on a daily basis that tweak algorithms and features to cater to an ever-changing market. One direction of development particularly relevant to criminal involvement in cryptocurrency is the growth in anonymity-enhanced coins (AECs), aka privacy coins. Unlike the majority of cryptocurrencies that list transactions on a publicly accessible ledger, AECs conceal the accounts involved in a transaction, making it more difficult to identify and track criminal activity. Ransomware groups such as REvil have been known to offer a discount to victims who pay ransoms in Monero, one of the more popular AECs within criminal circles. As of February, a major online criminal marketplace, White House Market, switched from dealing mainly in Bitcoin to exclusively using Monero to reduce the risk to its users. The FBI's partial recovery of the Colonial Pipeline ransom — facilitated in part by the traceability of major currencies like Bitcoin — could drive even more criminal actors to switch to lesser-known, but more discreet, cryptocurrencies.
The challenge to criminals using Monero is that if it becomes synonymous with criminal activity, the exchanges that are already under increasing regulatory pressure from both national governments and institutional investors could place restrictions on dealing in Monero or other AECs. Such restrictions would make it harder for holders of Monero or other AECs to convert their holdings into physical assets such as cash, property or luxury goods, thereby complicating criminals' money laundering needs. Such restrictions could also decrease the overall value of AECs, thus creating an incentive for legitimate holders of cryptocurrencies to self-regulate and discourage criminal activity.
Nonetheless, despite looming regulations and the risks of being associated with criminal activity, cryptocurrencies will continue to play an important role in criminal finance, especially when it comes to online criminal activity. To be sure, as some cryptocurrencies go mainstream, the return on investment for attracting institutional investors will be well worth the sacrifice of unregulated financial activity, thereby making criminal activity more difficult. Even so, other cryptocurrencies will inevitably arise to meet demands for less transparency and more privacy, even if doing so means sacrificing market share and/or profits. This dynamic mirrors what we previously explored regarding encrypted communications apps and online marketplaces: Namely, even if many platforms seek to purge criminal activity, there will always be niche ones that arise to meet this demand. And as cryptocurrencies themselves become more widely accepted as legal tender, criminals may have less need to launder their illicitly acquired crypto funds into cash and/or other physical assets, thereby lessening their reliance on exchanges and their risk of detection.
As for the overall relationship between crime and technology, our series has shown that new technologies will allow criminals to conduct traditional activity with more efficiency and more profits, and open the door for entirely new criminal activities. The efficiencies and anonymity that new technologies afford criminal actors, however, also benefit law enforcement and regulatory bodies seeking to stop criminals. Whether it is intercepting supposedly secure messages, shutting down online criminal marketplaces or tracking criminal financial transactions, police have proven they can use technology against the criminals who adopt it. But as always, criminals' higher appetite for risk and willingness to find and exploit loopholes in the law means they will always be a step or two ahead of the state — and new technologies will help criminals maintain at least a short-term advantage.
Read on Worldview
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Expect a large move in the next couple of weeks, most likely UP. GBTC unlock period starts July 17...it is unclear if that is going to be bullish/bearish. Below is a note from Willy Woo.
Top level summary for 15th July 2021 (current price $31.8k):
Macro cycle: User growth is on a parabolic climb. Structurally we are in the middle of a bull market. This has not been reflected in price due to the size of the selling pressure of large investors (likely hedge funds) months ago, it’s forced a sideways re-accumulation band, where speculators who absorbed the coins are selling down their inventory to long term investors. The long term picture is strongly bullish once re-accumulation is complete.
Supply shock: The market is undergoing supply shock at levels that price it above $50k. Price needs to climb +50% to find balance with historical levels of valuation. This is expected to happen once fear subsides from the market. To do this price needs to break above its current resistance trend-line.
A large move is probable: Price action is setting up for a large squeeze, a significant move is expected soon. 17 Jul - 24 Jul is a high probability zone for a large price move.
Short term on-chain metrics are bullish: Smart money has ceased selling. Long term investors are absorbing coins at peak levels. Exchange outflows are signalling consistent buying demand.
Price action expectation: I’m expecting price to break from its bearish sideways band in the coming week followed by a recovery to the $50k-$60k zone before some further consolidation.
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The growth curves are getting vertical, expect a near vertical growth curve for BTC.
(https://pbs.twimg.com/media/E6gC3YqXMAIqPiS?format=jpg&name=large)
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See the exponential growth of the BTC lightning network, this is the second layer network which is currently used for instantaneous payments. ..like VISA or Mastercard. And did you know that the actual transaction behind a VISA/Mastercard takes 4-5 days to settle, unlike the Lightning Network which is in seconds.
(https://pbs.twimg.com/media/E6f1pMKX0AY8ouD?format=jpg&name=4096x4096)
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Ya,
Not sure how to interpret the graph
transactions instantaneously - increasing capacity
would essentially rid BC of one of the biggest drawbacks.
The grapevine whispers we are in a BC winter
but the supposed upside is that the large banks (etc.) are buying up at these prices
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You have it exactly right. Transactions on layer 1 (BTC blockchain) are intended for large transactions like buying a house, car etc, where you can wait for 20-30 min for the transaction to clear. On the other hand, small transactions, like buying coffee, need to be instantaneous and "free", that is where the lightning network comes in. STRIKE app https://bitcoinmagazine.com/business/strike-in-app-bitcoin-buying
is the leader in the field and is gaining tens of thousands of members on a daily basis. Expect the banks to be disrupted, they cant even send a wire transfer instantly after charging 25 $.
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will this disrupt coinbase
or alt coins too?
how is the security on Strike?
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See this interview of Jack mallers, the maker of Strike. Super eye opening, the way forward. According to him, banks, Coinbase, Paypal etc are toast.
https://www.whatbitcoindid.com/podcast/lightning-series-why-bitcoin-is-global-money
No specific info on security, I assume its safe, otherwise the BTC community would have already discussed it.
Coinbase is hated in the BTC community...may not be a great investment, though Cathy Wood of ARKK investments is buying heavily,
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BTC make or break time...
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I made a decision that my positions were long term , , ,
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Good decision...BTC is a long term play. If you can hold for 2 halving cycles, i.e. 8 years, that should be rewarding.
Tomorrow important BTC conf in the afternoon. Should be interesting. A sharp move is coming, Bollinger bands have been narrowing. Cathie Wood of Ark Investments, bought a ton of GBTC in the last few days. Exciting times.
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Thank you YA.
https://www.zerohedge.com/crypto/malaysia-destroys-1000-bitcoin-mining-rigs-steamroller?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
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https://bombthrower.com/articles/what-effect-would-tether-being-a-complete-fraud-have-on-cryptos/
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The "experts" think there is no issue with Tether. As BTC rises and banks get disrupted, there will be lots of FUD, talk of govt bans, taxation etc. BTC has forced nearly every nation to come up with CBDC's, but CBDC's are just unlimited fiat digital $. Gresham's law predicts that bad money drives out good money i.e. BTC will be hoarded as a store of value, while fiat will be spent.
Stablecoin legislation is coming.
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This is a great read, highly recommended, especially the last few chapters. Nik Bhatia's Layered Money
(https://m.media-amazon.com/images/I/51A6CTs7y3L.jpg)
https://www.amazon.com/Layered-Money-Dollars-Bitcoin-Currencies/dp/B091D3KR8G/ref=sr_1_1?dchild=1&keywords=nik+bhatia&qid=1627225851&sr=8-1 (https://www.amazon.com/Layered-Money-Dollars-Bitcoin-Currencies/dp/B091D3KR8G/ref=sr_1_1?dchild=1&keywords=nik+bhatia&qid=1627225851&sr=8-1)
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https://rumble.com/vkacf3-dhs-officials-testify-before-house-subcommittee-on-cryptocurrency-financing.html?mref=6zof&mc=dgip3&utm_source=newsletter&utm_medium=email&utm_campaign=One+America+News+Network&ep=2
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Most of the money laundering is done using the US $ and other major currencies. Crypto is a very small portion of that. Furthermore, calling it "crypto" is not useful. There are 8000 crypto currencies.
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https://news.yahoo.com/bitcoin-surges-amid-short-covering-031129556.html
I suspect Amazon is going to come out with their own coin
since when do they not muscle into a market themselves
like FB is doing with zuck bucks ......?
:?
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Most of the money laundering is done using the US $ and other major currencies. Crypto is a very small portion of that. Furthermore, calling it "crypto" is not useful. There are 8000 crypto currencies.
https://web.archive.org/web/20140701203223/http://www.rollingstone.com/politics/blogs/taibblog/outrageous-hsbc-settlement-proves-the-drug-war-is-a-joke-20121213
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What year is that Taibbi piece?
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What year is that Taibbi piece?
2012, I believe. The ugly truth is the big banks have been neck deep in money laundering forever, and pay no real consequences.
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The point you make with it is quite on point, but it is always good to have the full citation.
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The point you make with it is quite on point, but it is always good to have the full citation.
https://medium.com/technicity/big-banks-are-at-the-front-center-of-money-laundering-of-over-2-trillion-299feea4c58e
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What happened today?
Great day for GBTC (COIN too)
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https://www.gatestoneinstitute.org/17487/china-digital-currency
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https://www.gatestoneinstitute.org/17487/china-digital-currency
this is a really well linked and sourced article. I'll move this to another thread but want to pull it out here.
Broken promises of PRC:
https://www.wsj.com/articles/china-completes-runway-on-artificial-island-in-south-china-sea-1443184818
militarization of the islands. Hong Kong will remain under the separate system, and so many more. What does their word of honor mean? Nothing, absolutely nothing! Is that what you want standing behind a currency?
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https://www.gatestoneinstitute.org/17487/china-digital-currency
[Doug]the number one motive of the Chinese Communist Party is to maintain (or increase) complete control over their subjects. Efficiency of transactions is second to that.
[From the article]:
"The real purpose of the new digital currency... seems to be... to challenge the long-standing global reign of the US dollar."
[Doug] Aren't those objectives contradictory? If it is designed to force complete control, non-consensually, over it's subjects (and how could it be anything else?) doesn't it follow that no one would choose that currency if they didn't have to? That doesn't put you ahead of the USD or Bitcoin.
BTW, the US$ is a digital currency.
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https://reason.com/2021/07/27/eu-bureaucrats-seek-to-diminish-your-cryptocurrency-privacy/
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Go GBTC! 8-)
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I trust Chinese digital currency like I trust Chinese infant formula.
https://www.gatestoneinstitute.org/17487/china-digital-currency
[Doug]the number one motive of the Chinese Communist Party is to maintain (or increase) complete control over their subjects. Efficiency of transactions is second to that.
[From the article]:
"The real purpose of the new digital currency... seems to be... to challenge the long-standing global reign of the US dollar."
[Doug] Aren't those objectives contradictory? If it is designed to force complete control, non-consensually, over it's subjects (and how could it be anything else?) doesn't it follow that no one would choose that currency if they didn't have to? That doesn't put you ahead of the USD or Bitcoin.
BTW, the US$ is a digital currency.
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https://www.washingtonexaminer.com/news/bipartisan-plan-raise-revenues-cryptocurrencies-faces-implementation-obstacles
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Ugh.
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From Willy Woo
Top level summary for 1st August 2021 (current price $41.6k):
Macro cycle: Data from small (shrimp) and large (whale) investor activity are in alignment towards Bitcoin being in the mid phases of a bull market.
Supply shock: The market continues to underprice BTC as a rapidly increasing supply shock remains in force. Price needs a rise to $55k to find balance with the reduced level of coin availability entering the sell side of the market.
Rick Astley: Strong-handed investors have been buying the accumulation band for 2 months. Presently they are taking the opportunity to buy large quantities below $42k while price action is temporarily held down against a technical resistance band.
Miners capitulation: After the miners ban from China, mining hash rate is now in recovery, signalling the end of miner sell-off. Historically this opens a path for multi-months of bullish price action.
Price action expectation: We are presently up against a strong resistance level of $42k in a period where technicals are pointing to a pull back or a consolidation. Meanwhile on-chain fundamentals are screaming bullish. My expectation is similar to BTC at $20k all-time-high in January, where the price is pinned closely to the $40k-$42k ceiling over a period of days (2 weeks maximum) wearing down sellers, followed by a faster move to $50k. The next major consolidation band is $50k-$65k.
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:-D
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https://finance.yahoo.com/news/dc-crypto-industry-tangle-over-potentially-devastating-impact-of-infrastructure-deal-162135198.html
https://finance.yahoo.com/news/u-sec-chair-gensler-calls-162645064.html
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https://www.blacklistednews.com/article/80533/the-cryptocurrency-surveillance-provision-buried-in-the-infrastructure-bill-is-a-disaster-for.html?utm_source=dlvr.it&utm_medium=twitter
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It will be reversed..under discussion
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https://stockcharts.com/h-sc/ui
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1. ETH article...I dont think ETH will die...but you may want to read this.
https://tomerstrolight.medium.com/the-problem-with-ethereum-af9692f4af95
2. BTC appears to be breaking out. Hope those who wanted to loaded up at around 30 K. Currently at 43 K. Fiat has no bottom (devaluation), so BTC has no top.
3. The govt's are going to try and tax "crypto", many barriers will be created. Anything that is not truely decentralized will be in trouble. Apparently, in the infrastructure bill, Biden was for PoW (Proof of Work) currencies like BTC and against the PoS (Proof of Stake) currencies like ETH, which are centralized. Based on this, you can be sure that ETH will never be a Sov (Store of Value) like gold, or a currency. Its main use will be as a centralized platform for other applications. What is striking is that Biden is supporting BTC as PoW, they know they cant control it and even though it consumes a lot of energy, most of it is renewable energy.
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May I ask you to flesh out Proof Of Work and Proof Of Stake?
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I have not studied PoS in any detail, since I am not a supporter of ETH, but below is a simple explanation.
PoW: Was originally developed to prevent email scammers from sending unlimited emails. A legitimate emailer could bear a very minute cost to send an email, but for a scammer sending out thousands of emails the costs become significant. In the BTC world, miners spend electricity to solve a complex maths problem and if they come up with the correct solution, they get rewarded with BTC. In other words, its honest work and everyone has an equal chance of winning the lottery. If you buy more tickets (mining computers), you have more chances of winning (or losing), but even the guy with a single ticket can win. The thousands of mining nodes then, confirm/validate the correct maths solution and the block chain moves forward. It is very difficult to cheat, because you have to spend a lot of money and if the mining nodes dont confirm your solution, your money is wasted. This is the reason, govts cannot stop or attack BTC.
PoS: Was designed so that work=electricity consumption would be minimized. The "miner" who is chosen (aka validator) to approve the transaction is chosen randomly by an algorithm, that itself is based on how many ETH you own (as opposed to a random process by expending energy in the BTC PoW protocol) and Stake in the process. i.e. wealthy individuals have more power!
There is much more detail and nuance (https://blockgeeks.com/wp-content/uploads/2019/05/proofofworkvsproofofstake-1.jpg.webp)
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THANK YOU.
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https://stockcharts.com/h-sc/ui?s=gbtc
https://stockcharts.com/h-sc/ui
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ASSESSMENTS
With the E-Yuan, China’s Government Cements Its Hold on the Economy
10 MIN READAug 9, 2021 | 20:54 GMT
A photo illustration shows digital currency coins in front of a Chinese flag in October 2019.
A photo illustration shows digital currency coins in front of a Chinese flag in October 2019.
(Chesnot/Getty Images)
Recent moves by the Chinese government and large state-owned banks to operate a “digitized” payments system and an official digital currency underline Beijing’s efforts to erode private payments platforms’ dominance and make financial transactions data available directly to the government. A regulatory crackdown on technology firms, statements by key officials on data security and financial risk, and a People’s Bank of China (PBOC) white paper on an official digital currency, the “e-yuan” (also referred to as the “e-CNY” or the Digital Currency Electronic Payment) all suggest Beijing’s growing interest in central bank digital currencies and financial technology (fintech). At the same time, the payments system and the e-yuan give Beijing a new tool to track domestic financial transactions and maintain and reassert a state monopoly on currency issuance and payments.
The PBOC said on July 31 it would “supervise and guide [fintech] platforms to make comprehensive rectification in accordance with regulatory requirements,” which it claimed was to implement Chinese Communist Party (CCP) Central Committee and State Council decisions “on tackling monopolies” and acting to prevent major financial risks.
The PBOC white paper, issued July 15, lays out some operational details but does not add to an understanding of how a central bank digital currency (CBDC) increases economic efficiency or reduces financial risk.
In discussing the recent regulatory crackdowns, Chinese Vice Premier Liu He, the government’s senior economic official, said on July 29 that the “new stage of development” requires China to “balance the relationship between [economic] development and security,” which he said serves to “protect fair competition, promote the healthy and orderly development of capital [and] protects the interests of consumers.”
China’s Ministry of Industry and Information Technology put technology companies on notice on July 30 after announcing that a new data security law will take effect Sept. 1, which will treat private sector protection of data and personal information as a national security issue.
A Primer on Central Bank Digital Currencies
Central bank digital currencies (CBDCs) are an electronic form of cash issued by a country’s official central bank for use on online or mobile payments platforms. They are not cryptocurrencies like Bitcoin, which are privately issued, anonymous and decentralized outside the control of any authority. 65 countries are at some stage of researching or developing CBDCs, with China and Sweden at the most advanced stage of pilot programs to assess implementation. The U.S. Federal Reserve has promised a research paper in the next few months, but Chairman Jerome Powell has said it's better to get a CBDC right than it is to be first.
The Great Leap Forward Into Fintech
While China is already a significantly “cashless” society, fintech has until now been dominated by private sector firms encouraged by the government to innovate. The big state-owned banks had also, until now, been concentrated on directing credit to priority investments and financing government-owned companies.
The PBOC white paper estimates that as of 2019, 66% of all transactions in the economy (accounting for 59% of total value) were conducted via mobile payments platforms, with an additional 7% volume and 23% value accounted for by debit and credit cards.
Private payments platforms WeChat Pay (owned by Tencent) and Alipay (owned by Ant Group, the financial affiliate of e-commerce giant Alibaba) accounted for more than 90% of those digital payments, according to the Bank for International Settlements (BIS).
Estimates of mobile payments transactions in China range from $35 trillion in 2019 to $52 trillion, more than three times China’s GDP. In contrast, Venmo, PayPal and Zelle accounted for $98 billion in U.S. payments in 2019, with debit and credit cards issued by Visa, MasterCard and American Express, among others, used in transactions totaling $6.7 trillion in a $20 trillion economy.
China’s commanding world lead in fintech was enabled, in part, by the lack of a financial system when the country’s reform era began in 1978, as well as the absence of legacy pen-and-paper accounting systems so that new state-owned banks jumped unimpeded into computerized bookkeeping. The state-owned banks did not, however, focus on retail or consumer services. Private technology companies were also encouraged to fill the void and make additional sources of credit available for small- and medium-sized enterprises.
An estimated 1.2 billion Chinese already utilize digital payments methods. At least 90% of people living in Chinese cities now use QR codes and “digital wallets” on mobile phones, while those living in remote regions have access to payments platforms and 24-hour banking services from low-grade smartphones.
While China opposes decentralized cryptocurrencies, the popularity of bitcoin before the 2017 crackdown against it showed the domestic potential and interest in digital currencies.
Although developing blockchain technology used by cryptocurrencies is one of China’s strategic national development goals, the decentralized nature of cryptocurrencies raises fears in China of losing control of the money supply and the ability to track transactions.
The PBOC discourages the use of cryptocurrencies such as bitcoin or ethereum, which the bank has been trying to regulate since 2013. Under its official position that cryptocurrencies are speculative assets, the PBOC stated on July 30 that it would “maintain high pressure on virtual currency trading hype” by “severely cracking down on illegal activities of virtual currency.”
PBOC officials also denounce so-called stable coins (i.e. cryptocurrencies with value pegged to another asset) as causing financial instability.
Beijing is hoping to tap into the domestic popularity of digital currencies and the convergence between them and the digital economy. The introduction of the digital currency enables the reassertion of Beijing’s official role in fintech development, eating away at the current dominance of WeChat Pay and Alipay, at least as payment systems. Neither the government nor the PBOC, however, has explained the efficiencies to be achieved over the current system by using a central bank digital currency. Chinese officials are discrediting private payments platforms and presenting the e-yuan and state-owned banks as more reliable.
There is virtually no credit risk from WeChat Pay and Alipay since the PBOC required the companies to move deposits made against customers’ accounts to the bank between 2017-2019. China, however, is particularly risk-averse compared with Western countries. Whereas Western financial markets see risk as something to be quantified and managed, China’s national security paradigm and economic model view it as something to be preempted and eliminated completely in order to guarantee economic, financial and political stability
While the PBOC may fear duopoly control and the ability of Tencent and Ant Group to potentially extract economic rents from WeChat Pay and Alipay, respectively, regulatory actions could effectively preclude such behavior and effectively make the companies into financial utilities.
Most of the official statements from Beijing on the e-yuan stress a motive of greater financial inclusion, such as extending banking and financial services to China’s poorer rural areas, as well as improving efficiency and fairness. But key aspects of the e-yuan system are also aimed at replacing Tencent and Ant Group’s payment systems.
Eying China’s Economic Future
China has positioned the digital economy and the tech sector at the center of its economic future, with digital payments and digital currencies underpinning that shift. Beijing wants to ensure it has levers to monitor, collect information on and manage key aspects of the digital payments system. Although the PBOC stresses the e-yuan will have “controllable anonymity,” it could help to operationalize what until now has been a vaguely defined social credit system in which the Chinese government blacklists “unreliable” persons and entities with restricted access to various activities. Only small transactions will be partly anonymous but still require phone numbers, which in China are registered under real names using national identity numbers.
Technology is the core focus of China’s economic development plan for the next five years. The plan, which the National People’s Congress adopted on March 11, prioritizes developing cloud computing, big data analysis capabilities and the “Internet of Things” as critical to Chinese economy’s growth and advancement.
The PBOC’s Fintech Development Plan 2019-2021 previously called for strengthening the state’s role in guiding innovation and growth in financial technology. It also called for “revers[ing] the situation where key core technologies are controlled by others,” which was undoubtedly a reference to tech giants Tencent, Alibaba and Baidu.
In September 2020, China’s National Development and Reform Commission said turning the country into a “cyber superpower” through “informatization, digitalization and intelligentization” efforts was a national priority.
Once the e-yuan system eventually moves from the current pilot program to fully implemented national use, it will enable the Chinese government to substantially scale up its surveillance of financial flows across the economy. China is the farthest along of the major countries also considering central bank digital currencies. But the e-yuan system is still in its infancy, and various issues regarding its operation still need to be resolved. Much work in testing and development remains to be done before the currency is fully rolled out on a national scale, though China will try to expand the pilot program to use during the February 2022 Winter Olympics.
The PBOC will own and operate the e-yuan system, distributing currency through six state-owned banks, as well as WeChatPay and Alipay, which have already borne significant research and development costs in setting up and operationalizing mobile payments platforms.
Having a single digital currency also aligns with China’s data nationalization campaign, which is aimed at bringing isolated public databases within cities and provinces under one national database and doing the same with private data, in order for all of China’s tech initiatives to benefit from economies of scale. There may be anonymity for small peer-to-peer transactions on the e-yuan system, but even those must be through a mobile phone which in China requires a link to a real name and national identity number.
The new digital currency system will also allow for substantial data mining capabilities and directed surveillance of entities if ordered by authorities. Social governance or management is consistent with the Communist Party’s efforts to control society, and the digital yuan advances that goal.
Private international firms operating in China should, for now, not presume any privacy and/or data invisibility under the e-yuan system. Spending and data transfer restrictions on domestic and cross-border transactions may impact customer relations and global accounting processes.
While China has professed an interest in helping develop global standards on government-backed digital currencies, its absence from the BIS working group on the matter indicates otherwise.
While the e-yuan will ultimately increase Beijing’s access to information and its ability to surveil financial transactions, the Chinese government’s actual intent for the digital currency is multifaceted. China views digital currencies as the currencies of the future and wants to be a global leader in this technology. Though e-yuan is currently targeting China’s domestic retail sector, Beijing also sees the payment system as a future tool for international finance that could help erode the West’s dominance in international payment mechanisms like SWIFT. Domestically, digital currencies can also improve access to mobile payments for rural and elderly populations without mobile phones. Pilot programs targeting these demographics, however, have so far been coldly received. The central bank argues that the e-yuan could provide more user privacy from companies on third-party and peer-to-peer transactions, while Beijing’s access to these transactions is, technically, unlimited. A digital currency will also improve investigations into money laundering and other illicit finance, which can be politically motivated — particularly when applied as part of President Xi Jinping’s anti-corruption campaign. Finally, China recognizes that digital currencies are in their infancy and may open up novel methods of carrying out economic and monetary policy.
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https://www.theepochtimes.com/mkt_morningbrief/sen-cruz-warns-that-bipartisan-infrastructure-bill-could-obliterate-cryptocurrency_3942255.html?utm_source=Morningbrief&utm_medium=email&utm_campaign=mb-2021-08-11&mktids=52691b3245bb57b9882ccb116b1bcd57&est=nDQPbdpHW1pGFEuxlF2ebaSE6YTW7RPY32%2BfB9BZA0kuSSjnm0BlKjaV1zflu7uaCPAE
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https://www.foxbusiness.com/markets/amc-second-quarter-crypto-tickets
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BTC energy usage
https://bitcoinmagazine.com/business/bitcoin-energy-use-compare-industry (https://bitcoinmagazine.com/business/bitcoin-energy-use-compare-industry)
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I dont think ETH is going away anytime soon, and might even outperform BTC for a while...yet this picture captures the essence of ETH in an easily explanable manner. Starting with the 70 % premine. In contrast, Satoshi did not pre-mine anything, infact even his coins purchased later, remain untouched.
(https://pbs.twimg.com/media/E8vHKiWXMAAXn6N?format=jpg&name=medium)
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See how much $ has been printed.
https://twitter.com/i/status/1426438545875644416 (https://twitter.com/i/status/1426438545875644416)
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YA:
Much gratitude for the quality work you bring to this thread!
Looking forward to more of the same for Afpakia :wink:
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Thanks..Why BTC is not a ponzi scheme
https://www.swanbitcoin.com/why-bitcoin-is-not-a-ponzi-scheme-point-by-point/ (https://www.swanbitcoin.com/why-bitcoin-is-not-a-ponzi-scheme-point-by-point/)
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(https://pbs.twimg.com/media/E8yTMACXMAAlrzu?format=jpg&name=900x900)
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I posted more about this in 'Economics'.
Pres Nixon, 8/15/1971:
“I have directed [Treasury] Secretary Connolly to suspend temporarily the convertibility of the dollar into gold.”
https://lawliberty.org/fifty-years-without-gold/
—--------------
(Doug). Somebody in government missed the key word 'temporarily'.
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Tangent:
IIRC: My father, in 1972 was Chairman of "Democrats for Nixon" for the the State of PA. In that context he met with Connally, who IIRC was Nixon's campaign manager. Paraphraising my dad's comment: "Normally such people have concern for their down ticket candidates (Senate, Congress, etc) but not these guys. They had not a fukk to give."
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Here's some celebratory listening, with BTC around 49K. Today is a special day for BTC, 8/21,000,000 day. http://bitcoininfinityday.org/
Speakers ON
https://twitter.com/i/status/1390665087447408651 (https://twitter.com/i/status/1390665087447408651)
https://twitter.com/i/status/1428840925875347458 (https://twitter.com/i/status/1428840925875347458)
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BTC is being accumulated...price should go up in the next 2-3 weeks.
(https://cdn.substack.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F21c60dde-1705-4037-8470-e8608fda33eb_2224x1456.png)
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Here's some thoughts on ETH. ETH has its supporters and detractors. I dont think its going away, and it pumps and falls harder than BTC.
https://dennisporter.substack.com/p/ethereum-dumpster-fire (https://dennisporter.substack.com/p/ethereum-dumpster-fire)
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https://www.thegatewaypundit.com/2021/08/inflation-skyrockets-us-russia-saudi-arabia-sign-agreement-ending-petrol-dollar-putting-us-dollar-economy-risk/
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A few weeks ago, there was a news article that the Saudis are getting into Bitcoin mining, perhaps using flared gases, which currently go waste.
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https://www.coinbase.com/?utm_campaign=campaign_2804601&utm_medium=email&utm_source=Iterable
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He likes the American dollar
https://www.newsmax.com/finance/streettalk/trump-cryptocurrencies-disaster-scam/2021/09/01/id/1034642/
remember this guy had no problem signing off on trillions in new spending
whose Fed pumped out dollars like rabbits having bunnies
God I hope we get someone else for '24.
I don't want to go thru another 4 of him
yet still better than any democrat
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Don't worry, the dems will make sure to "fortify" all future elections to ensure he's never president again. Or anyone else the deep state doesn't approve of.
He likes the American dollar
https://www.newsmax.com/finance/streettalk/trump-cryptocurrencies-disaster-scam/2021/09/01/id/1034642/
remember this guy had no problem signing off on trillions in new spending
whose Fed pumped out dollars like rabbits having bunnies
God I hope we get someone else for '24.
I don't want to go thru another 4 of him
yet still better than any democrat
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BTC going to 60 K, soon.
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Sept 7, a lot of folks are going to buy 30 $ worth BTC, in solidarity with BTC becoming legal tender in El Salvador. The govt of El Salv, is giving its entire population 30$ to start using BTC. The on-chain analytics is showing BTC is ready to move up.
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Bitcoin vs $hitcoin
https://youtu.be/TIkqBZnrKJM (https://youtu.be/TIkqBZnrKJM)
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I think you will enjoy this discussion with Marc Faber, in 2 parts
https://youtu.be/fDf24HkFXKE (https://youtu.be/fDf24HkFXKE)
https://youtu.be/7-0Ym5CoDS0 (https://youtu.be/7-0Ym5CoDS0)
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Today was an interesting day, i.e. the day El Salv started using BTC as legal tender. Nearly every exchange stopped functioning (crashed) and there are tens of them. Could be buy the rumor and sell the news or the IMF trying its best to crash BTC. The IMF has been making nasty statements towards El.Salv and they may have tried to show who is boss.
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https://www.breitbart.com/politics/2021/09/10/democrat-budget-committee-chairman-we-have-power-to-create-as-much-as-we-need-to-spend/
This will work out well!
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Willy Woo commentary
Top level summary for 11th Sep 2021 (current price $45.6k):
Macro & mid-macro: The network is coming into a macro region of capital influx, further supporting the view of re-accumulation and a strong rally late this year and into 2022.
Short term: Short term and long term investors, including whales, are now in strong accumulation, taking this opportunity to buy during this pull-back. Meanwhile we are in a volatility squeeze environment. Fundamentals are forming a bullish divergence to price action and as such, it points to this price pull back being a bear trap (that’s to say price moving to trick people into a bearish expectation while price snaps back suddenly bullish). We experienced a similar environment in July when price collapsed to $28k before a strong rally above $50k.
Price action expectation: I’m awaiting a price squeeze back into the $50k+ range once accumulation has completed, I expect this to happen this coming week.
Price action conviction: Medium (downrated due to correlations to equity markets which has been weak recently and could pull BTC down with it should the SP500 break long term support.).
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El Salvador Runs a Bitcoin Scam
The cryptocurrency as obligatory legal tender undermines dollarization.
By Mary Anastasia O’Grady
Sept. 12, 2021 4:17 pm ET
Ever since Iran was denied access in 2012 to the Society for Worldwide Interbank Financial Telecommunication, a Brussels-based global banking network known as Swift, the axis of evil and its allies have intensified their search for a way to move illicit money electronically, outside the legal banking system.
Getting kicked off Swift is “like getting knocked back into the financial Stone Age,” says Joseph Humire, executive director for the Center for a Secure Free Society. “Without it, governments are reduced to physically moving around pallets of cash.”
Salvadoran President Nayib Bukele doesn’t have to worry about that possibility anymore because on Sept. 7 El Salvador made bitcoin obligatory legal tender. By adopting a nonbanking currency that will coexist with the U.S. dollar but trade outside the internationally protected banking system, Mr. Bukele ensures that he will be able to move money electronically, even if his government should face sanctions.
The bitcoin law also gives Mr. Bukele a path to end dollarization and return to a government fiat currency that can be printed as politicians desire. This has alarmed advocates of stable money because, by dollarizing in 2001, El Salvador ended the specter of hyperinflation and devaluation.
It may be that Mr. Bukele believes that bitcoin will behave better than the dollar as a medium of exchange and a store of value. But if so, he got an education on the day of the launch. The website of the e-wallet Chivo, which the government is using to circulate bitcoin, crashed. Meanwhile the dollar value of the cryptocurrency traded down as much as 17%.
The rocky start highlighted the dangers of obligatory bitcoin for a poor country that needs investment and growth. Salvadorans who receive bitcoin—in remittances or in commercial transactions for example—will either have to accept the possibility of losses incurred by holding this volatile asset or sell it through Chivo, which is a government-sponsored enterprise with little transparency.
Article 8 of the law says that the government guarantees “automatic and instant convertibility” to dollars. It’s unclear how that works in real time or the risks to taxpayers. But as Florida Atlantic University economist William Luther points out “those who make the exchange won’t be getting dollars in their Chivo accounts but rather dollar-stable coins.” As you will see in a moment, this opens the door to a possible de-dollarization of the economy without the public’s approval.
A 2015 paper published by Mr. Humire’s center—titled “The Anti-Dollar Alliance”—discussed an effort, led by Russia, China and Ecuador “against the global dominance of the U.S. dollar.”
The paper described a 2014 meeting in Bolivia of foreign delegations from these countries, along with dozens more. “One of the loudest voices came from Ecuadorean President Rafael Correa who held several conversations with his Chinese counterparts to affirm the need to reform the international financial architecture.”
As Mr. Bukele’s government grows ever closer to China and tensions with Washington increase, it isn’t unreasonable to see his bitcoin law as an experiment in circumventing the laws that Mr. Correa so detested.
There is no evidence that Mr. Bukele dislikes dollars. He undoubtedly knows they are the world’s monetary standard and surely would like to have more of them. But he wants to get around the rules governing their circulation in the international financial system. Still, the bigger near-term risk to the nation may be the threat to currency stability.
The Chivo e-wallet allows Salvadorans in the U.S. to send money home without incurring money-gram fees. But it could also be the first step to breaking dollarization, which is popular.
The stable-dollar coin is a parallel digital asset with a fixed exchange-rate to the dollar. In other words, it’s a new currency created by the government.
To get it into circulation, the government has to get the largely unbanked nation into digital money. The bitcoin law does this by forcing merchants to accept the digital currency—Article 7 of the law—via Chivo.
When Salvadorans convert their bitcoin to dollars, they don’t receive dollars in the e-wallet. Instead they become holders of stable-dollar coins, which are only a claim to real dollars.
At that point, Salvadorans hold an asset backed by the full faith and credit of, well, Mr. Bukele’s government. It can rename that stable-dollar coin at any time, but it is most likely to do so only after it gains widespread use. It can also renege on its promise to peg it at one-to-one to the dollar, essentially devaluing the asset.
It would be impossible to stop this unpopular confiscation of assets because the dollar-equivalent coin in the Chivo e-wallet would be issued and backed by the government, which, by the way, is highly indebted. If this looks familiar it’s because it’s a gussied-up version of Argentine convertibility.
Write to O’Grady@wsj.com
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interesting article
and take on bitcoin adoption by countries as currency
as for Ms O'Grady she appears to be conservative :
https://en.wikipedia.org/wiki/Mary_O'Grady
would I rather have my finances backed by. the US dollar
or gold ?
probably gold or bitcoin
too soon to say bitcoin. :-o
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What happened to GBTC today?
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The Benefits, Risks and Constraints of El Salvador's Bitcoin Gambit
El Salvador's use of bitcoin as legal tender was intended to boost the developing nation's economy. But implementation difficulties will likely serve as a cautionary tale to other nations looking to implement national digital currencies. Bitcoin became legal tender Sept. 7 in El Salvador. Given the unprecedented nature of the move to adopt a cryptocurrency on a national scale, little can be forecast about how this will affect the country's macroeconomics, business climate and citizens. The initial rollout of the country's Bitcoin wallet, Chivo, has been rocky, as the app was down for the majority of the first day and has since crashed several additional times. In addition to technological issues, the move has also given rise to unrest, with a widespread backlash breaking out against the adoption of Bitcoin as legal tender.
Just days after the president submitted the bill, the law passed June 9 by a supermajority in the Salvadoran legislature, with 62 members voting in favor of the bill, 19 opposing and 3 abstaining.
The lopsided legislative vote aside, recent polls show two-thirds of Salvadorans disagree with the government's move, with many skeptical of its financial implications.
Protesters burned bitcoin ATMs — which can exchange bitcoins for dollars — in widespread protests from Sept. 15-16.
To encourage the public to use Bitcoin, the government is giving every Salvadoran citizen the equivalent of $30 dollars in bitcoin when they download the Chivo app, leading to an immediate explosion in the use of the app among those with internet access. This surge does not ensure continued use, however, as Salvadorans may download the app to spend the money, then stop using the digital wallet. Additionally, the Salvadoran government has installed roughly 200 ATMs that will allow citizens to exchange the cryptocurrency for dollars and withdraw cash, in addition to approving a reserve of 550 bitcoins to facilitate these transactions.
Benefits, Risks and Constraints
The move may remove the heavy fees associated with sending remittances; at present, an average of 10% of transactions goes to financial intermediaries. Remittances currently account for roughly 20% of the country's gross national income. While remittances could indeed increase through the use of Bitcoin, public pushback against the currency will limit this, as will the significant portion of the country that lacks internet access. As only 66.2% of the population uses the internet, the government will have to mount an aggressive internet access campaign before a majority of the population can make payments in the currency
Increased use of digital wallets and other apps may make it easier for those without bank accounts to transfer their money online. This would create greater security around finances, allow the government to tax more payments — as employers may now pay employees in bitcoins — and prevent cash theft. As of 2021, 70% of El Salvador's population had no bank account.
The adoption of Bitcoin may increase foreign direct investment in El Salvador. The government has launched several cryptocurrency-related incentives, such as the decision not to impose a capital gains tax on bitcoins and the allowance of permanent residency for crypto entrepreneurs. This may incentivize bitcoin miners and ATM manufacturers — due to large government purchases of ATMs that convert bitcoins to dollars — to relocate their business to the country.
As the move to make Bitcoin legal tender gains international attention, cryptocurrency enthusiasts around the world may travel to El Salvador to see the experiment live. When a small beach town in the country, El Zonte, began a micro experiment actively encouraging residents to use bitcoins, the town saw an influx of global tourism, becoming one of Central America's top tourist destinations. Though the ongoing global outbreak of COVID-19 is likely to stifle this effect, El Salvador's aggressive vaccination campaign may put potential tourists at ease.
Bitcoin's volatility heightens the likelihood of temporary losses in value for businesses and individuals in El Salvador who conduct transactions in cryptocurrency. This threat will likely disproportionately affect small businesses, which are more vulnerable to financial shocks. Additionally, a drastic price drop or increase may lead to a potential rush on cryptocurrency ATMs, causing security risks.
The volatility associated with El Salvador's move to adopt Bitcoin may lower the market rate of the country's foreign debt, potentially threatening El Salvador's ability to access external financing ahead of bond redemptions. This may pose difficulties, as the country will need roughly $3.5 billion to $4 billion in foreign funding per year to finance its deficit, which has climbed to roughly 90% of GDP.
The move has already created tensions between the government and the International Monetary Fund, which considers cryptocurrency as legal tender "a threat to macroeconomic stability" and potentially harmful to financial integrity through its use in illicit activities. El Salvador is currently in negotiations with the IMF for a $1 billion program to patch budget gaps through 2023. Should the volatility of Bitcoin affect macroeconomic policy, it would likely hamper these negotiations, hurting the already poor performance of the country's sovereign bonds.
Without sufficient monitoring and regulation, it is unlikely that El Salvador will be able to stop criminal groups — namely Barrio 18 and MS-13 — from using the platform to launder money and move large sums of money between the United States and El Salvador. This would further delegitimize Bitcoin, which has been used for money laundering in the past. Though the government has laid out regulations on the cryptocurrency, it is unclear how effective regulatory measures will be since the government commonly selectively applies regulation.
As the adoption of Bitcoin as legal tender is unprecedented, lawmakers in several other regional countries are looking to El Salvador's experiment to gauge its feasibility. Legislators in Panama, Mexico and Paraguay have proposed similar laws, though they are unlikely to pass. Should the experiment prove successful or countries deem it would work out better for them than for El Salvador, other countries may choose to adopt cryptocurrencies as legal tender or create government-sponsored cryptocurrencies pegged to an existing currency, such as in the Eastern Caribbean. Other dollarized economies, such as Ecuador, Panama and Zimbabwe, may consider adopting a cryptocurrency as legal tender or creating a nationalized cryptocurrency should the move reduce El Salvador's reliance on the dollar.
The Eastern Caribbean currency union launched a digitized version of the Eastern Caribbean dollar called "DCash" in April 2021, making it the world's first currency union to implement a blockchain-based currency.
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Breaking news: this is hugely disruptive, pl. do consider reading
https://jimmymow.medium.com/announcing-the-strike-api-c18a4e9c54de (https://jimmymow.medium.com/announcing-the-strike-api-c18a4e9c54de)
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https://finance.yahoo.com/video/china-declares-cryptocurrency-transactions-illegal-132728572.html
The Chinese and the World is in for real hurt .
We are in cold war for 30 yrs.
Biden and his handlers
still playing soft
"we are trying to prevent cold war"
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A financially collapsing China is very dangerous. Luckily, we have the bestests, smartest people running things, so it’s fine!
https://finance.yahoo.com/video/china-declares-cryptocurrency-transactions-illegal-132728572.html
The Chinese and the World is in for real hurt .
We are in cold war for 30 yrs.
Biden and his handlers
still playing soft
"we are trying to prevent cold war"
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GBTC (and COIN) apparently very unhappy with this news , , ,
Some rather undisciplined articulation here with some interesting ideas mixed in:
https://bombthrower.com/articles/china-is-showing-us-what-it-would-take-to-ban-crypto/
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China has tried to ban BTC tens of times. If they cant ban it, no one can. BTC went down about 5K, but its now back up to where it was 2-3 days ago. China bans are having little effect. They are scared of BTC, they want Chinese CBDC.
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I have shilled Jack Mallers before, check this amazing video from 1:00 hrs as to what his achievement does for payment systems world wide.
https://youtu.be/oWZ3Lczu3j4?t=3595 (https://youtu.be/oWZ3Lczu3j4?t=3595)
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https://www.wsj.com/articles/bitcoin-miners-eye-nuclear-power-as-environmental-criticism-mounts-11632654002
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BTC mining is 70 % green. Texas is leading, where all the flared gas is being captured for mining. Nuclear mining is coming too. Society progresess with increase in energy consumption...the so called Kardashev type I civilizations.
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Hi ya
"BTC mining is 70 % green"
can you source this
anti bitcoiners make it sound like bitcoin is burning fossil fuel
like mad
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There are several publications where the 70 % number has been cited https://www.ccn.com/bitcoin-shockingly-renewable-energy/ , I have to clarify that refers to the US/Canada. More than 50-60 % of the coal based mining was in China, most of it has been shut down. However, the exact calculations are complex, because it also depends on the price of BTC. Higher price, correlates with higher hash rate, i.e. more energy use. The most detailed report is this one.
https://nydig.com/wp-content/uploads/2021/09/NYDIG-Bitcoin-Net-Zero.pdf (https://nydig.com/wp-content/uploads/2021/09/NYDIG-Bitcoin-Net-Zero.pdf)
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https://www.theepochtimes.com/mkt_morningbrief/bitcoin-exchanges-cut-ties-with-chinese-users-following-beijings-latest-crypto-ban_4018331.html?utm_source=Morningbrief&utm_medium=email&utm_campaign=mb-2021-09-28&mktids=6415acc423fe3e90703bd737e3f30ffa&est=FM5%2BD%2F5PzQ%2FspUZzcvozIjyQjBMSta499%2FNTp74ilLpoSgdPydoBx0pIuPNv1QuTDX4j
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Prez of El Salvador has been tweeting about using Volcano geothermal heat to mine BTC, also might sell "Volcano Bonds".
https://twitter.com/i/status/1442949756993490945 (https://twitter.com/i/status/1442949756993490945)
Also this https://bitcoinist.com/the-president-shows-el-salvadors-volcano-bitcoin-mining-rigs-first-steps/
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Thanks ya
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https://notthebee.com/article/dust-off-your-digital-wallets-cause-you-might-soon-be-able-to-pay-for-taco-bell-with-cryptocurrency?utm_source=jeeng
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BTC note from Willy Woo:
Top level summary for 30th Sep 2021 (current price $41.2k):
Macro & mid-macro: Long term investors are now at their peak levels of accumulation. If history repeats, we can expect two or more months of re-accumulation followed by a strong rally.
Short term: While price action has been locally bearish coming off China news, long term investors have been buying.
Price action expectation: Sideways between $39k and $47k over the next 2 weeks, this may change if new changes come in, I’ll let you know.
Price action conviction: Medium.
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https://www.theepochtimes.com/mkt_morningbrief/coinbase-says-hackers-stole-cryptocurrency-from-at-least-6000-customers_4027481.html?utm_source=Morningbrief&utm_medium=email&utm_campaign=mb-2021-10-02&mktids=ad8a987bc58d9820d2f086e17273c3b0&est=QLCxarvGXxwoylo%2FSGw5whjn2h17Xrd%2BRVUlsGOGVbJubdSk9xtWl6a%2BvpO9FP%2FFx7ze
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This is the reason, one needs to store coins in a digital vault at the exchange (though the IRS and govt can get at it) or better self custody using a hardware wallet (there is small learning curve). The worst place is to keep coins on the exchange.
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CRYPTOCURRENCY
Laos offers cheap energy in Bitcoin mining pitch
U.S. warns of environmental disaster
BY RICHARD S. EHRLICH THE WASHINGTON TIMES BANGKOK | The impoverished nation of Laos, fueled by abundant hydroelectric power from the Mekong River, is shrugging off U.S. warnings of disastrous environmental problems and stepping in after China’s crackdown on Bitcoin mining and trading.
Prime Minister Phankham Viphavanh announced last month that Laos would create and deal in Bitcoin, Ethereum and other blockchain-based currencies, making Laos the only Southeast Asian country to officially permit and participate in the web-based currency.
Bitcoin miners need plentiful power supplies to perform the dense mathematical computations that produce
the currency. China allowed them to feed on its cheap electricity for several years, mainly in the provinces of Inner Mongolia, Xinjiang, Sichuan and Yunnan.
Beijing rocked the cryptocurrency markets in May by tightening regulations and shutting their systems. On Sept. 24, China’s central bank declared all transactions involving Bitcoin and other virtual currencies illegal. The Associated Press reported that Chinese officials were concerned that Bitcoin and other digital currencies disrupted the financial system and had become increasingly popular withmoneylaunderingrings. Worried foreign investors struggled to export expensive, delicate, massive computers out of China while scouring the world for other places to set up. In its scramble to capture the Chinese business, Laos is taking on some big rivals.
“China has shot itself in the foot by going after its Bitcoin miners,” Forbes reported. “The U.S. is becoming a big-time miner in its wake.” Mining is allowed in Texas, South Dakota, Nebraska, North Carolina and other states.
International miners have also moved operations from China to Canada, Kazakhstan, Uzbekistan, Russia and elsewhere.
Mining, or “minting,” fresh crypto involves constructing and operating huge linked computer “rigs” to determine a 64digit hexadecimal “hash” number based on increasingly complex algorithms, essentially guessing trillions of possible random answers. By doing so, miners confirm Bitcoin and transactions are genuine and add them to the blockchain.
Decentralized miners collect a commission in Bitcoin after validating 1 megabyte of transaction data.
The result, cryptocurrency advocates say, is a new kind of money that moves safely, seamlessly and anonymously over the internet beyond the control and regulations of governments and central banks.
In the global competition to attract miners, several countries in the Northern Hemisphere boast of year-round icy temperatures to cool giant, heat-generating databases.
That’s not a pitch Laos can make. Its mountainous jungles are usually hot, but ultra-cheap Laotian hydroelectricity is proving a potent lure.
With 73 hydroelectric plants in operation, Laos’ main export is electricity. Electrical power represented 30% of the country’s total exports, valued at $6 billion last year.
Laos also offers inexpensive real estate, a low-cost workforce, loose regulatory enforcement and special economic zones with financial sweeteners for outside investors. On the negative side, an opaque bureaucracy, limited transportation routes, corruption and an inefficient legal system could dampen enthusiasm.
For Laos to turn a profit, foreign cryptocurrency businesses would need to build, operate, repair, clean and test crypto databases inside large warehouses linked to hydroelectric stations.
The Laotian ministers of finance, energy and mines, planning and investment, technology and communications, and public security say they are ready to help.
Local investors for mining and trading include Wap Data Technology Laos, Phongsubthavy Road & Bridge Construction Co., Sisaket Construction Co. Ltd., Boupha Road-Bridge Design Survey Co. Ltd., the Joint Development Bank and the Phousy Group, according to the government-approved Laotian Times.
The government’s Bank of Laos will issue regulations for cryptocurrency use, even as the country relies on U.S. aid, Chinese loans, Thai investment and other foreign sources to fuel its economy.
El Salvador last month became the first country to embrace cryptocurrency as official legal tender.
In Laos, it is against the law to buy or sell cryptocurrency. Still, many Laotian businesses quietly accept cryptocurrency as payment and advertise opportunities to invest in digital currency, The Laotian Times reported.
Despite presenting itself as a hammerand- sickle communist country, Laos has welcomed international capitalists from East and West seeking to exploit its natural resources.
Laos anticipates that crypto miners will harness the Mekong River and its tributaries for fast cash, but U.S. concerns focus on the proliferation of hydroelectric dams and its environmental impacts.
The Mekong begins in Tibet’s glaciers, crosses China and meanders from the northern Laotian border into Cambodia. The river then broadens into southern Vietnam’s Mekong Delta and washes into the South China Sea near Ho Chi Minh City.
The U.S. has backed Cambodian and Vietnamese efforts to curb Laotian dam construction and enforce regulations on the seasonal timing and quantity of water that flows to maintain the two downriver nations’ fishery and agricultural sectors.
Critics say the dams create some of the worst environmental crises in Southeast Asia and are concerned that Beijing has joined other investors to rush construction and extract quick profits.
Most Laotian hydroelectric power is sold to the government-owned Electricity Generating Authority of Thailand, which lights up Bangkok, Chiang Mai and other cities. Laos needs just a small share of the electricity it generates because of the modest needs of its scattered population of 7 million.
Chinese companies built many of the dams, and Thais and others built and financed several. A total of 140 dams are ultimately expected to be constructed in Laos.
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https://foreignpolicy.com/2021/09/28/future-of-money-cryptocurrency-blockchain-finance-regulations-sanctions-stablecoins-china/?utm_source=thisweek&utm_medium=email&utm_campaign=thisweekmarketing&?tpcc=thisweekmarketing&utm_source=PostUp&utm_medium=email&utm_campaign=36745&utm_term=General%20Marketing%20Communications&tpcc=36745
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Third post of day
https://amgreatness.com/2021/10/04/newly-released-pandora-papers-reveal-billions-hidden-from-tax-laws-by-the-wealthy/
Coincidentally the PP would seem to work to the advantage of those who want to end financial privacy/independence.
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https://www.yahoo.com/news/manchin-signals-may-raise-1-184900946.html
losing those 2 Georgia Senate seats
was turning point
I am still not clear Trump did not hurt us there
with his big mouth
but of course the dems have rigged the voting system
with armies of pain operatives going door to door getting people to sign
of finding out who and how they can send in mail ballots for with no real way to confirm the votes
my guess the bill will pass for 2.5 T
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bitcoin
and ethereum are rising
while the stock market deteriorates
and gold and silver languish
is this not a first?
people fleeing their dollars into crypto. 8-)
better than investing into a trillion dollar US coin.
:-D
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As Central Banks Taper, Investors Should Take Cover
Previously, the European Central Bank and the Fed offset each other’s impact. No such luck this time.
By Dimitris Valatsas
Oct. 6, 2021 2:32 pm ET
Do you have too much money? Losing sleep over that ballooning bank account? Perhaps not. But spare a thought for Jerome Powell and Christine Lagarde, who must lead us all out of a global monetary glut. Facing essentially the same pandemic-era problem, the Federal Reserve and the European Central Bank have come to the same solution: drastically cut monthly net asset purchases. Unfortunately for financial markets, they will be pulling back at the same time, setting up 2022 as the year of the “taper tandem”—the fastest liquidity drain in a decade.
Monetary data indicate that advanced economies are awash in money, thanks to central banks’ voracious buying of financial assets. In March 2020, amid financial panic over Covid-19, the New York Fed was creating money to buy up to $75 billion of assets every day. Around the same time, the ECB announced an emergency program targeting €1.85 trillion ($2.15 trillion) of purchases in total. Plentiful liquidity helped governments, businesses and households survive lockdowns. Cash flows collapsed but bankruptcies barely increased. Asset markets and the real economy exited the crisis on a strong footing.
The Covid public-health crisis seems to be abating, but the infusion of money never stopped. The two central banks are still buying roughly $235 billion of assets every month between them. Because neither the U.S. nor the EU has capital controls, this additional liquidity flows freely across borders, flooding markets everywhere. For global liquidity, it does not matter much which of the two central banks is doing the purchasing.
The result has been a feverish rally in nearly all assets, suppressing borrowing rates, inflating stock prices, and even creating assets where none existed. The financial system is having to invent new kinds of assets because not enough exist to absorb the deluge of central bank liquidity. More than 6,000 cryptocurrencies are now being traded, not to mention nonfungible tokens, which supposedly establish ownership of easily copied digital artworks.
With inflation picking up, the central banks are reining in purchases. The ECB has already begun, announcing a move to a “moderately lower pace of net asset purchases.” The Fed essentially promised to do so this quarter, warning markets that “a moderation in the pace of asset purchases may soon be warranted.”
In two respects, the key term here is “moderate.” First, it reveals the banks’ concern that markets will react too abruptly to the policy change. Second, it is untrue. The two banks’ combined net purchases are scheduled to go from the current pace of about $235 billion a month to zero in 12 months, a deceleration of about $20 billion a month.
The last time net purchases were reduced in the U.S., setting off the “taper tantrum” of 2013-14, the Fed’s deceleration pace was $8.5 billion a month over 10 months. But at the time, the ECB was gearing up to start its own purchases, providing markets with a counterbalance. When the ECB implemented its own taper in March 2017, it took 21 months to complete it, decreasing net purchases by an average of €3.9 billion a month. The snail’s pace—and the ECB’s resumption of net asset purchases 11 months later—helped counterbalance the net sales of securities by the Fed.
In both these episodes, the two central banks offset each other’s impact, damping the aggregate effect. This time, however, the two banks are set to taper in tandem, amplifying the effect on money flow. This should terrify investors. Recent pioneering research by Xavier Gabaix and Ralph Koijen shows that flows not only move asset prices; they move them disproportionately. A dollar added to the stock market can increase aggregate market valuation by as much as $5. A dollar subtracted can have the opposite effect, decreasing aggregate valuation by $5.
No flows are more sizeable or more predictable than a big central bank’s purchase schedule. As the world’s two major central banks prepare to turn off the taps, financial markets are on notice. Frontier assets such as NFTs will likely be the first to fall—but experience suggests that no asset class is safe from a liquidity drought. As the taper tandem unfolds, investors and asset managers will need all the downside protection they can get.
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second post
Dangers Of a Digital Dollar
If widely used, it would give the central bank unprecedented power over the financial system.
By Alexander William Salter
Oct. 5, 2021 6:17 pm ET
The Federal Reserve plans to consider the idea of launching a U.S. digital currency. Central bank digital currencies are a hot topic among monetary-policy makers world-wide. More than 80 countries, representing 90% of the world’s gross domestic product, are looking into the technology. But these currencies come with serious risks. Without additional privacy measures, central bankers shouldn’t establish them.
You are likely familiar with privately issued digital dollars, such as electronic balances in checking accounts. Central bank digital currencies are similar, except the liability is on the central bank, rather than private banks. One benefit of tying digital currencies to a central bank is that payments would also be processed by central banks, strengthening national and international payments systems and potentially lowering transaction costs. They could also address economic inequality by offering the “unbanked” a way to access the financial system via a direct account with the central bank.
But too often digital currency enthusiasts focus on the good and ignore the bad. Central bank digital currencies are a perfect example of what Yale political scientist James C. Scott calls the “seeing like a state” mentality. Governments have strong incentives to simplify society for the purpose of social control. Bringing commerce within a centrally managed payment system is a textbook example. If widely used, these currencies would give central banks unprecedented power over the financial system. Without additional safeguards, virtually all transactions would be a matter of public record. Financial privacy would be difficult to maintain. Also, since this currency would be a liability of the Fed, the Fed could place conditions on its use to nudge users in desired directions.
Imagine your digital balance shrinking slowly over time to motivate rapid consumer spending. Or the Fed blocking payments to politically disfavored businesses. This isn’t a huge stretch: The Fed has already involved itself in social and environmental policy. It is souping up initiatives for supporting economic “equity” and quietly pressuring banks to disclose their plans for mitigating climate-change risk. The temptation to manage a central bank digital currency in line with these agendas would be strong.
For these reasons, some central bankers, such as Fed Gov. Christopher Waller, oppose creating their own digital currency. In a recent speech, Mr. Waller emphasized concerns about privacy and government control of payments. One of his comparisons is highly illustrative: China, the major economy that has made the greatest strides toward a central bank digital currency, could use that technology “to more closely monitor the economic activity of its citizens.”
Perhaps constitutional safeguards in the U.S. would prevent the Fed from abusing its oversight of a digital currency. But it is unwise to put the government in that position. All the benefits of this technology can be achieved through alternative and narrowly targeted policies. The costs, however, could be extreme. As Edmund Burke once said, “The thing itself is the abuse.” The best way to prevent a financial panopticon is to not build it at all.
Mr. Salter is an associate professor of economics in the Rawls College of Business at Texas Tech University and a senior fellow with the Sound Money Project.
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ccp:
"losing those 2 Georgia Senate seats
was turning point
I am still not clear Trump did not hurt us there
with his big mouth"
--------------------------------------
Agree! Right or wrong on the Georgia election scandal, Trump could not put his own unwinnable post-election issues aside for the party and the country to win those two seats. He held a big, timely rally to help them and instead divided the party further with his big mouth. Scorched earth exit. Now the 51st Dem vote in the Senate is VP Kamala Harris. There is no excuse for a party that controls 30 state legislatures to not have 51 US Senators.
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https://www.cnn.com/2021/10/06/investing/bitcoin-price-george-soros/index.html
:-o
I would say this is money better spent then scattering it around to Democrat leftist causes
I suppose his profits will go
to causes then destroy America further...........
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https://www.nationalreview.com/2021/10/bidens-beijing-style-plan-for-single-payer-banking/?utm_source=Sailthru&utm_medium=email&utm_campaign=NR%20Daily%20Monday%20through%20Friday%202021-10-08&utm_term=NRDaily-Smart
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Good stuff on Texas and Bitcoin Mining
https://niccarter.info/wp-content/uploads/txsummit_nc_oct08.pdf (https://niccarter.info/wp-content/uploads/txsummit_nc_oct08.pdf)
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https://www.forbes.com/sites/billybambrough/2021/10/10/executive-order-bombshell-bitcoin-ethereum-cardano-bnb-xrp-solana-and-dogecoin-are-braced-for-a-massive-earthquake-amid-huge-price-pump/?sh=2856071c3130
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Yes, I am waiting for them to call the CEO of Bitcoin for congressional testimony. :-D
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https://thehill.com/changing-america/sustainability/infrastructure/576408-jp-morgan-ceo-jamie-dimon-says-bitcoin-is
What is the intrinsic value of a dollar bill?
Except what someone says it is . Not even backed by Gold
so some government keeps printing it and claims it has value.
What is the intrinsic value of gold? except it is used in electronics
What is the intrinsic value of a diamond? (cutting roads)
Oil has value it runs our energy sector.
What is the intrinsic value of a Picasso etc?
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Coinbase CEO: We Need a New Approach to Regulating Crypto
Clear rules would benefit the public, and my company doesn’t seek to be the industry’s gatekeeper.
By Brian Armstrong
Oct. 14, 2021 12:47 pm ET
The crypto era began 13 years ago with the publication of Satoshi Nakamoto’s seminal paper, “Bitcoin: A Peer-to-Peer Electronic Cash System.” Two years later, the first commercial bitcoin transaction took place when someone bought two pizzas for 10,000 bitcoin, roughly $571 million today. Today, more than $6 billion in bitcoin transactions happen every day and tens of millions of Americans own some form of crypto currency.
Crypto can bring millions of people into the economic system through immediate, nondiscriminatory access to services. It adds renewed transparency to our financial system through blockchain technology and challenges undemocratic political regimes, which can seize bank accounts and close businesses. It lets people avoid high currency-exchange fees and barriers to remittance flows.
Coinbase, a platform for accessing the broader cryptoeconomy, has, since its founding in 2012, seen regulation as beneficial. Clear rules of the road allow for technological innovation and investment and give the public and policy makers confidence that these markets are fair. I’ve expressed some frustration with recent actions by regulators. My concern is that entrepreneurs and businesses have little visibility into what regulators expect of us. The positions regulators take often aren’t applied in ways that seem consistent or equitable.
On Oct. 14, Coinbase published online its “Digital Asset Policy Proposal: Safeguarding America’s Financial Leadership.” The document is meant to spark a conversation about regulating crypto—one that isn’t anchored in specific products or enforcement actions, but instead takes a high-level view of the changing financial system and the new technology that underpins it.
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This isn’t only about my company. Coinbase arguably benefits from an unclear regulatory environment—it’s a large enough company to absorb the cost, while competitors likely wouldn’t be. Our policy proposal is about enabling more crypto startups, getting the average consumer access to better financial services, and helping America stay at the forefront of innovation, entrepreneurship and technology.
In recent weeks Coinbase has had more than 75 meetings with legislators, other digital-asset companies, crypto innovators and academics, whose feedback informed the suggestions in our document. Among the key points:
First, the government should regulate digital assets under a new framework. Our existing financial regulatory system doesn’t work effectively for the open, decentralized networks that crypto has created. Regulation was built around a series of financial intermediaries—transfer agents, clearing houses and traditional brokers—which don’t play a part in crypto transactions. It’s widely agreed, for example, that it’s difficult to determine whether a digital token is a security. As a result, regulators rely on the so-called Howey test, from a 1946 Supreme Court decision about whether contracts to sell or manage citrus groves in Florida should be considered securities, to answer that question.
Second, responsibility for this new framework should be assigned to a single federal regulator and a new registration process established for marketplaces for digital assets. In the tradition of other markets, a dedicated self-regulatory organization should be established to strengthen the oversight regime and provide more-granular supervision of such marketplaces. Together they can set new rules for everyone. The industry is currently dealing with an impenetrable array of regulators in the U.S.—an impossible patchwork for entrepreneurs and the public that relies on them for protection.
Third, this separate framework should have three goals to ensure holders of digital assets are empowered and protected: 1) Enhance transparency through appropriate disclosure requirements. 2) Protect against fraud and market manipulation. 3) Promote efficiency and strengthen market resiliency. Each of these goals should be accomplished while recognizing that crypto has unique and novel characteristics.
Finally, it’s important to promote interoperability and fair competition. To realize the full potential of digital assets, marketplaces for digital assets must work with products and services across the cryptoeconomy. If fully realized, this can enshrine competition, encourage responsible innovation, and promote a thriving developer ecosystem. No single company, including Coinbase, should be a gatekeeper for this industry.
My company believes its recommendations will help put the country on a path to resolve the most confusing parts of today’s crypto regulatory system and create new protections for the public. Coinbase believes they will also promote innovation and enhance competition—for all market participants. Washington can set a new global standard for enlightened regulation and further the cause of economic freedom.
Mr. Armstrong is CEO and a co-founder of Coinbase.
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I have heard people are having money disappear from coinbase accounts
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Essential BTC reading https://www.nationalaffairs.com/publications/detail/bitcoin-and-the-us-fiscal-reckoning (https://www.nationalaffairs.com/publications/detail/bitcoin-and-the-us-fiscal-reckoning)
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I have heard people are having money disappear from coinbase accounts
The saying is "not your keys, not your coins".
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If you are confused between Proof of Work and Proof of Stake
(https://pbs.twimg.com/media/FB4j7E9XoAImRZI?format=jpg&name=medium)
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I think this BTC Futures ETF has promise..note the ticker name.
(https://pbs.twimg.com/media/FCA1NJQWUAMRkLl?format=jpg&name=medium)
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Is there one that is FJB?
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BTC Futures ETF ?
FJB?
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BTC Futures ETF ?
FJB?
FJB=Let’s go Brandon!
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Ah.
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uggghhhh
https://www.cnbc.com/2021/10/19/facebook-taps-coinbase-for-digital-wallet-novi.html
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Which explains this:
https://stockcharts.com/h-sc/ui
and this?
https://stockcharts.com/h-sc/ui?s=gbtc
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Published on October 19, 2021
Bitcoin prices, as all traders know, are driven up and down by a complicated set of market forces — including the impacts of positive and negative headlines known as “market sentiment.” In recent weeks, as prices have climbed back above the $60,000 mark set during spring’s bull run peak, one category of headline has been hard to miss:
SEC Set to Allow Bitcoin Futures ETFs as Deadline Looms, reported Bloomberg in mid-October: “Barring a last-minute reversal, the fund launch will be the culmination of a nearly decade-long campaign by the $6.7 trillion ETF industry.”
Bitcoin Comes to the Big Board, said the New York Times a few days later: “An exchange-traded fund tied to the cryptocurrency is set to begin trading on the New York Stock Exchange, a milestone for the industry.”
Indeed, the first-ever U.S. BTC ETF — short for exchange-traded fund — debuted on the NYSE on October 19. Following a 75-day review, the SEC allowed the Bethesda, MD firm ProShares to begin trading its “Bitcoin Strategy ETF (BITO)” on October 19. Several similar products from other companies are expected to launch in subsequent weeks.
More than 12 million BITO shares (worth around $480 million) traded early on Tuesday — ”easily one of the busiest ETF debuts ever seen” according to Bloomberg. Retail traders appeared to be interested, with BITO becoming the most-bought asset on Fidelity’s platform in the first few hours of trading. Bitcoin prices rose as well — breaking the $63,000 mark for the first time since April.
What’s so exciting about the arrival of a bitcoin ETF?
As Bloomberg noted, ETFs are a vast, popular investment category. Investors can now gain BTC exposure through a familiar investment vehicle that can be purchased from any brokerage — whether they’re individuals who might not feel confident buying BTC directly or institutional investors (like some pension funds) that may be bound by investment restrictions.
One key note: this first BTC ETF doesn’t hold bitcoin directly — unlike many of the products that have been floated over the years, as well as popular crypto ETFs available in Canada and Latin America. Instead, it holds “bitcoin futures contracts.” (More on futures below.)
To understand why this news was met with such interest, we need to zoom out a little — and take a look at what ETFs are, what bitcoin futures are, and why it all matters.
What is an ETF?
ETFs are a hugely popular class of financial product. They generally track the price of an asset (like gold or bitcoin) or basket of assets (like tech stocks). They can be bought or sold via conventional brokerages, tend to have low fees, and are popular with a wide range of investors — from individuals saving for retirement to big Wall Street funds. (Learn more about ETFs.)
ETFs exist for almost every corner of human existence. The largest — the SPDR S&P 500 ETF Trust (SPY), nicknamed the Spider — tracks the S&P 500. But there are ETFs that focus on everything from marijuana companies to weight-loss related stocks — as well as sustainable energy, currencies, commodities of all kinds, and much more.
Until now, though, there weren’t any BTC/crypto ETFs in the U.S. — despite at least a dozen applications over the last decade.
How does the new BTC futures ETF work?
The ProShares ETF doesn’t hold bitcoin directly. Instead, it holds bitcoin futures contracts — bundles of agreements to buy BTC in the future at a specific price — which trade on the Chicago Mercantile Exchange (CME).
Some analysts predict that BTC futures ETFs will pave the way for “spot-based ETFs” that hold crypto directly — like popular products currently available in Canada (including a new ETF that tracks both BTC and ETH). Firms that hope to launch ETFs in the U.S. submit proposals to regulators including the SEC. As regulatory clarity continues to emerge, a wider variety of crypto ETFs may finally get the green light and go to market (read our policy proposal).
What are BTC futures?
Futures are part of a bigger financial category called “derivatives” — which are financial contracts that derive their value from the price of an underlying asset, like corn, gold, oil, or bitcoin. They’re typically used for two purposes: hedging and speculation. For example, a family running a corn farm could hedge, or protect itself, from the shock of a drought by locking in corn future prices through a derivative. There are a huge range of derivatives, ranging from the commonplace and well-known to the more esoteric (like “swaps,” which most people who don’t work on Wall Street learned about during the 2008 financial collapse).
Two of the most common types of derivatives are options and futures:
Options allow investors the opportunity to buy an underlying asset at a specific price (called the “strike price”) within a set time period. As their name suggests, the actual purchase is optional — holders of an option are under no obligation to execute the contract, which, in practical terms, means that options are generally exercised only when the strike price is lower than the market price.
Futures, on the other hand, aren’t optional: they’re a contract to buy a specific quantity of an asset on a specific date at a specific price. Bitcoin futures don’t exactly mirror BTC’s market price, but the two tend to be correlated (that is, they generally move up and down together). Indeed, the news that the Bitcoin futures ETF would be launching was reflected in both bitcoin’s price and the price of bitcoin futures.
Remember, a BTC futures ETF doesn’t directly invest in bitcoin — it invests in bitcoin futures contracts. While the prices of BTC futures and bitcoin itself are correlated, a BTC futures ETF won’t track the value of bitcoin as precisely as a “pure” BTC ETF might. (Fees for the ProShares Bitcoin Strategy ETF are also higher than those charged by many index ETFs — likely reflecting the added complexity of tracking the value of a bundle of futures contracts.)
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https://amgreatness.com/2021/10/21/congress-needs-to-provide-guardrails-for-the-cryptocurrency-revolution/
GREATNESS AGENDA
Congress Needs To Provide Guardrails for the Cryptocurrency Revolution
Congress urgently needs to step in and either force the SEC to provide actual, meaningful "regulatory clarity" for the entirety of the cryptocurrency industry, or to draft legislation.
By Josh Hammer
October 21, 2021
The Chinese Communist Party poses the most comprehensive 21st century threat to the American nation, the American people and the American way of life. The first half of this century will be defined by how the United States meets the Chinese challenge across the full spectrum of economic, national security, geopolitical, and cultural issues. And an easily neglected aspect of our new great-power competition with our Far East archfoe now cries out for diligent and prompt attention: safeguarding the fruits of the nascent, but ascendant, cryptocurrency revolution.
Last month, China effectively banned all cryptocurrency trading and mining, which the Communist Party increasingly views as a threat to its planned “digital yuan” sovereign digital currency, which may be released as early as 2022. The People’s Bank of China, the Chinese central bank and Federal Reserve equivalent, barred international exchanges from providing cryptocurrency services to Chinese investors and speculators. It also banned financial institutions and digital exchanges from facilitating domestic crypto transactions.
China’s moves have further exacerbated already high volatility in the crypto markets, leading to intensified calls for the Securities and Exchange Commission to provide “regulatory clarity.” For instance, Senator Pat Toomey, (R-Pa.), an orthodox free marketeer, noted last month that in some recent crypto-related enforcement actions, “the SEC did not identify the securities involved or the rationale for their status as securities, which would have provided much-needed public regulatory clarity.”
The issue with extant SEC enforcement in the crypto space, as Toomey indicated, is its wildly inconsistent—and oftentimes outright punitive—nature to date. Crypto proponents contend that the only clear guidance from the SEC has been found through various one-off lawsuits. They point to the SEC’s ongoing case against Ripple Labs, a blockchain software company that uses the XRP cryptocurrency in cross-border payment settlements for banks. Ripple sought SEC guidance for years while billions of XRP tokens circulated, but never received any. In December 2020, the SEC then filed a $1.3 billion enforcement action alleging that every XRP sale since 2013 constituted an unregistered securities trade. That is not how due process of law is supposed to work in a well-functioning republic.
As the United States locks horns in a generation-defining struggle with China, and as the recent Chinese crackdown on cryptocurrencies opens the door for the United States to regain the global mantle on crypto innovation, it would be a mistake to simply continue on in the same way with the SEC’s peculiar brand of “regulatory clarity.”
The United States should support emerging technologies with the potential to add value to the economy, so long as those technologies are not detrimental to the national interest and the common good. The way to do that is not via inconsistent and incoherent regulatory enforcement based on whether a specific type of cryptocurrency is found to constitute an “investment contract” (i.e., security) under the Securities Act of 1933, according to the Supreme Court’s Howey Test from over 70 years ago.
SEC Chairman Gary Gensler has thus far unhelpfully stated that most cryptocurrencies are likely securities. That is insufficient guidance. Joe Biden is said to be weighing an executive order to direct agencies to craft clearer crypto regulations, but it is impossible to have any faith in doddering Uncle Joe’s ability to unilaterally help matters in such a novel area of the economy. An entirely new approach is needed.
One need not think very hard about where that new set of coherent legal guardrails ought to come from. “In republican government,” James Madison wrote in Federalist 51, “the legislative authority necessarily predominates.” And so it ought to be for crypto regulation in the year 2021, as well.
Congress urgently needs to step in and either force the SEC to provide actual, meaningful “regulatory clarity” for the entirety of the cryptocurrency industry, or to draft legislation. Such legislation would be a modern-day Securities Act update and would provide extremely clear guidance as to which forms of cryptocurrency—Bitcoin, Ether and so forth—constitute securities/”investment contracts” under the Securities Act of 1933 and which do not. The former category of securities would require SEC registration, whereas the latter category of commodities would fall under the Commodity Futures Trading Commission’s regulatory ambit.
Massive, economic paradigm-shifting industries require the most rudimentary of guidelines and categorical sorting to best channel their comprehensive societal value-add. This is simply not a partisan issue either. Just as the Securities Act of 1933 was needed in its day, so is a Securities Act of 2021 needed now. It’s time for Congress to get moving.
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https://theconversation.com/ethereum-the-transformation-that-could-see-it-overtake-bitcoin-170316
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Crypto Is Shedding Its Tether
John Law issued bank notes willy-nilly. Are stablecoin issuers doing the same?
By Andy Kessler
Oct. 24, 2021 6:12 pm ET
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PHOTO: ANDRE M. CHANG/ZUMA PRESS
The launch of the first bitcoin-focused exchange-traded fund last week proves crypto bulls need to meet John Law. The Scottish gambler, economist and financier is likely why why so few top French banks have Banque in their name. Instead, there is Crédit Agricole, Société Générale and Crédit Mutuel. Law’s Banque Générale, later renamed Banque Royale, issued bank notes out of thin air, then royally blew up in 1720 and destroyed the French economy. The reputation of French banks has never fully recovered.
Law’s connections gave him exclusive rights to trade between France and its Louisiana Territory. The Mississippi Co. was funded by selling new shares of Banque Générale that could be paid for with bank notes issued by—wait for it—Banque Générale. Shares took off, rising from 500 livres to 10,000 livres from January to December 1719. Soldiers had to be sent in to keep order in the frenzied financial district.
Law’s flaw was issuing bank notes willy-nilly, without real backing for their value, to keep the stock price rising. The French government eventually made the huge mistake of making these bank notes legal tender, doubling the French money supply. Inflation raged, hitting a 23% monthly rate in January 1720. By September 1721, shares dropped back to 500, and the French economy imploded.
Fast-forward 300 years. Crypto had a big October, with bitcoin rising from almost $44,000 to a $66,000 peak in anticipation of the ProShares Bitcoin Strategy ETF, which actually doesn’t buy bitcoin—it buys bitcoin futures. Meanwhile the stablecoin issuer Tether Ltd. paid a $41 million penalty after the Commodity Futures Trading Commission found the company had falsely claimed it had adequate dollars in reserve to back its tokens.
The New York attorney general’s office ran a similar investigation over Tether’s claim of 1-to-1 backing with U.S. dollars. It ended, unsatisfactorily if you ask me, with an $18.5 million settlement paid in February and an agreement to produce reports on reserves for tether. Why not dig further? Tether neither admitted nor denied the attorney general’s findings.
I wanted to know more, so I submitted a Freedom of Information Law request with the New York attorney general’s office requesting reserve statements, ledgers and bank records from Tether. It was denied, citing disclosure that would “constitute an unwarranted invasion of personal privacy” and “interfere with law-enforcement investigations or judicial proceedings.” Thanks for nothing.
Tether released vague pie charts of its $42 billion in “reserves” in May. Only 5% was in cash or Treasurys, and around half of the backing of Tether was unnamed commercial paper. Is it AAA-rated paper from JPMorgan Chase or an IOU backed by Dogecoin? They don’t say. When Coindesk filed a FOIL request for documents detailing Tether’s reserves, Tether attempted to block it, arguing: “The competitive advantages Tether gains from its investment strategy would be wiped away if competitors had full visibility into Tether’s investments.”
The attorney general’s office did release details of a fascinating cat-and-mouse game in its settlement agreement after stating that “Bitfinex and Tether deceived clients and market by overstating reserves.” Until Sept. 15, 2017, an account at the Bank of Montreal held most of Tether’s cash, some $61.5 million backing the 442 million tethers then in circulation. Not 1 to 1. Sister company Bitfinex held $382 million in a “comingled [sic] account” that Tether called a “receivable.” Tether was claiming money on another company’s balance sheet as its own reserves.
Here’s where it gets funny. Tether engaged Friedman LLP for “consulting services” “to analyze our bank balances” on Sept. 15, 2017. That morning, Tether opened an account at the Puerto Rico-based Noble Bank, and later that day Bitfinex transferred more than $382 million into Tether’s account. Friedman verified Tether’s assets that evening.
According to the settlement agreement, in October 2018 Bitfinex and Tether dropped Noble Bank and opened an account at Deltec Bank & Trust Ltd. in the Bahamas. On Nov. 1, 2018, Tether produced a letter on Deltec letterhead saying that as of Oct. 31 the portfolio cash value of its account was over $1.8 billion. On Nov. 2, the attorney general’s office notes, Tether started transferring a total of $475 million to Bitfinex accounts at Deltec, clearly a game of pass the assets.
Can we trust Tether, which has grown from 21 billion to 69 billion tethers in circulation this year? Doesn’t it sound a bit like John Law’s Banque Royale issuing bank notes? And what is Tether buying? It isn’t clear. The most recent disclosure from an independent accountant in the Cayman Islands—not an audit—for Tether reserves shows a lot of commercial paper and certificates of deposit and secured loans. Only about a third of its reserves are cash and Treasurys.
How about a real audit? Recently, the Biden administration announced it is considering regulating stablecoin issuers as banks. Mandating transparency for crypto would go a long way. But it could get ugly for crypto investors. In June the stablecoin IRON, supposedly “soft pegged” to the dollar, dropped from $1 to under 70 cents after TITAN, its collateral token, fell from about $64 to nearly zero in a few hours of frenzied selling that caused $2 billion in losses.
Like Law, are stablecoins being issued willy-nilly and increasing volatility in bitcoin and other crypto? How much leverage is there in crypto world? Bahamas-based crypto exchange FTX allowed 100 times leverage for margin trading, though in July the company trimmed it to a still insane 20 times. According to Bloomberg, part of Tether reserves includes a $1 billion loan to Celsius, a crypto-lending startup. If cryptocurrencies are to become the backbone of a modern financial system, let’s open them up for scrutiny before a Banque Royale-esque bubble bursts into the real world.
Write to kessler@wsj.com.
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https://www.zerohedge.com/crypto/luongo-bitcoin-etf-trap
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https://www.dailymail.co.uk/news/article-10127889/Twitter-founder-Jack-Dorsey-warns-hyperinflation-strike-America-soon.html
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https://mexiconewsdaily.com/news/amid-warnings-by-authorities-mexicans-are-not-shy-about-cryptocurrency/?utm_source=The+Whole+Enchilada&utm_campaign=ebbb7c19ff-RSS_EMAIL_CAMPAIGN+The+Whole+Enchilada&utm_medium=email&utm_term=0_f17425060f-ebbb7c19ff-350211146
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Prices can go up because of increased money supply or decreased product and service supply:
https://www.zerohedge.com/news/2021-10-26/why-isnt-gold-going-inflation
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https://bombthrower.com/articles/the-spirituality-behind-bitcoin/
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Received in the mail, Citibank advertising for saving account that pays 12 times the national average.
The offer is for 0.5% interest. National average* is 0.04%.
Inflation rate is 3%. Could go to 6, 10, 100 or 10,000% in a short time. And savers make 0.04% on their money? And 9,9% if you don't put it in the bank.
Do the math on that.
Somebody tell me, what is EVERYTHING that's wrong with this picture?
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"Inflation rate is 3%"
It is?
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"Inflation rate is 3%"
It is?
Depends on how measured and the time frame. I understated it:
"Headline inflation, including food and energy, rose at a 4.4% annual rate in September, the fastest since 1991.
Core inflation, which is the Fed’s preferred gauge, increased 3.6% for the 12 months, the same as in August but still also the fastest pace in 30 years."
https://www.cnbc.com/2021/10/29/inflation-notches-a-fresh-30-year-high-as-measured-by-the-feds-favorite-gauge.html
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Doug,
I got the same message for very high interest rate
I think it was from citi
i junked it
I don't recall if in email or regular mail
deleted if from my mind till you posted this
has got to be some scam
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https://www.usinflationcalculator.com/
"Inflation rate is 3%"
It is?
Depends on how measured and the time frame. I understated it:
"Headline inflation, including food and energy, rose at a 4.4% annual rate in September, the fastest since 1991.
Core inflation, which is the Fed’s preferred gauge, increased 3.6% for the 12 months, the same as in August but still also the fastest pace in 30 years."
https://www.cnbc.com/2021/10/29/inflation-notches-a-fresh-30-year-high-as-measured-by-the-feds-favorite-gauge.html
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https://www.youtube.com/watch?v=rpNnTuK5JJU
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BTC Update from Willy Woo:
Top level summary for 5th Nov 2021 (current price $61.1k):
Macro: Accumulation from long term holders has now peaked, it’s a bullish structure for the months ahead. I continue to monitor this metric for clues into how long this bull market phase may last.
Short term: Price was previously overheated, calling for a time of consolidation, since then we’ve seen significant buying from investors while price has been sideways. It’s been a healthy consolidation. Meanwhile significant whale activity has been spotted which suggests BTC’s next move in price may come soon.
Ethereum Notes: ETH broke the $4.3k resistance band mentioned in the last letter and is now undergoing a rally. Fundamentals continue to strengthen. ETH price is far from being overheated, there’s a lot of legs left in its rally over the coming month(s).
BTC price action expectation: Bullish. Price is ready to move upwards in the coming two weeks. Often we see dips before strong rallies so short term traders need to account for this possibility.
Price action conviction: Medium to high.
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This is a good update on metal plates used to store keys. His work links to prior studies on other metal plates.
https://blog.lopp.net/metal-bitcoin-seed-storage-stress-tests-round-v/
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https://finance.yahoo.com/news/stock-market-news-live-updates-november-10-2021-231156781.html
the LEFT -
no big deal
it is temporary
this is an investment in our future
suck it up [suckers!]
don't worry we will [or have - who knows?] pass bills that will make college , health care, child care, paid family leave "free"
so keep voting for us folks
you will love it
-
It’s temporary, just like stage 4 pancreatitis cancer.
https://finance.yahoo.com/news/stock-market-news-live-updates-november-10-2021-231156781.html
the LEFT -
no big deal
it is temporary
this is an investment in our future
suck it up [suckers!]
don't worry we will [or have - who knows?] pass bills that will make college , health care, child care, paid family leave "free"
so keep voting for us folks
you will love it
-
Uugh. It's temporary inflation. "Short term and "transitory", the administration says. "Like stage 4 pancreatitis cancer". G M nails it.
"Short term and transitory" hyperinflation - like Venezuela with the same policies, killing the golden goose. Like Jimmy Carter - with no Reagan to follow.
We can have this giant and powerful government that can afford health care, child care, retirement care, infrastructure and so on ONLY IF we also have an even larger, more dynamic, vivacious, robust, hearty, able, freely operating private economy to support it. Does anyone see a contradiction?
-
https://amgreatness.com/2021/11/10/bidens-marxist-treasury-nominee-says-gas-oil-coal-industries-going-bankrupt-will-help-tackle-climate-change/
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Guys play with this calculator, I think real infl rate is perhaps 10 %. Watch what happens over the next 10 years to your purchasing power. Bottom line: what's your insurance plan ?
https://www.buyupside.com/calculators/inflationjan08.htm
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Guys play with this calculator, I think real infl rate is perhaps 10 %. Watch what happens over the next 10 years to your purchasing power. Bottom line: what's your insurance plan ?
https://www.buyupside.com/calculators/inflationjan08.htm
http://www.shadowstats.com/alternate_data/inflation-charts
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https://www.nationalreview.com/2021/11/what-crypto-tells-us-about-our-dysfunctional-monetary-order/?utm_source=Sailthru&utm_medium=email&utm_campaign=NR%20Daily%20Saturday%20New%202021-11-13&utm_term=NRDaily-Smart
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Enjoy
https://twitter.com/100trillionUSD/status/1449055697845559300 (https://twitter.com/100trillionUSD/status/1449055697845559300)
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BTC Hopium
(https://pbs.twimg.com/media/FEMCVguXsAYApMn?format=jpg&name=medium)
-
https://freebeacon.com/biden-administration/embattled-biden-nom-omarova-wants-to-put-feds-on-boards-of-banks/
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BTC update from Willy Woo
Top level summary for 27th Nov 2021 (current price $54.8k):
Macro: Unchanged (as per last letters), structurally we expect a bull run well into Q1 2022.
Short term: HODLers continue to buy the dip, there are no signs of fundamental weakness seen in the COVID 2020 and May 2021 crashes. Short term trader positioning is currently signalling a bottom. In essence the last call for a bottom remains unchanged apart from an unpredictable down wick from COVID macro fears. (I will issue a new letter should this change and investors start selling.)
Ethereum notes: ETH fundamentals remain strong.
BTC price action expectation: A clear bottom forming in the next 2-4 days. Then consolidation over the weeks of December, and if nothing else changes a bullish phase in January.
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Much appreciated YA.
-
McClellan note: Bad news for Stocks
https://www.mcoscillator.com/learning_center/weekly_chart/rasi_failed_at_500_bad_news_for_bulls/
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Inflation Pushes the U.S. Fed Toward a Faster Taper
The U.S. Federal Reserve’s announcement that reducing inflation is now more pressing than reducing unemployment suggests the central bank will probably accelerate its winding down of asset purchases, increasing the probability of interest rate hikes in 2022 that would slow the U.S. economy and tighten financial conditions globally. Fed Chairman Jerome Powell told the Senate Banking Committee on Nov. 30 and the House Financial Services Committee on Dec. 1 that the mandate on inflation now took precedence over the mandate on employment. The announcement came ahead of the Dec. 14-15 meeting of the Federal Open Market Committee (FOMC). Powell would probably not have indicated the shift and acceleration of a wind-down of the Fed’s asset-purchasing program (known as quantitative easing, or QE) unless he already had broad support within the FOMC.
There were no dissents among the 11 FOMC voting members when it announced a scaling back of QE on Nov. 3. Several have since indicated support for accelerating the pace of a wind-down, including Vice Chairman Richard Clarida and two current voting regional Fed presidents.
The Fed is under increasing pressure to control inflation with lawmakers on both sides of the aisle urging in congressional oversight committees for finishing the taper early by the end of March or April.
Scaling back the Fed’s asset-purchasing program is not a tightening of monetary policy but a diminution of monetary policy accommodation, which has maintained substantial liquidity in the U.S. and global economies. The winding down of QE could enable the Fed to increase its main policy interest rate, the federal funds rate (which is currently 0-0.25%), as early as the spring of 2022, if necessary. Real interest rates, however, will still be negative as long as inflation exceeds the nominal rate with continued monetary stimulus to the economy. It could also still be some time before interest rates reach the so-called “neutral” level that supports the U.S. economy at full employment/maximum output while keeping inflation constant.
The Fed will roll over maturing securities it owns and not reduce the size of its balance sheet, which exceeds $8.7 trillion and is directly tied to the size of the money supply. The balance sheet has more than doubled in size since March 2020 when the COVID-19 pandemic was declared, growing at $120 billion per month from purchases of U.S. Treasury securities ($80 billion) and mortgage-backed securities ($40 billion).
The Fed has said repeatedly that an end to QE was a prerequisite to raising interest rates to avoid a policy conflict.
The Fed is unlikely to change course in response to a few new data points, though unexpected bad news on employment or reductions in inflation could derail an accelerated taper. While It is still too early to assess the economic impact of the new omicron variant of COVID-19 discovered in Africa, there is now widespread recognition it could worsen the supply-chain bottlenecks that are driving up prices. The U.S. labor market, meanwhile, is already tight and increasing demand for goods is unlikely to have immediate effects on increasing employment, although it would add to wage pressures. The other major risk is a failure by Congress to increase the federal debt ceiling, which could panic the U.S. Treasury securities market (the largest financial market in the world) and require the Fed to provide additional emergency liquidity to the economy. Congressional leaders may agree on a temporary extension of the debt ceiling, but this would still leave open the potential for political gridlock continuing to delay a permanent fix.
While the U.S. Labor Department’s monthly payrolls report released on Dec. 3 showed a smaller-than-expected increase in the number of jobs in the U.S. economy, it was mainly due to labor shortages and a drop in the unemployment rate. The November consumer price index (CPI), which is scheduled to be released on Dec. 10, will likely also be insufficient to change what the Fed now sees as the current economic trend. The Fed’s preferred inflation measure, the Index of Personal Consumption Expenditures (PCE) increased by 5% in October (the latest reading).
The Fed’s “Beige Book” of anecdotal evidence of economic conditions from all 12 regional Fed districts, released Dec. 1, showed supply-chain and labor shortages slowing growth but maintained an overall positive economic outlook, with strong demand allowing businesses to pass on “moderate to robust” price increases.
Over the longer term, the Fed is demonstrating new flexibility in responding quickly to economic circumstances that could burnish its credibility as an economic risk manager. Signaling accelerated tapering less than a month after the original schedule was announced was a bold move. It was also somewhat out of character for the Fed — a slow-moving, consensus-driven central bank that has pushed a story of temporary, slight increases in inflation for most of the past year.
Unlike in the case of the 2013 QE tapering, the Fed seems to have avoided a market “tantrum” in which interest rates increase precipitously over a very short period. The Fed’s easy-money policies, while supporting the economy with liquidity, have effectively underwritten elevated asset prices (especially for equities), with the Fed as the buyer of last resort.
By abandoning the word “transitory” to describe inflation trends, the Fed now recognizes a failure to account for supply-side constraints from the pandemic while demand was maintained through an estimated $14 trillion in fiscal support over 2020-2021 and $4 trillion in monetary actions.
The Fed was in danger of falling behind the inflation curve since monetary policy takes 12-18 months to have real effects and potential wage-price spirals are difficult to stop. Reducing the amount of money stimulus should reduce those inflationary pressures. The Fed has bought some time, even as there will be renewed fears of the Fed acting too harshly and choking off the recovery.
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What the hell happened today with BTC and GTBC?
-
The 2017 bull run had multiple pull backs. There was too much leverage in the market.
(https://pbs.twimg.com/media/FFvneCIUcAAOel6?format=png&name=small)
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(https://pbs.twimg.com/media/FFwVdc4X0AQ9Lyq?format=jpg&name=large)
-
Ya,
like this :
https://www.google.com/search?q=Panic+emoji+sample&sa=X&biw=1440&bih=789&tbm=isch&source=iu&ictx=1&fir=rZn22SUuR9E4vM%252CNlM-_gteHx4d7M%252C_%253BSIJSoU2fCfxfQM%252C7yWu1G4l2Fz2iM%252C_%253BQT1GU1BHX1UJfM%252C7yWu1G4l2Fz2iM%252C_%253BGFiMAhE8tkwyKM%252CrB1oamu3E4S9RM%252C_%253B7uU8eqkSJ-FdbM%252C7yWu1G4l2Fz2iM%252C_%253BmEXcY39qrP2WsM%252C7yWu1G4l2Fz2iM%252C_%253BDm3vqb1e17aKLM%252CqYFEECx5dc61JM%252C_%253BmylDZK1l02GnSM%252C7yWu1G4l2Fz2iM%252C_%253BU95FaTL1RPVhtM%252C7yWu1G4l2Fz2iM%252C_%253BTGVMphFR4jLyoM%252ChECaKWw8NltFDM%252C_&vet=1&usg=AI4_-kTR2cLT1Nq7-qT_eSY8_VyJsWGRNw&ved=2ahUKEwjM1efYtcr0AhVwjokEHTfbDjoQ9QF6BAgEEAE#imgrc=rZn22SUuR9E4vM
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I am currently buying a fixed amount per day so as to average cost my ultimate intended position.
-
saving with btc
https://www.swanbitcoin.com/saving-with-bitcoin-sam-callahan/
-
https://www.zerohedge.com/crypto/leveraged-bitcoin-traders-flushed-out-epic-overnight-crash?utm_source=&utm_medium=email&utm_campaign=321
-
https://www.google.com/search?q=happy+face&tbm=isch&source=iu&ictx=1&fir=2ibD-NzxUXqVVM%252CEB-7l6d3ePZ1CM%252C_%253BG2RbGWZL5NbD4M%252CBhKymqIkQYRWKM%252C_%253BBY3Ew0sVic0ClM%252CMYIG3kLkDZ55JM%252C_%253BVzj680berAZGEM%252CLp532uL41zNtjM%252C_%253BleoT0jLWLtqbNM%252CkRyGwlv3nMHR6M%252C_%253BX40Wz44L9PsysM%252C8ViCHLlVWtiRyM%252C_%253BOCQ1h3gdy7i_BM%252CQ3ufki5BxIg3IM%252C_%253BSI73st21WBY7nM%252Chahw19g28cvdgM%252C_%253Brn1oSJB8-HmvMM%252CRg9KBTPBkb-vdM%252C_%253B_QGnKH_xCzkv4M%252CW2tqW94PcaCfnM%252C_%253BiBV2o3eBsrI6hM%252CrZcLSV2EDG32NM%252C_%253BMBi-BRJi495-oM%252C-l6u9z6mVZY-mM%252C_%253Bd5qx-GxEbLPHlM%252CM5PVq_xab4V05M%252C_%253B2iGQ77i_hYR29M%252C_218r0xIlJNaGM%252C_%253BhQRnmss7pomOLM%252CYTtMMz_P6_X4MM%252C_&vet=1&usg=AI4_-kQdbuZ-gq0Wpjala8-1IJHcGNN9bQ&sa=X&ved=2ahUKEwjKiobAzdL0AhUQk4kEHXodDxsQ9QF6BAgYEAE#imgrc=2iGQ77i_hYR29M
-
https://www.foxbusiness.com/business-leaders/man-claims-invented-bitcoin-wins-trial-keeps-bitcoins-50-billion
value goes up and down by 10 bill at a time :-o
-
https://en.wikipedia.org/wiki/Society_for_Worldwide_Interbank_Financial_Telecommunication
-
https://www.theepochtimes.com/hillary-clinton-sounds-the-alarm-on-china-russia-should-we-listen_4132656.html?utm_source=opinionnoe&utm_medium=email&utm_campaign=opinionnl-2021-12-09
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https://www.zerohedge.com/markets/and-just-inflation-about-disappear?utm_source=&utm_medium=email&utm_campaign=338
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https://www.cnbc.com/2021/12/10/bitcoin-network-hashrate-hits-all-time-high-after-china-crypto-ban.html
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https://news.bitcoin.com/cftc-commissioner-opposes-regulation-by-enforcement-crypto-needs-clearer-rules/?fbclid=IwAR3NozlAL99A7tD8NcP4QvgvGcSyEg4KyOl_3t0y_jDtdoRtY3lbni6dkMQ
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second
https://www.theepochtimes.com/shone-anstey-john-mac-ghlionn-why-the-us-and-china-are-taking-opposite-approaches-to-bitcoin_4151040.html?utm_source=newsnoe&utm_medium=email&utm_campaign=breaking-2021-12-12-2&est=tlzk5Y%2F4KcveEPmRTb%2F1IPPkRTwPnWiu5qX3Y8%2FPxiGCNl%2FXN5jWcaZf630la%2FsyyN%2B0
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The Fed Is the Main Inflation Culprit
The central bank has enabled price increases that may soon pose a risk to financial stability.
By Kevin Warsh
Dec. 12, 2021 1:04 pm ET
If price stability is squandered, financial stability is put at risk. If financial stability is lost, the economy is imperiled and the social contract is threatened.
During the past several quarters, U.S. inflation has surged—now running about triple the Federal Reserve’s 2% target. The surge in prices is unlikely to reverse on its own. The longer that prices are unstable, the greater the challenge to the conduct of macroeconomic policy. The last thing the country needs is its third major economic upheaval in a decade and a half.
The consequences of inflation—and the attendant risks—have long been understood. In 1898 economist Knut Wicksell explained: “Changes in the general level of prices have always excited great interest. Obscure in origin, they exert a profound and far-reaching influence on the whole economic and social life of a country.”
Inflation is the sincerest form of fakery: A surge in the cost of living that robs hardworking Americans of the fruits of their wage gains. An incomparable asset boom predicated on perpetually low interest rates. Alchemy for an overly indebted nation. Vulnerability that can lead to miscalculation by a fierce geopolitical rival. And despair by the body politic, whose common sense is at odds with the anxious conformity of those in power.
Inflation is a choice. It’s a choice for which the Fed is chiefly responsible. The risk of an inflationary spiral arises when policy makers first dismiss the problem and then cast blame elsewhere. Inflation becomes embedded in the price-formation process when the central bank acts belatedly or with insufficient conviction. To date, the Fed has acted as an enabler.
The sure sign of a problem: when a president gives voice to the scourge of inflation—and takes executive action—well before the central bank acknowledges the severity of the situation.
“Supply-chain bottlenecks” is the popularized rationalization for the surge in prices. But the supply-chain story sheds more shade than light. Consumer prices are higher because prices are rising at the points of production, assembly and transportation. This is a description of the state of affairs, not its source. The Fed’s inertia in withdrawing extraordinary monetary policy—amid full employment—is the proximate cause of surging prices.
When monetary policy is too tight, it slows aggregate demand. When monetary policy is too loose, it damages aggregate supply. Extraordinarily aggressive monetary policy, namely quantitative easing, discourages investments in real assets like capital equipment relative to financial assets such as stocks. That’s why nonresidential capital investment in the real economy—things like port modernization—is running 7% below the pre-pandemic trend and 25% below trend since the advent of QE. A more exuberant stock market and a less resilient real economy are both consequences of the Fed’s extant policy regime.
By August 2020, the Fed had become impatient with the purported low inflation rate of the Ben Bernanke and Janet Yellen years. Chairman Jerome Powell called low inflation—which averaged 1.7% in the prior decade, a mere 0.3 point below the Fed’s target—the pre-eminent economic challenge of our time. So the Fed bet on a new policy regime to get inflation higher. It worked. It’s not the first time a central bank wanted a little more inflation and got a lot more.
Last year, in another break with precedent, the Fed loudly and explicitly endorsed a blowout in federal spending. Congress swiftly agreed. Federal spending increased from an average of about 21% of gross domestic product in the prior decade to more than 30% in fiscal 2020 and 2021. National debt relative to GDP increased from 79% in 2019 to more than 100% today. Most troubling, the Fed bankrolled the fiscal profligacy, purchasing more than half of the new Treasury debt issued this year. Call it monetary dominance.
In congressional testimony recently, Mr. Powell made clear he was surprised and troubled by the medium-term trajectory of inflation. At this week’s Federal Open Market Committee meeting, the Fed seems ready to abandon its policy priors.
Achieving a soft economic landing at this late stage is difficult. If the sole task were to drive inflation down, the Fed would immediately taper its asset purchases and start raising rates. But a significant tightening cycle would likely cause market volatility to surge and assets to reprice. The authorities have expressed little concern about financial excesses, bubbles or financial imbalances. Hope they’re right. I expect tension between the Fed’s goals of price stability and financial stability to be in sharper relief in the new year.
Stopping QE altogether—even a few quarters ago—would have kept a lid on inflation and allowed a more measured path of rate increases. The Fed now has fewer degrees of freedom to keep the economy out of harm’s way. If the Fed doesn’t act with due speed and skill, inflation—the most regressive tax of all—will do further harm, particularly to the least well-off. If the central bank lurches into a significant, unexpected rate-rising cycle, the same hardworking Americans will bear the brunt of an economic slowdown.
The economy—and the country—is at a critical juncture. The biggest mistake of all, however, is to underestimate America’s strengths. The U.S. economic and political system often shows less well than it performs. At present, the first obligation of policy makers is to ensure a return to price stability.
Mr. Warsh, a former member of the Federal Reserve Board, is a distinguished visiting fellow in economics at Stanford University’s Hoover Institution.
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https://stockcharts.com/h-sc/ui?s=gbtc
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crypto:
https://www.youtube.com/watch?v=5aF7dgWvQ6Y
-
https://www.msn.com/en-us/news/politics/melania-trump-joins-crypto-frenzy-with-release-of-first-nft/ar-AARSqqC
wait I thought THE DONALD said he was against crypto
as in his view it undermines the dollar.
:roll:
Sorry, I am not buying an image of her "blue eyes"
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By: Geopolitical Futures
Taper time. The U.S. Federal Reserve said on Wednesday that it will wind down its asset purchase program earlier than planned. The program will now end in February 2022 instead of May. And although the central bank left interest rates unchanged, it signaled three rate hikes next year. Inflation in the U.S. hit 6.8 percent in the 12 months to November.
And in Europe. The Bank of England raised interest rates to 0.25 percent from 0.1 percent. It’s the British central bank’s first rate hike since the start of the pandemic, and comes a day after inflation in the U.K. reportedly hit a 10-year record of 5.1 percent. Across the channel, the European Central Bank opted to leave rates unchanged despite 4.9 percent inflation in November. The ECB did, however, reaffirm plans to end its emergency asset purchase program in March, though it will expand an older bond-buying program.
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second post:
https://www.bloomberg.com/news/articles/2021-12-14/crypto-prices-go-haywire-on-coinbase-other-data-providers?utm_campaign=bn&utm_medium=distro&utm_source=msn
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third
The Federal Reserve has retired the word “transitory” and now admits that inflation is high, but it isn’t in any rush to do much about it. That was the message Wednesday from the Federal Open Market Committee (FOMC) and Chairman Jerome Powell, whose actions said inflation really is transitory, even if it’s now impolitic for them to say so.
As a rhetorical matter, the FOMC statement shifted notably from its long-time wording and chucked its language that it would aim to have inflation run well above its 2% target. Mr. Powell waxed enthusiastic about the “rapidly” improving labor market and the economy—“really strong,” “consumer demand is very strong,” “incomes are very strong.” In that limited sense at least, he was mugged by economic reality.
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Left unsaid is that Mr. Powell and the Fed this year badly underestimated both the rise of inflation and the strength of the labor market. The chairman made it sound as if the inflation revelation had come to him in November, right around the time of the last FOMC meeting when the Fed stood pat on a very slow pace of withdrawing monetary accommodation. A lightning bolt of data struck, and he saw the light. We guess this is as close as the Fed ever gets to admitting a mistake.
Mr. Powell even made the startling statement during his post-FOMC press conference that “the inflation that we got was not at all the inflation we were looking for” when it unveiled its new policy framework to tolerate more inflation in August 2020.
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He elaborated later that the inflation the Fed was looking for was the type caused by rising wages. The inflation they got resulted from the supply-demand mismatch caused by the pandemic. Covid-19 sure does provide cover for a lot of policy mistakes. But we doubt this rationalization will comfort Americans who define inflation as rising prices—no matter the cause.
But never fear, Mr. Powell says the Fed has matters well in hand, and it predicts as much. The median estimate by Fed officials for personal-consumption expenditure inflation, the Fed’s preferred measure, jumped to 5.3% for this year. How could it not given reality? But they estimate that PCE inflation will crash in 2022 to 2.6%, and keep falling after that.
From this comforting scenario flows the FOMC’s modest policy shifts. The Fed will speed up its tapering of bond purchases, finishing in March instead of June. This isn’t monetary tightening—it’s merely a faster reduction of extraordinary monetary ease. The central bank’s balance sheet will keep growing for three more months even as inflation is running at nearly 7%. Amazing.
Mr. Powell made clear that interest-rate increases won’t begin until after its bond taper ends, and then the forecast is for only three quarter-point rate increases in 2022. This means real interest rates, after accounting for inflation, will remain negative throughout next year. This isn’t a hawkish policy, and the happy reaction of the stock market suggests that investors see a reduced threat to asset prices from higher rates.
There were no dissents on the FOMC, as Mr. Powell was eager to underscore. That’s a surprise given the gulf this year between the central bank’s predictions and inflation reality, but then conformity has been a hallmark of the Powell Fed.
Perhaps the FOMC members want to show solidarity as Mr. Powell and Fed governor Lael Brainard face Senate confirmation hearings—Mr. Powell for another four as chairman and Ms. Brainard as vice chair.
Mr. Powell’s strategy seems to be to steer through his confirmation by talking tougher on inflation while doing little about it anytime soon. The Senators can decide if they feel as confident as the Fed chairman does that he has it all under control.
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"The Federal Reserve has retired the word “transitory” and now admits that inflation is high, but it isn’t in any rush to do much about it. "
we all knew they would wait till it's too late................
the rest of us have to pay for it
through taxation
and price inflation .......
while the elites party on.........
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https://www.mediaite.com/news/larry-kudlow-calls-for-elon-musk-to-run-the-federal-reserve-the-guy-is-a-genius/
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saw "ATM " machine
you put cash in to get bitcoin
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https://blog.coinsource.net/how-to-use-a-bitcoin-atm/
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What the hell is going on with GBTC?!?
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https://www.yahoo.com/finance/news/why-tax-season-may-be-adding-to-the-rout-in-bitcoin-cryptocurrencies-205732636.html
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https://www.themoscowtimes.com/2021/12/14/belarus-banks-readying-for-swift-shutdown-reports-a75808
https://www.themoscowtimes.com/2021/04/22/should-russian-banks-be-scared-of-swift-disconnection-a73644
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Wild and glib, and , , , plausible?
Why the next Fed induced asset bubble may be in Bitcoin – Mark E. Jeftovic is The Bombthrower
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[Doug] The Federal reserve is supposed to be an independent entity with specific responsibilities laid out in various federal laws, yet has been acting as a subordinate arm of an increasingly reckless Congress. This article calls them out on that.
https://www.wsj.com/articles/debt-ceiling-spending-congress-fed-federal-reserve-monetary-fiscal-policy-11639698569
David Rivkin Jr. and Lee Casey are right that another debt-ceiling cliffhanger should be avoided, and that a constitutionally dubious suspension of the debt limit is not the answer (“This Debt-Ceiling Fight Threatens Democracy as Well as Solvency,” op-ed, Dec. 7). A smarter way for Senate Republicans to address the issue is to pass an entirely different sort of debt-limit bill, one that pays for obligations already enacted but limits the future share of that debt that could be financed by the Federal Reserve.
The Federal Reserve Banks’ stockpile of publicly held Treasury IOUs exploded from $476.3 billion in the third quarter of 2008 to $5.91 trillion in this year’s third quarter—that is, from 7.5% to 25.3% of GDP. In the same period, the federal debt grew from 67.3% of GDP to 122.6% of GDP. It seems doubtful that it would have been so easy for Congress to have let the debt grow twice as fast as the economy had it not been able to count on such an accommodating central bank.
We need to restrain this incestuous relationship between the congressional impulse to add debt and the Fed’s willingness to step in as the government’s lender of first resort. Our proposed debt monetization limit would prohibit the Fed from holding more than a specified percentage of the national debt whenever that debt exceeds a specified percentage of GDP. Such a limit would ensure that the Fed’s hoard of Treasury IOUs could not grow faster than the American economy that must bankroll the required interest payments.
Steve Stein, Larkspur, Calif.
Alan Reynolds, Cato Institute
Appeared in the December 18, 2021, print edition as 'To Restrain Debt, Rein in the Federal Reserve.'
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https://en.wikipedia.org/wiki/Ray_Dalio
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https://www.breitbart.com/tech/2022/01/01/2021-the-year-cryptocurrency-heists-went-nuclear/
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YA:
What do you make of that?
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https://www.breitbart.com/tech/2022/01/01/2021-the-year-cryptocurrency-heists-went-nuclear/
Regarding $600 million theft: "Surprisingly, the letter actually worked. The hacker began to return funds to the Poly Network, claiming that they only hacked the exchange for fun and to reveal how poor its security was. By the end of August, all of the money had been returned."
- That is not very reassuring.
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:-o :-o :-o
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BTC has never been hacked. When BTC has been stolen, its not by breaking the BTC cryptography, but by hacking the exchange. That is why Jan 3 is celebrated as "Not your keys, not your coins", by withdrawing everything into cold storage using a wallet such as Trezor.
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BTC has never been hacked. When BTC has been stolen, its not by breaking the BTC cryptography, but by hacking the exchange. That is why Jan 3 is celebrated as "Not your keys, not your coins", by withdrawing everything into cold storage using a wallet such as Trezor.
Understood, but wouldn't insecurity at the exchanges affect how widespread the appeal is for it and thus the price?
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Most of the hacks have been on foreign exchanges and most with what we call shit coins (alt-coins). No US exchange has been hacked, and the few instances that have happened dealt with hacked passwords, SIM card swaps etc, which can happen anywhere. Most have learnt the benefits of self storage.
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Willy Woo on BTC
Top level summary for 2nd Dec 2021 (current price $47.6k):
Macro structure: Long term holders continue to have most of the coins, they are at peak accumulation, this is strongly bullish for Q1 2022.
Short term: It’s relatively neutral, there’s early signs of speculative investors reversing from sellers to buyers while hodlers continue to hold the line without any sell down. There’s no signs of a sell-off while on-chain NVT Signal is in a rare buy zone.
BTC price action expectation: Sideways accumulation, potentially choppy, then upward price action and an eventual short squeeze during this month of January as capital returns into the markets.
Price action conviction: Medium.
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Thank you YA.
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Jan 3 is Bitcoin's birthday. The day is celebrated by withdrawing all your coins from the exchange to your hardware wallet. That way your coins are safe and the exchange cannot lend out your coins in fractional banking and other games involving rehypothecation.
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A new era of monetary policy is starting to hit investors in the face after previously estimating that any tightening would be limited and gradual. FOMC minutes released on Wednesday showed that officials were fully on board with a faster scale back of the central bank's asset purchase program, which would give it greater flexibility to raise interest rates and could happen as soon as March. Stocks tanked on the news, with the Nasdaq ending the day down more than 3% for the worst start to a calendar year since the financial crisis (more on that below).
Excerpt: "It may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated. Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve's balance sheet relatively soon after beginning to raise the federal funds rate. Some participants judged that a less accommodative future stance of policy would likely be warranted and that the Committee should convey a strong commitment to address elevated inflation pressures."
The Fed is also going to be more aggressive in reducing its nearly $9T balance sheet, and while it didn't put a timetable on a runoff (that's when it shrinks holdings by allowing bonds to mature), many are estimating the tightening could happen as soon as the summer. "Participants judged that the appropriate timing of balance sheet runoff would likely be closer to that of policy rate liftoff than in the committee's previous experience... and could warrant a potentially faster pace of policy rate normalization." Some officials even said in the minutes that they preferred to "rely more on balance sheet reduction" and "less on increases in the policy rate" to avoid flattening the yield curve.
Whoops? "Participants remarked that inflation readings had been higher and were more persistent and widespread than previously anticipated. Some participants noted that trimmed mean measures of inflation had reached decade-high levels and that the percentage of product categories with substantial price increases continued to climb. While participants generally continued to anticipate that inflation would decline significantly over the course of 2022 as supply constraints eased, almost all stated that they had revised up their forecasts of inflation for 2022 notably, and many did so for 2023 as well."
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Bitcoin, Ethereum Prices Fall Along With Tech Stocks
Declines in cryptocurrencies triggered by faster Fed timetable for raising interest rates
Bitcoin declined sharply after the release of the December Fed minutes.
PHOTO: YONHAP NEWS/ZUMA PRESS
By Caitlin Ostroff
Follow
Updated Jan. 6, 2022 9:12 am ET
Cryptocurrencies led by bitcoin and ether slumped as part of the broader tech selloff, cementing their status among investors as risky assets quickly dumped in moments of market stress.
The falls were triggered by Federal Reserve minutes that showed officials are eyeing a faster timetable for raising interest rates this year. As rates rise, holding volatile investments that produce little income becomes less attractive compared with government bonds.
Bitcoin has declined about 6% since the release of the December Fed minutes on Wednesday and recently traded for $42,989.72. Ether, the world’s second-largest cryptocurrency by market value, has fallen about 9% since the release. That leaves bitcoin near its lowest 5 p.m. ET level since late September and far off highs hit in November.
“This is proof that bitcoin acts like a risk asset,” said Noelle Acheson, head of market insights at crypto lender Genesis Global Trading. “The short-term holders, they are the ones who are trading and will be closest to the exit.”
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Bitcoin’s market is divided among long-term holders who see the digital currency, which is mined by computers, as a store of value, and hedge funds and other money managers who view it as a way to make money in times of market exuberance, Ms. Acheson said.
Jan. 5
9 a.m.
-14
-12
-10
-8
-6
-4
-2
0
2
%
Bitcoin
Ether
Cryptocurrencies, like other speculative assets such as tech stocks, have performed well over the past two years in an environment of superlow interest rates.
Bitcoin’s dollar value neared $70,000 last November as broader markets rallied and traders bet that the first U.S. exchange-traded fund linked to the cryptocurrency would pull in new investors who would push the price of bitcoin even higher. Since then, bitcoin’s rally has cooled, edging down at the end of last year.
“It had been range bound and seemed to be waiting for a catalyst one way or another, and the hawkish Fed was the catalyst,” said Craig Erlam, senior market analyst at trading firm Oanda.
Bitcoin and other cryptocurrencies are notoriously volatile and often gyrate on news of them being accepted in mainstream parts of the economy, rumors or pronouncements from celebrities.
Last year, Tesla Inc. ’s purchase of bitcoin and the stock-market debut of cryptocurrency exchange Coinbase Global Inc. both boosted bitcoin’s price.
Why Crypto Lending’s Risks May Spark a Serious Regulator Crackdown
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Why Crypto Lending’s Risks May Spark a Serious Regulator Crackdown
Why Crypto Lending’s Risks May Spark a Serious Regulator Crackdown
While the SEC hasn’t announced major actions against big crypto exchanges, the commission has threatened to sue companies offering crypto lending. WSJ’s Dion Rabouin explains why this one part of the crypto market has drawn such a strong reaction. Photo: Mark Lennihan/Associated Press
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My play is long term, but I'm taking one helluva beating here right now.
Fail of the BBB bill, sooner than anticipated interest rate moves from the Fed, , ,
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My play is long term, but I'm taking one helluva beating here right now.
Fail of the BBB bill, sooner than anticipated interest rate moves from the Fed, , ,
Me as well.
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I made a long-term diversification decision as to how much I was going to invest in this sector and I did so with daily purchases until I hit that amount. Having done so I now hold.
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BTC hodlers are forged by fire. The draw downs are becoming smaller. The volatility is huge, but the rise will also be massive. The hardest part is not selling anything for about 2 cycles.
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Thank you for the blast of courage. Holding is my strategy.
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https://www.yahoo.com/finance/news/u-senator-warren-calls-fed-151635355.html
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I am impressed this old guy and legendary investor Bill Miller is holding 50 % BTC and 50 % AMZN.
https://twitter.com/i/status/1480555030935588865 (https://twitter.com/i/status/1480555030935588865)
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Look at the volume over recent days
https://stockcharts.com/h-sc/ui?s=gbtc
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See this email from Hal Finney, first person to receive a BTC transaction from Satoshi himself. This is why we are so early and a long term hold is necessary.
(https://pbs.twimg.com/media/FI0bZDBWQAMzSO4?format=jpg&name=large)
(https://pbs.twimg.com/media/FI0cSfQXIAct-EV?format=jpg&name=large)
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8-) 8-) 8-)
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I'm holding.
https://www.thestreet.com/investing/bitcoin-loses-40-of-its-value-since-november?fbclid=IwAR0GzM8iL1kbWf4DMTLA5F0YrAD32z1r61PhgfFerNb6uN5gkDdOua-Dc0A
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We all worry, when BTC goes down. However, the more you understand about BTC, the easier it is to not get shaken off.
(https://pbs.twimg.com/media/FFozZW3UcAUmhEa?format=jpg&name=small)
1. Look at the Supply Demand for BTC. Currently about 100 million users, expected to rise to 1 Billion over the next 5-10 years, per various estimates, i.e. 10x increase in demand. 90 % of BTC has already been mined, over the next 8 years (two cycles), the new supply will go from the current 6.25 BTC/10 min to 3.125 BTC/10 min in 2024 and 1.5 BTC/10 min 2028. ie after 2028 98 % of BTC has been mined, i.e. there is no significant new supply the remainder will be mined in even smaller amounts until 2140. In otherwords, demand >> supply, so price must go up.
2. In Q1 2022, El Salvador is coming out with their Volcano Bond, which is expected to be heavily oversubscribed. They will use half the money for BTC mining using renewable geothermal energy and the rest to make Bitcoin City, which will have no income or property taxes. If succesful, more such bonds will be issued.
3. ElSalvador has BTC as legal tender, the prez of El Salv has tweeted that he expects 2 other countries to make BTC legal tender in 2022. At the very least other S.American countries that use the US $, will also start using BTC and even perhaps make it legal tender.
4. The US cannot indefinitely postpone a spot BTC ETF. If that happens, BTC goes parabolic. Already Canada, Brazil, Europe have such ETF's. Fidelity has started to invest in the Canadian ETF, that is money drain out of the country.
5. Many rulings from IRS, SEC etc suggest that BTC is not going to be banned, that means the US has decided to live with BTC. This was a big threat over BTC, its been mitigated.
6. (https://pbs.twimg.com/media/FGMukLrUcAAsBEi?format=jpg&name=medium)
Smart people say that money printing cannot be stopped, otherwise the markets crash. So M2 will increase, whereas BTC supply is capped. People including many billionaires such as Ray Dalio, Bill Miller, Druckenmiller, Tudor Jones, Michael Saylor are holding significant amounts of BTC in their personal portfolio.
7. Many companies such as Microstrategy hold BTC in the company's treasury. Cash is considered to be like a melting ice cube, where inflation eats it away. At some point, the big FANG stocks will also get into it.
8. Bonds: there are about 18 Trillion $ worth of NEGATIVE yielding bonds, at some point people will move out from them to get yield. BTC has given about 100 % CAGR average growth for the last 10 years or so.
9. There is enough evidence that Gold is being demonetized, significant amounts of money is moving from gold to BTC, same will happen to bonds, even a 5 % move from bonds to BTC can be quite dramatic.
10. Other assets such as Real Estate, cars, paintings etc which hold a lot of value, these will see flows to BTC. A 5 % flow to BTC from Real Estate will happen over the next few years. That could be massive.
11. Many boomers are retiring and will pass on trillions of $ to their millenial kids, many of whom are believers in BTC.
12. There are literally hundreds of companies, big and small investing billions of $ in BTC. We have not much looked at the so called second layer solutions of BTC. Just today CashApp launched Lightning payments over its app or with Twitter anywhere in the world, instantaneously and near free of cost. STRIKE just introduced a lightning payment service in Argentina, they just finished doing that in El Salv where 90 % of the population now has a Chivo wallet. https://twitter.com/i/status/1481015254742188032
I could go on and on...admittedly some of this is wishful thinking, but there is too much going on for BTC to crash very much. When in doubt zoom out and look at a BTC chart on log scale, its quite a bullish chart.
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We here on this forum need to remember how wrong we were in the years after the 2008 bubble burst that there was going to be massive inflation and to remember how right Scott Grannis was. His entry Jan 7 entry here is well worth considering regarding current patterns, and his Jan 6 entry does a deep dive into his theory of the role of velocity to solve the missing link of monetarism's MV=PY. Powerful stuff.
If he is right, then this is going to hurt.
Me? I am playing diversification and over the years I have proven to be a contrary indicator from time-to-time haha , , , hah. And so I will continue to hold the percent of my savings that I have invested. This may prove to be wrong, but the chance of it being right as YA describes is considerable. The Adventure continues!
I would also add that as best as I can tell most people are failing to give due weight to the decrease in supply as a non-monetary inflation component to price increase.
As some articles posted here have suggested, this may well increase should the world economy continue to fragment. Depressionary and deflationary pressures could be surprisingly strong from this dynamic.
Crypto/BTC/Eth are in great part a mo-mo play based upon belief in increasing monetary inflation. Is that belief changing?
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Review of top hardware wallets
https://www.youtube.com/watch?v=N57qEFP_UOg (https://www.youtube.com/watch?v=N57qEFP_UOg)
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Perfect timing for me, thank you.
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"most people are failing to give due weight to the decrease in supply as a non-monetary inflation component to price increase."
Right. Anti-supply was the policy elected. In Biden's first minute, he cancelled the Keystone XL pipeline. That IS supply and it affects everything from other energy prices to food production, housing, transportation, manufacturing and everything else.
Being a futures market, energy prices went up with the announcement of election results; it didn't even wait for the policies sure to come. He cancelled ANWR, right? Drilling on federal lands, drilling off-shore.
Raising capital gains rates, raising corporate tax rate, income tax rates, greater regulations on producers, these all gut out supply investment before they even go into effect.
Then with trillions in monetary and fiscal stimulus, demand is stimulated, meaning inflated. So if demand is up, you just produce more? Not with millions of workers leaving the workforce and new workforce rules tying the hands of those who stay, and investment racing to its least productive use, cf bitcoin.
As University of Chicago Economics Professor Casey Mulligan says, Supply and Demand, In That Order:
https://caseymulligan.blogspot.com/
Scott Grannis post:
https://scottgrannis.blogspot.com/2022/01/the-fed-is-ignoring-demand-for-money.html
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https://www.wired.com/story/kazakhstan-cryptocurrency-mining-unrest-energy/?fbclid=IwAR08ZcIy6k-W-6vrUMhdAY9d0QyHVPT1838F2EEOQHuome-q4a-76HSqESE
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Though there was unrest in Kazakh, it did not materially affect the BTC hash rate. Infact the hash rate only took a dip when China banned BTC mining, but its now back to normal and higher than before.
https://checkonchain.com/btconchain/performance_hashrate_pricing_usd/performance_hashrate_pricing_usd_light.html (https://checkonchain.com/btconchain/performance_hashrate_pricing_usd/performance_hashrate_pricing_usd_light.html)
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Small Tonga, looking to make BTC legal tender...the dominoes are falling. Probably nothin
https://twitter.com/LordFusitua/status/1481101011506774016 (https://twitter.com/LordFusitua/status/1481101011506774016)
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Giving this a second look:
https://scottgrannis.blogspot.com/2022/01/the-fed-is-ignoring-demand-for-money.html
I believe Scott is right all the way through academically, and the academics may be his peers, but I don't think such a roundabout way of looking at it advances our ability to simply and directly spell out cause and effect.
There are two parts; Crafty laid out one of them and the other was obvious to anyone who received thousands in the mail for doing nothing.
** We inject more and more money into the system without producing more and prices go up. **
This isn't complicated but there are many follow up points to that.
Right Way:
There is supply side economics of which Scott Grannis and people here are advocates. Reduce the burdens of government placed on producers and more people will produce more goods and services, earn more income, buy more goods and services, save more, and invest more in a highly interconnected, dynamic economy. Everyone benefits right down to the tax collector and the people who rely on the public revenues. True liberals should favor that, not just small government conservatives.
Wrong way:
Then there is the demand side, magic wand side, denial of incentive-based economic science side of it that is the Democrats.
Stimulus checks, quantitative easing, Universal Basic Income UBI, Modern Monetary Theory MMT, free lunch, free health care, free Obama phone, Keynsianism (run amok), borrow more, spend more, owe more and more debt, NONE OF IT TIED TO PRODUCING MORE GOODS AND SERVICES.
More money in people's pockets but not more goods and services = inflation. Who knew? I don't know, everyone? It's definitional.
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Fidelity "History has shown capital flows to where it is treated best and embracing innovation leads to more wealth and prosperity. We also think there is very high stakes game theory at play here, whereby if bitcoin adoption increases, the countries that secure some bitcoin today will be better off competitively than their peers. Therefore, even if other countries do not believe in the investment thesis or adoption of bitcoin, they will be forced to acquire some as a form of insurance. In other words, a small cost can be paid today as a hedge compared to a potentially much larger cost years in the future. We therefore wouldn't be surprised to see other sovereign nation states acquire bitcoin in 2022 and perhaps even see a central bank make an acquisition."
https://www.fidelitydigitalassets.com/articles/2021-trends-impact
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If someone is into Bonds, pl. read this
https://rockstarinnercircle.com/wp-content/uploads/2021/04/Why-Every-Fixed-Income-Investor-Needs-To-Consider-Bitcoin-As-Portfolio-Insurance.pdf
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If you like Max Keiser...here's a good interview. As you may know, Max has been pushing BTC since a $ and is now getting out of gold. He is a bit of a showman, but over the last few years, I have come to respect him.
https://youtu.be/VqtGk6St9yk
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How to use a hardware wallet
https://bitcoinmagazine.com/guides/how-to-use-a-bitcoin-hardware-wallet
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Willy Woo
Top level summary for 16th Jan 2022 (current price $43.0k):
Macro structure: Long term holders continue to have most of the coins, they are at peak accumulation levels, they’ve also halted their profit-taking which was seen in October and December. Given so many coins are locked up with long term holders who do not sell until profit is at hand, this is indicative of a bullish year for 2022.
Medium term (up to 3 months): In terms of coin movements, the picture is very quiet and neutral. Whale investors sold down in October peaking in December, this is now abating and swinging towards a buy zone (but we are not quite there). The expected January redeployment of capital by institutions has not yet happened.
Short term (next 4 weeks): The sell-off trend has not yet ended. Exchange data indicates short term and long term speculators have been selling off. We are waiting for demand to come in. Short term on-chain signals shows the market is oversold from fundamental valuation.
ETH and Alt commentary: ETH is showing early signs of on-chain demand. While BTC is trapped in a prolonged sideway regime this is typically a zone where alt-coins perform and indeed they are starting show strength. A mini alt-season is forming.
Structural comments: BTC is broadly in a sideways accumulation zone with low spot volumes relative to futures markets where most of the short term speculation takes place. During these phases of the market, similar to 2019-2020, the predominant force behind price action is correlations to risk-on / risk-off in equity markets. Futures data becomes dominant for the short term while on-chain analysis is best used to peer into the macro structure. On-chain data for short timeframe calls will have to wait until until spot volumes increase relative to futures.
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Being a hodler was never easy..
(https://pbs.twimg.com/media/FJRJT0wUYAk8xA9?format=jpg&name=small)
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Congress Treats Bitcoin Like Stacks of Cash
A new federal law mandates reporting transactions of more than $10,000. Why?
By Abraham Sutherland
Jan. 17, 2022 5:23 pm ET
Without fanfare or debate, Congress has recently determined that economically meaningful transfers of digital assets should be as rare, burdensome and criminally suspect as transacting in bricks of cash. An eight-word amendment to the U.S. tax code in the infrastructure spending bill, which become law on Nov. 15, defines digital assets as cash for the first time—a small change with bad consequences for American innovation.
Enacted in 1984, Section 6050I of the tax code mandates onerous reporting when businesses receive more than $10,000 in physical currency. This discourages the use of cash and encourages the use of banks, which since 1970 have been tasked with surveillance and reporting of Americans’ transactions for tax-enforcement and other crime-fighting purposes.
But Section 6050I is obscure for a reason: In 1984 cash was already obsolete for economically significant, law-abiding use in the modern economy. So no one except criminals cared when Congress created one more reason to use banks instead of cash.
But Bitcoin and digital assets aren’t obsolete. The November amendment will thwart development of this new technology and effectively ban many uses of digital assets. It will push innovation out of the U.S. And it will entrench existing financial institutions and big tech at the same time it forces Americans to report one another or face a felony charge.
The new law also creates inconsistencies with other federal law. Section 6050I interacts with provisions of the Bank Secrecy Act in nuanced ways that the amendment didn’t consider. These should have been understood before Congress legislated on such an important technology.
The provision is also constitutionally suspect. Section 6050I forces businesses to collect, verify and report customers’ names, addresses, Social Security numbers and other personal information without a warrant. This is a significant imposition on privacy rights and will rightly be challenged under the Fourth Amendment.
Unfortunately, there’s no quick fix through artful Treasury Department regulations. The statute limits the discretion of regulators, and the statute itself establishes the surveillance and reporting requirements.
Some in Congress understand this is important, and bills were immediately introduced to repeal the hasty, never-debated amendment.
One of them, introduced by Reps. Patrick McHenry (R., N.C.) and Tim Ryan (D., Ohio), has a dozen bipartisan cosponsors and, among other fixes, would replace the 6050I amendment with a study and report to Congress.
That’s the right approach. Section 6050I was originally written for face-to-face transfers of untraceable physical objects occurring on American soil. But digital assets aren’t simply digital cash. Unlike physical cash, digital assets are highly traceable. And digital assets aren’t obsolete.
After years of silence, Congress’s first important foray into digital-asset legislation was done on the sly and without considering the consequences. For those who understand neither 6050I nor digital assets, the grave consequences of the new law aren’t obvious, but they are real. The mistake can be rectified. Congress should repeal the Section 6050I amendment and start over.
Mr. Sutherland is a fellow at Coin Center and an adjunct professor at the University of Virginia School of Law
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What a difference a year makes, measured at BTC 40,000 $...note the dates
(https://pbs.twimg.com/media/FJbavx5acAUzSYo?format=jpg&name=large)
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GBTC premium is at neg 25 %. It is selling at a 25 % discount to BTC. Great buy.
I prefer to buy BTC direct, simply because one does not suffer through a neg.premium.
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https://www.lowkickmma.com/francis-ngannou-will-get-half-purse-in-bitcoin/?fbclid=IwAR0DbZdJSx4_YTvcyOQTu8pLzH2tU7JTqkRYiwzRGgEbyAEyfrh0dobD288
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Intel to start making ASIC chips. This news is important because 1. International game theory is coming into play. Currently almost all mining equipment is of Chinese origin, western nation states will likely not want to be hostage to China wrt ASIC miners. https://www.btctimes.com/news/intel-bitcoin-mining-announcement-first-customer
2. Nations who get in on the action first will benefit, not many large countries will admit to accumulating BTC. Jason Lowery from the US Space Force compares BTC mining to Military Force. Worth reading about his ideas.
3. The fact that INTC is making mining chips (i.e. spending hundreds of millions), means that the US will accept BTC and it will co-exist. Too many politicians hold BTC, SEC Chair Gensler is favourable to BTC, J Powell is not against BTC.
We only need time, before everyone gets it!.
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https://www.vice.com/en/article/epxb8m/crypto-protocol-publicly-announces-flaw-users-relentlessly-owned-by-hackers?fbclid=IwAR1pX3KiOn3wALTnZW8oPR8KMNOLqzHhfB4DrDC1Wzs7S6lJ0oJ5qsD9mOE
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This is why BTC is the best choice, its software has been reviewed by the best cryptographers for over 13 years now. Any changes to the software takes years to implement and painstaking review.
-
trying to muscle out cryptos:
https://www.msn.com/en-us/money/markets/the-federal-reserve-is-taking-the-next-step-toward-possibly-launching-a-digital-dollar/ar-AASZ8Vk?ocid=uxbndlbing
no surprise
they won't allow control of crypto dollars to anyone else.......
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https://www.theverge.com/2022/1/20/22893720/us-congress-hearing-cryptocurrency-energy-bitcoin-mining?fbclid=IwAR0rDnx489wEdZ-AEMHtKfuSJqDsJRI-mBmULM_ynIFo9GD2hwIR5GcHEYw
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A great read by Sven. There may still be some pain to come for BTC, but he is becoming a long term investor.
https://northmantrader.com/2022/01/22/revolution/
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Bitcoin is dead. 400 Obituaries, they must be right
https://www.bitcoinisdead.org/ (https://www.bitcoinisdead.org/)
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https://www.bloombergquint.com/business/white-house-is-set-to-put-itself-at-center-of-u-s-crypto-policy
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Fed Coin on the way..https://www.federalreserve.gov/publications/files/money-and-payments-20220120.pdf
-
Fed Coin on the way..https://www.federalreserve.gov/publications/files/money-and-payments-20220120.pdf
Shitcoin.
-
We have been postulating that BTC/ETH were replacing gold. Now that they are going down sharply, is it a coincidence that gold is going up?
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We have been postulating that BTC/ETH were replacing gold. Now that they are going down sharply, is it a coincidence that gold is going up?
I would think it’s not a coincidence.
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(https://pbs.twimg.com/media/FJvpbH4VUAAf2kt?format=png&name=medium)
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With great sincerity, your hand holding is greatly appreciated-- gratitude!
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Anyone who has held BTC for 4 years (1 cycle) has been well rewarded, that's the minimum hold, holding for 2 halving cycles is what most will do.
Remember what you expect is different from how BTC moves (different from any stock), which is the reason we hodl.
(https://pbs.twimg.com/media/E7JktNDX0AcQOpP?format=png&name=large)
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Its important to understand this figure. By 2024 at the next halving, 94 % of all BTC will have been mined. After that (mid 2024) the supply of new BTC will reduce 50 % from 6.25 BTC/10 min to 3.125 BTC/10 min and then further about 1.5 BTC/10 min at the next halving etc. Essentially the last 5 % of BTC will be mined over the next 100 years in smaller and smaller quantities. In other words, there is literally no significant new supply coming into the market, once 95 % of all BTC have been mined.
We all know what happens when supply is miniscule and demand is massive. Retail investors, large funds, companies and nation states will all want their share.
(https://pbs.twimg.com/media/FJqN2qOXIAI28If?format=jpg&name=medium)
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This is why, people need to hold their coins off exchange. The BTC block chain has never been hacked.
https://www.btctimes.com/news/millions-stolen-from-crypto-com-in-hack
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Nice movie to watch...hope everyone is aware of Klaus Schwab, WEF and the Great Reset
https://www.thegreatresetfilm.com/
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BTW, with markets and BTC dipping, the BTC miners have dipped even more (they also go up more). Pl. do your own research, but I own BITF, HIVE, HUT and RIOT is building huge capacity, so it will go up soon. Infact, I added to my stack. I will sell when they triple.
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Nice movie to watch...hope everyone is aware of Klaus Schwab, WEF and the Great Reset
https://www.thegreatresetfilm.com/
Important!
-
https://www.benzinga.com/markets/cryptocurrency/22/01/25174180/investors-feeling-the-chill-of-long-crypto-winter-ahead-akin-to-1929-stock-market-crash-an?fbclid=IwAR1v7zZ1Wcn4OcBD77yLkZSCVnZDGRjbI0laontviE3PYvhbFnPn4kD-gNU
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This ZH article makes several important points. Holding for the long term is key.
https://www.zerohedge.com/crypto/all-possible-fed-policy-tracks-still-lead-bitcoin (https://www.zerohedge.com/crypto/all-possible-fed-policy-tracks-still-lead-bitcoin)
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From Willy Woo
Top level summary for 24th Jan 2022 (current price $34.9k):
Price action environment: We in a prolonged re-accumulation phase of the market, akin to mid-2019 to late-2020. Typically in these situations BTC trades in a strong correlation to equities with little adherence to on-chain data. The environment has been risk-off in equities and this has been the key contributor to BTC’s weak performance. Traders are currently leading spot investors tracked by on-chain data.
We are seeing early signs of demand seeping back into the market in futures markets, and the chart technicals points to today as being a high probability zone for a reversal. If this level holds we can expect a solid bounce.
The strength of the sell down has not been supported by fundamentals of investor movements.
Whales (owners of 1000BTC of more) sold down in November and December, this has now switched back to accumulation. This may be the early signs of the expected redeployment of institutional money.
Price in relation to on-chain demand is now nearing peak oversold levels. All previous times in this zone we have experience very strong and prolonged bounces, the last time we saw this was at the $29k bottom in July 2021, also the Oct 2020 rally from $10k to $60k started in a similar structure.
(https://cdn.substack.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fea55fa6e-89f7-407c-ac5c-74bb2710f43a_1962x1406.png)
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increasing their bribes - woops - excuse me - influence in DC
https://www.yahoo.com/finance/news/president-biden-plans-executive-order-111927265.html
The "blockchain" caucus:
https://congressionalblockchaincaucus-schweikert.house.gov/members
https://en.wikipedia.org/wiki/Congressional_Blockchain_Caucus
-
https://raconteurreport.blogspot.com/2022/01/economics-101-inflation.html?m=1
Plan accordingly.
-
Putin wants to get in on the action. Kicking Russia out of SWIFT would certainly do it. They have plenty of gas, cold climate and far flung places with hydropower, ideal for local mining. Buying El Salv. Volcano bonds next month, would also send a strong message to the US.
https://www.bloomberg.com/news/articles/2022-01-27/putin-backs-crypto-mining-despite-bank-of-russia-s-hard-line (https://www.bloomberg.com/news/articles/2022-01-27/putin-backs-crypto-mining-despite-bank-of-russia-s-hard-line)
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I see gold has dropped $30 this morning and is back to $1800.
-
The Kraken Intelligence team has analysed on-chain data for bitcoin and ethereum.
Certain indicators are key to determining whether the bull run will resume in the near future or not.
The Federal Reserve is having a bigger impact on crypto markets now than it has done in the past.
Bitcoin has roughly halved in value from its $69,000 peak in November to sit at around $35,000 as January draws to a close.
This precipitous fall for the original crypto and many others is nothing out of the ordinary for the most volatile of asset classes, but it has still shaken confidence amongst investors and there are plenty of people proclaiming it is the start of a long
bear market
.
This is far from a unanimous view though, with some experts seeing recent market movements as just the inevitable short-term period of profit-taking that follows a strong run up in prices. After all, bitcoin is still up almost 1,000% over the last three years, despite the slide from November's all-time high.
Something else to be mindful of is that crypto has begun trading with a much closer correlation to tech stocks than in the past, and therefore is being impacted by interest rate rise expectations.
Prices have stabilized over the past week and determining whether the dip is bottoming out or if there's another big fall coming is the key question all crypto investors are wrestling with.
One of the world's biggest crypto exchanges, Kraken, has a team of analysts dedicated to finding answers to questions such as this.
In a research note from the Kraken Intelligence team dubbed "On-chain digest" the analysts described the status of the crypto market as "hodlers' last chance."
"Market participants contend that the latest market weakness stems from increased concerns of hawkish policy from the
Federal Reserve
," the Kraken team said. "Though prices have been falling since November, the drop didn't accelerate until the release of the Federal Open Market Committee (FOMC) meeting minutes on December 14 to December 15, 2021."
The meeting contained hints that an accelerated pace of tapering, interest rate hikes, and potential quantitative tightening to lighten the central bank's balance sheet was coming. While the Fed's hawkish tone has some convinced that a bear market may be ahead, it's crucial to observe on-chain data to paint a complete picture of the crypto markets and where they are heading."
There are four major on-chain data points the team is watching like a hawk.
HODL waves
These reflect the percentage of bitcoin's circulating supply that hasn't moved wallets over a specific timeframe.
When plotted against bitcoin's price it shows which market participants — long-term, medium-term, or short-term holders — may be fuelling selling pressure. There are three main categories. "Ancient or lost coins" that haven't moved for over five years, "old coins' that haven't moved for over 6 months and "young coins" which has only been static for 6 months or less.
"BTC's HODL waves show that long-term holders have been accumulating coins since April 2021 and may have begun taking profits during November 2021," the Kraken team said.
"From April 30, 2021, to November 24, 2021, young coins rapidly shifted into the long-term holdings category. While long-term holding conviction appears stronger than ever, network activity shows that both Bitcoin and Ethereum are seeing less on-chain demand," they added.
Network Activity
This refers to the number of people active on a blockchain and is measured by the numbers of bitcoin or ether addresses that are actively transacting on the blockchain.
"In addition to a reduction in long-term holding behavior, on-chain data shows that network activity for both Bitcoin and Ethereum fell month-over-month, evidenced by the drop in monthly active addresses," Kraken's team said. "Since early November 2021, Bitcoin's number of monthly active on-chain addresses has fallen meaningfully, ending a 3-month uptrend."
SOPR and MVRV
The SOPR is the spent output profit ratio. The SOPR measures whether market participants are selling at a profit or loss. It is calculated by taking a spent output and dividing its realized dollar value by its dollar value at creation.
MVRV is ether's market value to realized value. The MVRV Z-Score compares the difference between a cryptoasset's
market cap
and its realized value relative to the standard deviation of its market cap.
"While long-term holding conviction and network activity are slowing, on-chain indicators such as BTC's SOPR and ETH's MVRV Z-score suggest that the broader macro trend isn't necessarily over yet," Kraken's team said.
"Though BTC's SOPR shows that market participants are mainly selling at a loss, the situation was much worse during bitcoin's latest retracement from $65,000 to $30,000 from May 2021 to July 2021 after which the market made a strong comeback."
"The crypto market is currently going through another test amidst broader macroeconomic uncertainty relating to global interest rate policy and repricing of risk-on assets," added Thomas Perfumo, Kraken's head of business operations and strategy.
"More than ever, this market environment highlights the importance of on-chain fundamentals, which is the focus of our report. In particular, we highlight signals that indicate investor sentiment in crypto markets is greater than when markets briefly turned over eight months ago. Long-term confidence in the prospects of both assets has not disappeared as some might argue."
Check out: Personal Finance Insider's picks for best cryptocurrency exchanges
KEEP READ
-
Sir, after the volatility, we all need some hopium.
(https://pbs.twimg.com/media/FKLbDgNX0AQ7LQd?format=jpg&name=large)
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https://www.bizjournals.com/jacksonville/news/2022/01/28/cryptocurrency-florida.html?fbclid=IwAR2LOLsQNOVKIbQJ4wxUGm8GaVOW1HSr4M2zd3uielMr9NUW8CDNqAQYYw8
By Gray Rohrer – Florida Politics
Jan 28, 2022 Updated 5 hours ago
Legislation to define the term “virtual currency” and attempt to clarify state law regarding cryptocurrency and state financial regulations passed through the Senate Subcommittee on Agriculture, Environment and General Government on Wednesday.
The bill’s movement is an indication the bill has a greater chance at passing this year after failing to get through the Senate last year.
“It’s largely uncontemplated in law since it’s so new,” said Sen. Jason Brodeur, a Lake Mary Republican and sponsor of SB 486. “(The bill) lays some guardrails down for how we will deal with cryptocurrency.”
The bill defines “virtual currency” as a “medium of exchange in electronic or digital format which is not currency.” Brodeur and the committee also amended the bill to ensure the term doesn’t apply to currencies solely used in online gaming platforms or a business’ exclusive rewards programs that can’t be converted into hard cash.
The measure passed unanimously with little discussion and has just one more committee stop in the Senate before making it to the floor. Last year, a similar bill passed through the House but failed in the Senate. This year’s House version (HB 273) has passed through its two committee references and is headed to the House floor.
Brodeur cited a decision by the Third District Court of Appeal in Florida v. Espinoza, which held that selling Bitcoin to another person was covered under the state’s laws governing money transfers. That decision was issued on Jan. 30, 2019.
“I think it was prompted by the Office of Financial Regulation wanting to have greater guardrails after the Espinoza case,” Brodeur said of the bill. “That was a seminal case law that really highlighted the need to have better definitions in the money service business section of Florida law.”
“Definitionally with digital currency, we have to delineate between a private person who is a money service provider, versus somebody who is just trading their own currency,” he added.
The bill is a reflection of the increased interest in cryptocurrency by Florida officials in recent years.
In his budget recommendations to lawmakers issued in December, Gov. Ron DeSantis called for the creation of pilot programs at a few state agencies to accept cryptocurrency as payment for select services, and for businesses to pay state fees.
Those suggestions aren’t in the bill, but the state could — and will likely have to — accommodate cryptocurrency in the future, Brodeur said.
RECOMMENDED
“That will be a decision as use of these instruments picks up,” Brodeur said. “Right now it’s not widespread, but we have to be ready for it in case it is. The intent of this bill is to put guidelines in place so that as we have cases of illicit use as a money laundering thing … we are familiar with what is actually money laundering from a money services business and what’s some guy just trying to trade his Bitcoin.”
-
Texas challenger for Governors seat plans to make BTC legal tender, current Gov. of Texas is also a strong BTC supporter, in AZ a bill introduced to make BTC legal tender. While these may not go anywhere, the discussion will ensue. BTC genie cannot be put back into the bottle.
-
https://www.benzinga.com/markets/cryptocurrency/22/01/25285671/bitcoin-leaves-exchanges-spurred-by-federal-reserve-comments?fbclid=IwAR2azzJF9N6AO291tZHw8-Z5iUUnsdFMbi9lDwDGs5RlsEpd3FM5im8kWY0
https://www.politico.com/news/2022/01/29/crypto-industry-lawsuits-sec-00002580?fbclid=IwAR0-WpkQauYHlIbsb1PRcjnxZAVccgQCl-rIKpWAHVxVbmysVad3DTi1KTE
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Second post
https://www.coinbase.com/legal/user_agreement/united_states_jan_2022
Our attention is called to Section 7 and Appendix 5 in particular
-
third
https://www.pbs.org/newshour/economy/imf-urges-el-salvador-to-scale-back-its-push-for-bitcoin-as-legal-tender?fbclid=IwAR01A_9bfrgFMZ0l_JxgRs2J4axUoxAtbWpt2kW_Az86i0ujno5F1YYxK94
-
fourth
https://www.bloomberg.com/news/articles/2022-01-28/going-mainstream-is-a-double-edged-sword-for-crypto-goldman?fbclid=IwAR0WR2TJYJS8AEOc_6BB7zfMcCf4WYkIo_GxI3x7M9C6D7CniPMK57OrPz0
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fifth
https://www.vice.com/en/article/epxa57/this-is-why-theres-been-so-many-nft-and-crypto-hacks?fbclid=IwAR2aobSEaW962yVQ6vqneHWp8pI5K2cGnHZXFEgb1HSTvao3woOxkCmUb-A
-
Willy Woo:
Top level summary for 30th Jan 2022 (current price $37.6k):
Short Term: The sell down by traders which lead to hodlers to follow suit has now stopped. Traders on futures exchanges have recently stopped their sell down while on-chain we can see that hodlers are now buying alongside medium term speculative investors.
Price is now at extreme discounted levels compared to on-chain demand.
Whales (owners of 1000BTC of more) are now in strong accumulation, signs that institutional money is now re-entering the market.
-
Thank you.
-
https://www.marketwatch.com/story/crypto-community-rallies-to-thwart-latest-threats-from-washington-11643393574?fbclid=IwAR0kc3YWptIPVY8v48XZr4b_On21tAzPVSWkoPdgimeW59qSiLHxhCACBBs
-
https://www.washingtonpost.com/opinions/2022/01/30/maybe-volatility-cryptocurrencies-is-feature-not-bug/?utm_campaign=wp_post_most&utm_medium=email&utm_source=newsletter&wpisrc=nl_most&carta-url=https%3A%2F%2Fs2.washingtonpost.com%2Fcar-ln-tr%2F35e67ef%2F61f6c03b9d2fda14d712c9b5%2F61cdf026ae7e8a4ac205b2b3%2F18%2F72%2F61f6c03b9d2fda14d712c9b5
https://www.politico.com/news/2022/01/29/cryptocurrency-industry-fights-proposed-ny-moratorium-here-is-whats-at-stake-00001994?fbclid=IwAR3ebpycbyOVY44Om_eM-8AAS7OtR9scugxyNaJsRt1qNO9LhRh6Vjb1kaQ
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Not that I understand, but FWIW:
https://www.benzinga.com/markets/cryptocurrency/22/01/25302303/1b-worth-of-ethereum-burned-in-30-days-95-net-reduction-makes-it-hardest-money-in-the-worl?fbclid=IwAR2btQMZM-3mXUpzeNG9ixa6ExKWLquLNTWhjk08hI0X_9SzpoMMusdTgl8
https://interestingengineering.com/el-salvador-bitcoin-scarcity-will-lead-to-a-gigantic-price-increase?fbclid=IwAR3U1JxWh8gNaCLMBWuCLJ2adzybdPiMLFJ--zrcJmNUl9RYBn85OV1TLN4
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might as well the
US dollar is all paper money ........
backed by a gov. that is 30 trillion in debt........
https://www.politico.com/news/2022/01/31/crypto-wyoming-arizona-tax-payments-00003910
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https://www.cnbc.com/2022/02/01/cpa-3-ways-savvy-crypto-investors-use-the-tax-code-to-their-advantage.html?fbclid=IwAR3Wz9fSoL0sbijmfemn-WIx0qrB6STun9QNF03yr-j0zpro9hN-labD7ag
-
second
Ripple’s Legal Brawl With SEC Could Help Settle When Cryptocurrencies Are Securities
An SEC win would boost its case to regulate much of the crypto market, while a loss would reinforce calls for clearer laws
The SEC says just a handful of digital assets, such as bitcoin, are commodities mostly exempt from federal regulation.
PHOTO: ARIEL ZAMBELICH/THE WALL STREET JOURNAL
By Dave Michaels
Follow
Updated Feb. 2, 2022 7:23 am ET
WASHINGTON—The booming cryptocurrency sector’s complaints that Washington has gone too far in cracking down on its unregulated products are getting tested in a key lawsuit targeting Ripple Labs Inc. and its digital coin, XRP.
The lawsuit, which the Securities and Exchange Commission filed in the waning days of the Trump administration, faces several hurdles in the coming months. A Manhattan federal judge has been asked to decide, for instance, whether Ripple can argue regulators should have clearly announced which digital assets they oversee, rather than using enforcement actions to bring the industry to heel.
The SEC says Ripple illegally raised almost $1.4 billion by selling XRP in violation of investor-protection rules, while its co-founder and chief executive, whom it also sued, reaped hundreds of millions of dollars in trading gains. The company says XRP is used for making international payments and isn’t an investment to be overseen by the SEC. Some XRP sales occurred before the SEC first said in 2017 that many cryptocurrencies should follow laws written to shield investors from fraud and misleading hype.
Despite the SEC’s 2017 guidance, thousands of digital coins have been sold in recent years without regulatory oversight. The SEC has brought enforcement actions against 56 token issuers, according to Cornerstone Research, but almost all settled with the SEC without going to court, where the regulator’s legal arguments could be tested by a judge or jury. An SEC win would boost its case to impose investor protections on most of the $2 trillion crypto market, while a loss would reinforce the industry’s call for Congress to write clearer and more suitable laws.
“Either way, we are going to have an opinion that would be used by other players in the space to inform how they act and decisions that they make,” said Katherine Dowling, general counsel of Bitwise Asset Management, which manages several funds that hold cryptocurrencies.
Regulators have said just a handful of digital assets, such as bitcoin, are commodities mostly exempt from federal regulation. In contrast, XRP’s usefulness as a currency “never materialized,” the SEC says. Ripple touted XRP’s commercial use but didn’t disclose that it paid a money transmitter to accept the coin. The money transmitter sold the digital coins, which gave the appearance that XRP was in greater demand, according to the SEC.
Ripple, whose defense attorneys include former SEC Chair Mary Jo White, has litigated aggressively. Early in the case, it sought records from the SEC that might have shown whether the regulator had allowed its staff members to trade XRP. A judge denied the request.
It also sought emails from within the SEC that might show regulators to be uncertain or divided over which tokens fall under their oversight. A federal magistrate judge in January said Ripple and its executives were entitled to some records from the SEC, but also allowed the agency to keep much of its thinking under wraps.
Ripple Chief Executive Brad Garlinghouse in 2018; he made almost $160 million from 2017 to 2020 selling XRP he received from Ripple.
PHOTO: WEI LENG TAY/BLOOMBERG NEWS
Ripple says its claim that the SEC has been cagey about which crypto assets it regulates supports its argument that it lacked fair notice about XRP’s status. The case, which might not go to trial until next year, has been closely watched because many crypto companies insist regulators should update regulations for digital assets, rather than use lawsuits to enforce rules written in the 1930s.
The SEC has asked a judge to block the fair-notice defense, saying the company had warnings about XRP’s status as a security. Ripple got U.S. legal advice as early as 2012 that XRP could be deemed an investment that would require SEC oversight, according to the agency’s court complaint.
Part of Ripple’s argument relies on a senior regulator’s statement in 2018 that ether, the world’s second-most-valuable cryptocurrency, isn’t a security. Ripple argues that market participants saw William Hinman’s speech as a public notice that digital coins could avoid classification as a security.
The XRP cryptocurrency is more like ether than digital tokens the SEC has previously targeted, according to Ripple. Both are decentralized, meaning they are maintained by a network of users and not a single company. Mr. Hinman has since left the agency, and SEC lawyers have said his view wasn’t an official position of the agency. Mr. Hinman declined to comment.
The SEC was told in January to share drafts and emails related to Mr. Hinman’s speech with Ripple. The SEC has indicated it will ask the judge to reconsider her decision.
Ripple Chief Executive Brad Garlinghouse earned almost $160 million from 2017 to 2020 selling XRP he received from the company. Co-founder Christian Larsen, who was CEO until 2016, earned $450 million from XRP sales between 2015 and 2020, according to the SEC, which included his wife’s sales in the total.
Messrs. Larsen and Garlinghouse have asked the court for early dismissal of the SEC’s complaint against them. The SEC doesn’t have jurisdiction because their XRP was sold to overseas buyers, they say, adding that the regulatory uncertainty surrounding digital assets means the executives’ actions on behalf of Ripple weren’t reckless.
“We believe the record is clear that XRP is not a security and that the SEC does not have jurisdiction over this matter,” said Martin Flumenbaum, an attorney at Paul, Weiss, Rifkind, Wharton & Garrison LLP, who represents Mr. Larsen.
Ripple’s duel with the SEC has influenced its agenda in Washington, with the firm lobbying Congress to consider a bigger role for other federal agencies such as the Commodity Futures Trading Commission. The company spent almost $1.1 million last year on lobbying, including backing legislation that would create a way for crypto companies to choose supervision by the CFTC. The SEC has argued in court papers that Ripple’s lobbying efforts fueled any confusion about XRP that might have existed.
“Trying to squeeze digital assets, which are more akin to commodities than securities, into a securities regulatory framework simply doesn’t work,” said Stu Alderoty, Ripple’s general counsel. “All roads don’t lead to the SEC, because the SEC doesn’t have a rational regulatory framework.”
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Why Crypto Lending’s Risks May Spark a Serious Regulator Crackdown
Why Crypto Lending’s Risks May Spark a Serious Regulator Crackdown
While the SEC hasn’t announced major actions against big crypto exchanges, the commission has threatened to sue companies offering crypto lending. WSJ’s Dion Rabouin explains why this one part of the crypto market has drawn such a strong reaction. Photo: Mark Lennihan/Associated Press
Write to Dave Michaels at dave.michaels@wsj.com
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Appeared in the February 2, 2022, print edition as 'Crypto Industry Seeks Regulatory Clarity in SEC Suit.'
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https://www.cnbc.com/2022/02/01/cpa-3-ways-savvy-crypto-investors-use-the-tax-code-to-their-advantage.html?fbclid=IwAR3Wz9fSoL0sbijmfemn-WIx0qrB6STun9QNF03yr-j0zpro9hN-labD7ag
Can't remember where I read it, maybe on the forum, but the tax implications of crypto (or any) investing might be the trigger that brings a number of young people over to the other political side. I thought the tax code was complicated just to punish rich people. WRONG. Rich people maneuver it just fine. It's there to screw YOU. Just watch and see.
From the article: "Calculating the taxes you owe on your cryptocurrency and nonfungible token (NFT) activity can be difficult, especially if you have multiple wallets, use different exchanges or don’t use any software to track your transactions. That’s why, “generally speaking, people are afraid of taxes,” "
Right. Welcome to my world (small time real estate investor). It's not the amount of income taxes that gets me most; it's the difficulty of the whole thing along with the potentially life changing consequences of being wrong - in EITHER direction.
Last year's tax return, suddenly out of nowhere, asked the question yes or no, did you buy any cryptocurrency in the past year. What? You made no sale, made no income, and they are already tracking you? I literally said "Thank God" aloud that I didn't make a teeny buy and could I honestly check the box NO. They have enough to track on me.
The article goes on with three strategies:
1. Tax loss harvesting. Really? Young, new investors need to start making extra, bogus trades just to work the tax code? When the tax code CHANGES your behavior rather than just tabulating it, that's when they have gone too far.
What if you used bitcoin as a currency and had hundreds or thousands of transactions??
2. Short term vs. long term capital gains. A gain from a hold of a year and a day is taxed the same as a gain from a hodl for decades investor, AND THE FULL INFLATION EFFECT IS TAXED, right as the avoiding the inflation, devaluation of the dollar is what you were trying to avoid. Welcome to the club. new investors. Are we going to have a 1031 exchange for Cryto??
3. Use Highest in, First out accounting method to minimize your current tax (AND MAXIMIZE YOUR DEFERRED TAX). Good luck with this.
If you are young, naive about taxes, new at investing, and think tht if you bought at 20 and sold at 30 you made 10, you've got a whole lot of learning to catch up on VERY QUICKLY.
FYI to the fascist tax authorities. People aren't investing in crypto. They are divesting in dollars that are shrinking in value right before their eyes. It is not a "gain" to avoid a loss.
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https://www.entrepreneur.com/article/416732?fbclid=IwAR0sZ5DaL-Bf6YwfOFJP8_nPX69jtPc5L2SBHpgjiJQPY4UNR2gAULuNZLw
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https://www.cbsnews.com/news/wormhole-ether-cryptocurrency-320-million-hack/?fbclid=IwAR352u9y7vlQSdfn3Q4bg0le1-yb0aH6JbM4HYRTNQpLMW8XpvVfuXEHOwU
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".According to an analysis from cybersecurity firm CertiK, the Wormhole attacker has seized at least $251 million worth of Ethereum, almost $47 million in Solana and upwards of $4 million in USDC (a stablecoin pegged to the price of the U.S. dollar). "
interesting this does not seem to hinder the /ethereum price which has been creeping back up
"Wormhole announced that the vulnerability had been patched and that all funds had been restored. "
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https://bombthrower.com/articles/gofundme-just-proved-bitcoins-use-case/
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CBDC's will be even worse, along with the planned kill switch on autos (no more convoys).
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Here's a great thread on seed phrases from Unchained Capital...go to their website, or https://twitter.com/unchainedcap/status/1486808675683610627
-
https://bombthrower.com/articles/gofundme-just-proved-bitcoins-use-case/
A must read, IMHO.
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CBDC's will be even worse, along with the planned kill switch on autos (no more convoys).
There is nothing that can’t be defeated. The mass redpilling of the populations of what were seen as “free countries” can’t be undone.
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https://www.nationalreview.com/2022/02/the-perfect-storm-is-coming/
https://www.zerohedge.com/markets/ive-never-seen-market-goldman-sees-shortages-everything-you-name-it-were-out-it?utm_source=&utm_medium=email&utm_campaign=470
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(https://pbs.twimg.com/media/FLGxh2MXoAAtqqJ?format=jpg&name=large)
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the biggest problem is the
US government
and the US banks
who are not about to let this thing surpass them
maybe they cannot stop blockchain
but they can sure make it hard
with exorbitant taxation
and more and more monitoring :
https://www.justice.gov/opa/pr/two-arrested-alleged-conspiracy-launder-45-billion-stolen-cryptocurrency
the excuses for this are to stop criminals (good - we want this )
and they want to "protect investors" (disingenuous smoke screen)
but the prime reason is to control us
and take us much from us to pay for their gov spending
and to protect the banks
even Trump is on board with it.
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https://brobible.com/culture/article/famous-hacker-joe-grand-cracks-2m-crypto-wallet/?fbclid=IwAR3wu_xW9Ebt7Vg0rlbe3P1-7LuaHFwUTHSYHuX4FMM09CpP6ed8ynEdN9U
-
https://www.wired.com/story/bitcoin-seizure-record-doj-crypto-tracing-monero/?fbclid=IwAR1atX8b6yv445Rp0SE-T6zhp5a_eRGCjbucO9s8XBwC8V8QTGRpwE_OJlY
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Most telling sign of failure, REAL WAGES ARE FALLING.
7.5% inflation. It only gets worse until you reverse course on failure.
https://www.washingtonexaminer.com/opinion/editorials/suffer-like-its-1982-bidenflation-the-worst-in-40-years
https://www.wsj.com/articles/inflation-haunts-the-biden-economy-federal-reserve-consumer-price-index-11644531980?mod=opinion_lead_pos1
https://www.nationalreview.com/corner/yes-the-biden-stimulus-made-inflation-worse/
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https://www.forbes.com/sites/zackfriedman/2022/02/08/shock-poll-7-in-10-americans-live-paycheck-to-paycheck/?sh=48b9556855f6
it must be because their answer to this problem is that taxpayers should pay them hand outs.
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https://www.thestreet.com/investing/russia-tennessee-have-good-news-for-crypto?fbclid=IwAR1ljeOHINGMP25OAFPTFLJLrUXSwLUTMzOolvAGGegiDaXYm4ROoWrFtcU
https://www.benzinga.com/markets/cryptocurrency/22/02/25573169/infinite-ethereum-bug-discovered-in-optimism-by-hacker-behind-iphone-jaibreaks?fbclid=IwAR0pVB82LXGIqFYya1EAA4hfseF2qmFpereWhKT9I_DOqO2EWfEIb5fKxvo
https://www.cryptopolitan.com/bitcoin-ethereum-cardano-and-terra-luna-daily-price-analyses-11-february-roundup/?fbclid=IwAR0rFnO5cbiqbd7WYsVBl3s5ZJl-4pn54xpPNreKEr9OtP6s7SHDkKkxUVw
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using the work "modern"
is just another LEFTist bullshit adjective:
https://www.nationalreview.com/2022/01/inflation-a-modern-fiscal-and-monetary-mess/
the Dems screwed us over. as usual.....
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Willy Woo commentary
Top level summary for 14th Feb 2022 (current price $42.2k):
Mid-macro: Unlike past bear phases, the last 3 months of downward price action was initiated by sell pressure on futures markets. Likely due to institutional investors holding onto their BTC while shorting the futures, this creates a net cash position while earning a decent “cash and carry” yield. The futures sell-down has not yet alleviated, until futures markets switch to buying, I am not expecting price to put in a strong recovery.
I would note that the recent recovery from a $33k bottom to as high as $45k happened in a period when futures alleviated their selling momentarily while market price was at peak levels of oversold relative to fundamental on-chain demand and supply (notified in letter #47). We are no longer at peak oversold levels so further upside is no longer a high certainty.
Macro: In terms of the broader macro cycle, the clock is ticking. “Macro investor” coins of 1-3 years of age has passed its minimum levels which typifies the bearish phase is concluding but not yet over. Meanwhile shorter term investors have mainly sold out signifying further sell pressure from spot investors is unlikely.
Structural summary: On-chain selling has alleviated, futures continues to sell, meanwhile in a macro timing cycle we are in a countdown to the next bullish phase.
Price action expectation: Ongoing sideways price action, later transitioning into an accumulation phase before a bull phase can happen.
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Thank you YA.
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https://www.cnbc.com/2022/02/14/heres-the-outlook-for-bitcoin-as-geopolitical-tensions-heat-up-and-interest-rates-rise.html?fbclid=IwAR0GIt2GVcuu6RMqk-fV7WQlI3FUeySPb2wipAldCUk6LKrtoTuvnMAS87g
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https://www.nbcnews.com/tech/crypto/fraudsters-are-using-bots-drain-cryptocurrency-accounts-rcna16262?fbclid=IwAR2w6WcFVsRRKXv7N22C9fR4pnmDIkZzNj3sxEJgo0NGp5dEfrUSjbfHx00
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https://news.yahoo.com/warren-buffett-just-invested-1-163230481.html
-
https://news.yahoo.com/inflation-can-be-the-way-democracies-die-charlie-munger-183158672.html
-
GBTC down 9% today on strong volume.
https://markets.businessinsider.com/news/currencies/bitcoin-price-outlook-10000-2023-3-macro-headwinds-interest-rates-2022-2?fbclid=IwAR2Yo4fT0iM6XaCKlTG_i8Rb7RuQgx34XOFNHQPM4dUGaRTSv3hZWVWwQd4
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something up with the Feds on crypto?
Gold near 1900 I notice
thought silver still stuck at 24 ish
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https://media.gab.com/system/media_attachments/files/099/093/944/original/40a6cd0d1d010754.jpg
(https://media.gab.com/system/media_attachments/files/099/093/944/original/40a6cd0d1d010754.jpg)
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https://media.gab.com/system/media_attachments/files/099/093/944/original/40a6cd0d1d010754.jpg
(https://media.gab.com/system/media_attachments/files/099/093/944/original/40a6cd0d1d010754.jpg)
https://www.thegatewaypundit.com/2022/02/fbi-launches-new-virtual-asset-unit-focuses-blockchain-seizure-virtual-assets-including-cryptocurrencies/
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https://www.thestreet.com/investing/bitcoin-goes-to-war-ukraine-legalizes-cryptos-as-russia-pressures-build?fbclid=IwAR2WBhk1eIY_H05WoweuTDOEOi29Cpo3fqlp9i40Cn39x_zLAlUaA8gZsdQ
https://www.thirstyfornews.com/2022/02/17/cryptocurrency-market-tanks-as-news-of-joe-biden-regulating-digital-currency-breaks/?fbclid=IwAR00Na6_Is7phSRfirFM7ed-jZ4u1XJPpN2esKFyl9ZutXrcqX2grYN1Tac
GBTC down approx 12% in three days.
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bitcoin to 10,000
https://markets.businessinsider.com/news/currencies/bitcoin-price-outlook-10000-2023-3-macro-headwinds-interest-rates-2022-2
bitcoin to 1,000,000
https://www.forbes.com/sites/danrunkevicius/2022/02/17/buffetts-shocking-bitcoin-bet-supports-1m-bitcoin-price-prediction-meanwhile-bnb-solana-cardano-xrp-and-ethereum-prices-surge/?sh=29dd94167e6b
:roll:
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I would more surprised if the Feds and banks do NOT screw crypto holders over royally
rather then the other way around
in that way the government screwing me over every which way would be complete
:roll:
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quote author=ccp
bitcoin to 10,000
https://markets.businessinsider.com/news/currencies/bitcoin-price-outlook-10000-2023-3-macro-headwinds-interest-rates-2022-2
https://www.forbes.com/sites/danrunkevicius/2022/02/17/buffetts-shocking-bitcoin-bet-supports-1m-bitcoin-price-prediction-meanwhile-bnb-solana-cardano-xrp-and-ethereum-prices-surge/?sh=29dd94167e6b
Buffet, 2020, he said: “cryptocurrencies basically have no value and they don’t produce anything,” adding “I don’t have any cryptocurrency and I never will.”
- Sounds like what he might say before he buys it, get the price to rock bottom. But still... it has no real value and produces nothing.
[2022] Buffet "sank $1 billion into a crypto-friendly neobank" - whatever that means.
What should you buy in these uncertain times? [I don't know.]
-
quote author=ccp
bitcoin to 10,000
https://markets.businessinsider.com/news/currencies/bitcoin-price-outlook-10000-2023-3-macro-headwinds-interest-rates-2022-2
https://www.forbes.com/sites/danrunkevicius/2022/02/17/buffetts-shocking-bitcoin-bet-supports-1m-bitcoin-price-prediction-meanwhile-bnb-solana-cardano-xrp-and-ethereum-prices-surge/?sh=29dd94167e6b
Buffet, 2020, he said: “cryptocurrencies basically have no value and they don’t produce anything,” adding “I don’t have any cryptocurrency and I never will.”
- Sounds like what he might say before he buys it, get the price to rock bottom. But still... it has no real value and produces nothing.
[2022] Buffet "sank $1 billion into a crypto-friendly neobank" - whatever that means.
What should you buy in these uncertain times? [I don't know.]
Food, guns. ammo, medical supplies.
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I would also add hopium
https://youtu.be/jfP36UG2uA4
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This is an important 18 min video, must see.
https://youtu.be/5bd-8OA4c_U (https://youtu.be/5bd-8OA4c_U)
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Let me remind us that Trump is on record as being totally against bitcoin
Compare this to Ron Desantis:
https://floridapolitics.com/archives/490771-cryptocurrency-dip-doesnt-dampen-gov-desantis-push-to-embrace-digital-money/
another reason we need him NOT Trump
-
Trump was important and will be a key player...but I doubt he will be coming back. Too divisive. DeSantis is my hope for the next Republican admin, who can be supported by the majority. Miami is a very Bitcoin friendly city, as is their Mayor Suarez. There is a Key annual BTC conference being held in Miami quite soon. Those who can should really try to attend.
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This is a fantastic site, to see how fiat is being converted to BTC in real time and other crypto https://fiatleak.com/btc
If you select, Euro and let it open for 5-10 min, you can see the BTC and other cryptos pouring into Poland (which borders Ukraine).
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https://www.forbes.com/sites/dereksaul/2022/02/20/el-salvadors-crypto-loving-presidents-new-gamble-citizenship-for-foreign-investors/?fbclid=IwAR29MOr6g60H2WnPum_FNpnAb6uPKTO3hdpaW8N0jS7KRmwnFgTuKDnoGIE&sh=302026eb1f10
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El Salvador is coming out with their Volcano Bonds between march 15-20. Its quite an interesting offering, in a yield starved world. I expect it to be oversubscribed, and from what I understand anyone can invest in it. Bukele is dangling citizenship, if you make a significant investment. If it is succesful, more such bonds will be launched. This year, so far, El Salv has experienced a 10 % + growth rate, the first time in its history. A lot of prominent bitcoiners are moving there, to build Bitcoin City, or participate in the El Salv BTC infrastructure build. A country which used to bleed immigrants, is now attracting them.
BTC is down at the moment, and billions of dollars continue to be invested in it. We are in the early days, 8 billion people, 21 million coins, it is math.
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Check out the distribution of BTC amongst coin holders
https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html (https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html)
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Ukraine legalizes BTC
https://bitcoinmagazine.com/markets/ukraine-legalizes-bitcoin (https://bitcoinmagazine.com/markets/ukraine-legalizes-bitcoin)
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(https://pbs.twimg.com/media/FMILqpSX0AUcOYB?format=jpg&name=large)
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I post what I find AND I continue to hold.
As always YA, thank you.
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https://stockcharts.com/h-sc/ui?s=gbtc
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https://stockcharts.com/h-sc/ui?s=gbtc
Commodities, another hedge against inflation:
(https://ci6.googleusercontent.com/proxy/XZIPrGT0meGdtXfKgefgfx5NYrlcZv082zxf5d-HOC0BKVAbd8sMtvinELEqYJlxc907lqtTccSRWSVZQlJ3rqNTCWAVQ1Zbbv-J9U7RqKq2nf5f8sNBN_D_KTZpQbLxUTaPy1ktjVMmhs8ggpAwTqEjdXCyLg=s0-d-e1-ft#https://mcusercontent.com/dc8d30edd7976d2ddf9c2bf96/images/ffc66ae8-4f72-eff3-cc0e-a6457d9309a4.png)
Depending on your time frame, this might have been a safer bet.
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https://www.marketwatch.com/story/swift-banking-sanction-against-russia-raises-regulatory-risk-for-crypto-regs-analyst-11645802979?fbclid=IwAR3Ll3xCIzsFihLWPQCsWo6Hcs13SMvi8M0o15tIUxKgrUfNO7fca_iAL1E
-
https://decrypt.co/93941/governments-have-been-seizing-stolen-bitcoin-and-ethereum-how
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2000x faster
5 x the transactions
https://bitcoinsv.com/
https://coinmarketcap.com/currencies/bitcoin-sv/
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Please flesh that out.
-
Gilder insists that Craig Wright is originator of Bitcoin
then left BC and started BSV:
https://coingeek.com/george-gilder-bitcoin-sv-is-the-epitome-of-information-economy/#:~:text=Wright%3A,to%20utilize%20and%20build%20on.
its high I think ~ 290
now around 80ish
-
here is a page on BSV
as well
actually it spiked twice in past (last 5/21)
to well over 300
I am not sure why it is down
now ? presumably with other cryptos?
https://coinmarketcap.com/currencies/bitcoin-sv/
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I have a hard time believing Gilder was fooled, BSV is a scam and Craig W is the biggest scammer. Hope nobody has bought BSV, if so, pl. get out. It WILL go to zero. The good exchanges dont even list it, it has a market cap of 1.6 Bill $, just like other shit coins. It is a completely manipulated coin. If one cannot afford a whole BTC, its possible to buy 0.1 or even 0.0001 BTC.
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I confess to being all excited when Gilder made a big pitch about crypto but upon examination it came across as seriously shady and seriously expensive.
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A few random thoughts.
- The imposition of the SWIFT sanctions will switch on the clock for the demise of the dollar. The US has had this immense priviledge of controlling SWIFT, that has worked when sanctioning small nations like N.Korea & Iran. Sanctioning the Central Bank of Russia is a big thing. Russia anticipated this, which is why there was a flurry of activity in Russia, where they wanted to make BTC legal by Feb 18 (before the end of the Olympics). Some drafts have been circulated. Essentially such power can only be missused once on large nations, they will adapt.
- Putin has sold off, most of his $ reserves, China is doing the same.
- It is obvious to all, including Ukraine, which is asking for donations in BTC, which has certain advantages. The Canadians too learnt it first hand, that BTC is not censorable. They froze a lot of Canadian bank accts of the protestors, including GoFundme etc, but could do nothing against BTC donations.
- If you block Putin from transacting in $, he can switch off the gas flows to Europe and sell only to his friend China. He can also ask to be paid in Bitcoin. That would be the nuclear option from his side. pricing oil/gas in BTC will be the end of the US Petro-dollar system and it may happen faster than you think. Why do you think Iran mines BTC ?.
I think a new global money is taking shape, it is non-censorable and you can transport it freely across borders. This is being recognized by more and more countries. History will show this as the beginning of the end of the Petro-Dollar franchise.
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If I had some pennies to throw at the dollars I have already put into this play, is this a good moment? If so, should I put them in BTC or ETH?
-
BTC only. With ETH, a lot of smart people think these are shitcoins. In simple language, apart from the 70 % pre-mine by founders, the ETH system is too complex, a Rube Goldberg contraption if you will. Pl. do not over extend, as long as you can sleep comfortably, come what may. No one knows what happens to BTC or anything in the future. There could be a lot of volatility. Important to not be rekt in BTC lingo. If we are right BTC will go to the moon, but with WW3 possible, there could be wild swings in BTC and ability to hold on is most important.
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Thank you YA.
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In Putin's words...on the US $
https://twitter.com/i/status/1195282924624465927 (https://twitter.com/i/status/1195282924624465927)
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I haven't bought BSV at all
just was reading about it.
Gilder calls holders of bitcoin
holding on for dear life
yet a lot of what he has always recommended was/is the same
as for the US Dollar
the US banks and politicians will not stand by idly
at this time this is my biggest fear
- what will the gov't to .
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Some thoughts on the US$ reserve currency question:
ya: "Putin has sold off, most of his $ reserves, China is doing the same."
[Doug] Two edged sword. That reduces their ability to threaten to sell off their dollars and de-stabilize it.
Also, Russia-China don't own as much US debt as people often think either. China owns 1Trillion out of 30T. Less than Japan. Russia falls somewhere below Luxembourg, Bahamas and Bermuda, if they own any:
https://ticdata.treasury.gov/Publish/mfh.txt
It's not a leverage point. They cannot threaten to stop buying what they already stopped buying.
Mentioned previously in these threads, the US$ isn't the reserve currency by the choice of places like China, Russia, Saudi, NK, Europe, Brazil or anyone else. It's not because they like us or admire us. It's by default. The alternatives are worse. Bitcoin may change that, but if the US$ is defective because it lost 8% of its value under one bad US President who has a mid term correction coming, look at the swings in value of Bitcoin.
One other point:
ya: "If you block Putin from transacting in $, he can switch off the gas flows to Europe and sell only to his friend China. He can also ask to be paid in Bitcoin. That would be the nuclear option from his side. pricing oil/gas in BTC will be the end of the US Petro-dollar system and it may happen faster than you think."
[Doug] World oil is a global market and is pardon the expression, fluid. Shipping costs and issues aside, if China switches it's purchases to Russia, then the Saudi oil etc. they were buying can go to Europe. Russia already is the largest oil supplier to China:
https://energypolicy.columbia.edu/sites/default/files/file-uploads/Where%20Does%20China%20Get%20Its%20Oil_%20-%20The%20Wire%20China.pdf
If China sides further with Russia and undermines our war effort sanctions, don't they risk sanctions and trade interruptions themselves? If you are the regime of China, you have a pretty good deal going right now being dictators of a billion reasonably satisfied citizens - compared to reshuffling the deck and turning their own economy on its ear.
Trick question, what is the value of bitcoin today? The answer is likely to be in dollars.
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Good post-- but I quibble with this:
"If China sides further with Russia and undermines our war effort sanctions, don't they risk sanctions and trade interruptions themselves?"
The difference with China is that its economy rivals ours and they have our elites in their pockets. Look for example look at Biden's decision last week to not look for Chinese tech spies for fear of anti-Chinese racism or whatever.
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https://www.reuters.com/markets/europe/cryptoverse-bitcoin-gains-conflict-currency-credentials-2022-03-01/
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we deserve some hopium
(https://pbs.twimg.com/media/FMzjjv9XEAcIl_C?format=jpg&name=large)
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A nice write up from Nik Bhatia, author of "The Bitcoin Layer", on substack. I encourage people to subscribe. Some text has been omitted as were the pictures.
Bitcoin was built for a multipolar world
Bitcoin's role in the Russia/Ukraine war. A multipolar world. Bitcoin's current bull market.
If 2021 was bitcoin’s arrival on the main stage, 2022 is quickly becoming its first major feature. Unfortunately, we have war to thank for that.
War in Ukraine
A core component of my investment thesis on bitcoin is its geopolitical force. With a gravitational pull, bitcoin’s network attracts people and policy makers from all walks of life. The current conflict in Eastern Europe is no different. Before you listen to cries of how bitcoin is helping Putin dodge sanctions and asset freezes, take a moment to observe how bitcoin is color blind and more importantly, politics blind.
Bitcoin enthusiasts thought El Salvador’s legalization of bitcoin brought mainstream legitimacy to bitcoin—how about the government of Ukraine’s official Twitter account asking for donations in cryptocurrency to support its war effort? We’ve crossed over into an era of general understanding that bitcoin is a freedom tool, and it doesn’t discriminate based on any of the traditional metrics: age, nationality, religion, politics, or physical location. Let’s note the two other forms of payment being solicited by Ukraine: Ethereum and USDT, otherwise known as Tether. Bitcoin is sharing this stage with the market’s second largest cryptocurrency, as well as the market’s largest stablecoin (I wrote about Tether recently and its role in the gradual bitcoinization of balance sheets around the world). While my opinion is that neither Ethereum nor Tether can ultimately satisfy the demand for a truly neutral currency, we must acknowledge that bitcoin shared this historic moment with associated technologies.n Russia, bitcoin is taking on a slightly different role—we can see a material spike in bitcoin/ruble volume. WSJ reports:
On Binance, there has been a surge in trading volume of bitcoin in exchange for rubles since just before Russia’s invasion began. Between Feb. 20 and 28, about 1,792 bitcoins exchanged hands in the ruble/bitcoin trading pair, compared with only 522 in the nine days before that, according to data on Binance.
Russian citizens that have used bitcoin as a long-term currency alternative to the ruble are finding solace in their decision this week as BTC/RUB hit an all-time high today. While Ukrainians are using bitcoin to emigrate or raise war funds and Russians are using bitcoin to protect themselves from currency collapse, we will not see the Russian government significantly using crypto to avoid sanctions yet, according to the US Treasury department. https://www.politico.com/news/2022/02/25/russia-crypto-sanctions-00011886?_amp=true
I mostly agree here, but for a very specific reason: size. There simply isn’t enough available bitcoin floating in the market to service the demand for all of Russia’s international trade. Regulators are coming for crypto exchanges around the world, but so far Coinbase and Binance have both stated that a blanket ban on all activity mapped to Russia is not being considered. How exchanges deal with government requests in light of the international backlash toward Russia’s invasion of Ukraine will set important precedents. I suggest reading the Politico article linked above for more on how the US Treasury department is thinking about crypto regulation.
Multipolarity
In my quest to learn more about Putin’s aspirations and ground myself in rational geopolitical thought, I turned to the work of geopolitics guru Marko Papic. https://podcasts.apple.com/us/podcast/marko-papic-geopolitical-shock-in-a-multi-polar-world/id1223764016?i=1000552424282&uo=4 (https://podcasts.apple.com/us/podcast/marko-papic-geopolitical-shock-in-a-multi-polar-world/id1223764016?i=1000552424282&uo=4)I’ll provide some important takeaways, but for those that have the 37 minutes, I highly suggest the following podcast interview for anybody looking to get caught up to speed on how international relations might play out over the next several years between the US, China, Europe, and beyond. It was a brilliant interview and made me miss the days Marko would come visit me on the trading desk to school our team on the Chinese economy.
I learned about some of the nuance to Ukrainian and Russian demographics and familiarized myself with Putin’s ambitions, but my main takeaways from this conversation were about China and how its position today will affect global politics for the next several years.
For 10 years, the world has been progressing toward multipolarity. We’ve been living in a unipolar, US-centric world for so long that China’s rise gave us a false sense of bipolarity, when in fact neither the US nor China have been able to meaningfully commit countries solely to their sphere. For example, after much drama surrounding Huawei’s 5G technology, the US was only able to convince nine countries to ban Huawei from telecom infrastructure contracts.
Reinforcing a multipolar world, China has peaked in its geopolitical importance for the next several years. It faces a heavy foreign dependence on fossil fuels, consumer demand, and now investment capital. These dependencies are likely to force China into moderated economic growth. China will look within for stability as its economy fails to be the marginal driver of global growth.
In a multipolar world in which the US cannot rally its allies, the door is wide open for megalomaniacs such as Putin to flex their muscle.
The interview did not cover bitcoin, but it had me thinking about how bitcoin was made for multipolarity.
In a dollar-denominated global financial system, countries and companies use dollars to raise capital and to conduct cross-border trade. Because everybody has been using dollars for decades, the reinforcing network effects of a dollar system make it highly unlikely that international trade migrates to another currency. However, this is not always the case. Russia and China, soon after the 2007-2009 financial crisis, agreed to settle bilateral trade in renminbi and rubles.
We can conclude from the Russia/China agreement that countries are looking to diversify away from a full reliance on dollar-based settlement, and the events of the past couple weeks reinforce that countries should have contingency plans that involve bitcoin when access to dollar systems are cut.
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Gold competing with Bitcoin..Peter Schiff is a big proponent of Gold over BTC.
(https://pbs.twimg.com/media/FM0JUSTUcAAC4ov?format=jpg&name=4096x4096)
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What if the Russian Central Bank, became the first to disclose that they hold BTC ?. Its only a matter of time, before CB's start holding BTC in their treasury. BTC is not going to be banned in the USA, that ship has sailed. The crypto industry is a roughly 2 Trill $ industry, with states like WY and TX being very friendly to BTC.
There is also some speculation that Satoshi Nakamoto is the NSA.
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https://www.zerohedge.com/markets/jamie-dimon-warns-swift-sanctions-may-bring-unintended-consequences-can-be-circumvented?utm_source=&utm_medium=email&utm_campaign=519
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https://www.zerohedge.com/markets/game-over-russia-be-technical-default-within-hours?utm_source=&utm_medium=email&utm_campaign=519
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https://www.zerohedge.com/markets/zoltan-pozsar-warns-russian-sanctions-threaten-dollars-reserve-status
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(https://pbs.twimg.com/media/FM2p89XVEAQ1bKM?format=jpg&name=large)
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we should keep an eye on this:
https://www.cnbc.com/2022/03/02/bitcoin-sanctions-could-be-next-as-doj-unveils-crypto-crackdown-plans.html
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https://media.gab.com/system/media_attachments/files/100/470/726/original/d7d97c5b1fe333b7.jpg
(https://media.gab.com/system/media_attachments/files/100/470/726/original/d7d97c5b1fe333b7.jpg)
The real threat to freedom is in the formerly free west.
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why I wouldn't be able to buy a pack of gum without the government knowing
I would not put it past the Feds to sell the data to FB so they could monetize it and pay the Feds a fee
to pay for all the wonderful free s..t
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Swiss city Lugano allows BTC to be used for payment.
https://twitter.com/i/status/1499472211232571395 (https://twitter.com/i/status/1499472211232571395)
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If Russian Currency Reserves Aren’t Really Money, the World Is in for a Shock
Sanctions have shown that currency reserves accumulated by central banks can be taken away. With China taking note, this may reshape geopolitics, economic management and even the international role of the U.S. dollar.
The West has shut off the Russian central bank’s access to most of its foreign reserves.
PHOTO: DIMAS ARDIAN/BLOOMBERG NEWS
By Jon Sindreu
Follow
Updated March 3, 2022 7:44 am ET
“What is money?” is a question that economists have pondered for centuries, but the blocking of Russia’s central-bank reserves has revived its relevance for the world’s biggest nations—particularly China. In a world in which accumulating foreign assets is seen as risky, military and economic blocs are set to drift farther apart.
After Moscow attacked Ukraine last week, the U.S. and its allies shut off the Russian central bank’s access to most of its $630 billion of foreign reserves. Weaponizing the monetary system against a Group-of-20 country will have lasting repercussions.
SDR, IMF position & others
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Currency
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The 1997 Asian Financial Crisis scared developing countries into accumulating more funds to shield their currencies from crashes, pushing official reserves from less than $2 trillion to a record $14.9 trillion in 2021, according to the International Monetary Fund. While central banks have lately sought to buy and repatriate gold, it only makes up 13% of their assets. Foreign currencies are 78%. The rest is positions at the IMF and Special Drawing Rights, or SDR—an IMF-created claim on hard currencies.
Many economists have long equated this money to savings in a piggy bank, which in turn correspond to investments made abroad in the real economy.
Recent events highlight the error in this thinking: Barring gold, these assets are someone else’s liability—someone who can just decide they are worth nothing. Last year, the IMF suspended Taliban-controlled Afghanistan’s access to funds and SDR. Sanctions on Iran have confirmed that holding reserves offshore doesn’t stop the U.S. Treasury from taking action. As New England Law Professor Christine Abely points out, the 2017 settlement with Singapore’s CSE TransTel shows that the mere use of the dollar abroad can violate sanctions on the premise that some payment clearing ultimately happens on U.S. soil.
To be sure, the West has frozen Russia’s stock of foreign exchange, but hasn’t blocked the inflow of new dollars and euros. The country’s current-account surplus is estimated at $20 billion a month due to exports of oil and gas, which the U.S. and the European Union want to keep buying. While these balances go to the private sector, officials have mobilized them. Stopping major banks like Sberbank from using dollars and excluding others from the Swift messaging system still plunges the economy into chaos, especially if foreign businesses are afraid to buy Russian energy despite the sector’s explicit exclusion from sanctions. But hard currency will probably keep gushing in through energy-focused lenders like Gazprombank, and can theoretically be used to pay for imports and buy the ruble.
End of June 2021
End of 2013
Euro
Gold
U.S. Dollar
Renminbi
Sterling
Other
0%
10
20
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1995
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1
2
3
$4
trillion
Yet the entire artifice of “money“ as a universal store of value risks being eroded by the banning of key exports to Russia and boycotts of the kind corporations like Apple and Nike announced this week. If currency balances were to become worthless computer entries and didn’t guarantee buying essential stuff, Moscow would be rational to stop accumulating them and stockpile physical wealth in oil barrels, rather than sell them to the West. At the very least, more of Russia’s money will likely shift into gold and Chinese assets.
Indeed, the case levied against China’s attempts to internationalize the renminbi has been that, unlike the dollar, access to it is always at risk of being revoked by political considerations. It is now apparent that, to a point, this is true of all currencies.
The risk to King Dollar’s status is still limited due to most nations’ alignment with the West and Beijing’s capital controls. But financial and economic linkages between China and sanctioned countries will necessarily strengthen if those countries can only accumulate reserves in China and only spend them there. Even nations that aren’t sanctioned may want to diversify their geopolitical risk. It seems set to further the deglobalization trend and entrench two separate spheres of technological, monetary and military power.
China itself owns $3.3 trillion in currency reserves. Unlike Russia, it cannot usefully hold them in renminbi, a currency it prints. Stockpiling commodities is an alternative. The conundrum creates another incentive for Beijing to reduce its trade surplus by reorienting its economy toward domestic consumption, though it has proven challenging.
What can investors do? For once, the old trope may not be ill advised: buy gold. Many of the world’s central banks will surely be doing it.
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"Sanctions have shown that currency reserves accumulated by central banks can be taken away. With China taking note,"
All true, but I would insert... can be taken away - if you invade your neighbor - with China taking note
Once again, countries aren't holding US dollars in currency reserves as some kind of favor or gift to the US. Currency reserves in US$ provide economic stability to the holder and to their currency. They could switch to euros, oops sanctions. Switch to yuan, oops house of cards, switch to bitcoin, oops wild swings, switch to the next Venezuelan bolivar, oops worth nothing, or hold no reserves, oops default, collapse on the first downturn.
The threat to the US$ IMHO is real and is coming from within the US.
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"Sanctions have shown that currency reserves accumulated by central banks can be taken away. With China taking note,"
All true, but I would insert... can be taken away - if you invade your neighbor - with China taking note
Once again, countries aren't holding US dollars in currency reserves as some kind of favor or gift to the US. Currency reserves in US$ provide economic stability to the holder and to their currency. They could switch to euros, oops sanctions. Switch to yuan, oops house of cards, switch to bitcoin, oops wild swings, switch to the next Venezuelan bolivar, oops worth nothing, or hold no reserves, oops default, collapse on the first downturn.
The threat to the US$ IMHO is real and is coming from within the US.
At some point, the US acting in an untrustworthy manner will destroy the dollar.
https://quoththeraven.substack.com/p/fiat-currency-zero-hour-russia-and?s=r
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I reached out to Scott with this piece
Zoltan Pozsar Warns Russian Sanctions Threaten Dollar's Reserve Status | ZeroHedge
and this is his response:
================================
As I understand it, the West has shut Russia out from all international payments, in addition to freezing accounts of oligarchs, and that applies to all major currencies, not just the dollar. So I don’t see this as the beginnings of the demise of the dollar as a reserve currency.
If this creates an incentive for change, it would be in the direction of each country maintaining its own “inside money,” e.g., gold or perhaps even Bitcoin. Of course it’s also an incentive to be a good global citizen (i.e., don’t go invading your neighbors). It might also be an incentive to hold more Chinese yuan, but who wants to trust the Chinese these days, especially as they appear to be Russia’s ally in this conflict?
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How the West Unplugged Russia From the World’s Financial Systems
Western financiers severed practically every artery of money between the country and the rest of the globe, in some cases going beyond sanctions
Manezhnaya Square in Moscow. Analysts expect Russia’s economy to contract as much as 20% this quarter. THE WALL STREET JOURNAL
By Liz Hoffman
March 4, 2022 4:16 pm ET
Two weeks ago, Russia’s companies could sell their goods around the globe and take in investments from overseas stock-index funds. Its citizens could buy MacBooks and Toyotas at home, and freely spend their rubles abroad.
Now they are in a financial bind. Soon after Russia invaded Ukraine, another war began to isolate its economy and pressure President Vladimir Putin. The first move was made by Western governments to sanction the country’s banking system. But over the course of the past week, the financial system took over and severed practically every artery of money between Russia and the rest of the world, in some cases going further than what was required by the sanctions.
Visa Inc. V -3.35% and Mastercard Inc. stopped processing foreign purchases for millions of Russian citizens. Apple Inc. and Google shut off their smartphone-enabled payments, stranding cashless travelers at Moscow metro stations. International firms stepped back from providing the credit and insurance that underpin trade shipments.
This unplugging of the world’s 11th-largest economy opens a new chapter in the history of economic conflict. In a world that relies on the financial system’s plumbing—clearing banks, settlement systems, messaging protocols and cross-border letters of credit—a few concerted moves can flatten a major economy.
Russia now faces a repeat of one of the most painful episodes in its post-Soviet history—the financial crisis of 1998, when its economy collapsed overnight. In the decades that followed, Russia earned its way back into the good graces of financiers in New York, London and Tokyo. It is all being undone at warp speed and will not be easily put back together.
The ruble has lost more than one-quarter of its value and is now virtually useless outside of Russia, with Western firms refusing to exchange it or process overseas transactions. Moscow’s stock exchange was closed for a fifth straight day on Friday. The Russian Central Bank more than doubled interest rates to attract foreign investment and halt the ruble’s free fall. Two firms that are crucial to clearing securities trades, Euroclear and DTCC, said they would stop processing certain Russian transactions.
With their interest payments stuck inside the country—following the sanctions, Mr. Putin also ordered intermediaries in Russia not to pay—some Russian companies and government entities could default on their bond payments to international creditors. That could make the country toxic for investing for years. Shares of Russian companies, even those without obvious ties to the Kremlin, were booted from stock-index funds, which will further isolate them from pools of Western capital.
Analysts expect Russia’s economy to contract as much as 20% this quarter, roughly the same hit the British economy took in the spring of 2020 during the pandemic lockdowns.
Aleksandr Iurev left Moscow eight years ago as an aspiring entrepreneur. Russia’s escalating hostility in the region made it “no place for business people,” he said from his home in New Jersey. The 36-year-old runs a mobile-app startup and this week, he can’t make payroll for the six developers who work for him in Russia because they hold personal accounts at sanctioned banks.
“It is completely shut off,” he said. He’s looking into cryptocurrency to keep his staff from bolting.
His company, Pocketfied, has other problems: Members of his marketing team in Ukraine took the week off to help build street barricades in Dnipro, in the country’s east.
The one lifeline that still connects Russia’s economy to Western markets is its supplies of energy, which European countries rely on and have been loath to cut off, especially during the winter. U.S. lawmakers are pressuring the White House to expand sanctions to include energy payments, which would sap Russia of its largest source of income, at $240 billion last year.
Even if governments don’t act, the market is speaking: Russian oil producers have had trouble finding buyers for shipments since the invasion began.
“The golden age that we had from 1945 to last week is now over,” said Gary Greenberg, head of global emerging markets at Federated Hermes, which manages $669 billion in assets. “As investors, we need to look at things differently now.”
As it dug out from the 1998 crash, Russia plugged itself into the global economy. It joined Brazil, China and India—dubbed the BRIC economies by Western investors—as the next frontier of finance.
American, British and Swiss banks courted the flood of money its oil industry produced. Russia’s biggest banks listed shares in London. One of them moved into an office across the street from the Bank of England. The Moscow exchange itself went public in 2013 with backing from U.S. and European investors.
The first signs of decoupling came in 2014, when Mr. Putin’s territorial ambitions began to stir. Western governments put limited sanctions on Russia after it annexed Crimea from Ukraine.
Russia began trying to sanction-proof its economy. It built its own domestic payments network—called Mir, Russian for “peace”—to function alongside and, if needed, replace those run by Western firms. It shifted its overseas holdings away from the U.S. and its European allies and toward China, which has been relatively more accommodating of Mr. Putin’s efforts to expand his influence and territory. It doubled its gold reserves.
VTB, one of Russia’s largest banks, drew U.S. sanctions.
PHOTO: THE WALL STREET JOURNAL
People walked along Arbat Street in Moscow on Friday.
PHOTO: THE WALL STREET JOURNAL
Those efforts to wall itself off may prove insufficient. At least 40% of Russia’s $630 billion in foreign reserves are in countries that have joined in the latest sanctions. The rest, mostly in China, it is free to spend—but only in China. Moving those reserves out of the country would require first converting them into a Western currency like dollars or euros, which no global bank will do.
2018
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10
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China
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Japan
Russia, like many energy-rich countries, exports oil and gas and imports much else—automotive parts, medicines, broadcast equipment, wallpaper, fresh vegetables.
The financial journey that enables their geographical one depends on a complex web of loans, insurance policies and payments. Western banks are stepping back from trade financing, executives said, wary of the risk that their counterparty uses a sanctioned Russian bank, or has ties to a sanctioned oligarch. Maersk, the Danish shipping giant, suspended deliveries to Russia, citing tougher terms now being demanded by financiers.
Czarnikow Group, a London-based trade-financing firm, was preparing this week to send a shipload of a specialty plastic used in soda bottles and clamshell packaging, with scheduled stops in Russia and Ukraine. On Monday, the firm got notice from its insurance provider that its policy would no longer cover the ship.
“It was obvious we weren’t going to be able to put a vessel in,” said Robin Cave, Czarnikow’s chief executive, who began looking for alternative ports and is talking to his client about where to send the cargo.
Swift Sanctions: How Cutting Off Banks Pressures Russia
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Swift Sanctions: How Cutting Off Banks Pressures Russia
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Play video: Swift Sanctions: How Cutting Off Banks Pressures Russia
A powerful coalition of democracies announced it would cut off some Russian banks from the global payment system Swift. Here’s how Swift works, and how the move could ramp up pressure on Russian President Putin. Photo: Anton Vaganov/Reuters
The steps taken by financial firms could close off Russia from global markets for years. Some of the largest index compilers, which maintain lists of stocks that are tracked by trillions of dollars of investments, said they would exclude Russian stocks.
The move was in part a practical decision. With the Moscow stock exchange still closed, it is impossible to assign prices to those shares. But it will ultimately damp the flow of foreign capital into Russia’s economy, said Anusha Chari, a professor at the University of North Carolina at Chapel Hill.
An increasing share of investment dollars simply tracks such collections of securities. When Russian companies fall out of the index, that money disappears, which makes it harder for those companies to raise cash in the future.
“It puts the brakes on real investment,” Ms. Chari said.
SHARE YOUR THOUGHTS
How effective do you think the sanctions against Russia will be? Join the conversation below.
Index compilers have dropped countries from key indexes before, during periods of economic instability in places like Pakistan and Argentina. But in those cases, the decisions came after months of deliberations, said Dimitris Melas, a senior executive at MSCI Inc., which took the step Thursday.
“The speed with which events are unfolding, and the severity, made us act a lot faster,” he said.
Whether investors will be able to sell the Russian assets they hold is less clear. Norway’s largest pension fund, KLP Group, planned to unload its Russian stocks this week. With the Moscow exchange still closed, it has resorted to selling shares of companies with a dual listing in London, said Kiran Aziz, an executive at the $70 billion fund.
“The market is essentially dead” for Russian assets, said Edward Al-Hussainy, an analyst at Columbia Threadneedle Investments. For the first time he can remember, investors are telling the firm to sell—no matter the price.
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How do we explain the dramatic drop in BTC and ETH and GBTC?
Are not present events the sort of thing that should drive them up?
https://www.theepochtimes.com/ukraine-invasion-may-speed-up-chinas-plan-to-insulate-against-us-dollar-fed-chair_4316121.html?utm_source=China&utm_campaign=uschina-2022-03-05&utm_medium=email&est=%2FOlyIulVTDl1saSSVz9rtcU4sosQA8Ac3HUatiz1mIyYS386nXjsBYFwXmzisycgBihr
https://www.cryptopolitan.com/coinbase-to-comply-with-sanctions-on-russia/?fbclid=IwAR2lyRZK3hB3HofTpqUGmF0H3k0tpj3niAIsoWpjL2v-6HEidQ1b61ApFEk
A small piece of good news:
https://www.foxbusiness.com/politics/virginia-groundbreaking-cryptocurrency-bill?fbclid=IwAR14aDLML0qkQG2JhmbF2_LKcU5ARhHxR1pzUHgVzOer56Y3O6R-VJahl2M
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https://www.zerohedge.com/geopolitical/when-normality-exposed-ponzi
Are the various things at play going to finally collapse things?
I reached out to Scott with this piece
Zoltan Pozsar Warns Russian Sanctions Threaten Dollar's Reserve Status | ZeroHedge
and this is his response:
================================
As I understand it, the West has shut Russia out from all international payments, in addition to freezing accounts of oligarchs, and that applies to all major currencies, not just the dollar. So I don’t see this as the beginnings of the demise of the dollar as a reserve currency.
If this creates an incentive for change, it would be in the direction of each country maintaining its own “inside money,” e.g., gold or perhaps even Bitcoin. Of course it’s also an incentive to be a good global citizen (i.e., don’t go invading your neighbors). It might also be an incentive to hold more Chinese yuan, but who wants to trust the Chinese these days, especially as they appear to be Russia’s ally in this conflict?
-
How do we explain the dramatic drop in BTC and ETH and GBTC?
Are not present events the sort of thing that should drive them up?
Here's Jack Mallers explaining
https://twitter.com/i/status/1500490429535592450
Full episode: https://www.whatbitcoindid.com/podcast/orange-pilling-the-imf
-
https://media.gab.com/system/media_attachments/files/100/763/320/original/6968c543daa0faee.jpeg
(https://media.gab.com/system/media_attachments/files/100/763/320/original/6968c543daa0faee.jpeg)
https://www.zerohedge.com/geopolitical/when-normality-exposed-ponzi
Are the various things at play going to finally collapse things?
I reached out to Scott with this piece
Zoltan Pozsar Warns Russian Sanctions Threaten Dollar's Reserve Status | ZeroHedge
and this is his response:
================================
As I understand it, the West has shut Russia out from all international payments, in addition to freezing accounts of oligarchs, and that applies to all major currencies, not just the dollar. So I don’t see this as the beginnings of the demise of the dollar as a reserve currency.
If this creates an incentive for change, it would be in the direction of each country maintaining its own “inside money,” e.g., gold or perhaps even Bitcoin. Of course it’s also an incentive to be a good global citizen (i.e., don’t go invading your neighbors). It might also be an incentive to hold more Chinese yuan, but who wants to trust the Chinese these days, especially as they appear to be Russia’s ally in this conflict?
-
https://media.gab.com/system/media_attachments/files/100/797/613/original/9aae9c473804ff94.jpg
(https://media.gab.com/system/media_attachments/files/100/797/613/original/9aae9c473804ff94.jpg)
https://media.gab.com/system/media_attachments/files/100/763/320/original/6968c543daa0faee.jpeg
(https://media.gab.com/system/media_attachments/files/100/763/320/original/6968c543daa0faee.jpeg)
https://www.zerohedge.com/geopolitical/when-normality-exposed-ponzi
Are the various things at play going to finally collapse things?
I reached out to Scott with this piece
Zoltan Pozsar Warns Russian Sanctions Threaten Dollar's Reserve Status | ZeroHedge
and this is his response:
================================
As I understand it, the West has shut Russia out from all international payments, in addition to freezing accounts of oligarchs, and that applies to all major currencies, not just the dollar. So I don’t see this as the beginnings of the demise of the dollar as a reserve currency.
If this creates an incentive for change, it would be in the direction of each country maintaining its own “inside money,” e.g., gold or perhaps even Bitcoin. Of course it’s also an incentive to be a good global citizen (i.e., don’t go invading your neighbors). It might also be an incentive to hold more Chinese yuan, but who wants to trust the Chinese these days, especially as they appear to be Russia’s ally in this conflict?
-
but what otherwise would I have done?
https://threadreaderapp.com/thread/1500258147893747714.html
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but what otherwise would I have done?
https://threadreaderapp.com/thread/1500258147893747714.html
The prison walls are being erected around us.
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The merging of US gov. and corporations , companied during wartime is hardly new
though I do not know of this during a period when we are NOT at war
and we have simply chosen to help one side
During WW1 Wilson had people put in jail for being against US entry into the war
During WW 2 we had the Japanese US citizens kept in camps
but of course this was once we entered the war
however these days I am thinking it would be more political party specific ->. republicans get imprisoned if you speak out.
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https://www.bloomberg.com/news/articles/2022-03-07/biden-to-sign-crypto-order-as-industry-faces-sanctions-pressure?fbclid=IwAR22CCn_NDZzatlNVIevNTK3CQ2IBuIx_NUTKOoy3xeLKEOxrKPI7zLYd9o
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(https://pbs.twimg.com/media/FNSc99OXEAwATSm?format=jpg&name=large)
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Do you have a recommended wallet for crypto?
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For trading/spending, or for long term storage ?
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For trading/spending, or for long term storage ?
Both.
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I had posted this earlier https://www.youtube.com/watch?v=N57qEFP_UOg
Trezor Model T is the simplest for most. This is best for long term storage and on-chain transactions (on BTC block chain). If you want to do small, lightning transactions (on layer 2), there are many wallets, some can be downloaded on phones. My suggestion is to start with Trezor and then add Lightning transactions to your repertoire after you have mastered on-chain transactions. Pl. note, BTC does not have a support desk, or a CEO that you can complain to, so be very careful, start small with a trial transaction of 10 bucks or something.
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At the pace we are on, ten bucks will be my entire bitcoin investment.
I had posted this earlier https://www.youtube.com/watch?v=N57qEFP_UOg
Trezor Model T is the simplest for most. This is best for long term storage and on-chain transactions (on BTC block chain). If you want to do small, lightning transactions (on layer 2), there are many wallets, some can be downloaded on phones. My suggestion is to start with Trezor and then add Lightning transactions to your repertoire after you have mastered on-chain transactions. Pl. note, BTC does not have a support desk, or a CEO that you can complain to, so be very careful, start small with a trial transaction of 10 bucks or something.
-
Sir, it all depends on what you are comparing against. BTC is making new highs in Roubles. When you understand 1 BTC=1 BTC, you will achieve the Zen state.
(https://pbs.twimg.com/media/D0HCUJpXgAY5FOg?format=jpg&name=small)
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Before investing in BTC, the following martial arts training regimen is recommended.
https://twitter.com/i/status/1500076354829631490 (https://twitter.com/i/status/1500076354829631490)
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"Before investing in BTC, the following martial arts training regimen is recommended.
https://twitter.com/i/status/1500076354829631490"
I was wondering why my voice is up a couple of octaves
:-o :wink:
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https://nypost.com/2022/03/08/biden-to-issue-executive-order-on-cryptocurrency/?fbclid=IwAR1tcpOJzoC82GZDjGQ1AdvrZXTpcBzt61NPlLvR-HCsceyDxXf9A0ZElqE
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the executive order seems to be to "study "
(how they [banks and gov.] can politically get control over crypto
but no mention of specifics just yet
hard to believe anything from a Leftist admin could be anything but negative
OTOH Trump is on record of expressing his feelings in a negative way
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https://www.nbcnews.com/politics/congress/warren-crafts-bill-targeting-cryptocurrency-russia-sanctions-rcna19094?fbclid=IwAR2GfsDQTi1oqkomXeyY7x82TgZETkhHvV4aJxzjY00YqJR_00DugBt2AGg
-
https://www.nbcnews.com/politics/congress/warren-crafts-bill-targeting-cryptocurrency-russia-sanctions-rcna19094?fbclid=IwAR2GfsDQTi1oqkomXeyY7x82TgZETkhHvV4aJxzjY00YqJR_00DugBt2AGg
It’s not aimed at Russia, it’s aimed at us.
-
https://www.reuters.com/business/finance/bitcoin-jumps-after-apparent-yellen-statement-quells-us-clampdown-fears-2022-03-09/?fbclid=IwAR00YhxmR6xiA8bIMgMnqPwowXCgDu7kZCJ5U-Ny6rEVtm69rT9MtqoFaDk
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Weeks before Russia invaded Ukraine, Marty Armstrong had predicted that Russia would do just that. Now he is predicting mayhem within the next 2 weeks, around March 14. Food shortages, debt suspensions, election suspension (country not specified, likely in Europe). March 14 has been an important target on his Socrates arrays for months. Just throwing it out there....
"There are real discussions about creating this war to further this New World Order and then using this war to justify food rationing because of the shortages and inflation they are already responsible for creating. War will allow them to dodge responsibility and point to Putin. Already you have Biden saying that paying higher prices is the cost for defending Ukrainian freedom. They talk about defending Democracy when Europe has been denied that for the European Commission and the head of the EU also do not stand for election. They have ensured that Zelensky would not yield and allow DonBbas to vote for that would lose the proxy-war to confront Putin."
"There is serious talk about suspending government debt payments and to pretend that this is necessary, they are also considering suspending all private mortgage payments. These are the real discussions going on behind the curtain. If they go that far, then you know this is a preparatory stage for them to default on national debts while making it all sound that they are doing this for you. We will then know that Schwab has his hands in this scheme as well. Let us see if they pull this one-off. The timing I have been told is to usher in such emergency powers as soon as in 2 weeks or by April."
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Understanding tail risk, short read.
https://twitter.com/jameslavish/status/1493629111973007360 (https://twitter.com/jameslavish/status/1493629111973007360)
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Inflation 8% in Feb.
https://www.cnbc.com/2022/03/10/cpi-inflation-february-2022-.html
For comparison, bank interest rate for "insured" savings is 0.1%. What loss are they insuring against?
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"Inflation 8% in Feb."
Dems:
ukraine putin ukraine russia
over and over again from the MSM till the election
drumbeat like a bad one hit wonder song that gets played over and over again till it worms into your brain and it keeps popping up even though you hate it.
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Understanding tail risk, short read.
https://twitter.com/jameslavish/status/1493629111973007360 (https://twitter.com/jameslavish/status/1493629111973007360)
Excellent read! I like the way he doesn't predict, he explains.
Read Nassim Taleb for expertise on tail risks and "fat tail risks":
https://youtu.be/t7Fr6iGhmBM
And: https://www.nasdaq.com/articles/fat-tail-risk-what-it-means-and-why-you-should-be-aware-it-2015-11-02
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http://physibit.com/physical-bitcoins/lealana/
https://auctions.stacksbowers.com/lots/view/3-VJGGC/2013-casascius-05-bitcoin-btc-brass-loaded-unredeemed-firstbits-124z8liq-series-2-254-mm-ms64-pcgs
seems gimmicky to me
not clear what funded vs unfunded means
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The casacius coin looks genuine, the unfunded/funded link is scammy.
Willy Woo update:
Top level summary for 11th Mar 2022 (current price $39.1k):
Structural summary: Institutions and large holders continue to sell down.
Price action expectation: Bearish until we see signs of demand coming back into the market.
Personal opinion: There’s no question we are in a bear market due to the duration of the sell-off. There’s never been a bottom of a bear market in BTC without a capitulation event, so I think there is a high probability that this region breaks down and we test lower lows before accumulation takes place to setup for the next bull cycle.
Willy is stopping his newsletter service, he says its getting difficult to properly do the on-chain analysis.
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https://www.theepochtimes.com/bidens-crypto-eo-weighs-climate-change-ponders-digital-dollar_4329379.html?utm_source=Morningbrief&utm_campaign=mb-2022-03-11&utm_medium=email&est=eal6kNGOwbZSTkR%2FdSwT0VuPyxKZLMgzVSdJ92YO9cU7sw4hjNIZOhzz65%2Br18eWy3%2Ba
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Willy's latest
Top level summary for 14th Mar 2022 (current price $38.9k):
Structural summary: Demand has returned on-chain but this has not yet been reflected on futures markets. Some metrics are inconclusive and some are conflicting. This tends to happen during structural changes in the market (for example going from macro bearish to bullish). Volatility remains quite choppy this suggests a large price breakout is NOT imminent yet. There is some evidence that a capitulation event has not yet taken place; normally we look for these events to signal a bottom.
Price action expectation: Sideways and reducing volatility over coming weeks before volatility and demand re-engages into the market. This may take a month or two from here (based on the timing signatures of prior bear markets).
Personal opinion: I think the market has started reversing, this will take some time to complete, and often it takes a sudden capitulation event to reactivate buying. It’s inconclusive whether that this has happened yet, I feel like we’re in a region similar to the 2018 bear market where price consolidated at $6k before a final capitulation before real demand came in. However in the present situation, if such a capitulation happens, I don’t think a downside move would be as dramatic, $30k-35k presents solid support.
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I don't fully agree with the final conclusion, but the article has quite good IMHO. What is really hurting the dollar is the internal mismanagement of our fiscal and monetary lack of responsible, coherent policies. which he notes.
https://www.wsj.com/articles/is-the-dollar-in-danger-china-russia-ruble-yuan-reserve-currency-foreign-sanctions-11647195545?st=o9482fo2m6iv6ya&reflink=desktopwebshare_permalink
Is the Dollar in Danger?
China and Russia may be working to take away America’s ‘exorbitant privilege.’
By Andy Kessler
March 13, 2022 5:33 pm ET
The U.S. is sitting on top of a horizontal empire, capitalism’s self-organizing, incentive-based structure with its layers of value. It’s not the Marxist mush of “to each according to his needs.” You gotta earn your spot. Think of the U.S. dollar as the thread or even the duct tape that binds the layers together. Nearly 60% of the $12.8 trillion in world-wide currency reserves are dollars. Is America’s “exorbitant privilege”—the almighty dollar as the world’s leading reserve currency—under threat? Should you even care?
Sanctions have bitten Russia. A huge chunk of its $630 billion in foreign reserves are frozen. Oligarchs’ yachts have been seized. Visa, Mastercard and American Express suspended service in Russia. Apple and Google Pay stoppage stranded cashless travelers on Moscow’s metro. From Netflix to Nike, voluntary sanctions are in force.
Was cutting Russia out of the global financial system the right move? Naysayers think this is the beginning of the end of the dollar as the reserve currency because Russia will cozy up to China and adopt the yuan or pivot to cryptocurrencies. China may start dumping dollars. In fact, since 2014 China and Russia have severely reduced their dependence on the dollar for bilateral trade.
The dollar has been the world’s reserve currency since the Bretton Woods Agreement in July 1944, with the dollar pegged to gold and other allied currencies pegged to the dollar. This wasn’t some bureaucratic pronouncement. The U.S. was in a position of strength after funding the allied effort in World War II. America almost lost this privileged status in 1971 when deficits from war and welfare led President Richard Nixon to drop the gold standard.
Today countries still keep America’s virtual Benjamins in their virtual bank vaults—modern banking’s gold. China has more than $1 trillion in Treasurys. Russia has about $100 billion in dollars of about $500 billion in their increasingly frozen foreign exchange.
But why do these countries keep dollars? What backs the currency? The conventional answer is the “full faith and credit” of the U.S. government. Ha, that and $3.65 will get you a Starbucks grande latte, though not in Moscow anymore. What really backs the dollar is the future tax-generating ability of America’s growing productive economy and a defense structure to defend that economy’s strength. Without that, there’s no horizontal-binding duct tape.
South Korea, Thailand, Indonesia and especially Russia learned this the hard way during currency crisis of the late 1990s. They didn’t keep enough foreign reserves to protect their own currencies after overextending credit and bank loans denominated in dollars came due. Argentina, Venezuela and Zimbabwe learned this too.
China, like Russia, has per capita gross domestic product slightly above Mexico—about one-sixth of the U.S. China’s yuan value is based on its economic growth continuing, now forecast at only 5.5% for 2022. While China needs to keep assembling more iPhones, toys, shoes and grills for global customers, it is struggling to move up to higher horizontal layers.
Whatever China holds in Russian rubles has lost more than 40% of its value in mere weeks. Ouch. If Russia or other countries hold yuan, they risk a similar devaluation if, say, China gets squeezed by sanctions for invading Taiwan. China and Russia should be wary of the mutual delusion of backing only by the ruble and the yuan. And I hope Russia does load up on crypto, the decline of which may make the ’90s currency crisis seem like a picnic.
As Ben Franklin might tell today’s U.S. leaders, “You have the reserve currency status, if you can keep it.” What to do? The Federal Reserve should solidify the dollar by raising interest rates pronto. Treasury Secretary Janet Yellen needs to shout “a strong dollar is in our national interest” from the mountain tops. Ending fiscal deficits would also help by creating a bidding war for outstanding Treasurys. U.S. companies need to update complacent supply chains. If products like medications and iPhones come only from China, that’s a problem. Because of this, the Biden administration should quit the union-loving “Buy American” pitch we heard in his State of the Union address, which echoes Donald Trump’s “America first.” Apple can’t assemble iPhones in union-heavy Michigan. America’s strength comes from buying goods and services from our allies in lower horizontal layers like Vietnam, South Africa and countries in Eastern Europe. Don’t mess with that.
It’s time for the U.S. to figure out where China or Russia might have even a tiny edge—pharma, genetics, artificial intelligence, cyberwarfare—and create Operation Warp Speed-like programs to stimulate these industries through orders and prepayments, not handouts.
Sanctions on Russia won’t endanger the dollar right away, but wars are when transitions occur. America shouldn’t risk its reserve-currency status. Inflation really will run rampant if other countries start dumping dollars. America’s privilege is worth maintaining—easier said than done.
Subscribe at: https://subscription.wsj.com/
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Marty Armstrong, on the free portion of the website, commenting on March 14
https://www.armstrongeconomics.com/armstrongeconomics101/ecm-armstrongeconomics101/the-ecm-march-14th/
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Quote Of The Day
“What is the difference between a dollar and the Russian ruble? About a dollar.” - Larry Kudlow
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Crisscrossing threads, suddenly the hatred of Democrats for Saudi and their courting of Iran is damaging to the status of the war, geopolitics and to the dollar.
Saudi Arabia reportedly considering accepting yuan instead of dollar for oil sales
https://thehill.com/policy/energy-environment/598257-saudi-arabia-considers-accepting-yuan-instead-of-dollar-for-oil
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Willy Woo
Top level summary for 18th Mar 2022 (current price $40.9k):
Structural summary: Demand continues to come in from futures markets backing up what we have been seeing on-chain. Fundamental signals now point to BTC being in an accumulation zone which typifies the end of bear markets.
Price action expectation: The countdown for a bullish break out of the bear market is now in effect, my best guess from price stability data is we are within a 1-2 weeks of this happening, but it could even be sooner.
Price action conviction: high
ETH Notes: ETH on-chain demand is at all-time-highs and the technical picture looks strong against BTC. I expect it to outperform BTC in coming weeks.
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(https://pbs.twimg.com/media/FOIvw0caMAADd4k?format=jpg&name=4096x4096)
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https://bombthrower.com/articles/why-hyperbitcoinization-is-now-baked-in/
I have no idea what they are talking about here:
https://seekingalpha.com/article/4496316-hive-blockchain-ethereum-gambit?mailingid=27068250&messageid=must_reads&serial=27068250.2746964&utm_campaign=Must%2BRead%2BMarch%2B18%2C%2B2022&utm_content=seeking_alpha&utm_medium=email&utm_source=seeking_alpha&utm_term=must_reads
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ETH is a Rube Goldberg contraption. Hopefully, it will be delayed again. For HIVE they will need to move off ETH to something else. My guess is the BTC miners from Intel. There could be some volatility, if ETH succeeds, or more likely HIVE will not appreciate as much in a BTC rally. Proof of Stake consumes less energy and so the green lobby loves it. However, it is more centralized and Vitalik can be pulled before Congress., so ETH will never be a store of money, but may form the base layer for smart contracts and other applications.
(https://www.rubegoldberg.com/image-gallery-licensing/)
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CD, I can't see seeking alpha article
wants me to subscribe
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Free log-in
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YA: Sell or hold ETH? and put into BTC?
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The wise people use ETH to trade and make profits to buy BTC on pull backs, since in a bull market ETH usually appreciates more than BTC. In the coming bull market, ETH will likely gain more than BTC, that would be the time to sell. Several years ago, when ETH was < 100 $, I sold all. I personally dont believe in ETH, though there is a whole army of ETH believers out there.
BTC is a long term hold, not to be traded, like Gold, where one bets that inflation and money printing is a constant going forward.
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Thank you.
Thinking of adding slightly to BTC , , ,
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Thank you.
Thinking of adding slightly to BTC , , ,
Add to food, ammo, training and medical supplies first.
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Thank you.
Thinking of adding slightly to BTC , , ,
Add to food, ammo, training and medical supplies first.
https://blogger.googleusercontent.com/img/a/AVvXsEjuN3lb4DpfteNKkawH18WuDUJCQlus14AadW0_RpnGFXdBsZpFvwAZXTJcBhIXkASlsMdH8EGoGakOGYvYSTZxpnbHMfIz5z3_P2Wuopee--EWXl38nZcnOBLuP6wmX_QpbPajzsOIunkDdXcuXHuncSZ-dfia6X3fThPUKFz4VZT-ZVw390_4SEfO=s669
(https://blogger.googleusercontent.com/img/a/AVvXsEjuN3lb4DpfteNKkawH18WuDUJCQlus14AadW0_RpnGFXdBsZpFvwAZXTJcBhIXkASlsMdH8EGoGakOGYvYSTZxpnbHMfIz5z3_P2Wuopee--EWXl38nZcnOBLuP6wmX_QpbPajzsOIunkDdXcuXHuncSZ-dfia6X3fThPUKFz4VZT-ZVw390_4SEfO=s669)
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"Add to food, ammo, training and medical supplies first."
Well underway on that.
Bought a three fuel generator this week (gasoline, propane, NG)
Bought walkie talkie recommended by Frankie for if/when the phones go down.
Food supply on hand est. 6-9 months so far.
Gardening underway. Yesterday planted two fig trees, two raspberry bushes. This week building garden boxes. Have goodly supply of goodly variety of heritage seeds on hand already.
Bought cages for raising meat rabbits (the prepper guy who is supposed to help me get this up and running has been a bit elusive though)
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What make/model walkie-talkie?
"Add to food, ammo, training and medical supplies first."
Well underway on that.
Bought a three fuel generator this week (gasoline, propane, NG)
Bought walkie talkie recommended by Frankie for if/when the phones go down.
Food supply on hand est. 6-9 months so far.
Gardening underway. Yesterday planted two fig trees, two raspberry bushes. This week building garden boxes. Have goodly supply of goodly variety of heritage seeds on hand already.
Bought cages for raising meat rabbits (the prepper guy who is supposed to help me get this up and running has been a bit elusive though)
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BTECH
UV-5X3
VHF, 1.25M, UHF Tri-Band FM Transceiver
www.baofengtech.com
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Greg Foss has been doing some serious writing on Bonds. TL;DR stay out of Bonds.
https://bitcoinmagazine.com/markets/bitcoin-insurance-for-bond-risks-contagion (https://bitcoinmagazine.com/markets/bitcoin-insurance-for-bond-risks-contagion)
(https://bitcoinmagazine.com/.image/c_limit%2Ccs_srgb%2Cq_auto:good%2Cw_688/MTg4MTUyNzc4MTMwOTkwOTk3/fall-apart-flow-chart.webp)
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Nik Bhatia writing on BTC...
"In bitcoin’s first year, barely anybody knew what it was. But by age 4, bitcoin had a massive underground popularity, hilariously and perfectly captured by the Reddit wizard drawing and moniker “magic internet money.” And that is exactly what it was. Bitcoin was internet money, and it was magical because it worked without any central issuer or company—something that had never existed before. It survived off an elegant set of rules and SHA256 encryption. It reached a market cap of $10 billion by 2013, purely by being magic internet money.
Bitcoin’s second price regime came after bitcoin didn’t die by 2015 following a massive 80% crash. It started receiving mainline attention, namely from CME and Fidelity, both which bet millions on R&D, convinced that bitcoin was indeed digital gold. This collective realization from the sophisticated investment universe can be thought of as the “5% probability that bitcoin will one day replace gold” era, allowing bitcoin to reach a market cap of over $300 billion.
The most recent price regime was the “post-pandemic, work-from-home, global digital economy, universal basic income” phase, in which bitcoin is settling in around the $1 trillion market cap. While the price swings have been large, bitcoin has consolidated around this impressive valuation for well over a year. The valuation is an acceptance that bitcoin is a mainstay in our society and will always have demand. During this phase, the “bitcoin is either going to $1 million or to $0” crowd ditched the mantra in realization it was likely to be the former.
I believe we are entering bitcoin’s next price regime, one that can be labeled “the risk models are broken” phase, in which bitcoin takes on an immediate strategic importance for institutions of all types around the world. This is the phase when countries, companies, and organizations political or geopolitical realize that a zero-bitcoin position is a strategic blind spot, one that must be covered with a purchase, or at the very minimum an investment in bitcoin education and infrastructure. Let’s look at where the price could go."
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https://pjmedia.com/news-and-politics/rick-moran/2022/03/23/democrats-mull-100-monthly-biden-bucks-gas-stimulus-checks-to-buy-your-vote-n1583510
At this point, what difference does it make?
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New dollar inspires confidence, and makes all your old dollars obsolete.
(https://mcusercontent.com/dc8d30edd7976d2ddf9c2bf96/images/8e9d6365-272d-1809-4637-5726877cfd39.png)
https://mcusercontent.com/dc8d30edd7976d2ddf9c2bf96/images/8e9d6365-272d-1809-4637-5726877cfd39.png
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https://www.wired.com/2011/09/stacking-one-trillion-dollars/
1/4 of the way to the moon
just crazy the amounts of money they are throwing around
at this rate in 20 yrs it will take this amount to buy a tank of gas
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20 years? Optimist!
https://www.wired.com/2011/09/stacking-one-trillion-dollars/
1/4 of the way to the moon
just crazy the amounts of money they are throwing around
at this rate in 20 yrs it will take this amount to buy a tank of gas
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How Cryptocurrency Is Helping Ukraine
It’s a godsend in a country that needs money and lacks functioning banks.
By Illia Polosukhin
March 23, 2022 6:42 pm ET
Critics have claimed that cryptocurrency will help Russia evade sanctions, or at best that it’s of no use to Ukrainians. In fact, it’s proving to be a powerful tool to help them.
I’ve worked in the blockchain industry for four years, and I’m Ukrainian. I grew up and attended university in Kharkiv, the second-largest city in Ukraine and one of the hardest-hit by Russian bombs. I’m one of several organizers of Unchain Fund, a crypto fundraising project dedicated to relief in Ukraine that has raised more than $6.9 million so far, as well as Away from Ukraine, an information network for displaced Ukrainians.
Crypto donations to Ukraine since the invasion total almost $100 million. Blockchain networks are global and settle transactions in minutes, while the legacy banking system takes three days to settle a cross-border transaction. Many crypto donations went directly to wallets held by the Ukrainian government via the Ministry of Digital Transformation. Deputy Minister Alex Bornyakov said last week that 40% of the vendors Kyiv is working with have accepted payment in cryptocurrency, and crypto donations have been “essential.” He noted that since “the national bank is not really operating, crypto is helping to perform fast transfers, to make it very quick and get results almost immediately.”
Crypto donations are also making a difference for Ukrainians, both in and out of the country. Ukraine’s banking system is hardly operating, but the major crypto exchanges are available 24/7 from a phone or computer.
Crypto-based collaborations like Unchain Fund and UkraineDAO (an abbreviation for decentralized autonomous organization) took shape in the first few days of the crisis. Unchain has raised more than $6.9 million in 10 cryptocurrencies since Feb. 25 for relocation support, transportation, food and medicine. Three million Ukrainians in other countries need money for housing, living costs, and psychological and professional support. Crypto has proved useful for displaced people, who need access to stable funds and the ability to convert crypto into fiat currency in a flexible way. We’re also distributing the Unchain Help Card, a crypto-to-consumer debit card, to help mothers with young children purchase supplies.
Now we’re turning to longer-term solutions. Groups like Away from Ukraine connect displaced Ukrainians to share support, news, work opportunities, resources on navigating immigration, medical care, and other challenges of living in a new country.
Empowering individuals and lowering barriers to access is a major part of why I co-founded NEAR Protocol and why I believe in crypto and Web3, the catchall term for the blockchain-based open internet. Our vision is to make it possible for all people to own their data, assets and power of governance. This war crystallizes why that vision is so important: The current global systems of power do not offer this opportunity to everyone, and they can collapse quickly under stress. We have the tools to build fairer, more resilient systems that work for everyone.
Mr. Polosukhin is a co-founder of NEAR Protocol and Unchain Fund.
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Here's a good thread on ETH
https://twitter.com/JackNiewold/status/1506779959242764288 (https://twitter.com/JackNiewold/status/1506779959242764288)
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Hows everybody feeling...if you held BTC thro 32K :-)
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(https://pbs.twimg.com/media/FOpxKWiWYAohijd?format=jpg&name=large)
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Russian energy minister saying oil can be priced in gold or BTC. The beginning of the end....
https://www.zerohedge.com/markets/russia-open-selling-natural-gas-bitcoin-gold (https://www.zerohedge.com/markets/russia-open-selling-natural-gas-bitcoin-gold)
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"Hows everybody feeling...if you held BTC thro 32K :-)"
I sold when in bottomed at 29+ K
just joshen
I still am holding
riches and financial liberty, or death!
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https://www.ktnv.com/news/strip-club-in-las-vegas-accepting-bitcoin-for-lap-dances-entertainer-tipping
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https://seekingalpha.com/article/4497656-coinbase-no-coin-made-here?mailingid=27152817&messageid=must_reads&serial=27152817.2757635&utm_campaign=Must%2BRead%2BMarch%2B25%2C%2B2022&utm_content=seeking_alpha&utm_medium=email&utm_source=seeking_alpha&utm_term=must_reads
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The world’s largest Bitcoin fund is trading at 73 cents on the dollar. That may look like a bargain if you want crypto in your portfolio. But nothing is really free on Wall Street, including a cut-rate deal on Bitcoin.
Holding $26.2 billion in assets, the Grayscale Bitcoin Trust (ticker: GBTC) owns more of the cryptocurrency than any other fund. A private-placement trust that trades like a stock, GBT has become a popular vehicle to access Bitcoin in equity form. Institutional investors like Morgan Stanley and ARK Invest hold it in funds for clients. And it looks cheap, trading at a 27% discount to its net asset value, or NAV. If the share price of GBT matched its NAV, investors would notch a roughly 37% gain, even without a nudge from Bitcoin.
Yet GBT’s discount has persisted since February 2021, causing the fund to underperform Bitcoin sharply. Since then, GBT has declined about 40% on a total return basis, versus a 15% fall in Bitcoin’s price. A 2% expense ratio in GBT has also hurt, while owning Bitcoin directly doesn’t incur fees.
Ordinarily, hedge funds sense an arbitrage play in closed-end funds that trade like GBT. They build a stake and pressure the fund sponsor to buy back shares at the NAV. Grayscale’s fund bylaws, however, have deterred activist investors. Grayscale’s parent, Digital Currency Group, has acquired $698 million of GBT at market prices, but that hasn’t closed the gap to NAV.
That leaves one other solution: converting GBT into an exchange-traded fund. In most ETFs, the underlying assets trade in line with the share price. But winning approval for a Bitcoin ETF runs into a roadblock at the Securities and Exchange Commission.
Widening GapGrayscale Bitcoin Trust's share price has slumped 27% below its net asset value,creating a headwind for its performance against Bitcoin.Source: Bloomberg
GBTC PriceGBTC Net Asset ValueFeb. 2021'222030405060$70
Grayscale has tried for six years to convert the trust into an ETF. “It’s our No. 1 priority as a firm,” says Grayscale’s CEO Michael Sonnenshein. The company filed a new application last October. Its lawyers argue that since the SEC has approved futures-based ETFs—the ProShares Bitcoin Strategy (BITO) and VanEck Bitcoin Strategy (XBTF)—a spot-based ETF should be next.
“The SEC has created an unfair playing field and forced investors into a futures-based ETF because it’s the only product that exists,” says Sonnenshein.
The agency doesn’t appear to be budging. Under its Democratic chairman, Gary Gensler, the SEC has rejected several Bitcoin ETF applications, including proposals from Fidelity, Valkyrie, and VanEck. Gensler has taken a tough stance on crypto, calling for more regulation of tokens and exchanges and urging Congress to pass laws to rein in what he views as the industry’s “Wild West” practices. The SEC declined to comment on Gensler’s approach to ETFs.
Falling Behind - Grayscale Bitcoin Trust's performance has trailed Bitcoin by 36 percentage points as itsshare price has lagged far behind its net asset value.Source: Bloomberg
GBTC PriceBitcoin2021'22-40-20020406080100%
The thrust of the agency’s denials is that the Bitcoin spot market is vulnerable to fraud and price manipulation that could spill over into a spot-based ETF. Bitcoin trades globally on largely unsupervised exchanges and decentralized platforms. Bitcoin futures, in contrast, trade on the Chicago Mercantile Exchange and are monitored by the Commodities Futures Trading Commission. Moreover, U.S. stock exchanges that aim to list a Bitcoin ETF haven’t satisfied the SEC’s requests for “surveillance-sharing agreements” with underlying Bitcoin markets, or made a compelling argument for a waiver, in the SEC’s view.
“The SEC has created an unfair playing field and forced investors into a futures-based ETF.” — Grayscale CEO Michael Sonnenshein
Sonnenshein says he’s confident that the SEC will come around. “It’s a matter of when, not if,” he says. Grayscale has mounted a campaign to pressure the agency, urging investors to send comment letters and racking up more than 2,500 submissions. “I should not be forced into a futures-based ETF because that’s my only choice,” said investor Chris Soignier in one such letter from March 11. “Converting it to an ETF would be better for everyone,” he added, echoing comments from investors who would notch gains in a conversion.
The Securities and Exchange Commission typically sets a 240-day deadline for ETF proposals, making a decision likely by mid-June. SEC Commissioner Hester Peirce, a Republican appointee, has long urged her Democratic colleagues to approve a Bitcoin ETF, arguing in part that the Bitcoin futures market may lead prices in the spot markets, making it tough to manipulate prices for a Bitcoin exchange-traded fund.
Some advisors do like the arbitrage opportunity in GBT. A conversion to an ETF would give GBT owners a significant gain, independent of Bitcoin’s price, says Ric Edelman, founder of the Digital Assets Council of Financial Professionals. “That would be an excellent arbitrage play, but it’s not without risks,” he says, recommending both GBT and Bitcoin directly in a diversified portfolio.
Without a bailout from Washington, however, GBT’s discount probably isn’t going away. And it could widen if demand for the fund continues to erode. Indeed, its 27% discount reflects the fact that GBT’s high expense ratio isn’t competitive against the many cheaper ways to own Bitcoin.
Investors can buy Bitcoin directly, paying a one-time commission through exchanges like Coinbase or apps like PayPal . Other ways to gain exposure include stocks like MicroStrategy (MSTR) or Bitcoin miners like Riot Blockchain (RIOT), Marathon Digital Holdings (MARA), or Core Scientific (CORZ), all of which are like leveraged bets on the crypto. Bitcoin futures ETFs charge less than 1% in annual expense ratios, less than half the fees of GBT.
None of those stocks involve an arbitrage bet on Gensler and the SEC. That would be worth far more than GBT’s fees and would compensate for the fund’s sharp underperformance, if it ever pays off.
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ETH 2.0 coming soon :-D :-D
(https://pbs.twimg.com/media/FOywK8sXMAY-2He?format=jpg&name=medium)
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My spine stiffened by our YA, two days ago I added about 20% to the size of my position.
https://decrypt.co/96162/filecoin-internet-computer-jump-double-digits-crypto-recovers
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https://www.yahoo.com/finance/news/bonds-flashing-signals-recession-looming-160827950.html
so buy stocks :-o
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(https://pbs.twimg.com/media/FPA5GGLXEAA2xM5?format=jpg&name=medium)
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Worth a read from ZH. Looks like the petro dollar will go away in due time..give it 10 years. The world has seen that the dollar can be sanctioned, Putin has said so in speech himself. Freedom has been tasted. Watch the Ruble, its now almost back to pre-sanction levels. I listen to Bloomberg and they are not talking about it!, whereas they were all over it, when the ruble was falling.
https://www.zerohedge.com/geopolitical/gotgoldorrubles-did-russia-just-break-back-west (https://www.zerohedge.com/geopolitical/gotgoldorrubles-did-russia-just-break-back-west)
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The conclusion certainly makes sense to me but I confess I am not really understanding how the author got there.
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second
https://www.washingtonpost.com/technology/2022/03/29/axie-infinity-cryptocurrency-hack/?fbclid=IwAR0Xxio3L6bXv7ijspq3Kq1YAAGO55JSkKATjzCWCOzRICKald3hSo3jWg0
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https://www.reuters.com/business/find-roubles-if-you-want-russian-oil-grain-or-metals-top-lawmaker-says-2022-03-30/
https://www.reuters.com/business/energy/germany-declares-early-warning-potential-gas-supply-disruptions-2022-03-30/
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Looks like Apple will allow instantaneous payment over the Bitcoin network using the Strike app. I am speculating this might be announced at the Miami BTC conference ?. That would be big, as it opens up the BTC network to the world. A big announcement is usually made at the conference...lets see what that turns out. A week to go...
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HT to GM.
Pasting this here as well for its implications for the US dollar.
https://www.zerohedge.com/commodities/putin-signs-decree-ordering-gas-exports-be-halted-if-buyers-dont-pay-rubles
=========
Also see
By: Geopolitical Futures
Lavrov in India. Russian Foreign Minister Sergey Lavrov will arrive in India on Thursday for a two-day trip. Prior to the visit, India was reportedly considering Moscow’s proposal to use the System for Transfer of Financial Messages, a Russian equivalent of the SWIFT banking system, to settle payments between the two countries in their own national currencies. Meanwhile, the U.K.’s foreign secretary also arrives in New Delhi on Thursday. She's expected to announce a cybersecurity program aimed at protecting online infrastructure from attacks. She'll likely address security in the Indo-Pacific region and cooperation on defense and trade. On Wednesday, the U.S.'s deputy national security adviser also landed in India for a two-day trip.
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Kicking myself for not buying Rubles when they crashed.
HT to GM.
Pasting this here as well for its implications for the US dollar.
https://www.zerohedge.com/commodities/putin-signs-decree-ordering-gas-exports-be-halted-if-buyers-dont-pay-rubles
=========
Also see
By: Geopolitical Futures
Lavrov in India. Russian Foreign Minister Sergey Lavrov will arrive in India on Thursday for a two-day trip. Prior to the visit, India was reportedly considering Moscow’s proposal to use the System for Transfer of Financial Messages, a Russian equivalent of the SWIFT banking system, to settle payments between the two countries in their own national currencies. Meanwhile, the U.K.’s foreign secretary also arrives in New Delhi on Thursday. She's expected to announce a cybersecurity program aimed at protecting online infrastructure from attacks. She'll likely address security in the Indo-Pacific region and cooperation on defense and trade. On Wednesday, the U.S.'s deputy national security adviser also landed in India for a two-day trip.
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https://capitalisteric.wordpress.com/2022/03/31/crash-positions/
Kicking myself for not buying Rubles when they crashed.
HT to GM.
Pasting this here as well for its implications for the US dollar.
https://www.zerohedge.com/commodities/putin-signs-decree-ordering-gas-exports-be-halted-if-buyers-dont-pay-rubles
=========
Also see
By: Geopolitical Futures
Lavrov in India. Russian Foreign Minister Sergey Lavrov will arrive in India on Thursday for a two-day trip. Prior to the visit, India was reportedly considering Moscow’s proposal to use the System for Transfer of Financial Messages, a Russian equivalent of the SWIFT banking system, to settle payments between the two countries in their own national currencies. Meanwhile, the U.K.’s foreign secretary also arrives in New Delhi on Thursday. She's expected to announce a cybersecurity program aimed at protecting online infrastructure from attacks. She'll likely address security in the Indo-Pacific region and cooperation on defense and trade. On Wednesday, the U.S.'s deputy national security adviser also landed in India for a two-day trip.
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Worth a read, from Zoltan, Breton Woods III
https://plus2.credit-suisse.com/shorturlpdf.html?v=51io-WTBd-V (https://plus2.credit-suisse.com/shorturlpdf.html?v=51io-WTBd-V)
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https://www.thegatewaypundit.com/2022/03/cnbc-inverted-yield-curve-shows-recession-likely-around-corner/
Is this not one of Scott Grannis' red flags?
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https://www.thegatewaypundit.com/2022/03/cnbc-inverted-yield-curve-shows-recession-likely-around-corner/
Is this not one of Scott Grannis' red flags?
As I understand it, all recessions were preceded by this,
But not all inverted yield curves are followed by recession.
Also, recession is subjectively defined., two negative growth quarters. Not all bad economic times are recession. There is stagnation, stagflation etc.
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The Lightning network has more capacity than anything else on the planet, to handle money transfers, faster and with finality. VISA/Mastercard are toast, unless they accept Lightning network.
Hopefully, over the next 3-4 days, we will hear about Apple's foray into this. They do have 2 billion customers and that might give BTC a bit of a push.
https://twitter.com/i/status/1456088664132440069 (https://twitter.com/i/status/1456088664132440069)
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https://www.thegatewaypundit.com/2022/04/imf-warns-bidens-sanctions-russia-threaten-dominance-us-dollar/
https://capitalisteric.wordpress.com/2022/03/31/crash-positions/
Kicking myself for not buying Rubles when they crashed.
HT to GM.
Pasting this here as well for its implications for the US dollar.
https://www.zerohedge.com/commodities/putin-signs-decree-ordering-gas-exports-be-halted-if-buyers-dont-pay-rubles
=========
Also see
By: Geopolitical Futures
Lavrov in India. Russian Foreign Minister Sergey Lavrov will arrive in India on Thursday for a two-day trip. Prior to the visit, India was reportedly considering Moscow’s proposal to use the System for Transfer of Financial Messages, a Russian equivalent of the SWIFT banking system, to settle payments between the two countries in their own national currencies. Meanwhile, the U.K.’s foreign secretary also arrives in New Delhi on Thursday. She's expected to announce a cybersecurity program aimed at protecting online infrastructure from attacks. She'll likely address security in the Indo-Pacific region and cooperation on defense and trade. On Wednesday, the U.S.'s deputy national security adviser also landed in India for a two-day trip.
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https://seekingalpha.com/article/4410445-bitcoins-value-depends-on-dollar-gold-stands-alone
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An intriguing argument.
Off the top of my head, I'm thinking if the argument were true, then gold should be a lot higher than it is right now.
Your thoughts YA?
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I dont have a good understanding of how Russia has linked the Ruble to Gold..what is clear is that following the move, the $ to Ruble rate is back to pre-invasion levels. From what I am reading, this has the potential to roil gold markets.
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Pl. be careful out there...Received this email. Never click on emails, go to a pre-bookmarked website.
Dear xxx,
We regret to inform you that Trezor has experienced a security incident involving data belonging to 106,856 of our customers, and that the wallet associated with your e-mail address (xxxxx) is within those affected by the breach.
Namely, on Saturday, April 2nd, 2022, our security team discovered that one of the Trezor Suite administrative servers had been accessed by an unauthorized malicious actor.
At this moment, it's technically impossible to accurately assess the scope of the data breach. Due to these circumstances, if you've recently accessed your wallet using Trezor Suite, we must assume that your cryptocurrency assets are at risk of being stolen....
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Thank you and thank you.
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"But given the paramount scarcity of BTC, why has its price been trading in a range between $30,000 and $60,000 over the past year?
The Bitcoin price in U.S. dollars can be thought of as a lagging indicator of humanity’s understanding of the technology and its innovative value proposition. Currently, only a small percentage of the world’s population truly grasp the unique concepts of programmatically decentralized and scarce money, so while the Bitcoin price might trend to infinity over the long term, that won’t likely become a reality until most of the global population – or most of the world’s capital – starts understanding that. When they do, a sharp supply shock might ensue as an unlimited amount of money flows into a limited amount of bitcoin."
https://www.zerohedge.com/crypto/19-millionth-bitcoin-has-been-mined-why-it-matters (https://www.zerohedge.com/crypto/19-millionth-bitcoin-has-been-mined-why-it-matters)
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Gensler is right
(https://pbs.twimg.com/media/FPS2iH9XsAoGUJ3?format=jpg&name=small)
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Gensler is right
(https://pbs.twimg.com/media/FPS2iH9XsAoGUJ3?format=jpg&name=small)
Just as true as far as banks are concerned.
Plan accordingly.
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Here's a good article on the implications of the Ruble-Gold linkage
https://www.zerohedge.com/commodities/paradigm-shift-western-media-hasnt-grasped-yet-russian-ruble-relaunched-linked-gold-and (https://www.zerohedge.com/commodities/paradigm-shift-western-media-hasnt-grasped-yet-russian-ruble-relaunched-linked-gold-and)
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By linking the Ruble to gold, if Ruble goes down (strengthens), gold must go up and vice versa. This would bankrupt a lot of paper gold traders who artificially keep the gold price down.
(https://pbs.twimg.com/media/FPbLALcaMAIUh-U?format=jpg&name=medium)
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By linking the Ruble to gold, if Ruble goes down (strengthens), gold must go up and vice versa. This would bankrupt a lot of paper gold traders who artificially keep the gold price down.
(https://pbs.twimg.com/media/FPbLALcaMAIUh-U?format=jpg&name=medium)
https://tomluongo.me/2022/03/28/got-gold-rubles-russia-just-broke-the-back-of-the-west/
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https://www.zerohedge.com/personal-finance/countdown-us-government-default
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By linking the Ruble to gold, if Ruble goes down (strengthens), gold must go up and vice versa. This would bankrupt a lot of paper gold traders who artificially keep the gold price down.
(https://pbs.twimg.com/media/FPbLALcaMAIUh-U?format=jpg&name=medium)
https://tomluongo.me/2022/03/28/got-gold-rubles-russia-just-broke-the-back-of-the-west/
https://www.thegatewaypundit.com/2022/04/inflation-spikes-11-9-netherlands-energy-component-inflation-102/
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https://charleshughsmith.blogspot.com/2022/04/the-global-order-has-cracked.html?m=1
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https://www.wired.com/story/tracers-in-the-dark-welcome-to-video-crypto-anonymity-myth/?fbclid=IwAR0mZdrN8M4N_GMaUwbws8fHcGxXeoBvZot2qZv83bswqaEZwSpEikFwCaU
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https://www.espn.com/mma/story/_/id/33689220/ufc-implement-fan-voted-bonuses-paid-bitcoin
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Ground breaking news from the Miami BTC conference.
1. Independent Portuguese island, Madeira has allowed use of BTC.
2. Prospera, Honduran city is doing same.
3. Mexico is considering BTC as legal tender., meetings planned with Mexican president.
4. Lugano, SWISS city already accepts BTC for everything. El Salvador uses BTC as legal tender (old news).
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Biggest News:
Jack Mallers CEO of Strike, about whom I have talked before, has set up Lightning Payments with the 3 major payment venders. This means that you can pay with BTC at almost every shop, from Walmart to Lowes. There will be no 3-4 % commissions that the credit cards charge, transactions will be final. Payment can be in fiat currency or BTC, but over the 2nd layer BTC blockchain. I think we are moving to 1 Billion users pretty quick.
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https://www.cnbc.com/2022/04/07/thiel-calls-buffett-sociopathic-grandpa-from-omaha-about-bitcoin.html
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del
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https://www.cnbc.com/2022/02/05/bitcoin-a-lifeline-for-sex-workers-like-ex-nurse-making-1point3-million.html?utm_term=Autofeed&utm_medium=Social&utm_content=Main&utm_source=Twitter#Echobox=1649074285
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https://www.cryptopolitan.com/tesla-block-to-mine-btc-using-solar-power/?fbclid=IwAR1yQ5p_G-2Zt1zQIxlCPKo9CXGngu9MggpCZ0-ZaRkc3tHxxHyWN9r6b6s
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https://www.marketwatch.com/story/its-now-clear-that-the-federal-reserve-has-made-a-huge-monetary-policy-error-11649343497
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(https://pbs.twimg.com/media/FP6P-kNWUAMEkcb?format=png&name=large)
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https://www.zerohedge.com/geopolitical/commodity-currency-revolution-begins
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https://www.nytimes.com/2022/04/10/us/politics/crypto-industry-states-legislation.html?fbclid=IwAR0PyQD7Fo8NgOGO0_cSjEsh_zCpODvftr3VFcMtUtU-YZj9Kz1_NLRx94c
Crypto Industry Helps Write, and Pass, Its Own Agenda in State Capitols
In the absence of federal regulations, crypto lobbyists and executives are going state by state to get favorable rules enacted. Many lawmakers have been willing partners.
Give this article
In Florida, a bill that makes buying and selling cryptocurrency easier passed last month after collaboration with the crypto industry.
In Florida, a bill that makes buying and selling cryptocurrency easier passed last month after collaboration with the crypto industry.Credit...Octavio Jones for The New York Times
Eric LiptonDavid Yaffe-Bellany
By Eric Lipton and David Yaffe-Bellany
April 10, 2022
Sign Up for On Politics, for Times subscribers only. A Times reader’s guide to the political news in Washington and across the nation. Get it with a Times subscription.
TALLAHASSEE, Fla. — The debate took less than four minutes.
In the Florida House last month, legislators swiftly gave final approval to a bill that makes it easier to buy and sell cryptocurrency, eliminating a threat from a law intended to curb money laundering. One of the few pauses in the action came when two House members stood up to thank crypto industry “stakeholders” for teaming with state officials to write a draft of the bill.
“Whether you’re Binance or Ethereum, Dogecoin or Bitcoin, this is a great bill,” said Representative John Snyder, a Palm City Republican, referring to crypto exchanges and coins.
Shortly afterward, the House voted unanimously to pass the measure. The Senate followed, sending the bill to Gov. Ron DeSantis for his signature after 75 seconds of deliberations.
Florida’s warm embrace of the cryptocurrency agenda is just the tip of an aggressive industry-led push to position states as crypto-friendly beachheads. Across the nation, crypto executives and lobbyists are helping to draft bills to benefit the fast-growing industry, then pushing lawmakers to adopt these made-to-order laws, before moving rapidly to profit from the legislative victories.
The effort is part of an emerging national strategy by the crypto industry, in the absence so far of comprehensive federal regulatory demands, to work state by state to engineer a more friendly legal system. Lobbyists are aiming to clear the way for the continued explosive growth of cryptocurrency companies, which are trying to revolutionize banking, e-commerce and even art and music.
Many states are racing to satisfy the wish lists from crypto companies and their lobbyists, betting that the industry can generate new jobs. But some consumer advocates worry that this aim-to-please effort could leave investors and businesses more vulnerable to the scams and risky practices that have plagued crypto’s early growth.
In Florida, the new money-transmission legislation emerged from a monthslong collaboration between Representative Vance Aloupis Jr., a Republican of South Miami, and Samuel Armes, who is starting a cryptocurrency investment firm, Tortuga Venture Fund.
“Vance has been an incredible asset to the blockchain and crypto community,” Mr. Armes said.
Similar teamwork has been on display in Wyoming, North Carolina, Illinois, Mississippi, Kentucky and other states, according to a New York Times review of state legislative proposals and interviews with legislators and their industry allies.
At least 153 pieces of cryptocurrency-related legislation were pending this year in 40 states and Puerto Rico, according to an analysis by the National Conference of State Legislatures. While it was unclear how many were influenced by the crypto industry, some bills have used industry-proposed language almost word for word. One bill pending in Illinois lifted entire sentences from a draft provided by a lobbyist.
In New York, at least a dozen industry players have hired lobbyists over the last year — including Blockchain.com, a crypto exchange, and Paxos, which is trying to set up a national crypto bank — collectively spending more than $140,000 a month, state records show.
The state proposals include bills to exempt cryptocurrency from securities laws intended to protect investors from fraud. Other legislation, such as in Florida, would exclude certain cryptocurrency transactions from money-transmission laws enacted to curb money laundering. Some would take even more radical steps, as in Arizona, where one legislator wants to declare Bitcoin legal tender so it can be accepted to pay off debts.
“Legislators want to be on the cutting edge, on the side of something new,” said Kristin Smith, executive director of the Blockchain Association, a Washington group that represents the industry. “We want to cultivate more champions.”
The moves have alarmed current and former financial regulators like Lee Reiners, a onetime supervisor at the Federal Reserve Bank of New York, who is now at Duke University law school. He raised objections last year before North Carolina passed a bill exempting certain experimental cryptocurrency start-ups from the state’s consumer protection laws.
“States are being convinced you have to do this if you want to be competitive, so they’re rolling out the red carpet for crypto firms,” he said. “There’s no one pushing back saying there are big risks here to your citizens, of money laundering, consumer fraud and tax evasion.”
State legislators, many of whom have limited background in financial regulation, said they had little choice but to rely on industry experts, given the complexity of the crypto marketplace.
About two years ago, Jason Saine, a state representative in North Carolina, spoke with Dan Spuller, who wanted to pitch him on crypto projects and later joined the Blockchain Association.
“What would it look like?” Mr. Saine said he recalled asking. “You tell me.”
Their collaboration resulted in a bill that Mr. Saine introduced last year creating a regulatory “sandbox” for financial technology projects — essentially a special license allowing the industry to test new products without following certain regulatory requirements. The bill passed in October.
Solving the ‘Espinoza Problem’
In Florida, it began with the 2019 book “Bitcoin Billionaires.”
State legislators started working with the crypto industry after Mr. Aloupis read the book, which details the efforts of the Winklevoss brothers, who helped create Facebook, to generate new wealth in the crypto industry.
Mr. Aloupis said he had then spoken with the Gemini Trust Company, the cryptocurrency exchange that the Winklevosses founded, and Anchorage Digital, the first federally chartered cryptocurrency bank, for input on possible legislation he could introduce.
At the time, crypto executives were frustrated with a 2019 Florida court ruling that upheld the conviction of Mitchell Espinoza, who had sold Bitcoin to a Miami Beach police officer working undercover as the operator of a Russian stolen-credit-card enterprise. Mr. Espinoza was charged with laundering money and failing to hold a Florida money-transmission license.
The ruling meant that any two-party transaction involving cryptocurrency in Florida — even perhaps withdrawing money from a crypto A.T.M. or buying crypto on an exchange — required sellers to have a state money-transmission license. For crypto companies, that necessitated meeting financial stability requirements and completing complicated paperwork. They called it the “Espinoza Problem.”
In July, the state ordered a dozen A.T.M. providers that sell crypto in exchange for cash — including Cash Cloud, Coin Now and DigiCash — to register as money transmitters, despite appeals from the companies, documents obtained by The Times show.
Last year, Mr. Aloupis introduced the bill to exempt two-party crypto transactions, after lobbying appeals by Mr. Armes and a trade group he leads, the Florida Blockchain Business Association. (Its members include Binance, the large crypto exchange.) The bill failed to win Senate approval, and it was reintroduced for this year’s session.
Russell Weigel, the Florida commissioner of the Office of Financial Regulation, said he endorsed the legislation that Mr. Armes had championed.
“If I go and buy groceries at your food store, that’s a two-party transaction,” Mr. Weigel said. “Do I need a license for that? It seems absurd.”
Lobbyists for Blockchain.com, a cryptocurrency exchange that moved last year from New York to Miami, and Bit5ive, which manufactures crypto mining equipment in the Florida area, joined the effort, contacting dozens of state lawmakers.
“They are very pro crypto,” Robert Collazo, the Bit5ive chief executive, said of Florida lawmakers.
In the future, the company plans to raise money for crypto-friendly legislators in Florida, said Michael Kesti, Bit5ive’s lobbyist. The legislative affairs director of the Florida blockchain association, Jason Holloway, is already running for the State House, with donations — some in cryptocurrency — from Mr. Armes and others.
“I don’t want it to seem like we are paying for the influence,” Mr. Kesti said. “But we do want to support them.”
A nationwide lobbying push
What’s happened in Florida is playing out in other states as the crypto industry mobilizes to move its agenda — or defend against efforts to rein it in.
In New York, for example, concern about the environmental impact of so-called crypto mining — in which large amounts of electricity are used to run computers that allow investors to get newly issued crypto tokens — has led to pending legislation to ban these centers. Another bill proposes cracking down on common forms of crypto fraud. The result has been a flood of lobbying in New York to combat these measures.
The opposite is happening in Georgia and Illinois, where legislators have proposed tax incentives for mining companies.
The Illinois bill emerged after Sangha Systems, a crypto mining company, converted an old steel mill in the state into a mining center and sought a special tax break to help finance the project.
A Guide to Cryptocurrency
Card 1 of 9
A glossary. Cryptocurrencies have gone from a curiosity to a viable investment, making them almost impossible to ignore. If you are struggling with the terminology, let us help:
Bitcoin. A Bitcoin is a digital token that can be sent electronically from one user to another, anywhere in the world. Bitcoin is also the name of the payment network on which this form of digital currency is stored and moved.
Blockchain. A blockchain is a database maintained communally and that reliably stores digital information. The original blockchain was the database on which all Bitcoin transactions were stored, but non-currency-based companies and governments are also trying to use blockchain technology to store their data.
Cryptocurrencies. Since Bitcoin was first conceived in 2008, thousands of other virtual currencies, known as cryptocurrencies, have been developed. Among them are Ether, Dogecoin and Tether.
Coinbase. The first major cryptocurrency company to list its shares on a U.S. stock exchange, Coinbase is a platform that allows people and companies to buy and sell various digital currencies, including Bitcoin, for a transaction fee.
DeFi. The development of cryptocurrencies spawned a parallel universe of alternative financial services, known as Decentralized Finance, or DeFi, allowing crypto businesses to move into traditional banking territory, including lending and borrowing.
NFTs. A “nonfungible token,” or NFT, is an asset verified using blockchain technology, in which a network of computers records transactions and gives buyers proof of authenticity and ownership. NFTs make digital artworks unique, and therefore sellable.
Web3. The name “web3” is what some technologists call the idea of a new kind of internet service that is built using blockchain-based tokens, replacing centralized, corporate platforms with open protocols and decentralized, community-run networks.
DAOs. A decentralized autonomous organization, or DAO, is an organizational structure built with blockchain technology that is often described as a crypto co-op. DAOs form for a common purpose, like investing in start-ups, managing a stablecoin or buying NFTs.
Last year, a Sangha lobbyist took an official from the state Chamber of Commerce to visit the project in Hennepin, Ill. Keith Staats, the chamber official, suggested modifying a state law to extend tax incentives to mining companies that set up shop in Illinois. He wrote a draft of the bill, which the chamber shared with Sangha.
“I looked at it, I iterated with them,” said Spencer Marr, Sangha’s president. “They made sure I was good with it.”
In January, Sue Rezin, a Republican state senator, introduced the bill — at the urging of the chamber, she said in an interview. She said she was not a crypto expert and hadn’t “heard too much” about mining’s environmental impact.
The bill’s final version, which is awaiting action, is nearly identical to the draft written by Mr. Staats — including technical language about data centers and mining.
Not all legislative proposals have come to fruition. In Mississippi, Josh Harkins, a Republican state senator, proposed several crypto bills this year, including one exempting digital tokens from securities laws. He said he had gotten the idea from a lobbyist, Daniel Harrison, who was hoping to start a local blockchain trade association.
The bills died in committee in February. Mr. Harkins said he planned to revive them this summer.
Profiting on state legislation
In some states where crypto legislation has passed, the architects of the proposals have moved swiftly to profit on the laws.
Last year, Kentucky passed a pair of bills creating tax incentives for crypto mining companies. One was sponsored by Brandon Smith, a Republican who leads the State Senate’s Natural Resources and Energy Committee.
A few months after the bill passed, Mr. Smith teamed up with Bitmain, a supplier of hardware for crypto mining, to propose a Kentucky-based repair center for mining equipment, a project he has since abandoned. Mr. Smith, in an interview, said he did not consider his work in the industry a conflict, given that he had not applied for the tax credits his law created.
Nowhere has the potential for crypto advocates to profit on new legislation become more apparent than in Wyoming.
Since 2018, Wyoming has established more than 20 laws that make it easier for the crypto industry to operate. A key player was Caitlin Long, a Wall Street veteran and a crypto booster, who helped engineer a 2019 law that paved the way for banks handling digital assets to receive Wyoming charters.
Not long after the crypto banking legislation passed, Ms. Long opened Avanti Bank and thanked Wyoming’s Legislature for making the business possible. The bank promptly received a state charter.
Last year, the business, now known as Custodia, raised $37 million from venture investors. “Somebody has to be in the arena, doing the work,” Ms. Long said in an interview.
Ms. Long worked on the banking legislation with Trace Mayer, a crypto investor and entrepreneur. Both had invested in Kraken, a crypto exchange that also received a state charter.
Critics have accused Ms. Long of using her influence to enrich herself.
“They came in and started writing legislation that really gamed it to their advantage,” said Robert Jennings, who served with Ms. Long on a coalition of crypto supporters in Wyoming. “It quit being about ‘How do we help Wyoming people?’ and quickly became ‘How do we game this system for the big crypto players?’”
Ms. Long said she hadn’t decided to start a crypto bank until months after Wyoming’s legislation passed, when it was unclear whether others would take advantage of the law.
“It’s not easy to find the right people,” she said. “The crypto kids in hoodies, so to speak, were not likely to pass muster.”
A Crypto Boom
Ben McKenzie Would Like a Word With the Crypto Bros
March 31, 2022
The Latecomer’s Guide to Crypto
Reality Intrudes on a Utopian Crypto Vision
March 8, 2022
Eric Lipton is a Washington-based investigative reporter. A three-time winner of the Pulitzer Prize, he previously worked at The Washington Post and The Hartford Courant. @EricLiptonNYT
David Yaffe-Bellany covers cryptocurrencies and fintech. He graduated from Yale University and previously reported in Texas, Ohio, Connecticut and Washington, D.C. @yaffebellany
A version of this article appears in print on April 11, 2022, Section A, Page 1 of the New York edition with the headline: Crypto Firms Have a Wish List. States Are Turning It Into Law.. Order Reprints | Today’s Paper | Subscribe
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second
It's official! Russian Central Bank announces that the ruble is tied to gold! 5000 rubles per gram.
The Central Bank of Russia has officially announced that the Russian ruble will be tied to gold as of March 28, 2022, The rate is 5,000 rubles per gram of gold ingots.
There are 28 grams in each ounce. 28 grams for 5,000 rubles per gram is 140,000 rubles.
Are you following me this far?
The conversion rate of rubles into US dollar is 100 rubles, 90 pounds, for each US dollar.
If the rubles are tied to gold at 5000 rubles per gram, and there are 28 grams per ounce, which means that an ounce of gold would cost 140,000 rubles, then the conversion into US dollars means that gold costs 1400 dollars per ounce when used the rubles, instead of 1,928 dollars by ounce using the dollars.
Russia just wiped out about 30 percent (30%) of the US dollar worldwide when it comes to gold ingots.
People all over the world are literally throwing their money on the ruble and throwing away dollars and euros to do it.
What Russia just did is the financial equivalent of detonating a nuclear bomb.
FYI, the last guy on this planet to try to support a currency with gold was Muammar Quadaffi of Libya.
NATO entered Libya, bombed it to death, until the Libyan people took Quadaffi on the street, beat him with blood and planted a bullet in their head.
As of now, 10:39 PM EDT, I suspect bankers around the world are on the phone between themselves and the heads of state, instructing them that what Russia has done will totally destroy both the US dollar and the euro, and those bankers of Frog to the heads of state that world war 3 must start immediately.
Let me explain why.
Today, the Central Bank of Russia anchored the ruble to gold.
Last week, Russia said it would sell only OIL and GAS in . . . . Ruble!
This means that Russian oil and gas are anchored in gold with rubles like gold proxy.
EFFECT: Europe (which needs Russian gas and oil) will now have to buy rubles from Putin using gold, or pay for oil and gas with gold itself.
Currently, the FOREX rate for Rubli to Dollari is around 100:1
BUT... with 5,000 Rubli now equivalent to a gram of Gold, and oil being priced directly into Gold, we will see a MASSIVE price disturbance in the FOREX markets, in terms of how much Gold a Dollar can still buy.
Foreign countries holding our dollar debt notes as a reserve will see an immediate and much less use for them and want to start downloading them in favor of something more stable; something that holds its value.
Basically, any currency anchored in gold will fit into the account. which means countries like that - like Japan - will start unloading their dollar debt as soon as possible - are not going to go down with the ship! They'll move to more stable values like... The Ruble.
This will have a DE-flationistic effect on the Rublo, making it more precious with time.
This also means that Putin can re-find the ruble whenever he wants, at 500, or 50, or 10. He just keeps getting more precious to him.
The immediate result is that all those foreign countries dumping their dollar reserves will make all those excess dollars start going home, triggering a worse hyper-inflation than we already have in the USA.
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https://www.schwab.com/resource-center/insights/content/cryptocurrencies-and-taxes-what-you-should-know?cmp=em-XCU
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https://www.schwab.com/resource-center/insights/content/cryptocurrencies-and-taxes-what-you-should-know?cmp=em-XCU
I had nothing but losses last year.
:cry:
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OTOH the hypothesis of the investment is massive inflationary gains.
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still testing
another on 4/22
still waiting
for an ethereum eternity
https://www.yahoo.com/finance/news/ethereum-just-ran-major-merge-152042940.html
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ETH 2.0 is postponed as expected. Fall 2022 is the next date. To know when it will really go live, study Rube Goldberg contraptions.
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https://www.breitbart.com/clips/2022/04/13/fmr-obama-treasury-counselor-rattner-its-time-to-start-dealing-with-the-deficit-to-fight-inflation/
[me] what about all the deficit spending under Obama ?
[me] Trump too.?
Rattner: Biden is "partly to blame " "a bit " :roll:
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Who could have foreseen that decades of irresponsible spending would have negative results?
https://www.breitbart.com/clips/2022/04/13/fmr-obama-treasury-counselor-rattner-its-time-to-start-dealing-with-the-deficit-to-fight-inflation/
[me] what about all the deficit spending under Obama ?
[me] Trump too.?
Rattner: Biden is "partly to blame " "a bit " :roll:
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https://media.gab.com/system/media_attachments/files/104/170/341/original/c25e03ede744da87.png
(https://media.gab.com/system/media_attachments/files/104/170/341/original/c25e03ede744da87.png)
Who could have foreseen that decades of irresponsible spending would have negative results?
https://www.breitbart.com/clips/2022/04/13/fmr-obama-treasury-counselor-rattner-its-time-to-start-dealing-with-the-deficit-to-fight-inflation/
[me] what about all the deficit spending under Obama ?
[me] Trump too.?
Rattner: Biden is "partly to blame " "a bit " :roll:
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https://www.analyticsinsight.net/ethereum-was-a-second-option-after-bitcoin-now-bitgert-is-the-second-option-if-youve-missed-the-ethereum-bus/
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https://www.bloomberg.com/news/articles/2022-04-17/bitcoin-risk-reward-calculation-is-being-upended-by-rising-rates?fbclid=IwAR1FWVL6iuwsUbBrKndz8wQsf_VXwLOwa0NRlvTgboXJXe5X_inMdJNDHXA
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We need the $ to pull back and up goes BTC. These days BTC also correlates to SP500.
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http://charleshughsmith.blogspot.com/2022/04/debt-saturation-off-cliff-we-go.html?m=1
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Arguments not to be ignored, but not that simple.
As recently noted by Scott Grannis debt service as a % of GDP is very low.
As I recently noted, inflation is more than 7% above 30 year treasury rates, thus reducing the real burden of the $30T debt more than $2T a year.
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https://www.cnbc.com/2022/04/17/grayscale-ceo-matter-of-when-not-if-the-sec-allows-bitcoin-spot-etf.html?fbclid=IwAR14XFmNjdQiNyW_5j55JMqgBnr7lmAHj4-9qV_nNEX9EU4X00tV4fkK77I
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Arguments not to be ignored, but not that simple.
As recently noted by Scott Grannis debt service as a % of GDP is very low.
As I recently noted, inflation is more than 7% above 30 year treasury rates, thus reducing the real burden of the $30T debt more than $2T a year.
I disagree with data points in the article but add this:
Interest costs on existing debt are going up.
https://www.pgpf.org/analysis/2022/03/higher-interest-rates-will-raise-interest-costs-on-the-national-debt
Inflation effect on debt (7%) will go up even more but is unsustainable.
If either or other economic malpractice factors cause GDP to collapse, the affordability of debt is gone.
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https://www.statista.com/chart/19635/wealth-distribution-percentiles-in-the-us/
most of GDP is owned by top 10%
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https://www.statista.com/chart/19635/wealth-distribution-percentiles-in-the-us/
most of GDP is owned by top 10%
"The top 1 percent held about half of that wealth – 32.1 percent, while the next 9 percent held approximately another half at 37.7"
I would quibble with that. First, wealth (assets) is not GDP. GDP is everybody's income, national income. A lot of people make a lot of money without accumulating major assets, by choice or otherwise.
Wealth measurements typically exclude the largest store of wealth for most people, the value of their home.
Income inequality data is also notoriously inaccurate and deceptive. For one thing, the groups we call the top 1% and the top 10% change dramatically from year to year and from decade to decade. It's not the same people earning the big incomes or holding the big wealth.
With the exception of unproductive assets like gold and Bitcoin, the rich either spend their money meaning give it to other people, or invest it meaning employ people in the lower 90%. They mostly don't "hold" it.
To the extent that they are holding unproductive assets, it's largely because of the goddamn capital gains taxes on inflationary non-gains that they can't efficiently turn ownership of those assets over to other people who could make better use of them.
Jack Kemp used to say about rich people, we need more of them.
What is the amount of money or wealth that can comfortably take care of all your future expenses and loved ones and how do we get more and more people past that level? That is the question IMHO
Look at it the other way around. If we could remove the top 1% or the top 10% from the economy, if we could remove the people and remove all that invested capital, are the rest of us better off? Are they holding wealth that would otherwise be ours? The answer is no.
The world is full of countries that don't have the freedom to earn, keep, accumulate and pass on wealth and the lower 99% are measurably not better off.
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https://kunstler.com/clusterfuck-nation/thralldom-and-its-uses/
Thralldom and Its Uses
America has had enough of being in thrall, especially to figures and forces dedicated to our destruction….
Clusterfuck Nation
Spring is always convulsive, with new things heaving into life. Under every dead leaf, something stirs and seeks light, the old must make way for the new, and to some degree the earth is not quite the same place as it was the last time it turned, though the scene looks superficially familiar. Winter’s torpor is, at least, a cold comfort, but springtime’s warmth and movement rattle the nerves. Things unseen shift ominously beneath us. Everything is pending and tending, and nothing is resolved.
Having wrecked its latest business model —hypertrophic financial fakery — Western Civ stumbles into the blinding new reality that it takes real stuff to run an economy, and that money itself is not an adequate replacement for the stuff. The trillions supposedly vested, for instance, in stock market valuations mostly represent mere wishes and promises, and for what? Why, for more money — which responds by losing value, so that we’re racing ever faster toward a receding horizon.
The net result: a world with less available stuff and plenty of money that’s increasingly worthless in pursuit of stuff. It isn’t long before people recognize the disutility of both conditions. The idea that we can fix this problem with central bank digital money is hilarious. When faced with less available stuff, resorting to “money” ever more abstracted from any relation to stuff only puts you in thrall to more empty wishes and promises when this is exactly the moment to be less in thrall and more in touch.
America has had enough of being in thrall, especially to figures and forces dedicated to our destruction. This spring is the beginning of a national life with less stuff, including, looks like, stuff to eat. That will sure enough put folks in touch with something real, and then they will naturally have to do something about it. Centralized control of the population via trackable digital money is the last thing that will avail in the face of hunger and desperation. In fact, that is just another set of empty wishes and promises.
The reality is that centralized government, such as the one in Washington DC, is less and less in control of anything — except the manufactured pretense that it can fix the problems of less stuff and decaying money. The federal government is increasingly impotent, unable to discharge its basic obligations to preserve public order and safety. Its previous attempt to fix something was the response to Covid-19, which has culminated in the fiasco of the mRNA vaccines, now pending and tending toward an astounding wave of early deaths among those in thrall to the transparently dishonest promises of officialdom (“safe and effective”).
That’s the trouble with thrall. It narrows the field-of-vision so badly, you can’t see what’s coming at you indirectly, like: hardship and death. The country has been in serious trouble for more than a decade. Cavalcades of bad choices — and then lying to ourselves about these bad choices — has shoved us well over the edge of our cherished expectations. One way out, then, is to simply refuse to remain in thrall to officialdom and the manufactured bullshit that is its only product.
We are lately in thrall to the melodrama in Ukraine, largely engineered by figures and forces in our own government and for their own ends, which look suspiciously at odds with the nation’s actual interests (the nation being us, its people). Perhaps this illustrates the widening gulf between the slouching beast government has become and the people trying to operate their lives and destinies under it. No food for you, no fertilizers for future food for you, no spare parts for you, no free speech for you, no social or economic role for you, no health for you, and (watch it, now!) soon no life for you.
Collectively going crazy has been a luxury we can’t afford anymore. You fell for RussiaGate and it kept you in thrall for years. You fell for the Adam Schiff orchestrated Ukraine phone call impeachment gambit. You fell for the Covid scare and the dangerously defective vaccines forced on you. You fell for the fraud-drenched election of the empty vessel known as “Joe Biden.” Don’t fall for the invitation to World War Three.
Russia means business in its historic sphere of influence. It’s none of our business, and we’re only making it worse for the Ukrainian people by pretending it’s our business with the false promise of our support. The only thing that matters to us about Ukraine just now is that we’re standing in the way of useful negotiations to end the conflict there and egging on various other countries in Europe to aggravate the situation.
It’s been a fine distraction from everything else that is slipping away in our own country, including the loss of liberty, the right to a livelihood, the need for legitimate meaning, the value of our money, our respect for the law, the ability to speak our minds, and our duties and obligations to each other. Our government is not interested in supporting any of that, and we might doubt that it even could anymore if it wanted to. It only wants to keep you in a state of abject thrall while it fritters away our posterity.
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https://kfbk.iheart.com/content/2022-04-19-more-than-102-million-in-crypto-assets-seized-by-secret-service/?fbclid=IwAR3M2k_dcFgBLK7zqgrEZ6QFVD3Is3yuE7wxg4TvTraxnoudTyXGujiaZhE
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https://www.gatestoneinstitute.org/18450/saudi-arabia-china-dollar-yuan
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If Biden (His shadow cabal pulling the strings) was actually working for the PRC, what would he be doing differently?
https://www.gatestoneinstitute.org/18450/saudi-arabia-china-dollar-yuan
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https://www.cnbc.com/2022/04/26/fort-worth-tx-the-first-city-in-the-us-to-mine-bitcoin.html
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I wonder how many of the libs
are going to like
all the policies to "protect our planet"
once they see their portfolios and home values crash
even more.....
I am not enjoying it and don't have a sense of acceptance of this unnecessary crash
for "the greater good "
I suspect once mortgage rates keep increasing the housing boom will end .....
but of course, I am not Paul Krugman.....so what do I know?
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ccp "I wonder how many of the libs
are going to like
all the policies to "protect our planet"
once they see their portfolios and home values crash
even more....."
Yes, the real world is persuasive over time.
Many Dems think economic results are random, not connected to policies. First level thinking, they believe or pretend to believe there is a free lunch. You can do all these fine sounding things like free phone, free healthcare, free homes, free transportation, debt forgiveness, checks to everyone, deficits in the trillions, debt to 30 trillion, interest rates doubling, inflation to double digits, anything you want, without a single negative consequence?
And then THIS happens.
"I suspect once mortgage rates keep increasing the housing boom will end ....."
'The housing boom will end.' - Like clockwork.
With interest rates more than doubling, lumber more tripling, electricity and gas doubling, property taxes doubling, just to stay even, real wages would have to soar. Instead real wages are shrinking because explicit, definitional inflationary polices.
All of this unnecessary, caused by wrong-headed policies.
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CAR (Central African Republic) adopts BTC as currency. El Salv was first. Slowly then suddenly...
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https://finance.yahoo.com/news/q1-us-gdp-gross-domestic-product-economic-activity-190926750.html
lets see:
due to corona
due to Ukraine
due to Trump tax cuts
due to gridlock from Republicans and that evil spoiler Joe Manchin
or temporary
or needed to save the Earth
or to save civilization
or to save democracy
of for the children
or due to income inequity
or to fight back all the evil white men and what they did to the world (racism)
or to prove we need more centralized government control
did I miss any other lame BS excuse
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https://www.cryptopolitan.com/ethereums-quest-to-transcend-the-bitcoin/?fbclid=IwAR1A-QcTaitloJHRfsYDPH6DCzAQpLTrnC_w7LBTl0M_9g1EXeShyAGEm_I
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https://www.zerohedge.com/markets/new-gold-standard-kremlin-confirms-intention-back-ruble-gold-and-commodities
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https://www.cnn.com/2022/04/29/investing/russia-ruble-dollar-debt-payment/index.html?fbclid=IwAR2thLd_0rt_c417XFcsFZEUl3oFLJmoDjua5SwBmyVDS8JYFyzz8wZiVXE
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This man is the saviour of some.
(https://pbs.twimg.com/media/FRhN2L8X0AIZlol?format=jpg&name=small)
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This man is the saviour of some.
(https://pbs.twimg.com/media/FRhN2L8X0AIZlol?format=jpg&name=small)
https://nexbites.com/ethereums-27-year-old-co-creator-becomes-the-worlds-youngest-crypto-billionaire/
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The world retains its ability to surprise , , ,
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ETH fees, below. BTC is a few cents.
(https://pbs.twimg.com/media/FRovoxuXIAQnIk4?format=png&name=900x900)
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I have not purchased ETH in years...but folks are talking about thousands in fees...
(https://pbs.twimg.com/media/FRozMpqWUAE5md7?format=jpg&name=4096x4096)
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https://www.foxbusiness.com/technology/wall-street-reluctantly-embraces-crypto
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https://bigthink.com/the-present/rouble-gold-standard/?utm_medium=Social&utm_source=Facebook&fbclid=IwAR1RLiGnOUyx-nWLcWbSjXf7KZPT8dFtb7l5GaqurRtbcCnhcIpneLmyg34#Echobox=1651513158-1
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https://bigthink.com/the-present/rouble-gold-standard/?utm_medium=Social&utm_source=Facebook&fbclid=IwAR1RLiGnOUyx-nWLcWbSjXf7KZPT8dFtb7l5GaqurRtbcCnhcIpneLmyg34#Echobox=1651513158-1
The real value is the petro-Rouble.
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https://www.foxbusiness.com/technology/ethereum-cardano-founder-explains-blockchain-technology-and-its-future?fbclid=IwAR2MgIsBYIqU1qZfqyjTQ7xwLwcYj_mgH9CQXs3PoIxyw6Qa33rrn8ObWfk
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https://www.foxbusiness.com/technology/ethereum-cardano-founder-explains-blockchain-technology-and-its-future?fbclid=IwAR2MgIsBYIqU1qZfqyjTQ7xwLwcYj_mgH9CQXs3PoIxyw6Qa33rrn8ObWfk
Blockchain removes central party to work in decentralized way instead.
Among other possible uses for Blockchain technology: Medical records
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BTC is not yet in the clear, but a trend of higher lows. It would help if the US $ pulls back, but that may not happen if the Fed continues tightening for a few more times.
(https://pbs.twimg.com/media/FSD8QHIXsAAaa6A?format=jpg&name=4096x4096)
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Interesting piece by Martin Armstrong. We really need to think what is the end game...how much debt can the US and EU tolerate.
https://www.armstrongeconomics.com/armstrongeconomics101/basic-concepts/the-fed-the-collapse-of-socialism/ (https://www.armstrongeconomics.com/armstrongeconomics101/basic-concepts/the-fed-the-collapse-of-socialism/)
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well according to Grannis
debt is only 2% of GDP
thus no biggie..
so what it the problem?
and according to Krugman the world is "awash" in cash
so really the debt is trivial
according to Paul and Scott
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quote author=ccp
well according to Grannis
debt is only 2% of GDP
(Doug). Debt service, meaning interest on the debt, at roughly 0%, currently and recently looking backward, is (was) 2% of GDP.
Looking forward, interest rates are 10% (latest I-Bond 9.6%) and escalating rapidly.
Now what is the cost to service the debt (pay interest only) going forward, $30 trillion x 10% = $3 trillion = almost what should be the entire federal budget.
And what if both the debt and the interest rates go up further, as both are trending to do, what then?
We can't pretend it's play money any longer. The day of reckoning is here.
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"And what if both the debt and the interest rates go up further, as both are trending to do, what then?"
then as Larry Kudlow said on Laura last night :
the worst possible outcome -> inflation and contracting economy
or stagflation
bringing back the James Earl Carter days
But even Carter was not purposely doing this and destroying our country every way Biden is doing
Biden is clearly worse :-(
since he is purposely doing this with his "administration"
there is no question he is the worst President in history
of course he will be rated above trump by "historians"
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ccp, As you say, Biden* is worse because much of this is intentional.
* Biden, meaning the whole ruling cabal.
"the worst possible outcome -> inflation and contracting economy or stagflation bringing back the James Earl Carter days."
- I hate to say it, but that is the expected outcome, the path we are on. The worst possible outcome is way scarier than that. I don't even want to put words to it. Think hyper-inflation Venez-Chavez-zuela, people broke, starving, eating zoo animals when that was the last protein left. That can't happen here? When we emulate everything they did to bring that on?
It could be worse here because the US economy tanking could bring down the whole world.
We are pouring gasoline around and playing with fire.
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Doug corrected me:
Debt service or the interest on the debt is 2% of GDP
You're right that is more accurate what he said and is big difference.
thank you
for clarifying
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Regarding YA's post from Armstrong Economics:
The author sort of dials in on something that has been bothering me and that is the failure to distinguish price increases from excessive increase in money supply (inflation) and prices increases from decrease in supply of goods & services.
Thus, when he says:
"This is what we will see once again. This type of inflation was caused by the COVID lockdowns. (Marc: Correct to identify a decrease in supply of goods & services but unsound in my opinion to call this "inflation". Rather it is a PRICE INCREASE) China may really have shut down Shanghai to push inflation even higher in the West, seeking regime change in Washington, hoping the inflation will lead to a political blood-bath for the Democrats to get the world back to some normalcy. (Marc: Sorry, but I find this silly) When inflation is set in motion because of a shortage, like crop failures, raising interest rates will not suddenly make it rain. (Marc: This is quite correct-- and is something many do not get, possibly leading to flawed analyses)
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I wonder
why is the LEFT letting the economy go down?
it is plainly obvious about gas
open borders their intent
but what do they have in store for us after the economy continues to crash?
they are doing this on purpose for some reason
never let a crises go to waste....
they are planning some sort of re set...
not clear what though.
any theories , ideas ?
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8 point plan for Socialism
The Cloward-Piven 8 point plan to implement Socialism
1) Healthcare– Control healthcare and you control the people
2) Poverty – Increase the Poverty level as high as possible, poor people are easier to control and will not fight back if you are providing everything for them to live.
3) Debt – Increase the debt to an unsustainable level. That way you are able to increase taxes, and this will produce more poverty.
4) Gun Control– Remove the ability to defend themselves from the Government. That way you are able to create a police state.
5) Welfare – Take control of every aspect of their lives (Food, Housing, and Income)
6) Education – Take control of what people read and listen to – take control of what children learn in school.
7) Religion – Remove the belief in the God from the Government and schools
8) Class Warfare – Divide the people into the wealthy and the poor. This will cause more discontent and it will be easier to take (Tax) the wealthy with the support of the poor.
I wonder
why is the LEFT letting the economy go down?
it is plainly obvious about gas
open borders their intent
but what do they have in store for us after the economy continues to crash?
they are doing this on purpose for some reason
never let a crises go to waste....
they are planning some sort of re set...
not clear what though.
any theories , ideas ?
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(https://pbs.twimg.com/media/FSOSCqmXEAAk65U?format=jpg&name=large)
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Soon
(https://pbs.twimg.com/media/FR8hl6iXwAA9tkx?format=jpg&name=large)
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https://decrypt.co/99663/bitcoin-bloodbath-crypto-winter-this-is-fine
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What happens after bear markets is that BTC comes back, but many of the 8000 altcoins never come back. Every year the top 20 coins change, but BTC remains on top.
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YA:
Of the money I have allocated to this space I am about 9:1 for BTC:ETH.
Observations?
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ETH will remain #2 for the present. It may even pump more % than BTC. Previous years top coins like BCH, BSV, LTC are floundering.
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With some luck the bottom is in, around 30 K for BTC.
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Thinking about nibbling a bit.
FWIW here is this:
https://www.cnbc.com/2022/05/10/bitcoin-btc-investors-panic-as-terrausd-ust-sinks-below-1-peg.html?fbclid=IwAR3lu41IC5iUC6B0JLc0L9Np-mvUnSigsK57WS4ueNJhyL39QcQZTay9IaM
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UST broke the peg and is at 0.79, so there is a possibility that it goes to 1$, an easy 20 % gain....or it goes kaput :-D
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Overall, BTC is volatile enough. No need to buy Altcoins, 99% of which will go to zero. If BTC is expensive, think in terms of Satoshis. 0.1 BTC is not daunting to buy.
Altcoins are a crap shoot, but cycle wise they go up, after BTC has peaked. At this time it is not clear if BTC has peaked or is consolidating. I think its consolidating in a wide range.
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"UST broke the peg and is at 0.79, so there is a possibility that it goes to 1$, an easy 20 % gain....or it goes kaput :-D"
Luna...
(https://pbs.twimg.com/media/FSdVtOrXEAE-weU?format=png&name=large)
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Took a small nibble at BTC yesterday.
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No idea as to how significant this is:
https://www.zerohedge.com/crypto/did-biggest-recent-buyer-bitcoin-just-become-forced-seller?utm_source=&utm_medium=email&utm_campaign=655
==================================
WSJ
Cryptocurrency TerraUSD Plunges as Investors Bail
Algorithmic stablecoin nosedived, briefly pushing it to less than a quarter of its original $1 value
The break in TerraUSD’s peg began over the weekend with a series of withdrawals of TerraUSD from Anchor Protocol, a sort of decentralized bank for crypto investors.
PHOTO: TIFFANY HAGLER-GEARD/BLOOMBERG NEWS
By Caitlin OstroffFollow
and Elaine YuFollow
Updated May 11, 2022 9:04 am ET
SAVE
PRINT
TEXT
A selloff in a cryptocurrency that was supposed to be pegged to $1 accelerated Wednesday, briefly sending its price to less than a quarter of that value.
TerraUSD traded as low as 23 cents Wednesday, according to data from CoinDesk. As of 8:53 a.m. ET, it had rebounded partially to about 30 cents in volatile trading.
A stablecoin, this breed of cryptocurrencies had gained favor among traders for being the one part of the crypto universe that was known for its stability. While the most popular stablecoins maintain their levels with assets that include dollar-denominated debt and cash, TerraUSD is what is known as an algorithmic stablecoin, which relies on financial engineering to maintain its link to the dollar.
TerraUSD's peg
May 9
May 11
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
$1.1
The break in TerraUSD’s peg began over the weekend with a series of large withdrawals of TerraUSD from Anchor Protocol, a sort of decentralized bank for crypto investors.
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Anchor Protocol is built on the technology of the same Terra blockchain network that TerraUSD is based on. It had been a major factor in the growth of the stablecoin in recent months by allowing crypto investors to earn returns of nearly 20% annually by lending out their TerraUSD holdings.
At the same time, TerraUSD was also sold for other stablecoins backed by traditional assets through various liquidity pools that contribute to the stability of the peg, as well as through cryptocurrency exchanges. The sudden outflow of money spooked some traders who began selling TerraUSD and its sister token Luna. Before its peg was broken, TerraUSD was the third-largest stablecoin with a total market value of $18 billion.
TECH NEWS BRIEFING
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Are Stablecoins Backed by Algorithms All That Stable?
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TerraUSD’s fall to 23 cents at around 3:30 a.m. ET marked a 70% drop from its value 24 hours earlier, according to CoinDesk.
Even as TerraUSD began regaining some value after hitting its low, Luna continued to fall. The token was down 97% from the previous 24 hours at 8:53 a.m. ET, trading at 99 cents.
“I understand the last 72 hours have been extremely tough on all of you—know that I am resolved to work with every one of you to weather this crisis, and we will build our way out of this,” wrote Do Kwon, the South Korean developer who created TerraUSD, on Twitter on Wednesday.
Stablecoins have surged in popularity the past two years and now act as the grease that moves the gears of the cryptocurrency ecosystem. Traders prefer to buy coins such as bitcoin, ether and dogecoin using digital assets that are pegged to the dollar because when they buy or sell, the price is only moving on one side. They also allow for fast trading without the settlement times associated with government-issued currencies, which can take days.
The price of bitcoin fell to $29,460.20 Wednesday, down 4.8% from its 5 p.m. ET level Tuesday. It has lost about 25% of its value over the past week alone.
May 10
May 11
0
2.5
5.0
7.5
10.0
12.5
15.0
17.5
$20.0
billion
In the past, TerraUSD maintained its $1 price by relying on traders who acted as its backstop. When it fell below the peg, traders would “burn” the stablecoin—removing it from circulation—by exchanging TerraUSD for $1 worth of new units of Luna. That action reduced the supply of TerraUSD and raised its price.
Conversely, when TerraUSD’s value rose above $1, traders could burn Luna and create new TerraUSD, thus increasing the supply of the stablecoin and lowering its price back toward $1.
Such a model has drawn criticism because it relies on people’s collective willingness to support the cryptocurrency. Without that, the stablecoin can quickly sink, in what industry participants have described as a “death spiral.”
Martin Hiesboeck, head of blockchain and crypto research at digital money platform Uphold, compared what is happening with TerraUSD and Luna to a bank run. “People don’t trust it anymore, they’re running for the exit,” he said.
Mr. Kwon, the TerraUSD creator, also co-founded the Luna Foundation Guard, a nonprofit that has been helping to support TerraUSD and maintain its peg.
Earlier this week, the foundation said it lent $750 million of bitcoin to trading firms to protect the stablecoin’s peg. Blockchain records of the foundation’s wallet show that it no longer holds bitcoin in that account.
The previous day, TerraUSD’s value had rebounded to around 90 cents after falling to 61 cents, while Luna had also recovered after plunging.
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I thought at least she is not harvard or yale
but looked closer and of course she is harvard:
https://en.wikipedia.org/wiki/Lisa_D._Cook
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(https://pbs.twimg.com/media/FSeazcPX0AAIWQ1?format=jpg&name=900x900)
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https://nypost.com/2022/05/11/coinbase-warns-customers-they-may-lose-crypto-if-company-goes-bankrupt/?fbclid=IwAR3055gPN2uVMcCuzC5rKnv10CzPVEMwcjEvQ31yCMSy_waSNzWmIrDuV90
https://www.thestreet.com/investing/crypto-sec-stablecoin?fbclid=IwAR19gcV5eGvmMYudDXPd4Jq5wzbk6CVKdfrKahtbTiIjzf-Nu_oMc6kFZO8
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- That is why it is said, Not your keys not your coins. Dont store coins on an exchange..they can be rehypothecated.
- While I DONT advise this, it may be a good time to buy LUNA in case it makes a comeback. This would be a high risk, almost certain way to lose money, but if someone is looking for a lottery ticket...
- Australia launches its BTC ETF...should improve BTC price.
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I'm on the edge of cashing out at substantial loss (fortunately I limited how much I put in)
GBTC
BTC
ETH
I kinda thought an important part of the premise was that crypto protected against inflation and political uncertainty , , ,
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Always a hard question. All I can say is unlike stocks, BTC has had several 85 % declines, it's a feature not a bug.
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I find it interesting the both gold and silver are still going no where
people must be putting into cash
many waiting to get back in
I still holding BC and ETHER
but admit I am lucky as I am still ahead, for now.... :-o
might even buy a little more
but not yet
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went. to a diner and prime rib dinner was $28+ bucks
at a diner !
I remember my father taking the five us out and the whole bill was ! 15 bucks with tip.
Full prime rib dinner ~ 3.25 .
I remember seeing a menu from a tavern that was from the 1790s
a steak was listed for 2 cents !
I guess it was either fresh or very salty :-P
-
"I find it interesting the both gold and silver are still going no where"
Indeed, Gold is down 5+% from its peak.
-
I've lost about half of my initial investment. Luckily, it wasn't much. I've invested in food, additional weapon systems, additional body armor and LOTS of ammo.
I'm on the edge of cashing out at substantial loss (fortunately I limited how much I put in)
GBTC
BTC
ETH
I kinda thought an important part of the premise was that crypto protected against inflation and political uncertainty , , ,
-
FWIW BTC and ETH pre-market up nicely.
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Yesterday BTC touched 25.5 K, and that was stressing to many including myself. A few random thoughts.
- While no one can predict the bottom, BTC is unlikely to go below 22K. Seehttps://thebitcoinlayer.substack.com/p/if-the-price-changes-so-does-the?s=w (https://thebitcoinlayer.substack.com/p/if-the-price-changes-so-does-the?s=w)
- I have over 4-5 years experience. Started by buying BTC and altcoins, over time I learnt that altcoins are all scams, did some trading and quickly focussed on BTC.
- I have never sold any BTC thro all the ups and downs, only added to my position.
-----------------------------------
I am convinced that BTC will NOT go to zero, there are too many large companies and countries invested in it. It has survived everything thrown against it for the last 10 years. I have spent a lot of time and effort learning about it to have this conviction, which is what allows me to hold on when the going gets tough. Remember, even the US govt has never said they are going to ban BTC, infact the govt holds BTC (confiscated). So far, any 4 year holding period has been very profitable, but it comes with volatility, which is upward. Everyone should look at a BTC log chart on a weekly and monthly time frame. If the main premise of the bet is right, these minor fluctuations will not matter in the next 5 years.
So Hodl on...and never invest so much that you get sleep less nights.
-
Much appreciated YA!!!
May I ask for your thoughts on GBTC?
For me it has been a way for an investor interested in the space, yet ignorant about the details, to play the space. Though pieces of my position are still positive, I added to it various times on the way up so net I am down-- though I suppose that all that matters is prospect from here forward.
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July 6, the SEC will let them know, if they can convert to ETF. If that happens the premium will increase and is off to the races. They plan to sue the SEC, if they object because the SEC allows several futures ETF but not spot ETF. It's a matter of time....that they will convert to an ETF.
-
Thank you!
-
https://www.cnbc.com/2022/05/12/federal-reserve-chairman-jerome-powell-confirmed-by-senate-for-a-second-term.html
this seems absurd .....
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Important read on monetary policy and crypto by zoltan
https://plus2.credit-suisse.com/shorturlpdf.html?v=54t3-WTBd-V (https://plus2.credit-suisse.com/shorturlpdf.html?v=54t3-WTBd-V)
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I have previously posted about the fantastic business that Jack Mallers of Strike is building. This is one company I would invest in, if it went public. One more anecdote as to why BTC will not go to zero, though it could go lower for a short while.
https://twitter.com/i/status/1525179602234134528 (https://twitter.com/i/status/1525179602234134528)
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If anyone is invested in Celsius, time to get out...they had a large investment in Terra/Luna. The downstream effects of investors in LUNA may start to show up.
-
Watch the long term arc of history. Drawdowns are no fun....but...
(https://pbs.twimg.com/media/FSzTXBEXwAIoD1Q?format=jpg&name=4096x4096)
-
https://twitter.com/KimDotcom/status/1525293982133407744
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Marty Armstrong has been saying this for a long time. Basically they want to increase debts so much, that everything crashes and burns, then there will be a debt amnesty and as the WEF says "You will own nothing and be happy".
https://www.armstrongeconomics.com/armstrong-in-the-media/new-interview-martin-armstrong-on-the-hrvoje-moric-show/
-
That's the plan.
Gosh! We better VOTE HARDER!
Marty Armstrong has been saying this for a long time. Basically they want to increase debts so much, that everything crashes and burns, then there will be a debt amnesty and as the WEF says "You will own nothing and be happy".
https://www.armstrongeconomics.com/armstrong-in-the-media/new-interview-martin-armstrong-on-the-hrvoje-moric-show/
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"That's the plan.
Gosh! We better VOTE HARDER!"
Are you suggesting this as the alternative ?:
https://populistpress.com/great-replacement-theory-motive-in-supermarket-massacre/
if not, then what?
for now I am voting as hard as I can.......
-
The votes that matter:
Your Sheriff (If your Sheriff doesn't have any real authority, that's a clue it's time to move).
Your DA.
Your County Commissioners
Your School Board.
You better be in the reddest county in the reddest state you can find.
Time is very limited at this point.
"That's the plan.
Gosh! We better VOTE HARDER!"
Are you suggesting this as the alternative ?:
https://populistpress.com/great-replacement-theory-motive-in-supermarket-massacre/
if not, then what?
for now I am voting as hard as I can.......
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I'm on the edge of cashing out at substantial loss (fortunately I limited how much I put in)
GBTC
BTC
ETH
I kinda thought an important part of the premise was that crypto protected against inflation and political uncertainty , , ,
Hope you are still in....while nothing is guaranteed...the long term (4 year) trend is up.
-
Yes, figuring myself to be a contra-indicator I decided to stay in hahahaha.
-
Crypto Prices Move in Tandem With Traditional Markets, Punishing Investors
The cryptocurrency declines are hitting those who bought digital assets to diversify portfolios
A cryptocurrency exchange kiosk in Istanbul last month. Bitcoin prices have been notching big swings this year.
PHOTO: ERHAN DEMIRTAS/BLOOMBERG NEWS
By Gregory ZuckermanFollow
May 16, 2022 5:30 am ET
Cryptocurrency prices are moving in lockstep with stocks and bonds like never before, punishing those who bought bitcoin and other digital assets in part to diversify their investment holdings.
The three-month correlation between the cryptocurrencies bitcoin and ether and the major U.S. stock indexes hit its highest level on record last week, according to Dow Jones Market Data. That level, between 0.67 and 0.78, is more than triple the average correlation between crypto and the S&P 500 from 2019 to 2021. A correlation of 1 suggests the markets are moving in lockstep, while 0 says they aren’t related. The one- and two-month correlations are at record levels.
The day of that record correlation, bitcoin dropped 10% and the Nasdaq Composite Index fell more than 4%, marking its steepest three-day point decline on record. Though bitcoin and other digital assets have long been viewed as among the riskiest investments in markets, analysts and portfolio managers say the depth of crypto declines this year and their tendency to echo other riskier assets such as stocks potentially could limit their adoption by mainstream investors.
Crypto has “become part of the mainstream financial system, and that’s not good for its viability as an alternative asset class,” said Richard Craib, who runs a quant hedge fund in San Francisco called Numerai. “It’s not serving its original purpose as an uncorrelated asset.”
Stocks, bonds and crypto have all been falling as investors struggle to manage the large swings roiling financial markets around the globe. WSJ’s Caitlin McCabe looks at some of the causes behind the recent market frenzy. Photo: Spencer Platt/Getty Images
Last week, Mr. Craib sold $2.5 million of ether, his entire holding of the cryptocurrency, partly because ether has been trading too much like stocks and bonds. He first bought the cryptocurrency in 2014.
For several years, proponents of bitcoin, ether and other cryptocurrencies argued that they could serve as “alternative” investments that help offset losses in an investment portfolio, or at least cushion any declines in stocks and bonds. Those arguments, among others, helped persuade more hedge funds and other professional investors to add bitcoin and ether to their portfolios.
Large funds, such as Cathie Wood’s ARK Investment Management LLC, and companies including Elon Musk’s Tesla Inc. and Michael Saylor’s MicroStrategy Inc. have purchased bitcoin, moves that have helped financial markets become more aligned with crypto markets.
Meanwhile, crypto-related companies such as Coinbase Global Inc. have gone public over the past year or so, which has further connected digital trading markets with stocks and bonds.
But the 2022 market rout—which has spared little other than commodities whose value has surged at a time of high inflation—has stood that logic on its head.
Traders and analysts say one reason markets are moving in tandem is because so many traditional investors have added digital currencies to their portfolios. As they have suffered from their stock and bond investments in the most recent market rout, some investors have been raising cash by selling crypto. At the same time, weakness in stocks and bonds has reduced the appetite many investors have for crypto.
Last week, Alesia Haas, chief financial officer of crypto brokerage Coinbase, said: “Nasdaq is down, Bitcoin is down. And that has led to less and less dollars being put into crypto.”
Jeff Dorman, chief investment officer at Arca, a digital-asset investment firm that interacts with large institutions, said digital currencies’ 24-hour trading day makes it easy for hedge funds and other investors to place bearish trades as they turn pessimistic on the outlook for markets. He also said some funds have been selling digital assets because they don’t want to have to explain to more-conservative clients why they are holding these more speculative investments.
“They’re selling it to ‘window dress’ their funds,” he said.
Until recently, the institutions and other newer entrants were seen as beneficial to crypto markets. Now, as some of these same investors sell in a tumbling market, the downside to that shift is becoming more apparent, some say.
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Terra/Luna sold 80,000 BTC during last week to defend the peg. A lot of selling was absorbed.
https://bitcoinmagazine.com/markets/luna-foundation-sold-80000-bitcoin-amid-ust-crash
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"The votes that matter:
Your Sheriff (If your Sheriff doesn't have any real authority, that's a clue it's time to move).
Your DA.
Your County Commissioners
Your School Board."
------------------
Why the partial list?
State legislatures matter!
State Attorney Generals matter. cf. KEITH ELLISON
(You know all this, don't need me to say it.)
House of Representatives matters.
US Senate matters.
Presidency matters.
Margin of victory or defeat, every vote matters.
"You better be in the reddest county in the reddest state you can find."
And how did that county and state get 'red' ? If it wasn't you, somebody gave their time and money and did the hard work of electioneering you seem to, (pretend to?) take for granted.
How about we work at this process until we get more counties and more states red until the other side has to retreat into some blue county in a rare remaining blue state where they can tax each other to death, take away each other's God given rights, mandate menstrual products in the men's room and steer their male perverts into the girls' bathrooms while we live in freedom under one fair, enforced rule of law?
-
"The votes that matter:
Your Sheriff (If your Sheriff doesn't have any real authority, that's a clue it's time to move).
Your DA.
Your County Commissioners
Your School Board."
------------------
Why the partial list?
State legislatures matter!
State Attorney Generals matter. cf. KEITH ELLISON
(You know all this, don't need me to say it.)
House of Representatives matters.
US Senate matters.
Presidency matters.
Margin of victory or defeat, every vote matters.
"You better be in the reddest county in the reddest state you can find."
And how did that county and state get 'red' ? If it wasn't you, somebody gave their time and money and did the hard work of electioneering you seem to, (pretend to?) take for granted.
How about we work at this process until we get more counties and more states red until the other side has to retreat into some blue county in a rare remaining blue state where they can tax each other to death, take away each other's God given rights, mandate menstrual products in the men's room and steer their male perverts into the girls' bathrooms while we live in freedom under one fair, enforced rule of law?
Local is all you have the chance to control, state and federal elections have been and will be stolen.
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International game theory in action..El Salv Prez says 32 Central banks from developing countries and 44 country representatives attending. Sort of like, when one US state made marijuana legal, they all have to (otherwise lose tax revenue).
Probably nothing..
https://twitter.com/nayibbukele/status/1526029996787216387
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https://markets.businessinsider.com/news/currencies/china-bitcoin-mining-crypto-ban-hashrate-covert-us-recover-2022-5?fbclid=IwAR2bWRl9fIDluDP3cnPuW-CdGWJ3WeiMKnyXaYb-W7Y_Xfoz1ygsoCLBvt4
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China Makes Crypto Transactions Illegal, Threatens up to 10 Years in Prison. And fines up to RMB 500,000 ($79,000). China's Supreme Court hardened its stance on cryptocurrencies this Thursday after enshrining them into law under the list of illegal fundraising methods.Feb 25, 2022
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This is how BTC behaves...when you least expect it. BTC has been ranging for a while at the 30 K level.
(https://pbs.twimg.com/media/FTFCH_yX0AIUJb2?format=png&name=large)
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CCP: Interesting total lack of congruence there between the source I cite and yours , , ,
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Speculation is that Chinese govt is mining the coins for their treasury as a store of value (like gold), while the population is not allowed to use BTC, for it competes with their CBDC. There is this intetresting report about how Jack Dorsey, ex CEO Twitter plans to bring BTC mining to the people.
https://bitcoinmagazine.com/business/block-investor-day-2022-talks-bitcoin
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If the $ (DXY)pulls back, expect BTC to go up.
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Sometimes we tend to think, oh if only I had known about BTC earlier. The reality is most that held BTC early on sold a 20-30 % rally. It is really hard to hold BTC during the bear markets, which until recently have been 85 % pull backs several times. Today is BTC Pizza day.
https://www.zerohedge.com/crypto/bitcoin-pizza-day-time-regret-and-fantasy
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https://www.zerohedge.com/geopolitical/five-warning-signs-end-dollar-hegemony-near-heres-what-happens-next?utm_source=&utm_medium=email&utm_campaign=677
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https://www.zerohedge.com/geopolitical/five-warning-signs-end-dollar-hegemony-near-heres-what-happens-next?utm_source=&utm_medium=email&utm_campaign=677
We really cut our own throats here.
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an hour long
but fascinating
the best I have ever heard Steve in interview:
https://www.c-span.org/video/?519581-1/after-words-steve-forbes
suggests we go back to gold
standard to stabilize how we tighten or loosen
money
states between 1790 and 1972 when we are on gold standard annual growth averaged 4.2 %
(except for periods of Civil War WW1 and WW 2)
and Nixon for selfish political reasons ended the dollar tied to gold at $ 35 and thus began a 50 yr period where growth fell to 2.7 % average annually
so for example today a household making $67K per annum would have been making more like 100K per annum.
states Nixon made a big mistake which we still have today .
he was asked about crypto and
had some comments
he called crypto a "speculative vehicle"
but feels the future is more with "stable coin"
as an alternative storage of value that has stable value
crypto being up and down and all over the place is [so far] not a good store of value.
states the Fed today has no clue what they are doing and are doing a terrible job.
And I would add the STUPIDITY of the Senate who just voted to keep Powell in as Fed Chair
how utterly stupid .......
where are the Republicans on this issue?
OTOH are they voting him in so he can continue to f**k up till the election ?
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https://l.facebook.com/l.php?u=https%3A%2F%2Fdecrypt.co%2F101141%2Fgrayscale-wants-you-convince-the-sec-approve-bitcoin-spot-etf%3Ffbclid%3DIwAR1JHySqZmQTF4Ao-Du1UCyqIYM_UHw2hlyA6NuXw6QnADSTCBW-O1vHTG0&h=AT1P_XcqKbBUQLDKLZBSJIlRiX3xJXXlTY0FmO4mzuNS7-ZPZ4PGHx2ywd-GSpWIZvl2up6wOTrupTNj70AMs5PJ2Ld4at_HnGeFKXJlxX9jTNVehBkmb4v75kuB-nNO0i0
https://www.cryptopolitan.com/michael-saylor-market-crash-will-benefit-btc/?fbclid=IwAR3WQKEWcCU4Hisi6W8fTkeboVXe_M5AQqJbu4kHNKUlTwVf2kX8eA4Z_J4
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crypto worthless
but government crypto
will be wonderful. :roll:
https://www.breitbart.com/europe/2022/05/23/great-reset-crypto-worth-nothing-but-centralised-digital-currency-is-the-future-central-bank-head/
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https://ace.mu.nu/archives/399268.php
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Acc=Accumulation
(https://pbs.twimg.com/media/FTiWHweXEAEqp6H?format=jpg&name=large)
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Why one should not buy $hitcoins
(https://pbs.twimg.com/media/FTjysjJUcAADHja?format=png&name=large)
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There is only one king...The $hitcoins are puking. Happens every cycle. Many will go to zero and a new crop of coins will be peddled to noobs, and the cycle of life begins again. See my previous chart on altcoin longevity. LTC is the longest living altcoin, but its lost its place too.
(https://pbs.twimg.com/media/FTpyoibaUAAJ5Xt?format=jpg&name=medium)
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(https://pbs.twimg.com/media/EwNK02gVEAIIN3S?format=jpg&name=900x900)
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Slowly, then suddenly. Hyperbitcoinization will happen.
https://www.zerohedge.com/crypto/russia-reportedly-mulls-allowing-crypto-international-payments (https://www.zerohedge.com/crypto/russia-reportedly-mulls-allowing-crypto-international-payments)
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The BTC network is protected by ASIC miners (computers). Its NOT backed by nothing, as some say. Note the size of the Eiffel tower on the lower right corner.
(https://pbs.twimg.com/media/FT0njAxXwAAcgkR?format=png&name=large)
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Martin Armstrong is anti-Crypto and is misinformed on BTC. But this is an important wide ranging interview and where we are headed, along with Ukr, Putin, Neocons, Money and how to handle the next few years. Not sure which thread would fit this..so here.
https://www.armstrongeconomics.com/armstrong-in-the-media/interview-food-shortages-economic-collapse-the-failing-great-reset-how-to-prepare/ (https://www.armstrongeconomics.com/armstrong-in-the-media/interview-food-shortages-economic-collapse-the-failing-great-reset-how-to-prepare/)
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This is an important graph. If ETH breaks this trendline, it is done, like many before it. A free post from Nik Bhatia https://thebitcoinlayer.substack.com/p/insiders-always-dump?s=r
(https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F1850d94b-278f-4d28-a384-d6b1f058d97c_2825x2445.jpeg)
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Many $hitcoins are going to Zero this time, Luna, Hex and Celsius are a few examples. They are not coming back. History repeats.
BTC needs some time to mature, note what is happening to the BTC supply, very little supply will come over the next few years. Infact after 8 years, practically speaking no more new supply and anything new that is available, will likely be balanced by people losing their keys!. Patience is the name of the game. Several billionaires like Michael Saylor and Bill Miller in the US, Ricardo Salinas in Mexico and others have significant BTC holdings. OTOH, BTC demand is increasing world wide, with many jurisdictions making it legal tender. When demand increases and supply cannot meet it, prices go up. That is the reason you are seeing BTC hold its price around 29K, while the $hitcoins are going to zero. BTC could still go down to 22K, but it has never in its history gone below a previous all time high (20K). So, I wait and buy more, anytime I have some spare cash.
https://twitter.com/i/status/1530506101774376960
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https://i0.wp.com/politicallyincorrecthumor.com/wp-content/uploads/2022/05/americans-sleeping-burning-couch-value-us-dollar-inflation.jpg?w=500&ssl=1
(https://i0.wp.com/politicallyincorrecthumor.com/wp-content/uploads/2022/05/americans-sleeping-burning-couch-value-us-dollar-inflation.jpg?w=500&ssl=1)
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Hopium
(https://pbs.twimg.com/media/FT7UEC9WIAYdd5E?format=jpg&name=large)
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https://scottgrannis.blogspot.com/
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Molly White
https://worldnewsera.com/news/entrepreneurs/first-she-documented-the-alt-right-now-shes-coming-for-crypto/
-
ECONOMY
Key inflation gauge slowed to still-high 6.3% over past year
BY CHRISTOPHER RUGABER ASSOCIATED PRESS
An inflation gauge closely tracked by the Federal Reserve rose 6.3% in April from a year earlier, the first slowdown since November 2020 and a sign that rising prices may finally be moderating, at least for now.
The inflation figure the Commerce Department reported Friday was below the four-decade high of 6.6% set in March. While high inflation is still causing hardships for millions of households, any slowing of price increases, if sustained, would provide some modest relief.
The report also showed that consumer spending rose at a healthy 0.9% annual rate from March to April, outpacing the month-to-month inflation rate for a fourth straight time.
The ongoing willingness of the nation’s consumers to keep spending freely despite inflated prices is helping sustain the economy. Yet all that spending is helping keep prices high and could make the Federal Reserve’s goal of taming inflation even harder.
“Inflation is finally slowing, but it’s a little early for highfi ves,” said Bill Adams, chief economist at Comerica Bank.
Mr. Adams noted that gas and food prices have risen in May and that Russia’s war against Ukraine and COVID19-related lockdowns in China could further disrupt supply shortages and send prices accelerating again.
Consumers’ resilience in the face of sharply higher prices suggests that economic growth is rebounding in the current April-June quarter. The economy shrank at a 1.5% annual rate in the first quarter, mostly because of an increase in the trade deficit. But analysts now project that, on an annual basis, it’s growing as much as 3% in the current quarter.
Americans have been able to keep spending, despite higher infl ation, because of rising wages, a stockpile of savings built up during the pandemic and a rebound in credit card use. Economists say those factors could bolster spending and support the economy for much of this year.
Incomes rose 0.4% from March to April, Friday’s report showed, slightly faster than inflation. Still, high inflation is forcing consumers, on average, to save less. The savings rate fell to 4.4% last month, the lowest level since 2008. Overall, though, Americans have built up an additional $2.5 trillion in savings since the pandemic, and economists calculate that this pile is eroding only slowly.
Friday’s report showed that on a month-to-month basis, prices rose 0.2% from March to April, down from the 0.9% increase from February to March. The April increase was the smallest since November 2020.
Excluding the volatile food and energy categories, socalled core prices rose 0.3% from March to April, matching the previous month’s rise. Core prices climbed 4.9% from a year earlier, the first such drop since October 2020.
-
second
https://bombthrower.com/coinbase-as-the-amazon-of-crypto/
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BTC in Africa...one nation has legal tender. More will come. Slowly, then Suddenly.
(https://pbs.twimg.com/media/FT7F6qfXEAQoAZY?format=jpg&name=large)
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Anyone understand this stuff ?, Greg Foss 35 y. experience Bond veteran says BTC should be at 400K now, based on CDS swaps of sovereign nations. Part 3 is where he shows his calculations.
https://rockstarinnercircle.com/wp-content/uploads/2021/04/Why-Every-Fixed-Income-Investor-Needs-To-Consider-Bitcoin-As-Portfolio-Insurance.pdf
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If the world invests 1-3 % of their assets in BTC, thats all we need. Question is in what time frame.
(https://pbs.twimg.com/media/FAon6h7XEAkucoK?format=jpg&name=medium)
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Only money printing can help us.
(https://pbs.twimg.com/media/FT-BYIdX0AA3AJq?format=jpg&name=medium)
-
Fidelity on BTC
https://fidelityfda.prod.acquia-sites.com/sites/default/files/documents/bitcoin-first.pdf
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Time to take my loss on GBTC?
-
GBTC is waiting on their BTC ETF application in July. If approved, it will achieve a 30 % boost and parity with BTC. If not, it will remain at a 30 % discount to BTC. At some point the SEC will have to approve the ETF, for their will be a lawsuit by Barry Silbert of GBTC and SEC will likely lose. I think SEC is just trying to delay the inevitable. Canada, Australia, Brazil, EU, all have ETF's, its just a matter of time. The day the US ETF is approved, BTC goes up massively. I personally would hold, but dont know your situation and risk tolerance.
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That is very helpful.
I am in a position to hold and will do so.
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Here's a nice article Casares. It was written in 2019.
https://www.kanaandkatana.com/valuation-depot-contents/2019/4/11/the-case-for-a-small-allocation-to-bitcoin
Note: How he estimates the price of BTC
My preferred way of guessing how the price of Bitcoin may evolve is much more prosaic. I have noticed over time that the price of Bitcoin fluctuates around ~ $7,000 x how many people own bitcoins. So if that constant maintains and if 3 billion people ever own Bitcoin it would be worth ~ $21 trillion (~ $7,000 x 3 billion) or $1 million per Bitcoin.
That means if there are 1 billion users by 2025 (several estimates of BTC users growing faster than the internet), BTC is priced at 333K. The halving is in 2024 and BTC usually peaks 1 year later, so 2025 would be a good time to cash out, unless of course BTC peaks this year.
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BTC report
https://block.xyz/2022/btc-report.pdf
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(https://pbs.twimg.com/media/FUJXWT9aMAAzy8j?format=jpg&name=4096x4096)
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https://www.zerohedge.com/geopolitical/mastercard-ceo-swift-payment-system-may-be-replaced-cbdcs-five-years?utm_source=&utm_medium=email&utm_campaign=693
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"This sets the stage for groups like the IMF and WEF to “save the day” by instituting a global basket system, likely under the SDR (Special Drawing Rights) basket, in the name of homogenizing and stabilizing various CBDC markets into a single centralized entity."
this is exactly opposite the appeal of bitcoin
which is to wrest control of the money away from governments and banks
and simply hand it straight back to the bankers and elitists who we are trying to circumvent.
what a joke
-
BTC ATLEAST doubles every year...
(https://pbs.twimg.com/media/FUMNPyoXsAAV0gQ?format=png&name=medium)
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""This sets the stage for groups like the IMF and WEF to “save the day” by instituting a global basket system, likely under the SDR (Special Drawing Rights) basket, in the name of homogenizing and stabilizing various CBDC markets into a single centralized entity."
"this is exactly opposite the appeal of bitcoin which is to wrest control of the money away from governments and banks and simply hand it straight back to the bankers and elitists who we are trying to circumvent. what a joke"
I posted this the article thinking more about the implications for the dollar as The International Currency.
-
It is about time we moved up.
(https://pbs.twimg.com/media/FUxa-HEXoAYLkqD?format=jpg&name=medium)
-
This came well recommended to me but as I started watching
a) I did not resonate to the narrator, and
b) I did not really understand
but perhaps someone here , , ,
-
https://schiffgold.com/commentaries/peter-schiff-the-real-reason-gold-hasnt-gone-up-and-why-it-ultimately-will/
from 1/22
so not terribly up to date
neither bit coin or silver gold
are havens it seems. :((
but some commodities I think have been ...
of course I own none :((
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I own a few small gold and silver coins.
My currency of the future is ballistic wampum.
https://schiffgold.com/commentaries/peter-schiff-the-real-reason-gold-hasnt-gone-up-and-why-it-ultimately-will/
from 1/22
so not terribly up to date
neither bit coin or silver gold
are havens it seems. :((
but some commodities I think have been ...
of course I own none :((
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https://www.benzinga.com/markets/cryptocurrency/22/06/27651267/ceo-of-coinbase-brian-armstrong-sees-bitcoin-to-become-a-global-reserve-currency-but-these?fbclid=IwAR2fEZYxiygeIdafk8miZ0cWp4tPFRLnPRM-3P0WfGsv6A8luvjxF918_WA
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Do I understand this to say that rising electrical costs are bad for mining and therefore bad for crypto?
https://decrypt.co/102566/bitcoin-ethereum-tumble-cpi-rising-inflation
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Do I understand this to say that rising electrical costs are bad for mining and therefore bad for crypto?
https://decrypt.co/102566/bitcoin-ethereum-tumble-cpi-rising-inflation
https://fee.org/articles/how-bitcoin-could-smash-socialism-in-venezuela/
Feb 2021
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So BTC is at 25 K, it could go down to 22K. This is analogous to 2018, where BTC was at $ 3400 and everybody thought, it would go to $ 1000. I am holding. What this bear market does is, it kills many of the $hitcoins and while BTC bounces back, the $hitcoins get killed. This cycle BTC seems correlated with the general markets, so until the markets start to recover, BTC may not recover. In times like this I review the chart below. Here the red line GDP pays for the blue line (debt). There is no way that GDP will increase so much that the debt will be paid off. Neither can interest rates rise very much, for then the debt becomes unaffordable. So the only way to pay off the debt is by more money printing. This will take the form of UBI, student loan forgiveness, more stimulus checks, or even a good monkeypox scare. All of this is good for BTC, the only asset where the supply (inflation) reduces over time. Lots of other positive developments, eg Sen.Lummis/Gillebrand have a BTC related bill in the Senate under review.
(https://pbs.twimg.com/media/FU_r20jWUBAF55P?format=png&name=900x900)
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Oldie Goldie
(https://pbs.twimg.com/media/FVGJ-DfWUAsS0xt?format=jpg&name=small)
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Nice thread on twitter about markets
https://twitter.com/stackhodler/status/1536283396053291008
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(https://pbs.twimg.com/media/FVKBGyOWUAAY4LA?format=jpg&name=small)
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https://www.dailymail.co.uk/news/article-10911735/Bitcoin-plummets-25-000-amid-huge-selloff-sparked-fear-rocketing-rates.html
https://www.dailymail.co.uk/money/markets/article-10912475/Bitcoin-crashes-crypto-meltdown-Panic-grips-wild-west-market.html
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Following up on a point made in YA's posted Twitter threadL
https://www.zerohedge.com/markets/japan-verge-systemic-collapse-dramatic-unpredictable-non-linearities-financial-markets-bank?utm_source=&utm_medium=email&utm_campaign=722
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https://www.breitbart.com/politics/2022/06/13/economist-mohamed-el-erian-warns-inflation-could-hit-9/
Core inflation excludes food and gas:
https://www.investopedia.com/terms/c/coreinflation.asp#:~:text=Key%20Takeaways,too%20volatile%20or%20fluctuate%20wildly.
Historical inflation rates:
https://www.thebalance.com/u-s-inflation-rate-history-by-year-and-forecast-3306093
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FWIW my thoughts:
Year over year (8.6% now) in a rising environment understates current inflation. Most recent month waw 1%, which annualized is something like 13+%.
Year over year Producer Price is now 10.9% if I have it right. (Don't know most recent month). Shouldn't this be a leading indicator for Consumer prices?
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Right. It's already double digit inflation.
Remember 'Innovator's Dilemma' by Harvard Prof Clayton Christensen?
Paraphrasing: It is not possible for the entrenched power to pull off a market changing innovation because to do so harms their existing power.
Mentioned in the other thread, inflation is two part. We already have a handle on M2 (more money chasing). Now we need a fix for production disincentives (fewer goods and services).
At the heart of the today's scarcity, shortages and inflation is energy. It ties to gas prices, diesel, home heating, electricity, transportation, air conditioning, supply chain issues, agriculture, fertilizer and everything else including inflation. Without adequate (and affordable) energy, w are a third world country, and we are producing like one.
The people who caused this can't solve it. They are fully and unretractably invested in their policies and denial of the cause effect relationship of those policies and inflation.
The fix for anti-growth, anti-production policies must come from the pro-growth party, meaning two election cycles out, best case. According to Michael Yon, people will starve by then.
Wise man once said, "plan accordingly".
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Worth a quick perusal, skip the first few pages..
https://www.myrmikan.com/pub/Myrmikan_Research_2022_06_14.pdf
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By Greg IpFollow
June 15, 2022 8:00 am ET
Having failed to anticipate the steepest inflation in 40 years, you would think the economics discipline would be knee-deep in postmortems.
Not yet. Outside of a handful of individuals, economists have thus far devoted remarkably little attention to how their theories and models got inflation so wrong. There has yet to be a surge of studies from the National Bureau of Economic Research, the leading outlet for academic economics, on inflation as compared with the gusher of papers on pandemics in 2020.
This would be understandable if economists had only missed by a bit. They didn’t. Inflation at the end of last year was more than double the median projection among economists surveyed eight months earlier and well above the highest forecast.
Economists at both the Federal Reserve and the White House were blindsided. The European Central Bank recently reported that the accuracy of its inflation forecasts “declined significantly during the Covid-19 crisis.”
Economists’ definition of inflation—a rise in the overall price level—is constant but their understanding of its causes goes through regime shifts. Textbooks still link inflation to the money supply, but financial innovation and regulatory changes have made the link between money and spending too unreliable to be useful.
Nowadays, working economists try to predict inflation by comparing the demand for goods and services and their supply as represented by the “output gap”—the difference between actual gross domestic product and potential GDP based on available capital and labor—and by the Phillips curve, according to which wages and prices accelerate when unemployment falls below some natural, sustainable level. Models such as the Fed’s supplement this with measures of past and expected inflation, which influence wage- and price-setting behavior, oil prices and exchange rates.
These models worked reasonably well over the roughly 40 years before the Covid-19 pandemic, but not since. “Economists do not have a satisfactory theory of inflation at this point,” said Harvard University’s Larry Summers. The Phillips curve, he said, “has large anomalies.” It can’t explain why some countries experience hyperinflation, or why in the U.S. the price level rose so rapidly between 1933 and 1935 in the presence of a massive output gap, he said.
Mr. Summers is one of the few economists to have warned of inflation early in 2021 (and to have published several NBER papers on the subject). While he’s critical of the Fed’s models, his framework is similar: He thought President Biden’s $1.9 trillion stimulus would far exceed the output gap. He said this was a “back of the envelope” model that didn’t yield precise forecasts but, combined with history and judgment, “provided enough information to say overheating was an enormous risk.”
Similar arguments were made by Olivier Blanchard, the former chief economist of the International Monetary Fund, who thought strong demand would drive unemployment down to 1.5%, and by Michael Strain, head of economic-policy studies at the conservative American Enterprise Institute.
While all of these critics got the direction of inflation right, their analyses can’t explain, at least using prepandemic relationships, the magnitude, i.e., how inflation suddenly shot from around 2% before the pandemic to 8.6% now—6% excluding food and energy. They explain why inflation rose more in the U.S. than Europe, but not why inflation rose so much in Europe.
Alan Detmeister, an economist at UBS and formerly the Fed, ran a statistical exercise earlier this year that found that the output gap, derived from actual GDP and Congressional Budget Office estimates of potential GDP—both adjusted, and unadjusted, for inflation—can explain at most 0.1 percentage point of the rise in inflation since the middle of last year, and the unemployment rate can’t explain any. He did find that worker quits and job vacancies and supplier delivery times can explain about half the rise in inflation.
This supports the widespread anecdotal evidence that supply disruptions and labor shortages due to Covid-19 and the war in Ukraine account for a lot of the rise in inflation. “Normally when you get the strength of demand we got, you would have seen supply respond pretty strongly,” said Mr. Detmeister. “It’s a bit of a reflection of a failure of modeling. We don’t have good measures on the supply side, particularly on a sectoral level.”
Economists have treated the supply side—autos, housing, restaurants, energy, healthcare, finance—as homogenous and elastic: When demand for nursing home beds or cars rise, so does their supply, and prices rise only a little, if at all.
But in the last two years, supply hasn’t been homogenous. Some industries like e-commerce have hired easily, while others like nursing homes have lost workers in droves. Food sold to restaurants didn’t substitute easily for food sold in supermarkets. Supply hasn’t been elastic: Increased demand for cars and houses boosted prices, not output.
Mr. Strain said this doesn’t invalidate output gap models; it means they need better empirical underpinnings. Nor, said Mr. Summers, does it excuse the Fed or the administration: Supply problems and worker shortages should have made them even more wary of pumping so much more stimulus into the economy.
Nonetheless, the evidence suggests high demand and restricted supply are interacting in ways that economists struggle to calibrate. That is a problem, because it suggests inflation may remain unpredictable as the Fed rapidly withdraws stimulus but supply disruptions from Covid and war persist.
Hopefully soon, academics will have some answers. “The rise of U.S. inflation in the summer and fall of 2021 has been substantially larger and faster than in the last few U.S. recoveries,” economists Emi Nakamura and Jón Steinsson at the University of California, Berkeley, noted in December. Analyzing the competing explanations “will be an important focus of research” at the NBER.
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Mr. Summers is one of the few economists to have warned of inflation early in 2021
I doubt this
funny many on Wall Street knew
glad to know our economy is in such good hands
Had a good belly laugh when I heard Powell tell us they are able to "nimbly" do whatever they need to
what a joke
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https://seekingalpha.com/article/4518373-bitcoin-times-they-are-a-changin?mailingid=28065169&messageid=must_reads&serial=28065169.2655772&utm_campaign=Must%2BRead%2BJune%2B15%2C%2B2022&utm_content=seeking_alpha&utm_medium=email&utm_source=seeking_alpha&utm_term=must_reads
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https://www.theepochtimes.com/a-closer-and-more-painful-look-at-producer-prices_4535505.html?utm_source=Opinion&utm_campaign=opinion-2022-06-15&utm_medium=email&est=8AAWiOTWwWjdT4%2FemSLxPJNMywGHPl9dVunion9Wp5OuF6uu7Qn7wNcrGKSjmdXG86dR
A Closer and More Painful Look at Producer Prices
By Jeffrey A. Tucker June 15, 2022 Updated: June 15, 2022biggersmaller Print
News Analysis
Any index of prices is based on an illusion. You can say it’s a necessary one. It likely is simply because we need some kind of aggregate to sum up a huge complexity of price movements. It’s the only way we can observe the existence of a general problem rather than a sector-specific one.
In truth, prices—even in a devastating inflationary climate like this one—don’t rise and fall in tandem. It’s not like the sea level. Inflation shows up more in some sectors over others, and the affected industries can be hard to predict. It hits plywood one week, cotton the next, pork prices the next, housing the next, transport the next, and so on, with successive waves of infection and seeming recovery.
This reality contributes to the feeling of overall chaos and tremendous public disorientation.
When press releases appear from the Bureau of Labor Statistics (BLS), the media looks for the headline number: What is the rate of year-over-year change? The Consumer Price Index (CPI) is the one that gets the most attention, but it is the Producer Price Index (PPI), released the following day, that’s probably more reliable overall.
Because it deals with wholesale prices and the full supply chain, it amounts to a forecast of future consumer prices, revealing how much price anxiety is being felt throughout the whole structure of production. The CPI is downstream of the PPI.
The June 14 release of the May PPI data headlined the number 10.8 percent. That’s because the BLS press release stated that “on an unadjusted basis, final demand prices moved up 10.8% for the 12 months ended in May.” And so that was the takeaway. There are a couple of provisos here that most reporters wouldn’t notice: This is unadjusted for seasonality and also combines final demand for both goods and services.
So let’s look a bit more closely, thanks to the charting tools at the Federal Reserve Bank of St. Louis, which are fed directly by an application program interface (API) from the BLS. Here’s a look at producer prices by final demand by goods alone. This reveals an incredible 16.3 percent increase year over year. This is far more alarming than the figures the BLS was touting, and perhaps this is why it isn’t being reported.
Epoch Times Photo
Producer Price Index by Commodity: Final Demand: Finished Goods. (FRED/Jeffrey A. Tucker)
Here is the same index focused only on commodities. It shows an eye-popping increase of 21.8 percent.
Epoch Times Photo
Producer Price Index by Commodity: All Commodities. (FRED/Jeffrey A. Tucker)
Now, let’s look at the hugely important sector of trucking and the prices of hauling goods across long domestic distances—a sector crucial to the U.S. consumer supply of nearly everything. Here, you see the real pain. It is intense at 34.1 percent.
Epoch Times Photo
Producer Price Index by Industry: General Freight Trucking, Long-Distance Truckload. (FRED/Jeffrey A. Tucker)
You have probably had enough, but there is one more you have to see. It concerns the cost of shipping for international trade, what the BLS calls deep-sea shipping. This is the lifeblood of all modern economies, the key to the international division of labor, and central to what we call prosperity. This figure is truly shocking: Prices are rising 44.7 percent.
Epoch Times Photo
Producer Price Index by Industry: Deep Sea Freight Transportation: Deep Sea Freight Transportation Services. (FRED/Jeffrey A. Tucker)
Perhaps you have noticed that many people are getting upset about inflation, mainly due to food and gas prices. These charts indicate that people aren’t nearly upset enough.
Should you be worried about food shortages, more goods shortages, business bankruptcies, and more shocking price increases in just about everything? Yes. Absolutely. My own read of the factors that make for these kinds of shocking levels of inflation is that they are nowhere near washed through the system. It’s going to be many years before they fully do. We don’t even know what kind of world emerges on the other side of this Great Inflation.
Living through this inflation is momentous for most people alive today. It’s a new experience, and people are learning in real time to understand cause and effect here. The Biden line that this was all “Putin’s price hike” seemed to have flopped, so he has stopped using it so regularly. It just didn’t stick. Now, you have lefty journalists at, for example, Vox, explaining that the real problem traces to industrial monopolies such as the meat packers. These people are insufferable.
If you want a really good and quick look at what inflation is and how it works, turn to Henry Hazlitt’s “Economics in One Lesson.” He has an entire chapter on the subject.
By way of background, Hazlitt wrote this book in 1946, after having been forced out of his job as an editorial writer for The New York Times. The publisher wanted Hazlitt to endorse the Bretton Woods agreement of 1944, but Hazlitt refused on grounds that it was an unsustainable monetary arrangement that would only produce more inflation. Hazlitt wouldn’t write what he did not believe; he kept his principles even though it meant unemployment.
So he used his new time off to write the book that the world needed at the time, and still needs today. He writes of inflation:
“It may indeed bring benefits for a short time to favored groups, but only at the expense of others. And in the long run it brings disastrous consequences to the whole community. Even a relatively mild inflation distorts the structure of production. It leads to the overexpansion of some industries at the expense of others. This involves a misapplication and waste of capital. When the inflation collapses, or is brought to a halt, the misdirected capital investment—whether in the form of machines, factories, or office buildings—cannot yield an adequate return and loses the greater part of its value.
“Nor is it possible to bring inflation to a smooth and gentle stop, and so avert a subsequent depression. It isn’t even possible to halt an inflation, once embarked upon, at some preconceived point, or when prices have achieved a previously agreed-upon level; for political and economic forces both will have gotten out of hand. …
“Inflation throws a veil of illusion over every economic process. It confuses and deceives almost everyone, including even those who suffer by it. … Inflation is the autosuggestion, the hypnotism, the anesthetic, that has dulled the pain of the operation for him. Inflation is the opium of the people.”
The Federal Reserve is in no position to stop what it has started, even if the political will were in place to do so. There are already rumblings in the Democratic Party that inflation is to be preferred to depression for fear of a mighty Trump comeback.
This seems like a dramatic political miscalculation. If you look at the charts above again, you will see that every bit of this mess traces to the Biden presidency, at least according to the data, and even though the roots extend further back in time.
There is no getting around this: The great inflation of 2021–22 has discredited the regime and its current managers. Even if nothing gets worse, the suffering will last a generation. The terrifying truth is that it will get worse and maybe much worse.
Jeffrey Tucker is founder and president of the Brownstone Institute. He is the author of five books, including "Right-Wing Collectivism: The Other Threat to Liberty."
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Fed Interest Hikes May End Up Having Unintended Consequences
The economy doesn’t need artificially high or low rates. It needs meaningful price signals—real rates.
By Judy Shelton
June 15, 2022 2:18 pm ET
Imagine you are chairman of the Federal Reserve. If you want to increase the output of goods and services for the economy to lower prices by meeting elevated demand, what do you do? First, you beg off by saying the Fed doesn’t have any control over supply. Then you try to kill demand.
This is what Jerome Powell finds himself doing now, with inflation at 8.6%, a 40-year high. It almost sounds like the responsible course of action when Mr. Powell says: “We have both the tools we need and the resolve that it will take to restore price stability on behalf of American families and businesses.” But does it actually make sense to hike interest rates in a deliberate effort to reduce employment and curtail economic growth, all to relieve price pressures?
The Keynesian logic that underlies the Fed’s analytical framework is fairly straightforward. To stimulate economic activity and lift aggregate demand, the Fed engages in expansionary monetary policy: It lowers interest rates to encourage borrowing. When spending on goods and services outstrips production, causing inflation, the Fed uses contractionary monetary policy to dampen economic activity and reduce demand: It raises interest rates to discourage borrowing.
A major cause of this recent bout of inflation was the federal government’s putting additional money in the hands of consumers, increasing demand, without increasing supply—but the Fed is hardly absolved of any wrongdoing.
To get a sense of how much liquidity the Fed has injected into the economy since the 2008 global financial meltdown, look at how much the Fed’s own balance sheet has grown. Total Fed assets increased from $1.5 trillion in October 2008 to more than $8.9 trillion today. Every dollar paid by the Fed to acquire securities was accomplished using a keystroke to credit the seller’s reserve balance, which is held on deposit at the Fed. This is how the Fed creates money from thin air.
We could have had more inflation, given the massive expansion of the monetary base, but the Fed pays interest on these balances. It pays banks on the $3.3 trillion in reserves they hold on deposit at the Fed. Additionally, the Fed pays interest on $2.3 trillion in cash parked at the Fed through reverse repurchase agreements conducted with money-market investors.
When the Fed raises interest rates, it does so primarily by increasing these two “administered” rates, which differ by 10 basis points, on the $5.6 trillion in liquid funds. Together, they set an overnight interest rate “beneath which banks and non-bank financial institutions should be unwilling to invest funds in private markets,” according to the Fed.
Given the negative effect pending interest rate hikes are expected to have on employment and economic growth—not to mention the devastating consequences for financial markets and 401(k) retirement plans—this seems a good moment to ask: Does the Fed’s approach to managing the money supply facilitate the productive use of financial capital? Should the Fed be encouraging financial institutions to keep money idle in depository accounts? How does that contribute to increasing the supply of goods and services? This could be precisely the wrong way to carry out the Fed’s mandate to promote stable prices and maximum employment.
Granted, for more than a decade the Fed has created excessive liquidity through its purchases of Treasury debt and mortgage-backed securities, but depriving the private sector of financial resources to correct the Fed’s own monetary mistakes is perverse. It doesn’t help that Mr. Powell and Treasury Secretary Janet Yellen have been slow to acknowledge the inflationary threat.
People may be starting to question the wisdom of wholly discretionary monetary policy as they are asked to accept a punishing sequence of rising interest rates. But a punishing sequence of rising interest rates seems to be the Fed’s only feasible option for addressing the latent inflation it enabled, which was triggered by fiscal stimulus.
Mr. Powell should note that the original inflation-targeting operating model for central banks—first put in place in New Zealand in 1990—included a provision for dismissing the top official for inadequate performance.
Accountability shouldn’t require omniscience, but neither should it excuse errors of judgment that end up harming Americans across the income spectrum. It was jarring to hear Ms. Yellen tell the Senate Finance Committee last week: “I do expect inflation to remain high although I very much hope that it will be coming down now.” You would think the former Fed chief would rely more on quantitative reasoning than wishful thinking.
The latest CPI number made it clear that inflation isn’t yet coming down—prompting the Fed to take a more aggressive stance. Contractionary monetary policy theoretically requires a nominal interest rate higher than the inflation rate. It isn’t clear the Fed is willing to go that far. In the extreme, high interest rates could cause bankruptcies and defaults. Meanwhile, a rising dollar could render dollar-denominated debt untenable for foreign borrowers with weak currencies.
All of this should cause us to rethink how the Fed intervenes in the economy. Neither artificially high interest rates nor artificially low interest rates are most conducive to productive economic growth. What a market economy needs is meaningful price signals—real interest rates.
Let’s abandon talk of hawks and doves on the Fed’s monetary policy-making committee and listen to the woodpeckers prepared to hammer away on the principle that money should provide a dependable store of value.
Ms. Shelton, a monetary economist, is a senior fellow at the Independent Institute and author of “Money Meltdown.”
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Michael Saylor is one of the largest bulls on BTC...
https://twitter.com/i/status/1537935584961830913
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BTC is most oversold in history. Unless someone thinks its done for, it will be higher again in the future. In the meantime, it is very painful. If I had more powder, I would buy more.
(https://pbs.twimg.com/media/FVhYfRYXoAAdtYK?format=png&name=medium)
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Svenrich interviews Saylor. A good long interview...but worth it in these times.
https://youtu.be/ckl08Rtq9zA
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(https://pbs.twimg.com/media/FVmrUZVXoAAznTS?format=jpg&name=medium)
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We are near anger-depression
(https://pbs.twimg.com/media/FVmqLi0WQAEftao?format=jpg&name=medium)
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Zoom out. Below is the likely path forward.
(https://pbs.twimg.com/media/FVmbKZFagAAMDqC?format=jpg&name=medium)
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Bitcoin was hurt IMHO in the hype of being a get rich scheme (and some got rich) , instead of becoming the most stable and secure store of value . As the 'new gold', shouldn't it have gone up during the current turmoil and uncertainty?
Stuck at 1800, it looks like gold is not the new gold either.
What is a safe haven anymore with stocks, bonds, real estate and crypto tanking?
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Guns, ammo, food, medical supplies and skills.
Real estate is rural areas where there is water and food production and law and order will be very valuable.
I see crypto as important as gov fiat currency dies.
Bitcoin was hurt IMHO in the hype of being a get rich scheme (and some got rich) , instead of becoming the most stable and secure store of value . As the 'new gold', shouldn't it have gone up during the current turmoil and uncertainty?
Stuck at 1800, it looks like gold is not the new gold either.
What is a safe haven anymore with stocks, bonds, real estate and crypto tanking?
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This is a worthwhile and balanced read on BTC by Nik Bhatia. This drawdown in BTC is not out of the ordinary, as the article shows there have been 12 such drawdowns of similar intensity. The asset class is only 13 y.old, it needs more time, hopefully another 2-4 years should do it.
https://thebitcoinlayer.substack.com/p/bitcoins-first-major-recession-part-59f
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Another nice interview...long but fascinating
https://www.youtube.com/watch?v=5Q4-E5K7tW0
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So SEC just approved a BTF short ETF, before the spot ETF. Either Gensler is trying everything in his power to bring BTC down, or the spot ETF will be approved on july 6. As I have said before, GBTC plans to sue SEC if the spot ETF is not approved. Exciting times. Might be ironic if the short ETF marks the BTC bottom.
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I dont understand this topic well enough to comment....but seems relevant.
https://thehill.com/opinion/finance/3532683-who-owns-the-feds-massive-losses/
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Ya's post, a good question for our friend Scott Grannis. Short answer, we all own the losses (and errors) of the Federal Reserve Bank.
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The End of Credibility
John Authers: (Bloomberg)
Monetary regimes don’t fall often. Half a century ago, in 1971, Richard Nixon ended
the Age of Gold by formally eliminating the dollar’s peg to the precious metal. Since then, the dollar and other currencies have rested on fiat—they’re worth something because governments say they are. You could call this the Age of Credibility. In place of gold, currency’s anchor is the trust in the central banks that issue them. Now credibility appears to be at an end. With central banks desperately ripping up their playbooks to try to rein in inflation that’s veered far beyond target, they’re admitting they’ve been wrong, and giving up on trying to steer the markets on their plans for the future.
That’s alarming, because the precedent of the 1970s is not encouraging. Oil briefly took over from gold as the anchor for currencies, and the world suffered through a period of protracted stagflation. The new Age of Credibility arrived courtesy of Paul Volcker, who as chairman of the Federal Reserve raised rates repeatedly at the turn of the ’80s and managed to squeeze inflation out of the system. For the four decades since, central bankers’ credibility has been the anchor. (Source: bloomberg.com)
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BTC
(https://pbs.twimg.com/media/FWCyYQ6XkAAsjNK?format=jpg&name=medium)
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Doug: I have forwarded it to him. Don't know if I will get a response.
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As BTC users increase, price must increase. Uptake is faster than the internet. 1 Billion users will be achieved faster than that for the Internet.
(https://pbs.twimg.com/media/FWIPes7XkAMQaQt?format=jpg&name=medium)
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This is the most read non-technical BTC article
https://vijayboyapati.medium.com/the-bullish-case-for-bitcoin-6ecc8bdec
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July 6 big decision for GBTC
https://grayscale.com/spot-bitcoin-etf-comment-analysis/?utm_source=TWITTER&utm_medium=social&utm_term=pr,sales+biz+dev+ir&utm_content=7161705164&utm_campaign=gbtc+etf+filing&linkId=170671008
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Comment from Marty Armstrong
" We are in the Sovereign Debt Default mode. As I have said before, we will see that start in the emerging markets which have already begun. It will then spread to Europe and eventually end up with the United States coming in last. While our politicians cheer forcing Russia into default, these morons only look at stopping Russia from borrowing. They have relieved it of debt servicing and that means the losers are Western institutions which are primarily pension funds because they got a better rate in the face of deplorable rates in the West. This will create more of a financial crisis in the West and these funds will then turn to their respective governments for compensation since they caused the default.
The Federal Reserve is pushing rates higher as I warned because they are blamed for inflation. It does not matter that it will fail and created more inflation and spur the emerging market sovereign default. That is the ONLY tool they have under Keynesian Economics."
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July 6 big decision for GBTC
https://grayscale.com/spot-bitcoin-etf-comment-analysis/?utm_source=TWITTER&utm_medium=social&utm_term=pr,sales+biz+dev+ir&utm_content=7161705164&utm_campaign=gbtc+etf+filing&linkId=170671008
Looks like the ETF was denied. GBTC has filed to sue the SEC.
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A. With GBTC ETF denied. Some experts think there are two pathways forward.
1. GBTC sues the SEC and wins, in 1-1.5 years. This would remove the 30 % discount at the moment. People who think this might happen are going to buy GBTC at a 30 % discount and hold on.
2. The GBTC trust is dismantled or sold to another entity, who wants to acquire the largest hoard of BTC. In this case also, the GBTC holders will get the full current price of BTC.
BTC is in a bear market and touching lows that were inconceivable. Once Powell pivots, or the markets stabilize, BTC will bounce back too. BTC has an inverse relationship with the dollar, so softening of the dollar will also help. As I have said before, the pain is similar to what previous hodlers felt at 3.5k in 2018 and we all regret not buying more.
B. we are at the "then they fight you stage". European regulators want to do away with what they call "unhosted wallets" like Trezor
(https://pbs.twimg.com/media/FWfd1IMWIAMOtHK?format=png&name=900x900)
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This is good new, its still a draft from BIS, second consultative effort published June 30, 2022 https://www.bis.org/bcbs/publ/d533.htm
If finalized, 1 % of bank reserves is a lot of moolah.
"Group 2 exposure limit
The large exposure rules of the Basel Framework are not designed to capture large exposures to an asset
type, but to individual counterparties or groups of connected counterparties. This would imply, for
example, no large exposure limits on cryptoasset where there is no counterparty, such as Bitcoin. The
Committee proposes, therefore, to introduce a new exposure limit for all Group 2 cryptoassets outside of
the large exposure rules. The Group 2 exposure limit is set out in SCO60.121 to SCO60.124 and has the
following features:
• Provisional limit set at 1% of Tier 1 capital, to be reviewed periodically."
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Also https://www.coindesk.com/policy/2022/06/30/banks-bitcoin-holdings-should-be-capped-basel-committee-proposes/
Hard for me to understand why BTC is not going up. Perhaps not everyone fully understands, but they will.
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YA: Sent you two emails-- have you received them?
===============================================
Crypto crash
Shutterstock
Things are looking pretty shaky in the cryptoverse as a continuous flow of damaging headlines continues to rock the sector. The staunch believers are calling it a "crypto winter" before things heat up again, while the naysayers are pointing to the final demise of "tulip mania" they have been warning about for years. Those in between are acknowledging that a shakeout is underway, but feel that only the strongest players will survive in a similar fashion to the aftermath of the dot-com crash. Bitcoin (BTC-USD) is trading under $20,000 again on the developments, and only time will tell which camp prevails.
The latest: The failure of the TerraUSD "stablecoin" project in May sent shockwaves through the crypto market, while the Celsius Network froze accounts and now is preparing for a possible bankruptcy. Popular crypto-focused hedge fund Three Arrows Capital was also ordered to liquidate on Wednesday and crypto exchange CoinFLEX issued new "Recovery Value USD" tokens in an attempt to resume withdrawals. Meanwhile, Coinbase (NASDAQ:COIN) and BlockFi have said they would slash their workforces by a fifth, though others remain undeterred, like MicroStrategy's (NASDAQ:MSTR) Michael Saylor, who scooped up another 480 Bitcoins for $10M despite undergoing massive unrealized losses.
Growing concerns over the industry even prompted the SEC to deny an application to convert the Grayscale Bitcoin Trust (OTC:GBTC) - which has $13B of assets under management - into the first spot ETF. The move would have potentially led to more institutional investment, but instead turned into another negative headline surrounding the sector. Grayscale is suing the SEC in response, after the agency felt that its product failed to meet requirements "designed to prevent fraudulent and manipulative acts... and protect investors and the public interest."
DeFi outlook: Sam Bankman Fried, the 30-year-old billionaire founder of FTX, believes that more failures among crypto exchanges are coming amid the ongoing slump that has wiped off $2T in market value since November. "Some third-tier exchanges are already secretly insolvent," he told Forbes in an interview. Increasing worries are also enveloping the broader DeFi industry, such as crypto lenders whose loans are backed by little collateral and lack access to liquidity in the event of a downturn. "It's just a risky structure," said Eric Budish, an economist at the University of Chicago Booth School of Business. "It strikes me as diversified as the same way that portfolios of mortgages were diversified in 2006. It was all housing - here it's all crypto." (28 comments)
===========================
===========================
https://www.reuters.com/markets/europe/eu-seeks-deal-ground-breaking-rules-regulate-crypto-2022-06-30/?utm_source=Sailthru&utm_medium=newsletter&utm_campaign=daily-briefing&utm_term=06-30-2022
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I study this endlessly but there are some things I don't understand.
Congress and the executive spend a trillion a year more than they take in not counting some additional 4.6 trillion in "excess spending" recently (fiscal policy), why does the Fed accommodate that with increased money creation (M2)?
See post just now at Political Economics with Scott Grannis: https://firehydrantoffreedom.com/index.php?topic=1467.msg147336#msg147336
Isn't the Fed an independent organization, does not report directly to Congress or the executive branch? Aren't they tasked by charter and law to do what is responsible and in the best interest of the country, price stability and monetary integrity? EVERYBODY knows spending is out of control, before, during and after the pandemic, under Obama, under Trump, under Biden, after way further back.
Why does the Fed write a blank check for every irresponsible act coming out of the (other) branches of government? Don't they have their own responsibilities?
Congress as representatives of the people, through the constitutional process of moving bills into laws, should be able to spend the money they take in any way they want. Why is that amount of spending not limited to what they can bring in or reasonably and responsibly borrow?
Inflation at this point is intentional and fully manmade. Are there no rules or constraints to stop this, short of passing a new constitutional amendment?
Chart from Scott Grannis:
(https://ci4.googleusercontent.com/proxy/Q4O9F2zHTTjMaYZQoSlt8EQsG2hhIdCIEMbMMpZUXtFH4diGyPVh_4KNt8hF54Hl417atoTx4yOhjvRDQ39TEE3vkJS45CAJU44USRMskEjPPS_VCvCJkj7QnwCMx27dC7sfHTY1Vyhrz0jBFkkiopGnxwtssA=s0-d-e1-ft#https://mcusercontent.com/dc8d30edd7976d2ddf9c2bf96/images/e31d708b-882e-2957-0523-2f4fa8dde35a.png)
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YA: Sent you two emails-- have you received them?
Sorry, did not get any, perhaps you mistyped the address ?
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BTC @ 20.4K
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You have PM.
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Responded..thank you
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Important podcast on the Yen..BTC
https://youtu.be/HMKk02vd7rc
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Not that I understand , , ,
https://www.zerohedge.com/markets/does-sam-bankman-fried-own-everything-now-recap-last-weeks-top-crypto-news?utm_source=&utm_medium=email&utm_campaign=754
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There was a contagion due to all the investors, invested in shit coins and in companies which rehypothecate your BTC and give high yield. Sam is buying these companies very cheaply. With BTC, as long as one is not margined, BTC always comes back whereas these altcoins will disappear and go to zero. Next bull market a new batch of altcoins will emerge and the cycle repeats. BTC has had four 80-85 % pullbacks. Every all time high has been higher than before, same with the lows. Unless, I am misunderstanding the Bank of International Settlements (BIS) proposal, they will allow banks to hold 1 % of crypto. Once the document is finalized...this should be bullish. Neither the EU, nor the US has any plans to try and ban BTC...perhaps because it is very difficult to ban it, as China has learned.
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Thank you.
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(https://pbs.twimg.com/media/FW2JW3vXgAAjs32?format=jpg&name=4096x4096)
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See Scott Grannis' June 30 on BTC and also his entry on June 29.
https://scottgrannis.blogspot.com/
Separately, I note:
10 year treasuries are down to 2.8 and 30 years are down to 3.04.
Oil has dropped to $99.
Silver has dropped to 19.
Gold has dropped to 1766!
BTC is 19,400 and ETH is 1086.
Are these the signs of an inflationary apocalypse?
Or maybe with the end of Wuhan and the Feds helicopter money, the future inflationary reality is that it will slow faster than we have been thinking?
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as Ralph Cramden would have said to Alice
bitcoin is going to the moon
bang zoom !!!!
https://www.coindesk.com/price/bitcoin/
https://www.google.com/search?rlz=1C5GCEM_enUS1001US1001&source=univ&tbm=isch&q=image+of+fingers+crossed+behind+back&fir=q_TMhq1R1OofyM%252C02gwxd6XmQWlPM%252C_%253B3y_P1oXc34dLoM%252C02gwxd6XmQWlPM%252C_%253Bi3iBFgHM0yrZiM%252CBwClkTP57aZ9zM%252C_%253Bg7ACzVftPk3p3M%252CZRqNpZoGLq5dFM%252C_%253BL0Vul3DyW2drRM%252Cc16zc2q09g1dlM%252C_%253Br-5qk1SlsTEh6M%252CB383o9OfxBsmWM%252C_%253BBnvY-qHJo5Dd2M%252CL2azIHDUWSy0vM%252C_%253BWF-JPBwS-1I3IM%252CFPy8WY30a25PPM%252C_%253BMCdA_f6CYbfu7M%252Ca76dkrAnB3lAcM%252C_%253B9cgkBvxh1O_4QM%252Cecpq-PNHsUtQPM%252C_%253B7_mcLMnc4lRZXM%252C5BJhj9B5lknCrM%252C_%253Bhki-Rk5DD7948M%252C02gwxd6XmQWlPM%252C_%253BeNSs5SF4N6bD7M%252CuvmXitZunNRmyM%252C_%253BRYvdMB1vjl0KiM%252C1C27HUyDK60JHM%252C_&usg=AI4_-kR_6DpjN_Oa3bXROHqZhKRpQ8ep6Q&sa=X&ved=2ahUKEwjj9bns_Ov4AhW4jIkEHVpIAvYQsAR6BAgCEAM&biw=1440&bih=789&dpr=2
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Fed Reserve getting interested in BTC
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4142590
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As a matter of consistent reportage, tis fair and correct to state that inflation over the past year has been 9.1 percent per official numbers (yes, yes, we know what official means). This minimizes taking one or two months out of context.
OTOH here we have a rising trendline and to get a more accurate assessment of where we are at NOW is to annualize a 1.3% monthly. I'm too lazy to do the calculations of compounding, but if we multiply 12 x 1.3 we get 15.6%
This slightly understates of course, but for purpose of political conversation as to where we are at right now I would submit more relevant than the 9.1% number.
That said, this does need to be put in larger context. The best economist I know is Scott Grannis
Here are his thoughts on his blog:
https://scottgrannis.blogspot.com/
If you have interest in economics, the market, and/or political economics, this blog should be a regular read for you.
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second post
https://bombthrower.com/crypto-is-dead-except-for-one-part/
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https://www.wsj.com/articles/inflation-tracker-cpi-data-prices-11657717467
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My spanish language knowledge is non existent, but I think the below means that, paraguay has passed a law that will allow use of excess hydroenergy to mine BTC.
https://www.criptonoticias.com/regulacion/senado-paraguay-ley-bitcoin-presidente/
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(https://s3.amazonaws.com/revue/items/images/014/592/424/mail/Instagram_Post_-_5__281_29.png?1646828761)
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YA:
Here is the English translation:
https://www.criptonoticias.com/regulacion/senado-paraguay-ley-bitcoin-presidente/
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muchas gracias.. :-D
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(https://pbs.twimg.com/media/FX0hX-yUIAAcm0D?format=jpg&name=medium)
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(https://pbs.twimg.com/media/EcWZ0tMU0AA8z7E?format=jpg&name=medium)
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https://seekingalpha.com/article/4523775-is-coinbase-going-to-repeat-petscom-doomsday?mailingid=28406910&messageid=must_reads&serial=28406910.2606136&source=email_must_reads&utm_campaign=Must+Read+July+17%2C+2022&utm_content=seeking_alpha&utm_medium=email&utm_source=seeking_alpha&utm_term=must_reads
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"Not your keys, not your coins", Hardware wallets solve that.
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one of my financial advisors tells me there is an I bond (think Kudlow)
has a annual purchase limit of $10,000
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https://thebitcoinlayer.substack.com/p/is-bitcoin-an-inflation-hedge-yes
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So, if Scott Grannis is right and M2 has come back down, what does that mean for BTC from here forward?
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https://thebitcoinlayer.substack.com/p/is-bitcoin-an-inflation-hedge-yes
It would seem from the article, Bitcoin is not or not yet a hedge against inflation. It is a risk investment, not a safe haven - at this point.
From the article: "bitcoin hedges our exposure to bureaucratic mismanagement."
Inflation, no matter how defined, has ups and downs to it (different than Bitcoin). Bureaucratic mismanagement is much more of a constant force with accumulating economic carnage.
Bitcoin peaked 11/7/2021 and since then has lost 2/3rds of its then value. Inflation has only worsened in that time.
Gold lately does not seem to move directly against inflation.
Real estate, except for the government screwing with it and the crash of 2008, has definitely tracked up with money supply inflation. But now that we have major price level inflation causing drastic Fed actions, the price movement is downward, even while consumer prices go up and up.
Let's not kid ourselves. Inflation is a tax. Inflation is a disease. Inflation is a destructive force. There isn't some quick fix trick to escape it.
BTW, I've been buying extra gasoline during this runup, all that I can safely store. Gas has a 3-6 month shelf life and I'm way past that. Now what? I can pour this $2 or $3 gas into my vehicles, not as easy as going to a station, and replace it $4.50-$5, no savings at all. At that price, I'm not as motivated to replace my get out of town supply so I am less likely to be prepared at that level as time goes on...
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Doug wrote :
"BTW, I've been buying extra gasoline during this runup, all that I can safely store. Gas has a 3-6 month shelf life and I'm way past that. Now what? I can pour this $2 or $3 gas into my vehicles, not as easy as going to a station, and replace it $4.50-$5, no savings at all. At that price, I'm not as motivated to replace my get out of town supply so I am less likely to be prepared at that level as time goes on..."
the answer is easy -
buy an EV
just as butti says
:wink:
as for bitcoin
it has not worked as a hedge against inflation
but there still is potential and early in the game
but it needs to be easier to buy sell and do commerce with it I am thinking
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https://knowhow.napaonline.com/which-sta-bil-fuel-additive-is-right-for-you/
Doug wrote :
"BTW, I've been buying extra gasoline during this runup, all that I can safely store. Gas has a 3-6 month shelf life and I'm way past that. Now what? I can pour this $2 or $3 gas into my vehicles, not as easy as going to a station, and replace it $4.50-$5, no savings at all. At that price, I'm not as motivated to replace my get out of town supply so I am less likely to be prepared at that level as time goes on..."
the answer is easy -
buy an EV
just as butti says
:wink:
as for bitcoin
it has not worked as a hedge against inflation
but there still is potential and early in the game
but it needs to be easier to buy sell and do commerce with it I am thinking
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G M: "the answer is easy -
buy an EV
just as butti says"
:wink:
--------------------------
Great. I'll take a golf cart to the mountains... With a solar panel roof. Reminds me of when my old car started overheating going up the continental divide. I kept finding little streams along the side of the road, letting the car cool down and putting a little water back in until I could reach the summit and coast to town. I wonder how long (at night?) it will take to recharge an old EV once I run the lithium battery down to zero.
The next time I had trouble up there I called AAA, had a big gas powered truck haul me, in the car, on the flatbed, over the mountains.
Tow truck call of the future, "you have 3 customers in front of you and he needs a 9 hour charge between each one of them. Sir, are you okay to wait in your car?"
-------
In fact I used my ebike for transportation yesterday. My battery range is down to about 10 miles. I was able to fit my wallet and cell phone in the bag that includes the battery and controller, but now I have to make an extra trip with a gas vehicle to haul my tools and supplies. Savings equals zero.
How about lithium power tools? They're great, but is anyone getting more than a two year life from the battery? How does $13k sound? https://www.way.com/blog/tesla-battery-replacement-cost/
Wait. I have more than one car...
Do you remember the job Butti worked at before entering government? I don't either.
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quote author=G M
https://knowhow.napaonline.com/which-sta-bil-fuel-additive-is-right-for-you/
-----------------
Good point. My relatives who do this also buy the 'non-oxy' fuel. Everything adds to the cost and trouble - to save cost and trouble. My main point is, all this over a 7 day supply? What if I need a two year supply, or forever supply? Screwed. But I didn't mention my wind powered boat yet..
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Nice write up by Arthur Hayes on the European situation
https://cryptohayes.medium.com/excalibur-44b2822dc4e6
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Might be interesting. We have used the USD as a weapon, and thus forfeited our standing as the world's reserve currency. Locking Russia out of SWIFt was a monumental mistake. In the past, the US could punish Saddam and Gaddafi for pricing oil in Euros, we are now trying to do that with Russia. So far Russia has a better balance sheet than the US from what I understand.
- https://markets.businessinsider.com/news/currencies/dollar-dominance-russia-china-rouble-yuan-brics-reserve-currency-imf-2022-6
- The high USD is causing havoc all over the world.
Luke Gromen has written a lot about this, infact his website has a free pdf (email reqd) that reads almost like a thriller, written several years ago, but explains the current Ukr-Russia war quite well.
The US thinking so far has been that dollar=oil and we can print dollars as much as we want. Gromen's thinking is that all the power is in the hands of the guy with the commodity. Gromen says, the world will pay for oil in their own currencies which will not be backed by a fixed price gold, but a floating gold rate. Apparently, China already does this for Yuan transactions.
He also thinks, the US will have to devalue the currency, significantly to deal with our deficits and solve the Triffin dilemma. Please do read this...I loved it
https://fftt-llc.com/
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IIRC Scott Grannis is saying that now that the China Cooties' largess is over M2 has returned to suitable levels.
I would also note that given how much higher inflation is than interest rates on T-Bills, by my SWAG calculations the Treasury is profiting over $2T a year in real terms.
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Credit Suisse wealth report
https://www.credit-suisse.com/about-us/en/reports-research/global-wealth-report.html
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1) Why Inflation Numbers Will Get Worse Before They Get Better
As regular HOTLINE readers know, our bet is that inflation will come down over the next six months to the still high 4 to 6% range. The fall in commodity prices and low market interest rates are signaling a fall in inflation.
BUT: Laffer Associates has a fascinating analysis of the month-by-month inflation rates. The table below shows that for the next three months the inflation numbers that drop out of the year-over-year price calculator were low. Those numbers from a year ago are 5.6% for July 2021, 4.1% for August, and 5% for September.
Monthly Consumer Price Index
As Laffer puts it:
“If the next three month’s numbers being added exceed 5.58% (next month), 4.08% (month after next), and 5.04% respectively, the CPI measured inflation will be larger than 9.1% for the months of July, August, and September. Does anyone believe that any one of, let alone all, the numbers for the next three months will be lower than these?”
We don’t.
So it won’t be until October before we see an improvement in the official inflation numbers. That’s REALLY bad news for the Democrats in November.
==================
True enough, but I'm thinking the Biden folks and the Pravdas will be pointing this out , , ,
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India ready to launch new bullion exchange...Gold is what attracts Indians
https://www.business-standard.com/article/current-affairs/pm-narendra-modi-to-launch-international-bullion-exchange-on-july-29-122072501153_1.html#.YuApx5T_yvM.twitter
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Yet with all the inflaion somehow gold is down from approx peak of $2000 to low $1700s , , ,
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Why the Fed May Soon Need Treasury Help
The central bank will be paying much more in interest on reserves to control inflation.
By Judy Shelton
July 26, 2022 12:26 pm ET
Here we go again. Another meeting of the Federal Reserve’s monetary policy committee, and another press conference at which Chairman Jerome Powell will attempt “to explain our actions and answer your questions.” One question financial journalists should ask: Why is the Treasury about to start underwriting the Fed’s operating expenses?
The public may not be aware that when the Fed raises rates, it does so primarily by raising what it pays to commercial banks and other depository institutions on the reserves they hold at the Fed—which are interchangeable with cash and effectively serve as checking accounts. These funds currently total $3.3 trillion. Since December 2008, they reflect accumulated purchases by the Fed of Treasury debt obligations and mortgage-backed securities. The Fed paid for its purchases by crediting the reserve accounts of the sellers.
Another $2.5 trillion in cash is held at the Fed through reverse repurchase agreements that the Fed conducts with a broad set of eligible counterparties, including money market-mutual funds and government-sponsored enterprises as well as commercial banks.
When the Fed announces a higher target range for the federal-funds rate (currently 1.5% to 1.75%), it implements its decision by raising what it pays both on reserve balances (currently 1.65%) and on reverse repurchase agreements (currently 1.55%). Money to pay for these interest expenses comes out of the Fed’s interest earnings on its own portfolio.
The tricky situation the Fed now faces is that its own net interest income—$116.8 billion in 2021, of which 93% was remitted to the Treasury—will soon be exhausted by the higher interest rates it intends to pay on those combined cash funds. A target federal-funds range of 3.25% to 3.5% by year-end would have the Fed shelling out more than $195 billion annually to maintain both reserves and reverse repurchase agreements at current levels. The Treasury will have to advance funds to cover the gap.
Here’s another good question to ask Mr. Powell, since taxpayers might be wondering exactly who is entitled to receive such generous returns from the Fed on their cash holdings: Are these interest payments distributed broadly among financial institutions, or do they mostly go to a handful of very large commercial banks? What percentage of the interest paid by the Fed goes to foreign-owned institutions?
It would be useful to have Mr. Powell walk through the logic of paying banks and money-market funds, foreign and domestic, higher interest rates on risk-free cash accounts and on reverse repurchase agreements as the key to fighting inflation. The Fed explains on its website how paying interest on reserve balances helps to implement monetary policy decisions: “Banks should be unwilling to lend to any private counterparty at a rate lower than the rate they can earn on balances maintained at the Federal Reserve.” So is that the goal? To corral funds that might otherwise finance private lending?
The European Central Bank pays zero interest on deposits, so it’s understandable that U.S. branches and agencies of foreign banks would hold large reserve balances at the Fed—some $1.03 trillion as of March 31. Japanese banks figure prominently on the list of counterparties for conducting reverse repo transactions with the Fed; the Bank of Japan’s short-term interest rate target is minus 0.1%.
But Americans might ask why their Treasury will soon provide funds to pay interest on non-U.S. banks’ cash parked at the Fed. This matters because American exporters are bearing the cost of a rising dollar while other major central banks continue to maintain ultralow interest rates to support their domestic economies.
Another pertinent inquiry would press for details on the Fed’s network of currency-swap lines with other central banks, through which the Fed lends dollars in exchange for foreign currencies. Foreign central banks then lend these dollars to their own banking institutions. Use of the swap lines peaked in May 2020 with $449 billion extended to 14 central banks. Does the availability of swap lines with the Fed reduce pressure on other central banks to fight inflation by raising their own interest rates?
Mr. Powell might suggest these are monetary-policy decisions that should be kept separate from fiscal-policy considerations. But this line of separation has already been compromised by the Fed’s practice of remitting its interest earnings back to the Treasury.
The Fed has long boasted of its status as an “independent government agency” that “doesn’t receive funding through the congressional budgetary process.” It seems ironic, then, that the Fed will find it challenging to cover its own operating expenses starting as soon as next week’s interest rate decision.
It would be good to hear some plain-English answers on these matters from Mr. Powell—who earnestly vowed to foster a public conversation about what the Fed is doing—at Wednesday’s press conference.
Ms. Shelton, a monetary economist, is a senior fellow at the Independent Institute and author of “Money Meltdown.”
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Speaking of Deep State, there is "The Fed":
(Mohamed A. El-Erian is president of Queens’ College, Cambridge University. He is an advisor to Allianz, Professor of Practice at The Wharton School, and a senior fellow at University of Pennsylvania.)
https://thehill.com/opinion/finance/3573974-the-problem-with-a-persistently-late-federal-reserve/
...
What started out as inflation driven by a readily identifiable set of exogenous drives — namely, energy and food prices — has been allowed to become more entrenched and broad-based. Depending on who you ask, the blame game for why this has happened involves several actors with a recurrent one: A Fed that mis-analyzed, badly forecasted, poorly communicated, and inadequately responded to a phenomenon that is consequential for our society in a number of ways.
Desperate to catch up, the Fed is likely to take the unusual step of announcing on Wednesday another 75-basis-point increase in interest rates (yes they did) wrapped in a notably hawkish narrative. Equally unusual, and again a reflection of it being so late in responding, it will do so despite multiplying signs that the U.S. economy is slowing rapidly.
No wonder so many more people are worried that the Fed will push us into what would have been an otherwise-avoidable recession. This concern is a reflection of a larger issue: The current inflation dynamics are changing in a way that is likely to catch out the Fed yet again.
It would not surprise me if the recent 9.1 percent inflation print proves to be the peak for now. Specifically, the question is no longer the one that has been on so many people’s worry list, and rightly so: How high will inflation go in the next three months? It is now evolving to how fast and how far will inflation come down — and, equally if not more important, the extent of collateral damage for the economy.
I fear that, given how out of sync the Fed has been for so long, the downward trajectory of inflation may prove sticky and accompanied by unnecessary damage to livelihoods and a further worsening of inequality.
This is a scenario in which households, especially those with low income, face the double whammy of eroding purchasing power and growing income insecurity. It also is a scenario that risks fueling economic and financial instability internationally, as well as domestically.
...
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(https://pbs.twimg.com/media/FY3K-9hX0AMQzi5?format=jpg&name=4096x4096)
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Blackrock is 8.5 T assets under management, and hundreds of institutional investor clients.
https://www.coindesk.com/business/2022/08/04/blackrock-to-offer-crypto-for-institutional-investors-through-coinbase-prime/
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"Blackrock is 8.5 T assets under management, and hundreds of institutional investor clients."
we heard this too yesterday
:-D :-D :-D
Except I despise it's chairman and CEO who is a die hard Democrat globalist elitist prick:
https://en.wikipedia.org/wiki/Larry_Fink
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one guy ruled out:
https://www.theguardian.com/technology/2022/aug/06/another-court-case-fails-to-unlock-the-mystery-of-bitcoins-satoshi-nakamoto
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(https://pbs.twimg.com/media/FZmv3qlaQAA12Aw?format=png&name=medium)
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https://www.gatestoneinstitute.org/18787/china-russia-attack-dollar
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https://www.washingtontimes.com/news/2022/aug/10/monthly-price-increases-unchanged-july-annual-infl/?utm_source=Boomtrain&utm_medium=subscriber&utm_campaign=morning&utm_term=newsletter&utm_content=morning&bt_ee=5wadC7Rsw3hJo8Ki5PML3Ppigh0maF6fZha%2FqlrE%2BPqrW3I0tCqF2pd9gnGooaTp&bt_ts=1660211131060
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https://www.washingtontimes.com/news/2022/aug/10/monthly-price-increases-unchanged-july-annual-infl/?utm_source=Boomtrain&utm_medium=subscriber&utm_campaign=morning&utm_term=newsletter&utm_content=morning&bt_ee=5wadC7Rsw3hJo8Ki5PML3Ppigh0maF6fZha%2FqlrE%2BPqrW3I0tCqF2pd9gnGooaTp&bt_ts=1660211131060
CPI is measured and reported YOY, year over year, when Republicans are in office.
Their answer to slow rising prices is to trigger a recession, not to incentivize production or alleviate scarcity.
How is inflation over, the implication of the one month number, if they screwed up the planting season and fertilizer for the year? What is the demand inelasticity of food?
-------------------------------------------------------------------------------
Producer prices for goods up 17.9 percent from June 2021 to June 2022
https://www.bls.gov/pPI/
None of that will come back to bite the consumer, the people making under 400k...
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https://scottgrannis.blogspot.com/
Note the M2 charts:
https://scottgrannis.blogspot.com/search?updated-max=2022-07-28T14:58:00-07:00&max-results=3
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https://scottgrannis.blogspot.com/
Note the M2 charts:
https://scottgrannis.blogspot.com/search?updated-max=2022-07-28T14:58:00-07:00&max-results=3
I am a big fan of Scott Grannis. Note his endorsement of CTUP. Good to see the M2 correction.
In that context, I nitpick. He is on our side with policy but tends to understate the severity of the damage of Democrat rule, IMHO.
He goes from not a recession, to stagflation, to recession-lite, to saying the terms don't matter. It's an election year. The terms matter. This is called whatever it would be called if a Republican was in office. That word is recession - pending revisions and corrections.
"Over the course of the first six months of the year, real GDP declined by 0.63%. On an annualized basis, that works out to -1.25%" ... "Today the economy is only about 2.2% below its most recent trend" (my italics on "only")
[Doug] No. It's 2.2 + 1.25 ( >3%) off recent trends and 3.1 +1.25 ( > 4%) off of long term trends, in what should be in a V-shaped recovery coming out of a covid shutdown, see his job chart.
In that context, 5 - 7% growth should be possible, even normal or expected:
https://www.bea.gov/news/2022/gross-domestic-product-fourth-quarter-and-year-2021-advance-estimate
4.2% shortfall (in a year) off long term trend for this economy is a trillion dollars lost permanently. That is real money and opportunities lost with lives affected, hence my quibble with the term "only".
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Zero growth (-1.25%/yr) when 2 million more "workers" walked across Joe Biden's border, assuming they all contribute as promised, is a serious contraction for all the rest of us, unless you believe those millions of people live on zero dollars.
https://www.washingtonexaminer.com/opinion/biden-lets-in-1-million-illegal-border-crossers-maybe-2-million
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https://scottgrannis.blogspot.com/
Note the M2 charts:
https://scottgrannis.blogspot.com/search?updated-max=2022-07-28T14:58:00-07:00&max-results=3
I am a big fan of Scott Grannis. Note his endorsement of CTUP. Good to see the M2 correction.
In that context, I nitpick. He is on our side with policy but tends to understate the severity of the damage of Democrat rule, IMHO.
He goes from not a recession, to stagflation, to recession-lite, to saying the terms don't matter. It's an election year. The terms matter. This is called whatever it would be called if a Republican was in office. That word is recession - pending revisions and corrections.
"Over the course of the first six months of the year, real GDP declined by 0.63%. On an annualized basis, that works out to -1.25%" ... "Today the economy is only about 2.2% below its most recent trend" (my italics on "only")
[Doug] No. It's 2.2 + 1.25 ( >3%) off recent trends and 3.1 +1.25 ( > 4%) off of long term trends, in what should be in a V-shaped recovery coming out of a covid shutdown, see his job chart.
In that context, 5 - 7% growth should be possible, even normal or expected:
https://www.bea.gov/news/2022/gross-domestic-product-fourth-quarter-and-year-2021-advance-estimate
4.2% shortfall (in a year) off long term trend for this economy is a trillion dollars lost permanently. That is real money and opportunities lost with lives affected, hence my quibble with the term "only".
----------------------------------------------------------------------------------
Zero growth (-1.25%/yr) when 2 million more "workers" walked across Joe Biden's border, assuming they all contribute as promised, is a serious contraction for all the rest of us, unless you believe those millions of people live on zero dollars.
https://www.washingtonexaminer.com/opinion/biden-lets-in-1-million-illegal-border-crossers-maybe-2-million
Note how many of those border crossers are "military age males". Now I'm sure the vast majority have very high IQs, are fluent in English and have the education and training to fill many high tech jobs that are currently going unfilled, but what of those who aren't?
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set to launch 9/17/22
https://cryptopotato.com/ethereum-merge-might-happen-sooner-than-expected/
ethereum low ~ 1,000 for June / July
is now > $1,900
The buzz of 2.0 is whirling:
https://ambcrypto.com/pre-merge-heres-the-full-scope-of-the-eth-2-0-deposit-contract/
:-D
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I am only in BTC at the moment.
Still worth getting in on ETH or too late in your opinion?
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FWIW
my opinion that is
I probably would not be a buyer here
as it is near double off its low. (Unless you have some spare money and you are ready to hold for yrs ).
presumably on anticipation of 2.0 launch
in comparison BC is only up ~ 30 % from its low
in addition there is risk the launch will not take place as anticipated
which would be shock to price
as happened before
so , like BC I still expect it to do well long term
but of course with all the known risks along the way .....
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Thank you.
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BTC/ETH
WTF?
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https://www.cnbc.com/2022/08/19/sudden-crypto-market-drop-sends-bitcoin-below-22000.html
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ETH is undergoing a move from Proof of Work to Proof of Stake, around Sept 15, the so called merge. Looks like BTC has topped at 69K this cycle. This was the first cycle top, when there was no blow-off top, and one could assume the next cycle top is in 2025, per the halving schedule. As more people learn of BTC and buy into it, it is possible that there will no longer be blow-off tops, similarly the pull backs will be less pronounced, previous pullbacks were around 85 %, this time it was around 78%.
ETH is more volatile, dont expect it to ever become money or a store of value. It is a centralized coin, controlled by a few rich people. BTC is completely decentralized and the supply is fixed at 21 million.
I would like to leave an important read, below.
https://lookingglasseducation.com/whats-a-debt-spiral-and-is-the-us-already-in-one/
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(https://pbs.twimg.com/media/FasQ_7AX0AEfdrD?format=jpg&name=medium)
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:-)
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Nobody Knows How Interest Rates Affect Inflation
It depends on a question about which economists disagree: Is the economy fundamentally stable?
By John H. Cochrane
Aug. 24, 2022 6:41 pm ET
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The Federal Reserve building in Washington, Aug. 23.
PHOTO: GRAEME SLOAN/BLOOMBERG NEWS
A grand economic experiment is under way. Can the Federal Reserve contain inflation without raising interest rates much higher than they are now?
Conventional wisdom says that as long as interest rates are below the rate of inflation, inflation will rise. Inflation in July was 8.5%, measured as the one-year change in the consumer price index. The Fed has raised the federal funds rate only from 0.08% in March to 2.33% in August. According to the conventional view, that isn’t nearly enough. Higher rates are needed, now.
This conventional view holds that the economy is inherently unstable. The Fed is like a seal, balancing a ball (inflation) on its nose (interest rates). To keep the ball from falling, the seal must quickly move its nose.
In a newer view, the economy is stable, like a pendulum. Even if the Fed does nothing, so long as there are no more shocks, inflation will eventually peter out. The Fed can reduce inflation by raising interest rates, but interest rates need not exceed inflation to prevent an inflationary spiral. This newer view is reflected in most economic models of recent decades. It accounts for the Fed’s projections and explains the Fed’s sluggish response. Stock and bond markets also foresee inflation fading away without large interest-rate rises.
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So which view is correct? In normal times, it’s hard to tell. Whether seal or pendulum, inflation and interest rates move up or down together in the long run, and they jiggle around each other in the short run.
Advocates for the conventional view argue that the Fed raised interest rates too little in response to inflationary shocks in the 1970s. Only when the Fed raised interest rates substantially above inflation for several years in the early 1980s, provoking two deep recessions, did inflation finally subside. The sooner we get to it, they say, the better.
Advocates for the stable view point to recent decades of steady inflation at zero interest rates in the U.S., Europe and Japan. When deflation appeared and central banks couldn’t move rates much below zero, conventional analysts warned of a “deflation spiral.” It never happened. Why should an inflation spiral break out now?
In both theories, expected inflation matters: If people expect higher inflation next year, they buy or raise prices today. The central assumption behind the unstable inflation-spiral theory is that people expect next year’s inflation to be pretty much the same as last year’s inflation—what economists call “adaptive expectations.” A driver who looks in the rearview mirror to judge where the road is will quickly veer off to one side or another.
The central assumption behind the stable theory is that people think more broadly about future inflation. They’re not clairvoyant, but they don’t ignore useful information and aren’t much worse at forecasting inflation than, say, Fed economists are. If a driver looks forward through the windshield, even a dirty windshield, the car tends to get back on the road.
Economists don’t know for sure whether the economy is stable or unstable, whether inflation can fade away without interest rates substantially above inflation. In that light, the Fed’s actions make some sense. If you really don’t know how interest rates affect inflation, it’s natural to raise rates slowly. Inflation may subside on its own. If not, you can keep raising rates.
If inflation fades, the conventional view will be seriously undermined. If it spirals, absent other shocks, the new view is in trouble. But a good experiment requires everyone to leave the test tube alone. Unfortunately, we are likely to see some new shock: a virus, a war, a financial crisis or a fiscal blowout. Inflation will then rise or fall for reasons having nothing to do with spirals, stability and interest rates.
Mr. Cochrane is a senior fellow at Stanford University’s Hoover Institution and an adjunct scholar of the Cato Institute. His book “The Fiscal Theory of the Price Level” is out in January.
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Very important Zoltan..
https://plus2.credit-suisse.com/shorturlpdf.html?v=5amR-YP34-V&t=-1e4y7st99l5d0a0be21hgr5ht
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Very important indeed!!!
Much to mull over deeply there.
I note the final words:
"…which is why Bretton Woods III is destined to happen. It’s already happening,
and we will explore the Bretton Woods III topic in detail in our upcoming dispatch:
War and Currency Statecraft."
Hope you will be able to share that with us as soon as it comes out!
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second
https://bombthrower.com/is-there-a-trophy-for-calling-the-turn/
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In case anyone is interested..BTC seed storage comparison
https://blog.lopp.net/metal-bitcoin-seed-storage-stress-tests-round-vi/
BTC will likely not rise for a while to all time high's, but it will start its rise in the next few months and peak in the next cycle by 2025. Usually, BTC correlates inversely to the US dollar. The rising $ is causing havoc in emerging markets/developing countries. The US ofcourse does not care too much about developing countries, but American support for Ukraine has caused a crisis in Europe. EU gas prices have gone ballistic, at some point they will cry UNCLE and unity will break down. The debt levels of many EU countries, especially, Italy, Greece etc are very high. If the FED has to bail out the EU in a crisis, money printing will begin again, rates will ease and we will be off to the races.
Pl. also see this tweet by Greg Foss https://twitter.com/FossGregfoss/status/1559875688051757057 (https://twitter.com/FossGregfoss/status/1559875688051757057) why rates cannot go very high, as around 3.2 % FED rate the interest on on a 30 T$ debt is 1T$ and becomes unpayable, unless they print money. This may be the reason Biden and politicians dont care, the only way out is to print more, give free stuff, devalue the $ and pay of interest in devalued $.
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This goes well over my head:
https://bombthrower.com/ethereums-great-leap-forward/
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This is an amazing podcast, around 70 min gets better over time. Worth a listen as to what's happening to the US $.
https://youtu.be/hDwdximds_0
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No opinion on this:
Three Things That Could Kill Crypto
BY MICHAEL WILKERSON TIMEAUGUST 26, 2022 PRINT
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Following the drubbing of the crypto markets in June 2022, with Bitcoin and Ethereum prices down nearly 75 percent and 82 percent, respectively, from their all-time highs, many market observers predicted the early death of the crypto industry. Crypto detractors, including regulators and vested interests in the legacy financial system, each used the rout as evidence that crypto is a dangerous scam that needs to be more heavily regulated, if not completely outlawed. The predictions of imminent doom were premature. Bitcoin is up 37 percent and the price of Ether has doubled since the June lows. Prices will go up and prices will go down. Volatility will persist. This isn’t the point.
While highly correlated with the simultaneous decline and recovery of the equity markets, the crypto market had some notable frauds and failures in the quarter among previously large crypto funds and lenders that caused a domino effect across the industry, much like the collateral damage caused by the collapse of large hedge funds or banks in traditional financial markets.
Notwithstanding the turbulence, sentiment in the industry has remained remarkably strong, buoyed by an evangelical zeal among “cryptonauts” in the underlying mission, utility, and potential of the crypto revolution to address real-world issues, such as financial inclusion for the poor and unbanked, inflation caused by runaway deficit spending and debt issuance, government surveillance and the potential for illegal asset seizures, and the oligopolistic dominance of the big banks in traditional financial markets.
Like any disruptive innovation, crypto is bound to have some ups and downs, false starts, and dead ends. When newly invented bicycles, for example, became a popular and efficient alternative to either walking or traveling by horseback, government officials and the era’s media influencers sought to outlaw them as dangerous nuisances to public safely. Eventually, and despite many crashes and broken bones along the way, the obvious mobility benefits overcame such resistance.
Bitcoin, Ethereum, and some other cryptocurrencies represent a transformative innovation that has potential to radically alter the worlds of money, finance, and much more. These opportunities have been detailed elsewhere. Crypto deserves the chance to develop and succeed, just as enlightened U.S. policy enabled innovation in the Internet era. However, there are at least three major, long-term risks that could leave this potential unrealized: the lack of consumer adoption, regulatory interference, and unforeseen technological innovation.
Lack of Consumer Adoption
What made the last technology revolution successful was the vast consumer applicability of useful (if now annoying and sometimes baneful) applications such as email, web browsers, social media platforms, and multifunction smartphones. Some legislators proposed taxing emails to make up for lost postal service revenue, but wiser heads prevailed. Through the development of TCP/IP—an Internet protocol suite, or the “handshake” between otherwise unconnected computers around the world—what we now call the Internet migrated from an arcane military, then university, research tool to a universal application that today is used by an estimated five billion people around the world. Similarly, 6.8 billion people now have access to smartphones of one kind or another.
However, as of today, crypto remains largely in the playpen of tech bros (and they’re mostly bros). Only an estimated 300 million people (3.75 percent of the world’s population of eight billion) have used crypto. For crypto to thrive, it must be made easier to use by the rank and file of individuals who don’t know how to navigate a command line prompt or care about the math behind a cryptographic hash.
To this end, many of the products and innovations now coming out of the industry are targeted at demystifying crypto and making it more accessible to the “normies” outside the highly technical world it has represented heretofore. Just as AOL moved access to the Internet from UNIX-programmers to grandma and grandpa, so too must crypto, DeFi (decentralized finance), and Web 3.0 make their inevitable migration to simple and widespread consumer use in order to succeed.
Regulatory Interference
Government leaders as diverse and otherwise opposed to one another as U.S. SEC Chairman Gary Gensler, European Central Bank President Christine Lagarde, U.S. Treasury Secretary Janet Yellen, former UK Prime Minister Boris Johnson, and former U.S. President Donald Trump each have denounced crypto as a scam that needs substantial regulation and governmental oversight, if not outright prohibition on use. These criticisms always fail to mention that the amount of fraudulent and criminal transactions that occur with cash or across bank wires dwarfs any such illicit use in crypto.
China has notoriously taken the lead here, banning for all practical purposes the use of Bitcoin in the formal economy, while, via the People’s Bank of china, simultaneously issuing a digital yuan that is, ultimately, controlled and monitored by the Chinese Communist Party. Whether issued by China, the United States, or the European Union, government-sponsored, central bank-issued digital currencies (CBDCs), while having many viable use cases, are also a potential tool of the surveillance state. If not checked, regulation will facilitate governments’ total informational awareness (and ultimate control) of CBDCs and, thus, every aspect of their citizens’ lives. Bitcoin and Ethereum provide alternatives to enable financial privacy and autonomy.
In the United States, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) recently sanctioned use of Tornado Cash, “a decentralized and non-custodial privacy solution built on Ethereum” that allows users to anonymize transactions that they don’t want made visible to anyone who looks at the details publicly available on the transparent blockchain. There are many legitimate reasons for individuals and business users to keep the details of their financial transactions private. No one wants their medical expenses, political or charitable contributions, supplier or customer data, and other spending visible to the entire world. Notably, this is the first time that OFAC’s financial crimes sanctions (normally targeting terrorists, traffickers, criminal networks, and the like) have been deployed against lines of computer code rather than individuals or legal entities, and its legality will almost certainly be challenged.
A wide-ranging regulatory confrontation is imminent in the United States, and it is entirely possible that regulations are eventually issued that renders use of non-CBDC coins illegal or so burdened by regulation as to make them of little practical use.
Unforeseen Innovation
Lack of adoption and regulatory interference are well-known and oft-discussed risks for crypto. What is less frequently considered is pure technology risk. This is to say, the same relentless advances in technology that enabled secure distributed networks, applications for blockchain technology, and cryptographic keys may be their undoing. For example, advances in quantum computing may one day make the “unbreakable” cryptographic private keys that secure digital wallets vulnerable and thus obsolete. Unlike normal computer code, qubits—quantum bits—are nonbinary (no, not that kind) and can be both 0 and 1 at the same time or oscillate between them. This may eventually allow computations at a speed and complexity impossible today.
It’s not for me to predict what these unforeseen innovations will be—I write as a strategist not as a technologist—but to remind us that technology advances and materializes in unpredictable, unexpected, and seemingly sudden ways. Anyone remember Nokia and Blackberry?
We are in the middle of a revolution that has potential to transform everything from finance and economics to government and politics, and even democracy itself. What advocates see as potential benefits are the very things viewed as threats and dangers by government regimes. Many revolutions launched with great zeal and enthusiasm are not ultimately successful and end up in the dustbin of history. The crypto revolution should be supported by anyone who cares about things like financial decentralization and wresting control from “too big to fail” banks, transaction anonymity and immutability, the right to ownership of one’s data, online privacy, and individual sovereignty.
Only time will tell whether crypto survives these inevitable challenges.
The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
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second
https://www.ssj.news/news/financial/2022-08-28/brics-says-russia-india-no-longer-need-us-dollar.php?fbclid=IwAR0ci8QLKG1aBKPBZgHSvvJJtrF98tYrr_rCSb-iYBSoGU13QzrYNXTggi8
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no tariffs on those coming here :-o
I am very concerned crypto next
they need to control digital currency
these are Democrats
CONTROL
us the key
thoughts ?
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In the last few decades, the curves have become steeper, takes about 10 yrs for full saturation. BTC is ready for adoption.
(https://pbs.twimg.com/media/FbmEuGrWIAI0DM7?format=jpg&name=medium)
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Important fascinating interview
https://quoththeraven.substack.com/p/stocks-bonds-real-estate-and-the
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https://scottgrannis.blogspot.com/
See 8//25 and 8/31
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For long Russia threatened that Ukr joining NATO would be a red line...Kamala harris said Ukr should join Nato, next day Russia invaded. Then Russia said, oil pipelines would be shut down, after 6 months Nordstream 1 is shut down. Now Russia is threatning to use cryptocurrencies (BTC) for oil payments (see below), this too will happen at some point. Once they start pricing oil in BTC, that could be the end of the petrodollar. Oil is currently indirectly priced in gold as the rouble is linked to the price of gold. Similarly, any trade in Yuan is freely convertable to gold at the Shanghai exchange (from what I read).
https://www.zerohedge.com/crypto/russia-legalize-use-cryptocurrency-international-trade-report (https://www.zerohedge.com/crypto/russia-legalize-use-cryptocurrency-international-trade-report)
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For long Russia threatened that Ukr joining NATO would be a red line...Kamala harris said Ukr should join Nato, next day Russia invaded. Then Russia said, oil pipelines would be shut down, after 6 months Nordstream 1 is shut down. Now Russia is threatning to use cryptocurrencies (BTC) for oil payments (see below), this too will happen at some point. Once they start pricing oil in BTC, that could be the end of the petrodollar. Oil is currently indirectly priced in gold as the rouble is linked to the price of gold. Similarly, any trade in Yuan is freely convertable to gold at the Shanghai exchange (from what I read).
https://www.zerohedge.com/crypto/russia-legalize-use-cryptocurrency-international-trade-report (https://www.zerohedge.com/crypto/russia-legalize-use-cryptocurrency-international-trade-report)
Weimerica, including our currency.
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https://mailchi.mp/38e2a4367316/unleash-prosperity-hotline-867052?e=320eaee609
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https://mailchi.mp/38e2a4367316/unleash-prosperity-hotline-867052?e=320eaee609
Been shopping lately?
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The article I cite uses trend lines to project for the future.
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The article I cite uses trend lines to project for the future.
What is the pending collapse of europe going to do for those trend lines?
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Drive prices down even further-- and inflation rate is the question presented in this moment, yes?
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Drive prices down even further-- and inflation rate is the question presented in this moment, yes?
Yes, however there are lots of complexities such as supply chain impacts that will impact prices.
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Drive prices down even further-- and inflation rate is the question presented in this moment, yes?
Yes, however there are lots of complexities such as supply chain impacts that will impact prices.
A small anecdote, my wife just returned from Costco and note she observed three distinct groups there:
1. The well to do retirees shopping in part as something to do.
2. The middle class carefully shopping, looking for deals and carefully planning purchases.
3. The illegal aliens flush with EBT bennies and under the table employment loading up their carts with junk food.
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I agree that the price of food and many things essential to daily life have gone up a lot-- well above the purported inflation rate.
Returning to a distinction made previously-- Not all price increases are inflation, some are , , , price increases e.g. due to contraction in supply, perhaps due to government triggered reductions in the supply of fertilizer.
Is it deflation that gasoline has gone down from its peak price? $110 to 85? for oil? Is it deflation that gold has gone from $2000 to the low 1700s?
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I agree that the price of food and many things essential to daily life have gone up a lot-- well above the purported inflation rate.
Returning to a distinction made previously-- Not all price increases are inflation, some are , , , price increases e.g. due to contraction in supply, perhaps due to government triggered reductions in the supply of fertilizer.
Is it deflation that gasoline has gone down from its peak price? $110 to 85? for oil? Is it deflation that gold has gone from $2000 to the low 1700s?
Something to keep in mind, we are eating LAST YEAR's harvest.
Next year? Good luck.
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As both our posts testify, on this we are in complete agreement AND it is unresponsive to the distinction between price increases (e.g. in food, due to shortages) and inflation (an overall increase due to increases in money supply).
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As both our posts testify, on this we are in complete agreement AND it is unresponsive to the distinction between price increases (e.g. in food, due to shortages) and inflation (an overall increase due to increases in money supply).
Not easy to parse the impacts of various issues on the price of food or other items essential to survival, but I strongly suggest stocking up now.
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And on that we are heartily agreed as well!!!
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GM:
This is relevant to our conversation of yesterday:
https://mailchi.mp/3c4e38ce9a56/unleash-prosperity-hotline-867056?e=320eaee609
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GM:
This is relevant to our conversation of yesterday:
https://mailchi.mp/3c4e38ce9a56/unleash-prosperity-hotline-867056?e=320eaee609
Let's say that the money supply has stabilized. How long until 6.5 trillion dollars if excess are absorbed into the economy as non inflationary, normal growth?
My guess looking at past patterns is 3-4 years. What happens during that time? For one thing, another 3/4% interest rate increase coming now. A certain economic slowdown, looks like we are in month 9 of it. Collapse in housing then cars and large purchases. Continued energy squeeze and food / famine. Business closures and layoffs and unemployment increases. Protests and riots. War - on two continents? And civil war here. All because of economic mismanagement, to put it mildly.
Anybody want to put more money in the market? I think my money is going toward election security and voting these people out.
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Yesterday WH released their crypto report. Many aspects of it are BTC friendly. People are realizing that it may be the greenest technology on earth, with the potential to save the climate (if you believe in that narrative). Once the environmental groups understand it. BTC will be heavily marketed. BTC is energy friendly for several reasons.
1. It can utilize flared CH4 (methane) and make money!, which is 80x worse than Co2. There are thousands of oil wells world wide flaring CH4.
2. It can use stranded energy, hydroenergy, geothermal energy, and is stabilizing the power grid in TX. At times of peak load, in TX they shut of the miners, and in low loads, they mine.
3. CH4 released from abandoned oil wells, as well as the thousands of land fills all release CH4. This can be monetized, while cleaning the environment.
https://twitter.com/Vespene_Energy/status/1567956516300537858/photo/1
In other parts of the report, they are more threatning (good luck with arresting the CEO of BTC)
https://pbs.twimg.com/media/FcI9FAJXoAAJqpj?format=png&name=900x900
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Looks like BTC is doing BTC things (going up suddenly). BTC goes up, when the US $ goes down. At some point the USD will go down again after its current strengthening phase and that is when BTC will rise.
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A Bad Year for Crypto Is a Really Bad One for Crypto Miners
Electricity bills are surging and the equipment isn’t worth what it used to be, which makes for a bleak outlook for companies that mine bitcoin and ether
Harvesting digital coins calls for powerful computers and prices are soaring for electricity to keep them running.
PHOTO: JAMES JACKMAN
By Caitlin OstroffFollow
and Vicky Ge HuangFollow
Sept. 12, 2022 5:30 am ET
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Last year was harvest time for crypto miners. Now, they’re getting hit on all sides.
Crypto prices are plunging. Miners’ electricity bills are surging. Practically no one wants to buy their equipment.
It is a sharp turnaround from 2021, when crypto prices were soaring and many mining firms went on a mostly debt-funded buying spree of mining machines. But this year, crypto prices have been dropping and major crypto projects and companies have been wiped out. That has reduced the profits that miners can make from harvesting digital coins—and from selling their equipment in a pinch.
Meanwhile, prices for electricity—needed to keep the miners’ powerful computers running—are soaring. Russia’s war with Ukraine has hamstrung global energy supplies, while an extreme heat wave has bolstered energy demand from families that need to cool their homes.
Shares of crypto miners Marathon Digital Holdings Inc., Riot Blockchain Inc. and Core Scientific Inc. are all down 55% or more this year.
“I don’t think we are at the max pain yet in mining,” said Amanda Fabiano, head of mining at Galaxy Digital.
Bitcoin miners set up and run the powerful computers that process bitcoin transactions. Those computers generate random numbers in hopes of finding the right combination to unlock formulas; the first to do so are rewarded with newly created bitcoins.
This makes it most profitable to mine bitcoin when the cryptocurrency’s value is rising. Near bitcoin’s 2021 peak, miners earned more than $60 million a day, according to data from Blockchain.com. Now, that number is around $19 million a day.
Last year bitcoin’s value surged to nearly $70,000. This year the Federal Reserve started raising interest rates, scaring many investors away from assets like crypto. Last week bitcoin traded around $19,000. What is more, many once-highflying crypto lenders have buckled, leaving mining companies with few places for funding.
Crypto enthusiasts used to routinely mine bitcoin with one machine at home. Now, bitcoin mining companies run banks of high-powered—and noisy—computers to get the job done.
2020
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When bitcoin’s value soared last year, bitcoin-mining machines became a hot commodity. The rush to load up on mining rigs then was akin to “buying spades in the middle of the gold rush,” said Andy Long, chief executive of bitcoin miner White Rock Management.
Prices for the most-efficient tier of bitcoin miners are now one-third of their cost in December, according to Luxor Technology Corp., a bitcoin mining data analytics firm.
The steep decline has especially grave repercussions for the miners that borrowed funds to finance their equipment purchases last year. As bitcoin’s price tumbled, these miners were forced to sell some of their mining rigs and bitcoin holdings to avoid running out of cash. But few people want to buy the machines on the secondary market, driving the price of mining machines even lower.
Some analysts worry that more forced selling of bitcoin could lie ahead, particularly as miners also struggle with energy-price shocks.
Average power prices for the largest users in Texas had climbed to 7.52 cents per kilowatt-hour in June, up 41% from the same month last year, according to government data. Their German equivalent was at €525 a megawatt hour this month, roughly equivalent to the same number in dollars and up almost 140% from last December. A White House report last week warned that crypto miners could strain the Texas power grid.
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Two Georgia facilities used by bitcoin-mining company Compass Mining LLC recently had to close after their local utility providers increased electricity prices by 50%. Northern Data, a Frankfurt-based mining company, and other bitcoin miners said they were running mining machines only in the hours when power grids have less demand.
Publicly traded miners were forced to unload about 240,000 bitcoin at fire sale prices in May and June, according to Arcane Research, though the pressure has eased since then.
The U.S. quickly became the world leader in bitcoin mining after China cracked down on crypto last year. WSJ’s Shelby Holliday takes a look at what the global shift has meant for the bitcoin network, the energy industry and the environment. Photo: Mark Felix/Agence France-
Currently, crypto platform Ethereum uses a model similar to bitcoin, rewarding the fastest miners with new tokens. A software upgrade known as “the Merge” will change that. After the update, planned for this month, the Ethereum network will no longer require miners and their machines.
Already, there is less money to be made. Ether miners are averaging about $20 million in revenue a day, down from $50 million in 2021, according to crypto research firm CoinMetrics.
Ether miners will be able to migrate to platforms that still require miners, though those might not be as lucrative.
If ether miners decide to stop mining altogether, they can sell their machines to gaming or machine-learning companies, said Kyle Waters, a research analyst at CoinMetrics. That is because most ether mining machines have features that allow them to be repurposed, he said.
Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Vicky Ge Huang at vicky.huang@wsj.com
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https://mailchi.mp/c72ce8f1b937/unleash-prosperity-hotline-867072?e=320eaee609
Once again BTC moves down hard on bad inflation news.
I do not understand.
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(https://pbs.twimg.com/media/FcrYyW-WIAUE6BH?format=jpg&name=medium)
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https://www.washingtontimes.com/news/2022/sep/15/joe-biden-tentative-railway-labor-deal-reached-ave/
yesterday I was thinking this would happen
it would make it appear Joe steps in and single handedly used his negotiating prowess to avert a strike.
of course he will read his lines in front of the cameras
and Anderson Cooper will with that notorious straight face have guests on who tell us
"thank God for Joe"
my theory:
in the small print on page 4,274 is the promise of a Federal guarantee by tax payers for the railroad if they give in to workers
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Silver is now below $20 and Gold is now below $1700. Both of them moving down during the rising inflation of the past year is not what I would expect to see.
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Silver is now below $20 and Gold is now below $1700. Both of them moving down during the rising inflation of the past year is not what I would expect to see.
Yes, and previously, Bitcoin has not held up as the new gold - hedge against inflation.
Also I would add real estate is not poised to hold up against new inflation, because it is overpriced already and
the interest rate hikes (in reaction to high inflation) and resulting economic decline and real wage decreases are bound to bring it down.
We are screwed.
This gets solved only at the ballot box. Vote out these people and these policies. Or if a fair and free election cannot be held, then only a more aggressive approach that cannot be mentioned on open internet is left.
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Just had a Captain Obvious moment.
Gold crashed in the late '70s from $800 when Volcker raised interest rates.
Same dynamic here?
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https://finance.yahoo.com/news/us-yield-curve-set-invert-053806103.html
Grannis always said to watch this
so how is he going to twist the argument that things are really ok as he always does?
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Ethereum's Launch of 'The Merge' Hopes to Add Sustainability to Blockchain
4 MIN READSep 15, 2022 | 18:01 GMT
An ethereum mining rig is on display at the Thailand Crypto Expo 2022 on May 14, 2022, in Bangkok, Thailand.
An ethereum mining rig is on display at the Thailand Crypto Expo 2022 on May 14, 2022, in Bangkok, Thailand.
(Photo by Lauren DeCicca/Getty Images)
"The Merge" by the ethereum blockchain is the first major cryptocurrency to shift away from the computing- and energy-intensive "mining" process for data validation to one that is more sustainable. On Sept. 15, the ethereum blockchain finally merged with a different blockchain that shifts the currency's blockchain validation method away from a so-called proof-of-work to a proof-of-stake consensus algorithm for validation. In the more widespread proof-of-work method, computers essentially compete to be the first to solve complicated mathematical equations to "validate" a new block in a blockchain and earn cryptocurrency to do so. For extremely popular cryptocurrencies like ethereum and bitcoin — which respectively have about $200 billion and $400 billion of currency in circulation based on current prices — this has led to an arms race among blockchain miners to use more processing power — and more energy — to more frequently win the race to solve those equations. The high power consumption of the proof-of-work model has led to concerns about the carbon footprint and scalability of cryptocurrencies, as the bitcoin blockchain alone uses an estimated 150 terawatt hours of electricity annually — equivalent to the annual energy consumption of Argentina, one of the world's Group of Twenty leading economies.
Blockchain validation graphic
Proof-of-stake algorithms promise to dramatically reduce power consumption and the energy footprint of the cryptocurrencies and distributed ledger technologies that use them. Ethereum's energy usage is expected to decline by around 99.9% because under a proof-of-stake model, there is no competition among miners to solve equations, nor is there an arms race to gain computer power. Instead, the algorithm chooses the "winner" based on a user's stake (i.e. the amount of the cryptocurrency the user has). In the case of the new ethereum algorithm, it randomly selects a user that has at least 32 ether (about $50,000) based on the overall amount of the currency the user holds to calculate the next block in the blockchain, and then the other validators (i.e. those with at least 32 ether) check the user's work to see if it is accurate. Once a certain number of other validators agree that the user's calculations are accurate, the original winner gains a transaction fee similar to what miners earn in other algorithms.
Proponents of the proof-of-stake algorithm point to its ability to scale up without environmental impacts and that the "stake" aspect improves security because those most heavily invested in the currency have an incentive to protect it, but opponents point out its untested nature and propensity to centralize power. Thus far, the security aspect of the proof-of-stake algorithm has not been tested on a widely-used cryptocurrency, as ethereum is the largest one to test it thus far. Proponents of the new algorithm point out that the only way to carry out a so-called 51% attack on the blockchain — that is, for a threat actor to control or collude with more than half of the validators to insert fraudulent transactions — would be by controlling more than half of the currency, which is exceedingly difficult given ethereum's $200 billion market capitalization. By contrast, in an attack on a proof-of-work algorithm, attackers would need only to control 51% of the processing power validating blocks. While this may seem large, just three mining pools (groups of users that work together and share bitcoins mined evenly) control more than 50% of the current hash rate for bitcoin mining. Finally, opponents of the proof-of-stake algorithm point out that the validation process rewards large users and that over time this will result in wealth concentration among those holding a lot of the currency, an argument that will be tested in the future.
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Important critique of the govt's failed update on climate & crypto
https://medium.com/@nic__carter/comments-on-the-white-house-report-on-the-climate-implications-of-crypto-mining-8d65d30ec942
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BTC hash rate keeps going up, price has been down. At some point this will correct.
(https://pbs.twimg.com/media/FcyLHJwagAIL64p?format=jpg&name=medium)
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Silver is now below $20 and Gold is now below $1700. Both of them moving down during the rising inflation of the past year is not what I would expect to see.
Yes, and previously, Bitcoin has not held up as the new gold - hedge against inflation.
Also I would add real estate is not poised to hold up against new inflation, because it is overpriced already and
the interest rate hikes (in reaction to high inflation) and resulting economic decline and real wage decreases are bound to bring it down.
We are screwed.
This gets solved only at the ballot box. Vote out these people and these policies. Or if a fair and free election cannot be held, then only a more aggressive approach that cannot be mentioned on open internet is left.
The current state of BTC suggests, its a hedge against Fed QE, and not directly an inflation hedge. In the long run QE will continue and hence BTC will always go up. We have to wait for the USD to start coming down and QT to end.
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https://time.com/nextadvisor/investing/cryptocurrency/ethereum-merge-complete-what-investors-should-know/
seems to have been a sell on the news
but OTOH
everything is down
so timing bad
for the traders of which I am not
I do own ether
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I am jealous:
https://www3.forbes.com/billionaires/forbes-worlds-billionaires-list-the-richest-in-2022-v3/2/
not long ago Bloomberg was in the 20 bill range
now "80 bill"
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"We have to wait for the USD to start coming down"
What are the variables in play here?
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https://time.com/nextadvisor/investing/cryptocurrency/ethereum-merge-complete-what-investors-should-know/
seems to have been a sell on the news
but OTOH
everything is down
so timing bad
for the traders of which I am not
I do own ether
Ether is now a Proof of Stake coin...i.e. centralized coin. This means Vitalik Buterin can be called in for a congressional hearing...
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Climbing Interest Rates Fuel Stablecoin War as Binance Makes Move on Rivals
World’s largest crypto exchange will automatically convert users’ deposits of rival stablecoins into its own Binance USD after its market value topped $20 billion
Stablecoins, including one issued by Binance, have surged in popularity in recent years.
PHOTO: DADO RUVIC/REUTERS
By Vicky Ge Huang and Caitlin Ostroff
Sept. 17, 2022 5:30 am ET
The battle for the stablecoin market is heating up as interest rates continue to rise and the largest players jostle for market share.
Binance, the world’s largest crypto exchange, said it would automatically convert users’ deposits of several rival stablecoins into its own stablecoin, Binance USD, starting this month. Analysts say Binance’s decision could escalate the rivalries among the largest stablecoin players, such as Tether and Circle, and generate additional revenue for Binance as the market cap of its stablecoin grows.
So-called stablecoins are cryptocurrencies pegged to government-issued currencies on a 1-to-1 ratio. Stablecoin issuers run a lucrative business by investing user deposits in cash and cash-equivalent assets like short-duration U.S. Treasurys. The more deposits a stablecoin issuer has to invest, the more interest income it earns.
Yields on Treasury bills have risen sharply this year as the Federal Reserve has increased interest rates to curb decades-high inflation. The yield on the one-month and three-month Treasury bills stood at 2.570% and 3.149%, respectively, on Friday.
“The game of stablecoins is essentially to grow your stablecoin market cap as large as possible so you can increase your revenue,” said Katie Talati, director of research at crypto asset manager Arca.
The popularity of stablecoins has surged over the past two years, accounting for about $143 billion in market value compared with $21 billion at the end of September 2020, according to data from the Block.
Circle Internet Financial Ltd., which issues the second-largest stablecoin, USD Coin, held $40.1 billion in short-term Treasurys as of Sept. 15, according to its website. The Boston-based company earned $28.5 million in interest income on USD Coin in 2021 and $100.4 million for the first six months of this year, according to a recent filing.
Circle estimated it could earn $438 million in total interest income this year and as much as $2.2 billion in 2023, it said in a financial outlook presentation in February. USD Coin has a market cap of $50 billion.
Tether Holdings Ltd., the company behind the largest stablecoin with a market value of $68 billion, held $29 billion in U.S. Treasury bills at the end of June, according to its latest attestation. Tether also charges a 0.1% redemption fee for a minimum withdrawal of $100,000.
“Stablecoin issuers cannot efficiently pass on the interest that they earn because that would be a security,” said Matthew Sigel, head of digital assets research at VanEck. “So as a result, the earnings power is quite high.”
The market cap of Binance’s stablecoin, Binance USD, already crossed $20 billion about a week ago, just three years after it launched. The auto-conversion could boost the market cap by another $908 million, given that the exchange holds 2%, or $898 million, of USD Coin’s supply and 1%, or $10 million, of Pax Dollar’s supply, Bank of America analysts Alkesh Shah and Andrew Moss wrote in a recent research note.
Over the long term, Binance’s decision could potentially help USD Coin increase its market share relative to tether, which is excluded from Binance’s newly unveiled change. On Binance, many tokens and derivative contracts are still quoted and collateralized in tether. Mr. Shah wrote that Binance users may be more likely to withdraw their Binance USD as USD Coin than tether “given the inconvenient inability to convert BUSD to USDT without executing a trade.”
Tether said Binance’s move could be “aimed at taking out USD Coin’s number two spot and replacing it with Binance’s own BUSD” stablecoin.
Jeremy Allaire, chief executive of Circle, said via Twitter that he thinks the move would likely benefit USD Coin because the usage of Binance USD is still limited outside the exchange. Indeed, 86%, or $17 billion, of Binance USD’s supply is held on Binance, indicating that the stablecoin isn’t regularly used throughout the crypto ecosystem and lacks utility, BofA’s Mr. Shah said.
“With consolidated dollar books, it will now be easier and more attractive to move USDC to and from Binance for trading core markets,” Mr. Allaire said.
Binance said the move would allow “greater trading liquidity and a better user experience.” Patrick Hillmann, chief communications officer of Binance, said Binance’s auto-conversion move provides a more frictionless trading experience and any shared revenue it earns from Binance USD is minimal.
On crypto exchange FTX, when customers deposit USD Coin, TrueUSD, Pax Dollar and Binance USD, the stablecoins are immediately treated as U.S. dollars in their account. In July, Coinbase unified its U.S. dollar and USD Coin order books, meaning that the exchange treats customer deposits of USD Coin as U.S. dollars.
But neither exchange dominates the crypto trading market quite like Binance, which accounted for 36% of the overall crypto trading market share as of Sept. 9, according to CryptoCompare.
Coinbase, which launched USD Coin with Circle in 2018, has a revenue-sharing agreement with Circle on the interest income earned from reserves backing USD Coin. JPMorgan analyst Ken Worthington said in a recent note that Coinbase could potentially earn $700 million of incremental revenue from its relationship with Circle in 2023 and 2024.
Despite carrying the Binance brand, Binance USD is issued by the company Paxos. The stablecoin is regulated by the New York Department of Financial Services, which requires stablecoins to be fully backed and readily redeemable. The reserves backing Binance USD are held by a bankruptcy-remote trust, which “offers greater consumer protections,” according to Rich Teo, co-founder and chief executive of Paxos Asia.
A spokeswoman for Paxos declined to comment on the details of the revenue-sharing agreement between Binance and Paxos.
Write to Vicky Ge Huang at vicky.huang@wsj.com and Caitlin Ostroff at caitlin.ostroff@wsj.co
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https://www.zerohedge.com/commodities/london-silver-inventories-continue-plummet-metal-exits-lbma-vaults?utm_source=&utm_medium=email&utm_campaign=932
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Very much worth the reading:
https://scottgrannis.blogspot.com/
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https://www.zerohedge.com/personal-finance/why-are-walmart-and-other-major-us-retailers-canceling-billions-dollars-orders
Because the economy is doing so well!
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Important read, why the math is stacked against J Pow
https://www.thebeartrapsreport.com/blog/2022/09/11/powell-playing-tough-guy-with-the-math-stacked-against-him/
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"Billion dollar orders being cancelled"'
:-o :-o :-o
save cash for crash.....
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If you don't having the guns, food and a safe place already, you are fucked.
"Billion dollar orders being cancelled"'
:-o :-o :-o
save cash for crash.....
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for something that was preventable
I still can't get over how government officials seem never to be held accountable
how is this guy and yellen
still in their posts?
https://www.newsmax.com/finance/streettalk/federal-reserve-soft-landing-inflation/2022/09/22/id/1088592/
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for something that was preventable
I still can't get over how government officials seem never to be held accountable
how is this guy and yellen
still in their posts?
https://www.newsmax.com/finance/streettalk/federal-reserve-soft-landing-inflation/2022/09/22/id/1088592/
"Powell's Stark Message: Inflation Fight May Cause Recession"
No. It does cause recession.
Preventable? Yes. Keep these jerks out of power. Inflation is the policy. More money. Fewer goods. Inflation necessitates the Fed tightening and without other stimuli, ie supply side boost, downturn necessarily follows. All of it is a feature, not a bug. When he shut down the Keystone XL in his first hour, you knew downturn was coming.
Elect a Jack Kemp instead (Rubio, DeSantis, Pompeo). Pro-growth policies are how you get, drum roll, growth. Anti growth policies bring you recession. It's definitional, yet we keep acting surprised!
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Yes, supply side!
I repeat my distinction that prices increases are not only a monetary phenomenon. Less supply also creates price increases. Applying monetary solutions to the latter is serious error.
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Right. Last time this was solved with a two pronged approach. Today they refuse to revisit that history.
Even on liberal mainstream coverage it's obvious to see, Powell and the Fed want to tighten and squeeze until economic activity slows down while the Dems in the White House and Congress keep passing trillions and trillions more spending.
What level IQ can't see the contradiction? Spenders make the tighteners have to tighten more and more and more until what?
Supply side, OTOH, eases barriers to produce, increases supply, eases the need to tighten money so far, and we survive this without collapse. cf. 1983, 1984 .
It isn't rocket science, but it isn't taught in most schools or any economics books any of these fascist socialists have read.
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Caitlyn Long has been involved in setting up digital banking in WY.
https://www.forbes.com/sites/caitlinlong/2022/09/23/banks-are-about-to-face-the-same-tsunami-that-hit-telecom-twenty-years-ago/?sh=73008ffe7a7a
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(https://pbs.twimg.com/media/FdZ7WK9XoAALjfv?format=png&name=medium)
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If we draw a line from the lows of 2019 and 2020 it looks like we are on it right now , , ,
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https://twitter.com/JackPosobiec/status/1572990909201129472
You ain't in it.
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Trey Hollingsworth R Indiana
My team member will be with Bank of America Monday
so hope you recognize her talent ( talking to big shots )
Big shot back to Hollingsworth:
we already know , her father works for us [you schmuck]
[why do you think we had her work for you!]
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By Ryan DezemberFollow
| Photographs by Landon Speers for The Wall Street Journal
Updated Sept. 27, 2022 4:36 pm ET
Lumber prices have fallen to their lowest level in more than two years, bringing two-by-fours back to what they cost before the pandemic building boom and pointing to a sharp slowdown in construction.
Lumber futures ended Tuesday at $429.30 per thousand board feet, down about one-third from a year ago and more than 70% from their peak in March, when the Federal Reserve began raising interest rates to fight inflation.
2015-2019 average
2021
'22
0
200
400
600
800
1,000
1,200
1,400
$1,600
per 1,000 board feet
Wood prices crashed in the early days of the 2020 lockdown, but they exploded that summer when stuck-at-home Americans remodeled en masse and suburban home sales surged. Two-by-four prices nearly tripled the prepandemic record in an early sign of the inflation and broken supply chains that would bedevil the economic reopening.
But lumber has led the way down for commodities since the central bank took aim at rising consumer prices and the overheated housing market. For two years, climbing lumber costs lifted home prices. Now home builders say that cheaper wood is giving them wiggle room to offer buyer incentives and to trim prices without crimping their profit margins.
Wood-pricing service Random Lengths said its framing-lumber composite index, which tracks cash sales in several species, fell last week to $529, down more than 60% from early March. Now that supply issues have eased and the highest mortgage rates in more than a decade have slowed home sales, buyers are no longer hoarding lumber for fear of running out.
“All the urgency over the past two years—‘give me everything you can’—that’s basically over. Lumberyards are not scared of the price going up,” said Michael Goodman, director of specialty products at wholesaler Sherwood Lumber Corp., which his family owns and operates. The Melville, N.Y., distributor sells framing lumber and plywood to building-supply companies, truss manufacturers and shipping-crate makers around the country. “The sexy lumber world is coming to an end, unfortunately,” he said.
A Massachusetts facility of Sherwood Lumber, which says the urgent demand for lumber over the past two years is over.
Lumber has led the way down for commodities since the Federal Reserve began raising interest rates to fight inflation.
The rate at which new U.S. housing is being built is down about 13% from April, when residential construction activity hit its highest level in more than a decade, according to the Census Bureau. An increase in new multifamily buildings has offset a sharper decline in the construction of single-family homes, which typically use about three times as much lumber per unit as apartments.
The issuance of building permits for residential construction has declined steadily since March. The National Association of Home Builders said its measure of builder confidence declined in September for the ninth straight month, to a level of pessimism not registered since 2020’s Covid-19 lockdown and the 2008 housing crash.
Mill executives, analysts and timber consultants who gathered last week at a World Forestry Center conference in Portland, Ore., said the lumber sector is bracing for recession, though not a severe one.
2018
'19
'20
'21
'22
0
0.25
0.50
0.75
1.00
1.25
1.50
1.75
million units
Multifamily
Single-family
Paul Jannke of Forest Economic Advisors LLC said his firm forecasts that lumber consumption will decline by as much as 2.5% this year and up to 4.5% in 2023 as home construction stalls and remodeling demand reverts to normal following the pandemic renovation boom.
Despite the steep drop in consumption, Mr. Jannke and others expect wood prices to be much higher than during previous downturns—in the $400s per thousand board feet, rather than the $200s—due to record-low inventories among dealers and rising mill costs, especially in British Columbia, where forest fires, wood-boring beetles and conservation efforts have reduced the supply of logs.
The lumber price that mills in western Canada need to break even is about $500 per thousand board feet, which means that they are likely to choke back output whenever cash prices for the spruce, pine and fir boards they saw drop below that, Mr. Jannke said.
Mills there, as well as in the U.S. Pacific Northwest and the South, have already begun cutting back. Canfor Corp., one of North America’s largest lumber producers, said it began a two-week curtailment Monday at most of its facilities in British Columbia. Work will resume at reduced operating schedules aimed at trimming the Vancouver firm’s production capacity by about 200 million board feet, or about 15% of last year’s fourth-quarter output.
Pressure on lumber prices is down as supply issues have eased and surging mortgage rates have slowed home sales.
The consolidation of North America’s sawmills by a few big firms, such as Canfor and West Fraser Timber Co., has hastened the speed at which production is choked back in response to falling prices and should buoy prices, said Håkan Ekström of Wood Resources International LLC.
“Markets are a little more controlled with fewer mill owners,” he said. “When there were more owners, everyone waited for someone else to slow down.”
Dealers like Sherwood’s Mr. Goodman say that the quick curtailment triggers are reason to load up on wood. “There’s upside risk of waiting and really no downside to buying right now, that’s what we’re telling our customers,” he said.
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Lots of rumors about Credit Suisse going down...contagion ? Fed Emergency meeting tomorrow.
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Lots of rumors about Credit Suisse going down...contagion ?
If that was true, then the whole house of cards is coming down, most likely.
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Credit Suisse?
Even I have heard of them so that sounds really bad. What is the source for this, what is the nature of the problem?
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Credit Suisse?
Even I have heard of them so that sounds really bad. What is the source for this, what is the nature of the problem?
https://twitter.com/WallStreetSilv/status/1576550675361587200
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WSJ
VIEW LIVE COVERAGE FEED
SHARE
Updated 15 min ago
Credit Suisse Stock and Bonds Fall on Concerns Over Financial Health
By Margot Patrick and Quentin Webb
Credit Suisse stock traded lower on Monday.ARND WIEGMANN/REUTERS
Credit Suisse’s riskiest bonds sank Monday, and its shares hit fresh record lows, on concerns about the Swiss bank’s financial health.
The stock was recently 8% lower at 3.66 Swiss francs, the equivalent of $3.71. A $1.55 billion additional tier-1 bond that can be redeemed from 2025 was recently bid at about 65.6 cents on the dollar, Tradeweb data showed
Credit Suisse said in July it would refashion its investment bank and exit some other businesses to become a leaner, less risky institution, following financial disasters that included a $5.1 billion hit last year from client Archegos Capital Management. The lender has a large Swiss business serving all types of customers and competes globally in wealth management, investment banking and asset management.
The Wall Street Journal reported on Sunday that Chief Executive Ulrich Körner told employees late last week that the bank was at a critical moment before it presents a strategy update outlining plans for the investment bank on Oct. 27. The memo appeared to spark fresh concerns, prompting online discussions over the weekend.
In talking points updated on Sunday for its bankers and relationship managers, Credit Suisse said it has close to a $100 billion capital buffer and continues to expect a 13% to 14% ratio for its highest quality equity capital through the rest of the year.
The stressed market prices indicate Credit Suisse could struggle to raise new shares to pay for a planned restructuring and that its funding costs could rise sharply.
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https://www.marketwatch.com/story/biden-regulators-cheer-on-crypto-crackdown-11664826331?siteid=yhoof2
she is doing so well as Treasury Secretary it seems clear this cannot be good for us crypto holders
and is likely a first step to forcing everyone into US digital dollars
in this end Trump would be NO better for us.
I am seriously thinking of selling while I am still up .
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With the possibility of a huge banking crash on the radar screen?
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".With the possibility of a huge banking crash on the radar screen?"
I don't follow you
BC has not proven itself to be a hedge at all so far
It has been simply following the stock market.
Maybe sell and leave in cash for now till I know what Yellen et al
and the big shot bankers are going to do to crypto if they have their way.
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https://www.theepochtimes.com/a-banking-crisis-looms_4768995.html?utm_source=Opinion&src_src=Opinion&utm_campaign=opinion-2022-10-03&src_cmp=opinion-2022-10-03&utm_medium=email&est=g%2B%2BDmPhXsQwvhDhM%2F1CR6X0GunWTJaA1nxF%2BnXOGMqA5lQEbSDAuVsDBS%2BjdrLWqtFGy
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https://www.newsmax.com/finance/streettalk/u-s-national-debt-interest-rates-31-trillion/2022/10/04/id/1090453/
but only small part of total GDP
"manageable"
though some economists are taking notice
in my wildest dreams I don't see how we EVER going to pay this off
-
https://www.newsmax.com/finance/streettalk/u-s-national-debt-interest-rates-31-trillion/2022/10/04/id/1090453/
but only small part of total GDP
"manageable"
though some economists are taking notice
in my wildest dreams I don't see how we EVER going to pay this off
It's not getting paid off.
Thus WW III or the "Great Reset"
-
jason lowery is in the US space force, some fresh ideas if you have the time.
https://www.youtube.com/watch?v=ikPnr23h7qg
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https://www.theburningplatform.com/2022/10/03/the-macroeconomics-of-depopulation/ :mrgreen:
Not sure what to think of this.
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Everywhere you turn, the biggest players in the $23.7 trillion US Treasuries market are in retreat. From Japanese pensions and life insurers to foreign governments and US commercial banks, where once they were lining up to get their hands on US government debt, most have now stepped away. And then there’s the Federal Reserve, which a few weeks ago upped the pace that it plans to offload Treasuries from its balance sheet to $60 billion a month. If one or two of these usually steadfast sources of demand were bailing, the impact, while noticeable, would likely be little cause for alarm. But for every one of them to pull back is an undeniable source of concern, especially coming on the heels of the unprecedented volatility, deteriorating liquidity and weak auctions of recent months. (Source: bloomberg.com via John Ellis News Items)
(Doug). Are we borrowing trillions or just printing money?
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I don't know if is just short sellers
but all I read is catastrophe is more and more possible.....
thanks,
Joe !
I wonder what all the free shitters would do once the government checks are worthless
and( the social security people )
besides say tax the "'w'ich"
this probably was all avoidable or at least less severe situation
and yet NO ONE held accountable . nadda
the MSM continues to
give Robinette a pass
-
I don't know if is just short sellers
but all I read is catastrophe is more and more possible.....
thanks,
Joe !
I wonder what all the free shitters would do once the government checks are worthless
and( the social security people )
besides say tax the "'w'ich"
this probably was all avoidable or at least less severe situation
and yet NO ONE held accountable . nadda
the MSM continues to
give Robinette a pass
A Dem leaning friend suggested what MSM and the administration spouts, these are global problems, inflation etc.
Yes, true, BUT... the US used to lead the world (in a positive way). Of all the forces headed in the wrong direction you can say one thing for certain, President Biden, his poicy makers and the Dem majority Congress made it worse.
Policies have consequences.
We have separate threads for spending (fiscal policy) and monetary policy, but they are inseparably intertwined. You can't spend an extra 4 trillion without The Fed accommodating it. WHY DO THEY DO THAT?
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I don't know if is just short sellers
but all I read is catastrophe is more and more possible.....
thanks,
Joe !
I wonder what all the free shitters would do once the government checks are worthless
and( the social security people )
besides say tax the "'w'ich"
this probably was all avoidable or at least less severe situation
and yet NO ONE held accountable . nadda
the MSM continues to
give Robinette a pass
A Dem leaning friend suggested what MSM and the administration spouts, these are global problems, inflation etc.
Yes, true, BUT... the US used to lead the world (in a positive way). Of all the forces headed in the wrong direction you can say one thing for certain, President Biden, his poicy makers and the Dem majority Congress made it worse.
Policies have consequences.
We have separate threads for spending (fiscal policy) and monetary policy, but they are inseparably intertwined. You can't spend an extra 4 trillion without The Fed accommodating it. WHY DO THEY DO THAT?
We are at the "Loot the treasury" phase of collapse.
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We are at the "Loot the treasury" phase of collapse.
https://www.cnbc.com/2022/10/13/social-security-cola-will-be-8point7percent-in-2023-highest-increase-in-40-years.html
[just prior to election :wink:]
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We are at the "Loot the treasury" phase of collapse.
https://www.cnbc.com/2022/10/13/social-security-cola-will-be-8point7percent-in-2023-highest-increase-in-40-years.html
[just prior to election :wink:]
Wow, 8.7% federal cost of living adjustment, which is generally understated. At least this gives us a base number coming into the election.
These policies are killing us.
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We are at the "Loot the treasury" phase of collapse.
https://www.cnbc.com/2022/10/13/social-security-cola-will-be-8point7percent-in-2023-highest-increase-in-40-years.html
[just prior to election :wink:]
Wow, 8.7% federal cost of living adjustment, which is generally understated. At least this gives us a base number coming into the election.
These policies are killing us.
No Dollar Store dog food for some seniors! Happy Days Are HERE AGAIN!
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Near-Crash of Pound—A Warning of Global Crisis
Antonio Graceffo
Antonio Graceffo
October 12, 2022 Updated: October 13, 2022biggersmaller Print
0:00
4:23
1
Commentary
The decline of the British pound has far-reaching implications for the global economy.
The near-crash of the British pound last month is just one of many such stories of declining currencies and central bank intervention taking place around the globe. It serves as a frightening harbinger of a major economic crisis to come.
The dollar has hit a 20-year high. Nearly all other currencies are depreciating, and the steps governments are taking to defend their currencies are inflationary. Countries are spending down their dollar reserves and purchasing their own currencies, but commodities, oil, and energy are all priced in dollars. Foreign debt also has to be paid in dollars. Therefore, depleting dollar reserves will make these international payments more expensive.
To rescue the pound, the Bank of England intervened and bought up $73 billion worth of pounds. As a result, the foreign currency reserves decreased by a record $54 billion. The UK foreign currency reserves have been in steady decline for the past 12 months, hitting only $171 billion in September.
But it isn’t just the UK taking similar steps. Japan’s government spent nearly $20 billion in September to prop up the yen. India spent $75 billion supporting the rupee. And Beijing warned state banks to prepare to go on a buying spree to save a beleaguered yuan. To fight inflation, which already stands at 18 percent, Belarus President Alexander Lukashenko has banned price increases. Since a ban on price rises has no impact on costs, suppliers will refuse to sell at the lower price, and the country will be faced with shortages.
The European Central Bank is planning $388 billion in support spending to counter rising energy prices in the European Union. This will increase inflation while increasing debt.
The recent pound crisis came on Sept. 26 when the British pound lost nearly 5 percent of its value overnight, hitting a 37-year low. The pound, usually worth quite a bit more than the dollar, came almost to parity at $1.035 to the greenback. After months of losses, the pound is worth 21 percent less than it was in January. The plunge came after the UK’s Chancellor of the Exchequer Kwasi Kwarteng unveiled the new minibudget—which was meant to boost the economy—in the face of inflation by implementing the largest tax cuts in 50 years. The government also announced a tax reduction for real estate sales and a cap on energy prices. At the same time, Britain plans to increase defense spending.
Kwasi Kwarteng
UK Chancellor of the Exchequer Kwasi Kwarteng attends an In Conversation with the Institute of Economics Affairs and TaxPayers’ Alliance on the third day of the Conservative Party conference at Birmingham ICC, in Birmingham, England, on Oct. 4, 2022. (Ian Forsyth/Getty Images)
Over the next six months, the tax cuts are expected to cost the government $48.17 billion, while the energy support is expected to cost $64.12 billion. The difference between the actual cost of energy and the government cap will be paid to the energy-producing companies by the government. And these payments will be funded with increased government debt. Consequently, the government has been forced to raise its debt ceiling, allowing it to borrow more.
Meanwhile, the British government’s borrowing costs have dramatically increased due to interest rate increases and skepticism caused by Britain’s commitment to increased spending and driving up the government debt, which already stands in excess of 85 percent of gross domestic product.
Cutting taxes while increasing government spending and public debt are all expansionary policies that add to inflation. In September, consumer price inflation expectations rose to 9.5 percent. High inflation should reduce unemployment, but the UK’s youth unemployment rate is more than 9 percent. Additionally, 39.8 percent of young people are considered inactive, meaning they no longer seek work. The total number of 18- to 24-year-olds who are “not in education, employment, or training” (NEET) is 12.5 percent. High inflation coupled with unemployment matches the definition of stagflation.
Investors are voting with their feet. Over the past 16 months, money has been steadily flowing out of the British stock market. In September alone, as a result of the announcement of the minibudget, investors pulled $2.7 billion out of UK equity funds. Investment flowing out of a country will cause the currency to depreciate. Much of the investment leaving other countries is flowing into the United States, which is driving up the dollar.
Countries worldwide, particularly Britain, are caught in a vicious cycle of inflation, low currency value, difficulty making foreign payments, high borrowing costs, rising debt, U.S. Federal Reserve interest rate hikes, a rising dollar, and the fear of citizens freezing to death this winter.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.
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We are at the "Loot the treasury" phase of collapse.
https://www.cnbc.com/2022/10/13/social-security-cola-will-be-8point7percent-in-2023-highest-increase-in-40-years.html
[just prior to election :wink:]
Wow, 8.7% federal cost of living adjustment, which is generally understated. At least this gives us a base number coming into the election.
These policies are killing us.
Why worry...the 31 Trillion debt will never be paid back. There are only two options, 1) Print even more and debase the currency, generate more inflation and pay back in cheap dollars, b) Print so much that a reset is necessary either due to WWIII or some fake Climate Crisis. After which they will bring out the CBDC's and print as much as needed.
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https://www.zerohedge.com/markets/cue-dollar-squeeze-panic-fed-sends-record-63-billion-switzerland-swap-line?utm_source=&utm_medium=email&utm_campaign=997
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https://www.zerohedge.com/markets/cue-dollar-squeeze-panic-fed-sends-record-63-billion-switzerland-swap-line?utm_source=&utm_medium=email&utm_campaign=997
I don't understand either, but to look at the inner workings of markets in turmoil is bound to be ugly.
A rising dollar is not better than a stable dollar. A rising dollar makes us richer? How? It makes our export products and services relatively more expensive.
IF the US had a balanced budget, growing economy, stable currency, energy independent, full employment, relatively low taxes, reasonable regulations and so on, then the other countries would be forced to manage their own economies competently to compete.
What I see instead is a mess worldwide. If not the US or western Europe, who is the leader? Russia, China, Saudi? No one?
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Important read
https://themarket.ch/interview/russell-napier-the-world-will-experience-a-capex-boom-ld.7606
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https://firehydrantoffreedom.com/index.php?topic=1830.msg151971#msg151971
See posts 737 through 740.
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Quote from Scott Grannis:
Argentina has actually been suffering from bad monetary policy forever. When I lived there in 1975-79, inflation averaged about 125% per year. If Argentina had not changed its currency by lopping off zeros and renaming it 5 times since 1916 (when a dollar was worth 2 of the original pesos), the exchange rate today would be 3,000,000,000,000,000 pesos per dollar.
--------------------------------------------------------------
I'm so old I think 2% inflation is government theft.
Other than bad government economic policies, there is no reason Argentina shouldn't be as prosperous as the US or any other country.
Conversely, why would anyone think that, with equally bad policies, that wouldn't happen here?
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https://investorplace.com/2022/10/why-is-crypto-up-today/
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(https://pbs.twimg.com/media/FgPbN3cXkAA1y2z?format=jpg&name=medium)
(https://pbs.twimg.com/media/FgPbN2jWIAI8Kdd?format=jpg&name=medium)
(https://pbs.twimg.com/media/FgPbN21XgAAN94L?format=jpg&name=medium)
(https://pbs.twimg.com/media/FgPbN3_WQAEArDe?format=jpg&name=medium)
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(https://pbs.twimg.com/media/FgLxzvbXEAAA6oc?format=jpg&name=medium)
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Weak yuan. The Chinese yuan is on track for its eighth straight monthly decline, the longest period of consecutive decline since 1994. Prior to the opening of the markets on Monday, the People’s Bank of China set the yuan’s midpoint against the dollar to 7.1768, the weakest rate since February 2008. The currency’s recent volatility has discouraged foreign investors from buying yuan-denominated bonds.
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Second
The Fed is losing money: Thanks to inflation at a 40-year high and the Federal Reserve's response of raising interest rates by 3.35% so far this year — with another 0.75% increase expected before the year's end — the central bank is now losing money. Interest payouts now exceed the Fed's interest income on the roughly $8.3 trillion in the U.S. Treasury that the Fed has accumulated over the last 14 years. The Fed has an $8.7 trillion asset portfolio made up of mostly interest-bearing assets providing a 2.3% average yield, though given the current high rate of inflation and growing interest rate, the Fed's payouts will likely exceed its interest earnings for the next couple years. Former senior Fed economist Seth Carpenter explained: "The losses can grow over time if they keep raising short-term interest rates, which it seems like they will, because the mismatch between interest income and interest expense will rise." So the Fed will operate at a loss for the foreseeable future with the expectation that once the inflation rate gets under control, the net negative will turn positive "likely in a few years," Carpenter estimates, adding, "at this point, they just have to live with it."
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Important read...simple language. Why a G7 country could go bankrupt..
https://jameslavish.substack.com/p/informationist-halloween-edition (https://jameslavish.substack.com/p/informationist-halloween-edition)
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Don't know about the other countries, but as I posted in the Scott Grannis thread, https://scottgrannis.blogspot.com/ Scott makes a strong case for a different analytical framework.
I was hoping to find therein a citation I know he makes , , , somewhere, but the gist of it is that even with the sharp increase in interest rates, the % of GDP that we pay on the national debt is 2.something% and as such, it quite manageable and that even assuming a continuation of current numbers it will take quite a while for the higher interest rates to apply to a significant percentage of the debt.
Separately, as I have argued here recently, interest rates on Treasuries are still well below inflation (4%+ at official rates?) Thus, inflation reduces the burden of the debt on the Fed/the Federal Government, yes?
Working at 4% (and a much larger number probably would be more accurate) times $25T (which Scott says is the more accurate number than the $31T which includes money the Federal government owes itself or something like that) is , , , not sure of my zeroes here but I am coming up with a real decline in the neighborhood of $1T? Do I have this right?
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"... even with the sharp increase in interest rates, the % of GDP that we pay on the national debt is 2.something% and as such, it quite manageable and that even assuming a continuation of current numbers it will take quite a while for the higher interest rates to apply to a significant percentage of the debt."
Right, but that cost does continue to increase until either it hits all of the debt, or until interest rates come down, and then there is a similar lag coming down. The cost of the debt doesn't quickly come down.
"...interest rates on Treasuries are still well below inflation (4%+ at official rates?) Thus, inflation reduces the burden of the debt on the Fed/the Federal Government, yes?"
Yes. Inflation devalues the debt - and that is a moral hazard because the inflation that is caused by the government helps them in this sense, and hurts almost everyone else.
The formula described assumes they can find buyers for the debt (at half the rate of inflation), and I'm not sure they can. Those people are losing money on the investment just losing less than if they left it in dollars and didn't buy the Treasuries.
"Working at 4% (and a much larger number probably would be more accurate) times $25T (which Scott says is the more accurate number than the $31T which includes money the Federal government owes itself or something like that) is , , , not sure of my zeroes here but I am coming up with a real decline in the neighborhood of $1T? Do I have this right?"
This math is right. We're running (more that) a trillion dollar deficit and we're devaluing our existing debt at a trillion year therefore those two factors are a breakeven. Makes me wonder what's missing in those numbers.
Look at debt service over time. 4% of 25 trillion is 1 trillion interest (20% of our current tax revenues. 5% of 27 trillion is 1.35 trillion. 6% of 30 trillion is 1.8 trillion in just debt service with the magic of compounding.
(The cost of servicing the debt in 2019 was about 500 billion?) https://seekingalpha.com/article/4258513-cost-of-servicing-u-s-federal-debt
Linear increases in spending, deficits, inflation and interest rates make for geometric increases in debt burden. Wait until the spiraling sets in and see what happens next. It becomes unmanageable fast.
If you keep the deficit spending faucet on, if inflation spirals upward, if interest rates keep going up, if total debt keeps going up, and so on, then what happens? It gets out of control fast, and yes, it can happen here.
For one thing, we won't be the world's reserve for very long in this scenario.
This has to find an equilibrium, a balance point, to survive.
At some point the spenders HAVE TO find discipline, the inflation / devaluation of the currency HAS TO get under control. If it doesn't, then you have what has happened so many other places, so many other times.
Look at what Scott Grannis wrote about Argentina. Look at what happened in Venezuela. And a hundred other places. Venezuela was rich. Argentina should be rich. Their policy makers have let them down and it's a human tragedy.
To sum it up, being broke sucks, and destroying the value of your currency will make you broke. That's my read of it.
If your have to have discipline sometime, wouldn't it be easier to get spending discipline and inflation under control now, ahead of the spiraling, before total collapse, than after it is all out of control? If so then why not make our deficits at least gradually lower each year, if not approaching zero? Why not get inflation way below 2% now, if you have to get a handle on it sometime? Or you will die as a society, die broke.
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we all know the problem is spiraling medicare and Soc Sec costs
with more and more people going on the roles faster then coming off
every politician knows to suggest we make some changes will automatically cause the other side to spread fear and anger among those who receive these
and then get wiped out the next election
so we are screwed
I am in favor of raising the age people can receive benefits but that is probably not enough.
we should let medicare in my view negotiating discounts on very expensive drugs
too.
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Green shoots ?
(https://pbs.twimg.com/media/FgkdhywXoAA3x6g?format=jpg&name=medium)
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From your lips to God's ears!
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For a long time now, I have not been a fan of ETH. If you do research on OFAC compliance, you will know ETH is bad karma. https://www.mevwatch.info/ (https://www.mevwatch.info/)is a good place to start.
(https://pbs.twimg.com/media/FgudOs5WQAAc3EF?format=jpg&name=medium)
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important read
https://cryptohayes.medium.com/pure-evil-c0c2148f81ab (https://cryptohayes.medium.com/pure-evil-c0c2148f81ab)
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Bitcoin-Mining Machines: For Sale on Deep Discount
Unprofitable miners have become forced sellers of their own crypto equipment
There has always been a secondary market for the specialized computers used to process and record bitcoin transactions, often called mining rigs.
PHOTO: CHRISTINNE MUSCHI/BLOOMBERG NEWS
By Paul VignaFollow
Nov. 5, 2022 8:13 am ET
There’s a fire sale on bitcoin-mining hardware.
The most efficient bitcoin-mining machines are selling for 77% less than last year. The machines, used to process transactions, currently cost about $24 per 100 “terahashes,” a measure of the machine’s computing power, according to mining-services firm Luxor Technology Corp. Last year the same machines cost about $106.
Mining companies like Core Scientific Inc. CORZ -10.99%decrease; red down pointing triangle expanded rapidly during the bull run, sometimes borrowing hundreds of millions to buy hardware and build warehouses to house the hardware. Those operations were profitable when bitcoin and crypto were booming.
Once the Federal Reserve started raising interest rates, risk assets became less attractive. Tech stocks and cryptocurrencies alike fell sharply. When bitcoin crashed—it’s currently down about 70% from a year ago—mining companies’ expenses, especially their debt payments, overwhelmed their revenue. For some, their only move to raise cash right now is to sell their hardware.
One of the largest mining companies in the world, Core Scientific, on Wednesday announced that it wouldn’t make payments on “several of its equipment and other financings,” as it expects to run out of cash by the end of the year and is exploring its options. The stock plunged amid bankruptcy fears. On Friday, it was trading at just 16 cents, down almost 99% year to date.
Other mining companies have also seen stark declines in their stock value. TeraWulf Inc. is down 93% year to date. Stronghold Digital Mining Inc. is down 94%. Riot Blockchain Inc. is down 74%. Hut 8 Mining Corp. is down 70%. Marathon Digital Holdings Inc. is down 67%.
Sometimes the miners are selling hardware they just got. Argo Blockchain PLC last week said it would sell 3,800 brand-new machines—equipment it hadn’t even taken out of their boxes—to raise capital.
Sellers like Argo are dominating the market right now, said Luxor’s chief operating officer, Ethan Vera. Luxor runs a trading desk that brokers deals for the equipment.
He reckoned there were only about three dozen large buyers in the Western Hemisphere. “Almost everyone’s a seller,” he said.
There has always been a secondary market for the specialized computers used to process and record bitcoin transactions, often called mining rigs or ASICs, which stands for application-specific integrated circuit.
The fallout is attracting distressed-asset buyers. Grayscale Investments is a money manager best known for its Grayscale Bitcoin Trust, a fund that launched in 2013 and has $13 billion in assets under management. The firm set up a fund to buy and operate these discount-rate mining rigs. The fund is currently seeking investors and asking for a minimum $25,000 investment. Buyers of the fund will get an ongoing share of the profit from the mining operation it will set up with the purchased equipment.
Coinbase went public with a highly anticipated listing in 2021, but as the crypto market crashed, the company’s share price dropped by more than 80%. Now it’s working to diversify its revenue. WSJ’s Paul Vigna explains what went wrong. Illustration: Jacob Reynolds
“The industry as a whole is under pressure, but investors are looking at it as an opportunity,” said Grayscale Chief Executive Michael Sonnenshein.
Other companies buying mining equipment include Bitdeer Technologies, a firm founded by Jihan Wu, who previously founded Bitmain, one of the largest mining-equipment companies. Bitdeer is setting up a $250 million fund to buy and operate mining equipment.
Mining can still be profitable for companies that don’t have high debt loads, and as some miners shut down, others are filling the void. A measure of the total computing power on the bitcoin network, called the hashrate, has recently been hitting record highs, according to Blockchain.com, a sign more machines are being put online.
Newer, more efficient and ultimately more profitable machines are contributing to the hashrate rise, said Andy Long, chief executive of mining company White Rock.
Jeffrey Burkey, who runs the ASIC trading desk for Foundry, another mining-services firm, said activity on his desk has picked up markedly over the past week or so. He suspects reluctant sellers holding out hope for better prices were forced by the rising hashrate to finally just capitulate and sell.
“It ground the miners to a point where they didn’t have a choice anymore,” he said. “In the coming weeks, it’s going to get even crazier.”
Write to Paul Vigna at Paul.Vigna@wsj.com
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Paul Vigna from the WSJ is a known anti-bitcoiner (he likely missed the cheap BTC and has been sore ever since). Yes, BTC miners are suffering because the hash rate (computing needed) keeps going up (i.e. energy costs to mine BTC are rising), some have gone bankrupt. But mining machines prices vary, as BTC price rises, these same machines can cost north of 10-15,000$ each. To keep up with mining costs, miners buy newer ASICs which are faster/more efficient and sell their old machines which are less profitable to run. Another reason for the hash rate going up could be that some nation states with cheap energy may be getting into the act, think Russia.
Sooner or later, BTC Price will match Hash rate.
https://studio.glassnode.com/metrics?a=BTC&category=Miners&m=mining.HashRateMean (https://studio.glassnode.com/metrics?a=BTC&category=Miners&m=mining.HashRateMean)
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To be clear, I'm too clueless to have an agenda here. I simply posted the article because it seemed relevant. Thanks for fleshing out the context.
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No worries...not everyone is familiar with Paul Vigna :-)
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BTC is volatile, be careful.
(https://pbs.twimg.com/media/Fg6mJvlXEA4MNJ_?format=jpg&name=medium)
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If they go down, it will cause a temporary downdraft for all crypto...just like the other scams such as Celsius, 3 Arrows etc.
https://dirtybubblemedia.substack.com/p/is-alameda-research-insolvent
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The sell-off in stocks accelerated into the close as a shake-up in the crypto world weighed on investor sentiment broadly.
A deal by crypto exchange Binance to save rival FTX crumbled Wednesday, sending shockwaves across more growth-oriented areas of the market. FTX succumbed Tuesday to a sudden liquidity crunch and agreed to be taken over Binance. But by Wednesday afternoon, Binance announced it would walk away from the deal, saying FTX’s “issues are beyond our control or ability to help.”
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The FTX news “could certainly be impacting risk appetite” among investors Wednesday, said Ross Mayfield, investment strategy analyst at Baird. “It keeps investors on edge of what else could be lurking out there, especially if the Fed intends to continue tightening at the current pace.”
Bitcoin fell roughly 14% from its 5 p.m. ET Tuesday price to trade at $16,029. Ethereum also fell around 14% from its 5 p.m. ET price. Meanwhile, FTX’s FTT token continued its sharp tumble. It has lost roughly 63% in the past 24 hours, CoinDesk data show, as the fallout from its liquidity crisis grows.
Stocks with ties to cryptocurrencies also slid. Cryptocurrency exchange competitor Coinbase Global shares fell 9.5%. Robinhood Markets declined 14%. Earlier this year, Sam Bankman-Fried, the founder of FTX, unveiled a roughly $648 million investment in Robinhood in exchange for 7.6% of the company’s Class A shares. He said in an interview earlier this year that FTX was open to partnerships with Robinhood.
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https://www.istockphoto.com/vector/wiping-sweat-emoticon-gm637027070-113385395
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I know the BTC situation looks dire, but the data shows that BTC are being withdrawn from exchanges into cold storage (hardware wallets), by BTC holders of all sizes. This depletes the available supply on exchanges, which is positive for prices. I expect next top in 2025.
https://twitter.com/_Checkmatey_/status/1591005056673124352/photo/1 (https://twitter.com/_Checkmatey_/status/1591005056673124352/photo/1)
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I didn't realize the big drop was due to the crash of Bankman Fried's exchange - the second biggest Democrat donor behind Soros .....
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This what I posted a 5 days back, Nov 6. We are now waiting for the Contagion in crypto to subside.
"If they go down, it will cause a temporary downdraft for all crypto...just like the other scams such as Celsius, 3 Arrows etc.
https://dirtybubblemedia.substack.com/p/is-alameda-research-insolvent "
(https://pbs.twimg.com/media/FhQscWzVsAAWwFa?format=jpg&name=small)
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-
No exchange is protected from government overreach
,liens etc.
(https://pbs.twimg.com/media/FhdNhQiXgAY-98W?format=jpg&name=small)
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Each time the government’s paid interest rate rises by 1%, it adds $2.6 trillion in federal budget interest costs over the decade.
https://nypost.com/2022/11/11/a-gop-run-house-will-fix-inflation-simply-by-stopping-bidens-enormous-spending/
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Yes, with the current interest rate of 4 % and rising, 31T$ deficit, thats over 1.2 T$/year. This is more than the defense expenditure of 800 B $. With rising rates, taxes will decline as companies stop making profit. The only saving grace is that the entire interest is not due at the same time, as the bonds roll over.
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Scott Grannis says the true deficit number is $25T, because that does not include money we owe ourselves or something like that.
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Scott Grannis says the true deficit number is $25T, because that does not include money we owe ourselves or something like that.
And rising at > $1T /yr. and more just with spending programs already passed.
Seems like the words 'criminal negligence' should be included with numbers like these.
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Most recent Scott Grannis post Oct 25, 2022:
(https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi2odtSdTC9b88L48gYTbzm3sErhRep_QqnbpyewbRzQSYLGCV6xm6KmmWlHdHF81jNxSl7mBUQg-MC5b2psiPEBuvRc_vOVwYSG4p4pjNEGRw1zB23tGkvv5Xc8e7PcqTyKsdxg-zBLT9CvdjGVdqjemT0pbEcQbOLm5yYAjPqGBIXhcxyaKVyFoHC/w400-h243/M2%206-mo%20growth%2095-.jpg)
[Doug] 'More money chasing fewer goods and services', why are we still chasing the more money side of it? Time to incentivize the production of more goods and services, IMHO.
Learn from the crisis of 1979-1982. Well described in the book, Seven Fat Years by then-WSJ Editor Robert Bartley. Also the writings of Nobel Prize winning economist Robert Mundell.
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YES.
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https://www.aier.org/article/the-false-face-of-sbf-ftx-and-esg/
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Capitulation spike
(https://pbs.twimg.com/media/Fhn4_ZWaYAEj5Xh?format=jpg&name=medium)
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You help me keep my courage up!
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Brian Wesbury spoke a bit on Bitcoin this morning with High Hewitt, sorry I cannot find a transcript.
He spoke very highly of the Blockchain technology and the possibility of a direct transaction far, far away without intermediaries. Better than gold in the way the supply is limited. He didn't know what the right value should be (no one knows). He said governments won't let it be their reserve currency because then they can't do quantitative easing and spend without finding lenders. Was interrupted by Hewitt who is usually a good interviewer, wanted to make clear you shouldn't put your retirement money there and emphasize the fall from 60k to 16 (instead of the rise from nothing to 16k).
I read into it Wesbury agrees with me. It can be either a stable currency or a speculative play but not both.
Gold does have intrinsic value, more conductive than copper, less corrosive than steel, etc. It has alternate uses to a store of value
Bias or conflict, Wesbury is at an investment house and radio shows have gold sponsors.
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You help me keep my courage up!
Unless anyone thinks BTC is going away, like other $hitcoins, one needs to hold atleast until 2025, which is 1 yr after the next halving. If you have more time, hold two full cycles and add on dips.
There are only 21 Million coins, of which 91 % have been mined, the remaining 9 % will be mined over a hundred years, There are also 8000 million people in the world, if even a small fraction want to hold BTC there is not enough. In other words, the supply of BTC is minimal. The demand for BTC (new holders keeps going up). All these scams going on are actually good for BTC, people are starting to realize that BTC and crypto are not the same.
Enjoy this 5 min video on FTXhttps://twitter.com/i/status/1593019723897131008 (https://twitter.com/i/status/1593019723897131008)
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If you want to see hopium, based on what the risk guys are saying see below. Essentially, total wealth is 900 T $, if BTC can get 5 % of it, thats 45 T $, divided by 21 mill coins=2 mill/coin. Next take a guess, as to the probability of BTC reaching 2 mill/coin. In the example, Foss gives it a 10 % probability, you can give your own probability and derive your estimate.
(https://pbs.twimg.com/media/FKdYYW9XIAEN9fm?format=jpg&name=small)
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https://www.zerohedge.com/political/worse-enron-new-ftx-ceo-slams-unprecedented-failure-corporate-controls?utm_source=&utm_medium=email&utm_campaign=1075
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Probably well worth clicking on the URL to see what the pasting below does not contain.
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"This Is Unprecedented": Enron Liquidator Overseeing FTX Bankruptcy Speechless: "I Have Never Seen Anything Like This"
Tyler Durden's Photo
BY TYLER DURDEN
FRIDAY, NOV 18, 2022 - 06:01 AM
A few days ago we asked how much longer do we have to wait for the "first-day affidavit" in the FTX bankruptcy, traditionally the most detailed and comprehensive summary of how any given company collapsed into Chapter 11 (and in FTX's case, Chapter 7 soon, as this will soon become a full-blown liquidation)...
... and this morning we finally got our answer when it hit the docket (22-11068, U.S. Bankruptcy Court for the District of Delaware), almost a full week after FTX filed on Nov 11... and boy is it a doozy.
Because how else would one describe it when FTX's new CEO and liquidator, John Ray III, who also oversaw the unwinding and liquidation of Enron, admits that "Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here."
And just in case his shock at FTX's fraud of epic proportions was not quite clear enough, he adds that "from compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented."
Courtesy of the affidavit, here is what the company's org chart looks like as of Nov 17:
According to Ray, he has located “only a fraction” of the digital assets of the FTX Group that they hope recover during the Chapter 11 bankruptcy. They’ve so far secured about $740 million of cryptocurrency in offline cold wallets, a storage method designed to prevent hacks. This is just a fraction of the $10-$50 billion in liabilities the company disclosed in its bankruptcy filing.
How do we know it's a fraud: as Ray writes on page 24, although the investigation has only begun and must run its course, it is my view based on the information obtained to date, "that many of the employees of the FTX Group, including some of its senior executives, were not aware of the shortfalls or potential commingling of digital assets." Many maybe not, but some - and certainly SBF himself - did.
It gets better: Ray said that company’s audited financial statements should not be trusted, Ray said, adding that liquidators are working to rebuild balance sheets for FTX entities from the bottom up.
FTX “did not maintain centralized control of its cash” and failed to keep an accurate list of bank accounts and account signatories, or pay sufficient attention to the creditworthiness of banking partners, according to Ray. Advisers don’t yet know how much cash FTX Group had when it filed for bankruptcy, but has found about $560 million attributable to various FTX entities so far.
Although restructuring advisers have been in control of FTX for less than a week, they’ve seen enough to depict the crypto company as a deeply flawed enterprise. Lasting records of decision making are hard to come by: Bankman-Fried often communicated through applications that auto-deleted in short order and asked employees to do the same, according to Ray.
Corporate funds of FTX Group were used to buy homes and other personal items for employees, Ray said.
Corporate funds were also used to buy homes and other personal items for employees and advisers, sometimes in their personal names.
"In the Bahamas, I understand that corporate funds of the FTX Group were used to purchase homes and other personal items for employees and advisors. I understand that there does not appear to be documentation for certain of these transactions as loans, and that certain real estate was recorded in the personal name of these employees and advisors on the records of the Bahamas," Ray said, who also noted that the company didn't have appropriate corporate governance and never held board meetings. There was no accurate list of bank accounts and account signatories, as well as insufficient attention paid to the creditworthiness of banking partners.
Ray said the company did not have “an accurate list” of its own bank accounts, or even a complete record of the people who worked for FTX (see below). He added that FTX used “an unsecured group email account” to manage the security keys for its digital assets.
The filing sheds light on the sloppy business practices, such as FTX employees asking to be paid through an online "chat" platform "where a disparate group of supervisors approved disbursements by responding with personalized emojis."
Below we excerpt some of the most notable highlights from the affidavit, which we embed at the bottom of the post and which everyone should read to get a sense of just how massive Sam Bankman-Fried's fraud was.
I have over 40 years of legal and restructuring experience. I have been the Chief Restructuring Officer or Chief Executive Officer in several of the largest corporate failures in history. I have supervised situations involving allegations of criminal activity and malfeasance (Enron). I have supervised situations involving novel financial structures (Enron and Residential Capital) and cross-border asset recovery and maximization (Nortel and Overseas Shipholding). Nearly every situation in which I have been involved has been characterized by defects of some sort in internal controls, regulatory compliance, human resources and systems integrity.
Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.
For purposes of managing the Debtors’ affairs, I have identified four groups of businesses, which I refer to as “Silos.” These Silos include:
(a) a group composed of Debtor West Realm Shires Inc. and its Debtor and non-Debtor subsidiaries (the “WRS Silo”), which includes the businesses known as “FTX US,” “LedgerX,” “FTX US Derivatives,” “FTX US Capital Markets,” and “Embed Clearing,” among other businesses;
(b) a group composed of Debtor Alameda Research LLC and its Debtor subsidiaries (the “Alameda Silo”);
(c) a group composed of Debtor Clifton Bay Investments LLC, Debtor Clifton Bay Investments Ltd., Debtor Island Bay Ventures Inc. and Debtor FTX Ventures Ltd. (the “Ventures Silo”);
(d) a group composed of Debtor FTX Trading Ltd. and its Debtor and non-Debtor subsidiaries (the “Dotcom Silo”), including the exchanges doing business as “FTX.com” and similar exchanges in non-U.S. jurisdictions. These Silos together are referred to by me as the “FTX Group.
Each of the Silos was controlled by Mr. Bankman-Fried.2 Minority equity interests in the Silos were held by Zixiao “Gary” Wang and Nishad Singh, the co-founders of the business along with Mr. Bankman-Fried. The WRS Silo and Dotcom Silo also have third party equity investors, including investment funds, endowments, sovereign wealth funds and families. To my knowledge, no single investor other than the co-founders owns more than 2% of the
equity of any Silo.
The diagram attached as Exhibit A provides a visual summary of the Silos and the indicative assets in each Silo. Exhibit B contains a preliminary corporate structure chart. These materials were prepared at my direction based on information available at this time and are subject to revision as our investigation into the affairs of the FTX Group continues.
There is much more information on each of these silos in the affidavit at the bottom of this post, but what we are curious about at this stage is what the Alameda balance sheet looks like: after all, that's what started this whole avalanche in the first place. Here are the details:
The parent company and primary operating company in the Alameda Silo is Alameda Research LLC, which is organized in the State of Delaware. Before the Petition Date (as defined below), the Alameda Silo operated quantitative trading funds specializing in crypto assets. Strategies included arbitrage, market making, yield farming and trading volatility. The Alameda Silo also offered over-the-counter trading services, and made and managed other debt and equity investments. In short, the Alameda Silo was a “crypto hedge fund” with a diversified business trading and speculating in digital assets and related loans and securities for the account of its owners, Messrs. Bankman-Fried (90%) and Wang (10%).
Alameda Research LLC prepared consolidated financial statements on a quarterly basis. To my knowledge, none of these financial statements have been audited. The September 30, 2022 balance sheet for the Alameda Silo shows $13.46 billion in total assets as of its date. However, because this balance sheet was unaudited and produced while the Debtors were controlled by Mr. Bankman-Fried, I do not have confidence in it and the information therein may not be correct as of the date stated.
Remarkably, among the assets listed in the document was $4.1bn of related party loans extended by Alameda, $3.3bn of which was to Bankman-Fried both personally and to an entity he controlled. Bankman-Fried previously said that FTX had “accidentally” given $8bn of FTX customer funds to Alameda.
The highlighted "related party receivable" is notable because as footnote 3 to the table reveals, it consisted of a loan by "Euclid Way Ltd. to Paper Bird Inc. (a Debtor) of $2.3 billion" and three loans by Alameda Research Ltd.: one to Mr. Bankman-Fried, of $1 billion; one to Mr. Singh, of $543 million; and one to Ryan Salame, of $55 million.
The liabilities as of September 30, 2022 were manageable. Unfortunately, the reality is that the asset and liability numbers at the consolidated level were flipped resulting in an $8 billion hole.
The problem, as we now know, is that the value of the assets was woefully overrepresented. But we'll get to that.
First, let's look at the immediate history that led to the bankruptcy filing:
EVENTS LEADING TO CHAPTER 11 FILING
The Debtors faced a severe liquidity crisis that necessitated the filing of these Chapter 11 Cases on an emergency basis on November 11, 2022, and in the case of Debtor West Realm Shires Inc., on November 14, 2022 (collectively, the “Petition Date”). In the days leading up to the Petition Date, certain of the circumstances described in Part III below became known to a broader set of executives of the FTX Group beyond Mr. Bankman-Fried and members of his inner circle. Questions arose about Mr. Bankman-Fried’s leadership and the handling of the Debtors’ complex array of assets and businesses.
As the situation became increasingly dire, Sullivan & Cromwell and Alvarez & Marsal were engaged to provide restructuring advice and services to the Debtors.
On November 10, 2022, the Securities Commission of the Bahamas (the “SCB”) took action to freeze assets of non-Debtor FTX Digital Markets Ltd., a service provider to FTX Trading Ltd. and the employer of certain current and former executives and staff in the Bahamas. Mr. Brian Simms, K.C. was appointed as provisional liquidator of FTX Digital Markets Ltd. on a sealed record. The provisional liquidator for this Bahamas subsidiary has filed a chapter 15 petition seeking recognition of the provisional liquidation proceeding in the Bankruptcy Court for the Southern District of New York.
In addition, in the first hours of November 11, 2022 EST, the directors of non-Debtors FTX Express Pty Ltd and FTX Australia Pty Ltd., both Australian entities, appointed Messrs. Scott Langdon, John Mouawad and Rahul Goyal of Korda Mentha Restructuring as voluntary administrators.
At the same time, negotiations were being held between certain senior individuals of the FTX Group and Mr. Bankman-Fried concerning the resignation of Mr. Bankman-Fried and the commencement of these Chapter 11 Cases. Mr. Bankman-Fried consulted with numerous lawyers, including lawyers at Paul, Weiss, Rifkind, Wharton & Garrison LLP, other legal counsel and his father, Professor Joseph Bankman of Stanford Law School. A document effecting a relinquishment of control was prepared and comments from Mr. Bankman-Fried’s team incorporated. At approximately 4:30 a.m. EST on Friday, November 11, 2022, after further consultation with his legal counsel, Mr. Bankman-Fried ultimately agreed to resign, resulting in my appointment as the Debtors’ CEO. I was delegated all corporate powers and authority under applicable law, including the power to appoint independent directors and commence these Chapter 11 Cases on an emergency basis.
Cash management... or lack thereof:
The FTX Group did not maintain centralized control of its cash. Cash management procedural failures included the absence of an accurate list of bank accounts and account signatories, as well as insufficient attention to the creditworthiness of banking partner around the world. Under my direction, the Debtors are establishing a centralized cash management system with proper controls and reporting mechanisms.
During these Chapter 11 Cases, cash that the Debtors are able to locate and transfer to the United States without adverse consequences, including substantially all proceeds of the global reorganization effort, will be deposited into financial institutions in the United States that are approved depository institutions in accordance with the U.S. Trustee Guidelines. Each Silo will have a centralized cash pool, and the Debtors will implement appropriate arrangements for allocating costs across the various Silos and Debtors. The Debtors expect to file promptly a Cash Management Motion that will describe the new cash management system in more detail.
Because of historical cash management failures, the Debtors do not yet know the exact amount of cash that the FTX Group held as of the Petition Date. The Debtors are working with Alvarez & Marsal to verify all cash positions. To date, it has been possible to approximate the following balances as of the Petition Date based on available books and records:
The Debtors have been in contact with banking institutions that they believe hold or may hold Debtor cash. These banking institutions have been instructed to freeze withdrawals and alerted not to accept instructions from Mr. Bankman-Fried or other signatories. Proper signature authority and reporting systems are expected to be arranged shortly.
Effective cash management also requires liquidity forecasting, which I understand was also generally absent from the FTX Group historically. The Debtors are putting in place the systems and processes necessary for Alvarez & Marsal to produce a reliable cash forecast as well as the cash reporting required for Monthly Operating Reports under the Bankruptcy Code.
And now it gets really good: read this section on the company's "Financial Reporting"
The FTX Group received audit opinions on consolidated financial statements for two of the Silos – the WRS Silo and the Dotcom Silo – for the period ended December 31, 2021. The audit firm for the WRS Silo, Armanino LLP, was a firm with which I am professionally familiar. The audit firm for the Dotcom Silo was Prager Metis, a firm with which I am not familiar and whose website indicates that they are the “first-ever CPA firm to officially open its Metaverse headquarters in the metaverse platform Decentraland.
have substantial concerns as to the information presented in these audited financial statements, especially with respect to the Dotcom Silo. As a practical matter, I do not believe it appropriate for stakeholders or the Court to rely on the audited financial statements as a reliable indication of the financial circumstances of these Silos.
The Debtors have not yet been able to locate any audited financial statements with respect to the Alameda Silo or the Ventures Silo.
Next, human resources: even more insanity here.
he FTX Group’s approach to human resources combined employees of various entities and outside contractors, with unclear records and lines of responsibility. At this time, the Debtors have been unable to prepare a complete list of who worked for the FTX Group as of the Petition Date, or the terms of their employment. Repeated attempts to locate certain presumed employees to confirm their status have been unsuccessful to date.
Nevertheless, there is a core team of dedicated employees at the FTX Group who have stayed focused on their jobs during this crisis and with whom I have established appropriate lines of authority and working relationships. The Debtors continue to review personnel issues but I expect, based on my experience and the nature of the Debtors’ business, that a large number of employees of the Debtors will need to continue to work for the Debtors for the foreseeable future in order to establish accountability, preserve value and maximize stakeholder recoveries after the departure of Mr. Bankman-Fried. As Chief Executive Officer, I am thankful for the extraordinary efforts of this group of employees, who despite difficult personal circumstances, have risen to the occasion and demonstrated their critical importance to the Debtors.
... and better: here are FTX's "Disbursement Controls"
The Debtors did not have the type of disbursement controls that I believe are appropriate for a business enterprise. For example, employees of the FTX Group submitted payment requests through an on-line ‘chat’ platform where a disparate group of supervisors approved disbursements by responding with personalized emojis.
Digital Asset Custody... and the "use of software to conceal the misuse of customer funds."
The FTX Group did not keep appropriate books and records, or security controls, with respect to its digital assets. Mr. Bankman-Fried and Mr. Wang controlled access to digital assets of the main businesses in the FTX Group (with the exception of LedgerX, regulated by the CFTC, and certain other regulated and/or licensed subsidiaries). Unacceptable management practices included the use of an unsecured group email account as the root user to access confidential private keys and critically sensitive data for the FTX Group companies around the world, the absence of daily reconciliation of positions on the blockchain, the use of software to conceal the misuse of customer funds, the secret exemption of Alameda from certain aspects of FTX.com’s auto-liquidation protocol, and the absence of independent governance as between Alameda (owned 90% by Mr. Bankman-Fried and 10% by Mr. Wang) and the Dotcom Silo (in which third parties had invested.
The Debtors have located and secured only a fraction of the digital assets of the FTX Group that they hope to recover in these Chapter 11 Cases. The Debtors have secured in new cold wallets approximately $740 million of cryptocurrency that the Debtors believe is attributable to either the WRS, Alameda and/or Dotcom Silos. The Debtors have not yet been able to determine how much of this cryptocurrency is allocable to each Silo, or even if such an allocation can be determined. These balances exclude cryptocurrency not currently under the Debtors’ control as a result of (a) at least $372 million of unauthorized transfers initiated on the Petition Date, during which time the Debtors immediately began moving cryptocurrency into cold storage to mitigate the risk to the remaining cryptocurrency that was accessible at the time, (b) the dilutive ‘minting’ of approximately $300 million in FTT tokens by an unauthorized source after the Petition Date and (c) the failure of the co-founders and potentially others to identify additional wallets believed to contain Debtor assets.
In response, the Debtors have engaged forensic analysts to identify potential Debtor assets on the blockchain, cybersecurity professionals to identify the parties responsible for the unauthorized transactions on and after the Petition Date and investigators to begin the process of identifying what may be very substantial transfers of Debtor property in the days, weeks and months prior to the Petition Date. The Debtors’ team includes business, accounting, forensic, technical and legal resources that I believe are among the best in the world at these activities. It is my expectation that the Debtors will require assistance from the Court with respect to these matters as the investigation and these Chapter 11 Cases continue.
Additionally, Ray notes that the fair value of the crypto assets held by the FTX International exchange was just $659,000 as of September 30. As a reminder, SBF made this sound to be as large as $5.5bn just a few days ago. While the filing does not include an estimate of crypto assets owed to customers, but says they are expected to be “significant”.
As the FT notes, amid Ray’s first statements on the collapse of FTX, a jurisdictional fight over the company’s legal proceedings has emerged. Earlier in the week, Bahamian officials filed a Chapter 15 bankruptcy in a New York federal court asking a judge there to respect a liquidation effort that had commenced in the island nation.
At issue is an FTX subsidiary known as “FTX Digital” not involved in the US Chapter 11 case in which the Bahamas says significant customer assets reside. Ray on Thursday wrote in a court filing that the Chapter 15 case should be consolidated in the Delaware bankruptcy court.
The punchline, however, was Ray's final paragraph, a tangent on corporate communications which hardly needs discussion:
Finally, and critically, the Debtors have made clear to employees and the public that Mr. Bankman-Fried is not employed by the Debtors and does not speak for them. Mr. Bankman-Fried, currently in the Bahamas, continues to make erratic and misleading public statements. Mr. Bankman-Fried, whose connections and financial holdings in the Bahamas remain unclear to me, recently stated to a reporter on Twitter: “F*** regulators they make everything worse” and suggested the next step for him was to “win a jurisdictional battle vs. Delaware”.
To summarize:
No record of any bank accounts
No record of any cash accounts
No record of any signatories
No record of any employees
No record of any payables or receivables
No record of any investments
No record of any decision-making
No record of any board meetings
No record of anything
And, as Bryce Weiner adds, there was also no record of any chats which were set to auto-delete, so there is no record of any internal communications.
Translation: if SBF avoids prison it is only because his tens of millions in (stolen) "donations" to Democrats have bought him a get out of jail for life card.
The full affidavit is below.
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Crypto dark knight Sam Bankman-Fried may have deceived investors, customers and various journalists and politicians. But now the FTX founder is at least telling the truth about a few things. Lo, he says that environmental, social and governance (ESG) investing is a fraud, and so was his progressive public posturing.
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Mr. Bankman-Fried on Wednesday tweeted a rambling account attempting to explain how he managed to lose billions of dollars in FTX customer funds. “I was on the cover of every magazine, and FTX was the darling of Silicon Valley,” he noted. As a result, “we got overconfident and careless.” There’s an understatement for the digital ages.
Mr. Bankman-Fried virtue-signaled by committing to make FTX “carbon neutral” and donating generously to fashionable progressive causes such as a foundation working to provide solar energy in the Amazon River basin. “We’re giving millions each year to launch sustainability related initiatives,” he said in an April Forbes magazine interview with—you can’t make this up—Brazilian super-model Gisele Bündchen.
Meanwhile, he was leveraging FTX customer funds to make risky, ill-timed bets. “Problems were brewing. Larger than I realized,” he tweeted. “In the future, I’m going to care less about the dumb, contentless, ‘good actor’ framework,” he added. “What matters is what you do—is *actually* doing good or bad, not just *talking* about doing good or *using ESG language*.”
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Mr. Bankman-Fried is also acknowledging that he genuflected to regulators and Democratic lawmakers to win political protection. ESG ratings company Truvalue Labs even gave FTX a higher score on “leadership and governance” than Exxon Mobil, though the crypto exchange had only three directors on its board. The directors were Mr. Bankman-Fried, another FTX executive and an outside attorney. Truvalue Labs says FTX was given an overall “laggard” score.
“ESG has been perverted beyond recognition,” Mr. Bankman-Fried confessed in an interview this week with Vox in which he also acknowledged that his advocacy for strong crypto regulations was “just PR.”
He said he feels “bad for those who get” harmed by “this dumb game we woke westerners play where we say all the right shiboleths [sic] and so everyone likes us.” Ah, yes, the poor saps who invest in companies because they claim to be sustainable.
For the record, Mr. Bankman-Fried denies wrongdoing. “It was never the intention” to bilk customers, he said. Maybe not. But here is an object lesson for investors and the American public in how progressive virtue-signaling is used to conceal business vices. Some people will believe anything if you wrap a chance to get rich quick in political fashion.
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WITH JIM GERAGHTYNovember 18 2022
On the menu today: Over the course of November, you’ve probably noticed increasingly dramatic coverage of the collapse of the cryptocurrency exchange FTX. It turns out that the disheveled young so-called genius running one of the world’s biggest cryptocurrency exchanges and a major cryptocurrency hedge fund — a man once touted as the next Warren Buffett — was making it all up as he went along, like Bluto Blutarsky in Animal House. In other words, the cryptocurrency titan who was previously the Democrats’ second-biggest donor after George Soros now looks like a younger, nuttier Bernie Madoff.
Sam Bankman-Fried: Crook, Nut, or Both?
I haven’t written one of these explainers since the GameStop brouhaha. If I’m writing an “explainer,” there’s a good chance I needed the subject explained to me.
Let’s start at the very beginning, because as Maria Von Trapp reminded us, that’s a very good place to start. A cryptocurrency is a money-like asset that is designed to be used on computer systems and electronic banking, but that is not backed by anything like a government or a bank. Theoretically, anything could be used as currency. Back in grade school, you probably used Halloween candy as a lunchroom currency in early November — two small bags of M&Ms equaled one Snickers bar. Unlike the shell beads, coins, paper, and other objects used as currency throughout history, cryptocurrency is not tangible or physical; it only exists electronically. But if two people agree that the cryptocurrency has a particular value, they can use it to buy or sell goods or services. Or someone can buy a cryptocurrency and hold onto it like a stock or other asset, hoping it rises in value.
Right now, the most widely held cryptocurrencies are Bitcoin, Etherium, Tether, USD Coin — which, as the name would suggest, is pegged to the dollar — and BNB.
Back in 2017, Sam Bankman-Fried noticed that Bitcoin was bought and sold at significantly different prices in different countries’ markets — sometimes 60 percent more than the lowest priced markets. He bought Bitcoin in the markets where it was the cheapest, and then resold it in South Korean markets at a much higher price, what he nicknamed “the Kimchi Premium.” After a month, he launched his own trading house, Alameda Research.
Bankman-Fried founded FTX, which is short for “Futures Exchange,” in 2019. “In creating FTX, I wanted to build a platform for professional traders like me, while also bringing crypto trading to the mass market and first-time users,” he later said. He and his team had considerable experience with a lot of other big-name financial firms and tech companies such as Optiver, Susquehanna, Google, and Facebook. In other words, those who invested in and with the exchange believed that this team knew what they were doing.
As a cryptocurrency exchange, FTX allowed customers to trade cryptocurrencies for other assets, such as conventional — some would say, “real”– money or other cryptocurrencies. As with all currencies, the value of any given cryptocurrency is determined by what people — the market — collectively believe it is worth. If you have bought your morning coffee with U.S. dollars for your entire life, you likely feel confident that the coffee shop will accept payment in U.S. dollars tomorrow.
Every currency is maintained by a sufficiently widespread belief that the currency is currently worth something and will continue to be worth something in the foreseeable future. A currency’s value crashes when people no longer believe it is worth much, or worth anything at all.
FTX grew spectacularly fast. By March 2021, FTX had bought the rights to rename the home of the NBA’s Miami Heat as the “FTX Arena.” You may recall the Super Bowl commercial from this past February featuring Larry David, with the joke being that David didn’t understand cryptocurrency and thus was passing on investing in the next big thing — a pretty funny irony in light of recent events.
In August, Sam Bankman-Fried was on the cover of Fortune magazine, with a headline asking if he was the next Warren Buffett. He was touted like the other tech-industry boy-wonder geniuses, the next Steve Jobs, Bill Gates, or Mark Zuckerberg — a disheveled and casual wunderkind who had apparently discovered some key business secret or truth that had eluded the rest of us.
Sam Bankman-Fried does not look like the most powerful man in crypto. Friendly and rumpled, with an unruly halo of curly hair, the 30-year-old widely known as SBF has an affinity for League of Legends, fidget spinners, and other trappings of nerd culture. But underneath the goofy facade is a trading wunderkind whose ambition knows no limits.
An MIT physics grad, SBF honed his trading skills at renowned quant shop Jane Street Capital before launching a successful firm of his own, Alameda Research. In 2019 he founded crypto exchange FTX, hailed by some as the best derivatives platform ever built.
As recently as September, FTX was believed to be worth $32 billion. In addition to running the cryptocurrency exchange FTX, Bankman-Fried continued to run Alameda Research. This is like having the same person running the New York Stock Exchange and Bridgewater Associates, to pick a market and a hedge fund that are familiar to most people.
If you’re like me, you’ve felt like you didn’t really understand what the heck cryptocurrency was and didn’t bother investing in it. Well, our inability to understand these things really paid off in this case.
At the beginning of November, the website CoinDesk reported that “Bankman-Fried’s trading giant Alameda rests on a foundation largely made up of a coin that a sister company invented, not an independent asset like a fiat currency or another crypto. The situation adds to evidence that the ties between FTX and Alameda are unusually close.”
This may not be legal; reportedly, “the U.S. Department of Justice and the Securities and Exchange Commission are examining whether FTX improperly used billions of dollars of customer funds to prop up a trading firm that he also founded, Alameda Research.” In other words, people gave money to the FTX exchange thinking they were investing in various cryptocurrencies, and it was instead being used to support the bottom line of the cryptocurrency hedge fund.
The CoinDesk report also led to lots of people in the financial and tech sectors wondering how much of FTX and Alameda’s financial assets were based on non-crypto, tangible financial assets. The fear was that the company’s financial assets were largely cryptocurrency, and thus capable of losing value quickly and with little warning.
About a week later, FTX entered negotiations with the world’s largest cryptocurrency exchange, Binance, seeking to be acquired by the larger exchange. The initial assessment from Binance was that FTX still had value, but it had a “liquidity crunch” — it couldn’t turn its cryptocurrency assets into real-world-currency assets fast enough. But about a day later, Binance suddenly changed its mind, backing out of the deal and ominously declaring that, “The issues are beyond our control or ability to help.”
That was a giant flashing neon sign that FTX had some sort of terrible problems lurking beneath the surface.
FTX has since filed for bankruptcy, and John Jay Ray III, who is running what’s left of the company, declared in the bankruptcy filing that basically no one at FTX left any records of what they were doing, and may well have never understood what they were doing when they were actually doing it. Ray wrote:
I have over 40 years of legal and restructuring experience. I have been the Chief Restructuring Officer or Chief Executive Officer in several of the largest corporate failures in history. I have supervised situations involving allegations of criminal activity and malfeasance (Enron). I have supervised situations involving novel financial structures (Enron and Residential Capital) and cross-border asset recovery and maximization (Nortel and Overseas Shipholding). Nearly every situation in which I have been involved has been characterized by defects of some sort in internal controls, regulatory compliance, human resources and systems integrity.
Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.
Remember, this is the guy who cleaned up Enron!
Bankruptcy filings are not often entertaining reading, but this one stands out because it basically makes FTX look less organized, professional, and disciplined than the fraternity in Animal House. Where the institution doesn’t look chaotic, it looks like a giant scam:
“Many of the companies in the FTX Group, especially those organized in Antigua and the Bahamas, did not have appropriate corporate governance. I understand that many entities, for example, never had board meetings.”
“The FTX Group did not maintain centralized control of its cash. Cash management procedural failures included the absence of an accurate list of bank accounts and account signatories, as well as insufficient attention to the creditworthiness of banking partners.”
“The FTX Group’s approach to human resources combined employees of various entities and outside contractors, with unclear records and lines of responsibility. At this time, the Debtors have been unable to prepare a complete list of who worked for the FTX Group as of the Petition Date, or the terms of their employment. Repeated attempts to locate certain presumed employees to confirm their status have been unsuccessful to date.”
“Employees of the FTX Group submitted payment requests through an on-line ‘chat’ platform where a disparate group of supervisors approved disbursements by responding with personalized emojis.”
“Corporate funds of the FTX Group were used to purchase homes and other personal items for employees and advisors. I understand that there does not appear to be documentation for certain of these transactions as loans, and that certain real estate was recorded in the personal name of these employees and advisors on the records of the Bahamas.”
“The FTX Group did not keep appropriate books and records, or security controls, with respect to its digital assets.”
“One of the most pervasive failures of the FTX.com business in particular is the absence of lasting records of decision-making. Mr. Bankman-Fried often communicated by using applications that were set to auto-delete after a short period of time, and encouraged employees to do the same.”
That last one makes you wonder if Bankman-Fried didn’t want to leave any paper trail of what he was doing with other people’s money. The much-celebrated wunderkind now looks like either a crook, or a nut, or both:
“Mr. Bankman-Fried, currently in the Bahamas, continues to make erratic and misleading public statements. Mr. Bankman-Fried, whose connections and financial holdings in the Bahamas remain unclear to me, recently stated to a reporter on Twitter: “F*** regulators they make everything worse” and suggested the next step for him was to “win a jurisdictional battle vs. Delaware”
Many on the right are wondering if Bankman-Fried got away with it for so long because he was exceptionally generous to the Democratic Party, and lots of people on the left wanted to believe the image he offered.
In August, Politico described Bankman-Fried as “one of the biggest donors in Democratic politics. . . . [He’s] one of just a handful of donors who spent $10 million-plus backing President Joe Biden in 2020, and in the last year, he’s hired a network of political operatives and spent tens of millions more shaping Democratic House primaries. It was a shocking wave of spending that looked like it could remake the Democratic Party bench in Washington, candidate by candidate. Looking ahead to the 2024 election, he has said he could spend anywhere from $100 million to $1 billion.”
When you have $1 billion, you can buy a lot of friends who don’t want to look too closely at how you made your fortune. NBC News reported:
In just two years since Bankman-Fried’s first political donation, his money hired dozens of top-flight lobbyists and political operatives, made major investments in newsrooms like ProPublica and Semafor, and made him the second-biggest Democratic donor of the 2022 midterms, behind only the 92-year-old financier George Soros. He said $1 billion would be a “soft ceiling” for his spending in 2024.
Apparently, there’s no proof to the rumor that the Ukrainian government invested heavily in FTX, with some folks on social media spinning a conspiracy theory that the Ukrainians gave to FTX, Sam Bankman-Fried gave money to Democrats, and Democrats and the Biden administration sent U.S. aid to Ukraine. FTX was a partner in helping the Ukrainian government convert donated cryptocurrencies to fiat money.
But the story is bad enough as is, without crazy rumors of elaborate global money-laundering. It is believed that more than a million people have lost the money they invested in FTX, an estimated $8 billion or so.
ADDENDUM: Thanks to everyone who has donated during our current webathon, and in particular, thank you to the anonymous reader who donated $2,500 and wrote, “Jim Geraghty alone is worth the price of admission.” We are very close to our goal for this webathon, and your generosity is part of what keeps NR going. Thank you, thank you, thank you.
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is returning the $2,900
no word from mad max
except republicans took cash too
isn't her house in Baltimore ~ 3,000,000 ?
https://www.conservativereview.com/sam-bankman-fried-and-ftx-cronies-gave-300k-to-house-committee-members-investigating-him-2658714091.html
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https://www.youtube.com/watch?v=Ow-MN7qJnIY
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One red year, 3 green years is the pattern, so far. This suggests 2025 should be time for some profits, for those with short time horizons.
(https://pbs.twimg.com/media/Fh7hhjHWQAEd1rT?format=png&name=360x360)
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So people thought they purchased about 70,000 BTC thro FTX, who immediately used the $ to buy shitcoins. Now that FTX is bankrupt, alas not a single BTC was in their inventory. So the people only purchased IOU's for BTC. The moral of the story is that self custody of your coins is important. Going into 2023, self custody of coins will be important. This is shown below, where the number of BTC at exchanges is going down, as people self custody. These kind of games (purchase of paper BTC), has kept the price down, but people have the option to self custody. Same happens with gold, but self custody is harder with gold, especially in size.
(https://pbs.twimg.com/media/Fh385KrXgAcrCVp?format=jpg&name=medium)
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BTC looking weak, chatter about the owner of GBTC, DCG (parent company) and Genesis being in trouble due to FTX. GBTC is very likely backed by BTC and is safe, but the market awaits news. Did not help that Coinbase which stores GBTC's coins did not provide proof, but only assurances.
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https://nypost.com/2022/11/20/the-us-economy-is-at-the-mercy-of-jerome-powell-and-janet-yellen/
Powell thinks the only way to curb inflation is to crash the economy and the others don't even want to curb inflation. God help us.
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"The US economy is at the mercy of Jerome Powell and Janet Yellen"
what terrible leadership
in an ideal world elections of political grandstanding should not have anything to do with the Fed
or Treasury
decisions ....
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In the meantime, plebs with > 1 BTC keeps rising.
(https://pbs.twimg.com/media/FiH43DpUoAA5AL3?format=jpg&name=medium)
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Pl. do your self a favor and listen to this, starting at 44 min. Talks about why BTC is mispriced.
https://youtu.be/ONSk7DMsxNk (https://youtu.be/ONSk7DMsxNk)
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Regulatory Crackdown in Wake of FTX Scandal Would Erode Liberties Without Addressing Demand for New Currencies: Experts
By Michael Washburn November 22, 2022 Updated: November 22, 2022biggersmaller Print
The collapse of cryptocurrency exchange FTX, and the worldwide outcry over the billions of dollars wiped off the platform, are likely to trigger a massive regulatory reaction that would further erode citizens’ economic freedoms without addressing the issues that fostered demand for an alternative to the fiat dollar, economists have told The Epoch Times.
An international scandal has embroiled FTX and its founder, 30-year-old Sam Bankman-Fried, in the wake of the firm’s crash earlier this month precipitated by a run on the exchange. Since then, reports have emerged that Alameda Research, a crypto hedge fund established by Bankman-Fried, was trading billions of dollars from FTX accounts without clients’ knowledge.
FTX has filed for bankruptcy protection, Bankman-Fried has stepped down from his role as CEO, and John J. Ray III, the former CEO of Enron, has taken over the insolvent company with a plan to sell it off if a successful restructuring is impossible. An estimated 1 million customers and other investors are facing total losses of billions of dollars.
FTX, in a recent court filing, said it owes $3.1 billion to its top 50 creditors, and its collapse has rocked the $839 billion global crypto market. On Nov. 22, the trading value of bitcoin tumbled to $15,480, a two-year low, before edging up slightly to $15,909.
Ray has claimed that subsidiaries of FTX in the United States and abroad “have solvent balance sheets, responsible management and valuable franchises,” but so far the shock and alarm over the exchange’s implosion have shown no sign of abating.
Meanwhile, a number of big names in sports and entertainment, such as comedian Larry David, NBA star Stephen Curry, and quarterback Tom Brady, have become the subject of a probe by the Texas State Securities Board over their public endorsements of FTX. The celebrities have also become the targets of class action lawsuits filed by disgruntled investors, with more expected in the days to come.
Madoff’s Heirs
Observers of the FTX blowup are extremely candid about the severity of the exchange’s mismanagement and the recent historical analogs for its unraveling.
Wayne Davis, a partner at the law firm Tannenbaum Halpern Syracuse & Hirschtritt in New York, drew a parallel with one of the most notorious cases of fraud in the history of finance, that of the Bernard L. Madoff, whose Ponzi scheme bilked some 4,800 clients of $64.8 billion. In both cases, clients were insufficiently attentive to the lack of internal controls, he suggested.
“Madoff comes to mind. Perhaps not the same criminal intent components, but there are certainly similarities as far as investor/customer enthusiasm notwithstanding signs of lax compliance and risk management engagement,” Tannenbaum told The Epoch Times.
Other observers see parallels in earlier events in the development of banking and currencies. Charles Steele, chair of the department of economics, business, and accounting at Hillsdale College in Michigan, said that the blow-up of FTX reminds him of the first stock market bubble and financial crisis to afflict the world, namely the collapse of France’s Banque Royale in 1720.
“Scotsman John Law set up a central bank for the French monarchy that began paying enormous returns on its shares and its sister Mississippi Company. It was heralded as a great triumph of new financial technology, a nearly miraculous breakthrough, but in fact, it was effectively what we now call a Ponzi scheme,” Steele told The Epoch Times.
“In the case of FTX, it appears that Samuel Bankman-Fried was heralded as a crypto genius, but was simply engaged in a lot of shady business disguised as ‘philanthropy,’ using other people’s money. He was apparently the second-largest donor to the Democrat Party campaigns in the 2022 elections, and also was positioning himself to be a major player in the design of federal regulations for cryptocurrency,” Steele added.
The Likely Reaction
The magnitude of the FTX scandal—the amounts of money involved and the number of people suffering possibly permanent financial harm—means that its ramifications are likely to continue to affect all players in the crypto space in coming weeks and months, said Jeffrey Guernsey, a professor of economics at Cedarville University in Ohio. The very lack of a fixed value that made crypto investing exciting for some people may also be among its singular vulnerabilities in the face of emboldened regulators, he suggested.
“While this thought does not originate with me, it is clear that crypto is not a currency, if one attribute of a currency is a stable value. The collapse of FTX certainly puts the entire asset class under review and question and may lead to calls for governmental regulation,” Guernsey said.
Given the priorities of the Biden administration, the notably harsher tone of federal guidance and rulemaking since he took office, and officials’ well-documented hostility to financial innovation and decentralization, the reaction from regulators is likely to be extremely draconian and may even cross lines that the regulators have hitherto respected, observers say. But whether the coming crackdown will address concerns of fiat currency that helped feed demand for alternative exchanges, platforms, and markets is a different question.
“I expect that this debacle will lead to greatly increased federal regulation of cryptocurrencies,” Steele said.
In Steele’s view, the fiasco is likely to speed up the crafting and implementation of central bank digital currencies (CBDC). Steele noted that the Federal Reserve Bank of Boston is collaborating with the Massachusetts Institute of Technology on a joint study, Project Hamilton, whose objective is to devise a CBDC for the United States.
While ignored by many people, this is one of the most potentially concerning recent developments given the unprecedented powers that it stands to place in the hands of a central regulatory authority, he said. While some might initially welcome a CBDC, it could have unforeseen consequences and ultimately could help extend the role of government into people’s lives in ways to which they are so far unaccustomed.
“I think a CBDC is very dangerous, because it would enable a central bank or government to monitor, control, and record every exchange made with the currency. If, for example, a government decided it did not want citizens buying, say, firearms, or perhaps donating funds to a political candidate, the central bank could prevent the transaction. Alternatively, it could have a permanent record of a citizen’s purchases and use these to establish a social credit score for the person,” Steele said.
“In this way, a CBDC could become the ultimate tool of social engineering and tyranny. A true cryptocurrency keeps transactions anonymous, which is one of its great benefits. Governments tend to dislike tools that give citizens such privacy,” he added.
Legitimate Demand
The tragedy of the FTX scandal and the possible meltdown of other crypto entrepreneurs as more and more people panic and seek to redeem their assets is that such platforms arose partly in response to an understandable demand for alternatives to the fiat dollar, or a dollar whose value and use flow from government dictates and are unrelated to any external commodity or asset such as gold. The heavy-handed reaction expected in the coming months as a consequence of FTX’s blow-up is unlikely to take account of this truth.
That’s the view of Brian Domitrovic, a professor of economic history at Sam Houston State University, who sees negative long-term consequences to the country’s abandonment of the gold standard in 1971.
“I don’t think there’s any kind of broad popular support for a fiat dollar, a non-gold dollar. There hasn’t been since 1971. A lot of popular dissatisfaction with this has been very clearly expressed,” Domitrovic told The Epoch Times.
“The Federal Reserve is not a popular institution at all. I think there’s just a general sense on the part of the public that we should have something more like the classical monetary system that we used to have. And I think crypto has tapped into that more effectively than anything since the end of the gold standard,” he added.
The New Non-Fiat
From a certain standpoint, cryptocurrencies took over where gold left off following the shift away from the gold standard, Domitrovic said. Like gold, it is limited in supply and requires mining, though of course not the same kind of mining. In the case of the former commodity, the mining is a process of physical extraction of a substance from the earth, and in the latter, it is mathematical and theoretical in nature.
Despite the differences, both currencies have the effect of eroding centralized power and oversight by making institutions such as the Federal Reserve less integral to the functioning of the economy, Domitrovic said.
“Bitcoin aspires to mimic gold in many respects. This is what you had when money was not a creation of the Federal Reserve,” he added.
Much of today’s demand for bitcoin and kindred currencies flow from a widespread desire to go back to how things were before 1971, Domitrovic argued.
“Before 1971, the United States led the world in becoming the greatest economy ever, with hundreds of millions of people living at high levels of prosperity. There is a very strong reason why people associate the pre-1971 period with a magnificent achievement economically,” he added.
In this analysis, the federal government has sought to maintain centralized oversight over the economy and the level of prosperity attainable by citizens partly by not allowing crypto to compete with the fiat dollar.
“Even if there is fraud, I’m still going to lay a lot of the blame at the feet of the government and the official definition of policy, because they’re not taking crypto as seriously as they should. They consider it non-money,” he said.
Domitrovic sees stiff resistance on the part of Washington’s policy elites toward going back to the state of affairs that prevailed up until 1934, when it was common for private banks to issue currencies not subject to taxation.
“A majority of U.S. dollars from 1862 to 1934 were produced privately. Look at currency from the 1920s, there’s the name of a bank on it. It wasn’t taxed, and you didn’t have to calculate where you acquired it and where you sold it. That’s the way things worked going back to 1792 when the U.S. dollar was established,” Domitrovic said.
By taxing crypto transactions and refusing to acknowledge the legitimacy of bitcoin, the government has helped foster a shadow industry where reckless players and fraudsters like Bankman-Fried proliferate, Domitrovic believes.
“I can see scenarios where the government wants to see if bitcoin will embarrass itself out of existence. But they’re not addressing the fundamental issue, that there’s mass dissatisfaction with the non-gold fiat collar. Good policy would take that seriously,” said Domitrovic.
The Epoch Times has reached out to FTX for comment.
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Pl. do your self a favor and listen to this, starting at 44 min. Talks about why BTC is mispriced.
https://youtu.be/ONSk7DMsxNk (https://youtu.be/ONSk7DMsxNk)
A chart from the video:
https://images.app.goo.gl/TJnWzoj6AaJWPG6s6
https://www.cbo.gov/sites/default/files/images/full-reports/2020/56516-fig4_deficit-interest-vs.png
(https://www.cbo.gov/sites/default/files/images/full-reports/2020/56516-fig4_deficit-interest-vs.png)
Scroll right if necessary to 2050.
Y axis is deficit as a percent of US GDP.
You can see what financial crises do at 2008 and 2020. This is a best case scenario on the course we are on. Deficit is projected to 15% of GDP. Each deficit spirals into new debt requiring more interest expense even at zero principle payment.
Even in Keynesian deficit theory, you should have zero deficit at full employment. That ship has sailed.
Point in the video is that the current interest don't account for the credit risk of the USA.
I am sorry to say, 2050 is not that far out, 27 years is like looking back to 1995.
I have been harping and no policy makers or voters have been listening, we need economic growth, WAY MORE OF IT, to survive. Our debt is growing, and compounding, like it or not. Debt as a percentage of GDP CANNOT grow like this or default is coming and coming soon.
Scott Grannis said, debt service, our interest costs are still within historical norms, but that was with interest rates at near zero, negative real rates, artificially low rates. In the longer run, they won't be.
This is a CBO chart. The chart is, again, the optimistic, best case scenario for the course we are on, and it is ugly, leads to disaster. These guys are talking about how to hedge against it (bitcoin), but we need, as a country, to change course to survive. Spend less as a percent of GDP and put our private sector growth rate on steroids. Do both or cease to exist.
Besides the debt number, whether you look at the 31 trillion or the 25 trillion, we have 170 trillion in unfunded liabilities. 200 trillion not paid for in a 25 trillion economy. We don't need to ask, what could go wrong.
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"Pl. do yourself a favor and listen to this, starting at 44 min. Talks about why BTC is mispriced. https://youtu.be/ONSk7DMsxNk"
Listening now. Interesting!
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(https://pbs.twimg.com/media/FiQtPFQWQAAL3-P?format=jpg&name=small)
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Re: the above video..Some things that I think a lot about
- CBO projections are always optimistic
- Does anyone think that the US debt will ever be paid back. The answer is no!. If so, there are only two paths forward, default (which we can avoid since we own the reserve currency), or print more and try to pay the debt back in devalued dollars.
- Last week, Jason Lowery an MIT defense fellow, who has a Masters thesis on why the US has no option but to buy BTC and is making waves in the BTC world, due to some unique insights https://podcasts.apple.com/us/podcast/jason-lowery-bitcoin-is-critical-for-national-security/id1569130932?i=1000545933384 (https://podcasts.apple.com/us/podcast/jason-lowery-bitcoin-is-critical-for-national-security/id1569130932?i=1000545933384) announced that the Biden WH asked him to help explain the need for BTC. He is also advising the Office of the Defense Secretary.
- Yesterday, a Harvard thesis, for the first time made a case that Central Banks must buy BTC as a reserve currency, atleast in small amounts. https://sites.google.com/view/matthewferranti/research?pli=1 (https://sites.google.com/view/matthewferranti/research?pli=1). Once any Central Bank announces that they hold BTC, its game over, all CB's will need to hold BTC in a mad FOMO.
- Saudis & Russians are busy sabotaging the US petro-dollar system. Its a matter of time, before oil is priced in BTC. Govts all over the world are realizing that the US issues green paper, in exchange of real goods (oil, commodities, even I-phones), whereas from their perspective, all the power should be with the countries who own the commodities and not the ones with the right to print green paper.
- No one knows how many $, Yen, Euro have been printed so far and how many more will need to be printed over the next decade. What we do know is there will only ever be 21 million BTC, of which over 90 % have been mined so far, and the rest 10 % will be mined over the next 100 years. The world population is 8 billion, it means as long as people keep buying BTC, the price must go up. So far, even now, the number of new bitcoiners continues to grow. Since growth can be exponential, in 3-4 years, a billion users are expected. There are some estimates that the world has 50 million millionaires, in other words, not enough BTC for even 1 BTC/millionaire!.
- In western economies, we do not appreciate BTC as much as say in countries where there is massive inflation, capital controls, or where they live under authoritarian regimes. Much of the developing countries and Africa fits this scenario, it is here that growth is massive.
- Elon Musk, Michael Saylor, Druckenmiller, Bill Miller, Paul Tudor Jones, all own BTC in their personal accts. These are some of the smartest investors and all are billionaires.
- More and more politicians (Cynthia Lummis, Ted Cruz, Davidson and many others) are becoming vocal supporters and US States (Wyoming, Texas) are investing/attracting hundreds of millions in BTC mining companies. Even BTC technology companies, there is literally hundreds of millions being invested in the US and elsewhere.
- BTC is already a green technology (inspite of all the FUD), with a bright future for reducing carbon emissions (captures methane flaring). Sort of like having your cake and eating it too.
- We have not discussed the Lightning network much, thats the payment network based on the BTC blockchain, which allows final settlement of transactions world wide at near zero cost, instantly. In contrast, Visa/Amex etc charge 3 % for using the card and the final settlement actually takes 3-5 days (people think it is instantaneous, but it is not). This is a game changer, expect social media platforms to implement this very soon.
There is so much going on, in the BTC space. There is also a lot of FUD/scams, but all that comes from holding "crypto", not BTC. Of course, I and many others who support BTC could be wrong, BTC is the most asymmetric bet on offer, with a very high chance of success. There is literally billions invested in it. Its like the internet, there is no going back. All we need is time for it to work out (which many of us dont have!).
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He predicts the recovery will not be typical
and it will be hard to predict the sequence of events but volatility will be high and many cascading events are likely:
https://www.yahoo.com/finance/news/top-economist-mohamed-el-erian-193236736.html
funny how same people that got us into this mess
are still in charge to manage it.
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Read that. I thought the analysis pretty good.
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Read that. I thought the analysis pretty good.
I also respect the analysis of economist Mohamed El-Erian. Among his other hats, he is chief economist for Allianz, the Munich based, largest insurance company in the world. I find him to be a neutral, well informed observer, not noticeably partisan left or right.
From the article:
"The first transformational trend, El-Erian says, is the shift from insufficient demand to insufficient supply. The second is the end of boundless liquidity from central banks. And the third is the growing fragility of financial markets."
...
"looking forward he sees even more uncertainty as economic shocks “grow more frequent and more violent.”
...
"a “cascading effect”—in that one bad event could likely lead to another."
- (Doug) These warnings may turn into understatements.
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Roubini:
“If you raise interest rates, you can also have a crash of equity markets, bond markets, credit markets, and asset prices in general that causes further financial and economic damage,”
- (Doug) Not the rosy outlook we might wish to hear.
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I like that though he is known as a bond guy, he gets the role of supply in all this.
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Texas report on Block Chain
From the Texas Work Group on Blockchain Matters, this is the report and proposed master plan to expand the blockchain industry in Texas in compliance with House Bill 1576, passed by the 87th Texas Legislature.
This report examines the current blockchain industry in Texas, reviews the state’s current academic, educational, and workforce needs required to grow the industry, and identifies areas for economic growth and development opportunities presented by blockchain technology. The report contains legislative and policy recommendations aimed at encouraging the industry’s expansion and establishing regulatory and legal clarity to establish Texas as a leader in the blockchain technology and cryptocurrency space.
https://portal.bcwg.texas.gov/General-Documents/Texas-Work-Group-on-Blockchain-Matters-Report/wbtp-2m5k (https://portal.bcwg.texas.gov/General-Documents/Texas-Work-Group-on-Blockchain-Matters-Report/wbtp-2m5k)
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Note the steepness of the adoption curves, in 5-10 years things will be very different. Its a waiting game. Compare with the internet/cell phone, from 1995-2010 a 15 year period, now do the same for BTC from 2015 onwards...That should give the growth trajectory.
(https://pbs.twimg.com/media/FigOHVHXEAArlM0?format=jpg&name=medium)
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Poking Uncle Sam in the eye
https://news.bitcoin.com/putin-calls-for-international-settlements-based-on-blockchain-and-digital-currencies/ (https://news.bitcoin.com/putin-calls-for-international-settlements-based-on-blockchain-and-digital-currencies/)
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https://bombthrower.com/the-rise-and-fall-of-ftx-part-2-of-3/
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Fidelity offers BTC to retail. Its happening...
https://bitcoinmagazine.com/business/fidelity-opens-retail-bitcoin-trading (https://bitcoinmagazine.com/business/fidelity-opens-retail-bitcoin-trading)
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Saw this in today's WSJ
Crypto’s Final Price Could Be Zero
No sane lender would extend credit against assets lacking any underlying collateral.
Andy Kessler hedcutBy Andy KesslerFollow
Nov. 27, 2022 12:32 pm ET
There aren’t many leveraged buyouts of technology companies, and for good reason. Technology and debt, like Red Bull and milk, don’t mix. Why? Because when technology works, it commands high valuations. You can’t LBO Google. But when technology moves on to the next new thing, there isn’t much residual value in the form of assets and collateral to call on in case of debt defaults. FTX, Elon Musk and SoftBank are learning this lesson.
Twitter, which last turned a profit in 2019, now has $1 billion a year in debt payments. Wall Street can’t off-load Twitter’s buyout debt, now maybe 60 cents on the dollar, without losing money. Mr. Musk even told employees “bankruptcy isn’t out of the question.” Of course, he has benefited from selling his own highly valued (though declining) Tesla shares, recently another $4 billion for a total of more than $19 billion. As Chief Twit, Mr. Musk proclaims Twitter will operate under free-speech principles. Advertisers are fleeing. So are employees. If he defaults and walks away, the only thing left is some aging code and a few plastic blue birds to sell at auction.
The new poster child for the toxic cocktail of technology and debt is Sam Bankman-Fried, with his imploded FTX and Alameda empires. Sure, these companies misappropriated, to put it nicely, customers’ assets. And yes, withdrawals that acted like a bank run drove the company into Chapter 11. But the company’s original sin was to borrow against its own FTT token, which was held up by nothing but air.
This was crypto’s mass delusion. FTT was so thinly traded that FTX could set any price, but not forever. FTX and Alameda borrowed against tokens they themselves were manipulating, including Solana and others, which some called Sam Coins, now Scam Coins. The fatal conceit: They thought FTT would stay high forever, so they invested in often illiquid positions. FTX was even paying employees, vendors and whoever else would take it in FTT tokens, whose total market cap used to be almost $10 billion and is now about $400 million.
You can’t manipulate something forever. Reality eventually replaces delusion. All it took was someone to touch a pin to the bubble. After Coindesk leaked a copy of Alameda’s balance sheet loaded with FTT tokens, Binance CEO Changpeng Zhao started selling. FTT went from $22 to under $3 in 48 hours. So much for collateral. When the smoke clears, FTX/Alameda may have $8 billion to $15 billion in debt outstanding, with little to sell for repayment. It will take years to sort out who gets what.
Meanwhile, others also barreled in. A cottage industry of firms emerged to lever up crypto. This is when things turned toxic. The first task was to lure customers by paying interest on their crypto holdings. The Anchor Protocol behind the spectacularly imploded Terra-Luna algorithmic tokens was paying up to 20%.
Other platforms such as Binance and Crypto.com would pay 4%, 8% or more on crypto as well, suckering in the masses who could earn only 0.01% interest from, well, real banks. But how could anyone pay interest on crypto? By turning around and lending it out to hedge funds and others who also used leverage. Insanity.
Genesis Global Capital created a lending platform to facilitate borrowing crypto. Lending against what? Again, just air. Firms such as Gemini, set up by the Winklevoss twins, were paying 8% interest, so customers could harvest yields. Why was there any yield on crypto? Good question. It worked on the way up, not so much on the way down. Crypto was lent out like a hot potato until someone got stuck with the value down 90% and everyone else left with defaulted debt. This was probably the only way the delusion could have ended.
Most of these platforms are now frozen and might disappear as customers caught with a hot potato frantically demand withdrawals in the wake of the FTX collapse. Of course, all these crypto lenders had to do was ask: What’s the underlying collateral? Where are the assets? With no good answer, no sane lender would have lent against it. But no one asked.
Another debt example: Remember in 2020 when a SoftBank fund was revealed as the “Nasdaq Whale” using derivatives and leverage to buy technology shares and eventually losing big? Well, besides SoftBank’s zero on its $100 million investment in FTX, here’s a strange twist: Its CEO, Masayoshi Son, may owe his company nearly $5 billion. According to the Financial Times, “Son has pledged both his stake in the funds and a portion of his SoftBank stake as collateral for the amount he owes the company.” The funds have sunk, and SoftBank stock value has declined 50% since early 2021.
Technology, like Red Bull, is a supercharger until it wears off. Debt, like milk, can kill you when it spoils. They don’t mix.
Write to kessler@wsj.com.
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They may be wrong if the US$ goes to zero first.
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The article reminds me of a magazine ad from the 1980s. Two facing pages in a fancy financial investment magazine like Fortune. On one side was a picture of a computer chip with a description: This is a chip. It's the lightest, smallest, fastest, most powerful chip ever invented on the planet. In two years it will be obsolete. On the facing page is a picture of a brick with a description: This is a brick. In 50 years it will still be a brick. We are Hanson. (Largest brick maker in North America.)
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I've worked in tech, made and lost a lot in fiber optics and datacommunications, but bricks and mortar will pay my retirement.
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https://www.reuters.com/markets/currencies/yuans-new-dollar-russia-rides-redback-2022-11-28/?utm_source=Sailthru&utm_medium=newsletter&utm_campaign=daily-briefing&utm_term=11-29-2022
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In the meantime..
https://bitcoinmagazine.com/legal/brazil-approves-use-of-bitcoin-as-payment (https://bitcoinmagazine.com/legal/brazil-approves-use-of-bitcoin-as-payment)
The ECB still does not understand BTC, or the difference between BTC and Crypto. Article should have been labelled the Euro's Last Gasp!.
https://www.ecb.europa.eu/press/blog/date/2022/html/ecb.blog221130~5301eecd19.en.html (https://www.ecb.europa.eu/press/blog/date/2022/html/ecb.blog221130~5301eecd19.en.html)
Here's the author's bio
(https://pbs.twimg.com/media/FiziGVGXEAAXPej?format=png&name=900x900)
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I don't understand yield curve much
but I remember it being posted that Scott Grannis
would tell people to watch for inversion:
https://www.marketwatch.com/story/most-deeply-negative-treasury-curve-in-more-than-four-decades-has-one-upbeat-takeaway-for-investors-11669750894
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I don't understand yield curve much
but I remember it being posted that Scott Grannis
would tell people to watch for inversion:
https://www.marketwatch.com/story/most-deeply-negative-treasury-curve-in-more-than-four-decades-has-one-upbeat-takeaway-for-investors-11669750894
It's a bad sign , yes. Not a perfect indicator but a sign of potential impending trouble coming.
From the article:. "In theory, lower economic growth equates to lower inflation, which helps the Fed do its job of controlling prices."
- Intellectual laziness or dishonesty, I just hate that kind of 1960s, 1970s thinking. Proven over and over in both directions, we can have great growth with low inflation and we can have bad growth with high inflation. It's the policies. cf. Carter, Reagan, Biden
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I don't understand yield curve much
but I remember it being posted that Scott Grannis
would tell people to watch for inversion:
https://www.marketwatch.com/story/most-deeply-negative-treasury-curve-in-more-than-four-decades-has-one-upbeat-takeaway-for-investors-11669750894
Every recession is preceded by an inverted yield curve, but not every inverted yield curve leads to a recession.
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Letter to the ECB, inresponse to their brain dead article
https://twitter.com/CosmoCrixter/status/1598070236401766400/photo/1 (https://twitter.com/CosmoCrixter/status/1598070236401766400/photo/1)
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Every recession is preceded by an inverted yield curve, but not every inverted yield curve leads to a recession.
Ya is right. The reason being, recession right now is avoidable by adopting fiscally responsible, pro growth policies.
Steve Moore CTUP (Art Laffer et al) writes:
(I'll try to add the graphs.)
12/01/2022
Who’s Afraid Of An Inverted Yield Curve?
The yield curve – the spread between the interest rate on a 10-year Treasury note and a two-year Treasury has turned decisively negative. This means the rate of interest on short-term bonds is higher than on long-term bonds. Many economists have noted that this is a strong predictor of a coming recession and is an expression of severe investor risk aversion. The yield curve now stands at -0.8% and that is the most negative since 1982.
Most recessions are preceded by inverted yield curves, as shown below.
An analysis by economists at the University of Chicago notes that “the yield-curve slope becomes negative before each economic recession since the 1970s.”
But we aren’t buying the idea that a recession is baked into the cake for 2023. There’s a very benign explanation for why we have a negative/inverted yield curve. Investors believe that inflation is going to continue to gradually come down, and stay down, for the next decade. If they didn’t believe this, they wouldn’t be buying long-term bonds at such a low-interest rate yield.
In other words, if you thought that the average inflation was going to be above 5% for the next decade, you would be losing money (adjusted for inflation) by buying a 10-year bond yielding the current interest rate of 3.75%. But investors ARE buying long-term bonds at these low rates which means inflationary expectations are falling. This is reflected in the 10-year break-even interest rate (TIPS spread) which stands at 2.6% today and has been drifting downward since July.
Or let us state the point differently. Would you feel better about the prospects for the U.S. economy if the long-term interest rate were, say, 10%? That would certainly end the reign of the inverted yield curve, but it would also mean a 12% or more interest rate on a mortgage or a business loan.
Our view is that the best way to fight off a recession and inflation is for Republicans in the House to call for massive ($1 trillion or more) cuts in government debt spending and by expanding the supply side of the economy by opening up the spigots on American energy production.
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Simple. Rightsize spending and unleash energy and enterprise. Does anyone believe Biden and Warnock will do that?
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I would note the similarity with Scott Grannis's analysis.
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https://alexberenson.substack.com/p/part-2-an-interview-with-marc-cohodes?utm_source=substack&utm_medium=email
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I once had some hopes for OAN but they have faded. Haven't watched this clip yet, but post it just in case it has content worth noticing.
https://www.oann.com/video/real-america-video/3-crypto-company-ceos-mysteriously-die-with-a-month/
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Its going to be a slow grind back up. Next halving is in 2024, so far there has always been a pre-halving rally. Thats what the chart shows.
(https://pbs.twimg.com/media/FjDo5jcX0AA_00o?format=jpg&name=medium)
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Zoltan writes brilliantly, one of my favorites, scroll to the first page by clicking left arrows
https://twitter.com/MichaelGoodwell/status/1599936367932231680/photo/1 (https://twitter.com/MichaelGoodwell/status/1599936367932231680/photo/1)
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A term they use:
lowest comfortable level of reserves (LCLoR)
https://www.federalreserve.gov/econres/notes/feds-notes/estimating-system-demand-for-reserve-balances-using-the-2018-senior-financial-officer-survey-20190409.html
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(https://pbs.twimg.com/media/FjV12x_WYAElhHa?format=jpg&name=small)
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https://www.msn.com/en-us/money/markets/there-is-nothing-special-about-2-bofa-says-the-world-s-central-bankers-just-made-up-their-inflation-target/ar-AA156qPE?ocid=winp1taskbar&cvid=123a539aa0574061a9f946dd1c899ce7
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https://www.breitbart.com/europe/2022/12/11/uk-prepares-to-introduce-a-digital-pound-central-bank-digital-currency/
gives new meaning to this image :
https://www.google.com/search?q=the+seeing+eye&rlz=1C5GCEM_enUS1001US1001&source=lnms&tbm=isch&sa=X&ved=2ahUKEwiugICqovT7AhWSEFkFHThbCvoQ_AUoAXoECAIQAw&biw=1440&bih=789&dpr=2#imgrc=9mM5Z1tzhCMRVM
concept of the land of free will be gone here too.
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Lots of BTC conferences, biggest one in Miami. Adoption is increasing
(https://pbs.twimg.com/media/Fj0watFXgAArvuk?format=png&name=medium)
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what is strange it is that it happens day before he is to testify remotely with Congress.
https://www.breitbart.com/politics/2022/12/12/democrat-mega-donor-sbf-arrested-hours-facing-questions-congress/
just another manipulation from DOJ? Biden administration stealing thunder from Congress?
this is not coincidence .
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If a "strong" dollar was so good, what say those people about it tumbling?
A sign of weakening output and inflation to come.
https://www.washingtonpost.com/business/energy/the-sum-of-all-fears-is-falling-with-the-dollar/2022/12/08/75ef399a-76c0-11ed-a199-927b334b939f_story.html
NOBODY in the Biden administration reads the forum.
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claims the national debt is down 1.7 trill
What ????
https://www.pbs.org/newshour/politics/watch-live-biden-delivers-remarks-following-reports-that-inflation-has-slowed
why do I not feel good after I listen to him? :wink:
Biden: after giving us the BS Ron Klain speech - "I am not taking any questions right now"
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claims the national debt is down 1.7 trill
What ????
https://www.pbs.org/newshour/politics/watch-live-biden-delivers-remarks-following-reports-that-inflation-has-slowed
why do I not feel good after I listen to him? :wink:
Biden: after giving us the BS Ron Klain speech - "I am not taking any questions right now"
As he repeated it, he said deficit, debt, deficit.
He refers to a reduction to the deficit his own reckless spending caused and an economy coming out of Democrat led shutdowns.
Now he has record deficits again.
Sycophant pretend journalists let it slide. Imagine a Republican this blatantly misleading with the facts.
https://www.wsj.com/articles/federal-deficit-widened-to-a-record-249-billion-last-month-11670871622
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https://slaynews.com/news/european-union-ban-cash-transactions-over-e10000/
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https://www.dailymail.co.uk/news/article-11535201/White-House-insists-say-Biden-campaign-donations-Sam-Bankman-Fried.html
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https://www.nationalreview.com/news/ftx-spokesman-shark-tank-co-host-kevin-oleary-blames-competitor-for-firms-collapse-in-senate-hearing/?utm_source=email&utm_medium=breaking&utm_campaign=newstrack&utm_term=29982255
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Fourth
https://www.youtube.com/watch?v=5R0hM37ayHo
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https://cnb.cx/3FRuhw1
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as for the other name mentioned in above article
is actor Ben McKenzie Schenkkan who I never heard of till just now:
https://en.wikipedia.org/wiki/Ben_McKenzie
apparently he wrote a book so he is some sort of an authority on the subject worthy of speaking at a Congressional hearing............. :-o
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(https://pbs.twimg.com/media/FkGDitFWYAAaiuk?format=jpg&name=medium)
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https://www.zerohedge.com/crypto/not-binancial-advice?utm_source=&utm_medium=email&utm_campaign=1136
Remember this from a few days ago?
https://www.nationalreview.com/news/ftx-spokesman-shark-tank-co-host-kevin-oleary-blames-competitor-for-firms-collapse-in-senate-hearing/?utm_source=email&utm_medium=breaking&utm_campaign=newstrack&utm_term=29982255
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Progressive Regulators Are Salivating over the Sam Bankman-Fried Scandal
By ANDREW C. MCCARTHY
December 17, 2022 6:30 AM
In the FTX implosion, officials see a crisis they can exploit to regulate crypto — but rash action could do more harm than good.
There is a significant political dimension to the federal legal actions taken this week by the Justice Department, the Securities and Exchange Commission, and the Commodity Futures Trading Commission against alleged mega-swindler Sam Bankman-Fried, founder of the now-imploded FTX cryptocurrency exchange. We need to keep our eye on the ball.
Like Democrats everywhere, Biden administration officials see crypto as the “Wild West” of finance, as the SEC’s aggressive honcho Gary Gensler has limned it. There isn’t enough government oversight, they say. For progressives, the rule of the road is “If you see something, regulate something.”
Naturally, then, they are hot to get their nanny-state tentacles around crypto. To do so legally, though, is not so straightforward — not that such an inconvenience has stopped progressives from trying before. The statutory architecture for policing securities is nearly 90 years old, and there remains controversy over whether comparatively novel cryptocurrencies constitute securities under its coverage, as Gensler insists they do.
The Commodity Exchange Act is New Deal–era legislation, in which Congress sought to regulate more complex financial arrangements (e.g., futures and options). Although the CTFC was not created until 1974, that’s still 35 years before Bitcoin, the first cryptocurrency of note, appeared on the scene. In “because we say so” style, the CFTC maintains that cryptocurrencies are regulable as commodities. Yet the law is sufficiently unclear that the Senate has been considering bipartisan legislation, the Digital Commodities Consumer Protection Act, co-sponsored by senators Debbie Stabenow (D., Mich.) and John Boozman (R., Ark.), that, if enacted, would bring two major cryptocurrencies, Bitcoin and Ether, under the ambit of CFTC oversight.
Ergo, for all their bluster, prosecutors and administrative agencies know they are not on the surest of legal footing as they contradictorily urge both that crypto is already under their thumb and that urgent action is required to put it under their thumb. Historically, this is not unusual: Much of today’s securities law is a result of regulations that push the limits of the SEC’s statutory authority, which prosecutors, mainly in the Southern District of New York (with Wall Street in the backyard), proceed to press further still by their creative prosecution theories.
Of course, where the administrative state sees regulatory gaps as opportunities for mischief and, therefore, bureaucratic scrutiny, many Americans see, instead, havens of liberty and innovation that Washington should leave alone. Progressive “reforms” often make matters worse.
With this as the state of play, you can see why progressives eye crypto so warily. It is not just that the novel digital currencies evade the full run of extensive disclosure-and-monitoring protocols that the feds impose on American financial markets in equities and debt. It is that crypto’s raison d’être is to shield monetary instruments and their exchange from the control and oversight of governments.
Sam Bankman-Fried: Virtue-Signaling Scammer
FTX Spokesman, Shark Tank Co-Host Kevin O’Leary Blames Competitor for Firm’s Collapse in Senate Hearing
The crypto sector employs blockchain technology to issue digital currency (represented by “tokens”), believing it will ultimately prove more creditworthy than fiat currencies, such as the U.S. dollar, the world’s reserve currency. Untethered to any external standard of value, fiat currencies are seen as arbitrary, subject to the reckless fiscal policies of governments and the whims of central bankers (e.g., you’d need close to $7 today to buy what $1 bought a half century ago). Crypto, meanwhile, does not merely elude government regulation, it defies it.
This is worth keeping in mind as we watch the FTX scandal unfold. There are deep divisions in Congress regarding crypto. There are understandable public suspicions about the prospect of more financial regulation by a government that cannot regulate itself: surging past $30 trillion in debt, spending way beyond its means despite record-high tax revenues, and now attempting to corral the worst bout of inflation in 40 years that is caused, at least in part, by these irresponsible policies coupled with Fed mismanagement. (For a comprehensive explanation of our straits, you can’t do better than David Bahnsen.)
Under these circumstances, it is highly unlikely that Democrats could get a “Sarbanes–Oxley for crypto” bill enacted by a divided Congress. The Biden administration is thus doing what it does in various policy matters: relying on legal-enforcement action by the Justice Department and administrative agencies — here, the SEC and CFTC — to fill what it regards as the regulatory void. In the meantime, the administration and Democrats have been biding their time, waiting for some financial catastrophe that can be stoked into a groundswell of support for thoroughgoing crypto regulation.
In Bankman-Fried’s alleged FTX scam, they obviously perceive such an opportunity — a multibillion-dollar implosion, easily portrayed as one of those crises that should never be permitted to go to waste.
But here’s the thing: The schemes described in the Justice Department’s indictment and the SEC’s civil complaint against Sam Bankman-Fried reflect run-of-the-mill fraud — “old-fashioned embezzlement,” was the apt description offered by John Ray III, the new CEO brought in to clean up the FTX mess. Sure, the dollar amounts are prodigious, but it’s not like we’ve never seen even bigger numbers before — remember Enron, WorldCom, Bernie Madoff, and so on.
The FTX scandal arises out of the crypto sector, but it does not stem from the opaque nature of cryptocurrency. If what the government is alleging proves true, then you hardly need a Ph.D. in blockchain to grasp it: SBF tricked investors into trusting him with their funds, and then diverted them to his own use through his hedge fund, Alameda. To carry off the scheme, he used a series of internal accounting tricks to conceal what he was doing and how deeply in hock Alameda was to FTX customer funds. Finally, the clock struck midnight, as it inevitably does with Ponzi-type schemes. People grew suspicious, demanded their money back, and Bankman-Fried couldn’t pay them.
Crypto happened to be the context, but a scheme such as this could have arisen in any asset class. Investors could instead have been gulled into parting with their dollars, stock, fine art: You name it. Consequently, the FTX scandal should not be a clarion call for a suffocating degree of cryptocurrency regulation.
Fundamentally, FTX in many ways represents the antithesis of crypto. The business was a cryptocurrency exchange, which is to say: a middleman, brokering transactions between prospective customers and lenders, buyers and sellers. Yet a major feature of crypto is the absence of a middleman. Thanks to blockchain, willing parties can transact in confidence without intermediaries to vouch or facilitate. By contrast, to use the FTX exchange, customers surrendered custody of their digital assets: That’s what gave SBF the opportunity to steal them, as he is alleged to have done. To the contrary, the guideline for crypto aficionados is: Not your keys, not your coins. Parties to a transaction should not have to deposit with an intermediary the computer code that constitutes keys to their assets: The blockchain provides security.
Note that within just four weeks of the FTX collapse, the Justice Department, the SEC, and the CFTC have been able to bring daunting charges and civil claims that are more than adequate to ensure that SBF is aggressively prosecuted and, if found guilty, sentenced to a lengthy prison term in addition to punishing fines and forfeiture provisions. This strongly suggests that existing law is sufficient to address the kind of mainstream fraud that SBF is alleged to have committed. In fact, reports indicate that he was heedless of ordinary business compliance and bookkeeping protocols. Ignorance and recklessness are not issues unique to crypto. They are what you expect in standard financial-fraud cases.
There are good reasons for Congress to examine crypto, but it ought to do so in a deliberate, careful manner. What we have with FTX is a financial scandal, like those that have occurred before and will inevitably occur again. What we don’t have is a crisis requiring rash action that could do more harm than good, no matter how well-intentioned our progressive regulators may be.
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U.S. Scrutinizes Political Donations by Sam Bankman-Fried and Allies
Federal prosecutors appear to be focusing on possible wrongdoing by cryptocurrency executives, rather than by Democratic or Republican politicians. But the inquiries widen an explosive campaign finance scandal.
Give this article
Kenneth P. VogelKen Bensinger
By Kenneth P. Vogel and Ken Bensinger
Dec. 17, 2022
Sign Up for On Politics, for Times subscribers only. A Times reader’s guide to the political news in Washington and across the nation. Try the On Politics newsletter for 4 weeks.
WASHINGTON — Federal prosecutors in Manhattan are seeking information from Democrats and Republicans about donations from the disgraced cryptocurrency entrepreneur Sam Bankman-Fried and two former executives at the companies he co-founded.
In the days after Mr. Bankman-Fried was arrested on Monday and charged with violations including a major campaign finance scheme, the prosecutors reached out to representatives for campaigns and committees that had received millions of dollars from Mr. Bankman-Fried, his colleagues and their companies.
A law firm representing some of the most important Democratic political organizations — including the party’s official campaign arms, its biggest super PACs and the campaigns of high-profile politicians such as Representative Hakeem Jeffries — received an email from a prosecutor in the United States attorney’s office for the Southern District of New York. The email sought information about donations from Mr. Bankman-Fried, his colleagues and companies, according to people familiar with the request, who insisted on anonymity to discuss an ongoing law enforcement matter.
The prosecutors have reached out to representatives of other Democratic campaigns that received money linked to the cryptocurrency exchange FTX, which Mr. Bankman-Fried co-founded, according to two other people familiar with the matter. Prosecutors are also investigating donations to Republican campaigns and committees by another FTX executive who was a top financier on the right, according to a person familiar with the situation.
So far, Mr. Bankman-Fried is the only executive to face charges. Since emerging as a leading political megadonor in the months before the 2020 election, he has donated nearly $45 million, primarily to Democratic campaigns and committees that are now scrambling to distance themselves.
More on Sam Bankman-Fried
Sam Bankman-Fried Is Expected to Agree to Extradition to the U.S.
The FTX founder, now in prison in the Bahamas, faces criminal charges that he engaged in widespread fraud since founding the cryptocurrency exchange in 2019.
Dec. 17, 2022
There has not been any suggestion that political campaigns and groups engaged in wrongdoing related to the donations they received. The Justice Department’s inquiries appear to be an effort to gather evidence against Mr. Bankman-Fried and other former FTX executives, rather than against their political beneficiaries.
But the prosecutors’ requests widen what has quickly become one of the biggest campaign finance scandals in years, as both Democrats and Republicans grapple with questions about their eagerness to tap into a stream of cash from a murky and largely unregulated industry that emerged suddenly as a powerful political player.
The fallout has been swift and is only growing, as lawmakers, operatives for political action committees and their lawyers try to minimize the damage.
Some politicians — including Mr. Jeffries, the incoming Democratic leader in the House, and Representative-elect Aaron Bean, a Republican from Florida — either returned donations linked to FTX or gave the money to charity after the company became embroiled in scandal. Other groups say they are setting the cash aside for possible restitution to victims of the alleged scheme.
What to Know About the Collapse of FTX
Card 1 of 5
What is FTX? FTX is a now bankrupt company that was one of the world’s largest cryptocurrency exchanges. It enabled customers to trade digital currencies for other digital currencies or traditional money; it also had a native cryptocurrency known as FTT. The company, based in the Bahamas, built its business on risky trading options that are not legal in the United States.
Who is Sam Bankman-Fried? He is the 30-year-old founder of FTX and the former chief executive of FTX. Once a golden boy of the crypto industry, he was a major donor to the Democratic Party and known for his commitment to effective altruism, a charitable movement that urges adherents to give away their wealth in efficient and logical ways.
How did FTX’s troubles begin? Last year, Changpeng Zhao, the chief executive of Binance, the world’s largest crypto exchange, sold the stake he held in FTX back to Mr. Bankman-Fried, receiving a number of FTT tokens in exchange. In November, Mr. Zhao said he would sell the tokens and expressed concerns about FTX’s financial stability. The move, which drove down the price of FTT, spooked investors.
What led to FTX's collapse? Mr. Zhao’s announcement drove down the price and spooked investors. Traders rushed to withdraw from FTX, causing the company to have a $8 billion shortfall. Binance, FTX’s main rival, offered a loan to save the company but later pulled out, forcing FTX to file for bankruptcy on Nov. 11.
Why was Mr. Bankman-Fried arrested? FTX’s collapse kicked off investigations by the Justice Department and the Securities and Exchange Commission focused on whether FTX improperly used customer funds to prop up Alameda Research, a crypto trading platform that Mr. Bankman-Fried had helped start. On Dec. 12, Mr. Bankman-Fried was arrested in the Bahamas for lying to investors and committing fraud. The day after, the S.E.C. also filed civil fraud charges.
Prosecutors said FTX was a “house of cards” through which Mr. Bankman-Fried and others diverted customer money to buy expensive real estate in the Bahamas, invest in other cryptocurrency firms, provide themselves with personal loans and make political contributions of tens of millions of dollars intended to influence policy decisions on cryptocurrency and other issues.
The indictment of Mr. Bankman-Fried accuses him of conspiring with unnamed others to violate campaign finance laws that prohibit corporate donations to candidates’ campaigns and bar donations “in the names of other persons,” commonly known as straw donations. He is also charged with wire fraud, money laundering and securities fraud related to his management of FTX and another company he co-founded, Alameda Research.
At a news conference on Tuesday, Damian Williams, the United States attorney for the Southern District of New York, called on “any person, entity or political campaign that has received stolen customer money” to “work with us to return that money to innocent victims.”
Federal Election Commission regulations require political campaigns and committees to give back donations that are later determined to be illegal, even if the funds have already been spent and new money needs to be raised to pay for the refunds.
The idea behind the law “is to essentially get tainted money out of the system, even when the committees that accepted it are not at fault,” said Sean J. Cooksey, an F.E.C. commissioner.
But that could be difficult for some political campaigns and committees, because the donations were among their biggest and because such groups typically spend almost all of their cash in the run-up to major elections.
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More revelations are expected as previously undisclosed donations linked to Mr. Bankman-Fried, FTX and Alameda are exposed. For instance, a Biden-allied nonprofit group called Future Forward USA Action, which is registered under a section of the tax code that does not require it to disclose its donors, received $1.65 million that was linked to FTX, according to a person familiar with the funding.
The group’s PAC arm, which is required to report its donors, previously disclosed that in 2020, it received $5 million from Mr. Bankman-Fried and $1 million from another former FTX executive, Nishad Singh, out of a total of more than $150 million raised ahead of that year’s election.
Critics of the outsize role of big money in politics, as well as skeptics of cryptocurrency, have seized on the donations as further evidence that the campaign finance regulatory landscape is riddled with loopholes that create what is essentially a pay-to-play system with only the veneer of transparency.
“It shows fundamental weakness in our campaign finance laws,” said Craig Holman, an official at the watchdog group Public Citizen who focuses on ethics, lobbying and campaign finance rules. “And on the receiving end, you’ve got candidates and officeholders who should have been suspicious of the sudden influx of funds from the crypto industry.”
Image
The logo of FTX in big black letters on the front of an arena building.
FTX, a cryptocurrency exchange Mr. Bankman-Fried co-founded, spent heavily on sports sponsorships, with the Miami Heat’s arena renamed the FTX Arena. Credit...Marco Bello/Reuters
The prosecutors are seeking information related to donations to dozens of campaigns and political committees, not just from Mr. Bankman-Fried but also from FTX and Alameda, as well as from Mr. Singh and Ryan Salame, another former FTX executive, according to the people familiar with the request.
The email was sent to the Elias Law Group, a firm started last year by one of the Democratic Party’s top lawyers, Marc E. Elias, that has quickly emerged as the leading political law firm on the left.
Mr. Elias’s firm did not respond to requests for comment.
The email asks for records that could be used to determine whether the FTX executives lied in their responses to disclaimers commonly featured on political committee websites. The disclaimers ask donors to attest that the money they are giving is their own, and that they are not being reimbursed by a corporation or another person, which would be illegal.
The FTX executives had given few donations before they burst onto the big-money political scene in the weeks before the 2020 election, as their company was expanding. Since then, Mr. Bankman-Fried’s donations went primarily to Democratic campaigns and committees, while Mr. Singh gave nearly $9.7 million, mostly to the party’s candidates and groups.
The Aftermath of FTX’s Downfall
The sudden collapse of the crypto exchange has left the industry stunned.
A Spectacular Rise and Fall: Who is Sam Bankman-Fried and how did he become the face of crypto? The Daily charted the spectacular rise and fall of the man behind FTX.
How FTX Operated: FTX called itself an exchange. But it was vastly different from stock exchanges, which are highly regulated and barred from engaging in many of the activities that the crypto company pursued.
Parental Bonds: Mr. Bankman-Fried’s mother and father, who teach at Stanford Law School, are under scrutiny for their connections to their son’s crypto business.
Mr. Salame donated $24 million, primarily to Republican candidates and committees.
Even as a group linked to Mr. Salame promoted him as a “budding Republican megadonor” this year, he told an activist who raised money from the cryptocurrency industry that he was not particularly interested in politics and suggested that his donations had been encouraged by others at FTX, the activist said.
Other people who worked with FTX executives had privately expressed concern in an encrypted group chat, images of which were reviewed by The New York Times, about whether donations from Mr. Bankman-Fried and Mr. Singh were made in compliance with campaign finance rules.
Mr. Salame and his lawyer did not respond to requests for comment. Neither did Mr. Singh nor a spokesman for Mr. Bankman-Fried.
Groups funded by Mr. Bankman-Fried or his associates donated to at least one nonprofit organization focused on reducing the role of money in politics and increasing its transparency. That group, the Campaign Legal Center, received a total of $2.5 million last year from groups linked to Mr. Bankman-Fried. The center’s board voted on Friday to put the money into a separate account “until instructions are received from bankruptcy courts,” Brendan R. Quinn, a spokesman for the center, said in a statement.
Mr. Quinn said the center had accepted the funding “after careful vetting,” including conferring with other nonprofit organizations that “vouched for his apparent legitimacy at the time,” but he added that the allegations against Mr. Bankman-Fried “betray C.L.C.’s mission.”
Image
The Justice Department building seen on a clear, sunny day.
Mr. Bankman-Fried is the only FTX executive who has been charged, but federal prosecutors have suggested that more indictments are likely.Credit...T.J. Kirkpatrick for The New York Times
The political groups represented by Mr. Elias’s firm that received funding from FTX executives include the Democratic National Committee, which received hundreds of thousands of dollars from Mr. Bankman-Fried; the Democratic Congressional Campaign Committee, which received $250,000 from him; and the Democratic Senatorial Campaign Committee, which received more than $100,000 from him and Mr. Singh.
The D.N.C. and D.S.C.C. said in separate statements that they were setting aside the money and intended to return it “as soon as we receive proper direction in the legal proceedings.”
Returning the money could be easier said than done for some of the groups that received larger donations from FTX officials. For instance, House Majority PAC, a leading super PAC that supports Democratic House candidates and is represented by the Elias Law Group, received $6 million from Mr. Bankman-Fried, but the group ended last month with less than $500,000 in the bank.
In a statement, the group, which spent upward of $180 million on this year’s elections, said it was “watching and waiting for guidance from the government in the ongoing legal proceedings, and maintains our fullest commitment to complying with the law.”
Precedent for the current campaign finance controversy are limited.
A much smaller-scale example occurred when, from 2002 to 2014, the company Cancer Treatment Centers of America reimbursed its executives for political contributions totaling about $700,000 to more than 30 campaigns. Even though the F.E.C. found no evidence that the recipient committees knew of the scheme, they were nonetheless required to give up the money after the company acknowledged the violations in 2017 and paid a civil penalty of $288,000. It took several years for all the committees that received the illegal cash to get rid of it.
Karl J. Sandstrom, a former member of the F.E.C., said the FTX case had the potential to be “the largest corporate conduit case we have had.”
Mr. Sandstrom, who advises Democratic campaigns and committees for the law firm Perkins Coie, where Mr. Elias was previously a partner, said he was advising clients to put money in escrow matching the amounts they received from Mr. Bankman-Fried.
Mr. Sandstrom said he had not received any inquiries from the Justice Department “yet.”
Kenneth P. Vogel reported from Washington, and Ken Bensinger from Los Angeles.
Ken Vogel covers the confluence of money, politics and influence from Washington. He is also the author of “Big Money: 2.5 Billion Dollars, One Suspicious Vehicle, and a Pimp — on the Trail of the Ultra-Rich Hijacking American Politics.” @kenvogel • Facebook
Ken Bensinger is a Los Angeles-based politics reporter, covering right-wing media. He is the author of “Red Card: How the U.S. Blew The Whistle On The World’s Biggest Sports Scandal.” @kenbensinger
A version of this article appears in print on Dec. 18, 2022, Section A, Page 1 of the New York edition with the headline: U.S. Scrutinizes Political Money Linked to FTX. Order Reprints | Today’s Paper | Subscribe
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https://bombthrower.com/fud-and-loathing-in-the-crypto-casino/
https://www.privateworld.com/ledger-rebate1
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This new Zoltan is a must read.
https://plus2.credit-suisse.com/shorturlpdf.html?v=5h1o-YP34-V&t=-6f9o9gxfcir9ldit6fbbldzzx (https://plus2.credit-suisse.com/shorturlpdf.html?v=5h1o-YP34-V&t=-6f9o9gxfcir9ldit6fbbldzzx)
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December 30, 2022
View On Website
Open as PDF
Daily Memo: Russia Reduces Use of Western Currencies
Its reserve fund will increasingly rely on Chinese yuan and gold.
By: Geopolitical Futures
Russian finances. Russia’s Finance Ministry announced that it is doubling the maximum share of Chinese yuan and gold that can be held in the National Wealth Fund to 60 percent and 40 percent, respectively. It also reset its accounts in British pounds and Japanese yen to zero. Previously, they could account for up to 5 percent and 4.7 percent of the fund, respectively. In addition, NWF resources can no longer be used to purchase assets denominated in U.S. dollars. The ministry said the changes were made to reduce the share of currencies of “unfriendly states.”
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(https://pbs.twimg.com/media/FlZmR9ZWYAMQiR8?format=jpg&name=small)
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https://republicbrief.com/the-fix-is-in-sam-bankman-fried-has-a-clinton-judge-soros-related-biden-appointed-prosecutor-and-his-case-is-in-the-corrupt-sdny/
if only we had conservative prosecutors who were hell bent on implication crats like Dems would do to Trump and anyone who supported him.
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Will China's Efforts to Internationalize the Yuan Succeed?
Jan 5, 2023 | 22:47 GMT
China's push to reduce its reliance on the U.S. dollar by internationalizing the yuan will only make limited progress, leaving the country vulnerable to U.S. financial sanctions and economic policies for the foreseeable future. For more than a decade, Beijing has sought to turn the yuan into a fully-fledged international currency in the hopes of reducing China's sensitivity to U.S. financial and economic volatility as well as potential U.S. sanctions. This has included setting up bilateral swap lines and multilateral swap agreements with more than 30 countries. Other measures China has taken to internationalize its currency include the provision of official bilateral yuan financing in the context of Beijing's Belt Road Initiative, the creation of a small offshore yuan market, a yuan-based payments system, (limited) capital account liberalization, the creation of a yuan-based payments system, and the introduction of a central bank digital currency called the "e-yuan." China also made diplomatic efforts to have the yuan included in the International Monetary Fund's special drawing rights currency basket.
In practical terms, the process of currency internationalization involves measures to increase the use of a country's currency for international current (trade) and capital account (financial) transactions.
China has established more than 30 bilateral yuan swap lines, and it has facilitated access to its domestic financial markets for foreign official investors. (The U.S. Federal Reserve, by comparison, maintains swap lines with the systemically important countries in the Group of 10, which include Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, and the United Kingdom).
China also continues to pursue policies to promote the use of the yuan through the multilateral Renminbi Liquidity Arrangement, as well as an upgrade to the Chiang Mai initiative of the late 1990s (which now allows for local currency as opposed to dollar swaps among participating central banks).
By expanding the yuan's use as an international currency, China is hoping to reduce its dependence on the dollar as well as its vulnerability to financial sanctions and U.S. economic policies. The global economic and financial system is centered on the dollar, and China (along with virtually every other country in the world) significantly relies on the U.S. currency to engage in international trade and capital transactions. This enables Washington to impose significant economic costs on companies and even countries by restricting their ability to use the dollar. U.S. economic (and especially monetary) policy also has an outsized impact on global financial conditions due to the dollar's importance as an international currency. Dependence on the dollar thus makes China not only vulnerable to U.S. financial sanctions, but sensitive to American macroeconomic policies, such as rapid monetary tightening and precipitous dollar appreciation. The global financial fallout from Washington's Ukraine-related sanctions on Russia over the past year has only highlighted this risk, which will drive Beijing to intensify its efforts to internationalize the yuan, with the aim of mitigating the threat of secondary sanctions by sidestepping the use of the dollar in global trade transactions.
The U.S. dollar is involved in 90% of all global foreign-exchange transactions and also accounts for 60% of all (allocated) foreign-exchange reserves. The Chinese yuan, by contrast, is involved in less than 5% of global foreign-exchange transactions and accounts for only 3% of foreign exchange reserves.
Using currencies in international foreign-exchange transactions that are not the traditional “hard currencies” (e.g. the dollar, the euro or the Japanese yen), if possible at all, is less efficient and more costly. This suggests that China's push to reduce its dollar dependence will be increasingly driven by a desire to reduce its vulnerability to U.S. financial sanctions.
Following the onset of the Ukraine war in February, the United States (and its allies) demonstrated their readiness to use financial sanctions to punish Russia through asset freezes and dollar sanctions.
But despite Beijing's efforts, the yuan will ultimately fail to rival the dollar or the euro in international transactions (with the possible exception of intra-Asian trade) for several more decades. China meets many of the conditions necessary for the yuan to become a prominent international currency, including economic size, extensive foreign trade, large yuan-denominated financial assets and military might. But the yuan is not freely convertible, China's domestic capital markets are underdeveloped, and the currency's exchange rate is tightly managed by the Chinese government. Crucially, many foreign investors are wary of the rule of law and the risk of government intervention. Even if China makes progress with respect to domestic capital markets reform and exchange rate flexibility, Beijing will remain loath to offer foreigners unfettered access to domestic capital markets for fear of losing control over its economy and destabilizing its financial system. The yuan may come to play a greater role in regional trade in East and Southeast Asia; the share of yuan assets held by foreign central banks may also increase. But this is not going to transform the Chinese currency into a full-fledged reserve currency capable of rivaling the dollar or the euro in the short (or even medium) term, which would require the extensive use of the yuan for capital account transactions.
The United States accounts for 20-25% of global GDP and China for 18%.
The U.S. capital account is open, while China's currency convertibility remains very limited.
Around 30% of U.S. treasuries are held by non-residents. Foreign holdings of Chinese government bonds account for less than 10% of the total.
The dollar accounts for almost 100% of export invoicing in the Americas, 70% in Europe, 25% in Asia-Pacific and 80% in the rest of the world. (Non-dollar, non-euro currencies currently account for about 20% of Asia-Pacific trade, but these figures include the Japanese yen.)
Beijing has remained reluctant to liberalize broader currency convertibility following the market instability China experienced in 2015-16.
China will thus continue to find it difficult to insulate itself from dollar-related financial volatility and U.S. sanctions, as the self-reinforcing dynamics of geopolitical and economic alliances — along with the prevalence of network effects and incumbency advantages — limit the yuan's international role and maintain the dollar's global dominance. The U.S. dollar will remain the world's dominant international currency, barring tail events such as a U.S. debt default or the breakup of the euro area. This — combined with the only limited progress Beijing will make in terms of internationalizing the yuan — will enable the United States to keep imposing or threatening to impose significant economic costs on other parties, including Chinese companies. In response, Chinese authorities will continue to push for the yuan to play a greater role in regional trade by promoting greater local currency settlement between the yuan and other regional currencies. But the yuan's limited convertibility will continue to hamper the more extensive use of the Chinese currency. Yuan foreign-exchange transactions will also remain characterized by higher costs, lower liquidity and funding stability, as well as more limited hedging opportunities, compared with dollar transactions. The e-yuan may eventually make yuan transactions cheaper, assuming Chinese authorities approve the digital currency for large-scale cross-border transactions. But the e-yuan won't be a game-changer for China in terms of overcoming network effects and the incumbency advantages of the dollar, as cheaper yuan transactions would do little to ease concerns about the rule of law, geopolitical competition, and limited currency convertibility. Finally, Washington is also closely monitoring the e-yuan and, in the unlikely event that its internationalization begins to weaken the role of the U.S. dollar, will accelerate efforts to issue a digital dollar, which will preserve dollar dominance.
The U.S. treasury market remains the largest and most liquid pool of safe assets, which form the bedrock of the international financial system, and the dollar is freely convertible. The size of China's domestic government debt market is expanding rapidly, which could theoretically accelerate the yuan's international use, but liquidity remains low and capital account restrictions remain significant. This will hamper the availability of yuan necessary for Chinese trade partners to finance bilateral trade deficits with China, thus further impeding the yuan's greater role in international trade.
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Another Zoltan...china may be succeeding. Sanctioning Russia's reserves was the final nail in the US $ coffin. The $ will still be around for a while, but that decision by the Biden govt has fast tracked the $'s demise.
https://plus2.credit-suisse.com/shorturlpdf.html?v=5h3r-WTBd-V&t=-3f2t7fyeg6tz2ndtomzsde0j0 (https://plus2.credit-suisse.com/shorturlpdf.html?v=5h3r-WTBd-V&t=-3f2t7fyeg6tz2ndtomzsde0j0)
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ya: "Sanctioning Russia's reserves was the final nail in the US $ coffin."
- As suggested, there are other nails in the coffin. Destroying the US economy and running up our debt are the big ones, in my view.
If the US was running it's economy at full potential with low taxes, rightsized regulations, controlled spending, balanced budgets, a fully powered grid and entrepreneurial capitalism running wild, (I believe) we could tell Russia to go to hell and still have the envied currency of the world.
Conversely, turning our own currency into play money and pursuing stagnation ands worse, why wouldn't BRICS etc, especially among themselves, turn to something else.
------------------------------------
"If accepted, the new proposed BRICS members would create an entity with a GDP 30% larger than the United States, over 50% of the global population and in control of 60% of global gas reserves."
https://www.silkroadbriefing.com/news/2022/11/09/the-new-candidate-countries-for-brics-expansion/
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Another Zoltan
https://plus2.credit-suisse.com/shorturlpdf.html?v=5hig-YP34-V&t=-7k6igsca7azmsnjxid59q5wex (https://plus2.credit-suisse.com/shorturlpdf.html?v=5hig-YP34-V&t=-7k6igsca7azmsnjxid59q5wex)
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(https://pbs.twimg.com/media/Fl9_j8tXgAAEQkE?format=jpg&name=medium)
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Druckenmiller
https://twitter.com/i/status/1613600044678283265 (https://twitter.com/i/status/1613600044678283265)
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Seems like BTC and ETH are starting to move up?
Gold, which as at 1600 is now at 1900.
Silver, which was in the 18s is now at 23?
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Seems like BTC and ETH are starting to move up? :-o!
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Seems like BTC and ETH are starting to move up? :-o!
From the looks of it, the post election bottom held - survived the FTX news as well. Should have known that was the bottom. Maybe should have bought in around 17k around the first of the year - but I didn't.
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Bollywood music is suitable for today
https://twitter.com/i/status/1614085624004481024 (https://twitter.com/i/status/1614085624004481024)
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Popcorn time
(https://pbs.twimg.com/media/FmXlBg9WYAAajvY?format=png&name=4096x4096)
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Good read, last few pages have the meat. TL;DR Fed printer go brrr
https://www.myrmikan.com/pub/Myrmikan_Research_2023_01_13.pdf (https://www.myrmikan.com/pub/Myrmikan_Research_2023_01_13.pdf)
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Note the last paragraph:
"Rhetoric from Powell and other Fed governors is: higher yields for longer to slay
inflation. The bond market does not believe it. Neither does gold, which has spiked from
$1,618/oz on September 28 to above $1,900/oz currently. This jump in price has evoked
surprisingly little commentary, suggesting we are early in the move. The miners have
bounced well off the bottom, but not to the extent that the move in gold would warrant,
again suggesting we are early in the move. The gold market spent two years shaking out
those late to the party in 2020. Now it is time for the next leg higher"
and my post here yesterday:
"Seems like BTC and ETH are starting to move up?"
"Gold, which as at 1600 is now at 1900."
"Silver, which was in the 18s is now at 23?"
Ask ourselves, what percentages are the movements off the bottom?
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WTF?
https://stockcharts.com/h-sc/ui?s=gbtc
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BTC up 4+% this morning.
Looks like our Yash has been extremely prescient!
Gratitude for helping me keep my courage up!
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(https://pbs.twimg.com/media/FmmGqrxWQAIjova?format=jpg&name=small)
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WTF?
https://stockcharts.com/h-sc/ui?s=gbtc
There are rumors, that the fund could be dismantled, i.e. at the price of BTC, so the premiums will reduce. The parent company made some bad financial decisions.
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Any chance you could simply that further.
For the record, I stupidly held on this for FAR too long, and sold at below where it is at the moment. UGH.
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Barry Silbert owns the parent company DCG, which owns companies like Genesis and Grayscale BTF trust. Genesis is in financial trouble and they could potentially get whole, if they are allowed to dismantle the Grayscale BTF trust by converting their holdings to BTC. Barry Silbert is also trying to convert the Grayscale trust to an ETF and has sued the SEC.
Ofcourse, the simplest explanation is that BTC has gone from 16.5 K to 21K and so the premiums decreased.
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Thank you.
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Tucker hypothesized tonight that the surge in BTC was due to paying off hacker blackmailers who shut down our airspace a few days ago (and hit Canada the very next day)
We live in interesting times , , ,
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FWIW, Marty Armstrong "February is a PANIC CYCLE in many markets. The cracks are appearing. Pay attention. Watch the Arrays & the Reversals. As I have warned, 2023 was going to be a difficult year. This banking crisis is NOT confined to the United States. We are looking at a global contagion."
He has also been warning of huge disruption in the April/May time frame, both the Feb panic cycle and the summer disruption is being seen in multiple markets, currencies etc.
If there is an expansion of war in Europe, he expects US markets to go up, as money moves to the US for safety.
On Japan "Needless to say, because interest rates were kept artificially low for 15 years, this has undermined the global sovereign bond markets as our politicians never considered. So 2023 may be the emerging market debt crisis. Japan also has the risk of geopolitical events involving both China and North Korea. The major capital is starting to move out of Japan as the future is becoming very uncertain."
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I think I caught in the background a snippet on FOX Business wherein some hedge fund guy said Japan is starting to raise its interest rates. (He felt this would be good for Japanese bank stocks)
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And Genesis files for bankruptcy. The amazing thing is BTC has made up the FTC crash, Celsius, 3AC, Genesis etc.
https://www.cnbc.com/2023/01/20/crypto-lender-genesis-trading-files-for-bankruptcy-barry-silbert-digital-currency-group.html?__source=sharebar|twitter&par=sharebar (https://www.cnbc.com/2023/01/20/crypto-lender-genesis-trading-files-for-bankruptcy-barry-silbert-digital-currency-group.html?__source=sharebar|twitter&par=sharebar)
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https://soundcloud.com/corporate-crime-reporter/tuesday-january-17-2023-coinbase-to-pay-100-million/s-ghZQMAmbuTj?si=caaf4453c79e4caea9e1fbd903f7e663&utm_source=clipboard&utm_medium=text&utm_campaign=social_sharing
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Speakers on...for the BTC hodlers
https://twitter.com/i/status/1616737287190237184 (https://twitter.com/i/status/1616737287190237184)
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(https://pbs.twimg.com/media/Fm88RdsaUAAsh-n?format=png&name=small)
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Probably nothing
https://finance.yahoo.com/news/u-first-nuclear-powered-bitcoin-143857763.html (https://finance.yahoo.com/news/u-first-nuclear-powered-bitcoin-143857763.html)
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(https://pbs.twimg.com/media/FnPFBesWYAE54qg?format=jpg&name=900x900)
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So far so good.
(https://pbs.twimg.com/media/FnSFq3xWYAAzKcs?format=png&name=small)
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https://www.theepochtimes.com/mkt_app/irs-alerts-taxpayers-they-must-answer-a-new-question-on-tax-forms-or-face-consequences_5006776.html?utm_source=Goodevening&src_src=Goodevening&utm_campaign=gv-2023-01-25&src_cmp=gv-2023-01-25&utm_medium=email&est=tsGXb0qmI%2B93f1Y%2Ffmr4Rus9sX5Q0YnFXrwvQu20ONGuw775%2F57fS5%2B2ft9NPVLq0%2F1B
The Internal Revenue Service (IRS) issued an alert to taxpayers on Tuesday, reminding them that they must report all digital asset-related income and answer a new digital asset question on their 2022 federal income tax return or face consequences such as delayed refunds or even penalties.
The IRS said in a Jan. 24 release that a key change on 1040 forms this year is that the agency has replaced the term “virtual currency” with “digital assets,” in addition to some other modifications to the wording.
The “Yes” or “No” question, which was expanded and revised this year to update terminology, reads as follows:
“At any time during 2022, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, gift or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”
The question appears at the top of tax forms 1040, Individual Income Tax Return; 1040-SR, U.S. Tax Return for Seniors; and 1040-NR, U.S. Nonresident Alien Income Tax Return.
“All taxpayers must answer the question regardless of whether they engaged in any transactions involving digital assets,” the agency cautioned.
It is a legal requirement to accurately report all income, including income from digital assets, on federal income tax returns. Failure to do so could result in non-compliance with tax laws and possible penalties.
The IRS has provided a detailed explanation of what constitutes a digital asset, which includes such things as stablecoins, non-fungible tokens (NFTs), and cryptocurrencies.
Taxpayers need to check the “Yes” box if they:
Received digital assets as payment for property or services provided;
Transferred digital assets for free (without receiving any consideration) as a bona fide gift;
Received digital assets resulting from a reward or award;
Received new digital assets resulting from mining, staking, and similar activities;
Received digital assets resulting from a hard fork (a branching of a cryptocurrency’s blockchain that splits a single cryptocurrency into two);
Disposed of digital assets in exchange for property or services;
Disposed of a digital asset in exchange or trade for another digital asset;
Sold a digital asset; or
Otherwise disposed of any other financial interest in a digital asset.
Those who tick the “Yes” box must also report all income related to their digital asset transactions on relevant forms. For instance, an investor who sold cryptocurrency during 2022 would use Form 8949, Sales and other Dispositions of Capital Assets.
Taxpayers should check the “No” box if they merely owned digital assets but didn’t engage in any transactions involving them in 2022.
They should also tick “No” if they merely transferred digital assets from one wallet or account they own or control to another one that they own or control, and if they bought digital assets using real currency like the U.S. dollar.
Many Americans Will See Smaller Tax Refunds
The IRS has warned that many taxpayers should expect a smaller refund this tax season because of tax law changes including the expiration of pandemic-related stimulus payments that would otherwise have boosted refund balances.
“Due to tax law changes such as the elimination of the Advance Child Tax Credit and no Recovery Rebate Credit this year to claim pandemic-related stimulus payments, many taxpayers may find their refunds somewhat lower this year,” the IRS said in a press release on Jan. 23, the day the agency began tax returns for 2022 earnings.
Not all tax filers will see lower refunds as individual circumstances vary; many will see smaller checks.
The Recovery Rebate Credit was a way for millions of Americans to receive pandemic support if they did not receive their full amount via stimulus checks.
This credit was available for missing amounts from the first, second, and third round stimulus checks, and could only be claimed on 2020 and 2021 tax returns.
The stimulus checks were discontinued in December 2021 and the missing third-round amounts could only be claimed on a 2021 tax return filed in 2022.
However, people who may have missed the opportunity to claim missing third-round stimulus payments can review their 2021 tax return and consider filing an amended return.
The Child Tax Credit (CTC) for 2022 tax returns has been reduced to $2,000 per child, down from the expanded amount of $3,600 for children under 6 and $3,000 for children between 6 and 17 in 2021.
Some taxpayers may be eligible for an Additional Child Tax Credit (ACTC), which would allow them to receive up to $1,500 of the CTC as a refund on their tax return.
Also, a tax credit that working parents can use to help cover child care costs or that people with adult dependents can use for the same purpose is lower in 2022.
For tax year 2021, qualifying expenses were raised from $3,000 to $8,000 for one qualifying person and from $6,000 to $16,000 for two or more. The percentage eligible for the credit was increased from 35 percent to 50 percent.
But for 2022, qualifying expenses have been reduced back down to $3,000 for one person and to $6,000 for two or more. The percentage of qualified expenses that can be claimed now range from 20 percent to 35 percent.
The temporary enhancements also made the child and dependent care credit fully refundable. But for 2022, it has become non-refundable, meaning that at best it can only reduce one’s tax bill to zero.
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Gold Prices Buoyed by Rally as Investors Get on Board
Most-actively traded futures contract rises about 20% from September low
By Hardika SinghFollow
Jan. 26, 2023 5:30 am ET
Gold is starting the year with gains.
Gold purchases by everyone from central banks to institutions and ordinary investors have lifted the precious metal in 12 of the past 16 sessions, according to Dow Jones Market Data.
The most-actively traded gold futures contract has climbed about 20% from its September low to above $1,940 an ounce—its highest level since April 2022. Prices are poised to gain for the sixth consecutive week, which would mark the longest weekly winning streak since the nine-week run that carried gold to a record of $2,069.40 in August 2020.
The advance comes after rising interest rates dragged gold to a lukewarm 2022. Gold avoided the steeper, double-digit losses suffered by stocks and bonds, but still disappointed those who had expected it to thrive during a time of elevated inflation. Now, signs of cooling price increases and weakening growth are lifting investors’ hopes of a respite from the Federal Reserve’s aggressive rate increases.
The yield on the 10-year U.S. Treasury inflation-protected security, a gauge of the risk-free return investors can get from bonds after adjusting for expected inflation, shot upward last year from a trough of around minus 1% in March to as high as positive 1.75% in October. Rising real yields tend to drag on the price of gold by diverting cash into alternative safe investments. That pressure, however, has abated in recent months, with the 10-year TIPS yield recently back down to 1.2%.
The WSJ Dollar Index has also retreated from its high of last year, falling about 10% since its 52-week high of late September and decreasing the cost of gold for overseas investors.
“If you’re patient enough, gold will start to do well,” said Jimmy Chang, chief investment officer of Rockefeller Global Family Office.
SPDR Gold Shares, the world’s largest physically backed gold exchange-traded fund, has climbed 6.8% so far this month, outpacing the S&P 500 index’s 4.6% advance. Shares of gold producers have rallied, with Barrick Gold Corp. adding 15%, Newmont Corp. gaining 17% and Royal Gold Inc. jumping 17%.
Joe Zappia, co-chief investment officer at LVW Advisors in New York, said he expects “pretty substantial inflows from institutions and investors into gold.”
Hedge funds and other speculative investors have pushed net bullish bets on gold to the highest levels since April 2022, according to Commodity Futures Trading Commission data tracking futures and options during the week ended Jan. 17. That is a sharp divergence from their bearish positioning during fall of last year.
Other precious metals are also enjoying a resurgence. Silver and platinum, both of which are used as precious and industrial metals, have added about 25% and 15% over the past three months, respectively.
Open interest value in futures contracts for the precious metals—a measure of market participation—earlier this month hit its highest weekly level since May 2022, according to J.P. Morgan Commodities Research.
Despite the murky economic picture, some expect China’s reopening could also boost prices, investors said, while worries about a U.S. recession could increase the appeal of stable investments such as gold. Many also expect slowing growth to spur rate cuts as soon as later this year, which would ease pressure on the metal.
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(https://pbs.twimg.com/media/FnezuaeWAAUfteY?format=jpg&name=medium)
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Disbelief
(https://pbs.twimg.com/media/FjliKe0WYAAa-KN?format=jpg&name=medium)
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Scary how closely that tracks me!!! :-D :-D :-D
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You may like this too...all spelt out.
(https://pbs.twimg.com/media/Fnp6_4vWQAIP0hD?format=jpg&name=medium)
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:-D
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Russia and Iran. The central banks of Russia and Iran established a direct communication and transfer channel to encourage trade and financial transactions between the two countries. Russia’s SPFS financial transfer system is now linked to Iran’s SEPAM, which is also connected to 106 other foreign banks, according to the Central Bank of Iran’s governor. Iran was cut off from the SWIFT banking system in 2018, while a number of major Russian banks were also banned from SWIFT last year.
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BTC selling at Premium in Nigeria.
https://cointelegraph.com/news/bitcoin-premium-hits-60-in-nigeria-as-it-limits-atm-cash-withdrawals (https://cointelegraph.com/news/bitcoin-premium-hits-60-in-nigeria-as-it-limits-atm-cash-withdrawals)
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In a few hours, Lebanon will devalue its currency 90 %
https://www.reuters.com/markets/currencies/lebanon-devalue-currency-by-90-feb-1-cbank-chief-says-2023-01-31/ (https://www.reuters.com/markets/currencies/lebanon-devalue-currency-by-90-feb-1-cbank-chief-says-2023-01-31/)
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Lots of money flowing through the BTC network, probably more than VISA card now.
(https://pbs.twimg.com/media/FoEcc4nWAAEY4pz?format=jpg&name=medium)
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Why BTC cant be taken down by govt
https://twitter.com/i/status/1622216058059857920 (https://twitter.com/i/status/1622216058059857920)
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https://www.breitbart.com/politics/2023/02/06/ftx-asks-lawmakers-who-received-donations-to-return-funds/
I am thinking if any Dems do anything is they would claim donate the money to charity
and of course a left leaning charity
:wink:
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not sure if this means anything:
https://finance.yahoo.com/news/treasury-yield-curve-inversion-reaches-140649287.html
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https://scottgrannis.blogspot.com/
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Gensler, giving financial advice
https://twitter.com/i/status/1623795469754241024 (https://twitter.com/i/status/1623795469754241024)
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Must read book
(https://m.media-amazon.com/images/P/B0BW358F37.01._SCLZZZZZZZ_SX500_.jpg)
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Ordered.
-
Sarcasm..CBDC's
https://twitter.com/i/status/1626329653567979520 (https://twitter.com/i/status/1626329653567979520)
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https://www.revolver.news/2023/02/nigeria-dark-digital-currency-experiment-deadly-consequences-coming-soon-theater-near-you/
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Why BTC is # 1, 5 min video
https://twitter.com/i/status/1627322542355582977 (https://twitter.com/i/status/1627322542355582977)
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https://www.zerohedge.com/economics/iraq-drop-dollar-yuan-trade-china
This is fine!
-
The dollar may be "strong" right now, but there is a lot of resentment out there over our government using it and threats of withholding it to assert political pressure. Today's episode, the country we saved from Sadam Hussein:
The dollar has remained strong "because there is no alternative". If/when the perception of the rise of an alternative takes hold , , , some of us are old enough to remember the stampede into the Swiss Franc, the Deutsche Mark, and the Yen in the 1970s under Carter.
India has increased its trade four-fold with Russia. Russia is now China's little brother. This is a majority of the world's population. What need now for the dollar for anyone selling oil to China? IIRC Iran has already reached this conclusion.
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By putting a hold on Russian dollar reserves and kicking them out of SWIFT, we shot ourselves in the foot. Slowly its becoming a multipolar world, Even today almost everything is priced in $, but when tens of countries start to trade in their local currencies, change will happen, perhaps another 10 years or so! before the dollar takes a big hit.
Everyone knows that the US has no intention of paying back its 31 T debt, so the future path is inflation of money, or grab a Store Of Value, digital Gold like BTC. That is why the Master's thesis of Jason Lowery is very important, hopefully the smart brains in govt will pay attention. As a side note: I got my copy from Amazon, its their #1 best seller in some categories. Amazon provides a high resolution print, later in a few months MIT press will release a lower resolution version.
-
I like your analysis there YA- a lot distilled into a few pithy words.
My copy of Softwar arrived today.
-
Remember its a Master's thesis from MIT, so go slow and enjoy the diagrams etc. The basic idea is that future wars will be hash wars, as opposed to kinetic weapon wars, as to why, you have to read the book.
-
Russia Turns to China’s Yuan in Effort to Ditch the Dollar
Moscow has jettisoned longstanding concerns about giving China too much leverage over its economy
By Chelsey DulaneyFollow
, Evan GershkovichFollow
and Victoria Simanovskaya
Feb. 28, 2023 5:30 am ET
Russia’s economy, restricted from Western financial networks and the U.S. dollar, has embraced a burgeoning alternative: the Chinese yuan.
Energy exporters are increasingly getting paid in yuan. Russia’s sovereign-wealth fund, a war chest to support government spending burdened by battlefield costs in Ukraine, is using the Chinese currency to store its oil riches. Russian companies have borrowed in yuan, also known as renminbi, and households are stashing savings in it.
The Chinese currency’s rise inside Russia deepens ties between two countries that have long rivaled each other for global influence but have grown closer amid shared discontent with the West. It also serves China’s long standing but mostly frustrated campaign to make the yuan a more prominent feature of global finance and commerce.
2022
Sept.
0
10
20
30
40
50
60
70
80
90
100
%
U.S. dollar
Euro
Other
Chinese yuan
Moscow has jettisoned concerns about giving China too much leverage over its economy, said Alexander Gabuev, a senior fellow at the Carnegie Endowment for International Peace.
“Now it’s the only rational choice for Russia and for Putin,” Mr. Gabuev said. “If depending on renminbi is the lifeline that helps you to be less exposed and less dependent on hostile currencies, then you take this route.”
A spokesperson for the Russian Ministry of Finance said the yuan is “taking an increasingly important role” in its sovereign-wealth fund, which doubled the share of yuan it can hold to 60% in December. The ministry started selling yuan in January to plug its widening budget deficit.
Euro
Gold
U.S. dollar
Yuan
Other
U.K. pound
0%
5
10
15
20
25
30
35
The share of Russian exports paid for in yuan rose to 14% by September, according to data from the central bank. That is up from 0.4% before the start of the war.
Spokespeople for China’s central bank didn’t respond to a request for comment.
Russia began cutting its dependence on the dollar in 2014 after its annexation of Crimea. By 2018, as the U.S. imposed additional economic sanctions, the country began to sell its holdings of U.S. Treasury bonds and explore trade in rubles and other currencies.
De-dollarization went into overdrive, and widened to include the euro, last year. Western countries froze some $300 billion of Russia’s foreign reserves and banned some of its banks from the SWIFT messaging system that underpins most global payments in response to Russia’s invasion of Ukraine.
The Russian Finance Ministry started selling yuan in January to plug its widening budget deficit.
PHOTO: KONSTANTIN KOKOSHKIN/RUSSIAN LOOK/ZUMA PRESS
Russians don’t face an outright ban on using dollars or euros, and non-sanctioned banks continue to do business in foreign currencies.
Booming trade between Russia and China added to the yuan’s appeal. China has become a major buyer of Russian oil that is shunned by the West, while Russia has grown more dependent on China for semiconductors and other technology.
Russian companies have also turned to the yuan and issued bonds in the Chinese currency worth the equivalent of more than $7 billion last year, according to Refinitiv data. In recent weeks, the yuan-ruble was often the most traded currency pair on the Moscow Exchange based on daily volume.
Aluminum giant Rusal was the first company to issue yuan bonds inside Russia last August, and other commodity exporters like oil firm Rosneft followed. Most trade with China and can use yuan raised for everyday business, for example to pay invoices.
Bistrodengi, a Russian lending platform, started selling yuan bonds last year despite not doing any business in the Chinese currency. The company’s chief finance officer, Yakov Romashkin, said borrowing in yuan was far cheaper than rubles. Its bonds offer a coupon rate of 8% instead of the 19% that it likely would have had to pay to borrow in rubles.
The Russian broker that arranged Bistrodengi’s previous ruble bond offerings ran the deal, and buyers were predominantly individual Russian investors, he said. It swapped the yuan back into rubles.
Mr. Romashkin said there were technological hiccups. Some brokers weren’t fully set up to sell yuan securities, with some displaying incorrect information about Bistrodengi’s bonds, he said. Some didn’t allow investors to buy bonds using their app, instead requiring trades be done over the phone.
“Gradually we are solving these problems and subsequent placements have had fewer technical problems compared to when we started the process late last year,” he said.
Households are warming up to the yuan. Nearly 50 financial institutions offer yuan savings accounts, according to comparison site Banki.ru. The first yuan-denominated exchange-traded fund launched on the Moscow Exchange in January.
Households held almost $6 billion worth of yuan deposited at the end of last year at Russian banks, according to data from the central bank. That is up from zero at the start of the year, and is now more than a 10th of the $53 billion in foreign currency that households held.
Russian financial blogger and consultant Olga Gogaladze, who has more than 2 million Instagram followers, in October published a guide to the yuan after being inundated with questions about the currency last year. Russians have long bought dollars and euros to protect themselves against the ruble’s volatility. That changed last year as banks instituted fees on those accounts and many worried about the impact of Western sanctions.
“Conversations were going around about the end of the dollar,” Ms. Gogaladze said. “The yuan was presented as an available alternative.”
She has a yuan bank account at Russian digital bank Tinkoff but still prefers to hold most of her money in rubles, euros and dollars. She said yuan accounts typically have lower interest rates than those for rubles, but they still can be a good option for people worried about a devaluation of the ruble.
Households held almost $6 billion worth of yuan deposited at the end of last year at Russian banks.
PHOTO: VLAD KARKOV/ZUMA PRESS
“When people see the ruble is getting weaker and weaker, they don’t care about the yield, they just want to save their money,” she said.
While still in its early days, some see Russia’s yuan use as a test case in a debate that has long captivated the financial world: Will the yuan eventually rival the dollar as the world’s dominant currency?
But building the infrastructure to circumvent the dollar-based financial system built up over decades is slow, difficult and expensive, said Eswar Prasad, a professor at Cornell University and former head of the International Monetary Fund’s China division.
China launched a cross-border payments system known as CIPS in 2015 that has been billed as an eventual competitor to the 50-year-old SWIFT network. But its system hasn’t yet been widely adopted by other countries, according to Mr. Prasad. Instead, Russian and Chinese banks rely on networks of local branches and correspondent banks to process transactions without SWIFT. The Russian central bank this month set up an international settlements department it said would focus on expanding settlements in national currencies.
While Russia’s use of the yuan doesn’t mean the end of dollar supremacy, it may usher in the beginning of a more fractured system that could ultimately blunt the U.S.’s ability to use financial sanctions as a weapon, said Daniel McDowell, a professor at Syracuse University who recently wrote a book on the topic.
“The more countries you force to find those alternatives,” Mr. McDowell said, “effectively what you’re going to do is increase economies of scale and experience in those areas.”
—Rebecca Feng contributed to this article.
Write to Chelsey Dulaney at chelsey.dulaney@wsj.com and Evan Gershkovich at evan.gershkovich@wsj.com
-
https://www.gatestoneinstitute.org/19441/biden-digital-currency
-
more
to fight 100B covid fraud
https://nypost.com/2023/03/02/biden-begs-congress-for-1-6b-to-fight-100b-in-covid-fraud/
just utterly crazy ..........
next up: we need a billion to fight Ukrainian fraud
Dems : they way they cut fraud and abuse of government spending by guess what - even more spending!
:-o :-o :-o :roll:
-
The fraud was a feature, not a bug of COVID funding.
Let me guess, 90% of it happened in blue cities and and blue states.
-
The fraud was a feature, not a bug of COVID funding.
Let me guess, 90% of it happened in blue cities and and blue states.
https://www.foxbusiness.com/lifestyle/california-inmates-covid-19-unemployment-benefits-fraud-from-prison.amp
-
Interesting read from Arthur Hayes, about how BTC might be affected if oil spikes.
https://cryptohayes.medium.com/curve-ball-c9866f34555 (https://cryptohayes.medium.com/curve-ball-c9866f34555)
-
https://www.zerohedge.com/political/bidens-executive-order-nightmare-government-will-track-every-dime-you-spend
-
Started with Silvergate bank, now a good old fashioned bank run happening on Silicon Valley Bank. These are traditional banks, supposedly well regulated...everything will get blamed on BTC. Hope it does not become a contagion.
Silvergate Capital -42%
SVB Financial Group -60%
Credit Suisse -5%
-
BTC was at 23, this morning at 19. Is this why?
-
Yes, when there is a crisis, people dump first and think later. At this time BTC is back over 20.2 K. Actually with all thats going run with the Crypto world, it is amazing that BTC is relatively stable.
Silicon Valley Bank (SVB) is the largest bank to fail after the 2008 financial crisis. By monday, it will be taken over by a larger bank, or the bodies will start to float up. One of the investors in SVB is the Circle stablecoin (USDC) with 3.3 Billion investment. Contagion is on the mind of people...hopefully it will be contained. I think the Fed making a 50 bps hike is now off the table.
(https://pbs.twimg.com/media/Fq3v4e-XsAAGlqQ?format=jpg&name=medium)
-
Remember this
(https://pbs.twimg.com/media/FqtslgjXoBA0-tR?format=jpg&name=small)
-
See the linkages, for USDC, the Circle stable coin. Currently, it has lost its peg of 1$.
(https://pbs.twimg.com/media/Fq4oBydX0AwGhOQ?format=jpg&name=900x900)
-
Panic, begging for a bail out. SVB is all democratic donors!, moral hazard. Do we bail out and relive post 2008 Great Financial Crisis. Money printer go brr..
(https://pbs.twimg.com/media/Fq8rc-KX0AQG_ir?format=jpg&name=medium)
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https://www.esgtoday.com/silicon-valley-bank-announces-5-billion-sustainable-finance-commitment/#:~:text=Innovative%20company%2Dfocused%20financial%20services,support%20sustainability%20efforts%20by%202027.
Get woke. Go broke.
-
linkages
(https://pbs.twimg.com/media/Fq6yIKfWwAAckvS?format=jpg&name=4096x4096)
-
https://www.esgtoday.com/silicon-valley-bank-announces-5-billion-sustainable-finance-commitment/#:~:text=Innovative%20company%2Dfocused%20financial%20services,support%20sustainability%20efforts%20by%202027.
Get woke. Go broke.
https://media.gab.com/cdn-cgi/image/width=1050,quality=100,fit=scale-down/system/media_attachments/files/131/449/247/original/270981183aa3d39d.jpg
(https://media.gab.com/cdn-cgi/image/width=1050,quality=100,fit=scale-down/system/media_attachments/files/131/449/247/original/270981183aa3d39d.jpg)
-
There’s nothing like a bank panic to make for a relaxing weekend. Markets took another header on Friday, as regulators closed Silicon Valley Bank (SVB), the 16th largest U.S. bank and the biggest to fail since the 2008 crisis. This came days after Silvergate Capital announced it is liquidating its bank. Cracks in the financial system emerge whenever interest rates rise quickly after an easy-credit mania, and the surprise is that it took so long.
***
The Federal Deposit Insurance Corporation took over SVB on Friday and may have to collect more bodies by the time the Federal Reserve is done correcting its easy-money mistakes. At least that seems to be the fear of investors, judging by the sharp selloff in regional bank stocks like First Republic Bank (-14.8%) and PacWest Bancorp (-37.9%).
SVB’s customers include leading venture-capital firms and tech startups, including some Chinese firms that need offshore accounts to raise foreign capital. San Diego-based Silvergate is smaller but grew in recent years by serving crypto companies.
What the two have in common is that they lacked diverse deposit bases and fell victim of a classic banking strategy of borrowing short and lending long. Although their liabilities were backed by putatively safe assets like Treasury bonds, when interest rates rise the bonds that banks hold lose value. They have to be held to maturity or incur losses when sold.
SVB and Silvergate incurred steep losses as they sold bonds to compensate for fleeing deposits. A regulatory crackdown on crypto also spurred Silvergate customers to bail, sticking it with even bigger losses.
Silvergate on Wednesday said it would liquidate “in light of recent industry and regulatory developments.” Its crypto ties may have made it too politically toxic for another bank to take over. While regulators will surely flog Silvergate’s failure as a warning not to serve the crypto industry, its concentrated deposit base was the main cause of its demise.
SVB’s business model was more durable but still vulnerable to market shocks. Rising interest rates have made it hard for its startup clients to raise fresh equity. As its customers drew down deposits, SVB had to sell bonds at a loss. SVB disclosed this week that it had lost $1.8 billion on securities sales and would need to raise $2.25 billion in equity.
This stoked fears of insolvency, which caused customers and investors to bolt. It was reportedly searching for a buyer on Friday, and we hope regulators didn’t pre-empt potential private investors by closing SVB so quickly on the same day.
Bank of America and J.P. Morgan rescued smaller banks during the 2008 crisis. But banks may be reluctant to do that again since regulators last time punished them for the sins of their foster children. The takeover of SVB will presumably cost the FDIC money to repay insured depositors.
But if SVB was doomed, it is better to let it fail than have the government bail it out, despite what one hedge-fund lord suggested this week. Didn’t we learn from the 2008 crisis that the feds’ rescue of Bear Stearns encouraged everyone to believe that Lehman Brothers would be rescued too?
There doesn’t appear to be any obvious systemic risk to the financial system from the SVB and Silvergate failures, and market discipline needs to prevail unless there is danger of a larger financial breakdown. SVB investors and customers benefited from the government’s easy money. Why should they also benefit from a government lifeline after taking risks with that easy money?
***
This week’s bank failures are another painful lesson in the costs of a credit mania fed by bad monetary policy. The reckoning always arrives when the Fed has to correct its mistakes. That was the story of 2008, and it’s the eternal lesson that economic historian Charles Kindleberger taught in “Manias, Panics, and Crashes.” We saw the first signs of panic in last year’s crypto crash and the liquidity squeeze at British pension funds.
Now it’s hit the U.S. financial system, and there are likely to be more casualties. Treasury Secretary Janet Yellen said Friday that the U.S. banking system “remains resilient,” but that’s what Fed officials Ben Bernanke and Tim Geithner thought before the 2008 panic.
While big banks today are much better capitalized than before the 2008 financial crisis, some regional and small banks with less diverse deposit bases may be vulnerable to shocks. Some may be over-exposed to industries such as commercial real estate that are under stress. The Fed will have to be careful as it continues its anti-inflation campaign.
But nobody, least of all central bank oracles, should be surprised that there are now bodies washing up on shore as the tide goes out. Investors will have to brace for what could be some heavy weather ahead.
-
I think it was Friday night when there was a very interesting segment with Gov. Kristi Noem. If someone could find it well worth posting here.
I had diminished hopes for her after she waffled in the face of transgender pressure a while back, but she was quite good here.
The gist of it was that there was a bill sent to her desk updating the UCC (Uniform Commercial Code-- essentially the law of contracts. We studied it in law school. Very important stuff. Each state has its own, but the gist is that they should be in harmony with each other.) laws for her state. Over 100 very technical pages-- the sort of thing that aides and lobbyists do the real work in writing it.
Because she/her people actually read the damn thing they caught language that in effect would have banned any digital currency that was not issued by the government e.g. Bitcoin!!! Therefore, she vetoed it.
Apparently, this skullduggery is afoot in the UCC updates in many states. Let's see if we can catch this and report here.
-
https://www.google.com/search?q=kistri+noem+on+cable&rlz=1C5GCEM_enUS1001US1001&ei=cwsOZJmwBvek5NoPqYqW2AU&ved=0ahUKEwjZtdTx9Nb9AhV3ElkFHSmFBVsQ4dUDCBA&uact=5&oq=kistri+noem+on+cable&gs_lcp=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-wE6BwguEIAEEA06BwgAEA0QgAQ6BggAEB4QDToGCAAQFhAeOggIABAIEB4QDToFCAAQhgNKBAhBGABQAFiwLWC3M2gBcAF4AIABXogBxAySAQIyMJgBAKABAbABAMABAQ&sclient=gws-wiz-serp#fpstate=ive&vld=cid:04d5f7b2,vid:WVfRzWlmiXg
BTW , I dig her hair coloring
I don't know who is hotter with it - she, or Tulsi ?
-
https://twitter.com/DC_Draino/status/1634944482352463872
:-D :-D :-D
There’s nothing like a bank panic to make for a relaxing weekend. Markets took another header on Friday, as regulators closed Silicon Valley Bank (SVB), the 16th largest U.S. bank and the biggest to fail since the 2008 crisis. This came days after Silvergate Capital announced it is liquidating its bank. Cracks in the financial system emerge whenever interest rates rise quickly after an easy-credit mania, and the surprise is that it took so long.
***
The Federal Deposit Insurance Corporation took over SVB on Friday and may have to collect more bodies by the time the Federal Reserve is done correcting its easy-money mistakes. At least that seems to be the fear of investors, judging by the sharp selloff in regional bank stocks like First Republic Bank (-14.8%) and PacWest Bancorp (-37.9%).
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SVB’s customers include leading venture-capital firms and tech startups, including some Chinese firms that need offshore accounts to raise foreign capital. San Diego-based Silvergate is smaller but grew in recent years by serving crypto companies.
What the two have in common is that they lacked diverse deposit bases and fell victim of a classic banking strategy of borrowing short and lending long. Although their liabilities were backed by putatively safe assets like Treasury bonds, when interest rates rise the bonds that banks hold lose value. They have to be held to maturity or incur losses when sold.
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SVB and Silvergate incurred steep losses as they sold bonds to compensate for fleeing deposits. A regulatory crackdown on crypto also spurred Silvergate customers to bail, sticking it with even bigger losses.
Silvergate on Wednesday said it would liquidate “in light of recent industry and regulatory developments.” Its crypto ties may have made it too politically toxic for another bank to take over. While regulators will surely flog Silvergate’s failure as a warning not to serve the crypto industry, its concentrated deposit base was the main cause of its demise.
SVB’s business model was more durable but still vulnerable to market shocks. Rising interest rates have made it hard for its startup clients to raise fresh equity. As its customers drew down deposits, SVB had to sell bonds at a loss. SVB disclosed this week that it had lost $1.8 billion on securities sales and would need to raise $2.25 billion in equity.
This stoked fears of insolvency, which caused customers and investors to bolt. It was reportedly searching for a buyer on Friday, and we hope regulators didn’t pre-empt potential private investors by closing SVB so quickly on the same day.
Bank of America and J.P. Morgan rescued smaller banks during the 2008 crisis. But banks may be reluctant to do that again since regulators last time punished them for the sins of their foster children. The takeover of SVB will presumably cost the FDIC money to repay insured depositors.
But if SVB was doomed, it is better to let it fail than have the government bail it out, despite what one hedge-fund lord suggested this week. Didn’t we learn from the 2008 crisis that the feds’ rescue of Bear Stearns encouraged everyone to believe that Lehman Brothers would be rescued too?
There doesn’t appear to be any obvious systemic risk to the financial system from the SVB and Silvergate failures, and market discipline needs to prevail unless there is danger of a larger financial breakdown. SVB investors and customers benefited from the government’s easy money. Why should they also benefit from a government lifeline after taking risks with that easy money?
***
This week’s bank failures are another painful lesson in the costs of a credit mania fed by bad monetary policy. The reckoning always arrives when the Fed has to correct its mistakes. That was the story of 2008, and it’s the eternal lesson that economic historian Charles Kindleberger taught in “Manias, Panics, and Crashes.” We saw the first signs of panic in last year’s crypto crash and the liquidity squeeze at British pension funds.
Now it’s hit the U.S. financial system, and there are likely to be more casualties. Treasury Secretary Janet Yellen said Friday that the U.S. banking system “remains resilient,” but that’s what Fed officials Ben Bernanke and Tim Geithner thought before the 2008 panic.
While big banks today are much better capitalized than before the 2008 financial crisis, some regional and small banks with less diverse deposit bases may be vulnerable to shocks. Some may be over-exposed to industries such as commercial real estate that are under stress. The Fed will have to be careful as it continues its anti-inflation campaign.
But nobody, least of all central bank oracles, should be surprised that there are now bodies washing up on shore as the tide goes out. Investors will have to brace for what could be some heavy weather ahead.
-
Page does not exist (anymore?)
-
"The White House Wants the Power to Ban TikTok".
(WSJ, from the article promoting a different article)
- Yes. There are rules of free trade (government, keep your hands off) and then there are exceptions for trade that benefits regimes like China.
-
https://www.theburningplatform.com/2023/03/12/with-big-banks-going-under-cbdcs-cant-be-far-behind-and-if-we-dont-stop-them-lockdown-will-be-total-and-eternal-for-us-all/#more-296684
-
https://www.theburningplatform.com/2023/03/12/with-big-banks-going-under-cbdcs-cant-be-far-behind-and-if-we-dont-stop-them-lockdown-will-be-total-and-eternal-for-us-all/#more-296684
(https://westernrifleshooters.us/wp-content/uploads/2023/03/Screenshot-2023-03-13-at-7.12.38-AM.png)
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I have mentioned being befuddled by BTC's sharp decline in the presence of high inflation. Yes, interest rate increases no doubt had something to do with it, but still this seemed contrary to the BTC hypothesis.
Today, with bank runs in the air, it is up something like 17% last I looked.
VIX up very sharply as well.
-
https://www.youtube.com/watch?v=aWaIpB-TePI
fire the bankers and it is
all trump's fault
thanks to me [joe] you are all safe!
don't know how much of this is political
versus good policy
would live Larry Kuds opinion on this!
https://www.cnbc.com/2023/03/13/wall-street-not-taxpayers-will-pay-for-the-svb-and-signature-deposit-relief-plans-.html
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was not FDIC insured
so government can simply transfer funds to another bank
that has FDIC and viola - problem goes away - just like that!
https://www.cnbc.com/2023/03/13/what-to-know-about-fdic-coverage-after-svb-signature-bank-failures.html
magic!
did not Yellen state Friday the Fed would not step in ?
a lot of Dem donors must have called in over the wknd
-
was not FDIC insured
so government can simply transfer funds to another bank
that has FDIC and viola - problem goes away - just like that!
https://www.cnbc.com/2023/03/13/what-to-know-about-fdic-coverage-after-svb-signature-bank-failures.html
magic!
did not Yellen state Friday the Fed would not step in ?
a lot of Dem donors must have called in over the wknd
Exactly!
-
https://www.breitbart.com/economy/2023/03/13/carney-kudlow-bailout-could-deepen-panic/
another point brought up
Biden Powell more likely as cause
whenever Biden comes out and blames others you know he knows he is lying to cover his own tuckus
-
CCP: Thank you for the Tucker-Noem clip.
-
https://www.theepochtimes.com/regulators-announce-closure-of-nys-signature-bank-which-held-significant-crypto-stakes_5117763.html?utm_source=Goodevening&src_src=Goodevening&utm_campaign=gv-2023-03-13&src_cmp=gv-2023-03-13&utm_medium=email&est=e5xOX59SRtO0o8YZiAw2IhCxeUzwr%2BAR%2FcB6wNli%2FykmTeBxEJYxKu0utu0XvEl2VMXZ
BTC up 20% today!
-
Kim Dotcom
@kimdotcom
You’re witnessing the accelerated fall of an empire. This year expect major escalation with Russia and China for driving global de-dollarization. When the US can no longer fund its debt with money printing it will collapse under the weight of its current debt. It’s happening now.
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Re: BTC 25.2K is the next resistance, if we cross that...30K in coming. The 25.2K line is formidable.
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March 14, 2023
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After Silicon Valley Bank
The tech industry is key to the future of the U.S. economy.
By: Antonia Colibasanu
When I wrote in January that one of the major trends for the next few years would be how the tech industry restructures itself, I did not expect to be writing about the subject again so soon. Last Friday, U.S. regulators closed California-based Silicon Valley Bank, which specialized in lending to technology companies. It was the largest American bank failure since 2008. Two days later, authorities also took over New York-based Signature Bank, which had many clients involved in cryptocurrencies and was considered likely to suffer a similar failure to SVB. Another lender to the crypto industry, Silvergate Bank, also failed last week.
Investors and tech executives everywhere are scouring for the next weak point. U.S. and European markets as well as bank stocks were down on Monday, while traders shifted into sovereign bonds. U.S. officials’ assurances that SVB’s depositors will be repaid in full helped ensure things didn’t get worse.
There are several reasons for the market reaction. First, investors expect the U.S. Federal Reserve to pause rate hikes in an attempt to ensure there’s enough liquidity in the market. Second, the latest stress tests of the largest banks and financial institutions in the U.S. showed that all of them would survive a deep recession and significant drop in unemployment. Third, and likely most important, the cause of the bank failures lies in the tech sector and not in the way the financial markets work.
Silicon Valley Bank had purchased billions of dollars in bonds in recent years, using customer deposits in the same way that a traditional bank would. Bonds are generally a safe place for a financial institution to park its money. However, the value of the bonds plummeted as the Fed aggressively hiked interest rates. Normally, this isn’t an issue; banks typically hold on to bonds for a long time – unless they need to sell them.
SVB’s customers were primarily startups and other tech firms that had become increasingly cash-strapped in the past year. Venture capital funding was drying up, and companies were unable to obtain additional rounds of funding for unprofitable businesses, forcing them to rely on their existing funds, which were frequently deposited with Silicon Valley Bank.
As a result, SVB’s customers began withdrawing their deposits. This wasn't a big deal at first, but the higher the withdrawals, the more the bank needed to sell its own assets to meet the requests of its customers. As rumors spread about the bank needing to sell assets, businesses and wealthy tech workers became concerned about the potential for a bank failure. Their deposits may or may not have exceeded the $250,000 government limit on deposit insurance, but amid heightened market uncertainty since last year, they became anxious and rushed to cash out.
To keep pace with withdrawals, SVB sold off bonds at a loss until it couldn’t any longer. The bank tried to raise additional capital but was unsuccessful. Regulators had no choice but to seize the bank to protect its remaining assets and deposits.
There are at least two problems remaining with Silicon Valley Bank. First is the bank’s deposits. Most of them were uninsured – a unique feature of SVB, considering that the bank’s customers were largely startups and wealthy tech workers. The U.S. Treasury Department announced Sunday evening that federal regulators will protect all deposits at SVB, including those that wouldn’t normally have been covered by federal deposit insurance. This is an exceptionally rare move. It was taken not because the authorities needed to calm the general public about the potential for a financial crisis, but because of the risk of contagion in the tech sector specifically. SVB was unique in that it almost exclusively served the tech world and venture capital-backed companies – a sector that was hit hard last year. Tens of thousands of tech employees lost their jobs in 2022. Making sure that SVB customers can access their money means making sure tech companies can meet payroll and office expenses – in other words, making sure more layoffs are avoided. The tech industry is key to the future of the U.S. economy, and confidence in it needs to be secured.
Businesses with Ties to Silicon Valley Bank
(click to enlarge)
The second remaining problem is international exposure. SVB was at the heart of an industry that benefited from relatively stable global markets and built its supply chains on cheap labor. More than any other businesses, tech companies operate in an effectively borderless world. As a result, firms around the globe are exposed to SVB. The model that underpinned all these companies is no longer viable. Reliable cheap labor and low interest rates are no longer available. Instead, interest rates are rising and the global economic war is fueling uncertainty and anxiety. The appetite to invest in new ideas is diminishing. This, even more than the failure of SVB and other tech-centered banks, is the key challenge for a sector in need of reinvention.
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https://thefederalist.com/2023/03/14/silicon-valley-bank-pledged-nearly-74-million-to-black-lives-matter-causes/
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*For all press release inquiries, please reach out to Theresa Meyer (Theresa.Meyer@mail.house.gov)
Emmer Leads Effort to Squash Financial Surveillance State Initiatives
February 23, 2023
Washington, D.C. – This week, Majority Whip Tom Emmer (MN-06) introduced the CBDC Anti-Surveillance State Act to halt efforts of unelected bureaucrats in Washington, D.C. from issuing a central bank digital currency (CBDC) that strips Americans of their right to financial privacy.
The bill also holds the Federal Reserve’s CBDC research and development programs accountable to the American people. The bill was co-sponsored by Republican colleagues Representatives French Hill (AR-02), Warren Davidson (OH-08), Mike Flood (NE-01), Byron Donalds (FL-19), Pete Sessions (TX-32), Andy Biggs (AR-05), Young Kim (CA-40), Ralph Norman (SC-05) and Barry Loudermilk (GA-11).
“Any digital version of the dollar must uphold our American values of privacy, individual sovereignty and free market competitiveness,” Emmer said. “Anything less opens the door to the development of a dangerous surveillance tool.”
“After all, America remains a technological leader not because we force innovations to adopt our values under regulatory duress, but because we allow technology that holds these values at their core to flourish,” concluded Emmer.
Rep. Hill said, “As Chairman of the Financial Services Subcommittee on Digital Assets, Financial Technology, and Inclusion, it is my top priority to protect people’s privacy and their data. When it comes to consideration and design of any possible U.S. Central Bank Digital Currency (CBDC), the federal government cannot and does not have the authority to issue a CBDC directly to individuals without explicit Congressional approval. I am proud to co-sponsor the CBDC Anti-Surveillance State Act, led by my colleague, Whip Emmer, which will protect the financial privacy of individuals, their civil liberties, and stop efforts of federal overreach to surveil Americans.”
“The Fed must focus on its dual mandate rather than eradicating financial autonomy. A retail CBDC would essentially allow the government to mediate all transactions, which would mirror what we see in China. It’s vital to ensure this does not happen here,” said Rep. Davidson.
Rep. Flood said, “In a digital age, cryptocurrency represents new economic opportunities for America – but it’s critical for private sector innovators to take the lead. The American dollar has long been a symbol of prosperity and freedom, and our digital currencies should be the same. The Chinese Communist Party’s move to use government-run digital currency to impose further control on its people and its economy is a cautionary tale that America must avoid. The CBDC Anti-Surveillance State Act is a key step towards ensuring that Americans maintain their financial freedom by prohibiting a centrally controlled digital currency as our economy continues to innovate in the area of digital assets.”
Rep. Donalds said, “As the Federal Reserve continues its study of central bank digital currencies, one thing has become clear – CBDCs pose a clear threat to Americans’ financial independence. Rather than following the lead of oppressive regimes like China and Russia, we should dramatically decrease the federal government’s involvement in personal finances and look to the free market to guide the way regarding innovation. That’s why I’m proud to support Congressman Emmer’s CBDC Anti-Surveillance State Act which prevents the issuance of a retail CBDC and ensures the Fed stays within its statutory bounds.”
“The U.S. Government cannot move to issue a digital dollar without an Act of Congress, and before that happens, Congress must first be completely certain a digital dollar can never be used as a surveillance tool. That’s why I’m an original co-sponsor of Whip Emmer’s bill,” said Congressman Pete Sessions. “I am also very concerned that a digital dollar would fundamentally reshape the banking industry to the detriment of consumers and the economy, therefore Congress must fully consider the negative and unintended consequences that could result from issuing a digital dollar, which I look forward to working on with Whip Emmer together on these very important issues in the House Financial Services Committee.”
“I applaud Congressman Emmer’s latest efforts to protect the financial privacy and currency of millions of Americans,” said Congressman Andy Biggs. “A government run digital currency presents a real threat to Americans’ freedom to use their hard-earned money, and fundamentally, to the value of that money – Emmer’s bill ends this threat before it can begin.
“From Big Tech censorship to COVID mandates to now regulating digital currencies, unelected bureaucrats continue to push our nation toward an authoritarian state. This rogue behavior must stop and this legislation gets us closer to achieving that,” Biggs concluded.
“One of my primary concerns with the federal government is its constant push to expand the way it invades and collects information on the American people; and the Federal Reserve’s push to develop a central bank digital currency would allow the Fed to track an individual’s transactions indefinitely. Given the economic uncertainty many Americans are facing, the Federal Reserve should be focused on its core mission of keeping prices stable and ensuring maximum employment, not exploring digital currencies, without congressional input or approval,” said Rep. Loudermilk.
"Innovation is the key to unlocking America's economic future," said Rep. Kim. "I'm proud to join Whip Emmer to introduce the CBDC Anti-Surveillance State Act to prohibit the Federal Reserve from offering central bank digital currency directly to individuals, allowing the federal government to monitor everyday financial transactions. I'll keep working to promote financial freedom and economic empowerment for all Americans."
Rep. Norman said, “We have enough problems with abusive government surveillance without the Federal Reserve becoming an instrument to possibly monitor and scrutinize individual account holders and their transactions. CBDC would create significant privacy concerns for Americans, so I want to thank Rep. Emmer for his leadership on this important legislation.”
Specifically, the legislation prohibits the Federal Reserve from issuing a CBDC directly to an individual, mobilizing itself into a retail bank able to collect personal information on all Americans. The bill also bars the Federal Reserve from using any CBDC to implement monetary policy, ensuring the Federal Reserve cannot use a CBDC as a tool to control the economy. Additionally, it requires that the Federal Reserve Board of Governors consult each Federal Reserve bank about the development of a CBDC study or pilot program and issue a quarterly report to Congress on their progress and findings. The federal government must be held accountable to the American people.
Background
Emmer has been a longtime advocate that any Fed-issued digital dollar (central bank digital currency) remain open, permissionless and private. The CBDC Anti-Surveillance State Act expands upon Emmer’s bill from the 117th Congress, which would have also prohibited the Fed’s direct issuance of a CBDC to individuals. More information about that bill is available here.
Additionally, in December, Emmer led a letter with House Financial Service Committee Chairman Patrick McHenry (NC-10) seeking transparency from the Boston Fed on Project Hamilton on the private sector’s role in the project. Project Hamilton is an initiative between the Boston Fed and MIT to research the potential development of a U.S. CBDC and the private sector's role must be transparent. No government body should be in the business of picking winners and losers in private industry. Additional information about this effort can be found here.
Text of the CBDC Anti-Surveillance State Act is available in full here.
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Permalink: https://emmer.house.gov/2023/2/emmer-leads-effort-to-squash-financial-surveillance-state-initiatives
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Second
Assessing the Risk of a U.S. Financial Crisis Following the SVB Collapse
6 MIN READMar 15, 2023 | 19:38 GMT
In the United States, authorities' forceful and preemptive intervention after the failure of two prominent banks significantly reduces the risk of a broader destabilization of the U.S. banking and financial system. Since March 10, the U.S. Federal Deposit Insurance Corporation (FDIC) and state regulators have taken over California-based Silicon Valley Bank (SVB) and New York-based Signature Bank. Authorities have also taken additional measures to prevent a broader run on bank deposits following SVB and Signature Bank's failures, which were the second- and third-largest bank failures in U.S. history, respectively. This included invoking a systemic risk clause that allowed U.S. authorities to guarantee all deposits in the two banks beyond the regular $250,000 insurance cap guaranteed by the FDIC, which was meant to soften the impact of the bank failures on the U.S. economy and signal to those with deposits in other banks that their funds were safe. To ease funding pressure and prevent broader financial contagion, the U.S. Federal Reserve also established a new lending facility that provides banks access to liquidity against eligible collateral, but without the need to take a haircut.
Other mid-sized U.S. regional banks have also come under pressure over concerns about rising financial losses, but so far no other banks have turned insolvent. Meanwhile, large, systemically important U.S. banks (like JPMorgan, Chase and Bank of America) have seen their share prices drop in the wake of the SVB collapse, though much more modestly than mid-sized banks — reflecting concerns about future financial profitability, rather than concerns about solvency or liquidity risk.
The SVB and Signature Bank failures were the result of the banks taking advantage of previous ultra-low interest rates to load up their balance sheets with large amounts of long-term, fixed-rate assets in a search for yield — a strategy that has begun to cause financial losses in the context of the Fed's recent interest rate hikes, which has increased funding costs, and deposit withdrawals. The Fed's monetary tightening over the past year has finally begun to expose financial vulnerabilities. The U.S. central bank kept interest rates at historic lows following the 2008 global financial crisis, and then slashed those rates even further between March 2020 and March 2022 to counteract the economic fallout from the COVID-19 pandemic. During this period, U.S. banks like SVB benefited from huge tech-related deposit inflows and decided to invest a large share of these inflows into long-term, fixed-rate bonds. But that strategy unraveled once the Fed began hiking interest rates last year to combat rising inflation. The combination of higher interest rates and increased deposit outflows forced SVB to sell its long-term assets at a loss. This, in turn, led to solvency concerns and a run on deposits, as SVB clients scrambled to withdraw their funds for fear of financial losses if the bank folded. Surprised by SVB's sudden unraveling over the weekend, investors began taking a closer look at the balance sheets of other U.S. banks. And in doing so, they found that other mid-sized U.S. banks may have also taken on excessive financial risks during the pandemic-era period of ultralow interest rates, thus prompting the sell-offs of their stocks in recent days. But investors also found that the United States' larger, systemically important banks are not at significant risk, as they are more diversified, sit on more (insured) retail deposits, have greater access to wholesale funding, and have structured the asset side of their balance sheet more intelligently compared with their mid-sized counterparts — explaining why the recent sell-off of large banks' stocks have been much more modest.
Only 3% of SVB's deposits were $250,000 or less, meaning most of its deposits were uninsured. SVB also held 55% of its assets in securities, far higher than any other U.S. bank.
Compared with mid-sized banks, large U.S. banks hold far fewer of their assets in securities. A far larger share of their deposits is also insured. Bank of America, for example, holds 28% of its assets in securities and only 33% of its deposits are uninsured.
More mid-sized U.S. banks may face financial difficulties, but a broader systemic banking crisis is unlikely since larger U.S. banks have much stronger balance sheets than their mid-sized peers and authorities are taking multiple steps to prevent contagion. A broader run on deposits could create a domino effect by leading to further bank failures, which in turn could lead to even more bank failures — impacting the willingness of U.S. banks to extend credit in an attempt to maintain sufficiently large liquidity buffers. This is precisely why it is crucial to intervene early and decisively at the beginning of any potential banking or financial crisis, which is largely what U.S. authorities have done so far in response to the SVB collapse. If more banks are faced with unmanageable deposit outflows, President Joe Biden and other top officials have indicated the U.S. government will intervene to prevent broader panic among depositors.
Moreover, the larger U.S. banks are well-positioned to take over smaller banks that may get into trouble. This means the system-wide fallout should be manageable, even in the likely case that more mid-sized banks' balance sheets come under increased pressure in the coming days and weeks. The banking wobbles will also likely prompt the Fed — and potentially its EU counterpart, the European Central Bank (ECB) — to ease up on monetary tightening during the remainder of the first half of the year, and may even lead the Fed to cut interest rates at some point during the second half of the year, which should help alleviate concerns about a further decline in the value of bank assets (which tend to fall as interest rates rise). Taken together, all of this suggests that the risk of a systemic banking crisis in the United States remains manageable — not least because, unlike the 2008 financial crisis, the systemically important banks remain in relatively good shape this time.
Prior to the bank failures, the Fed was expected to raise interest rates by another 50 basis points next week to combat stubbornly high inflation, but the U.S. central bank will now likely either leave rates on hold or raise them by only 25 basis points at its next meeting this month. The ECB will likely still raise rates by 50 basis points this week, though it may now soften its guidance and leave the open door for a 25 basis point rise before mid-year (instead of the 50 basis point hike it was initially expected to signal).
On March 14, Moody's Investors Service downgraded its outlook for the U.S. banking sector to ''negative'' amid the fallout from the deposit runs at SVB and Signature Bank. But this reassessment does not necessarily indicate future trouble, given that Moody's and other rating agencies' views are generally backward-looking.
As of the close of trading on March 14, the Dow Jones U.S. Banks Index had fallen approximately 15% since March 6. JPMorgan — a proxy for large, systemically important U.S. banks — is down a little more than 6% in the same timeframe, while a proxy measure of the value of mid-sized U.S. regional banks (SPDR S&P Regional Banking ETF) has experienced a 22% decline.
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There is a ton of activity in the BTC space. By co-incidence the 3 US banks which failed were crypto banks too, that provided on-ramps to BTC. Also of interest, the Fed launched their "CBDC", but only for institutions at this stage. They will never call it a CBDC, but these will come soon. The timing of the Fed institutional cbdc suits that their is a major financial crisis going on.
(https://pbs.twimg.com/media/FrR2G-UWAAMkGc2?format=jpg&name=medium)
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(https://pbs.twimg.com/media/FrTIRJRWAAIdf8o?format=jpg&name=medium)
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YA:
Is there a URL for this so I can play it forward?
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This page has some links https://www.federalreserve.gov/paymentsystems/fednow_about.htm (https://www.federalreserve.gov/paymentsystems/fednow_about.htm)
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Thank you.
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https://www.theburningplatform.com/2023/03/17/fed-announces-launch-of-fednow-real-time-payment-system-sparking-debate/
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https://www.theburningplatform.com/2023/03/17/fed-announces-launch-of-fednow-real-time-payment-system-sparking-debate/
https://media.gab.com/system/media_attachments/files/132/239/328/original/38b3356bab443cf3.png
(https://media.gab.com/system/media_attachments/files/132/239/328/original/38b3356bab443cf3.png)
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https://freebeacon.com/biden-administration/here-are-the-tech-companies-liberal-media-outlets-and-prominent-democrats-saved-by-bidens-bank-bailout/
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That is a great meme GM. Very pithy, very potent.
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https://dailycaller.com/2023/03/17/janet-yellens-policy-would-destroy-small-us-banks-while-bailing-out-chinese-depositors-experts-say/?utm_medium=email&pnespid=tLtjFCEcN6cB3PbMvyW3DsKF5xWnSZ1_NvKhmbFo9R5mDbat1B4VwfF4zSQj3XlzlfBqccJm&fbclid=IwAR0ElnEGkioMoBepLAP3Tw7o-mIdRcPWepKA4R4Er4aRHjlApQsbxUlhcio
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if he wants to invest in banks go right ahead
but I don't get how having the government broker between him and banks should be part of the play
just more insider elitist political shenanigans
https://finance.yahoo.com/news/warren-buffett-contact-biden-officials-222309661.html
what does he want more tax breaks while he is at it?
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Credit Suisse purchased by UBS, so the risk shifts to them. In the meantime, looks like money printer go brr..again, BTC at @28K
(https://pbs.twimg.com/media/FrnHfpJXgAIk5_D?format=png&name=900x900)
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Credit Suisse purchased by UBS, so the risk shifts to them. In the meantime, looks like money printer go brr..again, BTC at @28K
(https://pbs.twimg.com/media/FrnHfpJXgAIk5_D?format=png&name=900x900)
https://media.gab.com/system/media_attachments/files/131/979/247/original/486f1fdb0d703883.gif
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Oil= $65
VIX= 24
Gold= $2000
BTC= $27, 670
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This bet by one of the smartest persons I know off, is gaining buzz. While no one, even Balaji expects BTC to go to 1 mill in 90 days, everyone will be fine if it even doubles!. I think Balaji owns a few hundred BTC and if the coin doubles, he makes a lot of money, even if it costs a bit in marketing with his bet!. Balaji says his intention is to warn as many people as possible to get some insurance (BTC). He warned about the Covid pandemic and its consequences, very early on.
https://twitter.com/balajis/status/1638136293065658368 (https://twitter.com/balajis/status/1638136293065658368)
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https://westernrifleshooters.us/wp-content/uploads/2023/03/4d9c1b5395923e74.jpeg
(https://westernrifleshooters.us/wp-content/uploads/2023/03/4d9c1b5395923e74.jpeg)
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FYI, Last time Money supply went to these levels (-2 to -3 %), things did not go well.
(https://pbs.twimg.com/media/FryFW_7WIAMuRRB?format=png&name=small)
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From twitter..
Tomorrow:
a) The Fed pauses interest rate hikes before hitting their inflation target. Credibility in the Fed system is lost. #Bitcoin pulls a Bitsignal(see chart below).
b) The Fed raises rates despite banking failures, exacerbating the systematic banking crisis. Credibility in the banking system is lost. #Bitcoin pulls a Bitsignal.
(https://pbs.twimg.com/media/FrxwGZoaQAAnaMH?format=jpg&name=small)
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As always, Scott is an important read:
https://scottgrannis.blogspot.com/
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Here's Balaji explaining the financial crisis, and why he made the bet (BTC at 1 mill in 90 days). Answer...Paul Revere
https://youtu.be/G9ULrFN_lCI (https://youtu.be/G9ULrFN_lCI)
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Marty Armstrong has been saying this for a long time, wars increase inflation. Not sure, how widely this is known
'The Fed is saying that their rise in rates will in fact reduce inflation and economic activity. The banks have this yield curve risk and that is different from the 2007-2009 crisis where the debt was based on fraud. Here, the debt is US Treasuries so they are not going bankrupt from that aspect, but it is a liquidity crisis.
If these people who scream loudly but know nothing really about finance keep up the nonsense, they will only add to the uncertainly. This inflation is accelerating thanks to the war.'
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They are trying to close the onramps to BTC.
The govt has gone after many crypto banks, infact a few that closed were onramps for crypto. Recently, they have gone after Coinbase issuing them a Wells notice. CB itself has stopped giving free loans while the ACH transfer cleared. In the past CB would allow you to buy say $25 K worth of crypto, immediately after the ACH transfer was made which would take 4-5 days, that has now stopped. In UK, banks are only allowing 1000 pounds worth buying on a daily basis.
People need to get their BTC off the exchanges into self custody. We are at the "then they fight you" stage, next stage is "we win". In the US crypto friendly states are TX and FL, internationally, El salv and UAE as examples.
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Whitehouse FUD on BTC!
(https://pbs.twimg.com/media/FrywD7tXwAIvBEk?format=jpg&name=900x900)
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Looks like balance sheet tightening is over. Printer go brr..
(https://pbs.twimg.com/media/Fr7ptZsWAAUvEDL?format=jpg&name=medium)
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(https://pbs.twimg.com/media/Fr67VZFWICAe2a4?format=png&name=900x900)
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Important testimony by Janet yellen, must listen
https://youtu.be/vy5A55YAZ7E (https://youtu.be/vy5A55YAZ7E)
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BTC hash rate: Price follows hash rate. Looks like maybe a nation state is involved? I would speculate on Russia ?, a second reason could be all the miners have upgraded to new BTC mining rigs with newer chips. Whatever the cause for the rise in hash rate...Price must follow.
(https://pbs.twimg.com/media/FsEMwjTWcAIbj8i?format=jpg&name=small)
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https://www.dailywire.com/news/republicans-lead-charge-against-bidens-push-for-central-bank-digital-currency
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https://www.embroker.com/blog/what-is-the-howey-test-does-crypto-pass/#:~:text=The%20Howey%20Test%20refers%20to,contract%2C%20it's%20considered%20a%20security.
gensler :
btc only crypto not a "security"
https://cryptoslate.com/sec-chair-gensler-confirms-everything-other-than-bitcoin-is-a-security-implications-and-analysis/
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Kim Dotcom
@kimdotcom
You’re witnessing the accelerated fall of an empire. This year expect major escalation with Russia and China for driving global de-dollarization. When the US can no longer fund its debt with money printing it will collapse under the weight of its current debt. It’s happening now.
https://tass.com/politics/1594445
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Alarm bells are ringing... see Fox news below, but others such as Michael Pettis are not concerned (though he works in China).
https://twitter.com/i/status/1640302421762007044 (https://twitter.com/i/status/1640302421762007044)
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Experts say dedollarisation is good and meaningless. I am not expert enough to comment, but intuitively sounds like a bad idea.
(https://pbs.twimg.com/media/FsNb4PlacAEZ5iE?format=jpg&name=medium)
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what does it mean
of course this is Monica Crowley who is not known as a world class economnist ( :wink:). but still worth the listen:
https://twitter.com/BitcoinNewsCom/status/1640302421762007044
would like to hear Kudlow (who I trust) opinion or Scott Grannis opinion
I know in many countries they liked to be bribed in US dollars
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How U.S. Regulators Are Choking Crypto
The effort would stifle American innovation and competition—and that seems to be the objective.
By Katie Haun
March 27, 2023 1:03 pm ET
Some financial regulators appear to have seized on a series of high-profile meltdowns to go around Congress and try to freeze an entire industry out of banking services.
I spent more than a decade as a federal prosecutor on some of the worst threats our country faces—organized crime, the opioid epidemic, political corruption and terrorism. In my final years at the Justice Department, I shifted to cases involving emerging technology, including the then-nascent crypto category, from the Mt. Gox hack to the corrupt Silk Road agents. Years later, the space continues to attract crime and fraud, but it has also drawn some of the brightest engineering talent in the world. Public blockchains, the foundational technology of the ecosystem, are an important set of tools that reflect breakthroughs in cryptography and distributed computing. In addition to early financial-use cases, this sector provides new ways to develop, monetize and govern all kinds of software.
Unfortunately, members of this computing vanguard are being lumped in with the bad actors as part of a coordinated regulatory campaign to stymie progress in the sector. While other countries are putting in place laws and regulations, in the U.S. unelected officials are making major policy decisions about whether or not America should have a crypto industry. These efforts are misguided, reckless and potentially unconstitutional. Most important, they put America on the dangerous path of closing off the banking system to those disfavored by a particular administration.
In January, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Federal Reserve issued a statement notifying financial institutions to be on alert for customers operating in the space, saying decentralized networks are “highly likely to be inconsistent with safe and sound banking practices.” This ominous statement, coupled with seeming behind-the-scenes discouragement by their regulators, has led many banks to begin steering clear of almost any business touching blockchain technologies. In subsequent weeks, numerous banks shut their doors to this emerging sector, and regulators reportedly are conditioning sales of distressed banks on severing ties with the industry.
A decade ago, in an effort called Operation Choke Point, the Justice Department, the Comptroller of the Currency and the FDIC tried to circumvent Congress using similar tactics—pressuring banks to cease business with specific industries, citing fraud prevention. Today, we are again seeing backroom tactics as a substitute for legislation, process and public regulation. Regardless of one’s position on the underlying issue, these significant policy decisions should be made in an open and transparent way.
This extralegal crackdown initially might not concern observers whose impressions of crypto are rooted in headlines about bad actors and outright criminals. But as four senators pointed out in a recent letter to the Fed, the FDIC and the OCC: “When the Bernie Madoff fraud was uncovered, regulators did not pressure banks to cut off access to other asset managers.”
The teams my firm works with are developing applications beyond financial services. One CEO is a former Green Beret whose company is building products to keep personal data safe using cryptography. Others include a serial entrepreneur creating developer tools for decentralized technologies, and a team building tax and compliance software for digital assets. Several Coinbase alumni are building products that help creators monetize digital content outside TikTok and Meta-owned Instagram. These aren’t scofflaws in cargo shorts committing theft.
Whatever one believes about crypto (I realize many smart and reasonable people don’t yet see the potential or need), major U.S. policy decisions should be made by Congress and state legislatures, not by unelected officials. If financial regulators are concerned about specific risks and believe new rules are appropriate, then they should follow procedures, including public notice and comment. If legislation is needed, that’s up to Congress, but unelected officials shouldn’t try to destroy an industry by freezing it out of the banking system.
Imagine if more than a century ago regulators had cut Ford and General Motors off from banking services because they considered automobiles too risky, or too competitive with trains and horses. In 1980, Massachusetts securities regulators barred citizens from buying stock in Apple’s IPO on the grounds that it was too “risky.” In the future, what if financial regulators were to warn banks against taking artificial-intelligence or alternative-energy customers because they’re too risky? And because of semiconductors we now know what happens when America fails to keep key industries onshore.
Meanwhile, other countries are working on regulating digital assets through a public process. Just this month, the U.K. reaffirmed its commitment to provide a framework for consultation to regulate digital assets, and the EU recently introduced a harmonized set of rules for all 27 member countries. Singapore, Dubai and Japan are all establishing rules to provide clarity to the industry. Hong Kong is developing a crypto-licensing regime, with the apparent blessing of Beijing. If American lawmakers don’t provide a framework for decentralized technologies, then a major frontier of technological innovation will begin to move to more hospitable economies.
America has long been a global leader in technology. Our regulators have risen to the occasion—not stifling innovation but embracing technological advances while maintaining a fair, honest and trusted playing field. But the expedient political view threatens to choke off innovation and punish legitimate actors. Every lawful business should have access to the banking system. Government censorship as a backdoor substitute for the legislative process has no place in finance—or any industry.
Ms. Haun is CEO and founder of Haun Ventures, an investment firm specializing in decentralized technologies. She is a director of Coinbase and a former federal prosecutor.
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Read about Operation chokepoint 2.0. A 500 B$ asset has panicked the US govt!
https://www.cooperkirk.com/wp-content/uploads/2023/03/Operation-Choke-Point-2.0.pdf (https://www.cooperkirk.com/wp-content/uploads/2023/03/Operation-Choke-Point-2.0.pdf)
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It’s good to be a banker at the remainder counter, especially when the feds are helping with the purchase. First Citizens BancShares on Sunday night was the lucky winner of the bidding to buy the assets of Silicon Valley Bank, and what a deal it is. Rather than minimize the cost to the deposit insurance fund as required by law, the Federal Deposit Insurance Corp. seems to have chosen the best political match.
North Carolina-based First Citizens will acquire all of SVB’s deposits, loans and branches but leave $90 billion in securities and other assets with the FDIC. First Citizens will buy SVB’s $72 billion in loans at a sizable $16.5 billion discount and share future losses or gains with the FDIC. How sweet it is for First Citizens, whose shares rose 45.5% Monday.
The FDIC loss-share agreement is a tacit recognition that SVB’s large book of loans to unprofitable startups carries substantial credit risk. SVB’s business model involved extending low-cost credit to tech startups, many with no revenue, and getting repaid when they were acquired by larger companies, raised more private funds or floated shares publicly.
Problem is, rising interest rates have caused venture funding and the market for initial public offerings to dry up. Market valuations for startups have slumped. Bigger companies aren’t in the market to buy startups with large amounts of debt relative to revenue. That means big loan losses could be coming.
Hedge funds might have been interested in buying SVB’s loans, but the FDIC ruled them out for political reasons. Progressives dislike hedgies, and Silicon Valley venture investors worried they would be less forgiving of startups that couldn’t repay their debt. SVB often accommodated struggling startups at the request of their venture-capital financiers.
The FDIC says the deal will “minimize disruptions” for SVB borrowers. First Citizens stressed it is “committed to building on and preserving the strong relationships” with venture and private equity firms. CEO Frank Holding Jr. added that “together, with the legacy SVB team, we are well positioned to understand the unique financial needs of [the tech] sector.”
They sure are thanks to FDIC assistance, but all this suggests that the FDIC hardly minimized its own risks and costs. In addition to the loss-share agreement, the FDIC will finance the deal with a five-year $35 billion loan plus a $70 billion line of credit to cover potential deposit flight. This is a government match made in heaven.
After the deal closes, First Citizens will have $219 billion in assets—double what it had at the end of last year. This would make it among the 25 largest banks in the U.S. and puts it on the cusp of being classified as too-big-to-fail. The losers in this sweetheart deal will be other banks (and their customers) that will have to pick up the estimated $20 billion cost to replenish the deposit insurance fund. That’s about 15% of the entire fund. By comparison, the 214 bank failures between 2011 and 2022 cost the fund $12.4 billion.
The FDIC might have been able to shut down and sell SVB at a smaller loss had it accepted offers that we were told were floated over the first weekend after its collapse. But Chairman Martin Gruenberg rejected them out of hostility to consolidation as per the warnings from Sen. Elizabeth Warren and her protege on the FDIC board, Rohit Chopra. Now we end up with consolidation anyway at a greater cost to the deposit-insurance fund.
The FDIC is supposed to be an apolitical regulator that makes judgments based on the best interests of taxpayers and insured depositors. The SVB transaction raises questions about whether political ideology is compromising basic financial competence at the FDIC. This isn’t the right message to send in a bank panic.
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second
What Congress Should Ask Regulators in SVB’s Aftermath
Some lawmakers blame a bipartisan 2018 reform law for the bank’s collapse. That’s so nonsensical, it isn’t even wrong.
By Randal K. Quarles
March 27, 2023 6:21 pm ET
Congress will hold hearings this week on lessons from the failure of Silicon Valley Bank. Some lawmakers are calling for the financial stampede that brought down SVB to be followed by a political stampede of new, restrictive laws and regulations. That would be a mistake. We can learn much from this episode, but not if we move heedlessly in reaction to the loudest, most partisan voices.
First, note what the crisis doesn’t teach. Several politicians have called for rolling back the carefully calibrated regulatory changes stemming from the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018—a banking-reform law enacted by strong bipartisan majorities. As Wolfgang Pauli once said of a fellow physicist’s hypothesis, that’s so nonsensical, it isn’t even wrong.
SVB’s failure wasn’t related to regulatory changes. Rather, it was a “textbook case of mismanagement,” as Michael Barr, the Federal Reserve’s Vice Chairman for Supervision, said Monday. The bank failed as the public began to focus on changes in the value of securities in the bank’s “held to maturity” account. The 2018 law didn’t change the capital treatment of such securities. SVB didn’t have a capital shortage—it remained solvent. Instead, it succumbed to a bank run. Thus the focus of any critique should be on liquidity, not capital.
But even applying to SVB the full-strength liquidity rules governing our largest banks wouldn’t have changed its fate. Those rules, first established in 2014 as mandated by Dodd-Frank, impose the toughest restrictions on banks with large amounts of short-term wholesale funding and treat banks funded with deposits from their customers—even uninsured deposits—as being reasonably resistant to runs. That treatment was crafted by the Obama-era regulators and hasn’t been amended.
Another misconception is that the changes in stress testing might have blinded the bank and its examiners to problems. That, too, isn’t right. Banks of all sizes are subject to a range of stress tests, not merely one. Most of these weren’t affected by the 2018 changes—and the longstanding requirement for banks to run tough internal stress tests on their interest-rate-risks remained untouched.
As it has gradually become clear that changes to law, regulation and stress testing weren’t relevant to SVB’s collapse, some critics want to blame changes in the supervisory instructions given by the banking agencies to their field examiners. Yet the only concrete change they point to has been the “guidance on guidance” issued in 2018 and codified in 2021.
This claim is decidedly odd. That project—which was supported and voted for by Martin Gruenberg and Lael Brainard, respectively chairman of the Federal Deposit Insurance Corp. and director of the White House National Economic Council—doesn’t limit any action an agency wants to take. It simply clarifies which actions will be accomplished through regulatory measures and which through supervisory measures. It continues to allow any unsound practice to be reined in by examiners and merely firms up the justifications for the written record. In a world where courts are increasingly ready to invalidate agency action that doesn’t comply with the Administrative Procedure Act, this clarification strengthens bank supervision rather than weakens it.
If the Obama-era regulation didn’t prevent SVB’s failure, the 2018 adjustments didn’t cause it, and the instructions to supervisors continued not only to be strong but focused on the right risks, then what can be done? Must we simply throw up our hands and insure all deposits of any size with the attendant moral hazard—or worse, devise even more unfocused and restrictive regulation, increasing the cost of capital and further slowing economic growth?
I don’t think so. There are some clear lessons, if we filter out the noise and focus on essential questions. Here is what I would ask the bank regulators:
Why didn’t uninsured depositors behave consistent with historical expectations? Many have commented on the concentrated nature of SVB’s customer base in a single industry—the venture-capital and tech sector—and on its susceptibility to fads, enthusiasms and herd behavior. But others have noted that thanks to modern social media and bank technology, we are awash in the perfect flow of imperfect information and can act instantaneously on it. Is the right answer to focus on diversifying banks’ deposit bases, as we have long focused on diversifying their assets? Or do we need to reconsider the longstanding treatment of uninsured customer deposits in both the regulation and supervision of liquidity?
Second, why didn’t the FDIC arrange for a stronger bank to buy SVB the night before it failed? The swift transfer of a failed institution into the hands of a strong buyer usually restores calm without extraordinary regulatory actions, which inevitably confuse incentives and create moral hazard. Were some potential purchasers ruled out at the beginning? Did the FDIC provide enough incentive for an acquisition early on? The system is designed to absorb the failure of a $100 billion bank, but not if the FDIC ties one hand behind its back.
Finally, we should review the lessons of fiscal policy. I cut my teeth on the savings-and-loan crisis 40 years ago, and I see strong similarities in the genesis and development of that debacle. Excessive fiscal stimulus from the Johnson and Nixon administrations baked inflation into the economy. The resulting mismatch of rising short-term liability costs and falling long-term asset values, which accelerated when the Fed began the necessary interest-rate rises to bring inflation under control, doomed the S&Ls. The SVB incident is isolated to a handful of banks, but it is fair to ask the regulators where we might see more pressure in the financial system from the inflation that mismanaged fiscal policy has engendered.
If cool heads and expert analysis had prevailed three weeks ago, SVB’s customers wouldn’t have run from the bank. If cool heads and expert analysis prevail in Congress and at the banking agencies, we can avoid the political stampede to a destructive regulatory response that would do much more damage.
Mr. Quarles is chairman of the Cynosure Group. He served as the Federal Reserve’s vice chairman for supervision, 2017-21.
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what does it mean
of course this is Monica Crowley who is not known as a world class economnist ( :wink:). but still worth the listen:
https://twitter.com/BitcoinNewsCom/status/1640302421762007044
would like to hear Kudlow (who I trust) opinion or Scott Grannis opinion
I know in many countries they liked to be bribed in US dollars
Even though there is a lot of talk about de-dollarization, the US $ remains the king and demand for it is very high and everything is priced in $. Attempts by BRICS nations will not put much of a dent to it, but what it does is, it puts a dent to US respectability world wide and basically gives a small poke to the US eye. Fair to say, the US is not viewed with great esteem in many parts of the world. If there is a more involved war in Europe, money will flow into the $, Gold and BTC.
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FOX Business reports this morning that Brazil's big new deal with China includes doing the transactions in the Chinese currency.
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FOX Business reports this morning that Brazil's big new deal with China includes doing the transactions in the Chinese currency.
The dollar is faker than Bruce Jenner's vagina. The world is done with subsidizing our dumpster fire country.
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In the meantime, Softwar, the 400 pg tome continues to make waves. I focussed on the first chapter and then the last few which have the meat.
https://www.politico.com/newsletters/digital-future-daily/2023/03/30/space-force-major-to-pentagon-mine-bitcoin-00089745 (https://www.politico.com/newsletters/digital-future-daily/2023/03/30/space-force-major-to-pentagon-mine-bitcoin-00089745)
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(https://pbs.twimg.com/media/FshEI00WAAAro9G?format=jpg&name=small)
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Thank you for the reminder on Softwar. I bought it, read the first few pages, then life got in the way. I need to circle back to this.
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https://retirementincomejournal.com/article/theres-no-national-ponzi-scheme/
I just cannot stop feeling like these arguments are swindling me
like a 3 card monty
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Intriguing piece.
Two themes left out:
1) The differential between interest rates and inflation. At present, though less than not too long ago, at present interest rates to the government are below inflation. Interest rates are NEGATIVE.
2) The dollar's role (or not) as the reserve currency. What has this meant so far? What threats if this becomes less so, or not at all.
https://www.investopedia.com/terms/s/seigniorage.asp
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I don't understand this :
"It appears to be the result of an increase in world saving, a decline in world growth, and possibly an increase in market power."
I don't know about the world but I don't know who is saving in the US
with more and more people living paycheck to paycheck
and keeping money in bank accounts treasuries is no where close to inflation
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Time for some green for a while
(https://pbs.twimg.com/media/FsoIlN6X0AEw04F?format=jpg&name=900x900)
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This is an important read, if the govt decides to shut down all on and off ramps to BTC. Thinking is 1 BTC=1BTC, where everything is priced in BTC, so no fiat currency is needed. I personally, dont think this is likely to happen in the US.
https://foundationdevices.com/2023/03/bitcoin-doesnt-need-banks/ (https://foundationdevices.com/2023/03/bitcoin-doesnt-need-banks/)
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(https://pbs.twimg.com/media/Fso9a0BWYAQwa25?format=png&name=900x900)
And...
(https://pbs.twimg.com/media/FspAXlvWYAARmd1?format=png&name=900x900)
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This is an important read, if the govt decides to shut down all on and off ramps to BTC. Thinking is 1 BTC=1BTC, where everything is priced in BTC, so no fiat currency is needed. I personally, dont think this is likely to happen in the US.
https://foundationdevices.com/2023/03/bitcoin-doesnt-need-banks/ (https://foundationdevices.com/2023/03/bitcoin-doesnt-need-banks/)
The OGUS/FUSA will do everything it can to force everyone onto the CBDC social credit surveillance grid. They WILL make Bitcoin illegal.
https://media.gab.com/cdn-cgi/image/width=1050,quality=100,fit=scale-down/system/media_attachments/files/133/917/394/original/0d21058f43cd1f12.png
(https://media.gab.com/cdn-cgi/image/width=1050,quality=100,fit=scale-down/system/media_attachments/files/133/917/394/original/0d21058f43cd1f12.png)
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https://media.gab.com/cdn-cgi/image/width=1050,quality=100,fit=scale-down/system/media_attachments/files/134/022/920/original/e84abb5517814fd2.png
(https://media.gab.com/cdn-cgi/image/width=1050,quality=100,fit=scale-down/system/media_attachments/files/134/022/920/original/e84abb5517814fd2.png)
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(https://pbs.twimg.com/media/Fs0esYwWYAESikW?format=jpg&name=small)
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JPMORGAN BOSS: BANKING CRISIS EFFECTS WILL CONTINUE… CNBC: Jamie Dimon says the banking crisis is not over and will cause ‘repercussions for years to come’
The stress on the financial sector caused by two bank failures in the United States last month is still a threat and should be addressed by a reimagining of the regulatory process, according to JPMorgan Chase CEO Jamie Dimon.
“As I write this letter, the current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come,” the longtime CEO said in his annual letter to shareholders on Tuesday. […]
The recent banking issues in the U.S. began with the collapse of Silicon Valley Bank, which was closed by regulators on March 10 as depositors pulled tens of billions of dollars from the bank. The smaller Signature Bank was closed two days later. And in Europe, Swiss regulators brokered a purchase of Credit Suisse by UBS.
JPMorgan and other large banks stepped in to make $30 billion of deposits at First Republic, another regional bank that investors feared could become the next SVB. […]
“Any crisis that damages Americans’ trust in their banks damages all banks – a fact that was known even before this crisis. While it is true that this bank crisis ‘benefited’ larger banks due to the inflow of deposits they received from smaller institutions, the notion that this meltdown was good for them in any way is absurd,” Dimon wrote.
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https://media.gab.com/cdn-cgi/image/width=1050,quality=100,fit=scale-down/system/media_attachments/files/134/022/920/original/e84abb5517814fd2.png
(https://media.gab.com/cdn-cgi/image/width=1050,quality=100,fit=scale-down/system/media_attachments/files/134/022/920/original/e84abb5517814fd2.png)
https://www.zerohedge.com/geopolitical/here-are-7-signs-global-de-dollarization-has-just-shifted-overdrive
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https://www.aier.org/article/de-dollarization-has-begun/ (https://www.aier.org/article/de-dollarization-has-begun/)
Also this Tucker C video https://twitter.com/i/status/1643781248408494080 (https://twitter.com/i/status/1643781248408494080)
and a ZH https://www.zerohedge.com/geopolitical/why-regime-needs-dollar-be-global-reserve-currency (https://www.zerohedge.com/geopolitical/why-regime-needs-dollar-be-global-reserve-currency)
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The Fed issuing a clarification. FedNow is not a CBDC, while technically true, it was a baby step in that direction. With politicians like Robert kennedy Jr/DeSantis opposing CBDC and only Pocahontas supporting it...pressure is mounting against CBDC in the US. However, the US needs to get its act together, the 31T deficit cannot be paid back. The banking crisis is not over, commercial real estate might be the next shoe to fall.
https://www.federalreserve.gov/faqs/is-fednow-replacing-cash-is-it-a-central-bank-digital-currency.htm (https://www.federalreserve.gov/faqs/is-fednow-replacing-cash-is-it-a-central-bank-digital-currency.htm)
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https://www.theepochtimes.com/irs-to-prioritize-enforcement-including-criminal-investigation-for-certain-assets_5181321.html?utm_source=Morningbrief&src_src=Morningbrief&utm_campaign=mb-2023-04-09&src_cmp=mb-2023-04-09&utm_medium=email&est=gWCjTEGkiAuhYU%2BJRk7fxLvL7uRyH8tHuA86vVvf4dVPVGJlw3CoV52RV4OTx4aUS
The Internal Revenue Service (IRS) said it would increase enforcement in the area of digital asset transactions and listed transactions.
The federal agency identified certain transactions to have high-risk issues in noncompliance and vowed to ramp up enforcement in those transactions.
“The IRS tracks many known, high-risk issues in noncompliance, such as digital asset transactions, listed transactions and certain international issues. These issues arise in multiple taxpayer segments, and data analysis shows a higher potential for noncompliance,” the tax agency wrote in its newly-released funding plan (pdf).
“We will prioritize resources to increase enforcement activities, including criminal investigation as appropriate,” the agency added.
According to the plan, the IRS will develop the information platform to support digital asset reporting and analytics tools to increase digital asset compliance in the fiscal year 2024, which is between April 1, 2023, and March 31, 2024.
Digital assets include convertible virtual currency, cryptocurrency, stablecoins, non-fungible tokens (NFTs), and other digital representations of value, according to the IRS website.
The IRS treats digital assets as property and requires taxpayers to report taxable gains or losses from digital asset transactions.
As it’s difficult to identify the owners of digital assets, U.S. judges allow the IRS to use “John Doe summons” to seek the identities of taxpayers of interest.
Individuals Earning $400,000 or More Targeted
The IRS released details Thursday on how it plans to use an infusion of $80 billion for improved operations, pledging to invest in new technology, hire more customer service representatives, and expand its ability to audit high-wealth taxpayers.
The plan lays out the specifics of how the IRS will allocate the $80 billion of funding—from fiscal year 2024 to 2031—that was approved through legislation.
Some improvements have been long expected, such as bringing more paper-based systems online and answering taxpayers’ phone calls promptly. Others are more ambitious: continuing to explore ways to create a government-operated electronic free-file tax return system, for example.
Janet Yellen
Treasury Secretary Janet Yellen (C) tours the IRS New Carrolton Federal Building in Lanham, Md., on Sept. 15, 2022. (Alex Brandon/AP Photo)
After Congress passed legislation for the funding last summer, Treasury Secretary Janet Yellen directed the IRS to develop a plan outlining how the tax agency would overhaul its technology, customer service, and hiring processes. Her memo sent instructions to IRS leadership not to increase audit rates on people making less than $400,000 a year annually.
During a call with reporters, Treasury Deputy Secretary Wally Adeyemo said the plan “is heavily driven by the fact that we need to make technology investments that will improve productivity, which will mean that over time the number of employees and the mix of employees at the IRS will change.”
Officials are promising not “to raise audit rates on small businesses and households making under $400,000 per year, relative to historic levels.” The report says more than half of the new money—$45.6 billion—will be devoted to pursuing high-wealth individuals and companies.
“Given the size and complex nature of these tax filings, this work often requires specialized approaches, and we will make these resources available,” the report said. “We will use data and analytics to improve our understanding of the tax filings of high-wealth individuals.”
The Associated Press contributed to this report.
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second
https://www.cryptopolitan.com/ecb-president-shocking-truth-digital-euro/
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third
https://www.aier.org/article/de-dollarization-has-begun/
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https://finance.yahoo.com/news/satoshi-nakamoto-crypto-fans-just-163808135.html
BTC origins still shrouded in mystery
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BTC is math.
(https://pbs.twimg.com/media/FtT0D6HXsAEApJW?format=jpg&name=900x900)
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https://media.gab.com/cdn-cgi/image/width=1050,quality=100,fit=scale-down/system/media_attachments/files/134/022/920/original/e84abb5517814fd2.png
(https://media.gab.com/cdn-cgi/image/width=1050,quality=100,fit=scale-down/system/media_attachments/files/134/022/920/original/e84abb5517814fd2.png)
https://www.zerohedge.com/geopolitical/here-are-7-signs-global-de-dollarization-has-just-shifted-overdrive
https://www.zerohedge.com/geopolitical/role-reversal-collapse-dollar-enforced-empire
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https://www.theepochtimes.com/is-a-new-gold-standard-possible_5179327.html?utm_source=Opinion&src_src=Opinion&utm_campaign=opinion-2023-04-10&src_cmp=opinion-2023-04-10&utm_medium=email&est=d%2F12Akqfz%2FPdHV1sM4AbPTOKtXwY0PAonCOgjVxBWpa3HyWSdfrnD6VaufuwG%2FtQG2BO
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(https://pbs.twimg.com/media/FtYc689WAAAGVok?format=jpg&name=medium)
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Up 5% today last I looked.
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Re: BTC 25.2K is the next resistance, if we cross that...30K in coming. The 25.2K line is formidable.
Touched 30K..
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https://tldavis.substack.com/p/damn-you-all
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except BTC
https://www.yahoo.com/finance/news/u-sec-committee-urges-aggressive-080342781.html
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https://tldavis.substack.com/p/damn-you-all
https://www.zerohedge.com/economics/project-icebreaker-beginning-one-world-digital-currency-system
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Mundell Predicted Our Economic Instability
The Nobel laureate knew that floating exchange rates would make the global economy volatile.
By Sean Rushton
April 11, 2023 5:54 pm ET
As the world attempts to stave off a new banking crisis, it’s worth remembering the lessons of Nobel economics laureate Robert Mundell (1932-2021). Mundell showed that domestic economic policy doesn’t operate in a vacuum but rather interacts with—and affects—global financial forces such as international capital and trade flows.
His “open economy” model considered policy under two very different monetary regimes. One assumed a global common currency system in which a currency’s value was fixed, the quantity of money floated, and exchange rates among currencies were stable. This was the norm when he wrote in the 1950s and had been for hundreds of years. The other scenario, obscure until the early 1970s, assumed balkanized central banks fixing the quantity of money at their discretion, while a currency’s value and its exchange rates floated. Mundell noted that the two systems functioned in completely different ways—a distinction that seems lost on many policy makers today.
For example, he debunked the notion that monetary policy always operates with a “long and variable lag” of six to 18 months. The basis for this claim—Milton Friedman and Anna Schwartz’s 1963 book, “A Monetary History of the United States”—gathered data from the 1870s through the 1950s, a time of mainly fixed exchange rates. Mundell said that under such conditions, there was some truth to the idea of a lag. But in the modern world of flexible exchange rates and lightning-fast capital movements, the idea was “poppycock.”
He gave two examples: 1981-82 and 2008. In both cases, after a bout of rising inflation, tighter U.S. monetary policy contributed to big, sudden capital inflows. In the 1980s, it was the Reagan tax cuts plus the Federal Reserve’s sky-high interest rate. In 2008, it was the Fed’s unexpected reversal from dovish to hawkish policy during the initial phase of the subprime mortgage crisis. In both cases, capital quickly flowed into the dollar, the exchange rate appreciated, and commodity and other asset prices plummeted. In both cases, consumer prices fell sharply in the months following these initial market moves.
Mundell’s decadeslong critique of floating exchange rates, which were implemented in 1973, was based on his deep understanding of how the practice really worked. Far from being a source of new stability and liberation, floating rates would leave most nations adrift, struggling in isolation to manage their currencies in a world suddenly dominated by huge speculative capital flows unlike anything that existed before.
The record bore him out: The floating-exchange-rate system of the past five decades has proved financially volatile and crisis-prone. Mundell cited four major fiascoes linked to exchange-rate swings: the international debt crisis of 1982, the savings-and-loan crisis of the late 1980s, the Asian financial crisis of 1997 and the global financial crisis of 2008. None of these, he noted, would have occurred under the fixed exchange-rate systems of the past.
To be sure, fixed rates carried the risk of other kinds of crises. Wars caused bouts of high inflation followed by painful attempts to restore prewar price levels. Branch-banking restrictions in the U.S. led to local cash shortages during harvest times. But the system itself was fundamentally stable as currency values were fixed and the quantity of money adjusted automatically across the system. Giant, currency-induced capital movements were rare.
Today, the U.S. dollar dominates the monetary world, and its movements, often driven by backward-looking Federal Reserve policies, can destabilize the entire system. In 2021-22 we saw a burst of monetary activism from the Fed, coinciding with a huge expansion of the money supply, a depreciation of the dollar with rising commodity prices, followed by high general inflation. Then, last year, as the Fed belatedly began raising its target rate, there was a big appreciation of the dollar, along with a falling money supply and declining commodity and consumer prices. The yield curve inverted last fall, and now banks are showing cracks, mitigated by an unprecedented federal pledge to back deposits without limit. Despite these quakes, the Fed raised its target interest rate in March, looking in the rearview mirror at lagging 12-month inflation data. The central bank’s “dot plot” suggests another hike still to come this year.
In the years after 2008, Mundell called the global financial crisis the greatest policy blunder in Fed history aside from the Great Depression. The lost wealth, the bailouts, the multiple rounds of quantitative easing with huge up-down cycles for the dollar and price of oil—all contributed to the lost decade that followed where annual gross-domestic-product growth averaged about half its historical level. Anyone confused about the populist discontent that erupted in 2016 need look no further.
To show it has learned its lesson, the Fed should forget long and variable lags and watch real-time market prices. Declare victory in the war on inflation as long as the dollar remains relatively high and commodity prices don’t spike. Beyond that, today’s leaders should take Mundell’s counsel on the need to end large exchange-rate swings, starting with the dollar-euro rate, which he called “the most important price in the world.” Stability there, with future invitations to Japan and Britain to join, would begin to restore order to the system. China, which already maintains a relatively stable exchange rate with the dollar, could be kept at arm’s length.
These reforms could give way one day to an international currency for settlement purposes, which Mundell suggested be made up, in equal measure, of major currencies and gold, to offset the global demand for dollars that keeps the U.S. trade deficit higher than it would be otherwise. Such a system would resolve the defects of the current system, restore financial stability and enable stronger economic growth.
Mr. Rushton is an adjunct fellow at the Jack Kemp Foundation.
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second
Global Monetary Tightening Tests the U.S. Banking Sector
Apr 12, 2023 | 15:51 GMT
While tight global financial conditions and a deteriorating economic growth outlook are unlikely to get major U.S. banks into serious trouble, smaller and mid-sized banks face non-negligible risks connected to their exposure to commercial real estate portfolios. Global interest rates have risen substantially over the past year, leading to tighter financing conditions, falling asset values and greater investor risk aversion in the United States (and elsewhere). Sri Lanka and Ghana defaulted on their sovereign debt in May 2022 and December 2022, respectively. From late September through much of October, a massive uptick in volatility in U.K. government bond markets forced the Bank of England to intervene to avoid a larger crisis. The crypto exchange FTX collapsed in November. Two mid-sized U.S. banks (Silicon Valley Bank and Signature Bank) then collapsed in early March, prompting U.S. authorities to intervene forcefully and guarantee all deposits. And on March 19, authorities in Switzerland oversaw the merger of two global, systemically important financial institutions — Credit Suisse and UBS — to prevent a European (and possibly global) banking crisis. Moreover, several developing and emerging economies — most prominently Argentina, Egypt and Pakistan — are facing significant financial challenges, as evidenced by high inflation, foreign-exchange rationing and very high yields on their international debt. The World Bank and the International Monetary Fund estimate that a full third of developing economies, including 60% of low-income countries, either have unsustainable debts or are in danger of seeing their debt become unsustainable.
The U.S. Federal Reserve has raised its main policy rate from 0-0.25% to 4.75-5% since March 2022.
The European Central Bank has raised its main policy rate from -0.5% to 3% since July 2022.
After more than a decade of ultra-low interest rates, the tightening of global financial conditions has begun to expose financial vulnerabilities. Last month's collapse of Silicon Valley Bank (SVB) and Signature Bank was directly related to the sharp rise in U.S. interest rates. The Fed's policy lifted banks' deposit rates and hence financing costs. This forced SVB and Signature Bank to realize losses on the sale of long-term, fixed-rate assets and led to deposit outflows, precipitating their financial collapse. The financial problems in many low-income developing economies are also best explained by higher global and U.S. interest rates and higher financing costs in the context of prior excess borrowing and the COVID-related surge in government outlays. The broader problems faced by many crypto companies are at least in part related to higher interest rates, which make many speculative crypto investments less attractive. In some cases, such as the recent collapse of the FTX cryptocurrency exchange and hedge fund, the worsening financial climate exacerbated pre-existing issues. The volatility in U.K. government bond markets this past fall was also related to greater risk- and yield-seeking by pension funds in the context of very low interest rates, which subsequently led to financial instability once U.K. interest rates increased sharply. By contrast, the near-collapse of Switzerland's Credit Suisse last month was a consequence of declining profitability, mounting losses and a broader loss of confidence in the international investment bank.
The main financial risk over the next few months will be connected to small and mid-sized U.S. banks' exposure to commercial real estate and pressure on their deposit base. Unlike the developing market debt crisis of the early 1980s, a wave of defaults in low-income countries today would not risk causing a global banking crisis because international banks currently have very limited exposure to these countries. A systemic banking crisis similar to the 2008-2009 subprime crisis is also unlikely because large, systemically important U.S. and European banks (like JPMorgan, Chase and UBS, Credit Suisse) currently benefit from much higher capital and liquidity buffers than they did 15 years ago. A systemic banking crisis also appears improbable due to much better regulation and higher capital levels in both Europe and the United States. Finally, a sovereign crisis in any of the major advanced economies, similar to the eurozone crisis of the early 2010s, looks unlikely for now, judging by spreads on credit default swaps, long-term yields and debt dynamics. Moreover, surprise inflation has helped reduce debt levels, if perhaps only temporarily. In fact, the main concern in the short-to-medium term stems from U.S. banks' exposure to commercial real estate, which will come under pressure amid falling asset values, slowed economic growth, and reduced lending by liquidity-constrained banks. Once again, this will prove particularly challenging for small and mid-sized U.S. banks, which are much more dependent on this type of lending compared with larger financial institutions. Large U.S. banks also benefit from substantial fee-related income. Second- and third-tier U.S. banks will thus be most at risk.
Commercial real estate prices in the United States are coming under pressure, which will reduce the value of loan collateral. U.S. office vacancy rates are high at close to 20%, compared with less than 7% in Europe, according to the Financial Times.
If U.S. mid-sized and small banks incur major losses on their commercial real estate portfolios, while liquidity constraints reduce lending to the sector, weakened capitalization levels may then reduce these banks' willingness and ability to extend credit, which would weigh on U.S. economic growth. If significant financial distress emerges in the banking sector, the U.S. Treasury and the Fed may intervene just enough to prevent a broader crisis. But because of political constraints, U.S. financial regulators may not do enough to fix the financial damage quickly. Beyond the imminent risk of a broader banking crisis, ongoing instability could thus weigh on the United States' medium-term economic outlook by leading banks to reduce credit to the real economy. Similar to Japan in the 1990s, weakened U.S. banks may also prefer to roll over doubtful loans, thereby creating so-called zombie companies (or companies that are effectively unable to service their debt and do not generate economic growth), which will translate into a misallocation of capital and lower economic growth. If this happens, the U.S. government would then need to intervene and force banks to clean up their balance sheets and recapitalize in order to strengthen their ability to extend credit and finance economic growth. Again, this would mostly be an issue for small and mid-sized regional banks. Using Japan's experience as guidance, U.S. authorities will be eager to act in a forward-looking way to avoid the emergence of systemically undercapitalized small and mid-sized banks. But politically, the Fed and the Treasury's hands may be tied due to gridlock in Congress, which may limit the speed with which they will be able to address a weakened banking sector.
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(https://pbs.twimg.com/media/Fs8hs-naMAAci5I?format=jpg&name=900x900)
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Is that some sort of LGBTQ medal on King Charles?
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https://media.gab.com/cdn-cgi/image/width=1050,quality=100,fit=scale-down/system/media_attachments/files/134/022/920/original/e84abb5517814fd2.png
(https://media.gab.com/cdn-cgi/image/width=1050,quality=100,fit=scale-down/system/media_attachments/files/134/022/920/original/e84abb5517814fd2.png)
https://www.zerohedge.com/geopolitical/here-are-7-signs-global-de-dollarization-has-just-shifted-overdrive
https://www.zerohedge.com/geopolitical/role-reversal-collapse-dollar-enforced-empire
https://donsurber.substack.com/p/biden-is-killing-the-dollar?utm_source=post-email-title&publication_id=1115457&post_id=113293089&isFreemail=true&utm_medium=email
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so what ! He is saving the planet from climate change
and cool with the culture warriors .....
besides he and Obama have made sure to get rich first..
:wink:
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https://www.zerohedge.com/markets/there-no-fix-rubino-warns-global-monetary-experiment-ends-bloodbath
Plan accordingly.
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Uh oh.
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https://www.investopedia.com/tech/what-happens-bitcoin-after-21-million-mined/?utm_campaign=quote-yahoo&utm_source=yahoo&utm_medium=referral
after reading article I still have no idea
won't be just under the 21 mill till ~2040
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The block reward will go to zero when all BTC has been mined in over a hundred years. At that point miners will only receive transaction fees to maintain the network. Transaction fees could be higher in 100 years, at this time they are quite low, usually between 10cents-1 $, closer to 10 cents in many cases.
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Nov 28, 2025 (orange line) seems important.
(https://pbs.twimg.com/media/FtwyoWLWAAEeDuz?format=png&name=medium)
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And the Treasury got caught manipulating data. Note the length of the yellow deficit bar of 1.1 Trill, it should be twice as long. Compare with 1 Trill of Individual taxes.
https://fiscal.treasury.gov/files/reports-statements/mts/mts0323.pdf
(https://pbs.twimg.com/media/Ftr91G1XoAACLA_?format=png&name=900x900)
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https://www.zerohedge.com/geopolitical/imf-unveils-new-global-currency-known-universal-monetary-unit-transform-world-economy?utm_source=&utm_medium=email&utm_campaign=1411
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https://www.zerohedge.com/geopolitical/imf-unveils-new-global-currency-known-universal-monetary-unit-transform-world-economy?utm_source=&utm_medium=email&utm_campaign=1411
I am so old, I remember when this was a conspiracy theory.
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This is mostly FUD, it is NOT released by the IMF, but during an IMF meeting. It is released by DCMA (The grandiosely named Digital Currency Monitoring Authority), who knows what it is. Its another scam coin, just like the 10,000 others https://dcma.io/index.html
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Thank you YA.
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Why BTC wins
(https://pbs.twimg.com/media/Ft7ZPwSWcAI2d-t?format=jpg&name=medium)
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https://www.schwab.com/learn/story/will-us-dollar-be-dethroned
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I agree with the Schwab article in that, the few percent of purchases in non-$ currencies is not likely to immediately impact the $. The danger comes from within. Our deficits are unmanageable and unpayable. If the world loses confidence in the Fed to curtail inflation, if our deficits continue to rise, if we continue to wage wars, the $ cannot survive. The immediate problem is what can replace the $ as the global reserve currency. Its not going to be the Yuan or gold. The only sane option is Bitcoin, but its market cap is only 500 B$, as compared to gold 11 T$. We need sovereign level BTC adoption to make a dent. So far only El Salvador is officially putting BTC in its Treasury, there was a recent report from Forbes that Bhutan was investing in BTC, there are multiple hints from Russia that they are mining BTC using their massive surplus gas reserves as a govt enterprise (note the rocketing hash rate). We need more country level BTC adoption to make BTC as one of the basket of currencies that replaces gold.
The Fed has always held the goal of a 2 % inflation rate as sacrosanct. I would imagine that the Fed will raise its target to 3% and maybe even 4 %. Watch for it.
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Bipartisanship in increasing the debt.
(https://pbs.twimg.com/media/FuE_1ExXoAEwkfo?format=png&name=medium)
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interesting chart
tend up no matter who is president
or in the houses
those who say we can grow our way out of it have been wrong
for many decades now.
the more we grow the more we spend
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interesting chart
tend up no matter who is president
or in the houses
those who say we can grow our way out of it have been wrong
for many decades now.
the more we grow the more we spend
It's almost like we aren't voting our way out of this...
Anything that can't go on forever, won't.
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(https://pbs.twimg.com/media/FuMjwwVXwAEXCH_?format=png&name=medium)
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I've been in France for three months now. Their approach to this is simply fantastic.
I'd like to share a bit about it.
A very well known supermarket here decided to go cashless.
A group of 50 people got together and agreed that they would all do a big shop on the same day. Pilling their trolleys to the brim and each person getting to the checkout - the human check out, not the machines - and having everything scanned before bringing cash out.
The staff were absolutely overrun. There management in a complete tizz, everyone repeatedly, calmly and in a very organised and polite fashion acting as if they knew nothing. No edges, no rudeness, no humiliation.
The supermarket reinstated cash.
.....
Petrol stations : filling up with fuel then only having cash to pay.
......
Restaurants : groups of friends going out for dinner and nobody taking phones or credit cards, only cash ...
.....
They are doing it in every single area of France. Simply refusing to be part of it.
*** Edit
The reason it works is because it's organised in large groups. One person here and another there doesn't work. It needs to be really carefully constructed.
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Who is "I"?
Is there any way we can apply this to electric cars?
what if the Dems make gas cars illegal ?
What about people buying essentials such as food?
it is almost like fight of chicken
stores refusing cash , buyers refusing to pay cash
who gives in first.
Just trying to think through this strategy
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Tweakers are on it already.
https://insideevs.com/news/566070/tesla-supercharger-cables-cut-stolen/
The EVs the left loves can only exist in a low crime, high trust society with a functioning grid, all things the left is working to destroy.
Funny how that works.
Who is "I"?
Is there any way we can apply this to electric cars?
what if the Dems make gas cars illegal ?
What about people buying essentials such as food?
it is almost like fight of chicken
stores refusing cash , buyers refusing to pay cash
who gives in first.
Just trying to think through this strategy
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from my post above I wrote :
"buyers refusing to pay cash"
I meant buyers to refuse paying other then by cash
sorry
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from my post above I wrote :
"buyers refusing to pay cash"
I meant buyers to refuse paying other then by cash
sorry
It’s all about numbers. The left does it all the time, we can too.
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While in $ terms, BTC is still down (tho rising), see how some other nations with weak currencies value it. Below are the official rates, actual rates might be higher.
(https://pbs.twimg.com/media/FuJjHz3WwAAxWVb?format=jpg&name=900x900)
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https://www.breitbart.com/politics/2023/04/27/argentina-shuns-u-s-dollar-will-pay-for-china-imports-in-yuan/
CD
has Scott Grannis given his. opinion about the yuan replacing the US dollar or at least competing with it for now ?
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https://scottgrannis.blogspot.com/
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thnx
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FWIW, Marty Armstrong thinks inflation will remain stubbornly high..with stagflation in the cards.
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It would appear we have an experiment underway haha.
For the record my analysis is that SG is right on the monetary side of things, but supply chain issues will push prices up. The latter will be called inflation but it is not. It is a price increase.
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https://www.yahoo.com/finance/news/white-house-issues-report-justifying-001338202.html
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MILLION!
https://finance.yahoo.com/news/a-fix-for-the-banking-bust-is-coming-into-view-200130939.html
:roll:
the full faith and credit of the US government [ 32 trill in debt ] not withstanding....
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JOB GROWTH SMASHES EXPECTATIONS
BLACK UNEMPLOYMENT RECORD LOW!!!!!!!!!!
"The unemployment rate was 3.4% against an estimate for 3.6% and tied for the lowest level since 1969 (what the heck is this - it is not the lowest rate if 54 yrs ). A more encompassing number that includes discouraged workers and those holding part-time jobs for economic reasons edged lower to 6.6%."
" Despite serious banking industry troubles, jobs in finance increased by 23,000. Government hiring rose by 23,000."
HERE COMES from the mouth of KJP - WE HAVE THE LOWEST UNEMPLOYMENT SINCE 1969!!!!!!
"April’s upside surprise was offset by sharp downward revisions in previous months. March’s count was slashed to 165,000, down 71,000 from the initial estimate, while February fell to 248,000, a reduction of 78,000. Also, the household survey, which is used to calculate the unemployment rate, showed a softer total jobs gain of 139,000."
AS USUAL - MANIPULATE THE DATA TO GET DESIRED HEADLINE
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MILLION!
https://finance.yahoo.com/news/a-fix-for-the-banking-bust-is-coming-into-view-200130939.html
:roll:
the full faith and credit of the US government [ 32 trill in debt ] not withstanding....
Make everyone too big to fail!
What could go wrong?
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JOB GROWTH SMASHES EXPECTATIONS
BLACK UNEMPLOYMENT RECORD LOW!!!!!!!!!!
"The unemployment rate was 3.4% against an estimate for 3.6% and tied for the lowest level since 1969 (what the heck is this - it is not the lowest rate if 54 yrs ). A more encompassing number that includes discouraged workers and those holding part-time jobs for economic reasons edged lower to 6.6%."
" Despite serious banking industry troubles, jobs in finance increased by 23,000. Government hiring rose by 23,000."
HERE COMES from the mouth of KJP - WE HAVE THE LOWEST UNEMPLOYMENT SINCE 1969!!!!!!
"April’s upside surprise was offset by sharp downward revisions in previous months. March’s count was slashed to 165,000, down 71,000 from the initial estimate, while February fell to 248,000, a reduction of 78,000. Also, the household survey, which is used to calculate the unemployment rate, showed a softer total jobs gain of 139,000."
AS USUAL - MANIPULATE THE DATA TO GET DESIRED HEADLINE
https://www.patheos.com/blogs/nosacredcows/2018/09/study-confirms-most-people-share-articles-based-only-on-headlines/
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https://www.zerohedge.com/economics/establishment-economists-are-finally-realizing-its-time-pay-piper
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Paul Krugman
we here about his Nobel Prize
do we ever hear about how many times this leftist is wrong?
like article points out no accountability for economists
just like Fed and SEC people
who create problems then never get fired
like Barney Frank who along with along with Dodd ( and Clinton)
helped create the '08 crash
suddenly appointed the man to fix it
with of course zero accountability and no mention of it by MSM
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Paul Krugman
we here about his Nobel Prize
do we ever hear about how many times this leftist is wrong?
like article points out no accountability for economists
just like Fed and SEC people
who create problems then never get fired
like Barney Frank who along with along with Dodd ( and Clinton)
helped create the '08 crash
suddenly appointed the man to fix it
with of course zero accountability and no mention of it by MSM
It's how they control the masses and give the illusion of choice.
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https://www.zerohedge.com/commodities/texas-committee-passes-bill-create-100-reserve-gold-and-silver-backed-transactional?utm_source=&utm_medium=email&utm_campaign=1469
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https://www.zerohedge.com/commodities/texas-committee-passes-bill-create-100-reserve-gold-and-silver-backed-transactional?utm_source=&utm_medium=email&utm_campaign=1469
Contingencies need to be in place for the collapse of the FUSA/OGUS.
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texas to pass silver and gold backing
wow
time to load up ?
of course the Feds do not need this - first
not enough gold in the world to cover our debt at least according to quick google search :
https://goldsurvivalguide.co.nz/how-much-all-gold-in-world-worth/#:~:text=Therefore%20the%20calculation%20would%20be,this%20calculation%20in%20March%202021.
and second - we don't need to do this because we have the full faith and credit of the US to back it up AND we have world class gem economists such as Paul Krugman
(sorry I know my posts have too much sarcasm but it is an emotional outlet of the anger I feel from what is happening - akin to Great One's Mark Levin who is also so angry )
we need more debt is the answer :
https://www.breitbart.com/politics/2023/05/07/panel-in-california-a-free-state-birth-recommends-reparations-apology-for-slavery/
sorry this ain't happening ....!
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A small bit of gold and silver in small coins (incuding junk silver) is a good idea. Far more important is guns, ammo and food, along with beans and bandages in a survivable location.
texas to pass silver and gold backing
wow
time to load up ?
of course the Feds do not need this - first
not enough gold in the world to cover our debt at least according to quick google search :
https://goldsurvivalguide.co.nz/how-much-all-gold-in-world-worth/#:~:text=Therefore%20the%20calculation%20would%20be,this%20calculation%20in%20March%202021.
and second - we don't need to do this because we have the full faith and credit of the US to back it up AND we have world class gem economists such as Paul Krugman
(sorry I know my posts have too much sarcasm but it is an emotional outlet of the anger I feel from what is happening - akin to Great One's Mark Levin who is also so angry )
we need more debt is the answer :
https://www.breitbart.com/politics/2023/05/07/panel-in-california-a-free-state-birth-recommends-reparations-apology-for-slavery/
sorry this ain't happening ....!
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Frankly I suspect that somehow this bill will not get across the finish line to becoming law; I take it as an indicator of pressures building up.
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Frankly I suspect that somehow this bill will not get across the finish line to becoming law; I take it as an indicator of pressures building up.
The funny part of the elites crashing the US, is they think they can impose control on it's reformation.
It will be broken into many pieces, but "Live free or die" won't end.
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https://foreignpolicy.com/2011/10/28/the-shadow-superpower/
This probably what will be operating here while they try to impose CBDC.
Plan accordingly.
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Interesting.
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If someone wishes to understand the BTC halving and its implications in 2024/2025...
https://www.onceinaspecies.com/p/bitcoins-halving-is-less-than-a-year (https://www.onceinaspecies.com/p/bitcoins-halving-is-less-than-a-year)
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Arthur Hayes..
https://blog.bitmex.com/the-denominator/ (https://blog.bitmex.com/the-denominator/)
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If anyone uses Ledger hardware wallet, best to move to another wallet. You could lose your coins.
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seems every "crises " the strong just get stronger:
https://www.wsj.com/articles/americas-biggest-bank-is-everywhereand-it-isnt-done-growing-5ff18360
like the real JPM at the turn of the 19-20th century
the Feds go to when help needed
anyone see problems?
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https://www.breitbart.com/politics/2023/05/21/ap-poll-most-americans-only-want-debt-ceiling-raised-deficit-conditions/
Is McCarthy winning the public perception battle?
MSM must be pissed - they are left asking why didn't Trump do this ? the Straw man defense.....
Biden obviously knows they will carry his water but maybe THIS TIME it won't work
if true wow - there is a God and "he" (excuse me - "she" ; excuse me "they" ) are on our side
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We are in early into the mid-game and I could be wrong, but IMHO so far McCarthy is surprising to the upside.
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https://www.theburningplatform.com/2023/05/24/doug-casey-on-the-death-of-privacy-and-what-comes-next/#more-303698
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Webserver down at the moment.
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https://finance.yahoo.com/news/u-presidential-candidate-ramaswamy-takes-211928829.html
of course Democrat partisan propaganda yahoo finance displays Ram's criticism of DeSantis about BTC (get DeSantis ! NOW)
where as the real story is :
https://www.cbsnews.com/news/gop-presidential-candidate-vivek-ramaswamy-bets-big-on-bitcoin-in-2024-race/
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Vivek is an interesting guy. I hope he generates some attention , , , unless it leads to Trump getting the nomination , , , ugh.
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https://media.gab.com/cdn-cgi/image/width=852,quality=100,fit=scale-down/system/media_attachments/files/138/808/990/original/0d39be7edfaa9a4f.jpeg
(https://media.gab.com/cdn-cgi/image/width=852,quality=100,fit=scale-down/system/media_attachments/files/138/808/990/original/0d39be7edfaa9a4f.jpeg)
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https://www.nytimes.com/2023/05/29/business/debt-ceiling-agreement.html
"Jan. 2025. Suspending the debt limit for a period of time is different than setting it at a new fixed level. It essentially gives the Treasury Department the latitude to borrow as much money as it needs to pay the nation’s bills during that time period, plus a few months after the limit is reached, as the department employs accounting maneuvers to keep up payments.
That’s different than the bill passed by House Republicans, which raised the limit by $1.5 trillion or through March 2024, whichever came first."
:x :x :x
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The destruction of the FUSA has been a bipartisan effort.
https://www.nytimes.com/2023/05/29/business/debt-ceiling-agreement.html
"Jan. 2025. Suspending the debt limit for a period of time is different than setting it at a new fixed level. It essentially gives the Treasury Department the latitude to borrow as much money as it needs to pay the nation’s bills during that time period, plus a few months after the limit is reached, as the department employs accounting maneuvers to keep up payments.
That’s different than the bill passed by House Republicans, which raised the limit by $1.5 trillion or through March 2024, whichever came first."
:x :x :x
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what is "FUSA"
?
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what is "FUSA"
?
Fallen/Failed USA
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on BTC halving April '24:
https://www.forbes.com/sites/digital-assets/2023/05/31/jpmorgan-reveals-900-billion-gold-based-implied-bitcoin-price-alongside-an-ethereum-upgrade-prediction-warning/?sh=2388c2af2010
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Must read, Arthur Hayes. It is dense reading, but worth the 15-20 min.
https://cryptohayes.substack.com/p/patience-is-beautiful (https://cryptohayes.substack.com/p/patience-is-beautiful)
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Well worth a listen, on BTC cycles.
https://youtu.be/AsT55mpG_G0 (https://youtu.be/AsT55mpG_G0)
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And then they fight you.
(https://pbs.twimg.com/media/FyJcxmwXgAQO_8C?format=png&name=medium)
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Blackrock files for a redeemable spot BTC "ETF" Trust Gary Gensler will probably approve.
https://twitter.com/BitcoinMagazine/status/1669449336642588672/photo/1 (https://twitter.com/BitcoinMagazine/status/1669449336642588672/photo/1)
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THAT IS the option
yet boomer news
a supposed finance economic stock business news company
does zero to offer the support for the clear and present danger we are in if government does nothing :
https://www.yahoo.com/finance/news/major-cuts-social-security-back-154637458.html
BTW : this is where I got the nick name "boomer"
https://en.wikipedia.org/wiki/Ron_Blomberg
I remember listening the Yanks games on radio and reading the daily box scores
boomer was their best pitch hitter
over .300
at the time
the rest of the team was not so good
post Mantle
Murcer , a good solid ballplayer could never live up to the Mantle comparisons
Thurman Munson was just getting started
back in '69 to '72 era
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If you have been wondering why BTC is making moves. Here's a good explainer on the proposed Blackrock BTC ETF.
https://twitter.com/i/status/1669849717679742977 (https://twitter.com/i/status/1669849717679742977)
The thinking is, the market opens up for Institutional investors to get exposure to BTC, which many are not allowed to purchase for various reasons. Below is how Gold behaved, once the ETF was approved. With the upcoming BTC halvening in April 2024, this is likely to be very bullish, if approved.
(https://pbs.twimg.com/media/Fyx0GvhWcAIqBF4?format=jpg&name=medium)
You may also want to listen how Larry Fink from BlackRock lied, before they were ready to roll out the ETF. https://twitter.com/i/status/1669817373627408385 (https://twitter.com/i/status/1669817373627408385)
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:-o
Bidenomics ->
https://www.msn.com/en-us/news/politics/federal-debt-to-soar-cbo-predicts-despite-gop-led-spending-standoff/ar-AA1db0Rq
how high does it have to go before libs msm begin to make this a topic worth of discussion
their response - make the rich pay
more taxes
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Those with a longer time horizon, may want to consider a 1-5 % allocation to BTC. In recent times Blackrock, Fidelity etc with 27 Trillion in assets have filed for a spot BTC ETF. If it gets approved, BTC is expected to sky rocket. the earliest date for approval is 45 days and latest is 240 days, or Feb 2024 just before the BTC halving.
Pl. do your own research, BTC is volatile with 85 % downdrafts!!
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1 BTC=465 mill Lebanese Pounds, Slowly then Suddenly.
(https://pbs.twimg.com/media/Fz3TgoLWAAAKDCI?format=jpg&name=medium)
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watch first 2.21 minutes:
https://www.foxnews.com/video/6330468200112
As if Jimmy Carter ran on "Jimmynomics" :wink:
So the left that bashed "dumb" Reagan with the term Reaganomics
now tries to emulate that with Bidenomnics
Joe, your no Reagan .
Ask yourselves, are you better off now after 4 yrs of Biden?
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Haven't watched this yet, , ,
https://www.aier.org/article/liberty-curious-with-kate-wand-and-tom-hogan/
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Watch this, if interested in BTC. eye opening
https://www.youtube.com/watch?v=AsT55mpG_G0 (https://www.youtube.com/watch?v=AsT55mpG_G0)
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Impressive thread on BTC
https://twitter.com/olvelez007/status/1681795705608781824 (https://twitter.com/olvelez007/status/1681795705608781824)
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https://thepointsguy.com/news/credit-card-competition-act/
this will save merchants a bit
but consumers will not see benefits and may lose rewards programs
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Seems like quite recently gold was threatening to go below $1800 and now I see it above $2000.
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https://finance.yahoo.com/news/desantis-stakes-out-a-spot-as-the-chief-anti-fed-and-pro-crypto-candidate-for-2024-105133991.html
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https://finance.yahoo.com/news/desantis-stakes-out-a-spot-as-the-chief-anti-fed-and-pro-crypto-candidate-for-2024-105133991.html
Good.
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Stablecoins Can Keep the Dollar the World’s Reserve Currency
Blockchain-based assets could be to finance what Voice of America has been to U.S. diplomacy.
By Brian P. Brooks and Charles W. Calomiris
Aug. 9, 2023 12:35 pm ET
Stablecoins, blockchain-based assets backed by bank deposits and Treasury securities, are at the heart of a dollar-based revolution happening throughout the developing world. Their price is supposed to stay steady, often at $1. Think of them as digital versions of prepaid cards with the potential to be important tools of American soft power in a world where the role of the dollar is in question.
Stablecoins aren’t merely a more efficient means of electronic payments. With some economists and policy makers worrying about “de-dollarization”—the eclipse of the U.S. dollar the world’s reserve currency—stablecoins could bolster the postwar arrangement in which the dollar’s dominance helped foster global trade and the biggest reduction in global poverty ever. But that can happen only if Congress implements a sound and stable regulatory framework.
That is why House Financial Services Committee Chairman Patrick McHenry’s bill to regulate stablecoins is vital. It would establish federal and state oversight for stablecoin issuers, impose qualifications for reserve assets, and implement rules on redemptions and public disclosure. It’s hard to argue with these seemingly bipartisan goals, and Mr. McHenry (R., N.C.) had collaborated on the bill with Rep. Maxine Waters (D., Calif.) for more than a year. Yet at last week’s vote on the measure, Ms. Waters and most of her Democratic colleagues pulled their support, with no clear reason for the sudden change of heart. Did they suddenly decide stablecoins aren’t important?
Any tool that could boost the U.S. dollar should be considered. Dollars as a share of reserves held by foreign central banks have fallen in the past generation. In 2000 dollars represented almost 73% of global central bank reserves; today the share is around 59%. Though much international trade and many commodity transactions are still settled in dollars, this year large countries including Brazil and Argentina entered bilateral agreements with China to use the yuan and their local currencies for trade settlement.
Rumors abound that a summit next month including Brazil, Russia, India, China and South Africa will consider creating a new currency arrangement. While leaders of the so-called Brics countries deny an impending currency union, Anil Sooklal, South Africa’s ambassador-at-large for Asia and Brics, said “the days of a dollar-centric world” are “over” and Brics nations intend to settle trades in their local currencies in the near future. This year, Saudi Finance Minister Mohammed al-Jadaan said Riyadh is open to settling oil trades in currencies other than dollars—once an unthinkable idea.
U.S. policy hasn’t boosted global confidence in the dollar.. The asset freeze on dollar holdings in Russia’s central bank imposed after Russia invaded Ukraine, while understandable politically, shocked investors and central bankers, who realized for the first time that the dollar may not be the safe store of value it once was.
A de-dollarized world would damage the U.S. The dollar’s reserve status reduces U.S. borrowing costs, which is crucial in an era when government borrowing and spending are at a record high and still climbing. Reserve status also insulates the U.S. government, banks and the general public from foreign-exchange risk. All things being equal, reserve status also allows American consumers to buy foreign goods more cheaply, since foreign producers would rather have dollars than other currencies.
The nationalist and anticolonialist impulses behind de-dollarization in the developing world aren’t likely to help citizens of those countries. Argentina’s decision to price trade deals with China in yuan and pesos may reflect Argentina’s national pride, but the country’s 114% annual inflation rate means that workers there will still see their purchasing power quickly decline. And that’s nothing compared with Zimbabwe’s 175% rate or Venezuela’s 400%. At the end of last year, 17 countries had inflation rates above 20%, and 57 had rates above 10%.
This is where stablecoins come in. Faced with the dismal prospect of saving their wages in local currency stored in local bank accounts, more citizens of high-inflation countries are opting to use dollar-backed stablecoins as a synthetic savings account. Dozens of startups offer stablecoin savings and payment options in Latin America and Africa—often in countries whose leaders are vocally and visibly moving away from the dollar.
Dollar-backed stablecoins have market capitalizations in the hundreds of billions of dollars, and they support transaction volumes many multiples of that amount. These offerings are attractive to ordinary people in those countries because they don’t require an account at a local bank, only an internet connection. In addition, many stablecoins pay interest and have no minimum-balance fees and low or no transaction fees. Most important, they free people from tyrannical developing-world monetary policy and allow them to store the value of their hard work in relatively stable dollar form.
Stablecoins could be to finance what Voice of America has been to diplomacy. They can communicate U.S. monetary policy directly to the people living in other countries, when American efforts to engage other governments aren’t succeeding. If stablecoins flourish, citizens of other countries will increase the demand for dollars independent of (and perhaps contrary to) their governments’ political decisions. But for stablecoins to succeed, U.S. politicians need to agree that re-dollarizing the global economy is important.
The McHenry bill is a good place to start.
Mr. Brooks is a partner at Valor Capital Group. He served as acting U.S. Comptroller of the Currency, 2020-21, and was chief legal officer of Coinbase, 2018-20. Mr. Calomiris is dean of economics, politics and history at the University of Austin. He served as chief economist of the Office of the Comptroller of the Currency, 2020-21.
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Bitcoin ETF is coming, before Feb 2024. When it comes, there will be a God green candle.
(https://pbs.twimg.com/media/F3KVpL0XAAEqfNn?format=jpg&name=medium)
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August 14, 2023
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Why Russia Wants a Digital Ruble
The benefits are particularly enticing as its traditional currency weakens.
By: Antonia Colibasanu
Last week, the Bank of Russia's first deputy chairman said that Moscow will soon begin to test digital ruble transactions and that the clients of participating banks will be able to apply to engage in real-world testing. This follows legislation passed in July that designated Russia’s central bank as the operator of the digital ruble platform.
What Are Digital Currencies?
Little has changed in the way people pay for goods today compared to centuries ago. Currency is simply an object-based payment that holds a universally accepted value. At a base level, the biggest difference between then and now is the ubiquity of transferring a claim on value existing elsewhere – that is, swiping our debit or credit cards to send information to our banks that we wish to purchase something. That action is the simplest form of digital money – what the International Monetary Fund calls “b-money” – issued by a commercial bank and covered by deposits. This is the only kind of digital money that is guaranteed and fully regulated by central banks (insofar as central banks regulate commercial banks).
(click to enlarge)
All other digital currencies are claim-based payments. “I-money” is issued by private investment funds. “E-money” is issued by private sector providers. Cryptocurrencies are issued publicly, by private individuals or private sector providers. And so on. Importantly, the technology used to settle payments differs from one currency to another. B-money settlements are centralized – meaning transactions go through a central proprietary server. If you pay by debit or credit card, your name and other information will be known to the shop and banks involved in the transaction. Other digital money payments may be centralized, or they may be decentralized and settled among several servers. The servers themselves can be public or private.
All object-based payment settlements are decentralized; no one needs to know your name when you pay for, say, a coffee with cash. And though object-based payments can’t be “guaranteed” by a financial institution – a bank can’t help it if you steal a coffee without paying – they are “guaranteed” by government regulations and business norms.
Claim-based payments, on the other hand, must be guaranteed, and the practice of doing so is hardly new. During the Renaissance, merchants traveled with letters of credit issued by their banks instead of giant bags of gold. By issuing a letter of credit, a bank guaranteed the redemption of payments. New technologies simply speed up this process. Cash is useful because it’s known, it’s issued by a central bank, and payments are settled in a decentralized fashion. Credit or debit cards are useful because payments are guaranteed by rules and regulations. Cryptocurrencies and other digitalized methods of payment are preferred by those who want to rely on business norms and innovation to guarantee payment. They are usually considered riskier by those who trust the banking system. Importantly, crypto and other digital currencies are more of an asset than a traditional currency, in the sense of instruments for settling payments (and are treated as such in capital markets).
What Are Central Bank Digital Currencies?
A central bank-issued digital currency, on the other hand, is essentially a digital version of the cash central banks offer, holding many of the same attributes as the cash issued by central banks, with the obvious exception that the holder of the CBDC would be sharing data. In other words, the central bank would be responsible for selecting and developing the technology used for settling payments. All transactions would go through either the central proprietary server or, with the help of blockchain technology, a trusted few servers. Digital currencies are a fundamental rethinking of payment processes, one in which the central bank alone manages all its customers’ data. Holding central bank-issued digital currency is similar to holding currency bills except that your identity and what you do with the digital currency would be known to the central bank at all times.
CBDCs have some undeniable advantages for issuers. For one, they are more efficient than traditional currencies; they cost nothing to “print” and are apparently more difficult to forge. For another, CBDCs make it possible for the government to know all transactional information of digital currency holders. Instead of keeping actual currency, holders would have digital currency units. Like cryptocurrencies, CBDCs would be built on blockchain technology, but unlike crypto they would be controlled by central banks or governments. Governments would therefore need to adopt new ethics and standards, especially since CBDCs would provide some policy incentives central banks haven’t had. Consider a hypothetical situation. A government could, say, bring its country out of recession by putting digital money into everyone's accounts. It could be programmed to have an expiration date, forcing holders to spend it faster than they otherwise would to goose growth. CBDCs would also give governments a valuable tool with which they could manipulate inflation by making it easier for them to impose negative interest rates and financial repression.
According to a report issued by the Atlantic Council at the end of 2022, some 130 countries representing 98 percent of the world economy are now considering digital versions of their currencies. More than half are in advanced development, pilot or launch stages. China is leading the charge with the implementation of its own CBDC called the CN-Y. The United States, the eurozone and others are investigating the issues raised by digital currency, including data privacy issues and the technological consequences. In some emerging economies, a dependence on developed economies and the complexity of cross-border payments that may result from the use of CBDC have stalled similar measures.
Those who oppose CBDC measures tend to focus on privacy issues – that the government will be able to observe every transaction and could not only crack down on tax evaders but also implement certain policies without necessarily having a political mandate to do so. (Currently, central banks implement monetary and fiscal policy, after consulting with governments, which are generally accountable to parliament and, ultimately, the voters. CBDC would incentivize central banks to become creative in applying corrective measures without necessarily notifying the public each time corrections are made.) The degree of control given to the government and the way technology may enforce or avoid it has stalled the progress of CBDC in most developed countries.
CBDCs could also cause disintermediation; CBDC holders would effectively have accounts directly with the central bank instead of commercial banks. In other words, the authority commercial banks once held would be given to central banks and, ultimately, to governments. Every aspect of every transaction could be tracked in real-time, which is particularly problematic in countries with bad human rights records. And governments could freeze the wallets of people they deem to be threats.
For its part, Russia is going forward with digital currency not necessarily because it wants to abuse CBDCs. The global economic war and Western sanctions against it have left the government with fewer options to manage its economic affairs. CBDCs would, in theory, make it a lot easier and cheaper for the central bank to lower inflation. As an early adopter of blockchain, Moscow already has a lot of the necessary technology in place to effectively rethink banking.
Moscow also has the advantage of working with China, the most advanced country in the world with regard to central bank-issued digital currency, and of being severed from SWIFT. There’s opportunity in every crisis, so the fact that the ruble is weakening so much is likely the best chance the government will get to introduce a digital currency and centralize the Russian financial system. But rethinking and restructuring a national financial infrastructure is no easy job, and it won’t be achieved overnight.
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The GBTC's case against the SEC is expected to get a decision soon, over the next couple of months. SEC is expected to lose, that will open up the way for GBTC to convert to an ETF. Earliest that this ruling could come is today at 11 am.
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Here are the possible BTC ETF approval dates. Blackrock is the most important one. Latest by March 15 2024, just in time for the halving in April 2024. I cannot imagine that the ETF will not be approved. People in the know are watching Jan 10, 2024 when the Ark ETF is due, at which point the SEC could approve enmasse, or in the next 45 days or so when the GBTC court decision is due, which could also force the SEC to take a lenient stance. 3 current US Presidential candidates, plus the one in Argentina are strong supporters of bitcoin.
A BTC ETF could send the price soaring..
(https://pbs.twimg.com/media/F3l77hVW8AEREKc?format=png&name=900x900)
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For those thinking of placing a bet, what would be the best way to play?
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The simplest is to buy BTC and hold. If ETF is approved, it will go to above 100K quickly. If it is not approved, that would mean BlackRock has been denied, perhaps the second time. They have a record of roughly 565 approvals to 1 denial so far. In this instance, BTC will rise after the halving in April 2024-2025. Options, futures etc are losing propositions.
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Pl. also see this and the links in it. Just buying and holding is required.
https://www.onceinaspecies.com/p/bitcoin-wrecks-your-hurdle-rate (https://www.onceinaspecies.com/p/bitcoin-wrecks-your-hurdle-rate)
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https://www.cnn.com/2023/08/18/investing/bitcoin-price-drop-space-x-selloff/index.html
seems to be going down
due to what ?
rising interest rates?
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Thank you YA.
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August 22, 2023
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The Future of the BRICS
The grouping has lofty goals but little to back them up.
By: Antonia Colibasanu
On Aug. 22-24, members of the BRICS grouping will hold a summit in Johannesburg. They’re expected to discuss two key issues: enlargement and the possibility of adopting a common currency. Both issues are critical to the future of this partnership of five large developing nations: Brazil, Russia, India, China and South Africa. Discussion of these two issues in particular is meant to validate the group as an international force, though little progress has been made so far on either front. Views on the grouping’s future trajectory differ according to one’s perspective. Some believe it will play a growing role in international affairs as the West declines, while others see it as largely irrelevant given the lack of convergence on key political and economic concerns among its members.
To understand how the grouping could develop in the future, we need to first understand how it got here. In 2001, former chief economist at Goldman Sachs Jim O’Neill first coined the term “BRICs,” which at the time did not include South Africa, to describe growing markets that he predicted would eventually surpass the West. At the time, the countries didn’t see a need to form a formal bloc to promote cooperation among them. It was only in 2009 that Russia hosted the first BRIC summit and declared that the 2008 global financial crisis was proof that the world’s top emerging economies needed to collaborate to prevent the West from controlling the destiny of the global economy and their own development. It’s important to note that 2008 was also the year that Russia invaded Georgia, announced its dissociation from the Western values system, and began trying to restore power over former Soviet states while cultivating allies in Asia and beyond. From Russia’s perspective, the BRICs became an anti-Western political platform that it wanted to support.
Amid the global economic downturn, China, too, saw a need to decrease its dependence on Western markets and, in particular, on the U.S. dollar. It saw the BRICs as a venue through which it could diversify its trade portfolio. Brazil and India, meanwhile, saw an opportunity to influence global politics and promote their own perspectives on the global stage. Each member, especially China and Russia, saw Africa as the key continent through which it could diversify away from the West. Thus, they invited South Africa to join the grouping in 2010.
As time went on, China’s focus increasingly became monetary policy. In 2015, China supported the creation of the BRICS’ two economic institutions, the Contingent Reserve Arrangement and the New Development Bank, which were meant to be alternatives to the International Monetary Fund and the World Bank. China is the main source of funds for the CRA and holds 40 percent of its voting rights. Also in 2015, it launched its own yuan-based interbank messaging and settlement system, called the Cross-Border Interbank Payment System, to reduce use of the dollar in its economy and promote the yuan as an international currency.
The focus on de-dollarization grew in 2022 as increased commerce between Russia and China, combined with Russia’s financing of a parallel trading system, led to growth in the share of the yuan in the Russian financial market. Sanctioned by the West, Russia pivoted to China, adopting the yuan as one of its primary currencies for international reserves, overseas trade and even some personal banking services. At the same time, Russia needed to expand its influence abroad to gain access to alternate trade routes. While China is the economic leader of the grouping, Russia is its political leader. It’s therefore only natural that the BRICS discuss the potential for establishing a common currency and expansion now, more than a year after the global economic war started following Russia’s invasion of Ukraine and the West’s imposition of sanctions on Moscow.
It's important to note, however, that decreased use of the dollar over the past year was a result not of Russia choosing to use the yuan over the dollar but of U.S. measures to make the dollar less available to the Russian market. De-dollarization, as a policy rather than a reaction to Western sanctions, could be achieved only if the BRICS adopt a common currency – something similar to the euro, which was launched in 1999 by participating European Union members. However, introducing a new currency doesn’t just require issuing bank notes and declaring them ready for use. It requires genuine economic convergence among participating nations through a common market – which will be prohibitively difficult for the BRICS to establish considering the deep divergences among their economies. They lack a common economic structure and governance system. They don't even occupy the same continent, let lone share borders. Developing an efficient common market would require building new infrastructure, including security and insurance systems to protect trading routes, which is nearly impossible for the BRICS because none of its members are global naval powers.
More fundamentally, sharing a currency also requires participants to have a high degree of trust in one another so that they can set the rules for the currency’s issuer – an institution that they jointly coordinate (like the European Central Bank). Users of the dollar and the euro trust that the issuers of these currencies will print enough bills to guarantee payment and ensure access and convertibility. This level of trust isn’t apparent among the BRICS, and it is unclear how a common currency would be issued.
It is clear, however, that BRICS countries would not agree to adopt an existing currency of one of their fellow members. Though India has reportedly used the Chinese yuan in trading with Russia, only some oil refiners have been willing to make payments this way so far. The yuan is not freely convertible on the global foreign exchange market, making its availability a subject of Beijing’s policies. Russia’s central bank currently has to ask Beijing for permission to make any large transactions in yuan – which India’s central bank is unlikely to do any time soon. Ongoing disputes between Beijing and New Delhi on a number of issues will make coordination on anything very difficult.
Since "yuanization" isn't a possibility for the BRICS, adopting a new currency seems to be the only way members can supplant the dollar. Though the possibility has been widely discussed in the media, there’s no indication of any progress being made. Several key questions remain unanswered. What would it take for India and China to work together so closely that they would integrate their economies? What would it take for Russia, Brazil and South Africa to integrate with them? What economic interests do they share? And given that none of the BRICS countries have convertible currencies, how would a financial institution create a BRICS coin and guarantee its availability to international businesses and individuals?
Thus, even Russia, which has been the biggest BRICS advocate, says creating a unified currency is a long-term goal. But even this seems like wishful thinking. It’s unlikely that BRICS members can resolve their differences and build enough trust to issue a single currency. In fact, they don’t appear to share anything more than a distrust of the West – and even on this, they aren’t completely unified.
Membership expansion is another issue on which the grouping is looking for consensus. Members have discussed the possibility of a BRICS+ since 2017, and China raised the issue last year while hosting the BRICS summit. According to one South African official, 23 countries have officially requested to join the BRICS, while 40 have informally expressed interest in membership. This may seem like an impressive amount of potential members, but formal accession is complicated because there’s no official process for joining, except by invitation by all member states, as happened with South Africa in 2010.
With a war raging in Ukraine, enlargement now seems more urgent. With Western countries no longer willing to do business with Russia, Moscow has looked to expand its influence in countries that have remained neutral on the war, including through the BRICS, which was meant to serve as a platform through which members could exert influence internationally from the beginning. Neutral countries have reaped the rewards of lobbying efforts from both sides, making statements about the need for calm while also using this as an opportunity to advance their strategic positions.
In Moscow’s lobbying push, its fellow BRICS members were a natural place to start. In addition to increasing trade with China, Russia improved ties with Brazil, which it saw as a potential new market for its fertilizers and oil products. Trade between the two countries increased by at least 7 percent in 2022, facilitated in part by China, which transported goods between both nations, mostly by rail.
Over the past five years, trade between Brazil and China has also increased. Brazil took advantage of China’s trade tensions with the United States by boosting exports, especially of food products, to its BRICS partner. Still, it remains heavily dependent on the U.S., which is a major market for Brazil’s high value-added goods. It’s also the top foreign buyer for Brazil’s mining sector, which accounts for 50 percent of the country’s overall exports and about 3 percent of the total labor force.
Meanwhile, Russia also found a key alternate market (and route) for its oil in India. India has purchased discounted Russian oil for its own domestic use while also becoming a sort of conduit for Russian energy exports to reach Western markets despite sanctions. Moscow’s plans to invest in port infrastructure in India as part of the North-South Transport Corridor could help in this regard.
But no matter how much Russia works to develop their economic ties, India, like Brazil, is still reliant on the United States as its top trade partner, as well as its main strategic ally. New Delhi is a member of the Quad security grouping – which includes the U.S., Japan and Australia. From a security perspective, then, India’s relationship with Russia can only go so far. It needs the U.S. (and the West more broadly) to secure shipping lanes in the Indian Ocean, on which its economy depends.
Moreover, the BRICS countries’ support for enlargement is divided. For instance, while all five countries agreed to discuss Argentina’s potential membership, Brazil reportedly opposes discussing any further expansion. Like India, Brazil wants to maintain close ties with the U.S., while seeking to improve its ties with Europe. It uses the BRICS to voice its stance on global affairs, but it fundamentally follows a non-alignment strategy, while focusing on its top imperative: to integrate its own northern and southern regions and achieve socio-economic stability.
Courted by the U.S., China and Russia, Brazil, India and others in the Global South see an opportunity to improve their posture globally. However, their chronic domestic instability limits their capacity to capitalize on current opportunities, which are themselves rapidly shifting. Moreover, even if the BRICS are pursuing coordination more actively now than in the past, most meaningful interactions among BRICS members and with potential new members are taking place at a bilateral level. With their relationships limited by economic, political and security concerns, the possibility of expanding membership, just like the possibility of establishing a common currency, seems distant at this time.
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Just read this is Warren Buffetts named successor:
https://en.wikipedia.org/wiki/Greg_Abel
https://www.cnbc.com/2023/05/05/warren-buffetts-successor-greg-abel-is-wooing-shareholders.html
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https://foreignpolicy.com/2023/09/01/brics-china-russia-dollar-finance-india-south-africa/?utm_source=Sailthru&utm_medium=email&utm_campaign=Editors%20Picks%20-%2009022023&utm_term=editors_picks
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Bigger Brics Won’t Make a Stable Building
Already riven with a Sino-Indian rivalry, the group will become even less coherent by expanding.
Sadanand Dhume
Aug. 31, 2023 1:24 pm ET
Last week’s announcement that Brics—an acronym for Brazil, Russia, India, China and South Africa—will induct six new members has renewed chatter about China eclipsing the West. The new members—Iran, Saudi Arabia, the United Arab Emirates, Egypt, Ethiopia and Argentina—supposedly give Brics the heft to rival the industrialized democracies in the Group of Seven and reshape global geopolitics.
In reality, expansion will make the already incoherent group less coherent. Nothing binds the 11 nations except their self-identification as non-Western and their failure to become prosperous liberal democracies. China, the group’s putative leader, is in a protracted standoff with India, its most populous nation and second-largest economy. Adding more countries of varied interests makes it more likely that the group will remain “a formless sack of potatoes,” in the words of the Indian strategic thinker C. Raja Mohan.
The case for taking an expanded Brics seriously relies on crude tabulations of collective economic heft. The 11 Brics nations account for 46% of the world’s population and 37% of global gross domestic product (in purchasing power parity terms). This exceeds the G-7’s 30% share of GDP, though at market exchange rates the G-7 remains larger. Brics also now includes six of the world’s 10 largest oil producers and five of its top 10 oil consumers. It contains 75% of the world’s manganese reserves, 72% of rare earths and 50% of graphite.
These impressive-sounding stats feed faulty analysis. According to Julian Borger of the Guardian, Brics expansion represents “an attempt to reshape the global world order and provide a counterweight to the U.S. and its allies.” The Indian journalist Suhasini Haidar says it makes Brics “a more representative coalition of the Global South” and a “better vehicle” for global governance.
But a group that can’t even rally behind a common vision can hardly expect to rise above photo-ops and empty summitry. It certainly won’t rival the G-7, which represents nations united by both liberal democracy and economic achievement. All G-7 members share principles—none would jail someone for likening a leader to Winnie the Pooh—and the common goal of upholding a U.S.-led international order. Every G-7 state is a longstanding treaty ally of Washington’s and has figured out how to harness free enterprise to generate wealth. Japan, the least wealthy G-7 member, has a higher per capita income than any Brics country except the oil-rich U.A.E.
Brics is a weird mix of democracies (India, Brazil, Argentina and South Africa), autocracies (China, Russia, Iran, Egypt and Ethiopia), and monarchies (Saudi Arabia and the U.A.E.). The poorest Brics member (Ethiopia) has a per capita income only 3% that of the richest (U.A.E.). South Africa has trouble keeping the lights on. Iran’s thuggish clerics beat up women for baring their heads. Argentina can’t keep a lid on inflation—currently over 100%. Ethiopia just ended a brutal civil war against the rebellious Tigray region.
Sino-Indian rivalry made Brics unviable from the get-go. Three years after clashes on their disputed 2,200-mile boundary killed 20 Indian soldiers and at least four Chinese, the two nations remain at odds. Earlier this week, China released a map that showed land claimed by both nations, including the Indian state of Arunachal Pradesh, as Chinese. Indian Foreign Minister Subrahmanyam Jaishankar retorted: “Making absurd claims doesn’t make other people’s territory yours.”
In a phone interview, Gautam Bambawale, a former Indian ambassador to China, says Beijing has willfully alienated India by violating a slew of border agreements. “The Chinese are so self-centered that they don’t understand the sensitivities of others,” he says. “And even if they do, they are so steeped in realpolitik that they think India should just lump whatever they do because China is a much bigger economy.”
Unfortunately for Beijing, India sees no reason to act like a vassal state. Surging Indian nationalism may not make sense to China, but it’s very real to Indians. During last week’s Brics summit in Johannesburg, India became the first nation to land a craft on the south pole of the moon and the fourth to land on the moon at all. This month Indians celebrated as 18-year-old chess prodigy R. Praggnanandhaa advanced to the finals of the world championship, and an Indian army noncommissioned officer, Neeraj Chopra, won India’s first gold medal (in javelin) at the World Athletics Championships.
China will also struggle to turn Brics in an explicitly anti-Western direction despite the addition of Iran. Brazil and Argentina are culturally Western. Saudi Arabia and the U.A.E. depend on the U.S. for security. And India needs U.S. help to modernize its economy and narrow the large technological gap with China. “There is no way that India will allow Brics to become anti-Western,” Mr. Bambawale says.
Nobody can deny that China has emerged as a formidable rival to the U.S. But Brics seems destined to remain more a punch line than a harbinger of a new global order.
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The Census Exposes Bidenomics
Its annual report shows how inflation has gutted real household incomes.
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The Editorial Board
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Sept. 13, 2023 6:32 pm ET
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*** ONE-TIME USE *** close up shot of paystub PHOTO: GETTY IMAGES/ISTOCKPHOTO
You almost have to admire the brass of the Biden White House. The Census Bureau reported Tuesday that Americans are poorer under Bidenomics, and the President quickly changed the subject to blame Republicans for rising child poverty on his watch. As usual, too many in the press corps bought the spin.
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Mr. Biden is trying to avoid the real story, which is that the Census Bureau says median household income adjusted for inflation fell last year by $1,750 to $74,580. It is down $3,670 from 2019. Households in the fourth income quintile—those making $94,000 to $153,000—lost $4,600 in 2022 and $6,700 since 2019. Middle-class Americans who think they’re losing ground are right.
***
The reason is that inflation has outpaced the earnings growth from work. Real median earnings for full-time workers last year fell $3,620 for men and $2,880 for women despite a tight labor market that had companies paying more to attract and keep workers. The female-to-male earnings gap declined to 16% from 18% in 2019, but mainly because inflation has eroded men’s wages more than women’s. Wages in industries with more female workers such as healthcare and hospitality rose faster than those with more male workers such as manufacturing. But neither men nor women kept pace with the cost of living.
By most statistical measures, income inequality also declined last year. Even when excluding capital gains, higher earners saw a bigger drop in real incomes than Americans at the lower end. One reason is the latter group includes many seniors whose Social Security checks are adjusted for inflation.
image
PHOTO: WSJ
Real incomes at every decile were lower and income inequality was greater than in 2019. Americans in the bottom 10% of earners were 6.3% poorer last year than in 2019 while those in the top 5% saw their incomes decline 4.1%. Inflation invariably punishes lower-income Americans more than the affluent.
These numbers don’t take into account most transfer payments that Congress enacted or expanded as part of its $6 trillion in Covid relief. These include $3,200 a year in stimulus payments per adult and $2,500 per child; a $3,600 per child tax credit whether or not you paid any taxes; larger health insurance, earned income and child-care tax credits; and more generous food stamps.
These provided temporary income boosts in 2020 and 2021, but at the cost of fueling the historic inflation surge that gutted real incomes. Thus after-tax median real income last year fell $6,220 as some, but not all, Covid transfer payments lapsed. Americans with college degrees last year saw the biggest after-tax real income decline ($9,860), perhaps because they benefited most from the expanded tax credits.
Democrats passed their $1.9 trillion Covid bill in March 2021 with the goal of hooking the middle class on bigger government. But the big political surprise is that Americans weren’t thrilled with the handouts. A Hill-HarrisX poll in July 2021 found that 60% of voters, including nearly half of Democrats, thought the child tax credit expansion was too expensive and no longer needed.
Yet there Mr. Biden was on Tuesday lashing Republicans in Congress for not extending the expanded the child tax credit.
“We cut child poverty by nearly half to record lows for all children in this nation largely by expanding the Child Tax Credit,” he declared. “The rise reported today in child poverty is no accident—it is the result of a deliberate policy choice congressional Republicans made to block help for families with children while advancing massive tax cuts for the wealthiest and largest corporations.”
The child poverty rate did jump to 12.4% from 5.2% in 2021, but that is roughly the same as before the pandemic. The expiration of the expanded child credit accounted for about a quarter of the increase in the child poverty rate, though its impact was offset by an increase last year in food stamps, free school lunches and housing subsidies. Most of the increase in child poverty owed to the end of stimulus payments, inflation and higher taxes.
Mr. Biden has apparently forgotten that Republicans didn’t control either branch of Congress in 2021 or 2022. West Virginia Democrat Joe Manchin blocked an extension of the expanded child tax credit because it was estimated to cost $1.2 trillion over a decade.
And which tax cuts for the wealthy and corporations is he talking about? Maybe he’s confused and is referring to the Inflation Reduction Act’s green-energy corporate welfare and subsidies for electric vehicles and solar panels that largely benefit the affluent.
The annual census data tell the real story of Bidenomics: A gusher of unprecedented and unnecessary social-welfare spending helped to produce the highest inflation in 40 years that has made Americans poorer. The last thing Congress should do is heed Mr. Biden’s demand to do it all again.
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"after-tax median real income last year fell $6,220"
- How do you find an exclamation point big enough for that? We are coming out of covid, spent trillions extra, and real incomes are collapsing.
Who could have seen this coming?
Better question, how did 80 million Biden Pelosi voters not see this coming?
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Bloomberg video..US debt spiral and BTC
https://twitter.com/i/status/1708147949619020026 (https://twitter.com/i/status/1708147949619020026)
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The Bond Market’s Message
The yield that matters is on 10-year Treasurys, which is up 1.5 percentage points so far this year.
By Kevin Warsh
Oct. 4, 2023 5:56 pm ET
61
Gift unlocked article
Listen
(6 min)
image
PHOTO: GETTY IMAGES/ISTOCKPHOTO
Hold short-term interest rates at current levels, and threaten to raise them if inflation morale doesn’t improve. That’s current Federal Reserve policy. The trouble is that the central bank doesn’t set interest rates anymore. The bond market does.
The Fed has increased its short-term policy rate by only 0.25 percentage point since May 3. The interest rate that matters most to households, businesses and governments, however, is set by the 10-year Treasury note. And it’s up nearly 1.5 points since the spring, and up about 0.75 point in the past month. I expect the most significant tightening to the real economy in the cycle to begin around the end of the year.
At about 4.75%, the benchmark Treasury yield is at its highest level since 2007. That date is no coincidence. The global financial crisis caused a regime change in the conduct of economic policy. For most of the past 16 years, policy makers muscled the bond market into obedience. The Fed wasn’t happy with the risk of rising long-term yields, so it bought Treasury bonds and mortgage-backed securities to tame them. When the Fed finally turned to fight inflation last year, the Treasury took matters into its own hands. To keep rates low, it used the cash it held at the Fed and shortened the duration of its bond issuances.
Economics is the business of making choices amid uncertainty. But with long-term bond rates so low for so long, there has been nothing but a nagging conscience to keep many policy makers from acting irresponsibly. Don’t choose between A and B—choose both. That’s why we are in this fix.
The U.S. is courting trouble. The federal government is 43% larger than it was four years ago, and its reach is expanding mightily. More than a third of the surge in investment spending can be traced to government subsidies, credits and handouts. The chosen corporate recipients of the government’s largess ostensibly benefit, but the rest of the private economy will be burdened by significantly higher rates and rising costs of doing business.
The coming supply of Treasury securities required to fund U.S. government deficits will likely be substantially larger than official estimates. And purchasers of Treasury debt will demand higher yields, at least until something breaks in the economy.
First, on the supply side. The government currently funds $33 trillion of outstanding debt at an average interest rate of about 2.9%. Funding costs on the growing debt burden are forecast to average only a fraction of a percentage point higher over the next 10 years, according to the Congressional Budget Office. I’ll take the over.
The bond market is signaling heightened uncertainty about the range of possible outcomes. If the Fed’s recent rosy economic forecasts for growth and inflation are wrong and a recession ensues, there will be a gusher of new debt. Every additional 1-point increase in interest rates will add more than $2.5 trillion of expense in the next decade.
Next, on the demand side. After the global financial crisis, four of the largest purchasers of Treasury debt were price-insensitive. That is, they were buying Treasury debt for policy reasons—economic, geopolitical or regulatory. Price didn’t matter. How fortunate. These buyers, however, have largely exited the market. The Fed bought about a quarter of all Treasury debt in the past decade but warns that its Treasury holdings will shrink for at least another year.
China, another massive buyer in recent years, is unlikely to sell its existing holdings at a loss. But don’t expect Chinese leadership to do the U.S. any favors by showing up in size at the next Treasury auction. Japan’s domestic growth profile is the most robust in decades. The lion’s share of its excess savings will stay closer to home. And after the banking debacle in March catalyzed by Silicon Valley Bank, the largest banks—firmly overseen by their regulators—are no longer keen to load up on “risk-free” long-dated Treasury bonds.
Yields on the benchmark bond can rise for good reasons. Maybe markets are expecting a stronger economy and a tame business and financial cycle. Perhaps, with luck, the inflation surge will pass without a trace. Maybe policy makers in the White House and Congress will cut a grand bargain to bring an end to the fiscal folly. Perhaps the U.S. economic engine will overpower the recessionary trends elsewhere in the world. But it would be Pollyannaish to bet the country’s future on any of it.
The U.S. economy has proved particularly resilient in the past year, a testament to its residual dynamism. The bigger story, however, is the insulation of large parts of the economy from the Fed’s increases in short-term rates. About 90% of single-family residences are sitting on fixed-rate mortgages, and more than two-thirds of auto loans are locked in at materially lower rates. On the business side, the overwhelming majority of investment-grade corporate debt is fixed at low rates. All of these loans, and lower-quality companies with weaker credit profiles, are likely to require refinancing in a much tougher macro environment.
Many on Wall Street and in Washington are focused on whether the Fed will raise interest rates another quarter-point. It matters little when compared with changes in the benchmark Treasury rate—the most consequential price of the most important asset anywhere in the world.
Mr. Warsh, a former member of the Federal Reserve Board, is a distinguished visiting fellow in economics at the Hoover Institution.
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Oct 13 is a crucial date. That is the date by which the SEC must decide if they will allow GBTC to convert to a BTC ETF or not (create additional hurdles). The courts have lambasted the SEC and ruled in favor of GBTC. If they allow GBTC to be converted, they will also allow other BTF spot ETF's to proceed. This could ignite a BTC rally for the ages.
My reading of what's happening is that a spot BTC ETF will be approved, either this year or early next year before the halving.
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https://www.marketwatch.com/story/u-s-gains-strong-336-000-new-jobs-labor-market-is-still-hot-189e68c9
government , low paying "leisure and hospitality",
nursing home aides (health care )
wonder how many are illegals ?
funny how jobs "created" goes up but unemployment stays put.
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Wonder where all these people are coming from, it's not from a booming birth rate.
https://www.nytimes.com/2022/02/05/us/immigration-census-population.html
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Paywalled.
BTW a lot of those jobs are part time, labor participation of over 65s, people working two jobs-- wage growth less than inflation.
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GBTC
(https://twitter.com/i/status/1709582004269047946)
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From the article, Kevin Warsh, former member Federal Reserve,
"Economics is the business of making choices amid uncertainty. But with long-term bond rates so low for so long, there has been nothing but a nagging conscience to keep many policy makers from acting irresponsibly. Don’t choose between A and B—choose both. That’s why we are in this fix.The U.S. is courting trouble. The federal government is 43% larger than it was four years ago, and its reach is expanding mightily."
(Doug). Regarding excess spending and the resulting rise in inflation, what did policy makers think would happen?
Rep Jim Clyburn answered that," all of us knew... "
What happened politically to coincide with those four years?
Democrats took the House, Jan 2019. Then took the Senate and the White House. Republican President Donald Trump left with Covid, March 2020, in terms of policy, replaced with DemocraticPresident Donald Trump. Not one constraint on spending or supply side growth policy happened after that time. Republicans took the House back Jan of this year with no power (or will) to reverse any of it.
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Considering Dollarization in Argentina, Part 1
undefined and Global Economy Analyst at RANE
Markus Jaeger
Global Economy Analyst at RANE, Stratfor
6 MIN READOct 12, 2023 | 14:15 GMT
Editor's note: This is the first installment of a two-part series on the impacts of Argentina's potential dollarization under Javier Milei, should he win the country's presidential election. The first part examines the way dollarization affects emerging economies, and the second will analyze challenges specific to Argentina.
Popular economic frustration has increased sharply in Argentina in recent years against the backdrop of rising inflation and fears of a renewed external default. This sentiment has led Javier Milei, a libertarian who will contest in the first round of the presidential election on Oct. 22, to propose replacing the peso with the U.S. dollar as Argentina's national currency. This "dollarization" is so appealing to voters that polls suggest Milei will win the presidency.
Argentina appears to be coming full circle. A little more than 30 years ago, the government of former Argentine President Carlos Menem established a so-called currency board, which closely tied the peso to the dollar and can be thought of as a lesser form of dollarization. While Argentina abandoned the regime in the wake of its 2001 financial default, Milei appears to have returned to this dollar-forward mindset with a vengeance.
Fixed exchange rates over time
Three decades ago, fixed exchange rates were very popular among emerging economies. They provided a monetary anchor to establish and maintain domestic price stability, and they kept the value of the currency stable vis-a-vis an anchor currency, typically the dollar, thereby facilitating international trade and cross-border capital flows. Fixed-exchange rate pegs — or, in the case of Argentina, a currency board — helped countries overcome high inflation and economic instability following the developing market debt crises of the 1980s when many governments resorted to printing money to manage their financial problems.
Currency pegs have since gone out of fashion, at least among the top-tier emerging economies. Oftentimes, crises forced governments to abandon their rigid exchange rate regimes and embrace more adjustable ones to give policymakers greater macroeconomic flexibility. Most Asian economies were forced off their pegs in the 1997 financial crisis, while Mexico was pushed off its peg in 1994-95, Brazil in 1998-99 and Russia in 1998. Today, most major emerging economies have moved toward more flexible exchange rate arrangements by establishing sufficiently credible institutions, including independent central banks, that enable them to maintain price and general economic stability.
To be sure, there are some outliers. Oil-exporting Gulf countries and many small Caribbean island economies have not loosened their exchange rate regimes due to their economic dependence on the dollar through oil exports or close ties with the U.S. economy. Even so, most of these countries have pursued the sort of stability-oriented macro-policies required to maintain their dollar pegs, unlike Argentina.
Dollarization constrains macroeconomic flexibility
Under a fixed exchange rate system, a country foregoes control over monetary and exchange rate policy. Domestic interest rates must be changed in lockstep with the interest rates of the country to whose currency the local currency is pegged, unless controls limit capital inflows and outflows; if the domestic interest rate is lower than in the anchor country, capital outflows will lead to a loss of foreign exchange reserves and ultimately currency devaluation. Therefore, a fixed exchange rate that is pegged to the dollar under an open capital account forces a country to set its short-term interest rates by the U.S. Federal Reserve, sharply constraining central bank monetary policy. Under dollarization, the policy rate is similarly set by the Federal Reserve, and there is no possibility of adjusting the exchange rate, short of de-dollarizing.
By constraining macroeconomic flexibility and a government's ability to respond to external shocks, fixed exchange rate regimes increase the risk of a loss of investor confidence in times of high debt and slow economic growth. This risk is even higher under full dollarization because the central bank only has a limited amount of dollars to address liquidity crises in case investors are reluctant to finance the government or the financial system comes under pressure. A loss of investor confidence jeopardizes government debt sustainability and the stability of the financial system.
To combat this danger, countries with fixed exchange rate regimes must preserve their fiscal policy flexibility. If, for example, a country suffers an external shock, as Argentina did in the late 1990s following Brazil's currency devaluation and lower export revenues due to lower commodity prices, economic growth slows. Unable to cut interest rates or devalue the currency, an expansionary fiscal policy gives policymakers in a country with a fixed exchange rate the best option to support the economy. But if a high debt burden limits the ability of a country to run an expansionary fiscal policy, the economy will run below potential, at least temporarily. In fact, if public debt is high and investors worry that low growth and high interest rates will lead to a rapid increase in government debt, a country may be forced to pursue a restrictive fiscal policy instead of an expansionary one, further slowing economic activity. Interest rates may even rise as the risk premium demanded by investors increases, even though the economy is in the doldrums. Additionally, political imperatives can make disciplined fiscal policy very difficult to execute, particularly if the government is forced into a pro-cyclical fiscal policy tightening during economic downturns on account of investor concerns about debt and financial stability.
No more printing under dollarization
Under full dollarization, a country loses seigniorage, the income that is generated through currency issuance. Denying the government seigniorage is, of course, a big part of the rationale for dollarizing the economy in the first place, namely to remove policymakers' incentive and ability to generate extra revenue by way of higher inflation. In addition to the ongoing loss of seigniorage, dollarization also generates significant one-off costs. These are tied to the need to acquire the dollars necessary to dollarize the economy and replace the monetary base. One can call this negative seigniorage because it involves repurchasing previously issued currency (peso) with newly acquired dollars.
Finally, dollarization sharply curtails the central bank's ability to act as a lender of last resort. Under dollarization, the central bank cannot "print" money or offer unlimited amounts of liquidity in case of systemic instability. This increases default risk in terms of sovereign debt and the risk of a systemic banking sector crisis. Even if the central bank requires banks to hold a liquidity reserve, the fact that there is a limit to how much the central bank can lend to the sovereign or the banking sector during a crisis will increase the risk of a financial crisis turning systemic. Under a fixed exchange rate regime, the country would be forced off the currency peg if it provides significant amounts of local-currency liquidity. In a dollarized regime, the government and the banking sector would be forced into default in the event of a severe financial shock due to the limited ability of the government to provide liquidity and financial support.
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Now? he is worried about the debt :roll:
https://www.cnbc.com/2023/10/13/jpmorgan-chase-ceo-jamie-dimon-warns-this-is-the-most-dangerous-time-for-the-world-in-decades.html
if only he was reading the forum for decades.
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YA: You had hopes for Oct 12 being a big day for crypto.
What happened?
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Considering Dollarization in Argentina, Part 2
undefined and Global Economy Analyst at RANE
Markus Jaeger
Global Economy Analyst at RANE, Stratfor
Oct 13, 2023 | 18:52 GMT
A supporter of Argentine presidential candidate Javier Milei, who has pledged to dollarize the country's economy, holds up a gigant fake U.S. dollar bill with Milei's face on it during a rally in Buenos Aires on Sept. 25, 2023.
A supporter of Argentine presidential candidate Javier Milei, who has pledged to dollarize the country's economy, holds up a gigant fake U.S. dollar bill with Milei's face on it during a rally in Buenos Aires on Sept. 25, 2023.
(Tomas Cuesta/Getty Images)
Editor's note: This is the second installment of a two-part series on the impacts of Argentina's potential dollarization under Javier Milei, should he win the country's presidential election. The first part, which can be found here, examines the way dollarization affects emerging economies, and the second analyzes challenges specific to Argentina.
In Argentina, presidential candidate Javier Milei — a libertarian who has promised to overhaul the country's economic system, including by replacing the Argentine peso with the U.S. dollar — is currently leading the polls ahead of the Oct. 22 presidential election, fueling fears that the country could soon be ''dollarized.'' In light of Milei's expected victory, it's important to look at the unique challenges dollarization would pose in Argentina, given the country's history of hyperinflation, economic crises and political instability.
The Importance of Trade Structures
Dollarization is most practical for countries that are highly integrated in terms of international trade and financial flows, particularly those of the economy whose currency they adopt. For example, European countries' economic interdependence facilitated their adoption of the euro, which has been broadly successful. Similarly, countries that conduct a large share of their trade with dollar-based economies may find that a fixed exchange rate improves access to their markets by creating exchange rate stability.
However, less than 10% of Argentine exports go to the United States. Thus, if Argentina dollarizes and the dollar appreciates by a significant percentage against all other currencies, Argentina's exports will become less competitive. Moreover, the prices of most of Argentina's exports (such as agricultural products, energy and metals) tend to fluctuate more frequently and more widely than those of manufactured goods. This makes Argentina even more vulnerable to real exchange rate misalignment and large commodity shocks resulting from decreased export revenue.
One way countries with fixed exchange rates try to adjust their economies to such external shocks is by a so-called ''internal devaluation'' by way of domestic prices and lower wages, thereby raising the competitiveness of their exports. This strategy works best for countries whose trade makes up a large part of their economy. However, Argentina is a very closed economy, with trade accounting for only one-third of gross domestic product. This means the primary strategy that Argentina could use to protect itself from shocks caused by lower export revenues would be difficult to execute and could cause significant harm at home.
Operational Challenges
Operationally, Argentina would need to acquire sufficient dollars to dollarize its economy. However, the government is a net foreign currency debtor, as well as a net international debtor, meaning it does not have enough dollar assets to finance a major dollar purchase. In fact, the government just repaid the International Monetary Fund in yuan rather than dollars. Even the Central Bank, typically a net foreign currency creditor, sits on a negative net dollar position. Argentina may be on the verge of yet another default, which would make it even more unrealistic to borrow the dollars required to replace the peso. Finally, a recent ruling by a New York court that awarded $16 billion worth of damages to a plaintiff to compensate it for financial losses incurred in the context of Argentina's expropriation of state-run energy company YPF a decade ago will further complicate Argentina's attempt to raise dollars, whether it defaults or not in the coming months.
To get around this challenge, Argentina could nationalize private-sector dollar assets, but this would be politically controversial and could scare off future foreign investment. It may not even help Argentina make dollar purchases because few foreign investors might be prepared to enter a transaction where such assets are pledged as collateral or where they would be expected to purchase them outright, given that they could become subject to litigation. In short, it is not clear where Argentina would find the dollars to dollarize its economy.
Adding to these challenges is that political risk could rise and a bank run could quickly emerge. First, it is important to consider that the Ecuadorian president who decreed dollarization in 2000 was ousted within a few weeks of his decision. So regardless of the economic-financial effects of a conversion, political risk might increase independently. In addition, if depositors were to withdraw their funds in order to try to convert them into dollars, it could trigger a banking crisis.
While a new government could impose a bank holiday to try to mitigate this risk, Javier Milei, Argentina's leading presidential candidate, has made dollarization a key part of his campaign. While Milei has more recently slightly backtracked on his radical proposals due to pushback from the private sector, citizens will not wait for him to take office and will increasingly start to pull their deposits if his victory looks likely. Current polls suggest that no presidential candidate will reach the threshold needed to win outright in the first round on Oct. 22. The period between then and the likely runoff race on Nov. 19 could thus be particularly precarious as depositors get nervous about an eventual Milei victory.
But Argentines who withdraw their deposits will find that the black market exchange rate has already adjusted in anticipation of dollarization, with dollars likely to become increasingly scarce — putting further pressure on the peso exchange rate and inflation. They may then quickly realize that they'd prefer to keep their funds in interest-bearing bank deposits instead of moving their money under mattresses, particularly given Argentina's very high inflation. But just because depositors may not be able to purchase the dollars after emptying their bank accounts does not mean they won't initially do so; after all, fear often outweighs complex economic logic during times of crisis. Instead, history has repeatedly shown that depositors, even if they are unlikely to benefit, will rush to remove their funds — meaning Argentina's banking sector could come under severe liquidity pressure, unless the government steps in forcefully.
How Have Other Dollarized Economies in Latin America Fared?
Dollarization poses plenty of risks, particularly in Argentina. It's thus key to consider how other regional economies fared after dollarizing. In Latin America, Panama adopted the dollar in 1904, Ecuador in 2000 and El Salvador in 2001. Panama has arguably been the most successful of the three, even though it did on occasion experience exogenous shocks and financial instability. But over the past 119 years, Panama has managed to maintain dollarization, low inflation and fair levels of economic growth. Moreover, neither Ecuador nor El Salvador has experienced an economic or financial meltdown since dollarizing, but both countries are currently on the verge of a sovereign default. In fact, Ecuador restructured its debt with China in 2022, highlighting the fact that its dollarized economy is financially fragile. Given its history and current economic situation, Argentina is more likely to follow the path of Ecuador and El Salvador rather than of Panama.
For dollarization to work, governments need to run disciplined fiscal policies and create ample space to respond to economic and financial shocks. If they cannot do this, dollarization will lead to a build-up of financial vulnerabilities, financial instability and sovereign default. And a default in a dollarized regime is extremely messy, economically and politically, as banks are typically government creditors, forcing banks to write their creditors, including depositors.
What to Glean From Argentina's Political History
Argentina's economic and political history gives little reason for optimism that full dollarization will be sustainable in the longer term. Argentina has defaulted nine times in its history and has experienced high or even hyperinflation. The country even managed to default on its IMF loans and may soon do so again. Unless Argentina manages to fundamentally change its politics and maybe political system, the government will be too weak and/or the political-distributional conflict over economic and fiscal resources will be too high for the country to muster the economic discipline needed to maintain dollarization.
Full dollarization will only prove sustainable if policymakers pursue fiscally responsible policies. But in Argentina's case, dollarization is being promoted precisely because the government cannot maintain macroeconomic discipline. Leaving aside operational-political issues (such as whether a new president would be able to slash spending, particularly if he or she lacks sufficient support in Congress), maintaining long-term discipline is crucial for the system to deliver both low inflation and financial stability. If Argentina dollarizes, its economy and financial fate will continue to hinge on the government's ability and willingness to act in a financially responsible way. Otherwise, dollarization will go the way of Argentina's failed currency board, which pegged the peso to the U.S. dollar between 1991 and 2002.
A Risky Option
Since Argentina's economic history casts significant doubt on policymakers' ability to maintain fiscal discipline, the country would likely be better off reforming its economic regime as neighboring Chile, Colombia and Peru have done. These countries have independent central banks and pursue fairly disciplined fiscal policies, which enable them to operate fairly flexible exchange rate regimes and conduct more independent interest rate policies capable of absorbing exogenous shocks. Similar to Argentina, both Chile and Peru are highly susceptible to terms-of-trade shocks on account of their commodity-heavy export structure, showing that Argentina does, in fact, have options if it ever manages to resolve the aforementioned domestic political and structural economic challenges. Even Brazil's economic policy regime suggests that a somewhat less disciplined fiscal policy can be compatible with reasonable levels of inflation as long as the central bank is independent. Unlike Argentina, Brazil benefits from a low level of foreign-currency debt, making it easier for policymakers to let the exchange rate float and target inflation. But if Argentina managed to put in place such a regime, there would be no need to run the greater financial instability risks that come with dollarization.
In this sense, full dollarization is the second-best solution to the inflation and economic instability problem. It is also a solution that is fraught with very substantial risks. Such a regime would limit the monetary policy discretion and translate into lower inflation. But as long as the government is unable to conduct a disciplined fiscal policy, dollarization will not provide anything close to a sustainable solution to Argentina's long-standing economic problems. In short, if the next president decides to dollarize the economy, Argentina's goal of economic and financial stability will remain elusive in the long run.
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YA: You had hopes for Oct 12 being a big day for crypto.
What happened?
Some technical array indicators were showing a big day in light of the expected GBTC ETF decision. Its happening now, as the market digests the news, 2 business days later. This week is important, for news will leak about the SEC GBTC talks. If an ETF is in the cards, BTC will do well as the implication is that the BlackRock and other ETF's will also get approved either this year, or perhaps by Jan 10, 2024, with the latest being March 2024.
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Thank you.
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This was posted on Oct 10, along with a Panic cycle for today. !
(https://pbs.twimg.com/media/F8HskgBWIAAR-hz?format=png&name=900x900)
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GBTC important news
https://twitter.com/olvelez007/status/1715172584084369481 (https://twitter.com/olvelez007/status/1715172584084369481)
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(https://pbs.twimg.com/media/F84L8DxWQAErzHa?format=jpg&name=900x900)
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(https://pbs.twimg.com/media/F8-qoazWUAALF-Y?format=jpg&name=900x900)
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Ya,
Can you please translate into layman's terms the above entanglement of lines?
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My simple-minded doggy brain sees when red crosses blue to the downside, BTC goes up.
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Ya,
Can you please translate into layman's terms the above entanglement of lines?
BTC is expected to go up for the next 2 years or so (based on past performance). If someone is a holder of BTC and wants to cash out, the minimum target is a 100 K this cycle. Will comment, if we get anywhere near 100 k. :-D
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In the meantime, this is a good article on security practices...This is the reason BTC is still cheap, since institutions still struggle with custody of BTC. These problems are being solved by several custodial services and banks also getting into the business.
https://blog.keys.casa/security-issues-with-browser-based-bitcoin-wallets/
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Here's a timetable of when the BTC ETF's are likely to be approved. I expect all of them to be approved by Jan 10, 2024 at the latest, since that is when the ARK ETF deadline expires. SEC wants to avoid favoritism, so all will be approved at the same time.
(https://pbs.twimg.com/media/F9FnTAWXcAAhu0U?format=jpg&name=medium)
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https://www.cato.org/commentary/irs-proposes-unprecedented-data-collection-crypto-users
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They also plan to severely limit the use of cash.
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By
Alexander Osipovich
Follow
Nov. 4, 2023 5:30 am ET
Sam Bankman-Fried is gone. And crypto is back to its favorite activity: a wild speculative rally.
The FTX founder’s trial featured a parade of witnesses detailing a multibillion-dollar fraud at the heart of the crypto market. None of it dented the enthusiasm of crypto investors. During the trial, crypto prices surged on optimism that U.S. regulators would allow an exchange-traded fund that holds bitcoin. Bitcoin is up more than 25% since the start of October and recently touched an 18-month high.
Meanwhile, the ambitions of cryptocurrency advocates to remake the traditional financial system remain a distant dream.
Companies that once seemed like pillars of a new digital-asset economy, such as FTX and crypto lender Genesis Global, are bankrupt. Venture-capital investment in crypto has fallen to its lowest level since 2020. Investors have pulled back from previously hot efforts to build the equivalent of banks and exchanges using blockchain technology.
Bankman-Fried was once a major advocate for the idea that crypto would swallow traditional finance. When he was still an industry darling, he mused about acquiring Goldman Sachs. In July 2022 he told The Wall Street Journal of his ambitions to turn FTX into a sort of financial supermarket, offering everything from payments to lending to stock trading.
None of that will happen now. On Thursday, Bankman-Fried was convicted of seven criminal counts of fraud and conspiracy. His lawyer said he would continue to fight the charges.
Crypto’s own ambitions have narrowed since the downfall of FTX.
The furor over ETF approval is largely based on the notion that bitcoin can serve as a store of value—a form of digital gold. Crypto investors have long hoped that regulators will allow a “spot” bitcoin ETF, holding the actual coins instead of futures linked to the price of bitcoin. Much like inflows into gold funds can buoy the price of the precious metal, crypto investors hope that the launch of a bitcoin ETF could spur a rally in bitcoin.
The bitcoin ETF hype shows how far crypto has evolved from its dreams of disrupting Wall Street. Big money managers such as BlackRock and Fidelity Investments stand to earn fees if their bitcoin ETFs get the green light.
A bitcoin ETF would also do little to make crypto a viable form of money, used to purchase goods and services. That was the original vision of bitcoin, laid out by its pseudonymous creator, Satoshi Nakamoto, in a white paper released 15 years ago. Today, using crypto for real-world payments is practically impossible, and ranks as a low priority for crypto companies.
To be sure, hard-core devotees still hope to create a decentralized financial system. They say locking up criminals such as Bankman-Fried will make it easier for honest developers to build innovative projects.
“Next cycle, we need to do better as an industry,” Hayden Adams, creator of decentralized exchange Uniswap, tweeted after Bankman-Fried’s verdict on Thursday. Adams urged his fellow crypto supporters to “focus on the tech + our values, recognize the warning signs, and ignore the personality cult sociopaths.”
Decentralized finance, or DeFi, was among the hottest areas of crypto a few years ago. Its idea was to take traditional financial activities such as trading and lending and put them on the blockchain, cutting out banks and other middlemen. Proponents of DeFi said it could help unbanked populations around the world.
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Such aspirations are far from reality. DeFi today largely consists of projects that compete with each other for a slightly faster, more efficient experience for trading digital tokens—in other words, tools for speculation.
Investors have soured on DeFi. Total value locked, a measure of the funds committed to various decentralized-finance projects, is about $42 billion, down sharply from its peak of nearly $180 billion in November 2021, according to data provider DefiLlama.
Crypto conferences are more subdued. Mainnet, an annual crypto event held in New York City, drew about 2,000 people in September, down from more than 3,000 last year, according to Messari, the conference’s organizer. A spokesperson said the 2023 event attracted “quality people and decision makers.”
Venture-capital firms invested $2 billion in crypto firms in the third quarter, down from a peak of $11.5 billion in the first quarter of 2022, according to PitchBook. Venture capitalists—once a huge source of support for crypto startups—have shifted their focus to buzzier areas such as artificial intelligence.
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Sam Bankman-Fried and the SEC
The feds can police crypto fraud without new regulatory powers.
By
The Editorial Board
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Nov. 3, 2023 6:47 pm ET
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WSJ Opinion: Hits and Misses of the Week
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WSJ Opinion: Hits and Misses of the Week
Journal Editorial Report: The week’s best and worst from Kim Strassel, Bill McGurn and Dan Henninger. Images: AP/Reuters Composite: Mark Kelly
Sam Bankman-Fried charmed investors and politicians, but he wasn’t so fortunate with a federal jury. On Thursday the former FTX crypto-exchange kingpin was convicted of seven counts of fraud and money-laundering. Note to Chairman Gary Gensler: The Securities and Exchange Commission doesn’t need to regulate crypto markets to police malfeasance.
After FTX imploded last autumn, some $9 billion in customer deposits went missing. Prosecutors showed that Mr. Bankman-Fried used the money to fund risky investment bets and cover losses at his Alameda Research trading house, buy influence in Washington, and acquire real estate in the Bahamas.
While Mr. Bankman-Fried claimed he acted in good faith and made innocent mistakes, testimony by FTX and Alameda employees showed the contrary. Prosecutors provided evidence that Mr. Bankman-Fried ordered code to be built into FTX software that gave Alameda special privileges to borrow unlimited sums from the exchange, which he hid from customers and investors. They also showed he directed that Alameda’s balance sheets be doctored to deceive its lenders. As FTX and Alameda losses mounted, Mr. Bankman-Fried assured customers their deposits were safe.
Mr. Gensler has since spun Mr. Bankman-Fried’s fraud as a cautionary tale of the crypto “wild West.” The SEC chief claims crypto currencies are securities—ergo, exchanges and token developers must submit to agency regulation. But a federal judge this year disagreed, and Congress hasn’t given the SEC authority to regulate crypto.
Mr. Gensler has tried to regulate anyway, even before the FTX collapse. But regulators and prosecutors don’t need new powers to charge fraud under existing U.S. laws. And while Mr. Gensler charged crypto companies for marketing unregistered securities and operating unregistered trading platforms, that didn’t stop Mr. Bankman-Fried’s crimes.
Mr. Bankman-Fried scoffed last November to a reporter at Vox that regulators “don’t protect customers” and “can’t actually distinguish between good and bad.” He may have demonstrated his point. One question for Congress to investigate is whether Mr. Gensler’s preoccupation with expanding his regulatory and enforcement power caused the agency to overlook the FTX fraud in plain sight.
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The memes make a point this am, if crypto isn't real money how can there be fraud?
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Observation:
VIX was in the 13s, went up to the low 20s, now back at 14.
Oil now below $80
BTC has been surging strongly, huge up day today-- currently at 37!
Interest rates dropping sharply. 30 year hit 5.1% now at 4.7%?
All numbers filtered through my senility.
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https://www.investopedia.com/us-cbdc-6740586
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https://www.investopedia.com/us-cbdc-6740586
The problem isn't the new federal digital currency. The problem is when they ban all other forms of payment . Like a hammer wants to hit a nail, all they want is (complete) control over us.
Wasn't it supposed to be the other way around?
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Doug describes the inherent dynamic precisely.
I suspect that once they establish it alongside of what exists out of their control they will look to make it so easy to use that people with be sleep walke into it. Alnndside with this they will gradually make anything not under their control ever less convenient to use.
Somehow Americans must understand that with the ease of digital comes the leash of the government/ What is left of Freedom is gone.
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Genslers decision BTC ETF being affected by polit. ambition
Trump is not fan of BTC either.
So I would expect if he were to win (very big if at best) it would not help BTC.
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With the lower than expected CPI number today a big down day for BTC.
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Chinese currency in Russia. Russian banks more than doubled their provision of corporate loans in Chinese yuan in the first 10 months of this year to 7.2 billion yuan ($990 million), according to the head of Russian commercial bank Rosbank.
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Chinese currency in Russia. Russian banks more than doubled their provision of corporate loans in Chinese yuan in the first 10 months of this year to 7.2 billion yuan ($990 million), according to the head of Russian commercial bank Rosbank.
Sanctions have come to mean placating the American public rather than bringing an adversary to its knees.
Hard to put financial sanctions on one of the world's largest oil and gas producers especially when the largest customer is right next door.
Also, like the belt and road, it opened the door for China to be financially intertwined with Russia.
Democrats thought being the world's reserve currency was racist, or something. Now we're on a path to third world country status. What if WE had to balance our budget to get a loan?
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inflation is rising at lower rate but prices still up:
https://www.washingtonexaminer.com/opinion/bidenomics-2023-inflation-down-prices-up
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BTC has been very volatile the last few days.
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BTC pre-halving rally (halving in April 2024) target is 39-50 K. If ETF gets approved, targets will need to adjust upwards.
(https://pbs.twimg.com/media/F_SvBHzWgAA_S8x?format=jpg&name=900x900)
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So happy I have stayed the course. Thank you YA!
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For those interested, there is a hardware wallet sale going on
https://trezor.io/trezor-model-t
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Two important events occurred last week, that are bullish for BTC.
1. Javier Milei got elected as President of Argentina. Arg has 140 % inflation and Javier is a professional grade austrian economist, who wants to burn down the Central bank, institute the US dollar and is pro-bitcoin. Argentina is also a G20 nation. At this time there is a team from El Salvador visiting his govt, El Salv uses US currency and Bitcoin as legal tender. Javier is also a libertarian and will likely allow his people to use whatever currency they want. Due to the weak peso, they already use Bitcoin to some extent.
https://twitter.com/i/status/1727773336900427894
2. CZ who is CEO of Binance the largest crypto exchange in the world, is stepping down and the DOJ fined Binance 4.3 Billion $. This according to Gensler (SEC Chair) likely removes the last barriers to the approval of a BTC ETF. He has been quite vocal about the manipulation that goes on at non-US exchanges. Of note, while on paper the US govt is not very pro BTC, the DOJ now effectively controls most large exchanges world wide with respect to KYC requirements.
Other very bullish events:
3. BTC ETF approval is near, perhaps in 2 weeks or by Jan 10. The institutions such as BlackRock, Fidelity etc are raring to offer BTC to the common man. Once approved, one should expect the ESG compliant solution!. BTC will now be part of nearly all portfolios and pension funds. Even a 1 % allocation will be huge, due to something known as the multiplier effect. I can post some educational videos about this if needed. Gold is recommended at 5-10 % of a portfolio.
4. BTC halving in April, this will reduce the supply of new BTC by 50 %. With supply down 50 %, demand increasing, BTC should go up.
5. From 2024 FASB regulations change to allow companies to directly buy BTC. In the past, the record keeping required for purchase of BTC for tax purposes was quite tricky. It is now greatly simplified. This is actually quite huge and not very well recognized by the lay public.
I expect 2024-2025 to be very bullish. This may be the first time in history that lay people could get into BTC before wall street. Experts are calling BTC a new asset class.
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Change of narrative
(https://pbs.twimg.com/media/F_m_nziXEAA_-BH?format=jpg&name=medium)
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Veblen goods
(https://pbs.twimg.com/media/FkHsYevWYAAM_Z4?format=jpg&name=small)
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How best to invest now in BTC ETF?
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Wait for it to be approved, then buy it like any of the thousands of ETF's through a brokerage acct. Buying a SPOT ETF gives you the price appreciation of BTC, but is inferior to buying BTC directly. ETF's have fees, say 0.8 % per year, and you cannot buy a coffee or a house with an ETF. You would have to sell it to $ and then buy. BTC is money that you control, it is permissionless what you do with it. You can send BTC in a few minutes anywhere around the world, for minimal cost, no permission needed.
In my opinion, the ETF's are suitable for 401K or pension plans where you cannot directly hold BTC, or for individuals who are concerned by the relative complexity of holding BTC in self custody.
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Veblen goods
(https://pbs.twimg.com/media/FkHsYevWYAAM_Z4?format=jpg&name=small)
It's true. I was noticing the same phenomenon of investor psychology. The picture points out that irony perfectly. What the pic doesn't show is that at 17 you had an investment product headed downward, maybe to zero, and at 60 you had one headed upward, with almost no limits. And it's the same Bitcoin.
In hindsight it's simple. You can't buy at the exact low but there were opportunities to buy in the low 20s most of this year. Now it's at 37. You made 50% in short order if you bought in the low 20s (and sold now), (with taxes owing). But of course you didn't sell now because you believe in its future, and on it goes.
If you buy a coffee or a house with it, won't you owe a capital gains tax with every transaction (assuming it's up)? And if you buy more with every paycheck or every time you cash out of another asset, you'll have a new cost basis to keep track of with each accumulation?
I guess that's part of what the 87,000 new armed IRS agents are for. The income scorekeeping, and threat of trouble, taxes, penalties, jail for screwing up is one of worst headaches of (real estate) investing for me.
Big brother is not going to look the other way on crypto.
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I am concerned about it too if Trump is elected for Crypto
He has already stated his view of it.
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Trump will turn around, BTC is digital gold. Not everyone understands BTC is not crypto.
(https://pbs.twimg.com/media/F_sVkxhbEAAs0yQ?format=jpg&name=small)
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37, 500 this morning.
I've not measured precisely, but essentially I am back to break even.
Yay!
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Dollarization Is About Who Pays to Clean Up Argentina’s Mess
Greece’s experience with the discipline of the euro shows why Milei’s plan might appeal to voters.
Joseph C. Sternberg
By
Joseph C. Sternberg
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Nov. 22, 2023 6:23 pm ET
Javier Milei knows how to create a stir. Not only has Argentina’s president-elect shaken up his own country’s politics. He also has sparked a global debate about inflation, economic reform and dollarization—and, even more unusual, an interesting debate about these things. It’s a Thanksgiving-week miracle.
Critics of Mr. Milei’s pledge to ditch the dysfunctional peso and embrace the almighty dollar have focused on relatively narrow questions: whether Argentina holds enough dollar reserves to implement such a policy, whether it is likely to have the fiscal discipline to sustain it, whether the banks could survive it, and so on.
What those critics miss is the international example that helps explain what’s really going on in Argentina: Greece.
That Mediterranean country hasn’t dollarized, but it did the next best thing when it joined the euro in 2001—it deutsche-mark-ized. The euro constitutes an attempt by the bloc’s membership to piggyback on the monetary stability of the old deutsche mark. In Greece, this first encouraged an overly enthusiastic inflow of investment. Then, triggered by a big dollop of dishonest government accounting, came a crisis.
The most startling development of Greece’s post-2010 crisis period is that the country never left the euro. This despite the fact that the inability to devalue its way out of the hole instead forced Athens to accept punishing policy conditions. Those will be familiar to Argentines coping with their own current International Monetary Fund borrowing, because the conditions always are the same no matter the bailout: deep spending cuts (especially to transfer payments), steep tax increases and promises of supply-side reforms that may or may not ever materialize.
This suite of policies wasn’t any more popular in Greece than it is anywhere else. Greeks in 2015 elected a far-left anti-euro government under Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis, who developed a detailed plan to return to the old drachma. This would have allowed Athens to devalue the exchange rate to avoid the “internal devaluation” of brutal cuts to wages and consumption.
Foreign commentators cheered on Messrs. Tsipras and Varoufakis in their war against the euro. Greeks even sort of voted in a botched referendum to leave the currency bloc. Yet Greece stayed with the euro in the end, as Mr. Tsipras apparently came to view the drachma plan as too economically destructive and politically toxic to attempt.
Greek voters had figured out that someone always has to suffer when the economy runs off course. The only question is, who? Devaluation and inflation punish savers and the productive private economy while boosting the fortunes of a bloated government, unproductive enterprises and some asset owners. Greeks apparently decided they wanted to apportion the pain of economic adjustment differently.
And while the euro was restraining in one sense, it proved freeing in another. The dirty secret is that the policy conditions imposed by Greece’s three bailouts were Keynesian flops. No one ever restored an economy to health by taxing it more. Yet it transpires that such conditions are not necessarily requirements for membership in a currency bloc. What is required is a credible commitment to economic growth, and as long as global and domestic investors think the economic plan is plausible they’ll finance it.
This is why current Prime Minister Kyriakos Mitsotakis, who ousted Mr. Tsipras in the 2019 election, has focused obsessively on regaining an investment-grade credit rating for Greece—a milestone the country achieved this autumn. That accomplishment required a hefty dose of spending discipline, but also policies to boost productive private investment. The euro has provided a stable foundation.
Which brings us back to Argentina. Mr. Milei’s central insight appears to be that any fix for the perverse mix of economic policies that have produced 140% inflation, soaring poverty and anemic growth will be painful. His dollarization gambit isn’t a promise of an easy way out, but rather a promise to voters about whom he will make to pay for the transition.
Forswearing the option of further currency devaluations constitutes a guarantee to Argentines that savers, small entrepreneurs and poor households won’t pay the heaviest price, via inflation, for the government’s policy errors. Instead, bloated and inefficient state-owned companies, the government and politically connected larger firms will bear the brunt of economic adjustment via reforms such as the privatizations that Mr. Milei promises, reforms that are necessary accompaniments to a dollarization policy.
This is the opposite of the manner in which a devalue-and-inflate plan usually distributes the pain of an economic turnaround. Who knows if dollarization will save Argentina. But understand that Argentinian voters haven’t gambled on an outlandish monetary policy. They’ve sent a signal about what they are and aren’t prepared to pay to clean up their economic mess—or rather, who is and isn’t prepared to pay it.
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37, 500 this morning.
I've not measured precisely, but essentially I am back to break even.
Yay!
Yay...
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I think JM is saying burn down the Central Bank
(https://pbs.twimg.com/media/F_tArr9WMAAeEyW?format=jpg&name=900x900)
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Bitcoin's hash rate has been exploding. Seems to me, nation state mining might explain this. The other reason is new mining equipment with better computer chips.
(https://pbs.twimg.com/media/F_tCCHrWIAA71ja?format=jpg&name=small)
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Hopium alert: This is what happened after the previous halvings.
(https://pbs.twimg.com/media/F_w-K1fW8AARYQ_?format=jpg&name=small)
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How we got here. Spend, ease like there's no tomorrow,
And then tomorrow comes.
What a mess.
IBD is a pretty prominent source to find a financial doom and gloom article. Loaded with dates, facts and amounts.
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https://www.investors.com/news/economy/federal-reserve-broke-the-budget-what-budget-deficits-mean-for-the-economy-and-sp-500/
The Federal Reserve Broke The Budget. Buckle Up For What Comes Next.
Federal Reserve policy concept
The Federal Reserve's years of enabling big budget deficits by keeping interest rates ultralow are over. But the long-term costs are just becoming clear. (© Gary Neill)
JED GRAHAM 07:00 AM ET 11/24/2023
The 10-year Treasury yield set off roaring alarms about the U.S. budget when it surged to 5% last month. Now those warnings look like a fire drill. Federal Reserve rate hikes seem to be over for now, giving the bond market a reprieve and allowing a powerful S&P 500 rally to resume.
Enjoy it while it lasts. The next debt scare may be the real thing, and it could rock the U.S. economy and stock market.
Here's why: The Fed's historic turnabout, from enabling massive budget deficits to directing the sharpest rate hikes in 40 years, has seemingly broken the budget. Treasury market stress is almost certain to return.
The era of Fed quantitative easing and near-zero interest rates promoted carefree fiscal policies that led the U.S. to rack up $20 trillion in federal debt since the 2008 financial crisis.
Federal Reserve Fuels Red Ink
Exhibit A in the case of the broken federal budget is the deficit's surge in fiscal 2023, which ended Sept. 30. Unemployment was near a record low and GDP growth was strong. Under those conditions, the budget deficit usually shrinks. But it essentially doubled to $2 trillion, if you ignore accounting for Biden's student loan forgiveness that was struck down by the Supreme Court.
The Federal Reserve's fingerprints are all over the red ink. After the Fed sent more than $100 billion in interest on its bond portfolio to the Treasury in fiscal 2022, it had to halt those payments last year as bond prices fell. Having let inflation get out of the bag, an 8.7% cost-of-living adjustment stoked a $134 billion increase in Social Security checks.
Another roughly $100 billion went to FDIC bailouts, as banks like Silicon Valley Bank that loaded up on Treasuries when rates were ultralow became insolvent when Treasury yields surged. To top it off, the Fed hiking its key rate past 5% forced Uncle Sam to pony up an extra $177 billion in interest on the debt. That problem is destined to keep growing by leaps and bounds.
Debt Service Costs Skyrocket
With the Federal Reserve reversing its easy-money policies, the expense of servicing the national debt is exploding. Interest on the debt vaulted to $711 billion in fiscal 2023. That's up from $534 billion in 2022 and $413 billion in 2021. This month, debt service is running at an $825 billion rate. That's about what the U.S. spends on national defense.
US debt servicing costs chart
"The misjudged confidence that we had entered a brave new era of low interest rates is costing us dearly now — first through a period of high inflation and now through persistent pressure on a government budget that already has precious little room for maneuver," wrote Sonal Desai, chief investment officer at Franklin Templeton Fixed Income.
While a debt spiral isn't inevitable, almost no one thinks that Washington will act to avoid one. Fitch Ratings, in August's U.S. credit rating downgrade, bemoaned "a steady deterioration in standards of governance." When Moody's cut its U.S. rating outlook to negative this month, it warned of "rising political risk to the US' fiscal position and overall sovereign credit profile" as political polarization thwarts budget deficit reduction.
The catalyst for another bond-market rout — and possibly another U.S. credit-rating downgrade — could be the coming debate over the $3.3 trillion cost over 10 years to renew parts of the 2017 Trump tax cuts. Those cuts are due to expire at the end of 2025.
Bond Vigilantes
That tax debate won't get serious until after the 2024 election. But you can expect to hear plenty from "bond vigilantes" — a term coined by Wall Street strategist Ed Yardeni in the 1980s for the bond traders who made Washington pay for fiscal excess by driving up Treasury yields.
"At that point we can have renewed pressure on the bond market to the extent that nothing is being done to alleviate the reckless path the deficit is on," Yardeni, president of Yardeni Research, told IBD.
The "unsettling" thing, Yardeni said, is that "the bond vigilantes may be more powerful than ever because there's more debt than ever and it's compounding at a faster rate because of higher interest rates."
The Congressional Budget Office's latest projections show that under current law — meaning all of those 2017 tax cuts sunset on schedule — public debt as a share of the U.S. economy would rise from 98% to 119% by 2033. The Committee for a Responsible Federal Budget estimates that extending all of the tax cuts would raise that share by 10 percentage points. Under that scenario, the projected annual budget deficit in 2033 would exceed $3 trillion, or 8% of GDP. That's unheard of, except during war or in the wake of a recession.
No Plan To Rein In Budget Deficits
For reserve-currency countries like the U.S., for which default isn't a real risk, Moody's is less concerned about a high debt-to-GDP burden. Instead, it's focused on another metric reflecting its willingness to take action to curb escalating debt costs.
US budget gap chart
In 2022, the government spent 10 cents of every dollar in tax revenue on servicing the national debt. CBO projections show interest expense doubling to 20 cents on the dollar by 2033. But Moody's sees that as too optimistic. It sees 26 cents of each dollar in taxes going to debt service. Moody's says that would be the kind of fiscal stewardship consistent with a C-type credit rating.
America's unique strengths, including the central role of the dollar, solid productivity growth and technological leadership, afford Washington more leeway, Moody's says. But the lack of any plan to improve the fiscal outlook "is fundamentally different" from most "Aaa"-rated peers, such as Germany and Canada.
A credit-rating downgrade, if it comes to that, would signal that fiscal weakness will erode Treasuries' "preeminent safe-haven status."
Wall Street barely flinched after Moody's shot across the bow on Nov. 10 because the bond market had already flashed its own warning.
"The Bond Vigilantes may be saddling up," Yardeni wrote Aug. 3, heralding their return after a 16-year hiatus.
Federal Reserve QE Era
Bond vigilantes' long absence was marked by ultralow rates, low inflation and tepid demand ushered in by the 2008 financial crisis.
The Fed began its quantitative easing as an emergency market stabilization tool in late 2008. The central bank bought up government-backed mortgage securities to keep housing finance flowing. Yet with its key interest rate already at zero and the recovery unusually subdued, the Federal Reserve announced a second round of asset purchases — this time Treasuries — and then a third.
Joseph Gagnon, senior fellow at the Peterson Institute for International Economics, argues that the Fed "really should have been even more aggressive," saying it took too long to achieve its full-employment mandate. The unemployment rate wouldn't fall to 5% until late 2015.
'Crazy' Not To Swell Budget Deficits
Yet QE, which held market interest rates low despite massive federal deficits, made a mockery of fiscal responsibility.
Conventional wisdom came to hold that "governments would be crazy not to deficit-spend more, since they could borrow pretty much for free," wrote Franklin Templeton's Desai. And for a while, it seemed to work.
Federal Reserve's 'Massive Mistake'
Even as public debt nearly tripled as a share of the U.S. economy from 2007 to 2021, net interest outlays actually dipped. That's because the average interest rate on debt held by the public fell from 4.7% of GDP to 1.4%.
US Treasury yields chart
Then came the Federal Reserve's "massive mistake," as Gagnon sees it, of keeping its pedal to the metal in 2021, despite gargantuan fiscal stimulus to speed Covid recovery. The biggest inflation outbreak in 40 years ensued, spurring rapid-fire Fed rate hikes to stem it. The interest rate hikes steadily lifted the Treasury's average borrowing rate to 2.3% by the end of 2022 and 3.1% as of October.
About $8 trillion worth of debt held by the public is set to mature over the next year. The Treasury will have to reissue that sum. The key question is at what interest rate.
Fed Rate Cuts Won't Be Enough
Following soft recent jobs and inflation data, markets expect the Federal Reserve to cut its key rate a full point in the coming year to 4.25%-4.5%. That would reduce the risk of a near-term fiscal derailment over runaway debt-service costs.
Yet it won't take sky-high rates to blow up the budget. Moody's projection of soaring debt-service costs assumes that the 10-year Treasury yield will settle back to around 4%. But the high stock of national debt is only about half the reason the budget deficit may hit 8% of GDP in a decade. The other half is a structural fiscal gap, with tax revenue insufficient to pay for the rising cost of Social Security and Medicare.
National defense, income-security and health care programs will continue to take up close to 100% of tax revenue, CBO 10-year projections show. That's even if most Trump tax cuts expire. Almost all the rest of federal spending will go on the government's credit card. That includes government salaries, veterans' health, border security, Pell Grants, National Institutes of Health research, infrastructure projects and more.
Fiscal Responsibility? Not Yet
Could fiscal responsibility make a comeback, now that the bond vigilantes have awakened? Not as long as big budget deficits are a realistic alternative to tax hikes on the right and spending cuts on the left. That will take significantly higher 10-year Treasury yields than we have today.
Consider this litany of reasons not to worry about the deficit from Dean Baker of the liberal Center for Economic and Policy Research. The inflation surge is fading. Addressing climate change will do a lot more for future generations than cutting the budget deficit while ignoring climate change. Japan has a far higher debt load than the U.S. and it's getting by OK. And artificial intelligence could ignite a productivity boom that spurs faster growth and makes our debt more manageable.
Treasury Yield Fire Alarm
The 10-year Treasury yield's surge to 5% in October — up 1.5 percentage points over three months — set off alarm bells that the scale of government debt issuance was overtaking the market's willingness to absorb it. That seemed to raise a risk of still-higher yields ahead.
News that Treasury will borrow less than expected in Q4 and further signs of easing inflation pressures have sent government bond yields tumbling over the past month. Yet it appears that the bond vigilantes are biding their time, rather than going back into hibernation.
Real Treasury Yields At Pre-2008 Levels
Confirmation of bond vigilantes' return came in September. That's when the yield on 10-year TIPS, or Treasury Inflation-Protected Securities, made a clear break above 2% for the first time since 2007. Though off its October high of 2.5%, the 10-year TIPS yield is holding at 2.20%. That's after spending most of the QE era below 1% — and below 0% for some of it.
The TIPS yield subtracts the inflation rate, making it synonymous with the real 10-year interest rate. The challenge the federal government will face in paying its bills is that real Treasury yields have largely reverted to pre-financial-crisis levels.
A number of factors help explain the reversion. Federal Reserve bond buying that squelched market signals has given way to reducing its assets. Baby boomers have gone from saving for retirement to living off their savings. Offshoring of production has turned to onshoring, with massive investment in chip manufacturing, electric vehicle supply chains, artificial intelligence and more. In general, funding has been scarcer relative to the demand for it.
What's unknown is where real interest rates will settle. Franklin Templeton's Desai thinks the neutral Fed policy rate — neither accommodative nor restrictive — may be at least 4%. That implies at least a 2% neutral real rate.
The term premium for holding bonds longer could add another 1 percentage point to the 10-year Treasury yield, putting it around 5%, she says.
If that's right, then the fiscal outlook is even worse than Moody's thinks.
'Choppier Seas' For U.S. Economy, S&P 500
What does all this mean for the U.S. economy, Fed policy and the S&P 500?
Jurrien Timmer, Fidelity's director of global macro strategy, envisions a scenario in which U.S. Treasury yields stretch, not to the breaking point, but enough to create "choppier seas" for the economy and financial markets.
Over the past several decades, the ongoing fall in interest rates and inflation, with little volatility, produced "elongated cycles, with a recession every 10 years, if that," Timmer told IBD.
The Federal Reserve could pivot quickly and pull out all the stops, if needed, without worrying too much that inflation would take off.
Federal Reserve May Not Ride To Rescue
But going forward, Timmer says, the Fed "might have to be much more muted in its reaction" to economic weakness. Higher rates might be quicker to choke off growth, leading to shorter expansions.
What if the 10-year Treasury yield shoots to 6%, threatening runaway interest costs and an economic slump, as bond vigilantes rebel?
In that case, Wall Street shouldn't necessarily expect the Fed to ride to the rescue with rate cuts, Gagnon says. That's especially true if massive and growing fiscal deficits prove inflationary, as he expects they will.
"The bottom line is inflation is going to be at 2% and the Fed is going to make sure that happens. It doesn't matter what interest rate Treasury has to pay," said Gagnon, who served in various Fed roles over two decades.
Even if the economic toll from a rise in Treasury yields sends inflation below 2%, the Federal Reserve might not be quick to roll out the heavy artillery. The Fed's modus operandi still treats QE as a last line of defense — after interest rates are cut to zero. In the new old normal, in which a 4% fed funds rate is neutral, that might take a while.
Fed End Game?
Still, some see that QE end game as inevitable, with the Federal Reserve essentially carrying some of the debt it enabled. "We will need QE in some form again, and in big size, in the future to control the rise in debt," Deutsche Bank strategist Jim Reid said.
Others think the Fed might eventually resort to yield curve control, dictating interest rates on the debt rather than influencing them with bond purchases. That's the approach it used to finance World War II, before the Fed got its independence in 1951. It's what the Bank of Japan uses today.
"The real acid test will only come if Treasury bond prices fail to rally on bearish economic data, such as a sudden collapse in payrolls or, for that matter, a stock market crash," wrote Jefferies strategist Christopher Wood. "This is the context where it becomes much more likely that Washington will end up resorting to Japanese-style yield curve control policies."
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Good article.
I'm thinking we need to keep more of an eye on IBD for articles for here.
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Argentina’s Big Dollarization Risk
The country needs a hard currency, but finding the real peso-dollar market rate could be painful.
Mary Anastasia O’Grady
By
Mary Anastasia O’Grady
Follow
Nov. 26, 2023 4:41 pm ET
The most notable part of Javier Milei’s victory speech on Nov. 19 was what he didn’t say. Argentina’s president-elect promised to rebuild the country, reconcile fiscal accounts and bring liberty to long-suffering Argentines. But he never mentioned dollarization, which had been a key plank in his platform.
On Thursday news broke that Milei adviser and dollarization advocate Emilio Ocampo declined the post of central-bank president. This is a sharp departure from expectations created in September when Mr. Milei said the former Morgan Stanley managing director would be the man for the job.
Also on Thursday news reports emerged that Mr. Milei’s choice for economy minister is anti-dollarization economist Luis Caputo, who was finance minister for former president Mauricio Macri. While the Caputo nomination isn’t official, differences between the two candidates would be the best explanation for Mr. Ocampo’s change of heart.
This is by no means the end of Mr. Milei’s promise to close the central bank and dollarize. But it does suggest that he doesn’t have the stomach to try it immediately. Backing away in the short run may be politically practical but it also raises the odds it will never be done.
There’s a reason the Argentine flag is the international symbol for inflation. For decades successive Argentine governments have spent more on their populism than they’ve been able to collect in revenue. To close the gap, after the capacity to borrow has been exhausted, they’ve instructed the central bank to print whatever is necessary to pay the bills. Any pretense of central-bank independence quickly withers before a voracious political class.
To cure the resulting inflation, governments have imposed price controls, capital controls, more protectionism and heavy regulation. Argentines have plenty of practice staying one step ahead of the authorities. Dollars flee across the water to Uruguay or are hoarded at home. The economy shrinks, foreign and local investors disappear and real prices of assets tumble.
If only it were safe to hold greenbacks in Argentina, knowing they couldn’t be confiscated by the government and could be taken out of the bank or the country at will. Locals, who are said to hold some $230 billion in coffee cans, under mattresses and abroad, might put their money in banks, where they could tap in to credit at dollar prices. Foreigners might rush to buy into one of the richest, most undervalued markets in the world.
This is the motivation behind Mr. Milei’s campaign pledge to dollarize. No more pesos, no more problem. On Friday the office of the president-elect reiterated that “the closure of the Central Bank of the Argentine Republic (BCRA) is not negotiable.” Presuming that his word is good, the questions now are timing and sequencing.
To dollarize the government would choose a date to convert all legal contracts, bank accounts and assets and liabilities of firms and the government into dollars. The transition requires peso-price discovery, which in turn requires letting the currency float freely and lifting capital controls for a period before the conversion. Pesos in circulation can be gradually redeemed for dollars over time and the monetary base is frozen. Dollarization would boost confidence, the theory goes, and thereby solve a severe dollar shortage. That said, the uncertainty isn’t negligible.
The central bank has negative net reserves, can’t provide importers the dollars they need to pay suppliers and is running a high-yield Ponzi scheme with banks. The government is bankrupt. Would a sudden burst of trust in the Argentine state materialize if it made the dollar the national currency while committing to a future fiscal adjustment and deregulation of labor markets? It’s possible that the former might force the latter. Mr. Milei’s strong showing with 56% of the vote allows him to claim a mandate, Congress will be under pressure to let him pursue his agenda and some moderate Peronists and other opponents may see it in their interest to advance reform.
But let’s not ignore the magnitude of the crisis Mr. Milei inherits. The current official exchange rate is 350 pesos to the dollar and in the black market it’s around 1,000 pesos to $1. Because of exchange and capital controls, no one knows the peso’s true value. If, as is likely, hyperinflation already exists, then the fuse is lit. The bomb is about to be placed in Mr. Milei’s lap.
Argentina is in for a painful adjustment. The best Mr. Milei can do is minimize the damage from the explosion while trying to protect his political capital. A controlled devaluation over time—leading to the end of the pegged exchange rate and free capital flows—if accompanied by structural reforms could soften the blow. But that’s a lot of “ifs.” The larger imperative of terminating the abusive power of the state to print money won’t go away. Argentina needs a hard currency.
Write to O’Grady@wsj.com
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Good article.
I'm thinking we need to keep more of an eye on IBD for articles for here.
I think this is an excellent article but when I look at their site I mainly see articles about individual stocks and daily market moves (which for the most part don't interest me).
A few years ago these people (at the link) split off from IBD editorial staff, and they have excellent editorials:
https://issuesinsights.com/about-us/
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Works for me 8-)
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https://www.msn.com/en-us/money/markets/uae-officially-stops-using-dollar-for-oil-trades/ar-AA1kCMxH?ocid=msedgntp&pc=DCTS&cvid=6c9c15fb54c64b69a96c480d004b168d&ei=33
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https://www.msn.com/en-us/money/markets/russia-s-fraught-rupee-oil-trade-is-a-warning-for-countries-trying-to-abandon-the-dollar/ar-AA1kEK9V?ocid=msedgntp&pc=DCTS&cvid=e7c5446a240a4c26a287ce273d226b58&ei=10
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This is the best explanation of Repo and Reverse Repo in the web.
https://twitter.com/jameslavish/status/1729618865137811776
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https://www.msn.com/en-us/money/markets/uae-officially-stops-using-dollar-for-oil-trades/ar-AA1kCMxH?ocid=msedgntp&pc=DCTS&cvid=6c9c15fb54c64b69a96c480d004b168d&ei=33
The UAE currency is pegged to the $...
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BTC ETF approval is only the beginning
https://twitter.com/DylanLeClair_/status/1729564044690858166
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Periodic reminder, almost 34T$ now
(https://pbs.twimg.com/media/GADnHcZWMAABZf_?format=jpg&name=small)
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Current projections are that the BTC ETF will be approved between Jan 5-10, 2024. Expect the BTC price to increase atleast until then, maybe a small pullback after ETF approval and then the journey continues.
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Get the real thing..
(https://pbs.twimg.com/media/GAQyR5EXMAA92yR?format=jpg&name=small)
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BTC 39.5K
https://pbs.twimg.com/media/GAXZhihWMAAE8VK?format=png&name=small
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He explains the impact of a BTC ETF
https://twitter.com/i/status/1730789692071973091 (https://twitter.com/i/status/1730789692071973091)
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https://confoundedinterest.net/2023/12/06/easy-money-the-money-supply-continues-its-biggest-collapse-since-the-great-depression-as-credit-card-rates-exceed-20-49-straight-weeks-of-negative-m2-money-growth/
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Doug:
What brought you to this site?
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https://confoundedinterest.net/2023/12/06/easy-money-the-money-supply-continues-its-biggest-collapse-since-the-great-depression-as-credit-card-rates-exceed-20-49-straight-weeks-of-negative-m2-money-growth/
Doug:
What brought you to this site?
Through a news and opinion site. The author is an economist I sometimes follow. Are you finding it accurate?
"Anthony B. Sanders is Distinguished Professor of Real Estate Finance in the School of Business at George Mason University.
He has previously taught at the University of Chicago (Graduate School of Business) and The Ohio State University (Fisher College of Business). He served as director and head of Asset-backed and Mortgage-backed Securities Research at Deutsche Bank in New York City.
Professor Sanders’ research and teaching focuses on investments, financial institutions, and real estate finance. He has published articles in Journal of Finance, Journal of Financial and Quantitative Analysis, Journal of Business, Journal of Financial Services Research, Real Estate Economics, Journal of Housing Economics, and other journals. Professor Sanders has received six teaching awards and three research awards. He serves as associate editor for several leading journals. He has given presentations to the Federal Reserve of Cleveland, Bank of England, European Central Bank in Frankfurt, and Bank of Japan, as well as academic and executive education presentations in Australia, Chile, Italy, Germany, the United Kingdom, Japan, China, Poland, Mexico, South Africa, and the United States."
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Thank you. Those seem like legit creds.
I was a bit put off by click bait headlining using a different sui generis definition of money. I confess to being quite surprised at the assertion of an absolute contraction in money. I will run this by someone I know , , ,
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Steven Lubka, incharge of high net worth individuals at Swan Bitcoin..
"Had a call with a financial advisor and asked him why his clients haven't bought Bitcoin yet if the ETF is obvious:
"They don't want to buy the Bitcoin they just want to buy the ETF. No one with substantial wealth has the time to figure out the asset itself"
Bullish"
Some of you may identify with the sentiment. :-D
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This chart is the most important one to understand... Essentially there will be very limited supply of "liquid BTC" after the 5 th halving, unless the price sky rockets and someone takes profit. The rising Blue curve shows people are "hodling", i.e. their BTC are not on exchanges but in their custody.
If you like to get mathematical/technical, pl. read this https://bitcoinmagazine.com/markets/the-hodl-model (https://bitcoinmagazine.com/markets/the-hodl-model)
(https://pbs.twimg.com/media/GA6V2_xXkAAwCRn?format=jpg&name=medium)
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Samson Mow is CEO of Jan3 a company specializing in nation state BTC adoption. He helped El Salvador do that and is working with multiple countries. He presents a key insight, he is not talking about investing in BTC for a 2-3X, but in changing the financial system completely. Samson is one of the OG's in the field.
https://twitter.com/i/status/1733263699803066546 (https://twitter.com/i/status/1733263699803066546)
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BTC
(https://pbs.twimg.com/media/GA_htnBaUAAsfR7?format=jpg&name=small)
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I think is reason for recent drop:
https://www.msn.com/en-us/money/markets/blackrock-sounds-alarm-over-bitcoin-s-security-classification/ar-AA1ljtMy
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In my opinion, Gensler made BlackRock put that text in, there is no risk of BTC being classified as a security. CFTC has already classified BTC as a commodity. Gensler has himself said BTC is not a security.
The current drop is because BTC had run up too high, too fast, see the top chart (i.e. overheated). Expect it to be back up very soon.
(https://pbs.twimg.com/media/GAxcGKOWAAAEaHf?format=jpg&name=900x900)
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Inflation is not going away.
(https://pbs.twimg.com/media/GBU-VU9WAAAu8ix?format=png&name=900x900)
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What do you think of Doug's post #2716?
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I dont think one can look at the M2 in isolation, nor am I an expert on it. To me it suggests recession is coming, or at best stagflation.
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What do you think of Doug's post #2716?
I dont think one can look at the M2 in isolation, nor am I an expert on it. To me it suggests recession is coming, or at best stagflation.
I better comment on "Doug's post" as well... )
https://confoundedinterest.net/2023/12/06/easy-money-the-money-supply-continues-its-biggest-collapse-since-the-great-depression-as-credit-card-rates-exceed-20-49-straight-weeks-of-negative-m2-money-growth/
From the article: "Easy Money?? The Money Supply Continues Its Biggest Collapse Since The Great Depression As Credit Card Rates Exceed 20% (49 Straight Weeks Of Negative M2 Money Growth)"
[Doug] Point of clarification, when they say, "since the Great Depression] they are not saying analogous to the Great Recession. Like the President of Harvard says, depends on the context. Recent quantitative expansion of $4 trillion preceded this (alleged) contraction. As stated in the article, the stoppage of commercial lending is part of the contraction. It's a sign of a (business) contraction not just a cause.
From the article: "These factors all point toward a bubble that is in the process of popping." (Economist's opinion)
[Doug] We knew here for a long time interest rates near zero, and excess government spending, and excess money creation (quantitative expansion) were causing artificial stimuli that would come back to bite us. Even Democrats knew, Jim Clyburn: "All of us knew..."
I've pointed to the commercial real estate crisis, the housing debacle, the public debt crisis, the credit card interest rates, and the skyrocketing credit card balances. We are sometimes surprised by the resiliency of the US private economy to survive what is thrown at it, but I agree with ya: "To me it suggests recession is coming, or at best stagflation."
Then as Crafty points out, we see contrary indicators. Oil prices and gas prices coming down, partly as a symptom of a slowdown, partly as supplier response to the crazy high prices. Interest rates (depending on which ones you look at) tripled. Now they ease slightly and the market gets excited. Something caused by a slowdown created a 'wealth effect'. Go figure.
As always regarding economists, I'm very happy to get great analysis of the past so we can learn from it. Forecasting the future is another matter.
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(https://pbs.twimg.com/media/GBfPDCxXYAArmED?format=jpg&name=small)
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Not new..but worth re-emphasizing for the next cycle in BTC
(https://pbs.twimg.com/media/GBjZlxpWIAA3POb?format=png&name=small)
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The most interesting man in the world below. Over the next year, BTC will be marketed to the US population like never before. BTC ETF approval is near certain. Enjoy the ride.
https://twitter.com/i/status/1736755061127020794 (https://twitter.com/i/status/1736755061127020794)
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In 2024 BTC will suffer two shocks, a demand shock due to the ETF and institutions and pension funds getting access to it, as well as a supply shock due to the halving. It will be volatile, so fasten your seat belts. When demand goes up and supply goes down, fireworks should happen.
(https://pbs.twimg.com/media/GB22ZC8aMAAOK81?format=jpg&name=small)
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Between Jan 8-10, expect the following BTC ETF's to be approved. These create the demand shock. 401K's can now invest in it.
(https://pbs.twimg.com/media/GB9UsKQWcAAKdpf?format=png&name=small)
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Jan 2024
(https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Feb3db19f-535a-4370-aaa9-34f5a0d6132f_1024x1024.webp)
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Possible rumor that there is definitely a digital dollar on the near horizon.
Possible Jan 10.
Gensler will allow BTC
BUT ! =>
you can only buy it is with a US digital dollar.
This way the government gets control of it and can track it for tax and investigative money laundering control.
That way the US gov and central banks
and pain in the ass control freaks like Jamie Dimon and continue to have some if not control, at least the ability to track it.
I wonder what this tie to the digital dollar will have on buying it.
If money keeps getting printed or the dollar declines in value less BTC can be bought
It will also reduce "decentralization" which is not a terrible big deal for me
but would be to others mostly criminals.
Any thoughts on this.
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No its a bit different, the technical terms are "cash create" and in-kind". Gensler is pushing for cash create, which means the ETF can only be purchased with cash (US $). It has nothing to do with digital dollars. The in-kind is to purchase with BTC, but the SEC is not allowing that since the source of BTC is hard to verify. The in-kind is what is customer friendly and what the big companies want, but they have been asked to tow the line with using cash US $, which can be better tracked. Also you cannot withdraw in BTC, only in cash.
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Adding my two cents, a civics point:
The overbearing, totalitarian, unelected part of our government would of course like to ban cash and lay down bitcoin rules to control us. But a "law" the way I remember it needs to: originate in the House(?), survive a filibuster and pass in the Senate, be signed by the President or returned to the House and Senate for supermajorities of representatives accountable to the people.
Funny we never hear that, just here's what they're planning to do to us next, and no one seems to care.
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On this infamous day in history, we created the Federal Reserve and now 98% of that dollar is lost to history.
https://www.heritage.org/monetary-policy/commentary/time-end-the-fed-and-its-mismanagement-our-economy
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https://www.yahoo.com/news/nyu-student-owns-6-million-132504772.html
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This raises a deep and disturbing question , , ,
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Soon
(https://pbs.twimg.com/media/GCbGqciW8AAa90J?format=jpg&name=small)
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JP Dimon is the biggest Fraud and hypocrite. After his Senate testimony calling BTC a fraud and money laundering instrument, 2 weeks later it turns out that JP Morgan will actually hold and run BTC operations for BlackRock's ETF. BR is the largest fund in the world with 9.5 T in assets. Always watch what they do and not what they say.
In other news, the DOJ will no longer look into Sam Bankman Fried's donations to congress, mostly to democrats. The optics of congressmen testifying on receiving American's monies fraudulently would not be good.
https://twitter.com/i/status/1741075530470875560 (https://twitter.com/i/status/1741075530470875560)
https://twitter.com/i/status/1741100200465183034 (https://twitter.com/i/status/1741100200465183034)
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https://www.cnbc.com/2019/01/23/jamie-dimon-my-heart-is-democratic-but-my-brain-is-kind-of-republican.html
sort of sounds like one of those people who describe themselves as fiscal conservative but social liberal.
they don't understand that is an oxymoron that makes no sense.
one cancels out the other.
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https://www.cnbc.com/2019/01/23/jamie-dimon-my-heart-is-democratic-but-my-brain-is-kind-of-republican.html
sort of sounds like one of those people who describe themselves as fiscal conservative but social liberal.
they don't understand that is an oxymoron that makes no sense.
one cancels out the other.
That's my view as well. Friends who vote liberal but know the damage government causes tell me they are "fiscally conservative and socially liberal". That somehow covers them for not having to justify the policies they voted for.
I say no. You are choosing socially liberal (whatever that means) over being fiscally conservative. You are NOT voting fiscally conservative. You're voting for ALL this debt and ALL these government programs and all these encrochments on liberty when you vote for them. You own this mess.
Now friends who voted up for all these taxes and regulations here are moving to Florida, Texas and Arizona, and not hiding the fact that a big reason is for tax savings. F*ck them (did I say that aloud?). They call it 6 months and a day and Northerners have been doing it since my grandfather's time. And then they bring their liberal voting with them to the south.
Meanwhile I get to deduct my state taxes paid in Florida ($0.00) on Florida investments from what I owe Minnesota on the total instead of subtracting the Florida income, so MN gets the tax on Florida income. Insert profanity here. Confiscatory taxation. It's their money, in their mind, all of it, until you can prove it is not, and you must prove it under their rules.
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Some rumors of ETF approval by Jan 2-3.
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(https://pbs.twimg.com/media/GC1R-_mXYAA9jcM?format=jpg&name=small)
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That is very funny.
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Jeepers, these guys must be really smart. Or do you think some other factor accounts for these investment returns?
https://notthebee.com/article/ususual-whales-has-the-full-rundown-of-the-biggest-usually-timed-trades-made-by-members-of-congress-last-year
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Expect a lot of BTC volatility over the next several days. Enjoy the ride.
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BBG , I wonder how many and how much legislatures are into BTC.
Ya, ETF approval by 1/10?
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Yes, its going to be very volatile. Anything is possible. BTC approval is near certain and the ETF's will start working a few days after that. 2024 is going to be great...
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WWWOOOFFF!!!
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(https://pbs.twimg.com/media/GDM4kXxXUAEhmpv?format=jpg&name=small)
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D-day
(https://pbs.twimg.com/media/GDWb1aVWcAAeOnM?format=jpg&name=small)
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I will be posting a series of BTC related posts tonight, should anyone be interested.
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BTC vs BTC ETF
ETF Holding the ETF is preferred by the "average" person. All the security hassles are gone, no need to worry about losing your coins and you get the price appreciation of BTC.
BTC Holding BTC is preferred by those who like to hold the coins themselves, it gives you sovereignty. You can go to a different country if you so choose, you can easily cross borders with your coins etc. The govt cannot easily get your coins and there are many countries where BTC can be used as legal tender EL Salvador and Argentina, certain parts of Switzerland, Spain etc.
Custody of BTC This can be complex for non-technical people, even using the most simple wallet like Trezor. It gets exponentially difficult using the most secure wallet, eg Coldcard. The big problem with self custody is that one needs to store the keys securely and there is no 1-800-Bitcoin if you make an error. The money is gone for ever.
An intermediate solution is that you can store BTC in the vault of any of the major US exchanges. This takes away the concerns about losing keys etc. This is different than leaving coins on the exchange (aka hot wallet), which is susceptible to hacking. The downside of storing BTC in the exchange vaults is that theoretically the govt/IRS can put a lien on your acct for any reason, or they could decide to confiscate the coins like they did with gold some decades ago.
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GBTC, ETF or BTC For educational purposes only, I cannot predict the future, nor do I have any finance training!, so pl. do your own research.
GBTC In my opinion, holding GBTC is not advisable over the long term (> 1-2 years). Their fees are 1.5 % at the moment. The problem with GBTC is that if you sell to take your money out, you will incur a taxable event. So if it is a long term gain, you might have to pay 15-20 % tax + any state taxes, + the 1.5% fee. So think carefully. If its a short term capital gain, it may not be worth taking out the money until it becomes a long term gain.
ETF vs BTC is discussed above. BlackRock, Fidelity, Ark/21, Vaneck in this order are reasonable ETF choices. These 11 ETF's hold trillions in Assets under Management. Over the next several months the biggest marketing blitz that you have ever seen will be unleashed and they are all competing for your attention and funds.
So tomorrow when the markets open, the institutions will compete amongst themselves. If you have capital to deploy through ACH via an exchange, buy the BTC tonight before market open, for once the exchange opens the ETF's go live, this will impact BTC price. Many exchanges, eg Coinbase allow you to purchase BTC up to a certain limit using ACH even though the transfer is not instant (with the caveat you cant withdraw until the money is transferred).
If you want to buy the ETF, its going to be wild and no one knows what will happen. I personally would wait for a pullback before buying, but note that a significant pullback may not occur for weeks.
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Hopium/Price Predictions No crystal ball here, so please do your own research.
Over the next year 2024-2025, I expect BTC to peak, if it follows prior patterns. To me 120 K is the minimum, 200K is likely, but 500K is possible.
Be careful about investing too much in BTC, for it can comedown equally hard, 70-80 % drawdowns are very possible.
So far, anyone who has held BTC for a full 4 years cycle, has not been at a loss, it becomes very painful to hold BTC when it goes down. For optimal returns one needs to hold through 2 cycles (i.e. 8 years).
Good luck everyone. Key message: Dont over invest. Most people might consider 1-5 % of a portfolio as BTC if you are near retirement age, or your risk profile allows. One could go much higher, if your risk tolerance is higher, or eg you are in your 30's and you have time to recover.
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Here's the SEC's Gary Gensler
(https://pbs.twimg.com/media/GDg0HxIbYAA6qJQ?format=jpg&name=small)
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One more thing why this cycle is super bullish. This is the first time that BTC will undergo a double shock. A demand shock, from the millions of new investors, pension funds, family offices etc who were unable to buy BTC directly, but now they can. This combined with a supply shock where the BTC supply goes down 50 % in April due to the halving.
So demand goes up and supply goes down, which is an explosive combo.
Eagerly waiting for tommorow to see which way the market goes, I think it goes up...
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https://www.barrons.com/articles/bitcoin-etf-ticker-price-cost-availability-fees-dbfa774a?st=exvcu5orrvmkj4j&reflink=article_email_share
Bitcoin ETFs Are Here. Everything You Need to Know About Them.
By
Joe Light
Follow
Jan 10, 2024, 5:55 pm EST
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In this article
BTCUSD
BLK
GBTC
HOOD
COIN
The Securities and Exchange Commission on Wednesday approved the launch of the first spot Bitcoin
BTCUSD
1.06%
exchange-traded funds.
SEC Chair Gary Gensler said the approval didn’t equate to an endorsement of Bitcoin, which he said was “a speculative, volatile asset.”
Still, Bitcoin believers say the new funds will bring tens of billions of dollars into digital assets, as financial advisors and other institutional investors for the first time get access to the largest crypto inside a familiar wrapper. For retail investors, the new ETFs could make buying Bitcoin easier, cheaper, and safer—in some ways.
As the ETFs launch, here’s what investors need to know.
When Will Bitcoin ETFs Be Available?
Approving the ETFs to come to market was a two-step process. First, the SEC authorized exchanges like the New York Stock Exchange and Nasdaq to list the ETFs’ shares. Soon after, the SEC approved the prospectuses submitted by each issuer. With those sign-offs in place, most if not all of the funds could start trading on Thursday.
What Are the Costs of the Bitcoin ETFs?
With around a dozen issuers seeking to launch spot Bitcoin ETFs at the same time, investors always knew the fee competition would be fierce. But the Bitcoin ETF race has exceeded expectations.
The lowest fee appearing in a fund prospectus so far comes from Bitwise Asset Management, which says it will charge a 0.2% annual expense ratio for its fund. A fund sponsored by ARK Invest and 21Shares will have a 0.21% fee, while VanEck, BlackRock
BLK
-0.27%
and Fidelity come in at 0.25%.
In addition, some issuers including Bitwise, ARK/21Shares, and Invesco plan to waive their fees completely for six months for the first $1 billion to $5 billion in assets under management.
The most expensive fund for now appears to be the Grayscale Bitcoin Trust
GBTC
3.84%
, which is already trading but plans to convert into an ETF. Right now, the fund, which has an expense ratio of 2%, trades like a closed-end trust with a price that deviates from that of its assets. Grayscale in a filing said that when the $27 billion fund converts, it plans to charge a 1.5% annual fee. For traders moving into and out of Bitcoin rapidly, Grayscale’s fund might still be a good option, since its high asset level will likely make it more liquid and with tighter bid-ask spreads out of the gate.
All of the funds could change their fees before or soon after launch, and some of the issuers have already reduced their fees in filings even before their debut.
What Are the Advantages of a Bitcoin ETF Over Holding Actual Bitcoin?
The main ones are cost and convenience.
Small investors on many trading platforms buying Bitcoin sometimes have to pay fees and spreads that exceed 1% of their purchase. Since many stock platforms including Robinhood Markets
HOOD
-0.49%
and Fidelity have zero commission trades, buying a Bitcoin ETF can be much cheaper.
In addition, using an ETF is more convenient for many investors. Rather than open a separate account on Coinbase
COIN
-0.46%
to specifically buy Bitcoin, an investor can keep his or her Bitcoin holdings in the same account as other holdings. They don’t have to worry about losing passwords or fraud that in the crypto world has often resulted in the permanent loss of investments.
The ETFs can likely be held in retirement accounts for investors worried about capital-gains taxes. Of course, any capital losses in retirement accounts won’t help their tax bills either.
The issues with holding Bitcoin in separate accounts have been serious enough to scare away many institutional investors and financial advisors. Now the fund companies are betting that the creation of Bitcoin ETFs will bring in billions of dollars in new capital.
Write to Joe Light at joe.light@barrons.com
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1 whole BTC is now becoming increasingly unaffordable for most people. Infact, by the end of this year 1 BTC will be unaffordable to most. People will need to start thinking in satoshis. 1 BTC=100 million satoshis. Its a bit like, buying gold, one does not need to buy a kg of gold, you can buy it in small ounces and fractions of ounces. This is where the ETF's come in, they remove unit bias. Investors will be buying 1/1000th of a whole BTC (my estimate, to be determined).
See the BlackRock ETF Price
(https://pbs.twimg.com/media/GDjZyMIXQAAHYWu?format=jpg&name=small)
Below are some factors which will impact BTC (collated from Twitter).
ETF ad campaigns: Super Bowl ads coming, as well as a barrage of high quality ads
Nation-state adoption : Jan3 CEO has been working on nation state adoption of BTC. Small nations are looking into it.
The Halving: This decreases supply by 50 %, come April
Veblen Effect: BTC gets more desirable as the price increases, BTC is a veblen good.
118x Multiplier: The exact multiplier is unknown, but each $ in BTC multiplies the price by an X factor, Bank of America said its 118!.
Recursive Demand Shock™
Low $BTC supply on exchanges
Max Pain Theory
Renewed QE: Fed may ease rates or increase liquidity in 2024
FASB: This is an accounting standard change, which allows companies to hold BTC and account for taxes in a simpler way. This is HUGE.
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(https://pbs.twimg.com/media/GDiNwuMWoAABdqJ?format=jpg&name=small)
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Bitcoin’s $29 Billion Hotel California
Grayscale Bitcoin Trust could retain investor money despite its higher fee
By
Telis Demos
Follow
Jan. 11, 2024 8:00 am ET
2
Gift unlocked article
Listen
(4 min)
Grayscale Investments CEO Michael Sonnenshein PHOTO: JEENAH MOON/BLOOMBERG NEWS
“You can check out any time you like, but you can never leave” might be an apt analogy to illustrate what is going on with what is set to be the largest, newly-minted bitcoin exchange-traded fund.
With a series of openings expected Thursday, those who want to invest directly in the cryptocurrency in the form of a U.S. spot ETF will suddenly have many options. But before this big bang, there was really just one direct vehicle in the U.S. market: Grayscale Bitcoin Trust, which uses the ticker GBTC.
That helped GBTC to grow to an enormous size, nearly $29 billion, even before the Securities and Exchange Commission finally approved its “up-listing” from an over-the-counter stock into a listed ETF, in which shares can be readily created or redeemed—enabling it once and for all to close the big gap at which it has usually traded to the value of its underlying bitcoin. At that size, it would be the second-largest commodity ETF in the U.S. market, behind SPDR Gold Shares GLD 0.44%increase; green up pointing triangle, according to ETF.com data.
As the biggest game in town for a long time, GBTC could charge a healthy 2% fee. But even before the new bitcoin ETFs were approved, the mere prospect of them launched an intense price war. Some providers have already lowered their proposed fees. Some will have promotional rates or waived fees for a period or up to a certain size.
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Even the nonpromotional fees are relatively low. Several, including BlackRock’s BLK 0.76%increase; green up pointing triangle iShares Bitcoin Trust, have filed for fees under 0.3%. The average commodity ETF has an expense ratio of 0.42%, according to VettaFi, a provider of ETF analytics.
GBTC is slashing its fee, too. But only to 1.5%.
Is Grayscale trying to put itself out of business? Hardly. While the ETF market is hypercompetitive, with many investors focused on fees, they aren’t the sole consideration. GBTC already having tens of billions in assets puts it in a unique position.
Most notably, those who own GBTC in taxable accounts and are considering switching to a cheaper ETF will have to weigh those savings versus the possible capital-gains tax hit of selling GBTC. And those bills could be hefty: If you had bought GBTC a year ago, back when it was trading at a huge discount to bitcoin, you would be sitting on gains of over 300%.
There are also different audiences for ETFs. For financial advisers, like the ones served by the vast distribution and marketing networks of BlackRock or Fidelity Investments, the fee might be a huge factor. But for an institution planning on large trades, things like liquidity and bid-offer spreads might be key. And being the biggest bitcoin ETF can drive advantages on those measures.
Take the well-established gold ETF market. SPDR Gold Shares is the largest gold ETF. But its sponsor fee of 0.4% is above that of the second largest, iShares Gold Trust IAU 0.42%increase; green up pointing triangle, at 0.25%. Other gold ETFs are even lower.
SHARE YOUR THOUGHTS
Will the holders of Grayscale Bitcoin Trust’s ETF stick with it? Why or why not? Join the conversation below.
The lesson is that if bitcoin ETFs are the vast market force proponents hope for, the battle might be long and complicated. ETFs in other markets come in many flavors: There are ETFs that hold less of an underlying asset per share to trade at a lower price, increasing their appeal to some investors. ETFs can also come in leveraged or short varieties.
Whether the SEC will approve those versions of spot bitcoin ETFs remains to be seen, of course. Chair Gary Gensler pointedly didn’t endorse bitcoin, saying in a statement that “investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto.” Legally, though, many future approvals might have to follow, with the SEC having arguably backed itself into a corner with its initial batch of approvals.
So for those already exhausted by the saga of spot bitcoin ETFs, be prepared for a lot more to come.
Write to Telis Demos at Telis.Demos@wsj.com
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From X
'Almost everyone expected #Bitcoin to either rip, or to sell off on the ETF news. But BTC managed to deceive almost everyone, once again. 👇
What’s behind the muted price response?
Turns out that compliance departments at brokerage firms often take weeks to several months to add new products to their internal “approved products list” for advisors to sell.
In addition, several large broker dealers including Citi, Vanguard, UBS and Merrill Lynch have either restricted or disallowed their retail clients to buy any spot Bitcoin ETFs. There may be other brokers who blocked these sales as well for ideological reasons. They don’t believe in Bitcoin. I didn’t expect this at all. They’ll lose customers quickly with this strategy.
There are also reports of people rotating out of bitcoin ETF proxies, like BITO and mining stocks, in order to redeploy that capital into a better proxy, like any of the spot ETFs. That would also mildly suppress the amount of ETF inflows.
This may take several months to sort out before the floodgates open. I hope this is the case, as I need to stack more! We all do."
This pattern is similar to what happened with Gold ETF, the first few months were slow/down before it went on a tear. There is also a lot of people with egg on their face, or very salty like Gensler, Eliz Warren, Jamie Dimon etc which affects the policies of banks etc. Those who were hoping to buy the ETF are lucky to have this extra time to stack sats.
Having said that, BTC did touch 49K yesterday...
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First day stats 4.7 Billion, but a lot of cross traffic. GBTC losing some customers, which went to ETF etc.
(https://pbs.twimg.com/media/GDl-KuHbAAA19Mk?format=jpg&name=small)
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Great discussion on BTC and real estate. BTC 164 episode
https://link.chtbl.com/BTC164 (https://link.chtbl.com/BTC164)
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From X
"When the dollar collapses, a #Bitcoin ETF will entitle the holder to infinite cash, not bitcoin."
I personally dont expect the $ to crash for the next 7-8 years.
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From X
"$GBTC (1119 shares=1BTC) was trading at a roughly 1% discount day 1
$IBIT (1775 shares=1BTC) was trading at a roughly 2% premium day 1
Trading to chase a fee reduction at this point locked in a net loss in BTC. Not worth it till the gap closes."
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BTC compared to the biggies, SPY and QQQ Very commendable for Day 1 !!
(https://pbs.twimg.com/media/GDpHtaaWQAAt9mb?format=png&name=small)
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BTC is taking off in Africa too. Most are focussed only on S America
(https://pbs.twimg.com/media/GDkggpPbkAA_sDl?format=jpg&name=900x900)
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BlackRock wants you to read the below
(https://pbs.twimg.com/media/GDkNytxWwAADW7i?format=jpg&name=medium)
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Enjoy the Big Idea from Cathy Wood, CEO of Ark, she has BTC ETF
https://twitter.com/i/status/1745441714481811886 (https://twitter.com/i/status/1745441714481811886)
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This a good moment for me to move out of GBTC to ________ (which one do you recommend for me?)?
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BlackRock or Fidelity are the leaders. You may want to read about the costs of ETF's.
The major benefit of ETF's is that self custody is not required. That allows the benefit of BTC price appreciation without incurring the risk of loss due to poor custody.
Self custody of BTC gives you sovereignty, but the downside is that custody is a bit involved. You have to worry about storing the keys and requires some technical ability. No 1-800-Bitcoin is available in case of error.
https://substack.com/inbox/post/140616320 (https://substack.com/inbox/post/140616320)
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Grayscale lost money yesterday, 95 mill exit, but in the scheme of things a small number
(https://pbs.twimg.com/media/GDqG2AaWcAAzwUS?format=png&name=medium)
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Jeff Ross Vailshirecap is advising clients as follows
(https://pbs.twimg.com/media/GDphrcZWwAAdSl8?format=jpg&name=medium)
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Just saying
(https://pbs.twimg.com/media/GDuINOSWoAA2y6C?format=jpg&name=medium)
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(https://pbs.twimg.com/media/GDvIjYBb0AAgNDn?format=jpg&name=900x900)
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BR and Fidelity in the lead
(https://pbs.twimg.com/media/GDu55oMWoAAaLYR?format=png&name=900x900)
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(https://pbs.twimg.com/media/GDz5-kQW4AAfsqh?format=jpg&name=small)
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Samson Mow CEO of Jan3 a company which focusses on selling nation state adoption, posted some interesting numbers.
900 new BTC are mined daily. In two days BlackRock purchased over 11,000 BTC (13 days worth). If one considers all the ETF's together, he presented stats suggesting that the exchanges which provide these BTC over the counter in many cases have about 1.8 million BTC, the rest are in the hands of hodlers.
What this means is that at current buying rates all these 1.8 million BTC will be drained in about 120 days, just in time for the halving. If this is true, a huge demand shock, combined with a supply shock is coming since holdlers are not going to sell cheaply.
My strong suggestion to holders of BTC is to have a game plan, based on your risk tolerance and time horizon. Once BTC is in the parabolic stage, it is easy to sell early. If your age allows, dont sell everything but hold for one or more cycles, unless you plan to hold on longer for your grand kids.
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Much gratitude for your keeping us in the loop YA!!!
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BR marketing BTC to boomers. Clean shaven..nice guy
https://twitter.com/i/status/1746539470491447585 (https://twitter.com/i/status/1746539470491447585)
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(https://pbs.twimg.com/media/GD2Zh2KXQAA6XfJ?format=jpg&name=medium)
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Eric Balchunas from Bloomberg on BTC ETF's.
"Let me put into context how insane $10b in volume is in first 3 days. There were 500 ETFs launched in 2023. Today, they did a COMBINED $450m in volume. The best one did $45m. And many have had months to get going. $IBIT (BlackRock) alone is seeing more activity than the entire '23 Freshman (ETF) Class".
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https://www.dailywire.com/news/the-eye-popping-interest-payment-spike-on-our-national-debt
congratulations DC.
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The US has only 3 options.
1. Default on debt: Not likely to happen.
2. Cut spending massively. Not going to happen
3. Increase taxes: Wont work, because as taxes increase, capital flees and you end up with less tax revenue.
So the most likely solution is Print Baby Print...printer goes brrr, afterall we own the reserve currency.
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An accurate, in my estimation, pessimism where state sponsored digital currencies are involved:
https://newsfromuncibal.substack.com/p/not-everything-is-bad-but-everything
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Trump has recently said he wont support a CBDC. Several states eg FL have passed anti CBDC legislation. My guess is that Europe and other countries will move to a true CBDC, while the US may opt for a CBDC lite for big banks only. The risks to the $ from a retail CBDC are substantial and Americans are more focussed on privacy etc.
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In the meantime, the BTC ETF's are now the #2 commodity ETF and have surpassed silver ETF. The current downdraft in BTC is temporary after the 100 % + run last year. Its mostly due to GBTC sales, at some point these sales will subside and the bull run continues. As can be seen in the last column 37946 were sold from GBTC and 30,496 were purchased by ETF's. Both BlackRock and Fidelity each hold over 1 Billion in BTC assets.
Another important observation is that from 1/10-1/17 the daily purchases of BTC by BR (25,067 BTC) and Fidelity (20,507) are still increasing and have not yet topped out. Compare this with the 900 BTC which are mined daily (supply) and this too will reduce to 450 BTC mined/day after April. Absolute scarcity is coming this year and in the next several years. Also of note, GBTC sales are trending down, albeit slowly.
(https://pbs.twimg.com/media/GEKTtyPWMAAY5H_?format=jpg&name=medium)
(https://pbs.twimg.com/media/GEMttgZXAAAS9Ct?format=jpg&name=medium)
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Here's a chart of the BTC supply schedule. the columns to watch are the Decimal(BTC) and the Date column. It can be seen that since 2020 the miners are mining about 6.25 BTC every 10 min, or 900 BTC/day. In 3 months that reward becomes half, i.e they get only 3.125 BTC/10 min, or 450 BTC day. This is a very limited new supply to be shared with the whole world, by 2028 the supply completely shrivels up, to 225 BTC/day. In other words there is very little new supply, its like Gold mining stops, the only gold that is available is already with Central Banks/Retail. For comparison, currently US ETF's are buying (demand) about 10,000 BTC/day. Furthermore, between 2028-2140 a period of 112 years the last 3 % of all BTC will be mined, i.e. there is literally no new BTC being mined.
Folks dont realize that when the price of Gold goes up, mining activity increases (supply) since there is still a ton of gold underground. With BTC there is absolute scarcity, the number of total coins cannot be increased. Not many understand the above school level math !, but by the time they do, BTC will be much higher.
(https://pbs.twimg.com/media/GEPMlCvWEAA6uqO?format=jpg&name=large)
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Something we havent discussed about is UTXO (Unspent Transaction Outputs) management for those who buy BTC and self custody. Essentially each batch of BTC that one buys is like a dollar bill, eg 1 $, 5 $, 20$ etc. To spend each $ bill, one needs to pay fees. Thus to spend 26$, one would pay fees 3 times, for each of the $ bills (1, 5, 20) Until recently, the fees were miniscule on the main block chain, but now they are rising such that small dollar denomination purchases cannot be cashed because the fees are higher than the $ bill value.
Currently, its still Ok to cash higher amounts of BTC purchases, say a few thousand $ at a time, but a 10 $ worth BTC purchase would be difficult to cash. But as BTC gets more valuable eg 100,000$ plus, I expect fees to increase, so it becomes necessary to convert your 26$ in 3 different bills to a single bill worth $26, so that the fees are paid only once.
Due to these complexities, I am starting to think that holding BTC in ETF's might be the easier and better option than holding BTC for most people. The price appreciation (minus the fee) is the same, but the risks/complexities of holding BTC are greatly decreased. Holding BTC gives you sovereignty, makes your coins unconfiscatable and ability to cross borders with your money. This may not be important or relevant to most.
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https://cryptopotato.com/bitcoin-etf-vs-buying-btc-directly-whats-better/ (https://cryptopotato.com/bitcoin-etf-vs-buying-btc-directly-whats-better/)
(https://cdn.shortpixel.ai/spai/w_774+q_lossless+ret_img+to_webp/https://cryptopotato.com/wp-content/uploads/2024/01/btc_etf1.jpg)
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BTC makes sudden moves and then goes sideways to down. It pays to be in the market
(https://pbs.twimg.com/media/GEZKoTcbMAAuhdC?format=jpg&name=900x900)
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Ya,
Since the big banks are in ETF now does that hamper decentralization?
Partly centralized and decentralized in your view.
ccp
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Decentralization usually refers to protocol running by nodes, the risk being that the protocol can be changed. Thats not a concern. There are 10's of thousands of nodes world wide. There is also the concept of game theory, so eg Russia and China are not likely to agree with the US should a govt try to ban BTC etc and vice versa. Infact calculations have been presented that BTC can no longer be banned. Centralization of wealth in BTC is theoretically possible, but very unlikely. People would need to sell their coin to the ETF's and they might do it for a high price.
In 2024 or 2025, I think sovereign nation states will start purchasing BTC. They typically do that in assets worth a Trill $ or more.
You can see how the coins are distributed here.
https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html (https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html)
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Good to remember..BTC is volatile, but becoming less volatile. When BTC reaches a few hundred K in market cap, volatility will decrease further.
(https://pbs.twimg.com/media/GEciZqrXgAAsPk8?format=jpg&name=small)
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GBTC sales have mostly been Sam Bankman Fried scam, forced sales. These are ending. The surprising thing is that the ETF's are still taking in a lot of BTC. The new supply after the halving is very limited and any purchases will have to be done from existing BTC on exchanges since the hodlers are not selling.
(https://pbs.twimg.com/media/GEn2LwDbkAANU9Q?format=jpg&name=medium)
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Good read on BTC
https://www.forbes.com/sites/theapothecary/2024/01/24/the-secs-bitcoin-etf-approvals-have-forever-altered-the-global-monetary-system/?sh=6593494964b1 (https://www.forbes.com/sites/theapothecary/2024/01/24/the-secs-bitcoin-etf-approvals-have-forever-altered-the-global-monetary-system/?sh=6593494964b1)
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(https://pbs.twimg.com/media/GEpLRMKXsAAqqAL?format=jpg&name=small)
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I recently had a chat with my accountant.
He pointed out that BTC is neither a product or a service and he therefore would not invest.
Later after thinking about it I realized that is incorrect.
It is both a service and a product
in part for the reason above as well as cross border currency exchange privacy and more control
next time I speak to my accountant I will explain it better.
I imagine he will only shrug.
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@ccp This is something you cannot rely on accountants for guidance. One needs to do the research himself, probably requires a 1000 hrs of study to gain conviction. Without conviction and understanding, you will not be able to hold when the inevitable pullback occurs. The easiest way for most is to buy the ETF and hold for 2 or more cycles, where each cycle is 4 yrs. For short term holders this year Oct or next year second half should be a good time to sell. If BTC does not go to zero, its going very high and the holding period should be in decades with an inheritance plan.
It is rare for a new asset class to be born. The problem is that there are no guarantees with BTC, which is why it is still cheap. Once it becomes a "certainty", the price will be much higher.
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shows unemployment numbers are stable
Nothing to see here - move along folks
Joe tells us all is great :
https://www.msn.com/en-us/money/markets/billionaire-bond-king-questions-unemployment-data-hard-to-believe/ar-BB1hjLwJ?ocid=msedgntp&pc=DCTS&cvid=861bb6dd47844c279b20e18e7503fdc6&ei=15
I no longer trust anything the Federal government posts, claims points out, says or publicly releases.
Why would anyone?
Gotta beat Trump right?
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https://news.bitcoin.com/morgan-stanley-sounds-alarm-on-us-dollars-dominance-says-crypto-could-significantly-alter-currency-landscape/
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GBTC selling has declined sharply from 640 mill/day at peak to 255 mill/day. All the Sam Bankman Fried related FTC selling of GBTC is also complete.
(https://pbs.twimg.com/media/GE1Rq-WWQAAxwkq?format=png&name=medium)
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jack Mallers on BTC
https://twitter.com/i/status/1751613195213779110 (https://twitter.com/i/status/1751613195213779110)
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The chart in purple is crucial to understand. The Compound Annual Growth Rate (CAGR) for any 4 yr period is quite high taken from a purchase at the top or bottom. I think even a 50 % CAGR can do wonders to one's portfolio
(https://pbs.twimg.com/media/GE8dRn-bkAAs1ND?format=png&name=medium)
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jack Mallers on BTC
https://twitter.com/i/status/1751613195213779110 (https://twitter.com/i/status/1751613195213779110)
I confess I’m still wrapping my head around virtual currencies as they have so few analogs to money as I understand it from my first paper route on. With that said, pieces like this add substantial no BS clarity. Thanks.
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Watch the assets of IBTC and FBTC increase around 4500 BTC/day, while GBTC daily outflows continue to shrink (from 16000 to 4400). In due time the ETF inflows will slow down, but as pension funds and others get in, there may not be a meaningful slowdown in ETF inflow. Yesterday ETF's took in 250 million $ net inflows.
(https://pbs.twimg.com/media/GFE8aLCW4AAfQg4?format=jpg&name=medium)
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Digital currencies. The United Arab Emirates conducted the first cross-border transaction in digital dirham. A payment worth 50 million dirhams ($13.6 million) was sent to China using the mBridge platform, which was introduced in 2021 by the central banks of China, Hong Kong, Thailand and the UAE in partnership with the Bank for International Settlements
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Not a surprise, but worth keeping in mind:
https://www.cato.org/blog/where-trump-biden-stand-cbdcs
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all the new economic numbers coming out are goody:
jobs "blowout"
read wages slightly up.
unemployment holding
I dunno.
MSM will be gloating, preening and trump bashing.
study :" tarrifs bad"
From NY Pravda:
https://news.yahoo.com/trump-tariffs-hurt-u-jobs-123936378.html
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They get their good news cycle and they can hype it as far as it will go. But in 2023 all the revisions to the jobs reports were downward, they were off by hundreds of thousands of jobs. Paint me skeptical on all this euphoria.
I might ask one follow-up question, isn't that fewer new jobs than the number of illegals that came across the border? We know at least 7 to 10 million people came in under biden. How many new jobs did he so-called create above and beyond Trump pre-covid levels?
Of course jobs for illegals don't really count because mostly they don't come for jobs. When they do most of those are cash jobs outside of the tax and reporting system.
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"Isn't that fewer new jobs than the number of illegals that came across the border?"
Well played!
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The bleeding seems to have stoppoed for now. BR owns 3 Bill $ worth btc in 3 weeks. We have to see if the inflows will continue, I am looking at 50 B + worth of ETF inflows by the end of year.I would expect significant highs by Oct 2024
(https://pbs.twimg.com/media/GFYbNadW0AATVOD?format=jpg&name=medium)
(https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F43212b94-e896-4182-89d2-e719a1b1945d_2080x1280.png)
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https://www.msn.com/en-us/money/markets/popular-bitcoin-fan-cheers-on-as-faketoshi-craig-wright-faces-legal-setback/ar-BB1hiQGr
good Wired article just came out about Wright but I am unable to post here.
Read it yesterday but now cannot back to it.
only $5 for year subscription if interested:
https://www.wired.com/story/craig-wright-satoshi-nakamoto-trial/
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Here it is:
In a recent court setback, the self-proclaimed Satoshi Nakamoto, Craig Wright, has been denied permission to appeal a libel case ruling. This case, brought against him by Peter McCormack, ended with Wright being awarded a nominal compensation of 1 GBP. The judges dismissed Wright’s claims of being the creator of Bitcoin, Satoshi Nakamoto, but this is just the beginning of a legal saga that has captured the attention of the cryptocurrency community.
Craig Wright’s failed legal maneuvers
Following his loss in the libel case, Craig Wright shifted his focus to asserting ownership of intellectual property associated with Bitcoin. He initiated legal action against developers responsible for maintaining the open-source code. Initially, he found success in court. However, a significant turning point occurred when Twitter co-founder Jack Dorsey intervened in October 2023. Dorsey’s involvement led to the rejection of Wright’s intellectual property claims. Instead, the court allowed developers to proceed with allegations that Wright had submitted forged documents to support his claims.
Recent reports indicate that Craig Wright is now extending a settlement offer to the Crypto Open Patent Alliance, which represents the defendant developers. Legal analysts interpret this unexpected move as a sign of Wright’s increasing apprehension regarding the forgery allegations and the potential consequences of presenting false evidence in a court of law. The term “Faketoshi,” colloquially used to refer to Wright due to his claims of being Satoshi Nakamoto, might be taking on new meaning in light of these developments.
As developers decline Wright’s settlement offer, the stage is set for a court inquiry into the forgery allegations. The cryptocurrency community is closely monitoring the situation as one of its most controversial figures faces the prospect of legal scrutiny for alleged dishonesty and bullying tactics. The outcome of this legal battle could have significant implications not only for Craig Wright but also for the broader cryptocurrency landscape.
In a remarkable turn of events, Craig Wright, the man who claimed to be Satoshi Nakamoto and filed lawsuits to assert ownership of Bitcoin-related intellectual property, now finds himself facing serious legal challenges. While his initial legal victories seemed to strengthen his position, recent developments, including a failed settlement offer, suggest that the tides may be turning against him. The cryptocurrency community eagerly awaits the outcome of this high-stakes legal battle, which could reshape perceptions of one of the most controversial figures in the crypto world
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UTXO management theory. I have posted on this earlier. Bottom line, its no longer cost effective to do small transactions on Layer 1 (block chain). Mainly impacts those who do selfcustody of BTC.
https://twitter.com/Thebitcoinway_/status/1753824558543446499 (https://twitter.com/Thebitcoinway_/status/1753824558543446499)
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(https://pbs.twimg.com/media/GFbntsIWgAE05-u?format=jpg&name=small)
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Meaning I guess we could have paid off the national debt in 35 years or so were we applying the trillion to principle rather than interest:
https://blog.independent.org/2024/02/05/total-interest-national-debt-1-trillion-year/?utm_source=rss&utm_medium=rss&utm_campaign=total-interest-national-debt-1-trillion-year
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The potential FTX connection makes this tale all the more interesting, given they filed for bankruptcy and ran about in panic during the same time frame:
https://krebsonsecurity.com/2024/02/arrests-in-400m-sim-swap-tied-to-heist-at-ftx/
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I would like to rip one part in particular but to be fair, let's get the whole thing in context:
SCOTT PELLEY, CBS NEWS/60 MINUTES: I'll start with this. Is inflation dead?
FEDERAL RESERVE CHAIR JEROME POWELL: I wouldn't go quite so far as that. What I can say is that inflation has come down really over the past year, and fairly sharply over the past six months. We're making good progress. The job is not done and we're very much committed to making sure that we fully restore price stability for the benefit of the public.
PELLEY: But inflation has been falling steadily for 11 months.
POWELL: Right.
PELLEY: You've avoided a recession. Why not cut the rates now?
POWELL: Well, we have a strong economy. Growth is going on at a solid pace. The labor market is strong: 3.7% unemployment. And inflation is coming down. With the economy strong like that, we feel like we can approach the question of when to begin to reduce interest rates carefully.
And, you know, we want to see more evidence that inflation is moving sustainably down to 2%. We have some confidence in that. Our confidence is rising. We just want some more confidence before we take that very important step of beginning to cut interest rates.
PELLEY: What is it you're looking at?
POWELL: Basically, we want to see more good data. It's not that the data aren't good enough. It's that there's really six months of data. We just want to see more good data along those lines. It doesn't need to be better than what we've seen, or even as good. It just needs to be good. And so, we do expect to see that. And that's why almost every single person on the, on the Federal Open Market Committee believes that it will be appropriate for us to reduce interest rates this year.
PELLEY: When?
POWELL: Well, that will depend on the data. You know, the best we can do is to weigh the risk of moving too soon against the risk of moving too late and make that judgment in real time. So that time is coming, I would say, based on what we expect. The kinds of things that would make us want to move sooner would be if we saw weakness in the labor market or if we saw inflation really persuasively coming down. The kind of things that would make us want to move later would be if inflation were to be more persistent, for example.
PELLEY: What's the danger of moving too soon?
POWELL: Danger of moving too soon is that the job's not quite done, and that the really good readings we've had for the last six months somehow turn out not to be a true indicator of where inflation's heading. We don't think that's the case. But the prudent thing to do is to, is to just give it some time and see that the data continue to confirm that inflation is moving down to 2% in a sustainable way.
PELLEY: Moving too soon would set off inflation again.
POWELL: You could. Or you could just halt the progress. I think more likely if you move too soon, you'd see inflation settling out somewhere well above our 2% target. So, we think we can be careful in approaching this decision just because of the strength that we're seeing in the economy.
PELLEY: And what is the danger of moving too late?
POWELL: If you move too late, then policy would be too tight. And that could easily weigh on economic activity and on the labor market.
PELLEY: Making a recession.
POWELL: Right. And we have to, we have to balance those two risks. There is no, you know, easy, simple, obvious path. We have to balance the risk of moving too soon, which, as you mentioned, or too late. And there are different risks. We think the economy's in a good place. We think inflation is coming down. We just want to gain a little more confidence that it's coming down in a sustainable way toward our 2% goal.
PELLEY: You disappointed a lot of people on Wednesday.
POWELL: We're very focused on our jobs, you know? We're focused on the real economy and doing the right thing for the economy and for the American people over the medium and long term. And I can't overstate how important it is to restore price stability, by which I mean inflation is low and predictable and people don't have to think about it in their daily lives. In their daily economic lives, inflation is just not something that you talk about. That's where we were for 20 years. We want to get back to that, and I think we are on a path to that. We just want to kind of make sure of it.
PELLEY: Why is your target rate 2%?
POWELL: So over, really over the course of the last few decades, central banks around the world have adopted – advanced economy central banks have adopted a 2% target. Why isn't it zero, I guess, is the question. And the reason is 2% is if interest rates always include an estimate of future inflation.
If that estimate is 2%, that means you'll have 2% more that you can cut in interest rates. The central bank will have more ammunition, more power to fight a downturn if rates are a little bit higher. In any case, that's become the global norm. And it's a pretty stable equilibrium and it seems to serve the public well.
PELLEY: Are you committed to getting all the way to 2.0 before you cut the rates?
POWELL: No, no. That's not what we say at all, no. We're committed to returning inflation to 2% over time. I've said that we wouldn't wait to get to 2% to cut rates. In fact, you know, we're actively considering now going forward cutting rates, and on a 12-month basis inflation, you know, is not at 2%. It's between 2-3%. But it's moving down in a way that, that it gives us some comfort.
PELLEY: So what is your best forecast for inflation right now?
POWELL: I think the base case, the main expectation I would have, is that inflation will continue to move down in the first six months of this year, we expect. So, we look at inflation over a 12-month basis. That's our target. And the first five months of last year were fairly high readings.
Those are going to fall out of the 12-month window and be replaced by lower readings. So, I do expect that you will see the 12-month inflation readings coming down over the course of this year. We've seen inflation pressures subsiding really for a couple of reasons.
One is the reversal, the unwinding of these unusual pandemic-related distortions to both, to both supply and demand. And the other is our tightening of policy, which was absolutely essential in getting -- it's a part of the story for why inflation's coming down. Not the whole story, by far.
PELLEY: Inflation is one thing. Prices are another. And I wonder if there's any reason to believe that people will see the prices of things decline?
POWELL: So, the prices of some things will decline. Others will go up. But we don't expect to see a decline in the overall price level. That doesn't tend to happen in economies, except in very negative circumstances. What you will see, though, is inflation coming down.
People are experiencing high prices. If you think about the basic necessities, things like, you know, bread and milk and eggs and meats of various kinds, if you look back, prices are substantially higher than they were before the pandemic. And so, we think that's a big reason why people are, have been relatively dissatisfied with what is otherwise a pretty good economy.
PELLEY: But those prices will not soften short of something like a recession?
POWELL: Some of them will. In particular, things that are affected by commodity prices, like, for example, gasoline prices have come way down. Some food prices that incorporate the price of commodities, grains and things like that, those can come down.
But the overall price level doesn't come down. It will fluctuate. And some goods will, goods and services will go up, others will go down. But overall, in aggregate, the price level doesn't tend to go down except in fairly extreme circumstances.
PELLEY: Many in the financial industry expect you to lower rates sitting around this table in your [next] meeting in March.
POWELL: So we're very focused on doing the right thing for the economy in the medium and the longer term. Of course we pay attention to markets and we understand what's going on in financial markets around the world, really. It's part of our job.
But I would say our focus is on the goals Congress has assigned us, which are maximum employment and price stability. And so, what the overall situation, as we see it now, is we've got strong economic growth. We've got healthy labor market with historically low unemployment, and we've got inflation moving down.
This is, this is a very positive collection of things. This is a good economy. There's every reason to think that it [will] continue to get better, provided that there aren't events around the world which disrupt that. And also, we're focused on using our tools to make sure that that's what happens.
Part of that is picking the time to begin to dial back the restrictive policy. And we want to approach that question carefully. It's a very important decision. And I said yesterday after our meeting, after our FOMC meeting, that we would approach that question carefully.
PELLEY: The next meeting around this table that will decide the direction of interest rates is in this coming March. Knowing what you know now, is a rate cut more likely or less likely at that time?
POWELL: So, the broader situation is that the economy is strong, the labor market is strong, and inflation is coming down. And my colleagues and I are trying to pick the right point at which to begin to dial back our restrictive policy stance.
That time is coming. We've said that we want to be more confident that inflation is moving down to 2%. And I would say, and I did say yesterday, that I think it's not likely that this committee will reach that level of confidence in time for the March meeting, which is in seven weeks.
So, I would say that's not the most likely or base case. However, all but a couple of our participants do believe it will be appropriate to, for us to begin to dial back the restrictive stance by cutting rates this year. And so, it is certainly the base case that, that we will do that. We're just trying to pick the right time, given the overall context.
PELLEY: This past December in your quarterly report, the Fed predicted rate cuts this year down to about 4.6%. Still likely?
POWELL: Those forecasts were made in December. And those are individual forecasts made by participants. It's not a committee plan. We don't update those at every meeting. We'll update them at the March meeting. I will say, though, nothing has happened in the meantime that would lead me to think that people would dramatically change their forecasts.
PELLEY: So something around a 4.6% interest rate is likely?
POWELL: I would say it this way. It's really going to depend on the data. The data will drive these decisions. And we can't do any better than to look at the data and ask ourselves, "How is this affecting the outlook and the balance of risks?" That's what we'll be doing. So, what we actually do will depend on how the economy evolves.
PELLEY: How would you characterize the consensus around this table for rate cuts? Is everyone onboard? Most people?
POWELL: Almost all. Almost all of the 19 participants who sit around this table believe that it will be appropriate in their most likely case for us to cut the federal funds rate this year. So, the consensus, though, the thing that really comes out in people's thinking as we discuss this around the table, is that what we actually do is really going to depend on the evolution of the economy.
So, if the economy were to weaken, then we could reduce rates earlier and perhaps faster. If the economy were to prove -- if inflation were to prove more persistent, that could call for us to reduce rates later and perhaps slower. So, it really is going to be dependent on the incoming data as that affects the outlook.
PELLEY: Your decisions inevitably are going to have a bearing on this year's election. And I wonder, to what degree does politics determine your timing?
POWELL: We do not consider politics in our decisions. We never do. And we never will. And I think the record -- fortunately, the historical record really backs that up. People have gone back and looked. This is my fourth presidential election in the Fed, and it just doesn't come into our thinking, and I'll tell you why.
Two reasons. One, we are a non-political organization that serves all Americans. It would be wrong for us to start taking politics into account. Secondly, though, it's not easy to get the economics of this right in the first place. These are complicated, you know, risk-balancing decisions.
If we tried to incorporate a whole 'nother set of factors in politics into those decisions, it could only lead to worse economic outcomes. So, we simply don't do that, and we're not going to do it. We haven't done it in the past, and we're not going to do it now.
PELLEY: There are people watching this interview who are skeptical about that.
POWELL: You know, I would just say this. Integrity is priceless. And at the end, that's all you have. And we in, we plan on keeping ours.
PELLEY: As you look toward adjusting rates, what are the specific factors in the economy that are going to guide that decision?
POWELL: So, we look at the totality of economic activity, in particular I'll point to two things. One just is the progress of inflation, what's happening with inflation. What's the story behind the numbers that we're seeing?
Are we see[ing] continuing progress down to 2%? Does it give us more confidence that we're on a sustainable path to 2%? That's a critical thing. The second thing is, you know, we are dual-mandate central bank. We have a maximum employment mandate which is equal to our price stability mandate.
So, we'll be looking at lots of labor market data to reach a judgment about the ongoing strength of the labor market. So right now, what we're seeing in the labor market is a very strong labor market. But it's one that's been coming back into better balance.
If you go back a couple of years ago, there was an extreme labor shortage, and the labor market was overheating. And businesses couldn't find workers. We lost several million people who were not in the labor force after the pandemic. We're in a much better place now. The people have come back into the labor force. There are more workers. And the labor market is well along the road of getting back to a better balance. And we'll be watching those things.
PELLEY: You said that you were watching the story behind the numbers. What do you mean by that?
POWELL: So, sometimes things happen which tell you a lot about the real direction of things. And sometimes they seem idiosyncratic or transitory. And which means that they will go away quickly without any action on our part. So, we have to judge that.
Looking at any set of economic data, you've got to ask yourself, "OK, how much -- what's this telling me about the future?" What is the past. That's the rearview mirror. What we're always trying to ascertain is what's going to happen going forward. And that's not easy.
But you've got to distinguish between [those] that will have persistent effects and those that won't. So, the story does matter. For example, with inflation, we break it down into goods inflation, housing services inflation, and non-housing services inflation.
Behind each of those three buckets, there's a lot going on. And they, together -- we don't care what the allocation is, but together they've got to put together a story that says that inflation is coming back down to 2%. And by the way, we think it is. We think we're making this progress. It's just we want more confidence in that. We think we best serve the public by having a little more confidence before we make this important step.
PELLEY: I'm curious. Do you, Mr. Chairman, have a favorite metric that you look at to keep your finger on the pulse of the economy?
POWELL: A single metric?
PELLEY: Just one thing that you look at and you think, "That really tells me something."
POWELL: I might be able to limit myself to 20 metrics. I could not identify a single one. I would say, you know, with the labor market there's so much. The labor market is the place where we have lots and lots of data, and better-quality data than a lot of places. And so all of us follow many things.
Inflation we tend to target. Headline inflation, which is total inflation including, you know, energy and food prices, that's our target. But we look at core inflation, which excludes energy and food prices because that tends to be a better indication of where things are going.
PELLEY: Why did inflation surge in 2021?
POWELL: You know, it's a complicated story as usual with economics. So, there were a number of factors. And I would say one big factor was just the effects of the pandemic. We did see inflation break out all over the world. And really, it was this unique event in modern history where the economy shut down briefly and then reopened.
And there were big effects in many countries, including in the United States, on the number of workers that were available. But when the economy reopened, there was a lot of pent-up demand. In addition, the things people spent money on, they couldn't spend money during the pandemic on in-person services.
So, no restaurants and things like that. So, they bought a lot, a lot of goods. So that was, all of those things were big. I think also, you know, there's certainly a role for fiscal policy, which supported people. Those are all for monetary policy, which supported the economy. There are many, many things. And I would say the same thing on the other side. Now that inflation's coming down, that too, is a story where there are many factors at work in having inflation come down.
PELLEY: There was a stupendous amount of government spending. To support the economy.
POWELL: Well, there was. You know, we had a situation where the CARES Act was passed unanimously by the House and Senate. I wonder if, when the last time that happened or the next time will be. Extraordinarily unusual. And it was because the pandemic really was so unique and the range of possible outcomes was broad, and not in a good way.
We didn't know how quickly there would be vaccines, for example. It could've been years. We didn't know how lethal the pandemic would be. So, people were very concerned about the economy.
Congress really stepped up, and we really stepped up, and you know, inflation came in March of 2021. And so that, that's really what happened. But it was a lot of different factors, some of which are just attributable to the shutting and reopening of the economy.
PELLEY: Was the Fed too slow to recognize inflation in 2021?
POWELL: So in hindsight, it would've been better to have tightened policy earlier. I'm happy to say that. Really, it was this. We saw what we thought was that this inflation, which seemed to be mostly limited to the goods sector and to the supply chain story. We thought that the economy was so dynamic that it would fix itself fairly quickly. And we thought that inflation would go away fairly quickly without an intervention by us.
That it would be transitory. And that was very widely held. Not unanimously, very widely held view of economists around the world. And that the data were kind of friendly to that assessment, to that hypothesis, right up to the point when they weren't.
And so in the fourth quarter of '21, it became clear that inflation was not transitory in the sense that I mentioned. And we pivoted and started tightening. And as I said, it's essential that we did that. It was critical that we did that. And that's part of the story why inflation's going down now.
PELLEY: Critical that you did that.
POWELL: It was critical that we do that, yes. We had to do that. And we did, and I'm glad we did. I don't think we'd be where we are. Again, we're not the only reason that inflation's coming down. But part of the story is that we stepped up and raised rates.
And so it is -- tight monetary policy is now working with the healing, really, on the supply side. The unwinding of those distortions from the pandemic that you know, that helped give rise to inflation in the first place.
PELLEY: Those sharp and repeated increases in interest rates were absolutely mandatory in your view?
POWELL: In my view, they were, yes.
PELLEY: Despite the pain they caused?
POWELL: Well, interesting, you know, we were being honest, and I was being honest in saying that we thought there would be pain. And we thought that the pain would likely come, as it has in so many past cycles, in the form of higher unemployment. That hasn't happened.
It really hasn't happened. The economy has continued to grow strongly. Job creation has been high. Unemployment is still, you know, bouncing around near 50-year lows. The labor market is very, very strong still. So really the kind of pain that I was worried about and so many others were, we haven't had that. And that's a really good thing. And, you know, we want that to continue.
PELLEY: A really good thing and a really curious thing. Most any economist would've told you that you'd have to have a recession to bring the rates down. And that didn't happen. And I wonder why?
POWELL: Yeah, it's historically unusual. And I think we'll be able to say much more definitively when we're looking back years from now what, why it is. But I'll tell you why I think it is. And that is that it was these pandemic-related distortions, both of demand and supply.
So with demand, we had people spending money so much on goods and not so much on services. And supply, if you look at the cars -- cars are a great example. You need lots and lots of semiconductors to build cars these days. I have to admit I wasn't actually that aware of that.
But there was a semiconductor shortage because so many people were buying goods that, that involve a lot of semiconductors. So, while demand for cars was spiking because people didn't want to ride public transportation, for example, and they're moving to the suburbs, while that's happening you can't get semiconductors, you can't make cars.
So, there's a shortage. So, what happened is inflation just spiked. But as the semiconductor supply came back, prices, the inflation has moderated a great deal. So really, these unique features of the pandemic did reverse in a way that brought inflation down.
PELLEY: So, this is not evidence that the American economy has changed in some fundamental and enduring way.
POWELL: As a result of the pandemic? I don't think we know that. I think a couple things. One is just work from home. That is a change. We do see that that looks like it'll be a persistent thing. And the jury is out on how frequent that will be or how prevalent that will be.
But that's a new thing, I think, that's different. And there will be other things that come out of the pandemic. We're much better now at communicating from home and from other places. Remote communication just suddenly was available and including with video. Suddenly we were making all of our calls on video. It was a new thing.
PELLEY: I have spoken to many young couples recently who have said they can't imagine how they could afford a mortgage today. What do you say to them?
POWELL: Well, Congress has given us the job of providing maximum employment and price stability. And that means when inflation comes, when high inflation really threatens to become persistent, we use our tools to bring down inflation. It's very important for that young couple -- and particularly for younger couples starting out who may not have great financial means, that we succeed in this effort.
And we will. We will do so. But what that means is that interest-sensitive spending like mortgages and buying, you know, durable goods and things like that, that's going to be expensive for a while. That's going to slow the economy down. But this is all part of getting back to a place of price stability when interest rates can be low again on a sustainable basis.
PELLEY: You're asking the American people for patience?
POWELL: Yes. And I think people have been patient and have been through a pretty difficult time. And I think now we're coming through that time and starting to feel a little bit better about things. Mortgages rates have come down in anticipation, come down a bit in anticipation of lower rates.
But, you know, we do what we're charged to do when we need to do it. And that was to try to slow the economy down a bit. And the interest to get inflation down in the interest-sensitive areas, particularly housing are, you know, a good example of the kinds of things that do slow down when rates go up.
PELLEY: Well, the housing market is falling. Hiring is also slowing at this moment. And I wonder if these are yellow flashing lights for a recession?
POWELL: So, we're watching really carefully. And I would say there's always a possibility of a recession at any given time. But I wouldn't say that that possibility of a recession isn't all elevated right now, and I'll tell you why.
We just finished a year in which the economy grew 3.1%. That's a really healthy growth rate. The fourth quarter growth rate was actually a little better than that. So, growth is fine. You're right -- the net hiring by businesses and nonprofits, the number is coming down.
But it's coming down from very, very high, unsustainably high levels. It's been gradually coming down. It's still at a very, very healthy level. I think 165,000 new jobs per month over the last quarter. That's a good number for an economy our size.
So, the labor market's still very healthy. We're highly attentive to any evidence of the labor market weakening. And, you know, on balance you'd have to say that what we're seeing, what we would have hoped to see, which is a labor market coming back into better balance from being overheated a couple of years ago to more normal data. So, the level of quits, the level of job openings, the level of new job creation, wage increases, all of those things are gradually coming back to what was typical of a really healthy economy before the pandemic.
PELLEY: How do you assess the national debt?
POWELL: We mostly try very hard not to comment on fiscal policy and instruct Congress on how to do their job when actually they have oversight over us. So, the national debt doesn't play a big role in our thinking. Doesn't play any role, actually, in our thinking. When Congress does deficit spending, that can be stimulative, that goes into our models. But we don't -- it's not our role at all to be a judge of fiscal policy in any way.
PELLEY: But is the national debt a danger to the economy in your review? You are this country's central banker.
POWELL: So, it, I would say this. In the long run, the U.S. is on an unsustainable fiscal path. The U.S. federal government's on an unsustainable fiscal path. And that just means that the debt is growing faster than the economy. So, it is unsustainable. I don't think that's at all controversial. And I think we know that we have to get back on a sustainable fiscal path. And I think you're starting to hear now from people in the elected branches who can make that happen. It's time that we got back to that focus.
I think the pandemic was a very special event, and it caused the government to really spend to ward off what looked like very severe downside risks. It's probably time, or past time, to get back to an adult conversation among elected officials about getting the federal government back on a sustainable fiscal path.
PELLEY: I have the sense this worries you very much.
POWELL: Over the long run, of course it does. You know, we're effectively -- we're borrowing from future generations. And every generation really should pay for the things that it, that it needs. It can cause the federal government to buy the things that it needs for it, but it really should pay for those things and not hand the bills to our children and grandchildren.
I think this is, again, not controversial. But it's difficult from a political standpoint. It's not our business, really. But I do think it's pretty widely understood that it's time for us to get back to putting a priority on fiscal sustainability. And sooner's better than later.
PELLEY: Urgent?
POWELL: You could say that it was urgent, yes.
PELLEY: The value of commercial office buildings all across the country is dropping as people work from home. Those buildings support the balance sheets of banks all across the country. What is the likelihood of another real estate-led banking crisis?
POWELL: I don't think that's likely. So, what's happening is, as you point out, we have work-from-home, and you have weakness in office real estate, and also retail, downtown retail. You have some of that. And there will be losses in that.
We looked at the larger banks' balance sheets, and it appears to be a manageable problem. There's some smaller and regional banks that have concentrated exposures in these areas that are challenged.
And, you know, we're working with them. This is something we've been aware of for, you know, a long time, and we're working with them to make sure that they have the resources and a plan to work their way through the expected losses. There will be expected losses.
It feels like a problem we'll be working on for years. It's a sizable problem. I don't think -- it doesn't appear to have the makings of the kind of crisis things that we've seen sometimes in the past, for example, with the global financial crisis.
PELLEY: You believe it's a manageable problem?
POWELL: I think it appears to be
PELLEY: We're not gonna see bank failures across the country as we did in 2008?
POWELL: I don't think there's much risk of a repeat of 2008. I also think, you know, we need to be careful about making proclamations about the -- particularly about the future. Things have surprised us a lot. But no, on this, on this, I do think it's a manageable problem. I think we're doing a lot to manage it.
There will be certainly -- there will be some banks that have to be closed or merged out of, out of existence because of this. That'll be smaller banks, I suspect, for the most part. You know, these are losses. It's a secular change in the use of downtown real estate. And the result will be losses for the owners and for the lenders, but it should be manageable.
PELLEY: One of China's largest real estate developers just went bust, and I wonder how you see the Chinese economy.
POWELL: Chinese economy's meeting some challenges now, obviously. And growth has slowed. They've got away -- gotten away from a market-led, led growth model. It's more about the state-owned enterprises now. And it's still too much associated with real estate investment and things like that. And you're seeing -- you're seeing issues around commercial real estate there.
So, the question is, "How much does that matter for the United States?" You know, we have -- our economic relations with China are important, but they mostly consist of our, you know, buying Chinese manufactured product. So, our financial system is not deeply intertwined with theirs.
Our economic, you know, our production systems are not deeply intertwined with theirs. So, as long as what happens in China doesn't lead to significant disruptions in the economy or the financial system, then the implications for the United States -- we may feel them a bit, but they shouldn't be that large.
PELLEY: How great is the threat of a cyberattack on the American banking system?
POWELL: So, American banks, and the government, and all of the people who support the banking system are very focused on cyberattacks. It's kind of a different risk, you know? The traditional risks are more -- you make bad loans, or depositors decide to take their money out of the bank, and things like that.
This is very different. And, you know, a lot of attention and a lot of spending and work goes into protection of financial institutions, not just banks, but financial market utilities, all kinds of financial companies -- to try to assure that this doesn't happen. You have to fight that battle every day. It's never going to be over. And so I just think we're really committed to doing, to doing exactly that.
PELLEY: Is the Fed doing enough to help these banks?
POWELL: I think we have a role. We do have a role. We're not the biggest role but we do have a role with the banks that we supervise and regulate to assure that they have good cyber defenses in place. So, yes, we play a role. Lots of parts of the government play a role in this. And the banks themselves invest enormous amounts of money in, in cyber protection.
PELLEY: And your level of confidence is what?
POWELL: It's day by day. I mean, this is the kind of risk that -- we're well aware of it, of course. And it tends to evolve. And, you know, the attackers are always improving their game, and the defenders have to be improving their game all the time.
And you've got to keep investing and staying caught up or getting ahead. That'll never stop. So, there'll never be a moment when you can take a breath and think, "Yeah, we've got this." It's just gonna be a race to keep up and protect these institutions. And so, that's what we're doing. That's what we've been doing for a number of years now. And we'll keep doing it.
PELLEY: Big picture, what would you say is the greatest threat to the world economy today?
POWELL: I think in the near term, I would point to the geopolitical risks. So, the global economy is broadly healing from the pandemic now. All over the world, you're seeing inflation come down. And -- but the thing that people are focused on is just the enormous -- there's a war going on in Ukraine. There's a war going on in the Middle East. And there's trouble, potential trouble in Asia.
And so, all of those things represent risks. Right now, the effects on the United States are less. I think Europe feels the war in Ukraine much more directly than we do and will feel the, you know, the diversions of shipping around the Cape -- around Cape Horn. That's going to affect Europe much more than it's going to affect us.
But I think those things in the near term. But overall, you know, people have been writing up, increasing their estimates of global growth lately. This year has started to look like a better year, but, again, those are, those are some of the risks in the near term.
PELLEY: You're more optimistic than pessimistic?
POWELL: On the global economy? Broadly, yes, subject to those risks. The question will be, "Do those risks blossom into something that is actually a major economic problem?" That hasn't happened yet. It could be the price of oil. It could just be the spreading conflict and the blow that that would strike to public confidence. But we don't see that yet. It's a risk. It's a real risk and one we're aware of.
PELLEY: What would you say is the single most important factor for the future of American prosperity?
POWELL: Single most important factor? Well, with your permission, I'll name two things. One is I think we need to just remember that we have this dynamic, innovative, flexible, adaptable economy. More so than other countries. And this is the big reason why our economy has come through so well.
Really, the credit for all of this is the United States economy, the households and businesses that have come through this. So, what did people do when the pandemic hit? They started businesses in record numbers. That's the kind of thing that over time, has led to greater productivity, which is the thing that leads to higher living standards. So, I think we need to remember that this is such a great thing that we have and celebrate that.
The other thing I'll point to, for the United States, is, you know -- in this role, I do spend a fair amount of time in international forums, basically with other central bank heads and also with other economic officials. And there's a real desire for American leadership.
Really, since World War II, the United States has been the indispensable nation supporting and defending democracy, security arrangements, economic arrangements. We've been the leading voice on that. And it is clear that the world wants that. And I would want the United States to know, people in the United States to know, that this has benefited our country enormously. It benefits our economy so much to have this role. And I just -- I hope that continues.
PELLEY: To engage with the world?
POWELL: To be engaged. Our engagement with the world is enormously beneficial to our country. And it's, you know, being the supporter and defender of democracy, the leader of the democracies -- and around security arrangements and economic arrangements, we've been a critical voice. And I just -- I hope that would continue for the benefit of the people that we serve.
PELLEY: You are in your second term as chair. And I wonder what you might like your legacy to be.
POWELL: I would just say -- I'm very focused on doing the job every day until I'm no longer doing the job. That's all you can really do. So many things are outside your control. So, I think I want to -- when I look back on this, I want to be able to say that I gave it my absolute best and that I did made the right decisions for the right reasons.
Some things aren't going to work out. Some things are. But, ultimately, if you made the right decisions for the right reasons in real time and you gave it your absolute best, that's what will enable me to feel, to look back and feel like I did the best I could.
PELLEY: I would argue that most people did not expect a soft landing to be possible. And yet, you appear to have pulled it off.
POWELL: Well, we haven't yet, I would say. I'm not prepared to say that yet. We have work left to do on this. But yes, it is a historically unusual result. And I think a lot of factors have gone into that. But, you know, I'm not counting those.
PELLEY: A follow-up, Mr. Chairman, to our banking line of question. You seem confident in the banks, and yet the Silicon Valley Bank, second largest failure in U.S. history. Did the Fed miss that?
POWELL: So, yes, we did. And I would say it this way. You know, that happened, and we forthrightly saw that we needed to do better. So, we've spent a lot of time working on ways to make supervision more effective and also to adapt regulation to a more, to a modern context in which a bank run can happen so much faster than it could have even 20 years ago. So, we have -- we accepted that right away. And, yes.
PELLEY: A bank run happening faster than it could have 20 years ago because of the communications that are available today?
POWELL: Yes.
PELLEY: It catches fire.
POWELL: Yes, with social media, and also the bank had a very high proportion of uninsured depositors who actually thought they had a reason to run. So, it was a very unusual -- it was a set of characteristics which was shared by a pretty small number of banks, a very small number of banks.
It wasn't the whole system. It was just those -- but I think we look back on it and say, "Supervision should have been more effective, and also we need to, we need to find regulations which are in force all the time." They need to be better at assuring that banks have appropriate liquidity and appropriate liquidity considering what their funding sources are. In this case, uninsured deposits were over 90% of all their deposits.
PELLEY: Have you made changes since then? And if so, what are they?
POWELL: We have. So, we're making changes steadily in supervision to make it more effective. And we're actually working on proposals now on the regulatory side. You know, we want to get this right. We want to learn the right lessons and get it right.
And so, we're working on those proposals on the regulatory side. And I think we'll be coming out with things this year for consideration, you know? When we do a rule, we send it out for comment. And then we read those comments, and we try to try to come to a good place.
PELLEY: This next follow-up question, Mr. Chairman, is about the stabilization of the labor market that we were talking about earlier. What are the important factors that caused the labor market to stabilize?
POWELL: One was just the return of workers. As I mentioned, several million people were just gone from the labor force for whatever reason. Many of them didn't want to go back to their old jobs because of COVID or because they just didn't want to be. They had moved on with their lives.
So, there was a desperate shortage of workers. And what happened is we expected people to come right back into the workforce in 2022. They mostly didn't. And then we thought, "Well, maybe that's not gonna happen."
And then, it happened in 2023. We had a combination of rising labor force participation in prime-age workers, and we also had with that, we had a resumption of immigration. So, there was really no immigration net in or very little during the pandemic.
But in 2023, we saw immigration move back up to the levels that would have been normal before the pandemic. And those two things together made a real difference in labor supply. So, it's really a supply story. That's the main thing I would point to.
PELLEY: Why was immigration important?
POWELL: Because, you know, immigrants come in, and they tend to work at a rate that is at or above that for non-immigrants. Immigrants who come to the country tend to be in the workforce at a slightly higher level than native Americans do. But that's largely because of the age difference. They tend to skew younger.
PELLEY: Why is immigration so important to the economy?
POWELL: Well, first of all, immigration policy is not the Fed's job. The immigration policy of the United States is really important and really much under discussion right now, and that's none of our business. We don't set immigration policy. We don't comment on it.
I will say, over time, though, the U.S. economy has benefited from immigration. And, frankly, just in the last, year a big part of the story of the labor market coming back into better balance is immigration returning to levels that were more typical of the pre-pandemic era.
PELLEY: The country needed the workers.
POWELL: It did. And so, that's what's been happening.
PELLEY: When will it be that we look back and fully understand what happened to the economy over these last few years?
POWELL: So, we're clearly making progress in getting through this now. You know, I would say that for the first time, inflation's coming down. The labor market's normalizing. Growth is returning. The composition of demand is returning to what it was.
So, we're getting there. But I think the last, the last bits of normalization are probably gonna take a couple of years. And this isn't big stuff. Just continuing normalization of the labor market and of the economy. Probably take a couple more years.
And then, we'll be looking back, and I think I've been reluctant to try to draw the big lessons until, 'cause they would have changed, you know? What we thought we were learning two years ago, we would look back and say completely different now.
Two years ago, we hadn't seen -- three years ago, we hadn't seen inflation come up. The last time we were together was April of '21, I think, and that was just before the big inflation surge arrived. So, I think we need to let that run, and I think we'll learn those lessons better starting in a couple of years.
PELLEY: You seem to be saying that bright days are ahead.
POWELL: Well, I would say it this way. The economy's strong. The labor market's strong. Inflation's coming down. There's no reason why that can't continue. We're gonna try to use our tools to give the economy -- to continue to improve as inflation comes down. We'll give it every chance to do that. That's our plan. We don't have a perfect crystal ball about the future, and things could happen. But I do think the economy is in a good place, and there's every reason to think it can get better.
More at the link: https://www.cbsnews.com/news/full-transcript-fed-chair-jerome-powell-60-minutes-interview-economy/
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See transcript in the previous post.
The first part of his comment on national debt blew me away:
PELLEY: How do you assess the national debt?
POWELL: We mostly try very hard not to comment on fiscal policy and instruct Congress on how to do their job when actually they have oversight over us. So, the national debt doesn't play a big role in our thinking. Doesn't play any role, actually, in our thinking. When Congress does deficit spending, that can be stimulative, that goes into our models. But we don't -- it's not our role at all to be a judge of fiscal policy in any way.
[Doug] What??!!
We spend 40% more than we take in, run trillion dollar deficits for a decade and now have two trillion dollar deficits year after year. Bigger deficits in a month than Reagan had in a year? You're our Central Banker and you think it's not your place to comment??!!
To quote John McEnroe, "YOU CAN'T BE SERIOUS!"
He then does go on to comment. This is "dangerous", "unsustainable", "urgent". Debt is growing faster than the economy. (That's just federal government debt, not credit card debt skyrocketing.)
"federal government ... really should pay for those things and not hand the bills to our children and grandchildren." We need an "adult conversation".
--------------------------------------------------
He make a different distinction than Crafty has regarding inflation and prices.
He wants inflation to come down ever so gradually, not instantly, to what I consider the criminally negligent level of 2% target inflation. He wants progress on that, not without setbacks, but progress on that. Prices OTOH and general price levels will never come back down and will keep going up. Get used to it.
They don't look at politics at all. He puts his "integrity" on that, but did mention they would start lowering interest rates (probably in summer) in time to help the struggling incumbent President and his party put a better face on the economy before the election.
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https://www.brainyquote.com/quotes/jimmy_connors_111471
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https://www.brainyquote.com/quotes/jimmy_connors_111471
"People don't seem to understand that it's a damn war out there."
- Jimmy Connors
Thank you. Here is Arthur Ashe: https://www.brainyquote.com/authors/arthur-ashe-quotes
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Math behind BTC, view on Full Screen
https://twitter.com/i/status/1755055909464658003
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DANG!
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https://www.msn.com/en-us/news/politics/maxine-waters-says-lawmakers-are-very-very-close-to-finalizing-stablecoin-regulation-bill/ar-BB1hXvJA?ocid=msedgntp&pc=DCTS&cvid=29c73ee3da6f46499410675e440e99b7&ei=30
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ETF inflows rising. Green bars larger than blue bars. BTC at 47K. If BTC goes over 50K, FOMO starts
(https://pbs.twimg.com/media/GF343l7WEAAy0WN?format=jpg&name=small)
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8-) 8-) 8-) 8-) 8-) 8-)
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Our dear federal banking regulators have banks searching for and reporting on terms associated with political affiliations. What could possibly go wrong?
https://legalinsurrection.com/2024/02/biden-treasury-admits-giving-banks-terms-like-maga-for-private-bank-transaction-searches/?utm_source=feedly&utm_medium=rss&utm_campaign=biden-treasury-admits-giving-banks-terms-like-maga-for-private-bank-transaction-searches
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Important read on markets, which seem to be going up. But not if adjusted for money printing
https://twitter.com/PrestonPysh/status/1470792753621741570 (https://twitter.com/PrestonPysh/status/1470792753621741570)
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Whoa , , ,
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BTC 48K
(https://pbs.twimg.com/media/GGAQbuqWIAAHbB3?format=png&name=small)
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BTC priced in different currencies, Argentinian peso, Turkish Lira, Lebanese Pound, Paki Rs, Nigerian Naira and Egyptian Pound
(https://pbs.twimg.com/media/GGEVshTXgAAd6To?format=jpg&name=medium)
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YA:
Someone sent me this:
www.franklintempleton.com/insights/disruptive-technology/digital-assets
What do you think of it?
Marc
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As predicted by our YA, the last few days have been very pleasant. Looks like we may be above 50 to stay, and therefore set to get traction?
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I mean they are generally right, but Fidelity has the most balanced and accurate takes on BTC. ARK is also good, particularly if you like to hear about million $/coin. Overall, I am very bullish, there is much going on in the background. Over 1ooK is very likely this year, not trying to get very bullish, but staying grounded.
- Investment advisors need to wait 3 months after a new ETF, to invest in them. We have not even seen peak FOMO as yet.
- All we need is a sovereign country like Saudi Arabia or Qatar to add BTC to their sovereign funds or Treasuries and price could double overnight.
- New FASB accounting regulations come into force at the end of this year, this makes it easy for companies to buy BTC directly.
- Europe still is missing some forms to allow them to buy US BTC ETF's.
- My suggestion is to have a plan as to when you will take profits this cycle, but never selling all your coins. Ofcourse, this depends on your age too. Once the parabolic run starts, BTC fever and greed can mess you up.
- My conservative case is 125 K, probable 200 K and bull case is 500 K for this cycle by 2025 end of year.
- Ofcourse, I cannot predict the future, so the above is hopium. :-D Black Swans do happen.
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BTC ETF flows continue to remain high
(https://pbs.twimg.com/media/GGWwtLJWwAAnTVo?format=jpg&name=medium)
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"Investment advisors need to wait 3 months after a new ETF, to invest in them. We have not even seen peak FOMO as yet."
This seems highly significant to me!
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A senior Wall Street guy sent me this:
https://www.marketwatch.com/story/correlation-between-bitcoin-and-stock-market-may-rise-again-its-all-about-etfs-1bcc3f9e?reflink=mw_share_email
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Depending on the time period looked at, BTC may correlate or not with the stock market. i.e. It can be both a risk on and risk off asset.
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BTC is at an all time high in 23 currencies, most in developing countries. But it reached an ATH in the Japanese Yen a top 4 currency. This is significant.
(https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F00e7093a-cc3e-43ed-8541-f3163554724f_1600x769.png)
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Martin Armstrong is calling for increased market volatility and a pull back and or consolidation in the Dow for Feb...he does expect 2025 and 2026 to be higher.
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With the opportunity created by the ETFs I have added to my positions what for me is a significant play.
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state of the gold vs btc etf. Gold is being demonetized, i.e. people are selling gold etfs/gold to buy BTC. Other data prove this (will post if I find it)
(https://pbs.twimg.com/media/GGds4sdXAAA2hGu?format=jpg&name=small)
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ETF flows should be monitored, these will fluctuate over time. The top 4 ETF's are now obvious. Note: that 900 new coins are mined every day, after April, new supply will shrink to 450/day. Current inflows (demand) are about 10x the daily supply. At some point, prices must go up.
(https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F9507bf32-3854-4283-8e82-7cc0b1d4bbc9_1996x1164.png)
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I am spread between the first three of these.
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GBTC has a 1.5 % fee, so selling is not useful, because of the potential tax consequences. In time, I suspect they will bring down their fees, or continue to slowly lose customers.
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I have been struggling with exactly that question. Thank you.
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Please all remember that BTC does pull back, so no one get over their skis. Though, my estimation is that the next 2 years 2024-2025 are likely to be up (based on past performance). And we all know what they say about past performance. :-)
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Factoid on Blackrock. They have 417 ETF's, which took in 10.4 Billion $, of which their BTC ETF took in half, at 5B$. This is one month after go live.
Big giants like BR and Fidelity love ETf's because once they add the BTC ETF to any of their index funds, everyone is buying them and they make billions in fees. As the value of the ETF goes up, their fees go up, so there is a vested interest in making the price go up.
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Zoom out
(https://pbs.twimg.com/media/GGk1iTSX0AERCZr?format=jpg&name=medium)
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BTC cope from the ECB. We are at the "then they fight you stage"..
(https://pbs.twimg.com/media/GG7WL-NXUAAvxan?format=jpg&name=small)
https://www.ecb.europa.eu/press/blog/date/2024/html/ecb.blog20240222~0929f86e23.en.html (https://www.ecb.europa.eu/press/blog/date/2024/html/ecb.blog20240222~0929f86e23.en.html)
After they published the below, BTC is up 197 %
(https://pbs.twimg.com/media/GG7ZyubawAA4K0u?format=jpg&name=small)
(https://pbs.twimg.com/media/GG751bIawAAU38R?format=jpg&name=small)
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Look at the upper panel on the right side, the retail guys are currently selling (red-orange), but the whales (large buyers owners of 100 + BTC, blue color) are holding.
(https://pbs.twimg.com/media/GG3XQAAWoAAeiJ5?format=jpg&name=medium)
An updated chart shows that even the small holders are now buying.
(https://pbs.twimg.com/media/GG8U2ALWoAAG0Xm?format=jpg&name=medium)
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Bitcoin has passed all-time highs in fourteen currencies.
https://twitter.com/i/status/1760638270462104048
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Gold funds are being demonetized. Money is moving from Gold Funds to BTC funds
(https://pbs.twimg.com/media/GHAikBjWAAApyA-?format=jpg&name=medium)
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BTC is becoming less volatile now. Other assets are becoming more volatile
(https://pbs.twimg.com/media/GGJ1r0AWAAImulh?format=jpg&name=medium)
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In Laos and Sierra Leone, if you hold 1 BTC, you hold a billion of their currency. Where the heck are these places ?
(https://pbs.twimg.com/media/GG9VEq0WsAATJeR?format=jpg&name=small)
(https://pbs.twimg.com/media/GG9VEqzXIAAEnLa?format=jpg&name=small)
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https://www.foxbusiness.com/politics/top-house-republican-says-biden-admin-abusing-power-target-bitcoin-miners
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Today the courts ruled against this..
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Watch the rate of inflow in $ or BTC to the ETF's. Even at 50 % of the current inflow rate, BTC will be over 100 K/coin by the end of 2024. However, this assumes no black swans, though some like war could actually expedite this.
(https://pbs.twimg.com/media/GHPHGeLbcAAf0gx?format=jpg&name=900x900)
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You mentioned a 90 day waiting period before the big funds can buy in or something like that. What does that period end?
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If you converted a million dollars into bolivars in 2013 — when Nicolás Maduro first came to power — and left it in an interest-accruing Venezuelan bank for the past decade, your current balance would be about 3 cents.
These policies have these consequences.
Don't let anyone here say what Venezuelans said then, it can't happen here. Yes it can.
https://www.thetimes.co.uk/article/venezuelas-currency-is-so-worthless-theres-no-point-hiding-pins-zrd7xrjxf
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BTC up 7% yeseterday and 4% this morning.
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Up 5% today!
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You mentioned a 90 day waiting period before the big funds can buy in or something like that. What does that period end?
Around the halving in April. Yesterday Blackrock Quant at a conf recommended a 28 % allocation.
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Looks like serious amounts of big money are waiting for someone else to go first and give them justification to do what they want to do anyway, yes?
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Apparently COINBASE had big glitch today but it seems to be straightening out.
"We are starting to see Coinbase.com activity normalizing. We will continue to monitor our systems and provide updates."
==========================
Recent recommended readings from its website today:
https://www.dlnews.com/articles/markets/bitcoin-passes-57k-as-blackrock-etf-hits-insane-daily-volume/
https://blockworks.co/news/stop-worrying-bitcoin-halving-miners
https://www.dlnews.com/articles/markets/fundstrat-tom-lee-on-why-bitcoin-to-hit-500k-usd-in-5-years/
https://www.coindesk.com/markets/2024/02/28/bitcoin-bulls-target-69k-lifetime-highs-ahead-of-halving/
https://www.coindesk.com/markets/2024/02/26/first-mover-americas-bitcoin-correction-could-be-approaching/
https://www.coindesk.com/markets/2024/02/22/worldcoin-gains-40-hits-record-high-as-ai-tokens-surge-on-nvidia/
https://decrypt.co/219226/ethereum-gains-bullish-sentiment-institutional-interest
https://www.dlnews.com/articles/markets/how-to-trade-bitcoin-markets-like-a-pro-in-the-etf-era/
https://beincrypto.com/on-chain-indicators-bull-market/
https://www.coindesk.com/business/2024/02/28/morgan-stanley-evaluating-spot-bitcoin-etfs-for-its-giant-brokerage-platform-sources/
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https://www.westernjournal.com/largest-cryptocurrency-exchange-site-crashes-massive-surge/
:-o
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GBTC still has some selling going on, this relates to some funny business Barry Silbert was involved in. This will subside soon.
(https://pbs.twimg.com/media/GHitZfKW0AAI2x0?format=jpg&name=medium)
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This is not a new idea, but certainly a well articulated one, as to what the end game for the sovereign default crisis may be. A corollary of this is that the US govt confiscates Bitcoins from Blackrock etc and gives ETF holders the fiat value. This is why holding real BTC is best, but is complicated for most.
In other important news, CEO of Vanguard got fired. He was against BTC, his clients missed a 50 % move by refusing to offer BTC ETF's.
https://twitter.com/stackhodler/status/1763500294481092952 (https://twitter.com/stackhodler/status/1763500294481092952)
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https://arbitrageandy.substack.com/p/the-crypto-bull-market-is-here?utm_source=substack&utm_medium=email
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Gold ETF's are losing funds (are being demonetized), while BTC ETF's are gaining funds. Overtime, BTC will exceed the Gold market cap of 11 Trillion, which should be worth 500 K in BTC terms.
(https://pbs.twimg.com/media/GHmf3OMXoAAFBoi?format=jpg&name=small)
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Yes.
In my simplistic way, I have been making this point in conversation when someone starts with the "BTC has no actual substance" argument. I point out that apart from some proportionately minor applications, gold is but a fiction too, being a cruder version of the blockchain concept as a protection against value debasement and that BTC is simply a better version of the "store of value" function of money.
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https://www.mecmining.com.au/top-5-uses-of-gold-one-of-the-worlds-most-coveted-metals/#:~:text=Arguably%20the%20most%20important%20industrial,connecting%20wires%20and%20connection%20strips.
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what are the 4 biggest banks in US :
https://www.politico.com/news/magazine/2024/03/01/big-bank-regulation-column-00144104
"too big to fail"
one fails the whole economy is at stake....
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My favorite BTC bull video, sound on.
https://twitter.com/i/status/1221866308662448128 (https://twitter.com/i/status/1221866308662448128)
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Page does not exist.
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Try this
https://youtu.be/nJeddv1QbeQ
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Free BTC booklet, by the amzing Anil Patel
https://thebitcoinhandbook.com/
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(https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fed9dad9b-f2b5-4355-80b3-1c667cb30a62_524x499.jpeg)
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https://1drv.ms/b/s!AtUhx4XAwKlQg1hwX1ByFxsikWB4?e=FtGZkd
Friend of Crafty's here. Honored to be let in. If the topic of Bitcoin interests you, I wrote a paper covering the dynamics and cycle history (see link above).
Mostly macro and technical analysis. If you look at page 18 you'll see a break from the fibbionaci channel. This indicates a break from the pattern of previous patterns. I suspect that it has to do with the Bitcoin ETF that dropped in December. This indicates a potential supercycle, left translated cycle, or something else. As such, I've shifted my strategy to utilize realtime indicators such as RSI data, Stock to flow models, simple moving averages, interest rate vs risk on asset correlations, liquidity cycle/bitcoin cycle overlays, whale metrics, and google trend data.
I saw what's happening as a potential outcome. So I built in adaptability into my investment strategy (see page 22: offsetting blackswans/risk management). My personal investment strategy is based around leveraging liquidity drips, and investing in layer 2 and 3 networks built on layer 1 networks with high survivability (like Hbar, has many partners in the defense industry like Boeing as well as google and others-they will rely on this network for infastructure and won't let it die).
I started with 10ishk$ in december, I have approximately 43k now (not cashed out). So it's been working out fairly well.
In regards to bitcoin: The universe consists of networks and cycles at a macro level, and energy and frequency at a micro level. This cycles expand and contract like they are breathing, and their expansion and contractions effect other networks and the cycles within them, depending on how closely they are correlated. This applies across domains. According to Strauss–Howe generational theory, every 100ish years we experience major shifts in the established systems, and chaos occurs (a reorganization of these networks). These are "phasal shifts". In phasal shifts, asymmetric strategic advantages lie in the hands of smaller players who are the most adaptable (due to rapidly changing environment) and able to identify the highest points of leverage for maximal ROI.
While some see chaos as a threat to established systems, or something to be viewed with fear, phasal shifts offer opportunities to smaller players, if they can identify points of leverage. In economics we are seeing a phasal shift from traditional sources of power (banking, ect.) to decentralized digital networks (de-fi, bitcoin). The highest points of leverage for smaller players are the emergent networks that have highest levels of survivability (this offsets risk) and growth potential (this is the level of leverage). The optimal strategy for a smaller player (someone who's not a gazillionaire like Elon musk or Jeff Bezos), is to identify the highest points of leverage in these emergent networks and hop on the ride.
Cross domain application: This applies to all things. In Judo, for example the highest point of leverage for a smaller judoka is to create chaos in the enviornment (pull opponent off balance), then leverage it with their own weight and body mechanics. In relationships: A smaller player may not be able to pick up the phone and call Elon Musk or Bill Gates, but do you know what he can do? Wait for a transitional environment (emergence of AI for example), then identify, make partnerships/friendships with the future Elon Musks of that domain.
"If you know the way broadly you will see it in everything"
-Miyamoto Musashi
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https://1drv.ms/b/s!AtUhx4XAwKlQg1hwX1ByFxsikWB4?e=FtGZkd
Friend of Crafty's here. Honored to be let in. If the topic of Bitcoin interests you, I wrote a paper covering the dynamics and cycle history (see link above).
….
"If you know the way broadly you will see it in everything"
-Miyamoto Musashi
Welcome aboard!
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Welcome aboard, Musashi. BTC is time.
(https://pbs.twimg.com/media/GH2gcEFXkAA9qqc?format=jpg&name=small)
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https://decrypt.co/220440/blackrock-bitcoin-etf-778-million-btc-all-time-high
https://decrypt.co/220493/bitcoin-etf-state-retirement-system-pension-government-workers
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Its a matter of time, every pension fund will allocate a few percent to their retirement funds. Studies show the returns improve significantly, considering that most pension funds are not doing well.
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Sounds like the beginning of a FOMO wave , , ,
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Welcome aboard, Musashi. BTC is time.
Some are starting to suspect it's also power
https://www.youtube.com/watch?v=yfYDSE7T_cQ&t=20s
There's an Airforce major named Jason Lowery who presented a thesis that bitcoin will be used as a means to wage war in cyberspace. Honestly, his explanation may be a bit too convoluted than it needs to be, but I don't really blame him, it's a fairly abstract idea.
Essentially, BTC will act as a means of exerting soft power through resource application. BTC will kind of act like the cyberspace version of "gold", and other web3 networks will resemble nations with their own local currencies (XRP, Polygon, Polkadot, ect.).
You can exert power over other nations and actors via BTC by using transactions as sort of a defensive paywall (you send BTC to address 1 from address 2 and we sent it back along with access).
That's the simplest way of explaining it, but don't take it as gospel, I'm gonna have to read his book to confirm this is the proper interpretation, probably will try to contact him and talk about it someday if I get the opportunity and the right lines.
I suspect nations are going to start buying up BTC in the future as well, just a matter of time. There are some rumors that an oil state is doing just that right now in fact. Just rumors. Fatwah committees in Oman and UAE just recently declared BTC halal a year and a halfish ago, so it wouldn't be too surprising. If it's true, I'd guess Dubai, Oman, or Saudi Arabia based on Fatwahs and recent legislative regulations.
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Woof Blue Light-- good to see you here. Please take a moment to introduce yourself at:
https://firehydrantoffreedom.com/index.php?topic=961.550
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Great note by Stackhodler.
https://twitter.com/stackhodler/status/1766045760477372603
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Welcome aboard, Musashi. BTC is time.
Some are starting to suspect it's also power
https://www.youtube.com/watch?v=yfYDSE7T_cQ&t=20s
There's an Airforce major named Jason Lowery who presented a thesis that bitcoin will be used as a means to wage war in cyberspace. Honestly, his explanation may be a bit too convoluted than it needs to be, but I don't really blame him, it's a fairly abstract idea.
Essentially, BTC will act as a means of exerting soft power through resource application. BTC will kind of act like the cyberspace version of "gold", and other web3 networks will resemble nations with their own local currencies (XRP, Polygon, Polkadot, ect.).
You can exert power over other nations and actors via BTC by using transactions as sort of a defensive paywall (you send BTC to address 1 from address 2 and we sent it back along with access).
That's the simplest way of explaining it, but don't take it as gospel, I'm gonna have to read his book to confirm this is the proper interpretation, probably will try to contact him and talk about it someday if I get the opportunity and the right lines.
I suspect nations are going to start buying up BTC in the future as well, just a matter of time. There are some rumors that an oil state is doing just that right now in fact. Just rumors. Fatwah committees in Oman and UAE just recently declared BTC halal a year and a halfish ago, so it wouldn't be too surprising. If it's true, I'd guess Dubai, Oman, or Saudi Arabia based on Fatwahs and recent legislative regulations.
Yes, we discussed Lowry's book a while ago. Nation State Game Theory is coming soon. Edward Snowden says a large nation holding BTC in their treasury will be declared this year.
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Welcome aboard, Musashi. BTC is time.
Some are starting to suspect it's also power
https://www.youtube.com/watch?v=yfYDSE7T_cQ&t=20s
There's an Airforce major named Jason Lowery who presented a thesis that bitcoin will be used as a means to wage war in cyberspace. Honestly, his explanation may be a bit too convoluted than it needs to be, but I don't really blame him, it's a fairly abstract idea.
Essentially, BTC will act as a means of exerting soft power through resource application. BTC will kind of act like the cyberspace version of "gold", and other web3 networks will resemble nations with their own local currencies (XRP, Polygon, Polkadot, ect.).
You can exert power over other nations and actors via BTC by using transactions as sort of a defensive paywall (you send BTC to address 1 from address 2 and we sent it back along with access).
That's the simplest way of explaining it, but don't take it as gospel, I'm gonna have to read his book to confirm this is the proper interpretation, probably will try to contact him and talk about it someday if I get the opportunity and the right lines.
I suspect nations are going to start buying up BTC in the future as well, just a matter of time. There are some rumors that an oil state is doing just that right now in fact. Just rumors. Fatwah committees in Oman and UAE just recently declared BTC halal a year and a halfish ago, so it wouldn't be too surprising. If it's true, I'd guess Dubai, Oman, or Saudi Arabia based on Fatwahs and recent legislative regulations.
Yes, we discussed Lowry's book a while ago. Nation State Game Theory is coming soon. Edward Snowden says a large nation holding BTC in their treasury will be declared this year.
Yes, it's a very interesting thesis. There was a period of time where the DoD asked him to take it off the shelfs and the only way to get the book was to shell out 5k on ebay. Not sure if that's still the case.
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Woof Blue Light-- good to see you here. Please take a moment to introduce yourself at:
https://firehydrantoffreedom.com/index.php?topic=961.550
Will do!
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Great note by Stackhodler.
https://twitter.com/stackhodler/status/1766045760477372603
I 100% agree with this, especially now. Macro models and previous cycles used to be more or less reliable, but the ETF's completely threw a wrench in everything. Short term analysis doesn't work at all now, nothing works really. I always tell people when they ask, I only know what will happen over the next 4 months (the price is going to go ballistic, due to the fact that it broke historical resistance and there's no longer any upward foundation holding it back).
Beyond that, there's no previous models that make any of this situation even remotely predictable.
Personally, I'm relying on real time indicators like selling when retail is fully fomo'd and following the whale wallets; selling when they start to sell. Real time indicators are the only reliable metric at this point. Because we're not doing the standard BTC cycle thing anymore.
Maybe things will be clearer in hindsight, but whatever this is, it's something completely new and is probably going to surprise everyone in many different ways, myself included.
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(https://pbs.twimg.com/media/GILHsCsWoAEgqM0?format=jpg&name=medium)
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(https://pbs.twimg.com/media/GILHsCsWoAEgqM0?format=jpg&name=medium)
Wow, bitcoin is at 72k (US$) this am! https://www.tradingview.com/symbols/BTCUSD/
What I read into the list of world's top currencies is that there is no competitor to the US$ (other than blockchain/bitcoin)
https://bitcoinist.com/brics-nations-challenge-us-dollar-dominance/
Let's see, the Canadian dollar is no. 6 in the world(?) and has a lousy reputation for holding its value. Russia and China are further down - and tied to communism, tyranny and oppression. Britain and Japan are based on smaller markets than the US, less global. The Euro is the only one tied a bigger base economy, but not a better or stronger one.
The world (OPEC etc) didn't choose the US$ because they liked us; the chose it because it was the most stable, universally accepted currency (at the time).
If we (US) are going to lose reserve currency status (and maybe we already have), we will have to address our deficits, debt problems like all the others or go the way of Argentina, Venezuela and the broke third world.
Since we will have to reform later (any minute now), why not address those issues now?!
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📝 What you need to know
Bitcoin keeps climbing, shooting past $72,000 on Monday morning and topping the market cap of silver in the process. The leading cryptocurrency now has a market cap above $1.4 trillion.
Amid Bitcoin's record-breaking run, MicroStrategy is still buying. The software firm added 12,000 BTC, which means that it now holds more than every other corporate treasury combined—$14.7 billion worth.
Crypto funds are feeling the love too: They took in a record $2.7 billion worth of investment last week, per CoinShares, the vast majority of which went into Bitcoin ETFs.
Even Donald Trump is coming around to Bitcoin. The former U.S. President told CNBC Monday that he has "fun" with BTC and other "crazy new currencies," and the presumptive Republican candidate suggested that he'd support crypto if elected again.
https://decrypt.co/221140/bitcoin-halving-sooner-than-you-think
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https://decrypt.co/221313/grayscale-bitcoin-mini-trust-gbtc-outflows
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https://abcnews.go.com/US/counterfeiting-modern-age/story?id=108005573
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https://decrypt.co/221549/as-bitcoin-etfs-gain-1-billion-in-one-day-analyst-warns-of-liquidity-crunch
https://decrypt.co/221545/coinbase-stock-jumps-following-plans-1-billion-convertible-notes-sale
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Amazing how little reporting is being done on this front. You don’t think the media is in the pocket of a certain administration, do you?
https://pjmedia.com/chris-queen/2024/03/13/bidenflation-is-even-worse-than-you-think-n4927264
PS: Note I added the word "Inflation" to the subject line for you!
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(https://pbs.twimg.com/media/GIlrl73WEAAVlPc?format=jpg&name=medium)
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Watch the inflows
(https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F957f1d3c-e606-4ee2-a97e-d4e1afbac225_1231x661.png)
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BTC 72k is amazing (But nobody says sell).
I was most impressed when it fell from 60 to 20 and then held, went down no more. When it failed to fall further is when neutral skeptics knew it was here to stay and would rise again to higher highs.
https://www.tradingview.com/chart/?symbol=BITSTAMP%3ABTCUSD
Another indicator that ya and others were right was that gold did not skyrocket with inflation this time.
https://goldprice.org/gold-price-charts/5-year-gold-price-history-in-us-dollars-per-ounce
That tells me something has changed.
If gold is not the hedge, and real estate is loaded with land mines, taxes, regulation, squatting, lawfare, etc., then what is the hedge against governments mismanaging their countries and currencies? I don't know like the volatility of bitcoin but what else is there?
With great upside potential confirmed, the most helpful predictions going forward will be what are the future lows again for buying.
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What goes up must come down—with crypto, it's almost certain. After notching a new all-time high near $74,000 yesterday, Bitcoin dipped as low as $65,848 this morning, and Ethereum thumped $3,700.
Why the bloodbath? Analysts pointed to $800 million in liquidated short positions, unexpectedly high inflation figures, and Grayscale moving to sell off $400,000 million of Bitcoin.
At the start of the week, Donald Trump raised (more) eyebrows when he seemed to backtrack from previous criticism of Bitcoin and crypto. Now, a new poll shows that crypto holders favor him for U.S. Commander In Chief, 48% to 39% over President Joe Biden.
We knew El Salvador President Nayib Bukele was a big Bitcoin backer, but in announcing that he was moving a sizeable chunk of his nation's holdings to a cold-storage wallet to be kept in a vault, he also revealed a Bitcoin wallet address that's holding 5,689 BTC—far more than previously estimated.
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I suspect he's positioning El Salvador to be a tech hub to attract entrepreneurs and tech talent and such. Same manner as Abu Dhabi. I think they both will be quite successful, a bit more than I'd like. They may end up "brain-draining" the west of the next generations of Elon Musks and Bill Gates.
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and thus wage stagflation also likely due to illegals:
https://www.marketplace.org/2024/03/15/recent-immigrants-have-filled-labor-gaps-boosted-job-creation-experts-say/
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My prediction ! We should touch 100 K BTC latest by Oct 2024, possibly within 30 days. Note: I have no crystal ball, just an informed guess. Dont take this seriously.
Enjoy the video for those thinking about buying BTC
https://twitter.com/i/status/1769027637182394541 (https://twitter.com/i/status/1769027637182394541)
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That is very funny.
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BTC hopium from Tim Peterson. He is very conservative, posted a chart showing BTC at 1 million in 2 years
(https://pbs.twimg.com/media/GI4NR9NXMAASvKt?format=jpg&name=medium)
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An important thread by Balaji
https://twitter.com/balajis/status/1769453767140008161 (https://twitter.com/balajis/status/1769453767140008161)
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How Bitcoin Made a Believer Out of BlackRock
CEO Larry Fink’s U-turn illustrates Wall Street’s growing desire to capitalize on a market long considered the Wild West of finance
ILLUSTRATION: ALEXANDRA CITRIN-SAFADI/WSJ
By Vicky Ge Huang
March 10, 2024 5:30 am ET
One of crypto’s erstwhile doubters is helping to take bitcoin mainstream.
Larry Fink, the chief executive officer of BlackRock BLK -0.77%decrease; red down pointing triangle, called bitcoin “an index of money laundering” back in 2017 and later rebuffed cryptocurrencies as something his clients weren’t looking to buy.
Today, he says he is a big believer in bitcoin. His firm manages the fastest-growing bitcoin fund and has forged partnerships with some of the largest players in the digital-assets industry.
The U-turn Fink is making at BlackRock has lent legitimacy to bitcoin and signals Wall Street’s growing desire to capitalize on a market that has long been considered the Wild West of finance. By selling bitcoin in a low-cost and popular exchange-traded fund, BlackRock opened the door for mainstream investors to buy and sell bitcoin as easily as stocks.
“We view a core part of our mission as providing choice and access,” Rob Goldstein, BlackRock’s chief operating officer, said in an interview. “This is an important topic for our clients.”
Court rules in favor of Grayscale
SEC approves spot bitcoin ETF
July 2023
'24
20,000
25,000
30,000
35,000
40,000
45,000
50,000
55,000
60,000
65,000
70,000
$75,000
Bitcoin’s resilience played a hand in that decision, too. The token’s short history has been dotted with crashes. Yet after each bust, another boom cycle began that attracted more investors. Today, Bitcoin prices are back at record levels and flirting with $70,000, a run that seemed improbable 16 months ago, when the crypto exchange FTX collapsed in spectacular fashion. Bitcoin prices were hovering near $16,000 at that time.
Industry critics said they are surprised by BlackRock’s embrace of crypto in light of the reputational risk the company faces in offering its clients exposure to such a volatile asset.
John Reed Stark, former chief of the Securities and Exchange Commission’s Office of Internet Enforcement, said it is obvious that companies such as BlackRock are in the game for the fees.
“The irony is transparent and glaring in that it’s supposed to be decentralized, yet what is more decentralized than a Wall Street behemoth who is taking fees from every single possible angle and peddling something that nobody understands,” he said.
Feb. 2024
March
0
100
200
300
400
500
600
700
800
$900
million
BlackRock currently earns an average fee of about 0.19% on assets in its bitcoin ETF. The fund has already hit its fee waiver threshold, which specifies that investors pay 0.12% for the first $5 billion in assets or the first year of the fund’s launch. After the first year, the fee will rise to 0.25%.
BlackRock maintains that it studied the crypto industry for years to come up with a digital-assets strategy and is giving its customers what they want. And bitcoin’s rebound following the 2022 crypto meltdown gave BlackRock conviction to stick to that strategy, according to people familiar with the matter.
BlackRock
Fidelity
ARK 21Shares
Bitwise
Valkyrie
Invesco Galaxy
Franklin Templeton
WisdomTree
VanEck
Grayscale
-$10 billion
-$7.5
-$5
-$2.5
$0
$2.5
$5
$7.5
$10
BlackRock deserves some of the credit for the latest leg of the rally in bitcoin. Of the nine ETFs holding bitcoin that launched in January, its iShares Bitcoin Trust is leading the pack in net inflows. In fact, the ETF is the fastest ever to draw more than $10 billion in assets.
Many mainstream investors began loading up on bitcoin in June when BlackRock entered the race to launch the first fund because of the asset manager’s near-perfect record with ETF applications. A court ruling that forced the SEC to reconsider a competitor’s application added fuel to the fire.
Dennis Kelleher, president and CEO of Better Markets, a group that advocates for oversight of the financial sector, said it is no surprise that BlackRock is quickly becoming a market leader in bitcoin.
“BlackRock has an unmatched market penetration with a peerless distribution network and a marketing powerhouse,” he said. “All of these attributes provide Main Street investors with false comfort.”
BlackRock is taking a view on crypto that is drastically different from that of Vanguard, its biggest rival. Founded by the legendary investor Jack Bogle, Vanguard has said it has no plans to create a spot bitcoin ETF and won’t offer crypto-related products on its brokerage platform. The asset manager, which oversees $8.7 trillion in assets, called bitcoin “more of a speculation than an investment” in a recent blog post.
BlackRock says its digital-assets strategy is based on years of study. PHOTO: JIMIN KIM/SOPA IMAGES/ZUMA PRESS
Beyond the bitcoin ETF, BlackRock has developed partnerships with some of crypto’s biggest players. It holds a minority stake in the stablecoin company Circle Internet Financial and manages more than $25 billion in reserves backing Circle’s USD Coin in a government money-market fund.
BlackRock also teamed up with the crypto exchange Coinbase Global to provide users of the asset manager’s Aladdin software platform with direct access to crypto through an integration with Coinbase’s institutional arm, and BlackRock manages a private bitcoin trust for professional clients. The majority of the clients in the trust, which had grown to more than $250 million in assets, have since moved their money to the new ETF, according to people familiar with the matter.
BlackRock’s embrace of bitcoin was gradual. During the pandemic, Rick Rieder, the firm’s chief investment officer of global fixed income, started dabbling in bitcoin futures in his funds. Robbie Mitchnick, BlackRock’s head of digital assets, also helped convert Fink into a bitcoin believer, according to people familiar with the matter.
2022 was the year that Fink’s stance on digital assets began to change visibly.
On an April conference call that year, he said his firm was studying the crypto sector broadly and seeing increased interest from clients. That same month, BlackRock invested in Circle’s $400 million funding round, and by the summer BlackRock had quietly launched the private trust—its first-ever spot bitcoin product for U.S. institutional clients. The company seeded the fund with its own money and expanded it with outside investors.
That year, BlackRock also unveiled a partnership with Coinbase to allow institutional clients who own bitcoin on the crypto exchange to use Aladdin, its suite of software tools, to manage their portfolios and conduct risk analysis. BlackRock now uses Coinbase as a custodian for its spot bitcoin ETF.
BlackRock’s crypto ambitions today extend beyond bitcoin. The asset manager has a pending application with the SEC to launch an ETF holding ether, the second-largest cryptocurrency after bitcoin and the in-house token on the Ethereum blockchain. The regulator has a May deadline to act on several such applications.
Write to Vicky Ge Huang at vicky.huang@wsj.com
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https://decrypt.co/222180/bitcoin-bull-run-most-robust-history-glassnode
https://decrypt.co/222155/bitcoin-150000-2024-standard-chartered-forecast
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(https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fd6ee9181-3f3d-4a41-8b38-50d76141b52f_1080x1350.jpeg)
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YA:
What is your message here?
The last time I remember seeing this term was during the Dotcom bubble.
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https://safehavenvaults.com/gold-storage/
and pay for the storage fees with BTC ! :-D
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There was some 'unusual activity" on BitMex last night. A user wanted to sell a lot of Bitcoin very quickly and for 10 minutes, BTC went as low as $8.9K on the exchange. Yeowch.
Markets have since recovered a bit, but there's still a lot of red across the board.
Bankrupt crypto lender Genesis has reached a $21 million settlement with the SEC that includes a permanent injunction. But don't worry creditors and customers: It specifies you'll get your money before the regulator.
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EBITDA: Great explanation, for people less familiar with it.
BTC should never be shorted, or purchased on leverage. That way, you wont lose your position. people with money place market orders to catch these kind of moves.
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(https://pbs.twimg.com/media/GJEW4-hW4AAtVA7?format=jpg&name=medium)
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Those following BTC, most of the decline is due to the massive selling by GBTC. Yesterday was 7000 BTC and day before 9600 BTC. Infact, GBTC CEO came out and said, at some point, they will reduce the fees. GBTC has lost half its stack so far. Not clear what is happening or why they are doing this to themselves, probably related to the shenanigans of Barry Silbert/DCG. DCG is bankrupt and they need the high fees to pay off that debt.
Having said that historically, previous 2 halvings have had similar volatility at this stage of the cycle, so this is not outside the ordinary. I still think July-Oct will be a an excellent period, thats what my interpretation of the tea leaves suggest.
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For the few of us hear who will remember Fay Voshell from previous boards:
https://www.americanthinker.com/articles/2024/03/the_gospel_of_bitcoin.html
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I remember Fay! Looks like she can still write!
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https://hotair.com/david-strom/2024/03/18/larry-summers-inflation-much-worse-than-government-says-n3784904?utm_source=piano&utm_medium=email&utm_campaign=rundown&pnespid=telqUy5YLvsQ2vmerCixAsyHvR61DpRldOK8xrRupUxm.7Q2Ya9jfq9VLZj04P9NmZB6IVdl
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and yes inflation is obviously worse
one only has to go to the food store to see everything is up big.
who would have guessed all the government numbers would be slanted
crime is down
inflation near goal
wages up
unemployment down
employment all time high
great replacement theory is nonsense
darien gap is nonsense (far right wing)
on and on
lying to our faces
and yet so many in America just want the government to take care of them.....
and are very happy with this.
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The point about the role of interest rate increases being part of the cost of living was new to me.
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Follow the Gold Telegraph on Twitter
Authored by Alex Deluce.
Subscribe to the free newsletter here:
https://www.goldtelegraph.com/gt-community/
This year is shaping up to be a transformational year.
Russia and China's energy trade is soaring.
China continues to encourage Gulf nations to utilize the Shanghai Petroleum and Natural Gas Exchange for yuan-based oil and gas trade settlement.
This includes:
Saudi Arabia
United Arab Emirates
Qatar
Kuwait
Bahrain
Oman
As BRICS expanded on January 1st, with Saudi Arabia and the United Arab Emirates leading the movement to this economic bloc; it's highly expected that more and more local currencies will play a role in trade.
In fact,
China said last August that BRICS members should study local currency cooperation payment tools and platforms and promote local currency settlement, and members should strengthen cross-border payment cooperation.
Saudi Arabia's Foreign Minister also commented that the Kingdom is the largest BRICS trading partner in the Middle East in total bilateral trade with the countries of the group exceeding $160 billion in 2022.
$160 billion. This is massive.
This brings us back to the issue of the petrodollar and its impact on the United States.
The connections between the dollar and global energy markets have deep historical roots, such as the 1945 agreement between President Franklin D. Roosevelt and King Abdulaziz Ibn Saud, which traded Saudi energy supplies for U.S. security guarantees.
Over time, a substantial portion of petrodollars earned by oil producers were reinvested in assets like Treasury bonds.
But today?
We are witnessing many nations divesting from their U.S. treasuries and diversifying their reserves into assets like gold.
This was kicked into high gear following the United States and its allies' decision to freeze around $300 billion of sovereign Russian assets in the West in early 2022.
This year alone, we saw 20% of oil transactions settled in currencies other than the dollar.
As Saudi Arabia prepares to officially join BRICs, the influence of the petrodollar may begin to wane gradually.
One of the most fascinating things in 2023 was when billionaire mining legend Robert Friedland said that he had been to Saudi Arabia 10 times in the last year and that there was a very active effort from about half of humanity to break the dollar.
He also mentioned that an alternative to the dollar is being worked on, which will likely be backed by precious metals and base metals in an actual basket
Saudi Arabia is strategically taking minority stakes in global mining assets worldwide as part of its Vision 2030 to diversify the economy beyond oil.
The goal is to transform the Kingdom into a resource hub, particularly for minerals like copper, in response to the global transition that demands increased mineral production due to shortages in many key elements.
It is a brilliant strategy.
It makes even more sense if these elements start to assume a more prominent role within the framework of the global monetary system.
Saudi Arabia's mineral endowment is worth an estimated $1.3 trillion and the Kingdom is also considering establishing gold refineries.
If BRICS does indeed back a trading currency with hard assets, no doubt, Saudi Arabia will play a major role.
China is the largest producer of gold.
Saudi Arabia is the leader of OPEC and the OPEC+ group and is the second-largest oil producer.
Saudi Arabia is China's second-largest oil supplier after Russia, and the two countries extensively deepened their ties in 2023.
In early 2023, Saudi Arabia said the country was open to discussions about trade in currencies other than the U.S. dollar.
In November, China and Saudi Arabia signed an agreement to set up a currency swap line worth around $7 billion.
This deal ensures that Saudi Arabia has access to the Chinese currency at a fixed exchange rate, and Beijing has the same access to the Saudi riyal.
With the rise of central bank digital currencies, the strategic acquisition of global mining assets and the development of domestic mining resources by BRICS member countries, coupled with the ongoing evolution of global commodity markets, 2024 appears poised to be a transformative year on multiple fronts.
I believe strongly in my thesis.
Years ago, I mentioned how gold will slowly morph into international trade in a digital structure as nations will need stability, and gold provides that.
Currencies around the world are starting to breakdown.
If you would like to learn more and follow my writing, please subscribe to my FREE weekly newsletter here: https://www.goldtelegraph.com/gt-community/
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Interesting Interview by Martin Armstrong. I think he is really good with his understanding of global markets, but he is not in favor of BTC. I think understanding of BTC eludes him. Just to be on the safe side, I plan to lighten my BTC position sometime this cycle, but keep some for another 10 years or more.
https://www.smartinvestor.de/2023/03/22/es-scheint-als-wolle-jeder-krieg-2/ (https://www.smartinvestor.de/2023/03/22/es-scheint-als-wolle-jeder-krieg-2/)
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Posted by Fiat hawk on X
"Buckle up. Things are about to get wild.
One thing I rarely see discussed about the game theory of #Bitcoin is that the incentives are aligned in such a way that the game speeds up over time.
During the initial phases of the game, #Bitcoin was a strange foreign idea in cyberspace. It was risky, it was uncertain, it was hard to buy, and hard to store. Only the outcasts, the explorers, and the free thinkers joined during the early wave, and they were handsomely rewarded for doing so.
Now, the talk I frequently hear is that the best gains are behind us. What's the point? I missed Bitcoin. I should have bought it when it was cheap. Etc...
While it is true that the biggest percentage gains are behind us, the biggest and fastest adoption is just around the corner. Also, even if you have dismissed #Bitcoin, the cost of ignoring it will soon become unbearable.
The game theory will soon switch from greed to fear, and for the first time ever, fear will drive #Bitcoin higher and higher instead of lower and lower.
Why is that?
The bitcoin network grows stronger and becomes more valuable with every person that joins.
At the same time, the fiat monetary system becomes weaker with every person that leaves.
While adoption was still tiny, the cost of ignoring Bitcoin was negligible. You missed out on the gains, but otherwise, it was not important. Soon, however, that will no longer be the case. Everyone knows that fiat money is being debased at an accelerating pace. With every person that exits into Bitcoin, it means that those left with fiat will now have to carry the burden of those that have left. In other words, the cost of staying with fiat will exponentially increase over time.
Think about it. Does the national debt decrease if people leave the US? No. The same is true with monetary networks. Unfortunately for those holding fiat, it is a debt-based system, and the people opting out with #Bitcoin no longer have to care or worry about that debt.
This is why the best money always wins, and why there can only be one winner. I also believe that's why the fastest growth in Bitcoin adoption is just ahead of us. It will go from a trickle, to a rush, and end in a stampede.
At some point, you won't be able to exchange fiat for #Bitcoin at any price, and all of your models will be destroyed."
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(https://pbs.twimg.com/media/GJdtq2TW8AAeUMR?format=jpg&name=medium)
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(https://pbs.twimg.com/media/GJgDga6XkAImuWE?format=jpg&name=small)
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https://bitcoin.rocks/compound-inflation-calculator (https://bitcoin.rocks/compound-inflation-calculator)
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premarket 63
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https://decrypt.co/223465/crypto-exchange-kucoin-charged-multi-billion-criminal-conspiracy
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(https://pbs.twimg.com/media/GJhfctgWoAA5Bob?format=jpg&name=medium)
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Exactly right. We are managing our economy and currency horribly, and the rest of the nations are doing worse.
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https://www.oann.com/newsroom/gold-prices-surge-to-another-record-high-after-new-u-s-data-spurs-fed-cut-expectations/
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Central bank digital currency laws looming in congress?
CBDC Prohibition Is Gaining Momentum
Cato Recent Op-eds / by Norbert Michel / Apr 1, 2024 at 10:24 AM
Norbert Michel
Politico is reporting that a group of House conservatives are trying to tie a vote on Rep. Tom Emmer’s (R‑MN) central bank digital currency bill to a deal on broader cryptocurrency legislation. According to the article, the main reason to avoid this strategy is that it risks “isolating the few Democrats” who support Rep. McHenry’s (R‑NC) broader legislation.
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Setting aside which members support broader crypto bills, stopping the Fed from issuing a CBDC should not be the partisan issue it is becoming. A CBDC gives the government untold economic power—irrespective of which party is in charge.
Launching a CBDC has nothing to do with losing a technology race, spurring faster payments, or protecting the U.S. dollar’s status as the world’s reserve currency. Regardless of what Rep. Stephen Lynch (D‑MA) thinks, stopping the Fed from launching a CBDC does not equate to “sticking our head in the sand.”
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Stopping the Fed from issuing a CBDC should not be the partisan issue it is becoming. A CBDC gives the government untold economic power—irrespective of which party is in charge.
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CBDCs are a desperate reaction by governments to prevent decentralized currencies from threatening the monopoly of national currencies. They enable maximum government control over people’s lives through the direct provisioning of money and financial services.
Some variations of a CBDC draft private sector firms to help the central bank, but those are just as bad. Arguably, they’re even worse because they effectively co‐opt the private firms that could otherwise serve as a check on the central government’s power.
It’s been very easy to explain this danger to people because so many government officials around the world have been candid about why they want CBDCs. My colleague Nick Anthony and I have spent the last few years documenting these statements and dissecting the arguments for and against CBDCs.
Since February 2023, when we created our last digital compilation of those statements, government officials around the world have kept the hits coming. Sometimes, these officials seem less than straightforward.
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This February, for example, the European Central Bank’s Piero Cipollone assured the European Parliament that the ECB would not make any decision about launching a digital euro without new legislation. He clarified the ECB is not even “launching any of the development work now.”
But in the same speech, Cipollone explained the ECB has started soliciting third parties to help “establish framework agreements with potential providers of digital euro components and related services.” Cipollone also told Parliament that the ECB is “working on a draft rulebook [for the digital Euro] together with representatives of consumers, retailers and intermediaries.”
He then touted the supposed benefits of a CBDC, implying it is a key to ensuring that “everyone, regardless of their income, can pay in any situation of daily life.” (In fact, he referred to this supposed feature as a “fundamental right.”)
Rather than stop there, he insisted that the ECB’s “objective is to preserve the role and share of central bank money in payments, not to displace private money.” But in virtually every developed country, the main role of central bank money is bank‐to‐bank payments.
Central banks already control bank reserve settlement systems, and most of them do so electronically. And central banks control the aggregate supply of reserves. In other words, central banks effectively already have CBDCs for central bank money.
Creating a retail CBDC, whether through private banks or not, is more than preserving the role of central bank money in payments. Much more.
For its part, the Federal Reserve has engaged in research, experiments, and pilot programs to develop a CBDC but has officially said that it is far from ready to launch one. That’s the good news.
The bad news, though, is that there is more than enough gray area in the Federal Reserve Act to allow the Fed to launch a CBDC should the Fed change its stance.
Regardless, as Nick’s Cato at Liberty post demonstrates, there are still a few important unanswered questions regarding the Fed and a CBDC.
For instance, many people were thrilled when Fed Chair Jerome Powell said the Fed is “nowhere near recommending or adopting” a CBDC. However, Powell has also stated that “If we were ever to do something like this—and we’re a very long way from even thinking about it—we would do this through the banking system.”
For anyone opposed to a retail CBDC—the government provisioning of money and financial services—this statement should be a warning flag. While the Federal Reserve Act prohibits the Fed from interacting directly with the public, there is no such prohibition on interacting with banks. Therefore, the Fed arguably has the authority to launch what it calls an intermediated CBDC, where it provides money to banks and the banks deal with the public.
Again, this type of CBDC is just as dangerous as one provided directly to citizens because it, too, enables the federal government to provide money and financial services. At best, this model would compete with private sector firms that provide money and financial services. But it doesn’t take perfect vision to see that private sector firms can’t really compete with the government in this manner.
According to the Human Rights Foundation’s CBDC Tracker, 12 governments have launched CBDCs, and 37 have started CBDC pilot programs.
That’s 49 too many. A CBDC is the perfect tool for the Chinese communist party, and that’s exactly why all non‐autocratic governments should avoid creating one.
https://www.cato.org/commentary/cbdc-prohibition-gaining-momentum
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This is a VERY, VERY, VERY important point. Thanks BBG for bringing it forward.
Cato gets it but do the people? Oh look! A shiny object, a digital dollar! I can't even tell you or know all the reasons not to do this, but don't do this!!
For one thing, introducing the 'digital dollar' will be the beginning of the certainty of losing the physical dollar. As bad as the US$ has been, losing 97 cents of every dollar since the forming of the Federal Reserve, you (we) don't want to lose what's left of it. We don't want EVERY transaction monitored or dollar to exist online only, even more cancellable by political powers than it is now.
Does anybody remember the old saying, innocent until proven guilty? The IRS works backwards on that. Every transaction is a taxable gain unless and until you prove it isn't. If you sell a used car, or couch, is it taxable gain? There is a 99.999% chance you didn't sell it for more than you paid for it, but to the digital currency trackers, you took in money. It's all taxable until you prove it isn't.
Combine the fact of cancelling Russian assets during the current war with the FBI tracking parents who speak out at school board meetings, people who spoke up against 'vaccine' mandates and shutdowns, the FBI tracking people who bought a book called the Bible, etc. Our President saying half the country is the threat we face and having the power to cancel your assets is a bad combination, understatement alert. They can cancel your 'tweet'; they can cancel your video; they can cancel your social media account, they did it to a President of the United States; they can remotely shutoff your car; they can cancel your dollars.
Stop this before it gets started!! Or you won't ever stop it.
"people were thrilled when Fed Chair Jerome Powell said the Fed is “nowhere near recommending or adopting” a CBDC. (Central Bank Digital Currency)
Translated that means yes, we are moving forward as fast as we can. Beware!!
It wasn't clear to me from the article which side Tom Emmer (R-MN) and his bill are on. Emmer is one of the good guys, but he is one seat away from losing his majority in the House, while Democrats already control the Senate, the White House and the FED.
"https://decrypt.co/121941/emmer-fed-central-bank-digital-currency-surveillance-state/
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just wondering what our world would be like if DARPA had never invented the internet. :|
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Gold at all-time high, oil around $85, silver t $25, VIX hitting 15 (still low in the big picture), BTC retreating.
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This is a VERY, VERY, VERY important point. Thanks BBG for bringing it forward.
Cato gets it but do the people? Oh look! A shiny object, a digital dollar! I can't even tell you or know all the reasons not to do this, but don't do this!!
For one thing, introducing the 'digital dollar' will be the beginning of the certainty of losing the physical dollar. As bad as the US$ has been, losing 97 cents of every dollar since the forming of the Federal Reserve, you (we) don't want to lose what's left of it. We don't want EVERY transaction monitored or dollar to exist online only, even more cancellable by political powers than it is now.
Does anybody remember the old saying, innocent until proven guilty? The IRS works backwards on that. Every transaction is a taxable gain unless and until you prove it isn't. If you sell a used car, or couch, is it taxable gain? There is a 99.999% chance you didn't sell it for more than you paid for it, but to the digital currency trackers, you took in money. It's all taxable until you prove it isn't.
Combine the fact of cancelling Russian assets during the current war with the FBI tracking parents who speak out at school board meetings, people who spoke up against 'vaccine' mandates and shutdowns, the FBI tracking people who bought a book called the Bible, etc. Our President saying half the country is the threat we face and having the power to cancel your assets is a bad combination, understatement alert. They can cancel your 'tweet'; they can cancel your video; they can cancel your social media account, they did it to a President of the United States; they can remotely shutoff your car; they can cancel your dollars.
Stop this before it gets started!! Or you won't ever stop it.
"people were thrilled when Fed Chair Jerome Powell said the Fed is “nowhere near recommending or adopting” a CBDC. (Central Bank Digital Currency)
Translated that means yes, we are moving forward as fast as we can. Beware!!
It wasn't clear to me from the article which side Tom Emmer (R-MN) and his bill are on. Emmer is one of the good guys, but he is one seat away from losing his majority in the House, while Democrats already control the Senate, the White House and the FED.
"https://decrypt.co/121941/emmer-fed-central-bank-digital-currency-surveillance-state/
Spot on, Doug!
And I enjoy posting pieces that get your dander up to the point you start filling in additional blanks. The results are always all sorts of informative!
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YES.
Let's keep close eye on this. The totalitarian implications are frightening.
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BTC ETF net inflows have been flat, GBTC outflows have slowed. Soon it will be time to complete consolidation and move up.
(https://pbs.twimg.com/media/GKUC_t5W4AIhHEG?format=jpg&name=900x900)
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Quoting and repeating for emphasis:
"The totalitarian implications are frightening."
(US Central Bank Digital Currency)
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Silver and VIX moving up.
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Scott is usually right
thanks
CD
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You mentioned a 90 day waiting period before the big funds can buy in or something like that. What does that period end?
ETF's went live Jan 11...the 90-100 day period ends soon.
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As dmg from a time gone by, might have said, below are the keys to the adytum. Its not seen very clearly on the chart, but where the 2 moving averages meet, will be the top of the market. Worked the last two times. Will post a clearer chart when its time. If you count the green MACD bars (2 month bars), the next 3-4 bars will give the next major top, which coincides with what I have indicated before, October 2024. Having said that, the market always humbles everyone, it cant be so easy!
(https://pbs.twimg.com/media/GKfFxefW0AAkXxx?format=jpg&name=900x900)
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BTC halving schedule and mining rewards. Absolute scarcity is coming in a few years. It would not be wise to sell your entire stack, knowing whats coming over the next decade.
(https://pbs.twimg.com/media/GKdnc51W4AAwLzG?format=jpg&name=medium)
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We live in interesting times!
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Each time BTC has closed for 2 months over the upper Bollinger band, it has doubled over the next few months. Interesting times ahead
(https://pbs.twimg.com/media/GKkLhMlWIAAG2tm?format=jpg&name=900x900)
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Regarding the inflation forecast debate, I add my view:
Whether double digit or high single digit inflation is coming or more moderate rounding to 4 or more per cent per year compounding inflation is coming, it is still criminally reckless negligencebeing committed by our policy makers in my view. (With blame going back to the voters.)
In my view the "2% inflation target should be 0.2%. The 2% target that hits actual averages close to 4% long term is destroying our currency and destroying our country.
"During the observation period from 1960 to 2022, the average inflation rate was 3.8% per year. Overall, the price increase was 903.96%."
https://www.worlddata.info/america/usa/inflation-rates.php#:~:text=During%20the%20observation%20period%20from,the%20price%20increase%20was%20903.96%25.
The Fed is enabling the Confessional spenders.
Under what economic theory can we spend 40% more than we take in, only getting worse, borrow and or print the difference, interest costs going up exponentially, and this has a 'soft landing'? How? Where? When?
I realise they are only forecasting this calendar year, but this calendar year, other than an election, includes no long term course correction. And the promises being made in the election preclude a major course correction after.
What I'm asking is, what part of unsustainable don't the experts, even on our side, not understand?
Or am I wrong, 'everything is fine Doug'.
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I just signed up.
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Hong Kong BTC ETF expected to trade by end of this month. This will bring a lot of Chinese money.
https://cryptonews.com/news/hong-kong-poised-to-unveil-first-spot-bitcoin-etfs-on-april-15.htm (https://cryptonews.com/news/hong-kong-poised-to-unveil-first-spot-bitcoin-etfs-on-april-15.htm)
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reports are they are buying and raising the price of gold up the wazoo.
will they do same for BTC?
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Hong Kong BTC ETF expected to trade by end of this month. This will bring a lot of Chinese money.
https://cryptonews.com/news/hong-kong-poised-to-unveil-first-spot-bitcoin-etfs-on-april-15.htm (https://cryptonews.com/news/hong-kong-poised-to-unveil-first-spot-bitcoin-etfs-on-april-15.htm)
More sales, more demand, but they aren't increasing the supply...
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So gold's surge is due to increased Chinese demand? Interesting.
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Here's a good explanation of why the Yen is important for US Bond rates and BTC.
https://twitter.com/stackhodler/status/1778359505601908930 (https://twitter.com/stackhodler/status/1778359505601908930)
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aka, US shot itself in the foot. Who's winning now ?. The rise of gold portends lack of confidence in govt.
(https://pbs.twimg.com/media/GK7qUrhWkAAoA3g?format=jpg&name=medium)
and then see how BTC does wrt to Gold
(https://pbs.twimg.com/media/GK9jaJ0b0AAMqZu?format=jpg&name=medium)
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~61 ?
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(https://pbs.twimg.com/media/GLEaOdWWMAEmmnp?format=png&name=small)
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(https://pbs.twimg.com/media/GKWkA8sXgAEVoSB?format=jpg&name=small)
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Not seeing any content in your last two posts.
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I posted 2 images, nothing critical.
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No worries, but FYI this is not the first time.
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Are others seeing the images I just posted ?. Looks like a browser problem, because the images look fine to me.
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delete
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I see 2 images
one shows Paul Revere warning Colonists that halving is coming
and another that shows us throwing gold to CCP while we get back our paper $$$.
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OK, I will have to look into my browser after I get back home to NC late tonight.