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>>> IMF Governors Approve a Historic US$650 Billion SDR Allocation of Special Drawing Rights
IMF
August 2, 2021
https://www.imf.org/en/News/Articles/2021/07/30/pr21235-imf-governors-approve-a-historic-us-650-billion-sdr-allocation-of-special-drawing-rights
Washington, DC: The Board of Governors of the IMF has approved a general allocation of Special Drawing Rights (SDRs) equivalent to US$650 billion (about SDR 456 billion) on August 2, 2021, to boost global liquidity. [1]
“This is a historic decision – the largest SDR allocation in the history of the IMF and a shot in the arm for the global economy at a time of unprecedented crisis. The SDR allocation will benefit all members, address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy. It will particularly help our most vulnerable countries struggling to cope with the impact of the COVID-19 crisis,” IMF Managing Director Kristalina Georgieva said.
The general allocation of SDRs will become effective on August 23, 2021. The newly created SDRs will be credited to IMF member countries in proportion to their existing quotas in the Fund.
About US$275 billion (about SDR 193 billion) of the new allocation will go to emerging markets and developing countries, including low-income countries.
“We will also continue to engage actively with our membership to identify viable options for voluntary channeling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve resilient and sustainable growth”, Ms. Georgieva said.
One key option is for members that have strong external positions to voluntarily channel part of their SDRs to scale up lending for low-income countries through the IMF’s Poverty Reduction and Growth Trust (PRGT). Concessional support through the PRGT is currently interest free. The IMF is also exploring other options to help poorer and more vulnerable countries in their recovery efforts. A new Resilience and Sustainability Trust could be considered to facilitate more resilient and sustainable growth in the medium term.
Additional information:
SDR Landing: https://www.imf.org/en/Topics/special-drawing-right
Q&As : https://www.imf.org/en/About/FAQ/special-drawing-right
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Yellen -> new SDR allocation, and global taxation rules -
>>> Yellen sees progress on U.S. tax reforms; urges support for vulnerable countries
Reuters
September 9, 2021
https://finance.yahoo.com/news/yellen-sees-progress-u-tax-143000876.html
WASHINGTON, Sept 9 (Reuters) - U.S. Treasury Secretary Janet Yellen on Thursday underscored the importance of finalizing and swiftly implementing new international tax rules agreed by 134 countries, and said the U.S. Congress was making progress on strengthening U.S. international tax rules, her office said.
Yellen told her counterparts from the Group of Seven advanced economies that the Biden administration was seeking to achieve a U.S. minimum tax rate on foreign earnings of at least 21% on a per-country basis.
She also emphasized the need for continued G7 efforts to enhance support for low-income countries hit hard by the COVID-19 pandemic, and urged major economies to lend their newly allocated Special Drawing Rights from the International Monetary Fund to further support vulnerable countries.
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>>> The Great Dollar Paradox
BY JAMES RICKARDS
AUGUST 30, 2021
https://dailyreckoning.com/the-great-dollar-paradox/
The Great Dollar Paradox
The greatest paradox in foreign exchange markets today is the U.S. dollar (USD).
U.S. fiscal responsibility is in ruins. In the past two years, the U.S. has authorized $11.5 trillion of new deficit spending and increased its base money supply by over $4 trillion. The U.S. debt-to-GDP ratio now stands at 130%, comparable to Lebanon, Italy and Greece, among the most profligate countries in the world.
Meanwhile, U.S. growth is slowing rapidly.
The Atlanta Fed GDPNow forecasting tool showed projected annualized growth slowing from 13% in April to 11% in May to 7.5% in June. The actual GDP growth figure for the second quarter of 2021 was 6.5%.
Third-quarter growth is now projected at 5.1%.
Actual growth will come in even lower because those projections do not take into account the full extent of new lockdowns, mask mandates and vaccine mandates, which are damaging travel, entertainment, resorts, restaurants and retail sales. Consumer confidence just recorded the steepest one-month drop in the history of that data.
So the U.S. is experiencing soaring debt, reckless money printing, slowing growth and a new wave of COVID. That sounds like a recipe for full-scale flight from the U.S. dollar.
But that’s not happening.
The dollar has been getting progressively stronger. The U.S. dollar index (DXY) has rallied from 89.64 on May 25, 2021, to 93.57 as recently as Aug. 19. Other dollar indexes show comparable gains.
How does the dollar soar in the face of fiscal and monetary failure and slowing growth?
The Dollar Isn’t Just a National Currency
The answer is that the U.S. dollar is more than just a national currency. It is the global reserve currency. It is used worldwide for trade, investment and payments, and it is created outside the U.S. in the form of eurodollars by U.S. and foreign banks operating in London, Frankfurt and Tokyo, among other money centers.
The eurodollar market relies on dollar-denominated securities such as U.S. Treasury bills and notes for collateral in leveraged transactions.
In short, the dollar has a life of its own independent of the Federal Reserve, the White House and the U.S. Congress. It’s the lifeblood of the international monetary system regardless of whether U.S. policymakers are reckless in fiscal and monetary policy or not.
Banks need dollars to buy Treasury bills to pledge as collateral and keep the system afloat whether U.S. domestic policies are sound or not.
How will the paradox of profligate fiscal and monetary policy by the U.S. and increased demand for U.S. dollars by international banks be resolved?
In the short run, the paradox will not be resolved.
I expect continued record deficits from the U.S. Congress and continued demand for dollars by highly leveraged international banks.
Still, that condition is non-sustainable. Possible remedies include a new dose of fiscal responsibility in Congress (unlikely before 2023 if ever), direct Treasury intervention in foreign exchange markets to weaken the dollar (unlikely until it’s too late) or a global financial crisis that leads to major reforms in the international monetary system, possibly including a new Bretton Woods-style agreement.
That kind of collapse followed by reform is the most likely outcome. It’ll happen because policymakers will have no other choice.
Long Overdue for a New Monetary System
My research has led me to one conclusion — we’re going to see the collapse of the international monetary system. When I say that, I specifically mean a collapse in confidence in paper currencies around the world. It’s not just the death of the dollar or the demise of the euro. It’s a collapse in confidence of all paper currencies.
Over the past century, monetary systems have changed about every 30–40 years on average. The existing monetary system is 50 years old, so the world is long overdue for a new monetary system.
When confidence is lost, central banks may have to revert to gold either as a benchmark or an actual gold standard to restore confidence. That wouldn’t be by choice. No central banker would ever willingly choose to go back on a gold standard.
But in a scenario where there’s a total loss of confidence, they’ll likely have to go back to some form of a gold standard.
Few remember that Nixon explicitly said that the suspension of gold convertibility by trading partners was being done “temporarily.”
I spoke to two members of the Nixon administration, Paul Volcker and Kenneth Dam, who were with the president at Camp David the weekend the suspension was announced. They both confirmed to me that the intention was for the suspension to be temporary.
The plan was to convene a new international monetary conference, devalue the dollar against gold and other currencies, primarily the Deutsche mark, Swiss franc and the Japanese yen and then return to the gold standard at the new exchange rates.
The first part did happen. There was an international monetary conference in Washington, D.C., in December 1971. The dollar was devalued against gold (from $35.00 per ounce to $42.22 per ounce in stages) and other major currencies by about 10–17%, depending on the currency.
Yet the second part never happened. There was never a return to a gold standard. While countries were negotiating the new official exchange rates, they also moved to floating exchange rates on international currency markets.
The cat was out of the bag.
Why Do Central Banks Cling to a “Barbarous Relic”?
We’ve been living with floating exchange rates ever since. The creation of the euro in 1999 was a way to end currency wars among the European nations, but the EUR/USD currency wars continue.
The temporary closing of the gold window by Nixon has become permanent, though it was only intended to be temporary…
Still, gold is always lurking in the background. I consider gold a form of money rather than a commodity. Central banks and finance ministries around the world still hold 35,000 metric tonnes of gold in their vaults, about 17.5% of all the aboveground gold in the world.
Why would they hold onto all that gold if gold was just a barbarous relic?
Looking at the price of gold in any major currency tells you as much about the strength or weakness of that currency as any cross-rate. Gold still has a powerful role to play in the international monetary system with or without a gold standard.
The timing of any financial crisis is always uncertain, but the probability of an eventual crisis is high. New signs of liquidity stress are emerging every day.
No investor should be surprised if the crisis happens sooner rather than later.
Regards,
Jim Rickards
for The Daily Reckoning
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>>> Gundlach: We're running our economy 'like we're not interested in maintaining global reserve currency status'
Yahoo Finance
Julia La Roche
August 24, 2021
https://finance.yahoo.com/news/jeffrey-gundlach-view-on-the-us-dollar-decline-154813067.html
Billionaire bond investor Jeffrey Gundlach, the founder and CEO of $137 billion DoubleLine Capital, says his number one conviction over several years is that the U.S. dollar will decline as a consequence of current economic policies, resulting in the U.S. losing its sole reserve currency status.
"My number one conviction looking forward a number of years — I'm not talking about the next few months at all, I'm talking about several years — is that the dollar is going to go down," Gundlach told Yahoo Finance Live in an exclusive interview on Monday afternoon.
It's Gundlach's view that the "places to be in the long-term" are emerging markets and "non-U.S entities." While Gundlach has already rotated into European equities, the investor expects to "aggressively rotate into emerging markets," but notes it's "too early for that right now."
"So the dollar is going down is another reason why ultimately — we touched on gold — I think ultimately gold is going to go a lot higher, but it's really in hibernation right now," he added.
The 61-year-old "Bond King" later highlighted that the United States' status of the global reserve currency is in jeopardy.
"[The] U.S. has enjoyed the status of sole reserve currency globally for decades, and it's an incredible benefit," Gundlach said.
He pointed that in the aftermath of the global coronavirus pandemic and lockdowns, China's economy has been "the strongest economy in the world by far." While U.S. GDP has "bounced back with a lot of consumption, a lot of that consumption is going to China," he added.
"That's one of the reasons why China has such a strong economy. So, what we're seeing in the United States is starting to fall behind in economic growth. That's not a new thing. That's been going on for a generation, the U.S. falling behind," Gundlach said.
The investor also pointed out that estimates for when China's economy will be the largest "keep getting pulled forward," noting some economists' projections show China's economy will surpass the U.S. by 2028.
"We have debt-to-GDP that is fueling the majority of our so-called economic growth. So, is it really economic growth when you borrow money or print money, send checks to people who turn around and buy goods on Amazon in addition to maybe paying down debt and speculating and these goods come in from China?" Gundlach said.
He added: "We're running our economy in a way that is almost like we're not interested in maintaining global reserve currency status or the largest military or global call it superiority or control. As long as we continue to run these policies, and we're running them more and more aggressively, we're not pulling back on them in any way, we are looking at a road map that is clearly headed towards the U.S. losing its sole reserve currency status."
According to Gundlach, with the current economic policies in place, it's "almost certain" the U.S. dollar should be going down.
"The value of the dollar is so high because we enjoy global reserve currency status, and we don't really respect it enough. We take it for granted, I guess. We seem to take a lot of things for granted these days in the United States relative to how we thought about things in prior decades and generations. And, I believe we are setting the stage for us to, unfortunately… experience the consequences of our actions the way we have been running a non-serious economic program now, really since 1980, but it's really accelerated so much in the past decade and there's no signs of it abetting," he said.
It's Gundlach's view that the U.S. dollar has "already peaked" when the U.S. Dollar Index hit 103.
"I believe the dollar will take out the lows of the past down cycle. The dollar has been in a series of declining highs for decades — it goes back to the '80s. For that reason, I think when we get to the next break to the lower level, the dollar will go past the most recent low of around 80 and even take out the low of 70. So, I think there's easily 25% downside in the U.S. dollar."
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>>> Jerome Powell's Jackson Hole Gamble Runs the Risk of Backfiring
Bloomberg
By Rich Miller
August 23, 2021
https://www.bloomberg.com/news/articles/2021-08-23/jackson-hole-2021-us-inflation-rate-covid-upend-powell-fed-policy-revolution?srnd=premium
It seemed like a good idea at the time.
When Federal Reserve Chairman Jerome Powell rolled out a new modus operandi for running monetary policy at the elite Jackson Hole economic symposium a year ago, the economy was just coming out of a pandemic-driven nosedive. That was after a decade of disappointingly slow growth, with inflation stubbornly below target.
Powell and his colleagues opted for a radical new strategic framework that Morgan Stanley economist Ellen Zentner says is now embedded in the Fed’s DNA: Use super-loose monetary policy to try to push unemployment down to levels previously thought unsustainable, and commit to letting inflation overshoot their 2% goal by a bit, for a while.
As policy makers prepare for another Jackson Hole conference — the second straight one Powell will address virtually rather than traveling to Wyoming — the economic picture looks much different. Thanks in no small part to a $1.9 trillion, front-loaded budget boost from President Joe Biden that caught Fed officials flatfooted, the economy has roared ahead, with employers complaining they can’t find enough workers. And inflation has taken off, as the unleashing of pent-up demand combined with disruptions to production and shipment schedules to push up the Fed’s favorite price gauge by 4%.
That’s far more than the moderate overshoot that policy makers were seeking. Concerns are now rising that the one-year-old policy blueprint has already passed its sell-by date, and that sticking with it will end up being bad for the health of the economy. The big fear: The Fed will be slow to rein in inflation, paving the way for a sustained take-off in prices, along with a housing bubble that policy makers will eventually have to deal with by jacking up interest rates and derailing the recovery.
“The Fed’s new framework was designed for a world of deficient aggregate demand where supply was not an issue,” says Mohamed El-Erian, the chief economic adviser at Allianz SE and a Bloomberg Opinion columnist. “Coming out of the pandemic, we live in a world of ample demand where the main problem is on the supply side.”
He sees a roughly 40% probability that the Fed will stick with the strictures of the framework too long and ultimately have to slam on the brakes, risking throwing the economy into a recession.
There’s a lot at stake for Powell — and Biden — in the Fed getting it right. Powell’s four-year reign as central bank chair ends in February. The president has yet to announce whether he’ll nominate the veteran monetary policy maker for another term or choose to replace him, in the middle of the debate over how long to keep ultra-stimulative policy in place. Treasury Secretary Janet Yellen has told senior White House advisers that she supports reappointing Powell, Bloomberg reported Saturday.
Biden is facing increasing flak from Republicans accusing him of igniting the inflation surge by ramming his big aid package through Congress in March. And they’re warning of worse to come if Democrats pass an even more ambitious $3.5 trillion program to extend the government’s reach into the economy.
Powell and administration officials alike have stuck with the line that much of the run-up in inflation will prove to be temporary, as kinks in the supply chain from reopening the $23 trillion American economy are worked out. An eventual increase in the availability in semiconductors, for example, should help automakers feed demand for new cars, bringing down prices.
But the Fed chair has confessed that he’s anxious about the outlook as complaints about rising prices pile up. And he’s hedged his bets in case he’s proven wrong, warning that policy makers would shift course to assure, as he said last month, “we won’t have an extended period of high inflation.” Powell has already initiated formal talks on a path toward pulling back on the central bank’s massive bond buying program, a schedule he may offer more perspective on this week. Most Fed officials last month judged that it likely would be appropriate for the reductions to start this year.
Called “flexible average inflation targeting,” the stratagem Powell unveiled last year turned the Fed’s traditional approach to managing the economy on its head. The central bank’s focus has shifted from trying to contain inflation at 2% to actually fostering it, with the explicit objective of having it run moderately above that pace for a time to make up for years of being below it.
The framework also does away with the Fed’s long-standing tactic of launching pre-emptive strikes against inflation — a strategy that dates back to the late William McChesney Martin, who ruled the Fed from 1951 to 1970 and famously quipped that it was the central bank’s job to “take away the punch bowl just as the party gets going.”
William McChesney with Fingers on Temple
Chairman William McChesney Martin of the Federal Reserve Board famously quipped that it was the central bank’s job to “take away the punch bowl just as the party gets going.”
No longer will the Fed raise interest rates to head off higher inflation as the job market tightens. Instead, it will allow unemployment to fall as far as possible, and only seek to slow things down when it’s clear that faster inflation is becoming a problem. In a nod to racial and other inequities plaguing the economy, the Fed also explicitly expanded its definition of what constitutes maximum employment, saying job gains should be broad-based and inclusive.
“The new framework all but guarantees that the Fed will be behind the curve when it starts fighting inflation,” says ex Fed Vice Chairman Alan Blinder. The Princeton University professor sees the Fed starting to lift interest rates from near zero in 2022 — a year earlier than most policy makers had projected in their last set of forecasts in June.
What’s more, the Fed has doubled-downed on its dovish approach by pledging to hold off on changing its policy settings until certain conditions are met, something referred to as forward guidance. It has pledged to keep buying $120 billion of bonds per month — in the process flooding financial markets with liquidity — until “substantial further progress” is made toward its goals of maximum employment and average 2% consumer-price gains. And it’s set out a three-part litmus test for lifting interest rates from zero: achieving full employment and a 2% inflation rate, along with securing an outlook for inflation to moderately exceed 2% for some time.
“The implementation of the framework in this Covid environment has really accentuated the ‘wait until we see the whites of their eyes’ part of the strategy, particularly when it comes to the forward rate guidance,” says Donald Kohn, another former Fed vice chairman, who’s now a Brookings Institution senior fellow. “How the framework is being implemented raises the upside inflation risk.”
Former Treasury Secretary Lawrence Summers sees a new normal with U.S. inflation above 3%. The Fed will then have to decide whether to accept that or attempt to slow down the economy — something which is “rarely a controlled process,” Summers, a paid Bloomberg contributor, says.
Powell initiated the framework review at the start of 2019, well before the pandemic struck. The aim was to avoid the deflationary morass that’s enveloped Japan off and on during the past three decades. When prices overall are falling, consumers tend to hold back on spending and companies put off investing. The result has been a stagnant Japanese economy that has proved resistant to monetary-policy measures — including a promise to seek higher inflation, which presaged the path now being taken by the Fed.
Powell is well aware that the situation the U.S. now finds itself is far different from that envisaged when the framework was hatched. It’s not a world where inflation is quiescent even as unemployment plumbs new lows. Instead, it’s a world where inflation is climbing and unemployment is still well above pre-pandemic levels, posing an acute dilemma for policy makers. Raise interest rates to stem price pressures, and you risk throwing more Americans out of work. Do nothing, and you court the danger of a take-off in inflation akin to what happened in the 1960s and ’70s.
Powell acknowledges that he’s been surprised by how rapidly prices have risen and that the run-up is far bigger than the moderate overshoot of 2% envisioned in the framework.
In one sense, Powell and the Fed have had some bad luck, former Bank of England policy maker Adam Posen says. “A policy that was appropriate and still is fundamentally right is being tested by the extreme supply swings from Covid and the very large fiscal stimulus,” Posen, who now heads the Peterson Institute for International Economics, says.
The Fed chief argues that the new strategy is not the policy strait-jacket that El-Erian and other critics say it is, and insists the central bank will act to slow the economy if the burst of inflation threatens to turn into something more long-lasting and pernicious. To back that up, he invokes the letter, if not the spirit, of the operating regime, pointing to a little-commented-on escape hatch in the governing document. In the rare cases when the Fed’s twin goals of maximum employment and stable prices are in conflict — as is the case now — policy makers will weigh the pros and cons of which they should tackle and act accordingly.
But that doesn't give much of a clue on what the Fed will do about the surge in inflation.
“While I am supportive of the new regime, one must recognize that it has both strengths and weaknesses," former Fed Vice Chairman Roger Ferguson says. "It seems to me that it is challenging to decide and communicate how much overshooting is allowable and for how long.”
Rolling back — and eventually eliminating — the stimulus the Fed is pumping into the economy is in one sense the easy part. With unemployment falling rapidly — it dropped to 5.4% in July from 5.9% in June — the Fed is well along in meeting its metric for beginning to taper its asset purchases. In so doing, it will be gradually taking its foot off the accelerator, not stepping on the brake, according to Zentner, Morgan Stanley’s chief U.S. economist.
Powell believes that the real test of the framework will come when the Fed has to decide to raise interest rates — a move that he says is still a long ways off. The crunch would occur if he’s wrong about inflation and it proves more persistent than he expects, forcing the Fed to increase rates before the economy reaches the promised, if somewhat nebulous, land of maximum employment.
The success of the new strategy may ultimately rest with Fed’s ability to convince Americans that it’s got it right when it comes to inflation. If workers and companies think otherwise and are fearful of prices spiraling upwards, they’ll act in ways that will help bring that about. Employees will press for out-sized wage gains, while companies will be quick to jack up prices to cover their rising costs, and then some.
“Bottom line, the critical element is inflation expectations,” former Fed Chairman Ben Bernanke says. “As long as they stay in the vicinity of 2%, the Fed’s strategy will achieve its goals. If inflation expectations were to move significantly higher, the Fed would be forced to tighten more quickly and probably slow the economy more than they would like.”
The evidence on that front so far is mixed, with investors less worried about inflation than consumers seem to be.
Another key question, according to incoming Bank of England policy maker Catherine Mann: Will the wage gains that some workers are now winning and the pricing power that some companies are now enjoying spread more widely throughout the economy? She thinks probably not, as an anticipated slowdown in growth next year helps to check any upward wage-price spiral.
In the end, it will come down to what Powell considers the bigger longer-term risk for the U.S.: Become trapped in a disinflationary spiral like that experienced by Japan as the forces of technological advances and globalization continue to press down on prices, or enter an inflationary zone of escalating cost pressures akin to what the U.S. suffered a half century ago.
Right now, he’s betting that the former is the bigger long-run danger, and holding off from tightening credit.
“The new framework is not so much about what kind of monetary policy you would expect right now, but what you might expect over the next year or perhaps longer as this recovery continues,” Wendy Edelberg, director of The Hamilton Project at the Brookings Institution, says. “They have made a pretty convincing argument they are going to keep monetary policy accommodative for longer than they would have under a different policy rule.”
But the path ahead will be far from easy as the Fed seeks to softly land the economy in the neighborhood of on-target inflation and maximum employment.
“It’s going to very difficult,” says Blinder, who was at the Fed when it achieved what many economists consider its only perfect landing for the economy, in the mid 1990s. “If they can achieve that, they deserve more than a pat on the back.”
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>>> BlackRock Authored the Bailout Plan Before There Was a Crisis – Now It’s Been Hired by three Central Banks to Implement the Plan
Wall Street On Parade
By Pam Martens and Russ Martens
June 5, 2020
https://wallstreetonparade.com/2020/06/blackrock-authored-the-bailout-plan-before-there-was-a-crisis-now-its-been-hired-by-three-central-banks-to-implement-the-plan/
It’s called “Going Direct.” That’s the financial bailout plan designed and authored by former central bankers now on the payroll at BlackRock, an investment manager of $7 trillion in stock and bond funds. The plan was rolled out in August 2019 at the G7 summit of central bankers in Jackson Hole, Wyoming – months before the public was aware of any financial crisis. One month later, on September 17, 2019, the U.S. Federal Reserve would begin an emergency repo loan bailout program, making hundreds of billions of dollars a week in loans by “going direct” to the trading houses on Wall Street.
The BlackRock plan calls for blurring the lines between government fiscal policy and central bank monetary policy – exactly what the U.S. Treasury and the Federal Reserve are doing today in the United States. BlackRock has now been hired by the Federal Reserve, the Bank of Canada, and Sweden’s central bank, Riksbank, to implement key features of the plan. Three of the authors of the BlackRock plan previously worked as central bankers in the U.S., Canada and Switzerland, respectively.
The authors wrote in the white paper that “in a downturn the only solution is for a more formal – and historically unusual – coordination of monetary and fiscal policy to provide effective stimulus.”
We now understand why, for the first time in history, the U.S. Congress handed over $454 billion of taxpayers’ money to the Fed, without any meaningful debate, to eat losses on toxic assets produced by the Wall Street banks it supervises. The Fed plans to leverage the $454 billion into a $4.54 trillion bailout plan, “going direct” with bailouts to the commercial paper market, money market funds, and a host of other markets.
The BlackRock plan further explains why, for the first time in history, the Fed has hired BlackRock to “go direct” and buy up $750 billion in both primary and secondary corporate bonds and bond ETFs (Exchange Traded Funds), a product of which BlackRock is one of the largest purveyors in the world. Adding further outrage, the BlackRock-run program will get $75 billion of the $454 billion in taxpayers’ money to eat the losses on its corporate bond purchases, which will include its own ETFs, which the Fed is allowing it to buy in the program.
Helicopter money is also spelled out in the BlackRock plan, which explains why simultaneously with the $454 billion Congress carved out for the Fed under the CARES Act, fiscal stimulus was also “going direct” with $1200 checks and direct deposits to the little people of America and Paycheck Protection Program loans and grants “going direct” to small businesses.
One feature of the BlackRock plan that is certain to get wide public pushback in the U.S. is the proposal for central banks to buy stocks (equities). The authors write this:
“Any additional measures to stimulate economic growth will have to go beyond the interest rate channel and ‘go direct’ – [with] a central bank crediting private or public sector accounts directly with money. One way or another, this will mean subsidizing spending – and such a measure would be fiscal rather than monetary by design. This can be done directly through fiscal policy or by expanding the monetary policy toolkit with an instrument that will be fiscal in nature, such as credit easing by way of buying equities. This implies that an effective stimulus would require coordination between monetary and fiscal policy –be it implicitly or explicitly.”
In the United States, approximately 85 percent of the stock market is owned by the richest 10 percent of Americans. Buying stocks would simply expand and accelerate the wealth and income inequality which is already at the highest levels since the 1920s – a time when Wall Street also owned large deposit-taking banks.
The Swiss National Bank, the central bank of Switzerland, where one of the BlackRock authors previously worked, already has massive holdings of individual stocks, including $94 billion in publicly traded stocks in the U.S. according to its March 31, 2020 report that was filed with the Securities and Exchange Commission.
The BlackRock authors of the “Going Direct” plan are the following:
Stanley Fischer: Fischer was Vice Chairman of Citigroup from 2002 to 2005. Citigroup received the largest bailout in global banking history, getting $2.5 trillion cumulatively in revolving loans from the Fed and billions more from taxpayers in the financial crisis of 2007 to 2010. Fischer went from Citigroup to serve as Governor of the central bank of Israel (Bank of Israel) from 2005 to 2013. (He holds dual citizenship in Israel and the U.S.) One year later, Fischer became a Governor on the U.S. Federal Reserve Board, advancing to Vice Chairman on June 16, 2014. He resigned his position at the Fed October 13, 2017 and joined BlackRock as a Senior Advisor in January 2019.
Philipp Hildebrand: Hildebrand was Chairman of the Governing Board of the Swiss National Bank from 2010 until he abruptly resigned in early 2012. (There was a scandal over his wife, a former hedge fund trader, making trades in currencies while he had inside information on interest rates.) Hildebrand is now Vice Chairman of BlackRock and a member of the firm’s Global Executive Committee.
Jean Boivin: Boivin is the Head of the BlackRock Investment Institute. He joined BlackRock in 2014. Prior to joining BlackRock, Boivin was appointed Deputy Governor of the Bank of Canada in March 2010 where he served for two years. Boivin left the Bank of Canada in October 2012 to become Associate Deputy Minister at the Department of Finance, and to serve as Canada’s Finance Deputy at the G-7, G-20 and the Financial Stability Board.
Elga Bartsch: Bartsch heads up economic and markets research at the Blackrock Investment Institute. Prior to joining BlackRock, Bartsch was Global Co-Head of Economics and Chief European Economist at Morgan Stanley in London. According to the government audit of the Fed’s bailout programs during the 2007-2010 financial crisis, Morgan Stanley was the second largest recipient of the Fed’s bailout programs, behind Citigroup, receiving $2.04 trillion cumulatively in revolving, below-market rate loans.
On May 15, the central bank of Sweden, the Riksbank, announced that it would be using BlackRock to conduct “an analysis of the Swedish corporate bonds market and an assessment of possible design options for a potential corporate bonds asset purchase programme.”
The Bank of Canada announced in April that BlackRock has been hired as an adviser for its commercial paper, provincial bond, and corporate bond buying programs.
The Federal Reserve has given a no-bid contract to BlackRock to manage all of its corporate bond programs.
Peter Ewart, a writer based in Prince George, British Columbia, wrote the following in the Prince George Daily News about BlackRock’s role in herding central bank actions:
“The situation also shows how the economic system in both Canada and the U.S. is not classical capitalism but rather state monopoly capitalism, where giant enterprises are regularly backstopped with public funds and the boundaries between the state and the financial oligarchy are virtually non-existent.”
In the U.S., 30 nonprofits, including Friends of the Earth, U.S. Greenpeace, Public Citizen, Rainforest Action Network, the Sierra Club and Take On Wall Street, wrote a letter to Fed Chairman Jerome Powell on March 27 regarding BlackRock’s role in the bailout. The groups called out the Fed on the following:
“By giving BlackRock full control of this debt buyout program, the Fed is further entwining the roles of government and private actors. In doing so, it makes BlackRock even more systemically important to the financial system. Yet BlackRock is not subject to the regulatory scrutiny of even smaller systemically important financial institutions.”
The groups also assailed the Fed for its “no strings attached” oversight of how BlackRock was spending the money, writing:
“As far as is known publicly, there are no conditions or restrictions on what debt is purchased or what companies must do to qualify for debt purchases outside of their credit rating. This could mean that those companies could engage in stock buybacks or provide enormous CEO compensation packages, despite these practices exacerbating imbalances in corporate balance sheets and being a significant reason why these companies are so susceptible to the current crisis. This also means that industries that actively harm the climate – and by extension the financial system – could get unconditional support…”
BlackRock is not only a major marketer of corporate bond products. Its iShares brand includes a giant roster of stock-based ETFs. The Chairman and CEO of BlackRock is Laurence (Larry) Fink. Reuters reported last July that Fink was lecturing the European Central bank that it “will need to purchase equities to stimulate Europe’s economy, and that leaders should find ways to have investors embrace an ‘equity culture’ there.”
The “equity culture” is code for what Senator Bernie Sanders calls “socialism for the rich, and rugged, you’re on-your-own individualism for everyone else.”
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'Going Direct Reset' -
Catherine Fitts basically says it's a planned 'takedown', an engineered event, and the green light was given at the G-7 central bankers meeting in Jackson Hole on Aug 22, 2019 -
https://home.solari.com/coming-thursday-2020-annual-wrap-up-theme-the-going-direct-reset-the-central-bankers-make-their-move/
The G-7 called the plan the 'Going Direct Reset' (ie direct money infusions from the central banks to the public and corporations, instead of just QE and ZIRP, NIRP). A month after that G-7 meeting the Fed suddenly re-started QE/Quantitative Easing in response to the 'Repo Market' problems. At the time I figured something might be up, but had no idea that Covid would be next.
Fitts basically says it's all a coordinated plan. The pandemic brings down the world economy, the central banks swoop in with direct money infusions ('Going Direct Reset') to buy up all the cheap assets, and there's a concerted crash effort to advance the control grid infrastructure (all electric everything, the smart grid, etc), while the CBDC/Central Bank Digital Currencies are fast tracked. It's looking like Covid is to become the 'Forever Virus' (as the recent CFR 'Foreign Affairs' article puts it), to keep the perma-crisis going.
>>> Hackers return $260 million to cryptocurrency platform after massive theft
Reuters
by Tom Wilson, Tom Westbrook and Alun John
August 11, 2021
https://finance.yahoo.com/news/defi-platform-poly-network-reports-064756815.html
LONDON/SINGAPORE/HONG KONG (Reuters) - Hackers behind one of the biggest ever cryptocurrency heists have returned more than a third of $613 million in digital coins they stole, the company at the center of the hack said on Wednesday.
Poly Network, a decentralised finance platform that facilitates peer-to-peer transactions, said on Twitter that $260 million of the stolen funds had been returned but that $353 million was outstanding.
The company, which allows users to swap tokens across different blockchains, said on Tuesday it had been hacked and urged the culprits to return the stolen funds, threatening legal action.
The hackers exploited a vulnerability in the digital contracts Poly Network uses to move assets between different blockchains, according to blockchain forensics company Chainalysis.
A person claiming to have perpetrated the hack said they did it "for fun" and wanted to "expose the vulnerability" before others could exploit it, according to digital messages shared by Elliptic, crypto tracking firm, and Chainalysis.
It was "always the plan" to return the tokens, the purported hacker wrote, adding: "I am not very interested in money."
The hackers or hacker have not been identified, and Reuters could not verify the authenticity of the messages.
Tom Robinson, co-founder of Elliptic, said the decision to return the money could have been prompted by the headaches of laundering stolen crypto on such a scale.
An executive from cryptocurrency firm Tether said on Twitter the company had frozen $33 million connected with the hack, and executives at other crypto exchanges told Poly Network they would also try to help.
"Even if you can steal cryptoassets, laundering them and cashing out is extremely difficult, due to the transparency of the blockchain and the broad use of blockchain analytics by financial institutions," said Robinson.
Poly Network did not respond to requests for more details. It was not immediately clear where the platform is based, or whether any law enforcement agency was investigating the heist.
The size of the theft was comparable to the $530 million in digital coins stolen from Tokyo-based exchange Coincheck in 2018. The Mt. Gox exchange, also based in Tokyo, collapsed in 2014 after losing half a billion dollars in bitcoin.
The Poly Network attack comes as losses from theft, hacks and fraud related to decentralised finance (DeFi) hit an all-time high, according to crypto intelligence company CipherTrace.
At $600 million, however, the Poly Network theft far outstripped the $474 million in criminal losses CipherTrace said were registered by the entire DeFi sector from January to July. The thefts illustrated risks of the mostly unregulated sector and may attract the attention of regulators.
DeFi platforms allow parties to conduct transactions, usually in cryptocurrency, directly without traditional gatekeepers such as banks or exchanges. The sector has boomed over the last year, with platforms now handling more than $80 billion worth of digital coins.
Proponents of DeFi say it offers people and businesses free access to financial services, arguing that the technology will cut costs and boost economic activity. But technical flaws and weaknesses in their computer code can make them vulnerable to hacks.
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>>> Skepticism builds within the Fed over the need for a digital dollar
Yahoo Finance
Brian Cheung
August 5, 2021
https://finance.yahoo.com/news/skepticism-builds-within-the-fed-over-the-need-for-a-digital-dollar-155332561.html
A second top Federal Reserve official on Thursday voiced his opposition to the creation of a Fed-issued digital currency that could be used by the general public.
Fed Governor Christopher Waller added that a central bank-issued digital currency (CBDC) may be costly to implement, arguing that privately issued stablecoins may better handle the need for faster payments.
“After careful consideration, I am not convinced as of yet that a CBDC would solve any existing problem that is not being addressed more promptly and efficiently by other initiatives,” Waller said in remarks at the American Enterprise Institute Thursday.
The Fed is currently in the early stages of evaluating the pros and cons of a CBDC, which could take the form of a digital dollar held in digital wallets managed by the central bank. The central bank plans on issuing a paper on the prospects of a CBDC and the broad cryptocurrency space in September.
But Waller has already joined his colleague, Fed Vice Chairman of Supervision Randal Quarles, in publicly criticizing the need for a CBDC. Quarles said in late June that a CBDC could be a serious target for hackers, arguing that issuing one would “pose significant and concrete risks.”
Waller similarly said that the “extreme cybersecurity risk” is the biggest downside concern, in his view.
Proponents of a CBDC argue that it could serve as a lower-cost way for users to make payments and transfer money, particularly for the roughly 5.4% of U.S. households that are unbanked (as of 2019).
The likes of former Federal Deposit Insurance Corp. Chair Sheila Bair have also argued that a CBDC, in future crises, would allow the Fed to bypass the banking system and provide monetary stimulus directly to American wallets.
Private stablecoins
Waller pushed back on the potential benefits of a Fed-issued digital dollar, questioning the central bank’s ability to build the technology at a cheaper cost than private issuers.
The Fed governor, who joined the central bank’s board in December 2020, said private stablecoins are already offering the “attractive payment instrument” of an asset that is pegged one-to-one to the dollar.
Stablecoins tie their values to one or more other assets, such as sovereign currencies, and serve as a less volatile asset compared to unbacked cryptocurrencies like bitcoin.
Still, Waller said stablecoins would benefit from some regulation, as Fed Chairman Jerome Powell has also suggested.
“It’s not clear that the stablecoin issuer is going to honor that 1:1 exchange rate in a run — if a run were to occur,” Waller said Thursday. He cited Tether as an example, suggesting that the nature of its commercial paper holdings are not transparent enough.
Waller proposed some liquidity test on the balance sheets of privately-issued stablecoins, which could evaluate the holdings of short-term government bonds and other securities widely regarded as highly liquid.
Bank of America wrote last week that stablecoins, whether private or central bank-issued, “seem inevitable and the only question is how soon and with what kinks along the way.”
An escalating debate within the Fed will raise further questions about the right balance between public and private players.
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>>> Fed Takes Big Step Toward Preventing More Repo-Market Blowups
Bloomberg
By Alex Harris
July 28, 2021
https://www.bloomberg.com/news/articles/2021-07-28/fed-establishes-domestic-and-foreign-standing-repo-facilities?srnd=premium
It’s been discussing a standing repo facility since 2019
Fed is making sure repo turmoil is ‘never repeated,’ TD says
The Federal Reserve has toyed for years with opening something called a standing repo facility to prevent short-term rates markets from blowing up. Following a 2019 disruption and another early in the pandemic, the central bank finally took that step.
The permanent repurchase-agreement facility, one for domestic firms and another for foreign ones, will backstop money markets, which were hobbled last year as Covid gripped the global economy. The decision to create the facilities followed several years of discussion within the market about whether they are needed and what form they might take. The Fed already has temporary repo facilities.
The Fed is taking action at a time when the market is being pressured by problems that are essentially opposite to the ones it faced during the turmoil seen in recent years. Fed asset purchases, the Treasury cutting its cash balance because of the debt ceiling and other issues have created a glut of cash at the front-end. That’s suppressed rates on repo, Treasury bills and related instruments.
The September 2019 tumult was marked by a huge, sudden spike in rates.
“The Fed is making hay while the sun shines and making sure 2019 is never repeated,” said Gennadiy Goldberg, senior U.S. interest rates strategist at TD Securities. “They can alter the facility details in the future if needed, but realize that it will take time to set up and expand to other counterparties, so they are setting it up long before they need it.”
Key Insights
Fed policy makers have been discussing a standing repo facility since the beginning of 2019, well before rates on overnight repurchase agreements spiked as high as 10% in September of that year.
The repo turmoil renewed calls for permanent action, though the Fed had been conducting daily overnight repo operations since September 2019, though the operations have gone unused since July 2020 as the Federal Reserve and Treasury flooded funding markets with liquidity in response to the pandemic.
Discussions of a standing repo facility ramped up in 2021, when the minutes from the April Federal Open Market Committee meeting showed that a substantial majority of officials “saw the potential benefits of an appropriately calibrated facility as outweighing the potential costs.”
And at the May 4 Treasury Borrowing Advisory Committee, a presenting member said one of the most promising policy proposals to improve Treasury market functioning would be a standing repo facility.
Minutes from the June 15-16 FOMC showed a resumption of the discussion of a standing repo facility, with Fed Chairman Jerome Powell asking staff to work on a proposal that reflects the views expressed by participants.
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>>> A Fed-issued digital dollar could print money — for the people
Yahoo Finance
by Sheila Bair
July 27, 2021
https://finance.yahoo.com/news/fed-issued-digital-dollar-could-print-money-for-the-people-174238842.html
The writer is former Chair of the FDIC and former Assistant Secretary of the U.S. Treasury for Financial Institutions.
More and more informed observers are asking why, after 13+ years of the Federal Reserve’s increasingly aggressive monetary interventions, the benefits remain so skewed toward Wall Street over Main Street. The answer is simple: follow the money. Using its traditional tools, the Fed pumps money into the financial system, hoping it will make its way into the broader economy. But the Fed can’t control where the money goes or who financial institutions decide to lend to, and clearly, the primary beneficiaries have been investors and the ultra-rich.
Fortunately, new technology in the form of a Central Bank Digital Currency (CBDC) provides a mechanism for the Fed to distribute cash directly to working families. This would be a profound shift in the way the Fed has traditionally responded to economic crises, largely bypassing the financial system and channeling increases in money supply to the people who need it the most.
For over a decade after the 2008-2009 financial crisis, the Fed kept money cheap and plentiful in a well-intentioned effort to revive the economy from that debacle. But the money wasn’t getting to consumers, which is why the Fed could never sustain its 2% inflation goal.
That started to change last year when the government stepped up fiscal spending for pandemic relief programs such as supplemental employment insurance, economic impact payments (EIP), rental assistance, and others. These programs were largely funded by deficit spending enabled by the Fed’s purchases of massive amounts of government debt.
As those trillions in new fiscal spending were absorbed into Main Street, voila, consumer prices started picking up (perhaps too much). This fiscal spending was more effective in getting help to working families. But even these fiscal programs were fraught with unnecessary political wrangling, overly complex requirements, and payment delays which stemmed from reliance on an inefficient and costly payments system to distribute the funds.
A better way to get cash to people who need it
CBDC would provide a better way.
By utilizing distributed ledger technology, the Fed could quickly and cheaply get digital dollars to households in times of crisis. To be sure, such a system would need to be authorized by Congress and utilized only in severe economic conditions, triggered perhaps by a precipitous drop in employment or GDP.
But with such a system of “auto-stabilizers,” families would not need to wait for the political system to wrangle over ad hoc relief programs, nor suffer costs and delays inherent in our outdated payments system. The Fed could distribute funds directly to digital wallets held by households, and/or use regulated digital payment providers to help consumers set up digital wallets and custody their CBDC.
This would also promote financial inclusion. Digital wallets could be more accessible to unbanked or underbanked populations, who fear the complexity and fees too often tied to checking accounts. Congress could authorize the Fed to provide initial “seed money” to households as an incentive to set them up.
While payments would be limited to households, indirect benefits would accrue to businesses, as they would provide emergency income for struggling families to pay rent, buy food, and other essential goods and services. By using a Fed-sponsored distributed ledger, the Fed could know the identity of the recipient, and track the money to make sure it reached its intended beneficiaries, providing strong controls against fraud.
Importantly, the Fed would no longer be trying to boost the economy by lowering interest rates to incentivize more borrowing. When people lose their jobs and incomes, they don’t need more debt, they need cash to tide them over. Providing cash assistance could help wean our economy off the use of debt to sustain growth, and hopefully lead to an eventual normalization of interest rates, ending the economic distortions caused by so many years of ultra-low interest rates.
Banking industry advocates such as the Bank Policy Institute argue against CBDC, fearing that it would disrupt banking by drawing money out of deposit accounts and into CBDC digital wallets. But this should not be a risk, particularly if the amount of CBDC per household was capped and was issued solely for government emergency support payments. Such a system could actually prove beneficial to banks as it would reduce the risk of consumer defaults during severe economic downturns. Moreover, CBDC could always be converted to traditional fiat currency and deposited into bank accounts, if banks offered households with sufficiently attractive terms. And of course, businesses and other institutions would still need banks to hold their deposits and service their needs.
Stablecoins can co-exist with CBDC
Another argument, used both for and against CBDC, is that it would undermine privately-sponsored stablecoins — a form of cryptocurrency whose value is tied to and backed by fiat currency. Some fear that privately-sponsored stablecoins could eventually displace central bank money. Thus, they support CBDC as a way to crowd out these private initiatives. For the same reason, supporters of private stablecoins advocate against a CBDC in the U.S.
I support properly regulated private stablecoins. (Disclosure, I am on the board of Paxos, a regulated trust which has one.) But I also think they can co-exist with CBDC, particularly if CBDC issuance is limited to household emergency payments. Our payments system has always relied on a combination of private and Fed-sponsored facilities. There is no reason to think CBDC would kill responsible innovation among private stablecoin issuers. Indeed, parallel private sector efforts to develop stablecoins could help inform and complement the Fed’s use of this technology.
A final argument against CBDC as a monetary tool is that it could increase the risk of inflation. To be sure, the impact on consumer spending would be much more direct than the Fed’s current tools. But that is a strength, not a weakness. Given the greater efficiency of CBDC, smaller increases in money supply would be necessary to boost consumer demand. And should consumer price inflation escalate, CBDC would provide the Fed with an elegant solution: pay interest on CBDC to give households an incentive to save, not spend it.
It is time for a fundamental rethink of how we use monetary policy to support our economy. Incentivizing borrowing with cheap money is inherently unstable. We can see the results: unprecedented levels of government and corporate borrowing, reckless speculation, and nosebleed valuations across a broad spectrum of assets. We all hope (pray) that accelerating consumer price inflation is transitory. But if the Fed is forced to raise rates to tame it, the impact on corporate and government borrowing costs could be disastrous, as would the negative impact on asset prices to financial stability.
It’s hard to see how we get out of our current predicament. But it’s easy to see how technology can, over the longer term, give us an alternative to low interest rates that can get our country out of this debt trap. If we are going to print money to support our economy, then let’s print it for the people. CBDC can provide the way.
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>>> Tether Executives Said to Face Criminal Probe Into Bank Fraud
Bloomberg
By Tom Schoenberg, Matt Robinson, and Zeke Faux
July 26, 2021
DOJ examining whether banks were misled about crypto business
Tether says it’s committed to cooperating with law enforcement
https://www.bloomberg.com/news/articles/2021-07-26/tether-executives-said-to-face-criminal-probe-into-bank-fraud
A U.S. probe into Tether is homing in on whether executives behind the digital token committed bank fraud, a potential criminal case that would have broad implications for the cryptocurrency market.
Tether’s pivotal role in the crypto ecosystem is now well known because the token is widely used to trade Bitcoin. But the Justice Department investigation is focused on conduct that occurred years ago, when Tether was in its more nascent stages. Specifically, federal prosecutors are scrutinizing whether Tether concealed from banks that transactions were linked to crypto, said three people with direct knowledge of the matter who asked not to be named because the probe is confidential.
Criminal charges would mark one of the most significant developments in the U.S. government’s crackdown on virtual currencies. That’s because Tether is by far the most popular stablecoin -- tokens designed to be immune to wild price swings, making them ideal for buying and selling more volatile coins. The token’s importance to the market is clear: Tethers in circulation are worth about $62 billion and they underpin more than half of all Bitcoin trades.
“Tether routinely has open dialogue with law enforcement agencies, including the DOJ, as part of our commitment to cooperation and transparency,” the company said in a statement. Its corporate structure consists of a tangled web of entities based in the British Virgin Islands and Hong Kong.
The Justice Department declined to comment.
Read More: Why Yellen and Powell Cast a Wary Eye on Stablecoins
Federal prosecutors have been circling Tether since at least 2018. In recent months, they sent letters to individuals alerting them that they’re targets of the investigation, one of the people said. The notices signal that a decision on whether to bring a case could be made soon, with senior Justice Department officials ultimately determining whether charges are warranted.
The probe is reaching a tipping point as stablecoins attract intense scrutiny from regulators. The U.S. Treasury Department and Federal Reserve are among agencies concerned that the tokens could threaten financial stability, and are obscuring transactions tied to money laundering and other misconduct because they allow criminals to make payments without going through the regulated banking system. Treasury Secretary Janet Yellen said last week that watchdogs must “act quickly” in considering new rules for stablecoins.
Tether's Dominance
The token is by far the most popular stablecoin
A hallmark of Tether is that its creators have said each token is backed by one U.S. dollar, either through actual money or holdings that include commercial paper, corporate bonds and precious metals. That has triggered concerns that if lots of traders sold stable coins all at once, there could be a run on assets backstopping the tokens. Fitch Ratings has warned that such a scenario could destabilize short-term credit markets.
Read More: Crypto Lode of $100 Billion Stirs U.S. Worry Over Hidden Danger
Tether was first issued in 2014 as a solution to a problem plaguing the crypto market: banks didn’t want to open accounts for virtual-currency exchanges because they feared touching funds tied to drug trafficking, cyberattacks and terrorism. By accepting Tether, exchanges could give traders a way to park their balances without being exposed to Bitcoin’s price gyrations. And funds could be transferred instantaneously from exchange to exchange.
But Tether’s corporate side still needed banks to hold its money and process customer transactions. One early relationship that soured was with Wells Fargo & Co. In 2017, the Tether Ltd. affiliate and Bitfinex -- a crypto exchange with common owners and executives -- sued Wells Fargo for blocking wire transfers that had been sought through Taiwanese banks.
In the lawsuit, Tether Ltd. and Bitfinex said Wells Fargo knew, or should have known, that the transactions were being used to obtain U.S. dollars so clients could purchase digital tokens. The companies dropped the case shortly after filing it.
Wells Fargo declined to comment.
In the course of its years-long investigation, the Justice Department has examined whether traders used Tether tokens to illegally drive up Bitcoin during an epic rally for cryptocurrencies in 2017. While it’s unclear whether Tether the company was a target of that earlier review, the current focus on bank fraud suggests prosecutors may have moved on from pursuing a case tied to market manipulation.
Tether has already drawn the ire of regulators. In February, Bitfinex and several Tether affiliates agreed to pay $18.5 million to settle claims from New York Attorney General Letitia James that the firms hid losses and lied that each token was supported by one U.S. dollar. The companies had no access to banking in 2017, making it impossible that they had reserves backing the tokens, James said. The firms settled without admitting or denying the allegations.
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>>> A Digital Money Rush Is Great. A Run, Not So Much
Stablecoins will become much more widely used and need balanced regulation before they’re too big to fail.
Bloomberg
By Andy Mukherjee
July 22, 2021
https://www.bloomberg.com/opinion/articles/2021-07-22/fed-needs-to-regulate-stablecoins-before-they-become-too-big-to-fail-in-a-crisis?srnd=premium
In Hong Kong, money has been privately issued since 1846. The bill in my wallet is a promise from HSBC Holdings Plc’s local banking unit to pay the value written on it. In accepting it, I gave no thought to the creditworthiness of the lender. Whoever it’s passed on to will also take the banknote at face value, and won’t ask for Hong Kong dollars printed by Standard Chartered Plc instead.
Not requiring due diligence on cash sounds commonsensical, but it’s actually a highly valuable property of money everywhere. Indeed NQA, or “No Questions Asked,” is so important that Yale School of Management finance professor Gary Gorton and Federal Reserve attorney Jeffery Zhang have made it the centerpiece of their new paper, titled “Taming Wildcat Stablecoins.”
Blockchain-based stablecoins such as Tether and the upcoming Diem are the latest form of private money: Tokens that don’t offer Bitcoin-type speculative thrills but seek acceptance instead as one-to-one clones of national currencies. They could become a powerful part of the modern digital economy, provided we know how to prevent a run on them.
Trust in physical cash is supplied by regulators. Since the value of Hong Kong’s currency is pegged to the U.S. dollar, the city’s three note-issuing institutions 1 buy certificates of indebtedness from the monetary authority by paying it 1 dollar for every 7.8 local units they print. Hong Kong’s 7.5 million people don’t have to ask any further questions about the worth of their money.
However, as digital stablecoins proliferate globally, NQA may not hold. That’s what happened during the free banking era in the U.S., when notes issued by a lender in Tennessee would sometimes be discounted by 20% in Philadelphia. “There was constant haggling and arguing over the value of notes in transactions,” Gorton and Zhang write. “Private bank notes were hard to use in transactions.”
Things changed because of the Civil War. President Abraham Lincoln wanted desperately to raise money for the war effort by selling bonds to newly chartered national lenders. The law Congress passed in 1863 also ushered in a uniform currency. Thereafter, banks were taxed for paying out other types of notes, driving them out of existence.
The researchers argue that stablecoins are in a similar situation. In the current regulatory vacuum, they’ll struggle to become no-questions-asked money. For NQA, they’ll need the state’s blessing — and oversight. That’s been in short supply because rapid growth of the novel product has taken regulators by surprise.
But while blockchain technology is new, the economic logic of stablecoins isn’t. Buying $100 worth of these tokens is no different from a depositor parking $100 in a checking account, which preserves its value because of deposit insurance and regulatory scrutiny. Stablecoins will need a similar setup. Or, if the issuers want to avoid the cost of being a commercial bank, regulators will have to insist on transparent, one-to-one backing of liabilities with safe assets. Only then can the public reliably trust tokens claiming to mimic official units of account — dollar, euro, pound, yen, yuan and so on.
Without these safeguards, allowing stablecoins to compete with bank deposits could spawn another combustible financial product. Money market mutual funds, which have avoided being regulated as bank deposits, had to be bailed out twice in a dozen years: during the 2008 crisis, and then again last year when Covid-19 struck. Gorton and Zhang caution that if policy makers wait a decade, stablecoin issuers will become the money market funds of the future. Doubts about a token’s ability to honor its promise of 1:1 exchange into fiat money could prompt users to make a beeline for redemption. Fire sales of assets by the coin issuer could afflict other corners of finance, forcing governments “to step in with a rescue package whenever there’s a financial panic,” the researchers say.
At a little over $100 billion, the combined market value of the top five coins tracking the dollar — Tether, USD Coin, Binance USD, Dai and Terra USD — is modest at present. But that’s because stablecoin users have mostly come from cryptocurrency investors. With Visa Inc. starting to accept USD Coin to settle card payments, it’s only a matter of time before usage goes mainstream. The Diem Association, a consortium of Facebook Inc. and other companies and nonprofits, has tied up with a bank. Diem’s dollar stablecoin can thus be launched from within the the U.S. banking system, and Facebook’s enormous reach could make it take off. Given the rapid pace at which the landscape is changing, Treasury Secretary Janet Yellen is right to tell U.S. regulators to hurry up and put in place a regulatory framework for stablecoins.
If the rules strike the right balance between supporting innovation and maintaining stability, the U.S. may not need to follow China into offering an official digital currency, a possibility that a top Fed official raised recently.
Will the Fed choose regulated private stablecoins, a central bank-issued digital currency, or both? Even as the rest of the world awaits answers, some decisions should be made right away. Tether, the most used dollar coin, is owned by Hong Kong-based iFinex Inc. Every country could potentially have a crypto or fintech firm mirror their official unit of account. Trying to regulate entities once they’re already too big to fail would be pointless.
Money in the 21st century may not need to be official. But it still has to be no-questions-asked, like the Hong Kong dollars in my wallet. That’s a power that only regulators can bestow. They should use it well.
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>>> China’s digital yuan could pose challenges to the U.S. dollar
July 25, 2021
CNBC
by Dain Evans
https://www.cnbc.com/2021/07/24/the-us-is-deciding-how-to-respond-to-chinas-digital-yuan.html
China is beating the U.S. when it comes to innovation in online money, posing challenges to the U.S. dollar’s status as the de facto monetary reserve. Nearly 80 countries — including China and the U.S. — are in the process of developing a CBDC, or Central Bank Digital Currency. It’s a form of money that’s regulated but exists entirely online. China has already launched its digital yuan to more than a million Chinese citizens, while the U.S. is still largely focused on research.
The two groups tasked with this research in the U.S., MIT’s Digital Currency Initiative and the Federal Reserve Bank of Boston, are parsing out what a digital currency might look like for Americans. Privacy is a major concern, so researchers and analysts are observing China’s digital yuan rollout.
“I think that if there is a digital dollar, privacy is going to be a very, very important part of that,” said Neha Narula, director of the Digital Currency Initiative at the MIT Media Lab. “The United States is pretty different than China.”
Another concern is access. According to the Pew Research Center, 7% of Americans say they don’t use the internet. For Black Americans, that rises to 9%, and for Americans over the age of 65, that rises to 25%. Americans with a disability are about three times as likely as those without a disability to say they never go online. That is part of what MIT is researching.
“Most of the work that we’re doing assumes that CBDC will coexist with physical cash and that users will still be able to use physical cash if they want to,” Narula said.
The idea of a CBDC in the U.S. is aimed, in part, at making sure the dollar stays the monetary leader in the world economy.
“The United States should not rest on its current leadership in this area. It should push ahead and develop a clear strategy for how to remain very strong and take advantage of the strength of the dollar,” said Darrell Duffie, professor of finance at Stanford University’s Graduate School of Business.
Others see the digital yuan as insidious.
“The digital yuan is the largest threat to the West that we’ve faced in the last 30, 40 years. It allows China to get their claws into everyone in the West and allows them to export their digital authoritarianism,” said Kyle Bass of Hayman Capital Management.
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>>> Do You Have This Smartphone App?
BY JAMES RICKARDS
JULY 20, 2021
https://dailyreckoning.com/do-you-have-this-smartphone-app/
Do You Have This Smartphone App?
The stock market bounced back today after yesterday’s major losses. “Buy the dip” is alive and well.
But today, I want to revisit a topic I haven’t addressed much lately due to the pandemic, the inflation debate, and many other topics that have taken center stage.
I’m talking about the war on cash.
I’ve warned for a long time that governments are forcing citizens into digital forms of money so that they can more easily freeze accounts, seize assets and impose negative interest rates. As long as cash is an option, you can take your cash outside the system and avoid digital freezes.
Cash prevents central banks from imposing negative interest rates because if they did, people would withdraw their cash from the banking system.
If they stuff their cash in a mattress, they don’t earn anything on it; that’s true. But at least they’re not losing anything on it.
Once all money is digital, you won’t have the option of withdrawing your cash and avoiding negative rates. You will be trapped in a digital pen with no way out.
The movement toward a cash-free society is gathering momentum, but it’s not entirely here yet.
Access Denied!
That’s not stopping some financial institutions from taking your money anyway. For example, a banking app called Chime has been seizing customer accounts and not allowing them to log on or access their funds.
Chime has 12 million customers. So far, 970 customer complaints have been filed, of which 197 specifically mention “closed account” as the cause of the complaint. Many of the remaining 723 complaints involve closed accounts, although the regulatory records do not categorize them that way.
In some cases of individual retail customers, the amount frozen was $10,000 or more. The complaints are being resolved slowly and inconsistently. In the meantime, the customers’ funds are blocked.
The only surprise in this story is that these kinds of account blocks have not happened sooner or on a larger scale. Still, this is the tip of the spear; far more account freezes of this kind are coming.
Chime is a retail application used mainly on smartphones. But, central banks are working from the top down to create central bank digital currencies (CBDCs) that will enable bank regulators to do the same thing.
Your $1,000 Deposit Is Only Worth $975
CBCDs use the same underlying distributed ledger technology that cryptocurrencies use. But unlike cryptos, CBCDs aren’t new currencies. They’ll still be dollars, euros, yen or yuan, just as they are today. But these currencies will only be digital; there won’t be any paper money or cash allowed. Only the format and payment channels will change.
Balances can be held in digital wallets or digital vaults without the use of traditional banks. A blockchain is not needed; the CBDC ledger can be maintained in encrypted form by the central bank itself without the need for bank accounts or money market funds.
In the future, customers will discover that paper money deposits will be accepted at a discount to face value when depositing to the new digital system. A deposit of $1,000 may be credited as $975.00 when put into the digital system, if it was after an arbitrary cut-off date, for example.
A system of such discounts (really taxes or penalties) was actually suggested by a prominent economist at a Fed symposium a few years ago. That economist was later nominated for a seat on the Fed board of governors.
As always, the new digital banking system will be promoted on the basis of convenience, ease of use and lower costs. Who needs bank accounts, checks, account statements, deposit slips, and the other clunky features of a banking relationship when you can go completely digital?
In reality, customers will discover that their digital assets are at risk for seizure or taxation not only for criminal reasons (that’s true today) but for political, medical or social reasons.
Could China’s Social Credit System Come to the U.S.?
Such a “social credit” system is being implemented in China. China already uses facial recognition software, mobile phone GPS tracking and the purchase of plane or train tickets to track their citizens. This surveillance can be used to detect anti-state activities and to arrest dissidents, or anyone who doesn’t strictly follow government orders.
Elements of China’s social credit system could end up being used here in the U.S. It might not be exactly the same, but it would nonetheless punish those who don’t comply with government decrees.
“Hmmm, the official record says you haven’t been vaccinated. That’s unfortunate. We’re sorry, but…”
An all-digital cash system could be used to impose fees on those who cannot prove they have received a COVID vaccine or some other medicine. This would amount to universal forced vaccination, although it would surely be imposed under some other more benign-sounding name.
If cash is no longer permitted, savers will be forced into buying land, gold, silver, or other tried-and-true ways of preserving wealth without exposing it to government pirates. The Chime account freezes are the shape of things to come.
Meanwhile, the big banks are also happy to kick you out of the banking system.
Wells Fargo Finds a New Way to Shaft Customers
The mega-bank Wells Fargo has just announced that it is shutting down all personal lines of credit and retail overdraft facilities.
These lines of credit range from $3,000 to $100,000 and they will all be closed within 60 days. Having a line of credit shut-down can negatively affect your credit score, but Wells Fargo doesn’t care. The bank also doesn’t care that many of these personal lines of credit are actually used as working capital facilities for small businesses.
Many small business owners operate as sole proprietors, in which case there is no sharp line between business and personal expenses. Even when a business is formed as a company, the owner often acts as a swing lender to provide cash to her own company.
The personal lines of credit Wells Fargo is closing may result in small businesses having to shut their doors or scale-back on operations, including possible loss of jobs.
Again, Wells Fargo doesn’t care.
Wells Fargo said it could meet customer credit needs with credit cards instead of the lines of credit being closed. Of course, credit cards have high interest, annual fees and 2.5% merchant acquirer fee on each transaction.
This solution offered by Wells Fargo is transparently an effort to charge higher fees and impose tighter restrictions on its customers in comparison with the personal lines of credit.
At what point does a bank cease to be a business offering financial products at a fair rate and morph into a parasite that sucks customers dry using every means at its disposal?
We’re probably already past that point.
Regards,
Jim Rickards
for The Daily Reckoning
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>>> Yellen urges federal agencies to 'act quickly' on stablecoin regulation
Yahoo Finance
Brian Cheung
July 19, 2021
https://finance.yahoo.com/news/yellen-urges-federal-agencies-to-act-quickly-on-stablecoin-regulation-203653004.html
The top U.S. financial regulators convened on Monday to expand discussions on a regulatory framework for stablecoins, a type of digital currency that bills itself as a less volatile asset class than other cryptocurrencies.
Treasury Secretary Janet Yellen held a meeting with five federal regulatory agencies to discuss the “rapid growth” of stablecoins, according to a Treasury readout of the meeting Monday afternoon.
The nation’s top regulators acknowledged the potential for stablecoins to be a useful means of payment, but advocated for setting up guardrails to protect stablecoin users, the financial system, and national security.
“The Secretary underscored the need to act quickly to ensure there is an appropriate U.S. regulatory framework in place,” the Treasury reported.
The meeting brought together the heads of the Securities and Exchange Commission, Federal Reserve, Commodities Futures Trading Commission, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency.
The officials were briefed by Treasury staff on a forthcoming report on stablecoins, which will include recommendations for addressing “any regulatory gaps” in the current regulatory framework.
Risks ahead?
Whereas many cryptocurrencies are not backed by a specific asset, stablecoins tie their values to one or more other assets, such as sovereign currencies. One selling point for stablecoins: facilitating cross-border payments.
Stablecoins have been growing in popularity, taking some steam out of prime money market funds. The concern is that if left unregulated, stablecoins may be riskier than advertised.
A chart from the Boston Fed, using data from Coin Metrics and iMoneyNet, notes that stablecoins have been growing in popularity against prime money market mutual funds. Source: Federal Reserve Bank of Boston
More
In a December 2020 statement, regulators said they wanted to encourage “responsible payments innovation.” But the statement also raised concerns over the possible financial stability risks that could come from “large-scale, potentially disorderly redemptions” on stablecoins.
If stablecoins continue to attract attention away from money market funds, short-term credit markets could be exposed to any stablecoin event.
“I think we have a tradition in this country where [if] the public’s money is held in what is supposed to be a very safe asset, we have a pretty strong regulatory framework,” Fed Chairman Jerome Powell told Congress last week.
The regulators in December proposed reserve requirements to ensure stablecoin liquidity. The regulators also emphasized that stablecoins must comply with all relevant laws concerning anti-money laundering and countering the financing of terrorism measures.
“Bringing together regulators will enable us to assess the potential benefits of stablecoins while mitigating risks they could pose to users, markets, or the financial system,” the Treasury noted last week when it publicly announced the Monday meeting.
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Blackrock - >>> Time for policy to go direct
https://www.blackrock.com/corporate/insights/blackrock-investment-institute/publications/coronavirus-policy-response
>>> Time for policy to go direct
We outline the need for a decisive, pre-emptive and coordinated policy response to the coronavirus shock.
Key views
The depth and duration of the coronavirus economic impact is uncertain but should be temporary as the outbreak will eventually dissipate.
To deal with the shock, a decisive, pre-emptive and coordinated policy response is required to avoid the disruptions to income streams and financial flows.
We believe it is time to go direct: a joint monetary and fiscal response that more directly relieves the cash flow pressures facing some sectors of the economy.
The future evolution and global spread of the coronavirus outbreak is highly uncertain. What we know is that containment and social distancing are ultimately achieved by reducing economic activity. Faced with resource constraints in healthcare systems, there are strong incentives to take aggressive containment measures to slow the spreading. The impact on economic activity will likely be sharp – and could be deep.
Coronavirus calls for coordinated policy action
Central banks have started cutting interest rates to mitigate coronavirus concerns, but we see more to come. Our latest episode of the BlackRock Bottom Line explains why.
The depth and duration of the economic impact is uncertain but should be temporary as the outbreak itself will eventually dissipate. That requires a decisive, pre-emptive and coordinated policy response to avoid the disruptions to income streams and financial flows that could cause persistent economic damage – and end the cycle.
“
Authorities in all major economies have to fast-track sizeable, comprehensive and flexible support programs.
”
We wrote in August 2019 about the nearly exhausted monetary policy toolbox and the challenges it poses for dealing with the next downturn. This has now come to the fore – and that’s why it is time to go direct with policy support. Simply using up the limited monetary policy space remaining – interest rates, forward guidance or even quantitative easing – could quickly put the macro focus on the lack of tools left and thus backfire. The only way to address this is to add further lines of defense and make fiscal policy an explicit part of the crisis response toolkit.
The first step is to provide frontline public health agencies with necessary financial resources. But a joint effort between monetary and fiscal policy is required to avoid a raft of financial failures at the grassroot level due to demand shortfalls, production disruptions or payment delays that can all lead to cash flow squeezes. Small- and medium-sized enterprises, for example, risk having cash flows cut off if they have to rely solely on support through financial markets. That is why any solutions will need to involve “going direct” with policy – that is, more directly relieving the cash flow pressures facing some sectors of the economy.
Authorities in all major economies have to fast-track sizeable, comprehensive and flexible support programs to pre-emptively provide direct financial support to companies and households facing a short-term loss of income. That would prevent these temporary disruptions from turning into a full-blown global recession. Deploying these programs will involve coordination of monetary and fiscal policy. Recognizing that these measures will be temporary justifies an aggressive policy response. The experience of the global financial crisis and aftermath shows that the policy effectiveness would be greatly enhanced if the international community approached these measures as a deliberate package delivered in a coordinated fashion.
A comprehensive global response should have the following elements:
First, to support households, fiscal measures could also include generous sick-pay support and short-time work schemes to stabilize incomes and to limit job losses – especially where such arrangements were not available before. Several countries are already preparing such measures. Income support can come via adjustments to welfare and labor market programs, such as unemployment insurance. Welfare programs could also be tweaked by temporarily enhancing benefits and reducing waiting times until citizens become eligible. Direct payments to affected households are also an option.
Second, to support companies, fiscal authorities could suspend collection of tax revenues and social security contributions to provide temporary cash flow relief to firms and the self-employed while at the same time accelerating outgoing public payments and reducing unpaid bills to the private sector. In some instances, cash grants via local governments and natural disaster relief agencies might be required beyond loans. These are ways to directly provide some relief to company balance sheets that can be quickly implemented within current government programs. Automatic fiscal stabilizers should be allowed to work fully and, if needed, existing fiscal rules could be temporarily suspended.
Third, monetary authorities should also be ready to deploy more direct and targeted liquidity support, including expanding funding-for-lending facilities – providing liquidity to commercial banks that is earmarked specifically for lending to corporates hurt by the virus outbreak. Government guarantees can help cover any bank lending at preferential rates to meet the corporate sector’s need for additional working capital. Alternatively, state-owned development banks could be used as a conduit for such lending. In countries with weaker public finances, asset purchase programs could safeguard the government’s funding conditions.
A decisive and pre-emptive policy response is essential given the uncertainty around what will likely be material near-term disruptions due to the coronavirus outbreak. For the most part these measures will be fiscal in nature – and some will require coordination between fiscal and monetary authorities. Monetary policy should focus on preventing an unwarranted tightening in financial conditions and ensure the functioning of financial markets. Central banks going it alone with interest rate cuts risk wasting precious policy ammunition. We believe decisive policy action now would help avoid opening the door to more radical ideas and uncontrolled fiscal spending.
Authors:
Elga Bartsch – Head of Macro Research, BlackRock Investment Institute
Jean Boivin – Head, BlackRock Investment Institute
Tom Donilon – Chairman, BlackRock Investment Institute
Stanley Fischer – Senior Advisor, BlackRock
Rupert Harrison – Head of Research for Diversified Strategies, BlackRock
Philipp Hildebrand – Vice Chairman, BlackRock
George Osborne – Senior Advisor, BlackRock Investment Institute
Mike Pyle – Chief Investment Strategist, BlackRock Investment Institute
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>>> Yellen to Convene U.S. Regulators to Discuss Stablecoins
Bloomberg
Joe Light and Jesse Hamilton
July 16, 2021
https://finance.yahoo.com/news/yellen-convene-u-regulators-discuss-160000948.html
(Bloomberg) -- Treasury Secretary Janet Yellen will convene top U.S. financial-market and bank regulators on Monday to discuss rules for so-called stablecoins, a key part of the cryptocurrency market where government officials are increasingly fretting about a lack of oversight.
The meeting of the President’s Working Group on Financial Markets will “discuss interagency work on stablecoins,” the Treasury Department said in a statement Friday. In addition to the Treasury secretary, the working group is comprised of the heads of the Federal Reserve, Securities and Exchange Commission and Commodity Futures Trading Commission, and this session will also include two bank regulators: the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.
“Bringing together regulators will enable us to assess the potential benefits of stablecoins while mitigating risks they could pose to users, markets, or the financial system,” Yellen said in the statement. “In light of the rapid growth in digital assets, it is important for the agencies to collaborate on the regulation of this sector and the development of any recommendations for new authorities.”
The working group “will examine the current regulation of stablecoins, identify risks, and develop recommendations for addressing those risks,” and expects to “issue written recommendations in the coming months,” the Treasury said.
Regulators are increasingly worried about this new kind of cryptocurrency, which has a fixed price and is backed by real-money reserves, because of risks it poses to investors and the financial system broadly. Lawmakers and officials from the Fed and the administration have expressed alarm both in public and private that some consumers won’t actually be protected should one of the firms not have the backing they purport to have.
They also say the growing size of stablecoins has created a situation where huge amounts of U.S. dollar-equivalent coins are being exchanged without touching the U.S. banking system, potentially blinding regulators to illicit finance.
The market value of U.S.-dollar-backed stablecoins has grown rapidly in the past year and surpassed $100 billion in May. The largest, called Tether, has faced scrutiny from regulators for not always having the backing that it has claimed to have.
Powell Warning
The planned meeting follows comments by Fed Chair Jerome Powell this week warning that stablecoins lack needed regulatory oversight.
“They are like money funds, they’re like bank deposits and they’re growing incredibly fast but without appropriate regulation,” Powell said in answering questions before the Senate Banking Committee on Thursday. “And if we’re going to have something that looks just like a money market fund or a bank deposit or a narrow bank and it’s growing really fast, we really ought to have appropriate regulation. And today, we don’t.”
Fed officials including Boston Fed President Eric Rosengren have highlighted potential growing risks from stablecoins including Tether.
In December, the government warned firms behind stablecoins to tighten protections against money laundering. The Treasury and other agencies said at the time they should be used in a way that “effectively manages risk and maintains the stability of the U.S. domestic and international financial and monetary systems.”
There’s also the question of whether Congress should step in and write new laws that would give regulators more authority to regulate cryptocurrencies. One bill introduced in Congress last year would require stablecoin issuers to have a banking charter and get approval from the Fed, among other agencies.
The concept of a stablecoin is closely linked to the difficult decision the Fed faces on whether to someday launch a digital currency. Powell suggested this week that the best-case scenario for a Fed-run digital dollar would involve Congress issuing a legislative directive rather than letting the regulators pick through existing “ambiguous law” to back up any future moves.
The Fed has already been working on a digital-currencies report that Powell said could be released as soon as September. Among other things, that document will include a discussion on the risks and benefits of stablecoins, he said.
In recent years, the OCC has set itself up as the most aggressive banking agency when it comes to prepping the financial system for the influx of cryptocurrencies. The agency’s former acting head Brian Brooks, a Trump administration pick, made a series of rapid moves to accelerate digital currencies in U.S. banking. But Brooks left and took a job running the cryptocurrency exchange Binance.US, and the OCC’s work is expected to slow under Michael Hsu, the agency’s current temporary chief.
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Rickards - >>> It’s NOT a Conspiracy
BY JAMES RICKARDS
JULY 12, 2021
https://dailyreckoning.com/its-not-a-conspiracy/
It’s NOT a Conspiracy
Philosophers and analysts use a principle called Occam’s Razor (sometimes Ockham’s Razor) to solve difficult problems. It says that when you are confronted with two possible solutions to a problem, one complicated and one simple, it’s usually better to select the simple solution.
There’s always some attraction to the complicated solution because humans like intrigue and plot twists. But statistically, the simple solution is more likely to be correct and therefore the one that analysts should prefer unless contrary evidence presents. This approach is useful in dealing with conspiracy theories.
Yes, real conspiracies exist (such as the plot to assassinate JFK), and analysts must be alert to the possibility. But most so-called conspiracies have much simpler explanations that are more likely to be correct.
One of the most potent drivers of coordinated political action is not a deep, dark conspiracy. It’s usually just the result of like-minded individuals cooperating to achieve the same goal.
It’s Groupthink, Not Conspiracy
If the political players all think alike and agree on goals, you don’t need a conspiracy. Just let them go to work every day and communicate with each other, and you’ll get the coordinated result without the inevitable twists and turns of a conspiracy.
That’s a good thing to bear in mind when considering the current administration. 23, top Biden administration officials all worked at the same consulting firm called WestExec Advisors. These officials include Press Secretary Jen Psaki, Secretary of State Tony Blinken and Director of National Intelligence Avril Haines.
For those who may be unfamiliar, “WestExec” is a reference to West Executive Avenue, a non-public road that runs between the West Wing of the White House and the Eisenhower Executive Office Building.
The West Wing is not that large and only has a few choice offices plus the Situation Room, the Roosevelt Room (for larger meetings) and the Cabinet Room, which is smaller. Most officials who say they “work in the White House” actually work in the Eisenhower Building, which means they walk across West Executive Avenue when they have meetings with top Biden officials.
The WestExec Advisors name is a play on that kind of insider status of the long list of former WestExec principals who are now running the country. (Don’t look to Biden as the source of power; he’s not mentally competent and does what the WestExec crowd or the rest of the Biden family tell him to do).
A Threat to National Security
So, with all of this power emerging from one firm, does that mean there’s a conspiracy among the alums to control the world?
Not really. But, it points to a bigger problem, which is the lack of cognitive diversity. The WestExec crowd all went to top schools, had top jobs in previous administrations, exhibit high IQs, and boast lots of credentials.
If you look at their resumes, you’ll see they all went to the same schools, had the same professors and pursued the same career paths. With few exceptions, it’s all Harvard, Yale and Columbia with a small dose of Stanford or Chicago for good measure.
They all went to law school or got PhDs and worked for the same small set of law firms or consulting firms. Then they all worked in a small set of government agencies, including the State Department, National Security Council or the Intelligence Community.
They all think alike. That’s an acute weakness because if they all look at things the same way, they will all miss the real dangers coming that don’t fit into their mental molds. Lack of cognitive diversity is a fatal weakness.
As a leader, you should always be willing to lower the average IQ if it means you can increase the range of viewpoints. At least someone might point out it’s raining to a group that’s too buried in briefing books to look out the window. This uniform mindset is itself a danger to national security. Sooner than later, a threat will arise that none of them will see coming.
On the Verge of the Most Destructive War Since WWII?
And there’s no shortage of threats in the world. Perhaps the most pressing right now is China’s aggressive posturing in East Asia. It’s not just China and the U.S.
The world’s three largest economies — the U.S., China and Japan — may be squaring off for the most destructive and costly war since the end of World War II.
The main protagonists will be China and the U.S. The cause of war will be a Chinese invasion of Taiwan, which may be coming much sooner than the world expects.
China would start the war with an invasion across the Taiwan Strait. The U.S. would be obliged to come to the defense of Taiwan and take measures to disable the Chinese fleet and its air support. But, Japan is no bystander.
A glimpse at a map shows that if Taiwan were in Communist China’s hands, Japan’s own sea lanes would be threatened, including its access to imported oil. Japan has its own island disputes with China. If China were to capture Taiwan, Japan’s islands in the East China Sea would likely be the next to fall.
The U.S. could fall back to a line of islands, including Guam, Hawaii and the Aleutians, but no fallback is possible for Japan. If China seizes Taiwan and the U.S. falls back, Japan would be under the thumb of China, and they know it.
Of course, a fallback by the U.S. would be an enormous blow to U.S. credibility, as well as its economic power. That’s why an alliance of the U.S. and Japan against China to defend Taiwan (along with Taiwan’s own formidable defense capability) is the most likely response to a Chinese amphibious assault.
“Wolf Warrior” Diplomacy
The question for the world is whether China will get the message and refrain from attacking Taiwan. Unfortunately, signs point in the opposite direction. China has left its non-threatening style of diplomacy in the past.
Today, China pursues “Wolf Warrior diplomacy,” named after a popular Chinese movie that features aggressive Navy SEAL-style tactics as practiced by Peoples’ Liberation Army commandos.
China has come out of its shell and seeks regional hegemony to be followed by global hegemony. It is aggressively pushing on its neighbors in India, Myanmar, and the six nations that surround the South China Sea. Taiwan is the prize, and China is preparing to seize it.
This attack will be Xi Jinping’s legacy and his attempt to rival the reputation of Mao Zedong. Will Team Biden be able to see it coming?
U.S. investors should not take Chinese restraint for granted. Allocations to cash, gold and U.S. Treasury notes will preserve wealth when the worst happens.
Regards,
Jim Rickards
for The Daily Reckoning
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>>> The Crypto Revolution Will Not Be Public
Is a central bank digital currency, or CBDC, a solution in search of a problem?
Bloomberg
By Tyler Cowen
July 13, 2021
https://www.bloomberg.com/opinion/articles/2021-07-13/the-crypto-revolution-will-not-be-public?srnd=premium
A revolution is pending in finance, and the world is only beginning to realize the transformations it is likely to bring. Financial institutions will have to take a radically different approach to information technology just to stay in business.
Bullish Global, a crypto firm, is planning to go public this year, with an expected valuation of $9 billion. Circle Internet Financial Inc., the company behind stablecoin, is also planning to be publicly listed, as is cryptocurrency platform Bakkt Holdings. Financial markets are difficult to predict, but at this point, 12 years after the inauguration of Bitcoin, it is hard to argue that this is all a bubble.
To understand why, ask yourself a simple question. Why shouldn’t finance and payments be as easy as sending an email? Anyone who grew up on computer games and texting probably thinks that running a financial system should be equally frictionless and cheap, especially if there were a mature central bank digital currency. There’s no reason money couldn’t be transferred by a simple act of communication.
Due to the large amount of money at stake, there would need to be higher levels of security than with email. But some mix of bioscans, multi-factor authorization and hardware security (you need more than a password) ought to suffice. These safeguards shouldn’t cost very much once they are in place.
One vision is that governments and central banks will run these systems, making governments and central banks far more important in finance. For many institutions, private banks would not be needed to get access the payments system, and so the role of private banks would shrink. The central bank in turn would have more funds to deploy, and inevitably it would apply some amount of discretion to those funds.
If the role of government is to expand, and if private banks are to suffer, it would create significant issues of the sort that the U.S. political system is often not very good at resolving. The U.S. Federal Reserve has made it clear it won’t create a digital currency without approval from Congress, but Congress is notorious for being slow or even unable to act, especially on issues involving the role of the government in the economy.
And these squabbles are not purely partisan. Given the government’s record with technology — remember the botched rollout of the Obamacare website? — can we be so sure that a central bank digital currency would be hack-proof and well-functioning from the start?
In a remarkably honest yet radical speech last month about stablecoins, Fed Governor Randal Quarles argued that current payments systems already incorporate a great deal of information technology — and they are improving rapidly. The implication is that a central bank digital currency, or CBDC, is a solution in search of a problem.
Quarles also suggested that the Fed tolerate stablecoins, just as central banking has coexisted and indeed thrived with numerous other private-sector innovations. Stablecoins can serve as a private-sector experiment to see if individuals and institutions truly desire a radically different payments system, in this case based on crypto and blockchains. If they do, the system can evolve by having some but not all transactions shift toward stablecoin.
There need not be any “do or die” date of transition requiring a perfectly functioning CBDC. But insofar as those stablecoins can achieve the very simple methods of funds transfer outlined above, market participants will continue to use them more.
Quarles argued that with suitable but non-extraordinary regulation of stablecoin issuers, such a system could prove stable. He even seems to prefer the private-sector alternative: “It seems to me that there has been considerable private-sector innovation in the payments industry without a CBDC, and it is conceivable that a Fed CBDC, or even plans for one, might deter private-sector innovation by effectively ‘occupying the field.’”
In essence, Quarles is willing to tolerate a system in which privately issued dollar equivalents become a major means of consummating payments outside of the Fed’s traditional institutions. Presumably capital requirements would be used to ensure solvency.
For many onlookers, even hearing of innovation in finance raises worries about systemic risk. But perhaps the U.S. would do better by letting information technology advance than trying to shut it down. And if you are afraid of instability, are you really so keen to see foreign central bank digital currencies fill up this space?
If you are still skeptical, ask yourself two final questions. First, which has been more innovative on these issues: the private sector or the public sector? Second, how realistic are the prospects that Congress takes any effective action at all?
This is now a world in which radical monetary ideas are produced and consumed like potato chips. I say, pass the bag.
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>>> Can IMF Currency Replace the Dollar?
CATO Institute
APRIL 5, 2009
By Swaminathan S. Anklesaria Aiyar
https://www.cato.org/commentary/can-imf-currency-replace-dollar
This article appeared in the Times of India on April 5, 2009.
World leaders at the G-20 meeting agreed to create new international money worth $250 billion. The IMF will oversee the new money called SDRs (Special Drawing Rights). Some people believe — and China fervently hopes — that SDRs will in due course replace the dollar as the main world reserve currency.
I, however, am a sceptic. I doubt if the amount of SDRs will ever rival the dollar, euro or yen. Far from becoming a separate international currency, the SDR will remain a derivative of the dollar and a few other major national currencies.
Before World War I, most countries were on the gold standard: currency issue was tied to the gold held in their reserves. A country whose gold holdings fell, had to shrink its money supply too. Such stiff discipline meant inflation was close to zero: governments could not print notes at will. But governments needed huge spending in World War I and so gave up the gold standard for the printing press. Besides, the bulk of gold production came from Russia and South Africa, and others refused to be at the mercy of those two countries for future money supply.
Resort to printing presses started a century of unprecedented inflation. Today, governments cannot contemplate being anchored to gold — that would leave them no flexibility to do things that voters demand. Voters also complain about inflation. But they prefer do-?something governments plus inflation to do-?nothing governments with stable prices.
The abandonment of the gold standard was not exactly a success. The Great Depression arrived in 1929. Competitive devaluations by different countries caused world trade to sink by almost 80%. So, in 1944, major market economies gathered at Bretton Woods to devise a post-?war monetary system. British economist J M Keynes favoured a new international currency, Bancor, anchored in 30 commodities. But there was no political will to give up the printing press. Instead, the new international system was anchored in the dollar, the only currency convertible to gold, with the exchange rates of other currencies overseen by the IMF.
However, the US resented being the only country tied to gold, and gave up that link in 1971. After that, all currencies floated against one another. Countries kept forex reserves mainly in dollars, but also in sterling, yen, and euros.
Recently, the US has ceased to dominate the world economy. It has run up record trade deficits and gargantuan foreign debt. China and other countries hold trillions of dollars in their forex reserves. With Obama printing trillions of dollars to stimulate the US economy, China fears that the dollar — and China’s own reserves — will crash. Hence, China wants SDRs as a rival reserve currency, phasing out the dollar.
Others like India are also keen on a fresh issue of SDRs to improve cash availability at a time when global lenders have withdrawn from developing countries. New SDRs could be one more stimulus for the sagging world economy.
The IMF has since 1970 issued only 21.4 billion SDRs, worth $32 billion at today’s exchange rate. The proposed new issue worth $250 billion will be far larger. Yet, it pales in comparison with trillions of dollars held in forex reserves globally.
SDRs will probably be issued to countries in proportion to their IMF quotas. If so, two-?thirds of new SDRs will go to rich developed countries. India will get just 2%, China just 3.7%. Hence, SDRs will hardly dent dollar dominance in global reserves or liquidity.
Many US and German politicians oppose SDR creation saying it is “funny money” that will ultimately cause inflation. The Wall Street Journal opposes SDR creation because this will benefit political foes like Venezuela ($840 million), Iran ($465 million), Sudan ($100 million), Zimbabwe ($115 million), Syria ($90 million) and Myanmar ($80 million). Even if Obama persuades US Congress to approve the proposed $250 billion worth of SDRs, Congress will strongly oppose SDR creation on a scale big enough to rival the dollar as a reserve currency.
Finally, readers should understand that the SDR is not a currency at all. It is simply a potential claim on four national currencies. The SDR is linked to a basket of currencies with a weight of 44% for the dollar, 34% for the euro, and 11% each for the yen and pound sterling. If India wants to use its SDRs, it will typically ask the IMF for dollars in exchange. The IMF will debit India’s SDR account, credit America’s SDR account, ask the US for the corresponding dollars, and hand these to India.
So, SDRs are anchored in four existing currencies, and do not constitute an independent new currency. Nor will major powers allow the IMF to create a new currency independent of existing ones, anchored perhaps in gold. No politician wants to grant supra-?national status to the IMF in money creation. The SDR is allowed in small quantities as a derivative of existing currencies. That’s all.
For now, the dollar remains supreme. One day the Chinese yuan and Indian rupee may become fully convertible, and join the list of reserve currencies. That may diminish dollar dominance. But SDRs will remain peripheral.
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>>> How to Keep Crypto From Crashing the Financial System
What used to be a sideshow is becoming a systemic risk.
Bloomberg
By Editorial Board
July 8, 2021
https://www.bloomberg.com/opinion/articles/2021-07-08/how-to-keep-crypto-from-crashing-the-financial-system?srnd=premium
Once upon a time, the realm of cryptocurrencies was a curious sideshow, a place where criminals did business and enthusiasts dabbled at their own peril. Not anymore. It’s rapidly evolving into a veritable Westworld of finance, where glitchy simulacra of investment funds, banks and derivatives allow visitors to take on immense risks — risks that could ultimately spill over into traditional markets and the broader economy.
Regulators have been struggling to get a grip on all this. It’s increasingly important that they succeed, and soon.
Whether crypto will prove to be, on balance, a good thing is still unclear. As money, it has so far failed: The volatility, transaction costs and carbon footprint of Bitcoin, for example, have made it largely useless for purposes other than speculation and ransomware (and even there it has flaws). That said, the underlying blockchain technology — which allows people anywhere to transact and create indelible records without relying on a trusted intermediary — may yet have uses beyond selling “official” copies of video clips and commemorating the torching of valuable artwork. In due course, it might help sovereign states improve their official currencies.
Lately, though, the denizens of crypto have been replicating the work of traditional financial institutions, without any of the regulatory guardrails designed to keep them in check. Left unattended, this is not likely to end well.
Exhibit 1 is stablecoins, representations of fiat currencies that operate on the blockchain. They mimic bank deposits by purporting to be worth, say, exactly one U.S. dollar per coin. But unlike banks, the organizations that manage them have no deposit insurance, no recourse to emergency loans from the Federal Reserve, and no limits on where to invest the reserves of fiat money that allegedly back them. Tether, the outfit behind one of the most popular stablecoins, has already been caught lending its dollar reserves to its affiliated crypto exchange, and still claims to hold potentially volatile assets such as precious metals and other digital tokens.
History has repeatedly demonstrated how dangerous such a naked combination of deposit-like liabilities and risky investments can be. Even the rumor of losses can trigger a rush to redeem before the money is gone, with systemic consequences. Suppose, for example, stablecoins became large buyers of commercial paper, short-term debt that companies issue for purposes such as buying supplies and paying employees. (Tether says it already holds tens of billions of dollars of such paper.) A sudden wave of redemptions could starve the market of cash, rendering companies unable to make payroll — similar to what happened in 2008, when the bankruptcy of Lehman Brothers triggered a run on money-market funds that devastated the commercial paper market (a vulnerability that itself has yet to be fully addressed).
Exhibit 2 is the burgeoning world of decentralized finance, or DeFi. Working on the Ethereum blockchain, using “smart contracts” capable of automating transactions, often-amorphous teams of developers have set into motion a panoply of applications. These include exchanges, bank-like platforms and derivatives dealers where people can lend, borrow and make highly leveraged bets. Many of the services have decentralized governance systems that leave decision-making to a constantly changing community of users. Scams abound. Hackers frequently find ways to drain funds, as famously happened with the original autonomous blockchain organization, the DAO. Think of it as full-service shadow banking with nobody in charge.
So far, the sums involved are relatively small — the equivalent of tens of billions of dollars, compared with the hundreds of trillions coursing through global capital markets. But this could change quickly, with far-reaching repercussions — particularly given the amount of leverage involved.
Imagine a group of hedge funds making a large bet on cryptocurrency. In DeFi, an algorithm would typically determine how much of their own money, or “margin,” they would have to commit to get a given amount of exposure. This might be 20%, enough to cover a $20 billion loss on a $100 billion investment. In the highly volatile realm of crypto, though, setting margins is a tricky business. An error, a hack or a sharp market move could cause the algorithm to recalculate, suddenly requiring the hedge funds to deliver billions more by selling assets in other markets — precisely the kind of contagion that tends to trigger broader meltdowns. And that’s just one of many possible scenarios.
What’s a regulator to do?
One promising solution for stablecoins: Require them to deposit their reserves only in traditional banks, which would in turn park the cash at the Federal Reserve. This would make them equivalent to federally insured deposits, leaving them to compete on the quality of the payment services they provide, as opposed to profiting from unduly risky investments.
Properly regulated, stablecoins could have beneficial uses, such as making it easier and cheaper for migrant workers to send money to their families back home. The payment “rails” they help develop might even someday serve as infrastructure for digital cash issued directly by sovereign central banks.
DeFi will be more complicated. One challenge will be defining what a platform actually does — is it like a bank, an exchange, a securities dealer, something else? Another will be figuring out whom to hold accountable in a decentralized organization — the developers, the users? Multiple agencies will have to cooperate, and new legislation will probably be needed to give them the necessary powers.
The overarching goal should be to ensure similar services are competing on the merits, rather than on the degree of regulation they face or their tolerance for crime. In cases where that’s not possible, some may have to be outlawed.
To their credit, global regulators are aware of the issues and are starting to engage. They’ve thought deeply about the options for addressing stablecoins. They’ve met with DeFi participants to better understand the risks. They’ve set forth concrete proposals to keep traditional banks safe. But they need to act quickly. This could get very big, and very dangerous, very fast.
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Blackrock - >>> Going direct: How central banks could deal with the next downturn
BLACKROCK INVESTMENT INSTITUTE
Elga Bartsch
Oct 3, 2019
https://www.blackrock.com/us/individual/insights/going-direct-how-central-banks-could-deal-with-the-next-downturn
Going direct: How central banks could deal with the next downturn
Elga discusses how central banks could “go direct” and use unprecedented coordination between monetary and fiscal policy to deal with the next downturn. This is the fourth and final blog in a series on the topic of “Dealing with the next downturn.”
How will central banks tackle the next downturn? We believe an unprecedented response is needed when monetary policy is exhausted and fiscal space is limited. That response could involve “going direct” – finding ways to get central bank money directly in the hands of public and private sector spenders.
We believe policymakers should lay the groundwork for a credible plan to navigate the next economic shock that includes the coordination between monetary and fiscal measures. We lay out the contours of such a framework in our latest Macro and market perspectives. Absence of a credible plan is contributing to market anxiety and adding to the rush into the perceived safety of government bonds, in our view.
A practical approach would be to stipulate a contingency where monetary and fiscal policy would become jointly responsible for achieving the inflation target.
An emergency fiscal facility
To be sure, agreeing on the proper governance for such cooperation would be politically difficult and take time. That said, here are the contours of a framework:
An emergency fiscal facility – that we refer to as the standing emergency fiscal facility (SEFF) – would operate on top of automatic stabilisers and discretionary spending, with the explicit objective of bringing the price-level back to target.
The central bank would activate the SEFF when interest rates cannot be lowered and a significant inflation miss is expected over the policy horizon. See the SEFF funding level in the stylised chart at top above.
The central bank would determine the size of the SEFF based on its estimates of what is needed to get the medium-term trend price level back to target and would determine ex ante the exit point. Monetary policy would operate similar to yield curve control, holding yields at zero while fiscal spending ramps up – see the yield at zero in the middle chart above. (The charts help sketch out the concept but are not intended to be a precise representation of how it might work.)
The central bank would calibrate the size of the SEFF based on what is needed to achieve its inflation target – the red dotted line in the bottom chart above.
This proposed framework could include former Federal Reserve Chair Ben Bernanke’s temporary price-level target where the central bank commits to not only reach its inflation target but make up for past shortfalls (see Bernanke 2017 and our June 2019 work on inflation make-up strategies). Importantly, it complements it by specifying the mechanism – the SEFF – to push inflation higher. This is inspired by Bernanke’s 2016 proposal for a money-financed fiscal programme.
This approach improves on other fiscal approaches to providing stimulus when rates are at the effective lower bound (the minimum level of interest rates that the central bank can feasibly set), we believe. Similar to Furman and Summers (2019) and Blanchard (2019), it argues for the use of fiscal policy – yet it does not rely on rates staying below growth for the entire time needed to stimulate the economy.
Our proposal stands in sharp contrast to the prescription from proponents of modern monetary theory (MMT). They advocate the use of monetary financing in most circumstances and downplay any impact on inflation. Our proposal is for an unusual coordination of fiscal and monetary policy that is limited to an unusual situation – a liquidity trap – with a pre-defined exit point and an explicit inflation objective. Quasi-fiscal credit easing, such as central bank purchases of private assets, could be operated by the SEFF rather than the central bank alone to separate monetary and fiscal decisions.
A credible stimulus strategy would help investors understand what will happen once the monetary policy space is exhausted and provides a clear gauge to evaluate the systematic fiscal policy response. Spelling out a contingency plan in advance would increase its effectiveness and might also reduce the amount of stimulus ultimately needed. As former U.S .Treasury Secretary Henry Paulson famously said during the financial crisis: “If you’ve got a bazooka, and people know you’ve got it, you may not have to take it out.”
“Going direct” would provide stimulus without having to rely on rates going ever lower, and could help restore a more normal rate environment.
You can read our full paper on the subject here: Dealing with the next downturn
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>>> How U.S. Could Make China Pay for COVID
BY JAMES RICKARDS
JUNE 29, 2021
https://dailyreckoning.com/how-u-s-could-make-china-pay-for-covid/
How U.S. Could Make China Pay for COVID
As my readers know, I don’t like to get into politics in my analyses; I cover economics and capital markets. That said, there are times when politics are so focused and powerful that we have to pay attention because the impact on markets will be enormous.
This could be one of those times. House Minority Leader Kevin McCarthy, a Republican, has written an open letter calling on Congress to investigate the origins of the COVID pandemic and to hold China responsible if the evidence points in the direction of intentional or reckless conduct on the part of the Chinese.
That much is part of the normal political give and take. Republicans want to focus on Chinese wrongdoing and evidence that Dr. Anthony Fauci facilitated such wrongdoing with U.S. taxpayer dollars funneled from the National Institutes of Health through third parties.
The investigation would look at so-called “gain-of-function” research in which virus genomes are intentionally manipulated to make them more dangerous. There’s even good evidence that the Wuhan Institute of Virology, where the virus likely escaped, is run by the Communist Chinese military.
The possibility is open that the virus that caused the pandemic was a bioengineered weapon designed to kill as many people as possible.
Whether it was released on purpose or, more likely, escaped through negligence does not alter the fact that the Chinese created a killer virus and covered up the initial release.
Conspiracy!
Of course, any talk that the virus came from a Wuhan lab was dismissed as a crazy conspiracy theory peddled by Trump. To acknowledge that possibility was seen as an endorsement of Trump, so the mainstream media reflexively dismissed any such claims. Social media banned any post alleging that the virus originated in a lab.
I argued that the virus likely came from a lab in my book, The New Great Depression. I came to that conclusion a year ago. Only now is the mainstream media and their social media bedfellows acknowledging that the lab theory is plausible (see below for one possible explanation for the media’s about-face).
Regardless, the result is almost 4 million dead worldwide, including more than 600,000 dead in the U.S. alone.
In contrast to the Republican position, Democrats led by Biden are trying to downplay any investigation into China’s role by fobbing it off on the intelligence community, which will result in inaction.
Well, here’s the market angle: the McCarthy letter includes the following in his demands:
“The families of those who have died from COVID-19 should be given the option to file suit against the Chinese government for damages incurred as a result…”
How to Make China Pay
If Chinese sovereign immunity was removed from lawsuits, individual suits would quickly become a class action. Total damages could easily top $2 trillion.
Skeptics then say that even if a judgment were obtained, it would be impossible to enforce the judgment against China.
Actually, that’s the easy part. A U.S. federal judge could order the transfer of China’s $1.4 trillion in U.S. government securities to a custodian to be administered for the benefit of COVID victims.
China could not stop this because Treasury securities are held in digital form on a ledger controlled by the Treasury and the Federal Reserve. A few keystrokes could deplete China’s liquid reserve position by more than half. I wrote about this possibility last year in The New Great Depression.
Now, it could become a reality if McCarthy’s legislation is adopted. This won’t happen until after the 2022 midterm elections at the earliest. But, you can be sure China is paying attention and is already reducing its Treasury position just in case.
But the theory that the virus came from a Chinese lab may be about to receive major support, coming from a source high within China’s intelligence services…
An Intelligence Jackpot?
James Bond fans (myself included) imagine that the best intelligence comes from secret agents who move covertly in enemy countries, recruit sources, gain access to secret documents and then bring that information back to headquarters.
The name for this technique in the CIA’s clandestine service, officially the Directorate of Operations, is HUMINT, short for Human Intelligence.
There are significant collections from spies, but most intelligence actually comes from electronic signals (known as SIGINT) or from defectors. The defectors are the most valuable source. They can simply walk into a U.S. installation such as an overseas embassy or U.S. office of a branch of the intelligence community and offer to tell everything they know.
Sometimes the defection is more dangerous, such as when the defector is still in his home country and has to be smuggled out by some means to avoid arrest and certain death.
Their information is so valuable because it’s fresh, first-hand, and includes data and insights that no secret agent could ever get on his own.
The most knowledgeable defector in history may have just turned up at a U.S. agency with “terabytes of data” on portable electronic devices ready to provide inside information on the Communist Party of China.
Why the Media May Have Changed Its Tune on the Lab Theory
The defector’s name is Dong Jingwei, and he was the second-highest-ranking official in the Ministry of State Security, which is China’s internal state intelligence service.
Dong reportedly has information on the Chinese spy network in the U.S. and on the fact that the COVID-19 virus was engineered in the Wuhan Institute of Virology.
There’s some debate about the authenticity of this story. Last week, China issued a news report saying that Dong was at his desk conducting business as usual. The problem was that no photos of Dong were included with the story. Some China experts say that the absence of photos indicates that the Chinese denial is propaganda and the defection story is true.
If the story is true, it explains why the mainstream media are suddenly giving credence to the laboratory leak theory of the pandemic after a year of denial. They know the true story is coming out through the defector, so they want to cover their own tracks as puppets of Chinese propaganda.
I’ll continue to follow this. For now, it appears the defection story may be true, and the U.S. may have been handed the greatest intelligence bonanza since…. well, since James Bond.
Regards,
Jim Rickards
for The Daily Reckoning
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>>> Rickards: They’re Wrong About Inflation
BY JAMES RICKARDS
JUNE 23, 2021
https://dailyreckoning.com/rickards-theyre-wrong-about-inflation/
Rickards: They’re Wrong About Inflation
Sometimes new data can shed light on an uncertain situation, especially in financial markets. Other times it simply adds to the confusion. Such was the case with the most recent U.S. employment report released June 4 for the month of May.
The analyst world was glued to their news feeds, anxiously awaiting the latest report. The result was — bafflement.
The report showed job gains of 559,000. That’s a strong number, but it was below expectations. The market was looking for 670,000 jobs or higher. While strong April gains were revised up slightly, the stronger March gains had earlier been revised down by 131,000 jobs over the course of April and May.
The overall impact of the March-April-May data was a cooling off in new job creation.
The unemployment rate for May declined from 6.1% to 5.8%. That sounds like good news until you notice that the reason for the decline was not strong job creation but rather a decline in labor force participation.
That statistic declined from 61.7% to 61.6%; not a material drop, but still part of a long-term decline that has moved labor force participation back to levels not seen since the 1970s.
Simply put, the overall size of the labor force shrank.
The Glass Half Empty
You can be unemployed in the traditional meaning of the term without being counted as unemployed by the Labor Department. The difference has to do with whether you are actively looking for a job or not. Only the former are officially counted as unemployed. The problem is that the ranks of the latter are growing.
There are always some in the prime-age working population (ages 25 – 54) who are not looking for jobs because they are homemakers, students, early retirees, or are undergoing various life transitions. Still, the percentage of potential workers who have dropped out of the labor force is disturbingly high.
Some have given up looking for jobs because they’re sure they can’t find any that match their skills or interests. Others are content to collect the generous unemployment benefits the government keeps handing out. Some are still living in fear of COVID and don’t want to return to the workplace.
I’m not passing judgment; I’m just making the point that a low unemployment rate doesn’t mean much when it’s driven by a low labor force participation rate.
We have an army of perhaps ten-to-twenty million prime-age workers who don’t have jobs and aren’t looking. As long as that slack in the labor market is out there, the official unemployment rate doesn’t tell the whole story.
So, the bottom line on the May employment report was, meh. It wasn’t horrible, and it wasn’t great. It did point to persistent slack in labor markets and possible slowing growth. It did not point to inflation or anything close.
The Inflation Narrative
Since late last summer, the main driver of rates has been an inflation narrative. The narrative is straightforward:
The economy is recovering. Unemployment is declining. Employers can’t find enough workers. Wages are going up to attract help. Stimulus spending is coming by the trillions of dollars. The Fed is printing money. The economy is pushing up against capacity constraints.
Add it all up, and inflation is right around the corner. Therefore, rates must go up. And when rates go up, the price of gold goes down.
Markets have adopted this narrative. The yield-to-maturity on the 10-year Treasury note went from 0.508% on August 4, 2020 (about when gold peaked) to 1.745% on March 31, 2021. Gold prices went from over $2,021 per ounce to $1,686 per ounce over the same period. That’s a 16.5% drop in gold prices.
What if every part of the economic narrative is wrong?
The Numbers
The economy was bound to recover from the pandemic recession of 2020, the worst since 1946. But, it appears the recovery is now running out of steam. For the record, the economy was weak before the pandemic hit.
What if that weak growth trendline is now returning to form?
The unemployment rate is declining, but real unemployment is not. We still have 7.6 million fewer jobs than before the pandemic, not counting the 10 million or more prime-age workers out of the labor force as described above.
It’s true that wages are going up in some service industries such as restaurants and that workers are hard for some businesses to find. (McDonald’s is now offering $35,000 per year plus benefits and training for entry-level hires).
Still, overall wage levels are not rising significantly, and slack in the labor market is producing a powerful disinflationary overhang.
It’s the Velocity, Stupid
Money printing is practically irrelevant because the velocity (or turnover) of money is still declining. What good is new money if the banks just give it back to the Fed as excess reserves, so the money is never spent or lent?
Fiscal policy and handouts are not producing stimulus because debt levels are so high (the U.S. debt-to-GDP level is now 130%, the highest ever). Americans respond with precautionary savings and deleveraging.
Data shows that 75% of the government handouts have either been saved or used to pay down debt (economically the same as saving). Only 25% have been used for consumption. That’s a pathetic amount of bang-for-the-buck.
We are seeing some supply-chain disruption and capacity constraints, especially in semiconductors, which affects automobile manufacturing. Still, manufacturers have not been able to pass through those constraints in the form of higher consumer prices.
Inflation remains low once base effects from last year’s deflation are stripped out. Those base effects will disappear in the third quarter when the year-over-year comparison looks at the 2020 recovery rather than the recession.
Inflation is dead in the water.
I know that analysis puts me in the minority, but that’s OK; I’m used to that. I was also in the minority when I predicted Brexit and that Trump would win the 2016 election. The bottom line is, the consensus is often wrong.
Look to the Bond Market
The bond market already senses this, and so does gold. Rates peaked on March 31 and have been coming down since, albeit with the usual volatility. The rate on the 10-year Treasury note is 1.487% as of this writing, some 0.20% below the peak.
That’s a huge drop given how low rates are overall. The bond market is signaling that the inflation narrative is wrong.
Gold is saying the same thing. Gold hit an interim bottom of $1,678 per ounce on March 8, 2021, and has been trending up ever since. Gold is trading at $1,774 per ounce today and had a recent interim high of $1,918 per ounce on June 1, 2021.
Again, gold is signaling that the narrative is wrong, growth is slowing, and rates are coming down. That makes gold more attractive to asset allocators because gold competes with notes for investor dollars.
Stocks are forward-looking in theory, but they do an awful job of getting the forecast right in practice. Stocks missed the coming crashes of 2000, 2007 and 2020. They’ll miss the next crash too (until it’s too late to get out whole).
Bonds and gold are much better indicators of where the economy is going.
The signals are clear. The economy is slowing, labor markets are weak, disinflation and even deflation are on the horizon, rates are going down, and gold prices are at a great entry price.
Reality is catching up with the narrative. If you understand what’s going on, you’re more informed than the “experts.”
Regards,
Jim Rickards
for The Daily Reckoning
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>>> The “Great Reset” Is Here
BY JAMES RICKARDS
JUNE 15, 2021
https://dailyreckoning.com/the-great-reset-is-here-2/
The “Great Reset” Is Here
For years, currency analysts (myself included) have looked for signs of an international monetary “reset” that would diminish the dollar’s role as the leading reserve currency and replace it with a substitute, which would be agreed upon at some Bretton Woods-style monetary conference.
Now, it looks like the move towards the long-expected Great Reset is accelerating.
At the recent G7 summit in the UK, G7 leaders gave their blessings to a $100 billion allocation of IMF special drawing rights (SDRs) to help lower-income countries address the COVID-19 crisis.
President Biden fully supports the idea. The White House issued the following statement:
The United States and our G7 partners are actively considering a global effort to multiply the impact of the proposed Special Drawing Rights (SDR) allocation to the countries most in need…
At potentially up to $100 billion in size, the proposed effort would further support health needs – including vaccinations…
A separate press release from the same day continued the same sentiment, stating, “We strongly support the effort to recycle SDRs to further support health needs.”
In another development, IMF Managing Director Kristalina Georgieva said last Wednesday that she expected the fund’s governors to approve a $650 billion allocation of SDRs in mid-August.
What exactly are SDRs? Basically, they’re world money.
In 1969, the IMF created the SDR, possibly to serve as a source of liquidity and alternative to the dollar.
In 1971, the dollar did devalue relative to gold and other major currencies. SDRs were issued by the IMF from 1970 to 1981. None were issued after 1981 until 2009 during the global financial crisis.
The 2009 issuance was a case of the IMF “testing the plumbing” of the system to make sure it worked properly. Because zero SDRs were issued from 1981–2009, the IMF wanted to rehearse the governance, computational, and legal processes for issuing SDRs.
The purpose was partly to alleviate liquidity concerns at the time, but it was also to make sure the system works in case a large, new issuance was needed on short notice. The 2009 experiment showed the system worked fine.
Since 2009, the IMF has proceeded in slow steps to create a platform for massive new issuances of SDRs and establish a deep liquid pool of SDR-denominated assets.
On January 7, 2011, the IMF issued a master plan for replacing the dollar with SDRs.
This included creating an SDR bond market, SDR dealers, and ancillary facilities such as repos, derivatives, settlement and clearance channels, and the entire apparatus of a liquid bond market.
A liquid bond market is critical. U.S. Treasury bonds are among the world’s most liquid securities, which makes the dollar a legitimate reserve currency.
The IMF study recommended that the SDR bond market replicate the infrastructure of the U.S. Treasury market, with hedging, financing, settlement and clearance mechanisms substantially similar to those used to support trading in Treasury securities today.
In August 2016, the World Bank announced that it would issue SDR-denominated bonds to private purchasers. Industrial and Commercial Bank of China (ICBC), the largest bank in China, will be the lead underwriter on the deal.
In September 2016, the IMF included the Chinese yuan in the SDR basket, giving China a seat at the monetary table.
So, the framework has been created to expand the SDR’s scope.
The SDR can be issued in abundance to IMF members and used in the future for a select list of the most important transactions in the world, including balance-of-payments settlements, oil pricing, and the financial accounts of the world’s largest corporations, such as Exxon Mobil, Toyota, and Royal Dutch Shell.
The basic idea behind the SDR is that the global monetary system centered around the dollar is inherently unstable and needs to be reformed.
Part of the problem is due to a process called Triffin’s Dilemma, named after economist Robert Triffin. Triffin said that the issuer of a dominant reserve currency had to run trade deficits so that the rest of the world could have enough of the currency to buy goods from the issuer and expand world trade.
But, if you run deficits long enough, you would eventually go broke. This was said about the dollar in the early 1960s. The SDR would solve Triffin’s Dilemma.
I wrote about SDRs and the global elite plans for them in the second chapter of my 2016 book, The Road to Ruin.
Over the next several years, we will see the issuance of SDRs to transnational organizations, such as the U.N. and World Bank, for spending on climate change infrastructure and other elite pet projects outside the supervision of any democratically elected bodies.
I call this the New Blueprint for Worldwide Inflation.
But Triffin’s Dilemma is not the only dynamic that’s pushing the world away from the dollar. Below, I show you why the weaponization of the dollar by the U.S. government is pushing the world to seek alternatives.
Regards,
Jim Rickards
for The Daily Reckoning
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>>> The Real Russian Threat
BY JAMES RICKARDS
JUNE 14, 2021
https://dailyreckoning.com/the-real-russian-threat/
The Real Russian Threat
I’ve written for years about different nations’ persistent efforts to dethrone the U.S. dollar as the leading global reserve currency and the main medium of exchange.
At the same time, I’ve said that such processes don’t happen overnight; instead, they happen slowly and incrementally over decades.
The dollar displaced sterling as the leading reserve currency in the twentieth century, but it took thirty years, from 1914 to 1944, to happen. The decline started with the outbreak of World War I and the UK’s liquidation of assets and money printing to finance the war.
It ended with the Bretton Woods agreement in 1944 that cemented the dollar’s link to gold as the new global standard.
Even after the gold link was broken in 1971, the dollar standard remained because there was no good alternative. Then the 1974 deal with Saudi Arabia (along with other OPEC cartel members) to price oil in dollars created increased global demand for the dollar.
Because of the deal, dollars would be deposited with U.S. banks, so they could be loaned to developing economies, who could then buy U.S. manufactured goods and agricultural products.
This would help the global economy and allow the U.S. to maintain price stability. The Saudis would get more customers and a stable dollar, and the U.S. would force the world to accept dollars because everyone would need dollars to buy oil.
By the way, behind this “deal” was a not so subtle threat to invade Saudi Arabia and take the oil by force.
I personally discussed these invasion plans in the White House with Henry Kissinger’s deputy, Helmut Sonnenfeldt, at the time. But the Petro-Dollar plan worked brilliantly, and the invasion never happened.
Despite all this, nearly 50 years later, the erosion of the dollar’s role has begun and is visible in many metrics.
The dollar’s share of global reserves has fallen from 70% to 60% in the past 22-years. The dollar price of gold (an inverse measure of dollar strength) has gone from $250 per ounce to over $2,000 per ounce between August 1999 and August 2020 (it’s about $1,880 per ounce as of today).
The IMF’s special drawing right (SDR), Bitcoin, and gold (again) are waiting in the wings to step up as the dollar falters further.
The Russians, in particular, are moving quickly to protect themselves from this inevitable decline.
Russia has already increased gold as a percentage of its reserves to 20% (only the U.S., Germany, Italy, France and the Netherlands have higher percentages of gold among the twenty largest developed economies).
Now, Russia will completely eliminate dollar holdings from its $119 billion National Wellbeing Fund, a sovereign wealth fund that holds oil wealth for the future benefit of the Russian people.
Russia will be able to execute this plan without severe disruption to either the gold market or the dollar market.
By itself, this move does not mean the end of the dollar as the leading reserve currency. But, it is one more step on the slow path toward the dollar’s inevitable decline as a trusted medium of exchange.
Even though the process is gradual, it can gain a lot of momentum in the final phases. It reminds me of a line from a Hemingway novel:
“How did you go bankrupt?” asked one character. “Two ways,” responded the other. “Gradually, then suddenly.”
When the rush for the exits begins in earnest, you don’t want to be the last one out the door. It’s a good idea to diversify into gold for about 10% of your investable assets if you haven’t already.
That way you’ll be keeping up with the Russians and be one step ahead of the dollar’s decline.
I believe that the world will have to return to some version of the gold standard, not because it wants to, but because it will have to in order to restore confidence in the global monetary system.
The real question is, will it be an orderly process or a chaotic one?
Regards,
Jim Rickards
for The Daily Reckoning
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De-dollarization - >>> Erdogan Says Turkey Signed New $3.6 Billion Swap Deal With China
Bloomberg
By Selcan Hacaoglu
June 13, 2021
https://www.bloomberg.com/news/articles/2021-06-13/erdogan-says-turkey-signed-new-3-6-billion-swap-deal-with-china
Turkey signed a new $3.6 billion swap agreement with China, increasing the limit on their existing currency arrangement to $6 billion, Turkish President Recep Tayyip Erdogan said Sunday.
The arrangement with one of Turkey’s biggest trading partners will allow the country to boost trade in local currency and avoid using dollars, supporting the central bank’s reserves.
Erdogan, who spoke in Istanbul before traveling to Brussels for a NATO summit, didn’t say when the latest accord was signed. Turkey first signed a swap agreement with China in 2012 and subsequent deals have allowed Turkish companies to pay for imports from China using yuan.
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>>> Basel III is a 2009 international regulatory accord that introduced a set of reforms designed to mitigate risk within the international banking sector, by requiring banks to maintain proper leverage ratios and keep certain levels of reserve capital on hand.
Basel III rules move physical gold from being considered a Tier-3 asset to being considered Tier-1, which allows physical gold in bullion form to be counted at 100% value for reserve purposes. ... Beginning in June of 2021, Basel III rules will require banks to hold unencumbered physical gold valued at 100%
Pillars of Basel III accord
Pillar-1 – Enhanced Minimum Capital & Liquidity Requirements.
Pillar-2 – Enhanced Supervisory Review Process for Firm-wide Risk Management and Capital Planning.
Pillar-3 – Enhanced Risk Disclosure and Market Discipline.
The implementation date of the Basel III standards finalised in December 2017 has been deferred by one year to 1 January 2023. The accompanying transitional arrangements for the output floor have also been extended by one year to 1 January 2028.
Gold was previously viewed as a risky asset. It was classified as a Tier 3 asset, which meant that gold could only be carried on banks' balance sheet at 50% of the market value for reserve purposes. ... On the 1st of April 2019, Gold was reclassified as a Tier 1 asset and its risk-weighting was reduced to zero.
Tier 3 capital is tertiary capital, which many banks hold to support their market risk, commodities risk, and foreign currency risk, derived from trading activities. Tier 3 capital includes a greater variety of debt than tier 1 and tier 2 capital but is of a much lower quality than either of the two.
Under Basel III, the minimum capital adequacy ratio that banks must maintain is 8%. ... With higher capitalization, banks can better withstand episodes of financial stress in the economy.
The key difference between the Basel II and Basel III are that in comparison to Basel II framework, the Basel III framework prescribes more of common equity, creation of capital buffer, introduction of Leverage Ratio, Introduction of Liquidity coverage Ratio(LCR) and Net Stable Funding Ratio (NSFR).
>>> Will Basel 3 Boost Gold and Silver Prices?
Numismatic News
5-20-21
by PATRICK A. HELLER
https://www.numismaticnews.net/coin-market/will-basel-3-boost-gold-and-silver-prices
The Basel 3 accord is a set of global financial reforms developed by the Basel Committee on Banking Supervision under the domain of the Bank for International Settlements, an organization headquartered in Basel, Switzerland. These coming changes in bank system operations are to strengthen regulation, supervision and risk management within the worldwide banking industry.
Work on the Basel 3 changes began in 2008, after the onset of the Great Recession. The original version was adopted in 2010, to be implemented from 2013 to 2015.
Some changes called for in Basel 3 were so extreme that some revisions were made and implementation was repeatedly delayed. As it now stands, some of the impact of Basel 3 takes effect at the end of June this year, while all changes become effective on Jan. 1, 2023.
The goal of the forthcoming Basel regulations is to limit the levels of risk that banks take on in the pursuit of profits, which would hopefully prevent a major worldwide financial crisis if markets turn negative. It’s a wonderful idea in theory. However, in practice, some changes could be so disruptive to the actions of some governments, central banks and financial institutions that there is already pushback.
Part of the Basel 3 regulations that could be especially disruptive are those involving bank trading of precious metals.
Many of the world’s largest banks trade them for customers and for their own account. In trading these metals, they are handled as either allocated or unallocated assets.
With allocated precious metals, the customer is the owner of specifically identified and segregated coins or bars. The brand name, weight, purity and serial numbers of bars are recorded. The bank merely provides storage services. When a customer withdraws or sells these assets, the bank releases these exact same assets. Because these assets are property of the customer, the bank does not own them and they are not listed as assets of the bank or as liabilities that the bank owes to its customers.
It is an entirely different matter with unallocated storage of precious metals.
In unallocated storage, the bank’s customer does not own specifically identified coins or bars. Instead, the customer is an unsecured creditor of the bank, who has a claim against some of the assets owned by the bank. For example, a customer may have a 1,000-ounce silver bar in unallocated storage. The bank may be holding hundreds or thousands of these bars in unallocated storage, any one of which would be available to deliver on behalf of a customer if requested for withdrawal or sale.
In unallocated storage, that thousand-ounce silver bar would be owned by the bank and listed as part of its assets. To offset that, the bank would also record a liability to the customer for the same value as it uses for the asset. So long as banks actually hold sufficient assets to cover these liabilities, there is no problem.
When banks trade precious metals, the use of unallocated storage has a lot of advantages. Banks don’t have to keep track of each bar and coin by individual owner, which saves a lot of paperwork and shuffling of assets when they change hands.
However, there is a problem with unallocated storage.
Since the everyday turnover of precious metals involves only a relatively small percentage of the assets a bank may hold, the bank can fulfill the delivery needs even if it does not have physical custody and title to all of the precious metals it owes to customers.
You can think of this circumstance as similar to a bank’s cash customers. On a day-to-day basis, banks do not face a high percentage of their customers showing up to withdraw all of their funds. Therefore, the banks are able to hold only a small percentage of their assets in the form of coins and currency when compared to their liability to customers who have checking or savings accounts or certificates of deposit.
This lack of need to have title and custody to a high percentage of physical precious metals in their vaults compared to what their liabilities to customers has resulted in massive trading volumes in what I call paper assets.
So, many banks today engage in what could be called fractional precious metals trading. They hold only a small percentage of their liability to their customers in physical metals in their vaults. They theoretically cover the rest of their precious metals liabilities by leasing gold from central banks, trading derivatives contracts or using other paper forms.
Investment bank Morgan Stanley was caught in such a scam where it sold physical precious metals to customers and collected storage fees to hold them, but did not purchase the actual assets. Instead, this bank used customer funds to purchase other assets, many of them in paper form. Morgan Stanley settled a multi-million-dollar class action lawsuit on this issue in 2007 without agreeing with the charges.
How huge is this paper market, where banks may hold paper contracts to cover their liabilities to deliver physical precious metals? In a Commodity Futures Trading Commission hearing in March 2010, precious metals consultant Jeffrey Christian testified that these institutions may have sold their physical metals as much as 100 times the quantity of metal that they actually owned. Obviously, if all these owners contacted their bank to take delivery, the paper market would crash.
The world’s largest trading platform for precious metals is the London Bullion Market Association. Just in gold, it trades an average of $20 billion every day, which is more than $5 trillion annually. Virtually all of this trading is in the form of unallocated precious metals.
The New York COMEX is the world’s second largest platform for trading precious metals. The COMEX trading of gold futures and options contracts began in the mid-1970s specifically as a means for the U.S. government and the primary trading partners of the Federal Reserve Bank of New York to manipulate the price of gold.
The fractional reserve method trading of unallocated precious metals is the primary means by which the U.S. government, the primary trading partners of the Federal Reserve Bank of New York, allied central banks and the Bank for International Settlements suppresses gold and silver prices.
By selling paper contracts, without having to deliver the physical metals, there is the appearance that there is a lot more gold and silver available on the market than there actually is. The result is that prices are lower than if buyers and sellers of precious metals traded on the basis of actual supply and demand information.
As I have explained in the past, the prices of gold and silver effectively serve as a report card on the U.S. government, U.S. economy and the U.S. dollar. If precious metals prices are rising, that not only reflects poorly on the government, it also forces higher interest rates that must be paid on government debt and pushes down the purchasing power of the dollar.
Back to the Basel 3 accord. The most important change for precious metals is that banks would be required to hold reserves against their assets. Under the coming regulations, banks would count unallocated precious metals at 85 percent of their value on the bank’s books in making the determination of how much it needs to hold in reserves against these assets.
However, banks would no longer be able to consider any of the liability for unallocated precious metals as part of their required reserves.
Therefore, to comply with Basel 3 regulations, banks would have to either create a huge increase in their shareholders’ equity to provide the required reserves or they will be forced to sharply reduce or completely eliminate their trading in unallocated precious metals.
Will these banks take title and custody to many times the quantity of physical precious metals that they now hold? For all practical purposes that isn’t possible because there just aren’t enough physical metals available. Another obstacle is that these banks simply do not have the storage capacity to hold sufficient inventory to provide sufficient reserves for their precious metals assets.
The practical effect of this part of the new Basel 3 regulation would be to almost completely wipe out the trading of unallocated precious metals in the London and New York markets. About the only trade that would survive would be for allocated metals.
Banks in continental Europe will implement the changes in precious metals trading as of the end of June this year. British banks will be required to adopt the new standards by Jan. 1, 2022. At least, those are the current scheduled implementation dates.
With the elimination of most trading in unallocated storage, the U.S. government could lose its primary tactic of suppressing gold and silver prices.
Between the increased demand for physical precious metals and the elimination of the use of unallocated precious metals to suppress prices, gold and silver prices might undergo huge increases.
This impact of these forthcoming market changes is so enormous that on May 4, 2021, the London Bullion Market Association and the World Gold Council submitted a paper to the Prudential Regulation Authority, the United Kingdom’s regulator of banks and the financial sector, asking for the changes in Basel 3 standards in trading unallocated precious metals be eliminated. This paper claimed that implementing the new regulations would undermine the ability of banks to clear and settle precious metals trading, drain liquidity from this market, sharply increase financing costs of such trades and would limit central bank operations with precious metals.
The claim that the London Bullion Market Association may be almost forced to cease operations without this waiver also means that the COMEX trading of unallocated metals would also come to a virtual standstill.
How likely is it that the near-term implementation of the Basel 3 standards for trading unallocated precious metals will occur? Not enough to eventually matter, as the most likely difference would simply be another delay in the implementation date.
But, even if the implementation dates are once more postponed, that deferral might only apply to British banks.
Another possible change suggested in the LBMA and WGC paper is to instead adopt the Swiss interpretation which considers it applicable only to unbalanced positions on both sides of a bank’s balance sheet. That might not provide much leeway.
Still, time is running out to try to change the regulations before the first of these standards applies to continental European banks at the end of June this year.
Right now, the COMEX currently has about $24 billion in short sales of gold futures contracts and another $1.6 billion in short sales of silver futures. There will almost certainly be pressures for short sellers to cover these COMEX contracts as continental European banks scramble to cover their short positions.
However this eventually turns out, the ultimate result is almost certain that gold and silver prices will climb far higher, perhaps multiples of current levels, within the next six months to two years.
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>>> 'Britcoin': Central bank digital currencies explained
Yahoo Finance
Lucy Harley-McKeown
April 22, 2021
https://uk.finance.yahoo.com/news/britcoin-central-bank-digital-currency-explainer-pound-bitcoin-cryptocurrency
The buzz surrounding a potential central bank-backed digital currency grew louder this week, as the Bank of England and Treasury announced they would launch a taskforce to look into a potential digital pound.
Dubbed "Britcoin" by the press, the BoE said any UK digital currency would be a new form of digital money that could be used by both households and businesses. It would exist alongside cash and bank deposits, rather than replacing them. Both the BoE and Treasury stressed they were simply exploring the idea and are not committed to launching "Britcoin".
Interest in central bank digital currencies — often abbreviated to just CBDC – has evolved from the growth of decentralised digital currencies such as bitcoin (BTC-USD) and ethereum (ETH-USD), which have taken markets by storm.
Dutch bank ING said discussions of national digital currencies began with the emergence of bitcoin but were "mostly academic" until Facebook's decision to launch its own digital currency in 2019.
"All of a sudden, the prospect of a private stablecoin crowding out fiat currencies and pushing central banks into irrelevance turned into a real possibility, given Facebook’s vast global user base," Teunis Brosens, ING's head economist for digital finance and regulation, wrote in a research note.
What is Central Bank Digital Currency (CBDC) and how does it work?
Like other forms of cryptocurrency, CBDCs are a form of virtual money that uses an electronic record or digital token to represent cash. It is issued and regulated by a country’s monetary authority, which in the UK is the Bank of England. This is a key difference to cryptos like bitcoin, which are decentralised and unregulated.
Retail CBDC can be directly held by citizens and businesses. This is a step change from the current system where money is held at a bank. Instead of going to a cash machine to withdraw money from, say, Barclays, your money would instead be held directly on your mobile phone.
Interbank or wholesale CBDC is restricted to use by financial institutions like banks. It is used for big ticket bank-to-bank transfers and financial settlement processes.
CBDCs represent a new frontier for central bank stimulus, potentially acting as a conduit for policies such as stimulus checks, emergency loans, and UBI (universal basic income). Central banks could induce more powerful, directed "money drops" to stimulate the economy rather than tinkering with interest rates.
Which countries are looking at CBDCs and why?
According to PwC, retail CBDC projects appear to be more advanced in emerging economies.
China, Cambodia and The Bahamas are leading the pack, although the UK, Europe and the USA have all expressed an interest in developing their own CBDC.
Financial inclusion is often stated as a motivation, given that CBDC users do not need to be part of the banking ecosystem. With traditional money, people must have a bank account and a debit or credit card. With CBDCs, all they need is a phone.
READ MORE: Bank of England and UK Treasury explore 'digital pound'
PwC found that more than 60 central banks around the world have entered the central bank digital currency race since 2014, with 88% of the ongoing projects using blockchain as the underlying technology.
"As cryptocurrency investors ride a wave of speculation, the government will be keen to distance itself from what is still seen as the wild west of the payments world," said Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown.
"However, officials clearly believe they can’t ignore the surge of interest in digital currencies, as a means of faster and more efficient money transfers, particularly internationally."
Streeter said there was a do or die environment in the adoption of digital currency. Not developing a policy could mean more power falls into the hands of big tech companies as consumers drift further towards crypto.
Which country might be first to launch?
China is close to becoming the first major economy to launch a digital currency. Pilots began regionally last year and there are rumours of a national launch in 2022.
The Bahamas has also been tipped by PwC's CBDC global index as a frontrunner in the race, followed closely by Cambodia.
No wholesale CBDC projects have launched yet but nearly 70% are running pilots. Only 23% of retail projects have reached this stage.
Two projects are currently live and piloting: the Sand Dollar in the Bahamas and project Bakong in Cambodia.
The UK's taskforce has made clear that its project is in early stages. The European Central bank has said any possible "digital euro" will take several years.
Pros and cons
Many backers of digital currencies say banking this way is more efficient. Instead of relying on intermediaries such as commercial banks, money can be transferred directly to the recipient and payments can be made in real time.
There is also an argument that CBDC helps prevent illicit or fraudulent activity. CBDCs make it easier for central banks to keep track of the exact location of a unit of currency. Cash, meanwhile, can be laundered or 'lost' more easily.
Potential drawbacks include the invasion of privacy associated with this sort of surveillance. Governments could obtain access to private individual spending data, for example.
Another fear is that CBDCs could herald the onset of a fully cashless society, which could harm poor, rural, and elderly communities who largely rely on cash.
Central banks are also unsure of what the monetary policy implications would be of a fully cashless society. For example, if people can transfer money instantly and with zero friction, would bank runs be more common? Would commercial banks even still exist? And how powerful — or not — would interest rate adjustments become?
Questions like these are why governments around the world — particularly in major economies — are taking it slow when it comes to CBDCs.
<<<
>>> Federal Reserve is likely to create a digital currency: Goldman Sachs
Yahoo Finance
Brian Sozzi
May 24, 2021
https://finance.yahoo.com/news/federal-reserve-is-likely-to-create-a-digital-currency-goldman-sachs-164256832.html
Goldman Sachs Chief Economist Jan Hatzius thinks it will be some time before the Federal Reserve creates a digital currency to compete with the dollar, but it's likely to happen.
"The Fed I think partly because of the pre-eminent international role of the dollar is going to be slower than other central banks in introducing a digital currency. And there are quite a number of central banks globally that are hedged at this point and the Fed is still in the research stage. But ultimately, I think there is an appetite for introducing a digital currency," Hatzius said on Yahoo Finance Live. "I think we will move cautiously because there is no appetite on the part of the Fed or other central banks to really potentially undermine the current payment system and financial system.
Fed chief Jerome Powell is fresh off showing his hand a bit on the future for a digital currency, lending support to Hatzius' outlook.
Powell said in a presentation last week the governing body would continue its work on a digital dollar.
“The effective functioning of our economy requires that people have faith and confidence not only in the dollar, but also in the payment networks, banks, and other payment service providers that allow money to flow on a daily basis,” Powell said. “Our focus is on ensuring a safe and efficient payment system that provides broad benefits to American households and businesses while also embracing innovation.”
At the moment, crypto traders aren't liking talk of competition from the Fed and fears of greater regulation out of China.
Bitcoin prices were under massive pressure on Sunday, plunging more than 15% by afternoon trading. At $32,652, bitcoin prices have crashed about 50% from their mid-April peak of $64,829. Ether nosedived another 18% on Sunday, bringing its drop from an all-time high this month to roughly 60%. Early Monday morning, crypto recovered.
Ultimately, Hatzius doesn't think a digital currency from the Fed would create major risks to the financial system. That's provided the Fed takes its time on its research on digital currencies and how they would fit into the financial system.
"I think small steps are not likely to be very disruptive [to the financial system]. Large steps could be disruptive. That's why I think you need to move slowly, and gain a lot more experience before you ramp it up," Hatzius said.
<<<
>>> Bitcoin is officially a new asset class: Goldman Sachs
Yahoo Finance
Brian Sozzi
Mon, May 24, 2021
https://finance.yahoo.com/news/bitcoin-is-officially-a-new-asset-class-goldman-sachs-103540636.html
It's time to take bitcoin way more seriously as an investable asset, says Goldman Sachs.
"Bitcoin is now considered an investable asset. It has its own idiosyncratic risk, partly because it’s still relatively new and going through an adoption phase," said Mathew McDermott, Goldman Sachs' global head of digital assets, in a new piece of research. "And it doesn’t behave as one would intuitively expect relative to other assets given the analogy to digital gold; to date, it’s tended to be more aligned with risk-on assets. But clients and beyond are largely treating it as a new asset class, which is notable—it’s not often that we get to witness the emergence of a new asset class."
Despite Goldman's rubber stamp of approval on bitcoin (BTC-USD) and other cryptocurrencies have traded anything like a typical stock of a credible company or bond in May. In truth, if bitcoin is to be considered a new asset class it has a lot in common with one area in the stock market: often very volatile penny stocks that see wild gyrations on the tiniest bit of news.
Bitcoin prices continued to be under massive pressure on Sunday, plunging more than 15% by afternoon trading. At $32,652, bitcoin prices have crashed about 50% from their mid-April peak of $64,829. Ether nosedived another 18% on Sunday, bringing it's drop from an all-time high this month to roughly 60%. Early Monday morning, crypto recovered slightly.
'A key concern is inconsistent regulatory actions'
The serious price correction in cryptos come amid a groundswell of negative news mostly from government officials worldwide.
Authorities in China said last Friday that it would be necessary to crack down on bitcoin mining and trading behavior to limit investment risks.
Meanwhile, Federal Reserve Chairman Jerome Powell said in a presentation last week the governing body would continue its work on a digital dollar. Any digital dollar would likely weigh on the bullish sentiment for bitcoin and other cryptos.
“The effective functioning of our economy requires that people have faith and confidence not only in the dollar, but also in the payment networks, banks, and other payment service providers that allow money to flow on a daily basis,” Powell said. “Our focus is on ensuring a safe and efficient payment system that provides broad benefits to American households and businesses while also embracing innovation.”
Goldman's McDermott acknowledges regulation of the crypto space looms large as a significant risk to further price appreciation.
"A key concern is inconsistent regulatory actions around the globe that impede the further development of the crypto space, or the ability of more regulated entities to engage within it. It feels like the regulatory tone has turned more constructive, but I certainly wouldn’t want to be complacent," McDermott said.
Even in the face of such risk, McDermott said institutional clients remain keen on adding some form of crypto exposure to portfolios.
"As a whole, discussions with institutional clients revolve around how they can learn more on the topic and get access to the space—as opposed to questions around what bitcoin or cryptocurrencies are—which was really the main topic just a few years ago. But beyond that, asset managers and macro funds are interested in whether or not crypto fits into their portfolios, and if it does, how to get access to either the physical—by trading the spot instrument on a blockchain— or exposure through other types of products, typically futures," McDermott explained. "Hedge funds, perhaps unsurprisingly, are more active in this space, and are particularly interested in profiting from the structural liquidity play inherent in the market—earning the basis between going long either the physical or an instrument that provides access on a spot basis to the underlying asset and shorting the future."
<<<
>>> U.S. regulators signal stronger risk, tax oversight for cryptocurrencies
Reuters
by Howard Schneider and David Lawder
May 20, 2021
https://finance.yahoo.com/news/fed-citing-crypto-risk-open-180231257.html
WASHINGTON (Reuters) - U.S. Federal Reserve chief Jerome Powell turned up the heat on cryptocurrencies on Thursday, saying they pose risks to financial stability, and indicating that greater regulation of the increasingly popular electronic currency may be warranted.
The Treasury Department, meanwhile, flagged its concerns that wealthy individuals could use the largely unregulated sector to avoid tax and said it wanted big crypto asset transfers reported to authorities.
The back-to-back announcements came in a week when Bitcoin, the most popular cryptocurrency, took a wild ride, falling as much as 30% on Wednesday after China announced new curbs on the sector, underscoring the volatility of the sector.
Powell underlined cryptocurrency risks in an unusual video message that also laid out a clearer timetable as the Fed explores the possibility of adopting a digital currency of its own.
https://www.federalreserve.gov/newsevents/pressreleases/other20210520b.htm
While highlighting the potential benefits of advances in financial technology, Powell said cryptocurrencies, stablecoins and other innovations "may also carry potential risks to those users and to the broader financial system."
As the technology advanced, "so must our attention to the appropriate regulatory and oversight framework. This includes paying attention to private-sector payments innovators who are currently not within the traditional regulatory arrangements applied to banks, investment firms, and other financial intermediaries."
Powell's comments signaled how seriously the Fed has been forced to reckon with the surge in popularity and market values of non-traditional currency options such as Bitcoin, especially as it looks at developing a digital version of the U.S. dollar, the world's reserve currency.
SPECULATIVE ASSETS
The Fed and Treasury consider cryptocurrencies, which now have a market capitalization of about $2 trillion, to be more like art, gold or other highly speculative assets.
A central bank digital currency, though, offers whoever holds it - a person, a business, even another government - a direct claim on that central bank, which is exactly what holding a paper dollar bill does now.
Powell said the Fed would release a discussion paper this summer on digital payments, with a focus on the benefits and risks of establishing a central bank digital currency, and will also seek public comment.
He noted that "to date, cryptocurrencies have not served as a convenient way to make payments, given, among other factors, their swings in value."
The Treasury also flagged cryptocurrency risks, including opportunities for wealthy individuals to move taxable assets into the largely unregulated crypto sector.
"Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion," the Treasury said.
Its proposal, disclosed as part of a policy report detailing the Biden administration's $80 billion IRS enforcement proposal to boost revenue collection, would provide additional resources for the IRS to address crypto assets,
https://home.treasury.gov/system/files/136/The-American-Families-Plan-Tax-Compliance-Agenda.pdf
In addition to the reports of $10,000-plus cryptocurrency transfers that would parallel bank reports of similarly sized cash transfers, the Treasury also proposed that crypto asset exchanges and custodians also report transactions to the IRS related to bank interest, dividend and brokerage transactions.
The reporting requirements, depending on how they are structured, could also allow the government to gain insight about U.S. companies that are extorted to pay hackers ransoms, almost invariably in cryptocurrency, to regain control of their IT systems.
Law enforcement and private sector cybersecurity experts alike have complained that a lack of transparency around these ransomware incidents contributes to their continued occurrence.
The Treasury disclosure took the wind out of a rally in the dollar value of Bitcoin on Thursday that followed steep plunges for Bitcoin and etherium on Wednesday. Bitcoin was up 8.7% in afternoon trade after an earlier gain of 10%.
CAUTIOUS APPROACH
While the Fed and some other developed economies are still conducting research on what a central bank digital currency would look like, China is moving ahead at a fast clip and is currently piloting a digital version of the yuan, with plans to ramp up usage before the 2022 Winter Olympics in Beijing.
Powell said last month that the Fed would not rush its efforts in response to China’s more aggressive pace, noting that the approach taken there would not work in the United States.
"It is far more important to get it right than it is to do it fast," Powell said after the April policy setting meeting.
The Boston Fed is currently working with the Massachusetts Institute of Technology to research the technology that could be used for a central bank digital currency and will be releasing those findings in the third quarter.
Congressional action would be required before a digital currency could be developed.
Also on Thursday, U.S. Securities and Exchange Commission Chair Gary Gensler said he would like to see more regulation around cryptocurrency exchanges, including those that solely trade bitcoin and do not currently have to register with his agency.
"This is a quite volatile, one might say highly volatile, asset class, and the investing public would benefit from more investor protection on the crypto exchanges," he said at the Financial Industry Regulatory Authority's annual conference.
<<<
>>> Gundlach: Stimulus checks are opening the door to universal basic income
Yahoo Finance
Julia La Roche
May 15, 2021
https://finance.yahoo.com/news/gundlach-on-stimulus-and-ubi-120022461.html
Billionaire bond investor Jeffrey Gundlach believes stimulus checks are distorting the labor market.
The founder and CEO of $135 billion DoubleLine Capital added his thoughts to a vigorous debate over the brewing labor shortage that's causing a mismatch between surging demand, and companies desperate to hire.
"We have this strange thing of 8 million job openings, and everywhere you go…people are saying, 'I can't fill them. No one will take them,'" Gundlach told Yahoo Finance in an interview this week. He blasted the "money giveaways" baked into COVID-19 relief, such as stimulus checks and generous supplemental unemployment benefits.
Gundlach added that the end result is "people are making more money sitting at home watching Netflix, than they are at work, and they don't want to go back. I think one of the dangers that we've opened the door to is these stimulus checks are starting to feel like they might not go away," Gundlach added.
The California resident pointed to Gov. Gavin Newsom's proposal to send $600 stimulus checks to residents making up to $75,000, due to the state's budget surplus.
"In the state of New York and the state of California, a lot of people are getting $57,000 per year, tax-free, by not working. So there's a lot of distortions there," Gundlach said.
The bond investor asserted that the stimulus checks are opening up the door to universal basic income.
"I think we're already there. We had basic income, way back in the 1960s; it's still with us with welfare programs and the like. And now we've been expanding it and expanding it," Gundlach added.
With the increase in the federal deficit and U.S. debt pushing $29 trillion, "it's almost like they're moving into UBI and even sort of a wealth tax sort of situation by having the deficit so big that where you're going to get it from?" he asked.
The additional income provided via COVID-19 stimulus appeared temporary at first, then was supplemented by a boost to unemployment.
Now, "it's been extended and extended, and that was being extended is being increased... [by] California, and the federal government. My guess is that they're, they're ready to roll out another one because that's just been the pattern," he added.
With workers effectively being paid to sit out a labor force that critics say needs to pay more, Gundlach believes "people's behavior is going to, is already, I think, partly modified to kind of factor in ongoing government assistance."
He added: "And the government doesn't seem to be discouraging them from thinking that it's going to be here for a long time."
<<<
>>> The Fed's $16 Trillion Bailouts Under-Reported
Forbes
by Tracey Greenstein
Sept 20, 2011
https://www.forbes.com/sites/traceygreenstein/2011/09/20/the-feds-16-trillion-bailouts-under-reported/?sh=e16925f26b00
The media’s inscrutable brush-off of the Government Accounting Office’s recently released audit of the Federal Reserve has raised many questions about the Fed’s goings-on since the financial crisis began in 2008.
The audit of the Fed’s emergency lending programs was scarcely reported by mainstream media - albeit the results are undoubtedly newsworthy. It is the first audit of the Fed in United States history since its beginnings in 1913. The findings verify that over $16 trillion was allocated to corporations and banks internationally, purportedly for “financial assistance” during and after the 2008 fiscal crisis.
Sen. Bernie Sanders (I-VT) amended the Wall Street Reform law to audit the Fed, pushing the GAO to step in and take a look around. Upon hearing the announcement that the first-ever audit would take place in July, the media was bowled over and nearly every broadcast network and newspaper covered the story. However, the audit’s findings were almost completely overlooked, even with a number as high as $16 trillion staring all of us in the face.
Sanders press release, dated July 21st, stated:
“No agency of the United States government should be allowed to bailout a foreign bank or corporation without the direct approval of Congress and the president.”
The report serves as a clear testimony of the Fed’s emergency action plan to bailout foreign corporations and banks in a time of crisis, but the GAO report does not berate the Fed; rather, it provides a lucid explanation of where the money was allocated and why.
According to The Washington Post, “The GAO report did not condemn the Fed’s actions, it simply illuminated them. The GAO also recommended that the Fed make clearer and more rigorous its policies for hiring independent contractors to manage investment programs."
A wider investigation of the Fed is due on October 18th, which will provide more thorough details. The GAO report said that the Fed issued "conflict of interest waivers to employees and private contractors so they could keep investments in the same financial institutions and corporations that were given emergency loans." The audit will inspect the "conflicts of interest" and the inner-workings of the Fed's emergency-lending programs.
For Sanders, one thing is clear: "The Federal Reserve must be reformed to serve the needs of working families, not just CEOs on Wall Street."
<<<
Excellent discussion with Jim Rickards on gold, the state of the economy, CBDC/Central Bank Digital Currencies, and related topics by Jim Rickards -
>>> Gold Is Right
BY JAMES RICKARDS
MAY 7, 2021
https://dailyreckoning.com/gold-is-right/
Gold Is Right
Is the gold skid over? There are encouraging signs that the answer is yes. And, that’s great news for patient gold investors (especially those who bought the lows, as I recommended to my subscribers a few weeks ago).
First, some facts. Gold hit an all-time high of $2,069 per ounce on August 6, 2020. Since then, it has been on the skids, despite occasional rallies. The low in this cycle was $1,678 per ounce on March 8, 2021.
The reason for the skid was not hard to discern.
It’s often the case that gold prices get pushed around by a number of factors, including real rates, nominal rates, geopolitical concerns, inflation and simple supply and demand.
But, this decline had only one factor — rising nominal rates on the ten-year Treasury note.
Ten-year note rates hit an interim low of 0.508% on August 4, 2020, right around the same time gold peaked. From there, rates began a relentless march higher. The nominal yield on the ten-year note peaked at 1.745% on March 31, 2021.
The rate/gold inverse correlation was extremely high. As rates climbed from August to March, gold fell. Nothing else mattered, including the election, the Capitol Hill riots or Biden’s confiscatory tax plans.
Rates rose, gold fell, enough said. The question for analysts was, why were rates rising?
Gold Isn’t Supposed to Offer Yield
Again, the explanation was simple. Markets were watching the $900 billion Trump bailout in December, the $1.9 trillion Biden bailout in early March, and the announcement of plans for another $3 trillion bailout later this year.
The reasoning was, with that much money being pumped into the economy and with output capacity still limited by the pandemic shutdowns, inflation must be right around the corner. Rates rose in anticipation of inflation from all of the bailout spending.
When rates rise, gold often falls because Treasury securities and gold compete for investor dollars. As rates rose, the Treasury notes became more attractive, and gold less so because gold has no yield.
By the way, some people criticize gold because it doesn’t offer any yield. But gold is not supposed to have any yield because it’s money; you only get yield when you take risks on securities, money markets or bank deposits. But that’s a story for another day.
Still, there was a conundrum at the heart of this inverse correlation.
Sure, rising rates might make for competition for investor allocations that hurts the price of gold. But, if rates were rising because of inflationary expectations, wouldn’t gold rally because of the inflation?
Ah, the plot thickens…
Gold Sees Further Than Any Other Asset
To resolve the conundrum, we have to bear in mind that gold has a better track record of predicting economic developments than any other asset class. Gold looks so far ahead that investors often cannot see what the gold price is saying.
The point is that rates were rising on inflationary expectations, but there was no actual inflation. Hard data (as opposed to Wall Street analysis) showed that most of the bailout money was not being spent.
Over 76% of the bailout money was used either for savings or to pay down debt (which is economically the same thing as saving). Neither saving nor debt repayment constitutes new consumption. And, without consumption, there is no velocity and no upward pressure on prices.
In short, interest rates were predicting inflation, but gold prices were saying: Not so fast!
This wasn’t our first interest rate fake-out. The 10-year note hit 3.96% on April 2, 2010. It then fell to 2.41% by October 2, 2010. It spiked again to 3.75% on February 8, 2011, before falling sharply to 1.49% on July 24, 2012.
It spiked again, hitting 3.22% on November 2, 2018, before plummeting to 0.56% on August 3, 2020, one of the greatest rallies in note prices ever.
There’s a pattern in this time series called “lower highs and lower lows.” The highs were 3.96%, 3.75% and 3.22%. The lows were 2.41%, 1.49% and 0.56%.
The point is that the note market does back up from time to time. And when it does, it cannot hold the prior rate highs and eventually sinks to new rate lows.
So Much for One Million New Jobs
Starting several months ago, my forecast predicted that eventually, markets would see that inflation was not emerging, interest rates would beat a retreat and gold prices would regain their former shine.
That appears to be happening. Recent data shows the core PCE deflator (the Fed’s preferred inflation measure) was only 1.6%, well short of the Fed’s 2% goal (which they’ve failed to hit on a sustained basis for 13 years).
The 1.6% showing was well within the range that core PCE has exhibited for years. In other words, no inflation.
Other economic signs have been disturbing, including a fourth wave of coronavirus cases and rising initial claims for unemployment insurance.
The April 15 measure showed improvement, but today’s jobs report was a huge miss. Economists expected the economy would add at least one million jobs in April. The numbers out today only showed a gain of 266,000.
Interest rates dropped from 1.745% on March 31 to 1.579% today. That’s an almost 17 basis point drop in just over two weeks, an earthquake in bond land.
Gold responded right on cue, rallying from $1,686 per ounce on March 30 to $1,832 per ounce today. That’s a solid 5.5% gain in the same two-week span.
Heads, Gold Wins; Tails, Gold Doesn’t Lose
The rate/gold inverse correlation continues, except now it’s working in reverse with rates down and gold prices up. I expect this trend to continue because there are still no signs of inflation on the horizon.
Inflation will come, but not right away. Looking further ahead, gold is poised for major gains in response to the rise of inflation expected in 2022 and later.
This inflation will not be caused by so-called money printing. An expansion of the money supply without accompanying changes in saver psychology that affect velocity or other exogenous catalysts has little impact on consumer prices.
The driver of inflation is velocity, the turnover of money caused by lending and spending, which has been plunging for over ten years.
Still, an external catalyst of velocity will arrive soon and last for decades in the form of higher wages needed to offset declining working-age populations in China, Japan, Europe, Russia and the U.S. This wage increase will be driven in part by the diversion of workers to healthcare for seniors, which is needed work but not amenable to productivity increases.
Once this demographic wave hits, saver psychology will shift quickly, and cost-push inflation will feed on itself. Inflation combined with decreased confidence in central bank command money will move gold to $10,000 per ounce or higher. That is the implied non-deflationary price of gold needed to act as a backstop for command money.
As a reality check, I always ask myself what would happen if I’m wrong? In the event that inflation does roll in, gold would go up as it always does in inflation.
The worst position was rising rates on inflation expectations with no actual inflation. That’s over. Now it appears we have declining rates and no inflation. That’s good for gold. If inflation shows up, that’s good for gold too.
It’s heads we win, tails we don’t lose. It doesn’t get any better for gold investors.
Regards,
Jim Rickards
for The Daily Reckoning
<<<
>>> Bitcoin: National Security Threat?
BY JAMES RICKARDS
MAY 5, 2021
https://dailyreckoning.com/bitcoin-national-security-threat/
Bitcoin: National Security Threat?
After Bitcoin crashed from $20,000 to $3,400 in 2018, many observers decided the craze was over, and Bitcoin would slowly decline in price and fade into obscurity. But reports of the death of Bitcoin were premature.
In 2021, a new mania took hold, and the price surged to $60,000 before backing off a bit. Today it’s trading at about $56,871 (Bitcoin is so volatile, it could change by the time you read this).
But the price of bitcoin has not simply gone up. Now, millions of first-time users, mostly millennials and Generation Z, have joined the bandwagon.
Very few observers really understand the technology behind Bitcoin (including millions of the new buyers), but this seems irrelevant to most. They are true believers, akin to a cult or tribe.
The buyers believe one thing only — that the price of Bitcoin will continue to go up.
Buying it at any price is like buying a ticket for free money because, despite the occasional dip, the price has nowhere to go but up. If you think this sounds like the definition of a mania-induced bubble, you’re right. It is a bubble.
The Bitcoin price pattern displays the greatest bubble behavior in history, greater even than the Tulipomania in the Netherlands in the early seventeenth century.
The Higher They Rise…
You don’t need a Ph.D. in finance to see that Bitcoin is a bubble. Price increases over the past six months have been hyperbolic, almost vertical. The Japanese Nikkei Index in late 1989 and the NASDAQ Composite until March 2000 displayed exactly the same pattern.
Of course, The Nikkei crashed over 80% beginning in 1989 and has still not recovered its old high after 32 years. The NASDAQ crashed over 75% beginning in 2000 and did not recover its old high until April 2015, a 15-year recovery.
Bitcoin is positioned for the same kind of fall.
Based on the Nikkei and NASDAQ crashes described above, Bitcoin could fall from $60,000 to $10,000 or lower before establishing a new base. Still, there is one important difference between the Nikkei and NASDAQ bubbles and the new Bitcoin bubble.
The Nikkei and NASDAQ bubbles were based on a combination of investor mania, leverage, and hyped-up earnings releases from companies in the index. But there was relatively little outright fraud.
In contrast, the Bitcoin bubble is based almost entirely on fraud. There is substantial evidence that the price of Bitcoin is based on a Ponzi.
Charles Ponzi Would Be Jealous
Over 50% of Bitcoin purchases are made with another crypto-currency called Tether, a so-called stablecoin. Tether has never accounted for the billions of dollars that buyers have used to acquire Tether.
Hard currencies such as dollars go into Tether, which is used to pump Bitcoin, while the dollars are possibly skimmed away. That process does not work in reverse.
There has been no full audit or transparency about the whereabouts or composition of the liquid assets backing the coin. Tether claims that its dollar reserves are held in a Bahamian bank named Deltec Bank & Trust.
But independent research revealed that the assets claimed by Tether exceed the total U.S. dollar assets of the entire Bahamian banking system.
Other research shows that those who buy Tether use them overwhelmingly to buy Bitcoin from unregulated crypto-exchanges domiciled in Africa and Asia. Of course, these exchanges exist in cyberspace only and are accessed through the internet.
These exchanges offer leverage and award free Tether coins for those who bring in new customers. These Tethers have been used to bid up the price of Bitcoin and create the bubble. Meanwhile, the dollars supposedly backing Tether are unaccounted for.
Aside from fraud, the list of objections to Bitcoin is long.
What’s the Case for Bitcoin?
Mining bitcoin requires the use of an enormous amount of electricity. This adds to CO2 emissions since most of the mining is done in China (which uses mostly coal-fired generators).
Now, there’s no real scientific evidence that carbon dioxide is an environmental threat, but many policymakers believe it is. So, if they want to crack down on emissions, Bitcoin mining is one way to do that.
Bitcoin payments are also slow and expensive. Less expensive payment layers are available, but these destroy the anonymity that was the original selling point for Bitcoin.
It has no real use case except for money laundering and evading taxes or capital controls.
Theft is rampant as billions of dollars of Bitcoins have been stolen or simply disappeared as exchanges have collapsed. Billions more have been lost when Bitcoin holders lose their encryption keys and cannot access their accounts.
Bitcoin has no utility because it is deflationary by design and therefore unsuitable for use in bond markets, which is the key to reserve currency status. And so on.
Bitcoin has no return other than higher prices based on the greater fool theory. You can make money in Bitcoin at any purchase price as long as there’s a greater fool willing to pay an even higher price.
That system works until it doesn’t.
Bitcoin is a wealth transfer device but not a wealth creation device. Bill Gates is worth $100 billion because he created trillions of dollars in value through his Microsoft programs and operating systems. Bitcoin is a zero-sum game where one player takes money from another, but no new wealth is created.
None of this has slowed the widespread adoption of Bitcoin as a store of value, despite enormous volatility that cuts against that very function. Now, Bitcoin may face a more formidable challenge that will actually curtail its growth and possibly pop the bubble…
Is Bitcoin a National Security Threat?
Increasingly, Bitcoin is considered a threat to U.S. national security. The reasons for this include Chinese dominance of Bitcoin mining, financial instability that could result when the bubble bursts, and damage to the U.S. dollar’s role as the principal reserve currency if billions of users around the world simply abandon dollars for Bitcoin.
Along with national security threats comes a long list of draconian statutory powers that the president can use to curtail the threat, including a ban on Bitcoin usage and a prohibition on clearance of transactions by payments processors who also handle U.S. dollar payments.
This is not an abstract threat.
A reaction to Bitcoin on national security grounds may be coming sooner than many expect. But that doesn’t mean it’s going to collapse tomorrow. Still, when it does come, it could happen rapidly.
What goes up fast often comes down fast.
Investors can prepare by increasing their allocations to cash so they can weather the financial fallout when the death of Bitcoin actually does arrive.
And, of course, gold. Gold has endured for thousands of years. Will Bitcoin be able to make the same claim?
Regards,
Jim Rickards
for The Daily Reckoning
<<<
>>> Welcome To 2030: I Own Nothing, Have No Privacy And Life Has Never Been Better
Forbes
Nov 10, 2016
World Economic Forum
Leadership Strategy
By Ida Auken
https://www.forbes.com/sites/worldeconomicforum/2016/11/10/shopping-i-cant-really-remember-what-that-is-or-how-differently-well-live-in-2030/?sh=72a70f891735
Welcome to the year 2030. Welcome to my city - or should I say, "our city." I don't own anything. I don't own a car. I don't own a house. I don't own any appliances or any clothes.
It might seem odd to you, but it makes perfect sense for us in this city. Everything you considered a product, has now become a service. We have access to transportation, accommodation, food and all the things we need in our daily lives. One by one all these things became free, so it ended up not making sense for us to own much.
First communication became digitized and free to everyone. Then, when clean energy became free, things started to move quickly. Transportation dropped dramatically in price. It made no sense for us to own cars anymore, because we could call a driverless vehicle or a flying car for longer journeys within minutes. We started transporting ourselves in a much more organized and coordinated way when public transport became easier, quicker and more convenient than the car. Now I can hardly believe that we accepted congestion and traffic jams, not to mention the air pollution from combustion engines. What were we thinking?
Sometimes I use my bike when I go to see some of my friends. I enjoy the exercise and the ride. It kind of gets the soul to come along on the journey. Funny how some things seem never seem to lose their excitement: walking, biking, cooking, drawing and growing plants. It makes perfect sense and reminds us of how our culture emerged out of a close relationship with nature.
In our city we don't pay any rent, because someone else is using our free space whenever we do not need it. My living room is used for business meetings when I am not there.
Once in a while, I will choose to cook for myself. It is easy - the necessary kitchen equipment is delivered at my door within minutes. Since transport became free, we stopped having all those things stuffed into our home. Why keep a pasta-maker and a crepe cooker crammed into our cupboards? We can just order them when we need them.
This also made the breakthrough of the circular economy easier. When products are turned into services, no one has an interest in things with a short life span. Everything is designed for durability, repairability and recyclability. The materials are flowing more quickly in our economy and can be transformed to new products pretty easily. Environmental problems seem far away, since we only use clean energy and clean production methods. The air is clean, the water is clean and nobody would dare to touch the protected areas of nature because they constitute such value to our well-being. In the cities we have plenty of green space and plants and trees all over. I still do not understand why in the past we filled all free spots in the city with concrete.
Shopping? I can't really remember what that is. For most of us, it has been turned into choosing things to use. Sometimes I find this fun, and sometimes I just want the algorithm to do it for me. It knows my taste better than I do by now.
When AI and robots took over so much of our work, we suddenly had time to eat well, sleep well and spend time with other people. The concept of rush hour makes no sense anymore, since the work that we do can be done at any time. I don't really know if I would call it work anymore. It is more like thinking-time, creation-time and development-time.
For a while, everything was turned into entertainment and people did not want to bother themselves with difficult issues. It was only at the last minute that we found out how to use all these new technologies for better purposes than just killing time.
My biggest concern is all the people who do not live in our city. Those we lost on the way. Those who decided that it became too much, all this technology. Those who felt obsolete and useless when robots and AI took over big parts of our jobs. Those who got upset with the political system and turned against it. They live different kind of lives outside of the city. Some have formed little self-supplying communities. Others just stayed in the empty and abandoned houses in small 19th century villages.
Once in a while I get annoyed about the fact that I have no real privacy. Nowhere I can go and not be registered. I know that, somewhere, everything I do, think and dream of is recorded. I just hope that nobody will use it against me.
All in all, it is a good life. Much better than the path we were on, where it became so clear that we could not continue with the same model of growth. We had all these terrible things happening: lifestyle diseases, climate change, the refugee crisis, environmental degradation, completely congested cities, water pollution, air pollution, social unrest and unemployment. We lost way too many people before we realized that we could do things differently.
This blog was written ahead of the World Economic Forum Annual Meeting of the Global Future Councils.
Ida Auken is a Young Global Leader and Member of the Global Future Council on Cities and Urbanization of the World Economic Forum,
<<<
>>> Time for a great reset of the financial system
A 30-year debt supercycle that has fueled inequality illustrates the need for a new regime
Financial Times
Chris Watling
MARCH 18 2021
https://www.ft.com/content/39c53b9f-f443-4dde-9cdb-07e8999ec783
On average international monetary systems last about 35 to 40 years before the tensions they create becomes too great and a new system is required.
Prior to the first world war, major economies existed on a hard gold standard. Intra-wars, most economies returned to a “semi-hard” gold standard. At the end of the second world war, a new international system was designed — the Bretton Woods order — with the dollar tied to gold, and other key currencies tied to the dollar.
When that broke down at the start of the 1970s, the world moved on to a fiat system where the dollar was not backed by a commodity, and was therefore not anchored. This system has now reached the end of its usefulness.
An understanding of the drivers of the 30-year debt supercycle illustrates the system’s tiredness. These include the unending liquidity that has been created by the commercial and central banks under this anchorless international monetary system. That process has been aided and abetted by global regulators and central banks that have largely ignored monetary targets and money supply growth.
The massive growth of mortgage debt across most of the world’s major economies is one key example of this. Rather than a shortage of housing supply, as is often postulated as the key reason for high house prices, it’s the abundant and rapid growth in mortgage debt that has been the key driver in recent decades.
This is also, of course, one of the factors sitting at the heart of today’s inequality and generational divide. Solving it should contribute significantly to healing divisions in western societies.
With a new US administration, and the end of the Covid battle in sight with the vaccination rollout under way, now is a good time for the major economies of the west (and ideally the world) to sit down and devise a new international monetary order.
As part of that there should be widespread debt cancellation, especially the government debt held by central banks. We estimate that amounts to approximately $25tn of government debt in the major regions of the global economy.
Whether debt cancellation extends beyond that should be central to the negotiations between policymakers as to the construct of the new system — ideally it should, a form of debt jubilee.
The implications for bond yields, post-debt cancellation, need to be fully thought through and debated. A normalisation in yields, as liquidity levels normalise, is likely.
High ownership of government debt in that environment by parts of the financial system such as banks and insurers could inflict significant losses. In that case, recapitalisation of parts of the financial system should be included as part of the establishment of the new international monetary order. Equally, the impact on pension assets also needs to be considered and prepared for.
Secondly, policymakers should negotiate some form of anchor — whether it’s tying each other’s currencies together, tying them to a central electronic currency or maybe electronic special drawing rights, the international reserve asset created by the IMF.
As highlighted above, one of the key drivers of inequality in recent decades has been the ability of central and commercial banks to create unending amounts of liquidity and new debt.
This has created somewhat speculative economies, overly reliant on cheap money (whether mortgage debt or otherwise) that has then funded serial asset price bubbles. Whilst asset price bubbles are an ever-present feature throughout history, their size and frequency has picked up in recent decades.
As the Fed reported in its 2018 survey, every major asset class over the 20 years from 1997 through to 2018 grew on average at an annual pace faster than nominal GDP. In the long term, this is neither healthy nor sustainable.
With a liquidity anchor in place, the world economy will then move closer to a cleaner capitalist model where financial markets return to their primary role of price discovery and capital allocation based on perceived fundamentals (rather than liquidity levels).
Growth should then become less reliant on debt creation and more reliant on gains from productivity, global trade and innovation. In that environment, income inequality should recede as the gains from productivity growth become more widely shared.
The key reason that many western economies are now overly reliant on consumption, debt and house prices is because of the set-up of the domestic and international monetary and financial architecture. A Great Reset offers therefore opportunity to restore (some semblance of) economic fairness in western, and other, economies.
<<<
>>> Digital Yuan Gives China a New Tool to Strike Back at Critics
Bloomberg News
April 20, 2021
https://www.bloomberg.com/news/articles/2021-04-20/digital-yuan-gives-china-a-new-tool-to-strike-back-at-critics?srnd=premium
Beijing could have clear picture of financial transactions
‘That currency can be turned off like a light switch’
Even as China grows in economic and military power, perhaps nothing reveals Beijing’s weaknesses more than the U.S.’s control of the global financial system.
China has recently sought ways to counteract U.S. sanctions after the Trump administration targeted Chinese officials and companies over policies from the South China Sea to Xinjiang. Hong Kong’s leader can’t access a bank account and a top executive at Huawei Technologies Co. is detained in Canada. Even China’s state-run banks are complying with U.S. sanctions.
That’s one reason the Biden administration is starting to study whether China’s development of a digital currency will make it harder for the U.S. to enforce sanctions, Bloomberg reported earlier this month. The digital yuan, which could see a wider roll out at the 2022 Winter Olympics in Beijing, is also spurring the U.S. to consider creating a digital dollar.
China New Silk Road
But instead of challenging U.S. dollar dominance and neutralizing sanctions, the digital yuan appears potentially more geopolitically significant as leverage over multinational companies and governments that want access to China’s 1.4 billion consumers. Since China has the ability to monitor transactions involving the digital currency, it may be easier to retaliate against anyone who rebuffs Beijing on sensitive issues like Taiwan, Xinjiang and Hong Kong.
“If you think that the United States has a lot of power through our Treasury sanctions authorities, you ain’t seen nothing yet,” Matt Pottinger, former U.S. deputy national security adviser in the Trump administration, said last week at a hearing of the government-backed U.S.-China Economic and Security Review Commission. “That currency can be turned off like a light switch.”
So far China has mostly resisted hitting foreign firms in response to U.S. actions on companies like Huawei, holding off on releasing an “unreliable entity list” designed to punish anyone who damages national security. Any move to cut off access to the digital yuan would carry similarly high stakes, potentially prompting foreign investors to pack up and leave.
But Beijing has gone after companies like Hennes & Mauritz AB for statements on human-rights issues, even while government officials have been careful to avoid directly endorsing a boycott. In a Weibo post last month, the Communist Party Youth League declared: “Want to make money in China while spreading false rumors and boycotting Xinjiang cotton? Wishful thinking!”
READ MORE ABOUT CHINA’S DIGITAL YUAN:
How China Is Closing In on Its Own Digital Currency: QuickTake
Biden Team Eyes Potential Threat From China’s Digital Yuan
China Digital Yuan Will Co-Exist With Alipay, WeChat, PBOC Says
China Says It Has No Desire to Replace Dollar With Digital Yuan
A Digital Currency to Fight Data Overlords: Andy Mukherjee
Controlling access to China’s massive market remains the best way for Beijing to hit back at the U.S.: As long as Chinese companies still want access to the broader financial world dominated by the U.S. and its allies, Washington can effectively wield sanctions against nearly anyone who doesn’t operate exclusively in China’s orbit. And Beijing has little incentive to shun the dollar.
While President Xi Jinping has called for greater self-sufficiency in key technologies like advanced computer chips, a financial decoupling from the U.S. would only hurt China’s economy and potentially leave the Communist Party more exposed to destabilizing attacks. After Xi effectively ended Hong Kong’s autonomy last year with a sweeping national security law, the U.S. refrained from cutting off the territory’s ability to access U.S. dollars due to the potential devastation to the global financial system.
‘Great Commercial Risk’
Widespread use of the digital yuan -- also known as the e-CNY -- could potentially give China’s central bank more data on financial transactions than the big tech giants, allowing the Communist Party to both strengthen its grip on power and fine-tune policies to bolster the economy. While that level of control may boost growth in the world’s second-biggest economy, it also risks spooking companies and governments already wary of China’s track record on intellectual property rights, economic coercion and rule of law.
China’s state-endorsed boycott of H&M shows “great commercial risk” for companies that use the digital yuan, Yaya Fanusie, adjunct senior fellow at the Center for a New American Security in Washington, told the U.S.-China Economic and Security Review Commission hearing. If foreign merchants had to use the e-CNY, he said in a separate email, the government could prohibit transactions with H&M wallets and the store could disappear from digital yuan apps.
“This is the other side of the coin -- Beijing not as a sanctions evader, but more empowered to enforce its own financial muscle,” said Fanusie, who has written extensively on how central bank digital assets may impact U.S. financial sanctions. “China’s digital currency is as much about data as it is about money,” he added. Foreign firms that use the digital yuan “might end up handing over to the Chinese government lots of real-time data that it could not access efficiently through conventional banking technology.”
China’s ability to see every transaction may make it difficult for foreign banks to use the digital yuan and still comply with confidentiality rules in their home countries, according to Emily Jin, a research assistant at the Center for a New American Security. But, she added, the currency might appeal to some regimes that prioritize control over privacy protection.
Limited Role
Yuan's share of foreign exchange reserves tiny compared to size of economy
“They might find it easier to convince governments more authoritarian in their leaning that it helps monitor elicit activities or stop them quickly or stop them before they happen,” Jin said. “They aren’t going to market it to everyone.”
The digital yuan would serve as a back-up to Ant Group Co.’s Alipay and Tencent Holdings Ltd.’s WeChat Pay, which together make up 98% of the mobile-payments market, according to Mu Changchun, director of the central bank’s Digital Currency Research Institute. Last month he said the electronic yuan has the “highest level of privacy protection” and the central bank wouldn’t directly know the identity of users, but the government could get that information from financial institutions in cases of suspected illegal activity.
Dollar Challenge
Chinese policy makers have also repeatedly emphasized that the digital yuan isn’t meant to challenge the dollar, with People’s Bank of China Deputy Governor Li Bo saying last weekend the motivation for the e-CNY is primarily for domestic use. The Chinese currency now makes up about 2% of global foreign exchange reserves compared with nearly 60% for the U.S. dollar, and most of Beijing’s trade and loans in Xi’s Belt-and-Road Initiative are disbursed in dollars.
Any serious challenge to the dollar’s position as the world’s reserve currency would also require significant policy changes from China, including lifting capital controls that help the Communist Party keep a lid on sudden outflows that could trigger a financial crisis. Even if the digital yuan could be transacted more cheaply outside of U.S.-controlled global payment systems, it’s unclear if anyone would use it.
“The dollar is not the dominant reserve currency because the Americans say it must be,” said Michael Pettis, finance professor at Peking University and senior fellow at the Carnegie-Tsinghua Center in Beijing. “The dollar is the dominant reserve currency because the Chinese, the Europeans, the Japanese, the South Koreans etc. say it must be. It’s the rest of the world that imposes that because they think its the safest place to park money.”
Digital Ambitions
Central banks are at varying stages of developing digital currencies
The U.S. still has an incentive to set standards for digital currencies. In a survey last year of 65 central banks representing 91% of global economic output, the Bank of International Settlements found more than half were experimenting with digital currencies and 14% were moving forward to pilots. The U.S. itself is taking a cautious approach: Federal Reserve Chair Jerome Powell said last month policy makers must understand the costs and benefits of a digital dollar, and wouldn’t rush the “very, very large, complex project.”
‘Wake Up Call’
China began research on the digital yuan back in 2014, right after the price of Bitcoin surged from $13.40 to more than $1,000, raising the risk that digital currencies could impact Beijing’s control of monetary policy. It has begun technical testing with Hong Kong for cross-border payments, and is working with Thailand and the United Arab Emirates on real-time foreign exchange settlements. Authorities are also studying how the digital yuan can be combined with 5G networks and the internet of things.
This kind of research allows China a greater say in how other countries across the globe design digital currencies, particularly when it comes to questions of surveillance, privacy and anonymity, according to Josh Lipsky, director of the Atlantic Council’s GeoEconomics Center.
“China is really leading in this area and it should be a wake up call to the U.S. and to Europe,” Lipsky said. “There is a serious first mover advantage not because of what China will do, but what other countries are doing.”
<<<
>>> UK to explore issuing its own digital currency amid bitcoin boom
CNBC
APR 19 2021
by Ryan Browne
https://www.cnbc.com/2021/04/19/uk-to-explore-issuing-its-own-digital-currency-amid-bitcoin-boom.html
The U.K. Treasury and Bank of England have launched a joint taskforce to explore a potential central bank digital currency.
It comes as several central banks race to figure out their own strategies for central bank digital currencies, or CBDCs.
China is charging ahead, having carried out a number of tests with its digital yuan in major cities.
LONDON — Britain is the latest country to join a global race toward central bank digital currencies.
“We’re launching a new taskforce between the Treasury and the Bank of England to coordinate exploratory work on a potential central bank digital currency,” U.K. Finance Minister Rishi Sunak said at a fintech industry conference on Monday.
In a separate statement, the Bank of England said such a currency would be a “new form of digital money issued by the Bank of England and for use by households and businesses” that exists alongside cash and bank deposits rather than replacing them.
The U.K. government hasn’t yet decided whether to introduce a digital version of the British pound, but said it would explore the “objectives, use cases, opportunities and risks” involved if it were to proceed. The Bank of England will also set up a unit within the institution dedicated to exploring a central bank digital currency.
It comes as several central banks race to figure out their own strategies for central bank digital currencies, or CBDCs. The rise of bitcoin and other cryptocurrencies has given new impetus to such initiatives, as well as the broader trend of declining cash usage.
Bitcoin surged to a record high of $64,829 last week ahead of the highly-anticipated debut from cryptocurrency exchange Coinbase. But the world’s most popular digital coin sank sharply over the weekend due to fears around regulation.
A spike in the value of meme-inspired token dogecoin, meanwhile, has led to concerns of a potential bubble in the cryptocurrency market. As of Monday, bitcoin was trading at about $56,740, up 3% in the last 24 hours.
Another factor driving central banks’ work on CBDCs is private stablecoin projects such as the Facebook-backed Diem Association and a controversial token known as tether. Such currencies attempt to peg their market value to some external reference, such as the U.S. dollar, to avoid volatile price swings that are common in most cryptocurrencies.
China appears to be charging ahead of other major countries on CBDCs. The People’s Bank of China has been carrying out a number of tests with the digital currency in major cities and a top official said Sunday that the central bank could trial the digital yuan with foreign visitors at the 2022 Beijing Winter Olympics.
<<<
>>> Should Wall Street Brace for a Tobin Tax?
A new paper from Nobel laureate George Akerlof — the husband of Treasury Secretary Janet Yellen — provides a powerful clue.
Bloomberg
By Aaron Brown
April 19, 2021
https://www.bloomberg.com/opinion/articles/2021-04-19/should-wall-street-brace-for-a-tobin-tax?srnd=premium
Is U.S. Treasury Secretary Janet Yellen mulling a tax on Wall Street?
Uncertainty about federal economic policy is greater today than any time in the last 40 years. On one hand we have senior policy makers calling for increasing already massive budget deficits, locking in the loosest imaginable monetary policy for the foreseeable future, and boosting taxes on businesses, Wall Street and the rich if inflation rates spike higher. On the other hand we have a President and senior economic officials who are solid members of an alliance among mainstream liberal academic economists and Wall Street executives who have dominated Democratic party economic thinking since the Carter administration. 1
In the absence of clear, credible pronouncements by top officials, a recent paper co-authored by Treasury Secretary Janet Yellen’s husband, Nobel laureate economist George Akerlof, may be our best insight into the Biden administration’s intentions. While the paper represents no official policy, it’s telling that Yellen is thanked in the acknowledgements, and Akerlof has collaborated with many Democratic-insider economists in the past. 2
The paper is particularly valuable because it centers on one issue of dispute between academic liberal economists and Wall Street executives: Tobin taxes. The idea goes back to a 1972 lecture by Nobel laureate economist James Tobin. Tobin suggested that a tax on short-term financial transactions could make markets more stable and efficient. 3 Many liberal economists find the idea appealing. Wall Street hates it.
So while Akerlof might have written about Tobin taxes without thinking of the political reaction, and his wife might have helped only with technical comments, this might be a suggestion that Wall Street input will be excluded from policy making and liberal economists will try to find common ground with progressives. 4
In arguing for a Tobin tax, the paper considers scheduled release of information about a security, like a corporate earnings announcement. It assumes dealers, market makers and proprietary trading firms will buy if the news is good and sell if it is bad. 5 Despite the oversimplifications, the model correctly predicts that dealers and market makers position their inventories before scheduled announcements to best accommodate expected order flow. This is normally considered a good thing as it smooths the market impact of events. One of the complaints about the Dodd-Frank rules is that they discouraged holding long or short positions, leading to less efficient markets and widening bid/ask spreads.
The paper then introduces some transparent rhetorical tricks to make inventory positioning seem bad. The market makers holding inventory are called “front runners.” Front running is a crime where a broker or other agent transacts for itself before executing a client order. Akerlof stretches the definition to mean any pre-emptive action by a broker. This is no minor lapse, with the phrase used 100 times in the short paper. So the entirely legal and ethical practice of inventory management is labeled with a phrase referring to a criminal act.
Most market makers manage inventory passively. If they wish to accumulate a positive inventory, for example, they get slightly more aggressive in filling sell orders, and slightly less aggressive in filling buy orders. 6 In the Akerlof model, market makers build inventory by seeking out “unsophisticated” investors. It seems to imagine that retail investors are ignorant about the scheduled information release and can be enticed to part with their securities by bids fractionally above the last transaction price. Anyway, whoever these people are, we’re supposed to want them to make more money. When “front runners” reduce their transaction costs by spreading out their orders, the “unsophisticated” investors make less money.
Finally, the paper points out that a tax on short-term transactions would discourage inventory positioning and deliver larger profits to the “unsophisticated” investors. Aside from all the other objections, taxing all financial transactions for the tiny fraction that represent market maker inventory positioning trades with unsophisticated retail investors is wildly out of proportion.
I can’t think of any scheduled information releases of the type the paper considers. Earnings announcements and other big news are usually scheduled when the market is closed, or are done during trading halts. Government statistics released during the trading day affect thousands of securities, and no market maker is adjusting inventory positions in thousands of securities a few minutes before release.
But it is the absurdity of the paper’s policy arguments that lead me to suspect it is a signal. Economists who read the paper will laugh and dismiss it. Non-economists who read second-hand accounts will seize on a paper by a Nobel laureate that supports financial transaction taxes. Liberal economists can shut up, and let the progressives get a win on an issue that many of them think isn’t a bad idea — certainly not as crazy as modern monetary theory or $25 per hour minimum wage.
Most presidents have clear economic policy positions at the core of their campaigns. They may not adhere to them in office, but at least they give a baseline for prediction. Joe Biden, by contrast, juggled campaign statements that sounded like radical progressive modern monetary theory with conventional Clinton/Obama ideas. Since taking office there hasn’t been much clear talk, although policy proposals and leaked ideas seem to be pointing in the progressive direction.
There are other indications. When Democratic economic club member Larry Summers calls Biden’s fiscal policies “substantially excessive,” that likely means that many long-time party economists are uncomfortable. Further evidence of dissension is Janet Yellen admirer John Cochrane penning an open letter asking, “Why is the Janet Yellen I know and respect giving voice to such nonsense?”
Originally, currency transactions but the idea has been extended to all financial markets.
Progressives love Tobin taxes not because of the claims about stability and efficiency, but in hopes they can raise large amounts of money from rich people and "shady" Wall Street operators.
The paper posits a simple model in which dealers can hold only zero or one share, and points out that some of them will buy before an announcement since — with no ability to short — that’s the only way to make money if the news is bad. If you hold zero shares before an announcement and the news is bad you can’t sell. In the paper’s model, some market markets are long before announcement, some short, and therefore there are always some in a position to profit. The model also implies that total transaction costs will be lower if some of the dealers buy before announcement. In the model the reason is the transactions are spread out. In reality the reason is bid/ask spreads are higher and trading more competitive after the announcement.
That is, they are still providing liquidity to the market, only in a slightly biased way. If they are forced to act more quickly and take liquidity, that comes at a cost, which they prefer to avoid. Market makers and dealers make livings selling liquidity, not buying it.
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Understanding Central Bank Digital Currency (CBDC) -
>>> Central Bank Digital Currency (CBDC)
Investopedia
By SHOBHIT SETH
Apr 6, 2021
https://www.investopedia.com/terms/c/central-bank-digital-currency-cbdc.asp
What Is a Central Bank Digital Currency (CBDC)?
A central bank digital currency (CBDC) uses an electronic record or digital token to represent the virtual form of a fiat currency of a particular nation (or region). A CBDC is centralized; it is issued and regulated by the competent monetary authority of the country.
KEY TAKEAWAYS
A central bank digital currency (CBDC) utilizes technology to represent a country's official currency in digital form.
Unlike decentralized cryptocurrency projects like Bitcoin, a CBDC would be centralized and regulated by a country's monetary authority.
While several governments are looking into the viability of creating and issuing CBDCs, no country has officially launched such money.
Understanding Central Bank Digital Currencies
Over the years, there has been growing interest in cryptocurrencies like Bitcoin and Ethereum, which work on a distributed ledger technology known as the blockchain network. Such virtual currencies have gained immense popularity, owing to their decentralized and regulation-free nature; with some seeing their rise as a possible threat to the traditional banking system that operates under the purview and control of a country’s regulatory authority, such as a central bank.
There is no clarity about any suitable reserve maintenance to back up the valuations of cryptocurrencies. Additionally, the continued launch of new cryptocurrencies has also raised concerns about the possibility of scams, thefts, and hacks.
Unable to control the growth and influence of such cryptocurrencies, many leading central banks across the globe are working on or contemplating launching their own versions of cryptocurrencies. These regulated cryptocurrencies are called central bank digital currencies and will be operated by the respective monetary authorities or central banks of a particular country.
Also called digital fiat currencies or digital base money, CBDC will act as a digital representation of a country’s fiat currency, and will be backed by a suitable amount of monetary reserves like gold or foreign currency reserves.
Each CBDC unit will act as a secure digital instrument equivalent to a paper bill and can be used as a mode of payment, a store of value, and an official unit of account. Like a paper-based currency note that carries a unique serial number, each CBDC unit will also be distinguishable to prevent imitation. Since it will be a part of the money supply controlled by the central bank, it will work alongside other forms of regulated money, like coins, bills, notes, and bonds.
CBDC aims to bring in the best of both worlds—the convenience and security of digital form like cryptocurrencies, and the regulated, reserved-backed money circulation of the traditional banking system. The particular central bank or other competent monetary authority of the country will be solely liable for its operations.
Examples of CBDCs
To date, no country has officially launched a central bank-backed digital currency. Many central banks, however, have launched pilot programs and research projects aimed at determining a CBDC's viability and usability.
The Bank of England (BOE) was the pioneer to initiate the CBDC proposal. Following that, central banks of other nations, like China’s People’s Bank of China (PBoC), Bank of Canada (BoC), and central banks of Uruguay, Thailand, Venezuela, Sweden, and Singapore, among others, are looking into the possibility of introducing a central bank-issued digital currency.
Russia has been moving forward with its creation of the "crypto-ruble," announced by Vladimir Putin in 2017. It is speculated that one of the main reasons for Putin's interest in blockchain is that transactions are encrypted, and thus easier to discreetly send money without worrying about sanctions placed on the country by the international community. This theory gained traction after the Financial Times reported in Jan. 2018 that one of Putin's economic advisors, Sergei Glazyev, said during a government meeting that "This instrument (i.e., the CryptoRuble) suits us very well for sensitive activity on behalf of the state. We can settle accounts with our counterparties all over the world with no regard for sanctions."
Glazyev himself was placed under sanctions by President Obama that prevented him from trading in or traveling to America in 2014.
Venezuela has been purported to be working on a CBDC called the "petro" since 2017, which would be backed by physical stocks of crude oil. The Venezuelan government also announced "petro gold" in 2018, allegedly pegged to the value of oil, gold, and other precious metal.
<<<
>>> Central bank digital currency
From Wikipedia, the free encyclopedia
https://en.wikipedia.org/wiki/Central_bank_digital_currency
Not to be confused with Digital currency or Virtual currency.
The phrase "central bank digital currency" (CBDC) has been used to refer to various proposals involving digital currency issued by a central bank. A report by the Bank for International Settlements states that, although the term "central bank digital currency" is not well-defined, "it is envisioned by most to be a new form of central bank money [...] that is different from balances in traditional reserve or settlement accounts."[1]
Central bank digital currencies are also called digital fiat currencies[2] or digital base money.[3]
The present concept of CBDCs was directly inspired by Bitcoin, but CBDC is different from virtual currency and cryptocurrency, which are not issued by the state and lack the legal tender status declared by the government.[1][4][5][6]
Implementations will likely not need or use any sort of distributed ledger such as a blockchain.[7][8]
CBDCs are presently in the hypothetical stage, with some proof-of-concept programmes, although a survey in early 2020 found that more than 80% of central banks were studying the subject.[9] China's digital RMB was the first digital currency to be issued by a major economy.[10][11]
Contents
1 History
2 Implementation
3 Characteristics
4 Benefits and impacts
5 Risks
6 References
History
Although central banks have directly released e-money previously - such as Finland's Avant stored value e-money card in the 1990s[12] - the present concept of "central bank digital currency" may have been partially inspired by Bitcoin and similar blockchain-based cryptocurrencies. It is also a known concept in the field of economics, whereby the central bank enables citizens to hold accounts with it, providing a reliable and safe public savings or payments medium ("retail" or "general-purpose" CBDC).
One of the earliest examples of retail CBDC was in Ecuador from 2014-2018, when the central bank created a broadly accessible pilot retail CBDC that operated through citizens' mobile phones (it did not employ blockchain technology). The program closed in part due to low citizen adoption.[13]
The Bank of England discussed a blockchain-based central bank currency in a September 2015 speech by chief economist Andrew G. Haldane, on possible ways to implement negative interest rates.[14] A March 2016 speech by Ben Broadbent, the bank's deputy governor of monetary policy, appears to be the first use of the phrase "central bank digital currency", and notes direct inspiration by Bitcoin.[15][16]
The central bank of Sweden proposed an "e-krona" in November 2016,[12] and started testing an e-krona proof of concept in 2020.[17][18][19]
In November 2017, the central bank of Uruguay announced to begin a test to issue digital Uruguayan pesos.[20][21]
In March 2019, the Eastern Caribbean Central Bank announced it would engage in a pilot CBDC project with Barbados-based FinTech company Bitt.[22]
In the Eurozone, the Bank of Spain's former governor Miguel Angel Fernandez Ordoñez has called for the introduction of a digital euro, but the European Central Bank (ECB) has so far denied such possibility.[23] Nevertheless, in December 2019, the ECB stated that "The ECB will also continue to assess the costs and benefits of issuing a central bank digital currency (CBDC) that could ensure that the general public will remain able to use central bank money even if the use of physical cash eventually declines".[24] On 2 October 2020 the ECB nonetheless published a report on the proposed digital euro and kickstarted a phase of experiments to consider the merits of minting such a central bank digital currency. Based on this, it will then decide whether to pursue or abandon plans to issue a digital euro toward mid-2021.[25][26][27][28]
On 20 October 2020, the Central Bank of the Bahamas introduced the "Sand Dollar" as a digital legal currency equivalent to the traditional Bahamian dollar.[29][30]
Since 2014, China’s central bank has been working on a project called DCEP (Digital Currency Electronic Payment).[7] The DCEP is often referred to as the "digital yuan" as it would be backed by the yuan.[31]
At the end of 2017, the People's Bank of China organized a number of banks and institutions to jointly develop Digital Currency Electronic Payment (DCEP) system.
In April 2020, Digital Currency Electronic Payment began to be tested in 4 Chinese big cities, including Shenzhen, Suzhou, Xiong'an, and Chengdu.[32]
After the successful CBDC pilot, Suzhou City Municipal has signed on a Memorandum of understanding (MoU) with the New York based third generation blockchain startup, Cypherium. The company will help the city in the development of products within the city's ecosystem.[33][34][35][36][37]
It is aimed to have the currency in use in time for the 2022 Winter Olympics[38]
The Bank for International Settlements published a report in December 2020 listing the known CBDC wholesale and retail projects at that time.[39]
Implementation
A central bank digital currency would likely be implemented using a database run by the central bank, government, or approved private-sector entities.[7][8] The database would keep a record (with appropriate privacy and cryptographic protections) of the amount of money held by every entity, such as people and corporations.
In contrast to cryptocurrencies, a central bank digital currency would be centrally controlled (even if it was on a distributed database), and so a blockchain or other distributed ledger would likely not be required or useful - even as they were the original inspiration for the concept.[7][8]
Researchers propose multiple ways that a retail CBDC could be technologically implemented.[40]
Characteristics
CBDC is a high-security digital instrument; like paper bank notes, it is a means of payment, a unit of account, and a store of value.[41] And like paper currency, each unit is uniquely identifiable to prevent counterfeit.[42]
Digital fiat currency is part of the base money supply,[43] together with other forms of the currency. As such, DFC is a liability of the central bank just as physical currency is.[44] It's a digital bearer instrument that can be stored, transferred and transmitted by all kinds of digital payment systems and services. The validity of the digital fiat currency is independent of the digital payment systems storing and transferring the digital fiat currency.[45]
Proposals for CBDC implementation often involve the provision of universal bank accounts at the central banks for all citizens.[46][47]
Benefits and impacts
Digital fiat currency is currently being studied and tested by governments and central banks in order to realize the many positive implications it contributes to financial inclusion, economic growth, technology innovation and increased transaction efficiencies.[48][49] Here is a list of potential advantages:
Technological efficiency: instead of relying on intermediaries such as banks and clearing houses, money transfers and payments could be made in real time, directly from the payer to the payee.
Financial inclusion: safe money accounts at the central banks could constitute a strong instrument of financial inclusion, allowing any legal resident or citizen to be provided with a free or low-cost basic bank account.
Preventing illicit activity: A CBDC makes it feasible for a central bank to keep track of the exact location of every unit of the currency (assuming the more probable centralized, database form); tracking can be extended to cash by requiring that the banknote serial numbers used in each transaction be reported to the central bank. This tracking has a couple of major advantages:[50]
Tax collection: It makes tax avoidance and tax evasion much more difficult, since it would become impossible to use methods such as offshore banking and unreported employment to hide financial activity from the central bank or government.
Combating crime: It makes it much easier to spot criminal activity (by observing financial activity), and thus put an end to it.[50] Furthermore, in cases where criminal activity has already occurred, tracking makes it much harder to successfully launder money, and it would often be straightforward to instantly reverse a transaction and return money to the victim of the crime.
Protection of money as a public utility: digital currencies issued by central banks would provide a modern alternative to physical cash – whose abolition is currently being envisaged.[51]
Safety of payments systems: A secure and standard interoperable digital payment instrument issued and governed by a Central Bank and used as the national digital payment instruments boosts confidence in privately controlled money systems and increases trust in the entire national payment system[52][53] while also boosting competition in payment systems.
Preservation of seigniorage income: public digital currency issuance would avoid a predictable reduction of seigniorage income for governments in the event of a disappearance of physical cash.[54]
Banking competition: the provision of free bank accounts at the central bank offering complete safety of money deposits could strengthen competition between banks to attract bank deposits, for example by offering once again remunerated sight deposits.
Monetary policy transmission: the issuance of central bank base money through transfers to the public could constitute a new channel for monetary policy transmission[55][56][57] (ie. helicopter money[58]), which would allow more direct control of the money supply than indirect tools such as quantitative easing and interest rates, and possibly lead the way towards a full reserve banking system.[59]
Financial safety: CBDC would limit the practice of fractional reserve banking and potentially render deposit guarantee schemes less needed.[60]
Risks
A general concern is that the introduction of a CBDC would precipitate potential bank runs[61][62] and thus make banks' funding position weaker. However, the Bank of England found that if the introduction of CBDC follows a set of core principles the risk of a system-wide run from bank deposits to CBDC is addressed.[63]
Since most CBDCs are centralized, rather than decentralized like most cryptocurrencies, the controllers of the issuance of Central Bank Digital Currency can add or remove money from anyone's account with a flip of a switch. In contrast, cryptocurrencies such as Bitcoin prevent this unless a group of users controlling more than 50% of mining power is in agreement.[64]
References
Bech, Morten; Garratt, Rodney. "Central Bank Cryptocurrencies" (PDF). BIS. Retrieved August 25, 2020.
"Focus Group on Digital Currency including Digital Fiat Currency". ITU. Retrieved December 3, 2017.
Bank, European Central. "Digital Base Money: an assessment from the ECB's perspective". European Central Bank. Retrieved November 9, 2017.
Silva, Matthew De. "What China could gain from a digital yuan". Quartz. Retrieved September 28, 2019.
"Speech by Jen Weidmann at the Bundesbank Policy Symposium "Frontiers in Central Banking – Past, Present and Future"". www.bundesbank.de. Retrieved November 9, 2017.
"Financial innovation and monetary policy: Challenges and prospects" (PDF). European Parliament. 2017.
Yang, Yuan; Lockett, Hudson. "What is China's digital currency plan?". www.ft.com. Financial Times.
"Analytical Report on the E-Hryvnia Pilot Project" (PDF). National Bank of Ukraine.
"Will central-bank digital currencies break the banking system?". The Economist. December 5, 2020. ISSN 0013-0613. Retrieved December 7, 2020.
Areddy, James T. (April 5, 2021). "China Creates its Own Digital Currency, a First for Major Economy". Wall Street Journal. ISSN 0099-9660. Retrieved April 6, 2021.
Popper, Nathaniel; Li, Cao (March 1, 2021). "China Charges Ahead With a National Digital Currency". The New York Times. ISSN 0362-4331. Retrieved April 6, 2021.
https://pdfs.semanticscholar.org/9fa6/e095fa409d199e7aec8b50b657a7075fbe9e.pdf
"The World's First Central Bank Digital Currency Has Come - and Gone: Ecuador, 2014-2018". April 2, 2018.
https://www.bankofengland.co.uk/speech/2015/how-low-can-you-can-go
"Central banks and digital currencies - speech by Ben Broadbent | Bank of England". www.bankofengland.co.uk. Retrieved November 12, 2017.
Bjerg, Ole (June 13, 2017). "Designing New Money - The Policy Trilemma of Central Bank Digital Currency". Rochester, NY. SSRN 2985381.
"Sweden's Riksbank eyes digital currency". Financial Times. Retrieved November 9, 2017.
Riksbanken. "The E-krona project – First interim report". www.riksbank.se. Archived from the original on November 1, 2017. Retrieved November 10, 2017.
Riksbank. "The Riksbank to test technical solution for the e-krona". www.riksbank.se. Retrieved February 25, 2020.
Uruguayan central bank to test digital currency - Agencia EFE, 20 September 2017
El BCU presentó un plan piloto para la emisión de billetes digitales - Central Bank of Uruguay, 3 November 2017
Eastern Caribbean Central Bank CBDC - March 2019
"ECB rejects implementation of "digital euro" for wrong reasons". Positive Money Europe. September 28, 2018. Retrieved September 28, 2018.
"Innovation and its impact on the European retail payment landscape" (PDF). European Central Bank. December 2019.
Report on a digital euro, pdf
Report on a digital euro, webpage
ECB sets deadline for digital euro, begins online experiments
Digital Euro report by Fabio Panetta
"Sand Dollar". Retrieved January 28, 2021.
"Public Update on the Bahamas Digital Currency Rollout". Central Bank of the Bahamas. December 31, 2020. Retrieved January 28, 2021.
China leads in race for digital currency
"??:???????????". Xinhua Net. Archived from the original on August 18, 2020. Retrieved August 18, 2020.
"Chinese city to hand out 20 million yuan in latest digital yuan trial". South China Morning Post. December 6, 2020. Retrieved December 18, 2020.
"How Suzhou is Taking Steps to Become China's Leading Blockchain District | The Fintech Times". Retrieved December 18, 2020.
CBNEditor (August 3, 2020). "Cypherium Signs MOU with Suzhou for Blockchain Infrastructure Development Following Launch of Chinese CBDC Trials". China Banking News. Retrieved December 18, 2020.
"China's Digital Yuan Status: Tracking its Roll-Out, Impact for Businesses". China Briefing News. December 7, 2020. Retrieved December 18, 2020.
Kharpal, Arjun (December 7, 2020). "China hands out $3 million of digital yuan as JD.com becomes first online platform to accept it". CNBC. Retrieved December 18, 2020.
China leads in race for digital currency
Bank for International Settlements (August 24, 2020). "Rise of central bank digital currencies: drivers, approaches and technologies".
Bank for International Settlements (March 1, 2020). "The technology of retail central bank digital currency" (PDF).
"Should the Riksbank issue e-krona?" (PDF). Sveriges Riksbank.
"Medium Term Recommendations to Strengthen Digital Payments Ecosystem" (PDF). Committee on Digital Payments: Ministry of Finance, Government of India. Archived from the original (PDF) on July 9, 2017. Retrieved July 17, 2017.
"Broadening narrow money". Bank of England. 2018.
"Central Bank Digital Currencies" (PDF). Bank for International Settlements. Retrieved April 13, 2018.
"Central Bankers Explore Response to Bitcoin: Their Own Digital Cash". Wall Street Journal.
"Digital Cash: Why central banks should issue digital currency". positivemoney.org. Retrieved November 9, 2017.
"Sovereign Digital Currency". sovereign money. Retrieved November 10, 2017.
World Economic Forum. "Central Bank Digital Currency Policy-Maker Toolkit" (PDF). Retrieved January 3, 2021.
Bordo, Michael; Levin, Andrew (September 23, 2017). "Central bank digital currency and the future of monetary policy". VoxEU.org. Retrieved November 10, 2017.
Bindseil, Ulrich (January 2020). "Tiered CBDC and the financial system" (PDF). ECB Working Paper (ECB Working Paper Series No 2351 / January 2020): 6–7. Retrieved February 2, 2020.
"Think Twice About Going Cashless". Bloomberg.com. May 21, 2017. Retrieved November 9, 2017.
"What should the future form of our money be?". Norges Bank.
Riksbanken. "Ingves: Do we need an e-krona?". www.riksbank.se. Retrieved December 13, 2017.
"Central Bank Digital Currency: Motivations and Implications". www.bankofcanada.ca. Retrieved December 3, 2017.
"Central Bank Digital Currency: A Monetary Policy Perspective". Central bank of Malaysia.
"The implications of digital currencies for monetary policy - Think Tank". www.europarl.europa.eu. Retrieved November 9, 2017.
"Helicopter money is "a real possibility," says Czech central banker". Positive Money Europe. March 15, 2018. Retrieved September 28, 2018.
Hampl, Mojmir; Havranek, Tomas (2019). "Central Bank Equity as an Instrument of Monetary Policy". Comparative Economic Studies. doi:10.1057/s41294-019-00092-1.
Stevens, A (June 2017). "Digital currencies: threats and opportunities for monetary policy | nbb.be". www.nbb.be. National Bank of Belgium. Retrieved November 10, 2017.
Mayer, Thomas (November 6, 2019). "A digital euro to save EMU". VoxEU.org. Retrieved November 10, 2019.
Pfister, Christian (September 2017). "Monetary Policy and Digital Currencies: Much Ado about Nothing?" (PDF). Banque de France.
Smets, Jan (2016). "Fintech and Central Banks" (PDF). National Bank of Belgium.
Kumhof, Michael; Noone, Clare (May 2018). "Central bank digital currencies — design principles and balance sheet implications" (PDF). Bank of England. Retrieved January 10, 2019.
Frankenfield, Jake (May 2019). "51% Attack". Investopedia. Retrieved October 28, 2020.
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>>> Final Nail in the Coffin
BY JAMES RICKARDS
APRIL 12, 2021
https://dailyreckoning.com/final-nail-in-the-coffin/
Final Nail in the Coffin
The stock market was down today, but it’s still trading at record highs. The mainstream financial media will tell you it’s because the market is anticipating a robust recovery as the economy continues to reopen and vaccination numbers grow.
But don’t buy into the happy talk that all is well with the U.S. economy.
The unemployment rate has indeed dropped. But initial unemployment claims are on the rise again. That’s a trend that will show up as weaker job creation in the months ahead.
The declining headline unemployment rate ignores over 10 million able-bodied Americans between the ages of 25 and 54 who don’t have jobs but are not counted as unemployed because they haven’t looked for a job recently.
If you’re a waitress, why would you look for a job if half the restaurants in town are closed or out of business?
You can judge the health of the economy based on a few key metrics: the labor force participation rate, real wage increases, and initial unemployment claims. Right now, all three point to slower growth and a recovery that is running out of steam.
Of course, some claim the cure is more government spending.
Under 10% To Actual Infrastructure
No sooner had Biden signed the $1.9 trillion COVID relief bailout bill, than his administration proposed another $4 trillion of deficit spending for “infrastructure.”
Proponents of the bill claim the spending is for “infrastructure.” But most of what they’re saying about this legislation is phony.
Most Americans understand infrastructure to mean bridges, tunnels, roads, railroads, airports and other needed additions and improvements to the transportation network. But the bill only provides about $400 billion for those types of projects, under 10% of the proposed total.
The rest goes to windmills, solar panels, subsidies to electric vehicles, and school repairs (as a payoff to teachers’ unions).
Even more spending goes to items that have nothing to do with infrastructure, such as day care, tuition, unemployment benefits, community organizers and other welfare-style programs.
In other words, it’s more of a political project than an economic package to provide good jobs and stimulate the economy.
One difference between Biden’s $4 trillion infrastructure spending binge and the $1.9 trillion of COVID relief is that the White House is at least going through the motions of trying to pay for the new spending with massive tax increases.
Phony Talking Points on Taxes
In round numbers, today’s view is that Biden will have $4 trillion of new “infrastructure” spending combined with $2.1 trillion of tax increases, making the net new deficit spending on infrastructure $1.9 trillion.
But the tax increases are the subject of even more phony talking points.
Biden proclaimed that he would not raise taxes on anyone making less than $400,000. But now, “anyone” is being redefined to include a married couple filing a joint return with $400,000 combined income.
This means that if one spouse makes $220,000 and the other spouse makes $180,000, then the combined income of $400,000 would be subject to the new top bracket of 39.6% that Biden wants.
A spouse making $220,000 may sound like a lot of money, unless you happen to live in New York, San Francisco, Los Angeles or Miami and have two or more children. In this case, it’s barely enough to get buy after income taxes, property taxes, sales taxes, gasoline taxes and a generally high cost of living.
Additionally, much of the tax increase burden will fall on U.S. corporations, which will hurt our international competitiveness and force corporations to move businesses and jobs offshore to avoid the higher taxes in the U.S.
So, Biden’s tax plans will drive U.S. jobs offshore and punish the middle-class, not just the “rich.” It will be just one more headwind for economic growth in the years ahead.
Modern Monetary Theory Is Here Now
The real takeaway from the avalanche of new spending is that the last vestiges of fiscal constraint are vanishing.
I’m sure you’ve heard about Modern Monetary Theory (MMT) by now.
Biden may or may not understand what MMT is, but it doesn’t matter. The point is, it’s here.
MMT is now the law of the land in the form of extreme deficit spending.
There’s a complete disregard for the size of the deficit or whether spending is paid for with taxes. The resulting unprecedented growth in the debt-to-GDP ratio has now put the U.S. in the same super-debtor league as Lebanon, Greece and Italy.
Bernie Sanders is chair of the Senate Budget Committee, and his muse is Professor Stephanie Kelton, the bright light of MMT advocates.
Presidents and members of Congress have always been addicted to spending; but now, they have intellectual air cover in the form of the callow analytics of MMT.
At this stage of the process, there is no stimulus or real growth, just more debt. The already slow recovery will slow further, and the debt will remain.
That’s what rising initial claims for unemployment benefits are telling us.
Biden Wants to Be the Next FDR or LBJ
The infrastructure spending bill may be broken into two pieces so that part of it can be passed under a process called “reconciliation” that requires no Republican votes. The tax bill itself may be separated for the same reason.
The result is that the entire program may require three separate bills and lots of horse-trading behind the scenes, but the Democrats are determined to get it all done by the end of the summer.
Democrats want at least large parts of this new spending plan out of committee by the end of May and passed by the entire House of Representatives by the Fourth of July.
Then they hope the Senate will act quickly and get the entire package done before the August recess.
There’s a method to the madness.
Biden and Democrat party leaders know that 2022 is an election year for the House and Senate. The Democrats may very well lose the House; they currently have a slim nine-vote margin (222-213), and it would only take five losses to flip the House to a 218-217 Republican majority.
New administrations typically lose 20 or more House seats in their first mid-term election, so the Democratic majority is definitely in danger.
The Republicans could eke out a slim majority in the Senate as well. Either result (or both) would put an end to the Democrats’ ability to ram through their agenda.
The window for Democrats’ plans such as the New Green Deal, free tuition, free healthcare, free child care, increased unemployment benefits, student loan forgiveness, and so-called infrastructure is brief.
By August, we’ll know if the country has held the line on reckless spending and more welfare or if Biden will get to make history by permanently pushing America to the left in the manner of FDR’s original New Deal and Lyndon Johnson’s Great Society.
The difference for investors in terms of portfolio construction and asset allocation is huge. I’ll be watching closely and keeping you ahead of the curve. We won’t have long to wait.
Regards,
Jim Rickards
for The Daily Reckoning
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>>> Archegos: Snowflake That Triggers the Avalanche?
BY JAMES RICKARDS
APRIL 5, 2021
https://dailyreckoning.com/archegos-snowflake-that-triggers-the-avalanche/
Archegos: Snowflake That Triggers the Avalanche?
Archegos was not a household name until about two weeks ago when it made headlines all over the world.
Archegos Capital Management is a family office controlled by Bill Hwang, a former hedge fund trader. Family offices can be conservative in their investment approach, but they can also be as highly leveraged and as risky as any hedge fund, or even more so. It’s up to the person managing the family office.
In Hwang’s case, the money was mostly his own, so he ran his family office the way he used to run his hedge fund – with high leverage and almost no transparency. Hwang made huge bets in stocks, often buying as much as 10% of a company.
He avoided legal reporting requirements on positions of 5% or more because they were mostly held through complicated financial instruments called derivatives. Instead of actually owning the stock (which would require reporting), he bought equity swaps from big banks.
That gives you the same economic exposure as owning the stock but without actual stock ownership and the regulatory reporting requirements that come with ownership.
The Death Spiral
Many of Hwang’s positions were in Chinese highfliers, including RLX Technologies and GSX Techedu. Chinese stocks started to decline due to a combination of the strong dollar and the internal efforts in China to reign in corporate oligarchs and reduce risk-taking by banks.
This led to margin calls at Archegos, which caused Hwang to skip a new offering of Viacom-CBS stock in which he was also a large holder. That caused dumping in Viacom-CBS, which led to more margin calls on Archegos: a classic Wall Street death spiral.
The big dealers such as Goldman, Morgan Stanley and Credit Suisse began closing out leveraged positions in Archegos at fire sales prices. The dealers lost billions of dollars, and Archegos lost even more as its cash and positions disappeared, and dealers made demands for balances due.
All of this was a walk down memory lane for me.
A Near Disaster
I was on the front lines of the Long-Term Capital Management (LTCM) bailout in 1998. I negotiated the $4 billion rescue by 14 Wall Street banks, prompted by the Federal Reserve Bank of New York.
The causes of the LTCM meltdown were the same as the Archegos meltdown – too much leverage and not enough transparency. Each bank knew what its individual exposures were, but none of the banks knew what the total risk in the fund was. The banks could see their slice of the risk, but not the big picture.
Now that the financial meltdown is over, the regulatory crackdown begins. But don’t expect any changes soon. In 1998, there were immediate calls for regulation changes. Regulators wanted to limit leverage and require holders of equity derivative positions to provide transparency exactly as if they held the positions in outright stock form.
Those regulatory changes never happened in 1998, and I don’t expect them to happen now. Wall Street makes enormous profits by selling derivatives, and hedge funds can make even bigger profits by trading them.
Don’t Expect Changes
The occasional meltdown may appear, but Wall Street still comes out ahead even if an individual hedge fund or family office melts down. Despite the public hearings and calls for regulation, Wall Street controls Washington. And what Wall Street wants, Wall Street gets. That’s not some wild conspiracy theory; it’s just the way things work.
The problem for everyday investors is this: What happens when a future meltdown spirals out of control to the point that no rescue is possible, and the entire global system of exchanges and banks begins to collapse?
That did not happen in the Archegos case (yet), but it did almost happen in the case of LTCM.
How long will banks, investors and hedge funds keep rolling the dice? It appears they’re continuing to roll the dice in other ways since they’re pouring money into stocks when it looks like we’re near a market top…
You Don’t Want to Short a Bubble
Calling a market top or bottom is difficult. Even when you see sure signs of a bubble (they are easy to spot on price charts), there’s no assurance that the bubble won’t continue.
The 1999 dot.com bubble was seen for what it was at the time, but investors couldn’t get enough of Pets.com (remember the sock puppet spokesperson?) or Space.com (it’s still around but only after a nasty stock price crash in 2000).
The same was true of the Nikkei Stock Index in Japan. As it pushed to 40,000 in late 1989, it was widely viewed as a bubble, but the momentum continued. Finally, it crashed and bottomed at 7,570 in 2009. It only recently made it back to 30,000 after a 30-year recovery.
You don’t want to short a bubble because if momentum continues, you can lose a lot of money being right. There’s usually plenty of money to be made on the way down once the bubble bursts. Still, there are certain indicators of a market nearing a top that are more reliable than others.
One such indicator is called “distribution” by Wall Street insiders. It refers to a process of insiders and banks dumping stock on unsuspecting retail investors. The retail investors often don’t have access to the best deals, such as IPOs, so they snap up any such Wall Street offerings readily.
Lambs to Slaughter
Little do they know that the insiders see the crash coming and are dumping high-priced stocks on the little guy so they can escape the collapse with profits in hand…
You’ve probably heard of Robinhood by now. Robinhood is an online trading platform available as a mobile phone app that is favored by many retail investors, especially first-time traders and millennials using government handout checks to place leveraged bets using options.
RobinHood has announced that their platform will now be available for IPOs, which are among the most prized offerings and often soar in price on the first day of trading.
Because of that first-day dynamic, Wall Street generally keeps the IPO allocations for their most favored clients, especially large institutions. If IPOs are now being distributed to small retail accounts, it means that the Wall Street banks don’t expect them to perform particularly well.
They just want to get the IPOs done so entrepreneurs can get rich, and the banks can collect fees. If retail investors get burned, well that’s just too bad for them. Distribution is most common near market tops.
And that may be just where we are right now. It’s a good time to reduce your exposure to equities and increase your cash holdings.
There will be plenty of opportunities to profit on the way down.
Again, I’m not definitively calling a market top right now. But it’s better to get out a little too early than a little too late.
Regards,
Jim Rickards
for The Daily Reckoning
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>>> War on Cash: The Next Phase
BY JAMES RICKARDS
APRIL 2, 2021
https://dailyreckoning.com/war-on-cash-the-next-phase/
War on Cash: The Next Phase
With so much news about an economic reopening, a border crisis, massive government spending and exploding deficits, it’s easy to overlook the ongoing war on cash.
That’s a mistake because it has serious implications not only for your money, but for your privacy and personal freedom, as you’ll see today.
Cash prevents central banks from imposing negative interest rates because if they did, people would withdraw their cash from the banking system.
If they stuff their cash in a mattress, they don’t earn anything on it; that’s true. But at least they’re not losing anything on it.
Once all money is digital, you won’t have the option of withdrawing your cash and avoiding negative rates. You will be trapped in a digital pen with no way out.
What about moving your money into cryptocurrencies like Bitcoin?
Governments Won’t Surrender Their Monopoly Over Money
Let’s first understand that governments enjoy a monopoly on money creation, and they’re not about to surrender that monopoly to digital currencies like Bitcoin.
Libertarian supporters of cryptos celebrate their decentralized nature and lack of government control. Yet, their belief in the sustainability of powerful systems outside government control is naïve.
Blockchain does not exist in the ether (despite the name of one cryptocurrency), and it does not reside on Mars.
Blockchain depends on critical infrastructure, including servers, telecommunications networks, the banking system, and the power grid, all of which are subject to government control.
But governments know they cannot stop the technology platforms on which cryptocurrencies are based. The technology has come too far to turn back now.
So central governments don’t want to kill the distributed ledger technology behind cryptos. They’ve been patiently watching the technology develop and grow — so they could ultimately control it.
Anyone who controls the money controls political power, the economy, and people’s lives.
Enter the central bank digital currency, known as CBDC…
Not Exactly Cryptos
CBCDs use the same underlying distributed ledger technology that cryptocurrencies use. But they’re different from cryptocurrencies like Bitcoin, although the differences are often overlooked by the crypto crowd.
Unlike cryptos, CBCDs aren’t new currencies. They’ll still be dollars, euros, yen or yuan, just as they are today. But these currencies will only be digital; there won’t be any paper money or cash allowed. Only the format and payment channels will change.
Balances can be held in digital wallets or digital vaults without the use of traditional banks. A blockchain is not needed; the CBDC ledger can be maintained in encrypted form by the central bank itself without the need for bank accounts or money market funds.
Their greatest appeal is their convenience and lack of credit card transaction fees. Payments can be done with an iPhone or other device with no need for credit cards or costly wire transfers.
Who needs bank accounts, checks, account statements, deposit slips and the other clunky features of a banking relationship when you can go completely digital with the Fed?
An individual Fed account on your mobile phone could also eliminate the 2.5% fees that merchant acquirers charge retailers to process credit card transactions. Payments, in general, would be faster, cheaper, easier and more secure than they are today.
The Federal Reserve has been working with scientists at the Massachusetts Institute of Technology to develop a dollar form of CBDC.
Big Banks Beware
The roll-out of this new digital dollar may still be a few years away, but the implications are enormous. There’s more at stake than just customer convenience.
Railroads were one of the largest sectors of the economy from 1870 to 1930 but were mostly bankrupt by the 1970s. General Motors has been rescued from bankruptcy more than once by the U.S. government.
General Electric was once an industrial giant and now is a shell of what it once was. Oil company stock prices have taken a beating from the threats of the Green New Deal. Things change.
Today banks and other financial institutions dominate stock market valuations alongside the tech sector. CBDCs may be coming for the banks.
A reaction to the proposed change has already begun. Major banks fear they will be completely cut out of the payments system. MasterCard and VISA are also concerned that their payment channels will be made redundant.
Trillions of dollars of wealth in the form of financial institutions’ stock prices for JPMorgan, Citi, MasterCard and VISA could be wiped out as the new digital payments technology takes hold.
Goodbye, Privacy
You might not have much sympathy for JPMorgan, Citi, MasterCard and VISA, but what do you think would happen to the stock market if they crash?
That’s not the only potential fallout from CBCDs. There’s a dark side. If there is no cash, there is no anonymity.
Governments will know your whereabouts and habits at all times simply by tracking your use of funds through the CBDC payment system.
This can already be done, to some extent, by tracking credit card transactions, but the CBDC system will make state surveillance more pervasive.
China is leading the way with CBDCs. And this kind of surveillance is the real driving force behind the Chinese CBDC.
China already uses facial recognition software, mobile phone GPS tracking and the purchase of plane or train tickets to track their citizens. This surveillance can be used to detect anti-state activities and to arrest dissidents or anyone who doesn’t strictly follow government orders.
Global Control
Now, China wants to take its CBDC rules and make them the global standard.
Even if the U.S. and Europe don’t agree, it’s likely that many Asian and African countries might agree in exchange for aid from China. That aid can take the form of access to scarce COVID vaccines, for example.
Once China’s totalitarian surveillance software is perfected, they can make it the standard for much of the world and facilitate intrusive 24/7 surveillance by every dictator and autocratic leader in the world.
No doubt China would arrange to have access to the same surveillance information it was providing to client states. The end game would closely resemble George Orwell’s dystopian novel, 1984.
If cash is gone, there is only one way to escape digital surveillance of wealth — physical gold.
Regards,
Jim Rickards
for The Daily Reckoning
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>>> MMT Is a Disaster Waiting to Happen
BY JAMES RICKARDS
MARCH 26, 2021
https://dailyreckoning.com/mmt-is-a-disaster-waiting-to-happen/
MMT Is a Disaster Waiting to Happen
MMT is the most potentially damaging economic doctrine I have ever encountered, with the exception of communism.
Let’s begin with the idea that the Fed and Treasury should be merged in practice so that the Fed will monetize any amount of spending or borrowing the Treasury wants.
The reason markets have any confidence at all in the Fed is precisely because they are perceived as independent of congressional spending plans. MMT takes this confidence for granted and assumes the Fed can just crank up the printing press whenever the Treasury likes.
But, as soon as this kind of coordinated effort appears, markets will lose confidence, inflation expectations will soar and interest rates will skyrocket. The plan would collapse before it really began. This is exactly the type of adaptive behavior by investors and markets that MMT academics do not understand.
MMT says that a currency issuer such as the U.S. can never go broke because it can simply print money to pay off the debt (provided the borrowings are in the same currency as the printed money). This may be true in some narrow, literal sense, but it does not mean investors have to wait around for the trainwreck.
The evidence is strong that debt-to-GDP ratios above 90% are a major headwind for growth. Today that ratio is 130% and heading higher. More borrowing does not produce growth; it simply makes the debt problem worse.
At some point, investors abandon the dollar for alternatives, such as land, oil, gold, silver, or alternative assets. Interest rates rise sharply, which only increases the deficit. The fact that the U.S. can print the money to pay the debt is irrelevant if the money itself is being repudiated.
Something like this happened in 1978 when the U.S. Treasury issued bonds denominated in Swiss Francs and West German Deutschmark because investors did not want exposure to U.S. dollars.
An even more extreme version happened in 1922-23 in the German Weimar Republic. The Weimar Republic could print Reichsmarks to pay off bonds denominated in Reichsmarks, but nobody wanted the bonds or the currency. The printing press is not the answer when it’s used promiscuously. The printing press is the problem.
The MMT claim that U.S. citizens cannot repudiate the dollar because they need it to pay taxes is also nonsense. Nothing is easier than the legal avoidance of taxes.
For example, take any one of Silicon Valley’s tech billionaires. A company founder, such as Mark Zuckerberg of Facebook or Larry Page of Google, can issue shares tax-free. After years of hard work and success, that stock may be worth $100 billion.
How much tax do you owe? The answer is zero. As long as you do not sell the stock, you do not owe any tax no matter how much the stock goes up in value.
Not everyone is a co-founder of Google, but the analysis is no different if you’re just an everyday investor with 100 shares. As long as you don’t sell the stock, you don’t owe any tax. Americans who contribute funds to 401(k)s or IRAs also avoid taxes on those amounts until they take distributions, which can be decades later.
The list of tax avoidance methods goes on. I was formerly International Tax Counsel to Citi, so I know exactly how the game is played. Only an academic sitting in a faculty lounge would believe that taxes force anyone to use any particular currency. Once the currency becomes debased, citizens will drop it like a hot rock.
Who Needs the Bond Market?
Another baseless claim of MMT is that government bonds are not needed to finance government spending. The Treasury can just spend what it wants by ordering the Fed to send funds to suppliers and contractors.
In fact, the government bond market is the benchmark for every fixed income market in the world. Interest rates on government bonds are a critical signal of whether government policies are working (or not), whether inflation is gaining a foothold, and whether monetary policy is too tight or too loose.
The existence of a liquid government bond market signals that private investors regard the government as creditworthy. The idea that the Treasury market is an unnecessary frill shows how out of touch the MMT academics are and how little monetary history they have absorbed.
One of the more bizarre MMT claims is that “a government deficit is an individual’s surplus.” The idea is that the government is the sole source of money, and if the government didn’t spend it, you wouldn’t have any. The corollary is that the more the government spends, the more money you have.
But if the dollar becomes dysfunctional, as has happened with many currencies in the past, people abandon it for a better substitute.
Gresham’s Law, “bad money drives out good,” is an explicit recognition that citizens are always ready to dump one type of money and hoard another when they are being shortchanged by the former. So, just because the Treasury spends money, it does not mean citizens have any confidence in the money being spent.
What About the Banks?
The idea that government is the sole source of money is just wrong. This ignores the role of the banking system. In fact, the literature on MMT focuses almost exclusively on the government and individuals while largely ignoring the banking system.
But, banks are the intermediaries between the government and individuals and businesses. Banks create money just as surely as the Fed by making loans. That money comes out of thin air in a manner similar to Fed printing in the conduct of open market operations.
The Treasury may be the creator of the dollar, but they are not the sole issuer of the dollar. The dollar is continually issued by both the Fed and the commercial banks without involving the Treasury.
Money is issued by various financial intermediaries in various forms. The dollars in our wallets and purses are liabilities of the Federal Reserve System. (Read the fine print on a twenty-dollar bill, and you’ll see the words “Federal Reserve Note.” The Fed is the issuer, and a note is a liability).
It is true that the Treasury borrows money, receives taxes and spends money. But it’s just another user of money, not the sole source. MMT’s understanding is exactly backward.
The Role of Taxes
Perhaps the most pernicious idea from the MMT crowd is that taxes have nothing to do with spending. MMT says government can just spend what it wants. The purpose of taxes is not to balance the budget or even pay for anything. Taxes exist solely to cool down inflation and redistribute income from rich to poor.
If taxes are just another monetary safety valve (to reduce inflation) or a redistributionist tool, there is no reason for any American to support any level of taxation. Central banks have other ways to cool inflation, such as raising rates.
The idea that the tax code is nothing more than a cattle prod to fight inflation is exactly the kind of mindlessness one expects from academics whose business or real-world experience is practically nil.
This view of the tax code treats citizens like Pavlov’s dogs. We’re not Pavlov’s dogs. We understand the monetary and tax systems better than any MMT proponent because we live with them every day.
In conclusion, MMT proponents ignore human nature, adaptive behavior and unintended consequences. That’s a recipe for failure.
The Future of MMT
MMT will fail and cause great economic hardship in its wake. The issue for investors is to discern how and when it will fail.
Investors should expect the following sequence: continuing deflation or disinflation in the short-run, accelerating inflation in late 2021, then out-of-control inflation by mid-2022.
The short-run winners will be cash and Treasury notes. The winners during the inflationary stages will be gold, silver, residential real estate, and commodities. Stocks will perform well during the early stages of inflation, but they will crash badly once the dual impact of high inflation and high interest rates puts the economy in a new recession.
It’s not too soon to invest in inflation hedges. They tend to be more forward-looking than stocks, so they will move higher ahead of the actual inflation. Oil, silver and real estate are already showing signs of life.
Gold is facing headwinds right now because of higher real rates. When inflation kicks in, even high nominal rates will be negative in real terms because of inflation. That’s when gold (and gold stocks) will skyrocket. The current price level for gold is an excellent entry point.
Investors may not be able to stop MMT, but they are not helpless. Once you understand the damage MMT will cause, you can prepare accordingly.
Regards,
Jim Rickards
for The Daily Reckoning
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