Category Archives: Banking

The CDS Market Reveals How To Profit From the Coming Collapse of Fiat Currency, by Nick Giambruno

Posted on February 15, 2023 | Leave a comment

Bitcoin is a call on a generalized currency collapse. From Nick Giambruno at internationalman.com:

Profit from Collapse

As told in the movie The Big Short, a group of hedge fund managers who saw the housing crash coming used Credit Default Swaps (CDS) to make a fortune.

These exotic financial instruments conveyed information crucial to seeing the 2008 financial crisis in advance. That knowledge allowed astute speculators to get positioned for massive profits as the crisis unfolded.

In the coming crisis—which has already started—I expect CDS will again play a key role in telegraphing important information shrewd speculators can use to their advantage.

A CDS is a contract between two parties. Think of it like an insurance policy against a borrower—typically a large company or a government—defaulting. One party underwrites the insurance policy, and another buys it. If the borrower defaults, the CDS issuer pays out the CDS buyer.

CDS trade in the open market and reflect investor expectations of the default probability of a particular borrower. The more likely the underlying entity is to default, the more expensive the insurance (CDS) will cost.

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Doug Casey on the Fed Raising Its Inflation Target and Other Shenanigans

Posted on February 15, 2023 | Leave a comment

The government shouldn’t be involved in the production of money and there should be no central bank. From Doug Casey at internationalman.com:

Understanding Inflation

International Man: Recently, there have been whispers about the Fed raising its official inflation target above 2%.

But before we get into that, we should define our terms.

What is the proper way to think of inflation and the Fed itself?

Doug Casey: First of all, the word “inflation” should be viewed as a verb, not as a noun. Inflation is an increase in the amount of money. This is why Bitcoin—which may have other issues as a money—is inflation-proof; it’s a mathematical certainty that no more than 21 million will ever exist. There are absolutely no limits to the supply of fiat dollars, however.

Inflation is one of the most misused words; few even think about the word’s actual meaning. What is inflation? “Well, that’s prices going up.” No, it’s not. To say that is to confuse cause and effect. Inflation is an increase in the money supply. “Inflation”, a rise is the general price level, results when the money supply is increased by more than real wealth increases.

Do you think I’m just making an obvious, common-sense point? Au contraire. For instance, the Wall Street Journal of Feb 13 featured an article entitled “Inflation Is Falling, and Where It Lands Depends on These Three Things.” In the opinion of the clueless reporter, the three things are “goods, shelter, and other services.” Nowhere does she reference the money supply as the cause of inflation. It’s what she was taught in school, and she stupidly perpetuates the notion.

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When They Say the US Government Has Never Defaulted They’re Lying, by Michael Maharrey

Posted on February 14, 2023 | Leave a comment

And don’t rule out default in the future. From Michael Maharrey at schiffgold.com:

The fake debt ceiling fight is on and the Biden administration has ratcheted up the scare tactics. One of its strategies is to make you think the world will collapse if the US defaults on its debt obligations. After all, the US always pays its bills on time — so we’re told.

A default would certainly be problematic. But despite what you’re being told, it’s not unprecedented. The US government has defaulted before.

I call this a fake debt ceiling fight because we all know how it will end. Congress will raise the debt ceiling. It may or may not come with some modest spending cuts. But we all know that any cuts will be superficial. Actual spending will keep going up. It always does.

But right now, we have to endure the dog and pony show as Republicans and Democrats haggle.

Republicans say they want spending cuts. (One has to wonder where this urgency was when the GOP controlled both houses of Congress and the White House, but that’s a discussion for another time.) Democrats say they won’t negotiate.

And here we are.

To fortify their position, the administration tells us that raising the debt ceiling is a matter of economic life and death. As I mentioned, the mantra is the US always pays its bills on time. As Mises Institute senior editor Ryan McMaken pointed out, as part of the strategy, Treasury Secretary Janet Yellen is parroting the oft-repeated claim that the US has never defaulted.

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The New Normal: Death Spirals and Speculative Frenzies, by Charles Hugh Smith

Posted on February 13, 2023 | Leave a comment

The death spirals generally follow the speculative frenzies, although timing the spirals is problematic. From Charles Hugh Smith at oftwominds.com:

There is an element of inevitability in play, but it isn’t about central bank bailouts, it’s about Death Spirals and the collapse of unsustainable systems.

The vapid discussions about “soft” or “hard” landings for the economy are akin to asking if the Titanic’s encounter with the iceberg was “soft” or “hard:” either way, the ship was doomed, just as the global economy is doomed by The New Normal of Death Spirals and Speculative Frenzies.

Death Spirals are the inevitable result of entrenched interests clinging on to the status quo and thwarting any adaptation or evolution that might threaten or diminish their share of the swag–and that includes any real change because any consequential modification has the potential to upset the gravey train.

The status quo “solution” is to borrow and blow whatever sums are needed to satisfy every entrenched interest. Filling the federal slop-trough for all the hogs now requires borrowing a staggering $1.4 trillion every year, and billions more in municipal, county and state bonds (borrowing money via selling bonds) on the local level.

This borrow and blow strategy avoids any uncomfortable discipline and difficult trade-offs: everybody gets everything they demand.

This strategy looks “unsinkable” until the iceberg looms dead ahead. History suggests that fiscal and political discipline is eventually imposed by the real world in one fashion or another when diminishing returns enter a Death Spiral.

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The Dreaded D-Word, by Joel Bowman

Posted on February 12, 2023 | 2 comments

In a free market economy on a gold standard, deflation is the general course. It is not something to be feared under these circumstances. From Joel Bowman at bonnerprivateresearch.com:

(Source: Getty Images)

Joel Bowman, surveying the situation today from Buenos Aires, Argentina…

Welcome to another Sunday Session, dear reader, that time of the week when we gather at the virtual saloon to solve the world’s problems, one copa de bonarda at a time…

We jest, of course. It takes a humble public servant to actually believe he/she/they can make the whole world a better place… and to do so at everyone else’s expense.

The best we mere citizens can hope for is to put one pant leg on at a time and one foot in front of the other. Small victories. Speaking of which, we hear our American readers are readying for the big game later today, baking quail egg cookies and such, if we understand Dan correctly…

We have no idea who’s in the match, what the pitch conditions are like, or which team is favored to score the most runs, but we wish everyone a fair contest all the same. (Just kidding. Go team!)

Meanwhile, the cost of this year’s Super Bowl party might come as something of a shock. Analysis by the serious-sounding team at GoBankingRates.com warns us to “get ready for the spending equivalent of being sacked for a 15-yard loss.”

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This Was Another Big Week for Central Bank Digital Currencies (CBDCs), by Nick Corbishley

Posted on February 12, 2023 | Leave a comment

Like some sort of oozing putrescence, CBDCs keep seeping into the global financial infrastructure. From Nick Corbishley at nakedcapitalism.com:

Another G-7 economy took a big step toward adopting a central bank digital currency (CBDC). At the same time, the first largish economy to have launched a CBDC, Nigeria, descends further into financial chaos.

This week, two big things happened in the CBDC arena. One of the world’s oldest central banks, the Bank of England, and the British government jointly confirmed that a digital pound would probably be necessary at some point in the none-too-distant future. While they were saying that, lengthy queues were forming at ATMs across Nigeria, the first largish economy to launch a central bank digital currency (CBDC), as most Nigerians struggle to access physical money following the government’s disastrous demonetisation campaign.

“A New and Trusted Way to Pay”?

Let’s begin with the UK, whose latest Chancellor of the Exchequer Jeremy Hunt this week described CBDCs as potentially “a new and trusted (state-backed) way to pay” that is likely to emerge some time this decade. John Cunliffe, Deputy Governor for Financial Stability of the Bank of England (not to be confused with the creator of the children’s books and animated TV series, Postman Pat) said:

Our assessment is that on current trends it is likely that a retail, general purpose digital central bank currency — a digital pound — will be needed in the UK.

With cash usage in rapid decline in the UK, a digital pound would perform the “anchor function” which cash currently carries, allowing the holder access to Bank of England money, Cunliffe said. It would also counter the risks posed by so-called “stable coins”, which are relatively new forms of cryptocurrency that are pegged to the value of a fiat currency (e.g, the dollar or the euro), while also ensuring that certain tech firms are not able to monopolize areas of the online market with their own coins.

These are all classic justifications for launching a CBDC. But not everyone in the UK’s political establishment agrees that they constitute sufficient cause. For example, the former governor of the Bank of England, Mervyn King said in January, 2022: “By far the most important question is what is the problem to which a CBDC is the solution?” King said a number had been proposed but “none of them were terribly convincing”.

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Posted in Banking, Civil Liberties, Currencies, Governments, Propaganda, Tyranny

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The Big Stiff: Russia-Iran dump the dollar and bust US sanctions, by Pepe Escobar

Posted on February 10, 2023 | Leave a comment

The U.S. government has managed to piss off a number of large and geopolitically important nations. From Pepe Escobar at thecradle.co:

News of Russian banks connecting to Iran’s financial messaging system strengthens the resistance against US-imposed sanctions on both countries and accelerates global de-dollarization.

https://media.thecradle.co/wp-content/uploads/2023/02/Iran-Russia-4.jpg

Photo credit: The Cradle

The agreement between the Central Banks of Russia and Iran formally signed on 29 January connecting their interbank transfer systems is a game-changer in more ways than one.

Technically, from now on 52 Iranian banks already using SEPAM, Iran’s interbank telecom system, are connecting with 106 banks using SPFS, Russia’s equivalent to the western banking messaging system SWIFT.

Less than a week before the deal, State Duma Chairman Vyachslav Volodin was in Tehran overseeing the last-minute details, part of a meeting of the Russia-Iran Inter-Parliamentary Commission on Cooperation: he was adamant both nations should quickly increase trade in their own currencies.

Ruble-rial trade

Confirming that the share of ruble and rial in mutual settlements already exceeds 60 percent, Volodin ratified the success of “joint use of the Mir and Shetab national payment systems.” Not only does this bypass western sanctions, but it is able to “solve issues related to mutually beneficial cooperation, and increasing trade.”

It is quite possible that the ruble will eventually become the main currency in bilateral trade, according to Iran’s ambassador in Moscow, Kazem Jalali: “Now more than 40 percent of trade between our countries is in rubles.”

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Posted in Banking, Eurasian Axis, Geopolitics, Governments

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Operation Choke Point 2.0 Is Underway, And Crypto Is In Its Crosshairs, by Nic Carter

Posted on February 10, 2023 | 1 comment

They’re trying to cut the cryptocurrency industry off from banking. Where’s a civil libertarian like Justin Trudeau when we need him? From Nic Carter at Pirate Wires via zerohedge.com:

What began as a trickle is now a flood: the US government is using the banking sector to organize a sophisticated, widespread crackdown against the crypto industry. And the administration’s efforts are no secret: they’re expressed plainly in memos, regulatory guidance, and blog posts. However, the breadth of this plan — spanning virtually every financial regulator — as well as its highly coordinated nature, has even the most steely-eyed crypto veterans nervous that crypto businesses might end up completely unbanked, stablecoins may be stranded and unable to manage flows in and out of crypto, and exchanges might be shut off from the banking system entirely. Let’s dig in.

For crypto firms, obtaining access to the onshore banking system has always been a challenge. Even today, crypto startups struggle mightily to get banks, and only a handful of boutiques serve them. This is why stablecoins like Tether found popularity early on: to facilitate fiat settlement where the rails of traditional banking were unavailable. However, in recent weeks, the intensity of efforts to ringfence the entire crypto space and isolate it from the traditional banking system have ratcheted up significantly. Specifically, the Biden administration is now executing what appears to be a coordinated plan that spans multiple agencies to discourage banks from dealing with crypto firms. It applies to both traditional banks who would serve crypto clients, and crypto-first firms aiming to get bank charters. It includes the administration itself, influential members of Congress, the Fed, the FDIC, the OCC, and the DoJ. Here’s a recap of notable events concerning banks and the policy establishment in recent weeks:

  • On Dec. 6, Senators Elizabeth Warren, John Kennedy, and Roger Marshall send a letter to crypto-friendly bank Silvergate, scolding them for providing services to FTX and Alameda research, and lambasting them for failing to report suspicious activities associated with those clients

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Replace The Fed With The 2-Year US Treasury, by Ryan Ortega

Posted on February 9, 2023 | Leave a comment

Guess what, the Fed follows, not leads, the bond market, and there’s ample evidence to back that assertion up. From Ryan Ortega at zerohedge.com:

Last Wednesday, the Federal Open Market Committee (FOMC) wrapped up a two-day meeting to decide where to set the short-term Federal Funds Target rate. The meetings end with a highly anticipated press conference featuring Federal Reserve Chair Jay Powell just after 230pm ET.

Global market participants sit on the edge of their seats as they await the news of a potential rate hike with the possibility of more to come. Inevitably, both the equity and fixed-income markets will hang on Powell’s every word, searching for any clues as to what the Fed might do next.

What’s all the fuss about? Interest rates represent the price of money, arguably the most important price in the world.

This short-term rate influences all other rates in the economy including mortgages, auto loans, credit card rates, and more.

The Fed has manipulated the price of money for over a decade now, leading to the difficult situation we are in today.

Interest rates were kept too low for too long, even for years after the 2008 Global Financial Crisis.

Looking back on history, the Fed usually gets it wrong.

In this most recent case, waiting too long to remove historic accommodative policy and now risking over-tightening into a recession. But trying to micromanage the economy is like attempting to quickly steer the Titanic. It simply can’t be done.

Even with all the pomp and circumstance of the well-telegraphed meeting, it turns out the Fed historically follows the 2-Year Treasury Note anyway.

So, why not just let the free market decide the price of interest rates?

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Prepare to Be Bled Dry by a Decade of Stagflation, by Charles Hugh Smith

Posted on February 7, 2023 | Leave a comment

We can hardly wait. From Charles Hugh Smith at oftwominds.com:

Our reliance on the endless expansion of credit, leverage and credit-asset bubbles will have its own high cost.

The Great Moderation of low inflation and soaring assets has ended. Welcome to the death by a thousand cuts of stagflation. It was all so easy in the good old days of the past 25 years: just keep pushing interest rates lower to reduce the cost of borrowing and juice credit expansion ((financialization) and offshore industrial production to low-cost nations with few environmental standards and beggar-thy-neighbor currency policies (globalization).

Both financialization and globalization are deflationary forces, as they reduce costs. They are also deflationary to the wages of bottom 90%, as wages are pushed down by cheap global labor and stripmined by financialization, which channels the vast majority of the economy’s gains into the top tier of the workforce and those who own the assets bubbling up in financialization’s inevitable offspring, credit-asset bubbles.

To keep the party going, central banks and governments pushed both forces into global dominance: hyper-financialization and hyper-globalization. Policy extremes were pushed to new extremes: “temporary” zero-rate interest policy (ZIRP) stretched on for 6 years as every effort was made to lower the cost of credit to bring demand forward and inflate yet another credit-asset bubble, as the “wealth effect” of the top 5% gaining trillions of dollars in unearned wealth as asset bubbles inflated pushed consumption higher.

Corporate profits soared as credit became essentially free and super-abundant and globalization lowered costs and institutionalized planned obsolescence, the engineered replacement of goods and software that forces consumers to replace their broken / outdated products every few years.

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Posted in Banking, Business, Collapse, Currencies, Debt, Government, Investing

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