Category Archives: Banking

Central Bank Digital Currencies Would Bring Hyperinflation, by Daniel Lacalle

Posted on February 7, 2023 | 1 comment

It’s a lot easier to inflate or hyperinflate a currency when there are no competing currencies available. From Daniel Lacalle at dlacalle.com:

There are many excuses often used to explain inflation. However, the fact is that there is no such thing as “cost push inflation” or “commodity inflation.” Inflation is not an increase in prices, it is the destruction of the purchasing power of the currency.

Cost-push inflation is more units of currency going to relatively scarce real assets. The same can be said about all other, from commodities to demand and my favourite, “supply chain disruption”. More units of currency going to the same goods and services.

The monster inflation we have endured these years first arrived through asset inflation and then through consumer prices. Now, governments and statistical bodies are tweaking the calculation of CPI to disguise the loss of purchasing power of the currency and central banks had to hike rates after the disaster created in 2020, when the massive increase in money supply went to finance bloated government spending and created the mess we live today.

Central banks know that inflation is a monetary phenomenon and that is why they are hiking rates and tightening as fast as governments allow them. However, central banks have lost a significant amount of an already low credibility by first ignoring the inflation risk and later using the base effect and transitory excuse, only to react late and slowly.

This has happened in a world where the excess in money supply growth has a number of back-stops and limits that prevent a massive increase in consumer prices through the destruction of the artificially printed currency. With quantitative easing there are a number of limits that stop inflationary pressures: As the transmission mechanism of monetary policy is the banking channel, it is our demand for credit what puts a break on inflationary pressures.

Continue reading→

1 Comment

Posted in Banking, Currencies, Debt, Governments

Tagged ,

Bonds Die, CPI’s Lie, & Gold Flies, by Matthew Piepenburg

Posted on February 5, 2023 | Leave a comment

Even bonds have declined in price somewhat, they’re still a terrible investment. From Matthew Piepenburg at goldswitzerland.com:

Below we look at Gold’s rise in a backdrop of more bond destruction in the public markets and more truth destruction in the war on inflation.

No Recession Yet?

As I argued in 2022, the much-debated and pending recession was in many ways already here, despite official attempts to re-define the same.

The thousands being laid off at Google, Amazon and even Goldman Sachs in 2023, for example, can likely attest to that.

Speaking of recession, last week’s embarrassing Empire Manufacturing report of -32.9 adds more confirmation that productivity and growth are not going to save our increasingly knee-capped economy.

In fact, the manufacturing figures have not been this bad since 2008 and 2020, which, if I recall, were pretty bad vintage years for markets—”saved” only by money printing at warp speed.

This, of course, raises the ever-charged question of whether Powell will be forced to return to more desperate mouse-click money creation—i.e., “quantitative easing.”

For now, of course, the current Fed is going the other direction, “tightening” rather than “easing” reserve assets to the tune of -$95B per month into a perfect debt storm.

As we’ll see below, this lose-lose option is just one of many hidden mines lying just beneath the surface of an already limping US Treasury market.

In the meantime, the dumb just keeps getting dumber.

Continue reading→

Leave a comment

Posted in Banking, Debt, Financial markets, Governments, Money, Uncategorized

Tagged

Charlie Munger: Exemplar of Cantillionaire Privilege, by Mark E. Jeftovic

Posted on February 5, 2023 | Leave a comment

Charlie Munger is Warren Buffet’s right hand man. The dynamic duo, sometimes portrayed as pure capitalists, have made a lot of money with investments that are anything but pure capitalism. From Mark E. Jeftovic at bombthrower.com:

Berkshire Hathaway was built atop a system that Bitcoin was created to destroy

The Oracle of Omaha’s second banana has pronounced judgement on crypto. It was even more unhinged than previous attacks (“rat poison”), as Munger applauded communist China’s technocratic dictatorship as a sensible ideal we should be following here in the West.

“the communist government of China recently banned cryptocurrencies because it wisely concluded that they would provide more harm than benefit…What should the U.S. do after a ban of cryptocurrencies is in place? Well, one more action might make sense: Thank the Chinese communist leader for his splendid example of uncommon sense.”

The fact that Munger is able to aggrandize a communist police state that maintains concentration camps, engages in organ harvesting and forced labour with impunity is a testament to his insular position (not to mention the lopsidedness of our political zeitgeist).

Munger is a Cantillionaire – after Richard Cantillion who wrote one of the first economic treatise in the eighteenth century describing how proximity to the monetary inputs of a society confer special advantages at the expense of wider populus.

Continue reading→

Leave a comment

Posted in Banking, Currencies, Economy, Government

Tagged ,

Is Gold the Last Freedom Train? By T.W. Thiltgen

Posted on February 3, 2023 | Leave a comment

It is the last freedom train, and it’s not too late to get on board. From T.W. Thiltgen at schiffgold.com:

Most people believe the Federal Reserve stabilizes the economy and our money. In reality, the central bank incentivized debt and destroys wealth. Is there a way to sidestep the destructive forces of central banking and fiat money?

T.W. Thiltgen believes there is a freedom train we can escape on — gold.

The following guest post was written by T.W. Thiltgen. The opinions expressed are his and don’t necessarily reflect those of Peter Schiff or SchiffGold.

I pose this question to you so that you can begin to consider that there is currently a macroeconomic problem that is more important than all other problems this country faces. That macro condition is the relentless destruction of capital throughout the world and the US in particular.

Merriam-Webster Dictionary defines capital as “accumulated possessions to bring in income.”

For our purposes here, I will just call it SAVINGS.

In economics, one of the important identities is S=I or Savings = Investment.

You cannot invest if you have not saved, and you will be able to invest less if your savings fall. This may seem obvious but bear with me.

Your savings can be destroyed by other than your own bad investment decisions. Negative real interest rates (interest rates adjusted for inflation) are the central driver in the destruction of capital for at least the last 14 years from the start of the 2008-2009 collapse.

By keeping interest rates below the rate of inflation, the Federal Reserve has destroyed saving on an unimaginable scale. Even today, US Treasury interest rates are still 3% points below the rate of inflation. And that’s using the government’s numbers. The real inflation rate using the methodology of the 1980s would put today’s inflation rate near 15%. Either of these numbers is disastrous, but taking the average of the number between 7% and 15% or 11 ½ % means that the value (purchasing power) of your savings is being destroyed in a very short number of years. Even if inflation falls back to 3 – 4%, your real inflation-adjusted saving will decline at a rate that will ultimately lower your standard of living.

Continue reading→

Leave a comment

Posted in Banking, Debt, Economics, Economy, Governments, Money

Tagged , ,

The End of Monetary Hedonism, by Jeff Deist

Posted on February 2, 2023 | Leave a comment

One day Wall Street and Washington will discover—as countless regimes have discovered—that nothing real comes from fake money. From Jeff Deist at mises.org:

Does cheap money and credit make us richer? Does more money and credit create more stuff, or better stuff? Do they make us happier and more productive? Or do these twin forces actually distort the economy, misallocate resources, and degrade us as people?

These are fundamental questions in an age of monetary hedonism. It is time we began to ask and answer them. Millions of people across the West increasingly recognize the limits of monetary policy, understanding that more money and credit in society do not magically create more goods and services. Production precedes consumption. Capital accumulation is made possible only through profit, which is generated by higher productivity, thanks to earlier capital investment. At the heart of all of it is hard work and human ingenuity. We don’t get rich by legislative edict.

How we lost sight of these simple truths is complex. But we can begin to understand it by listening to someone smarter! The great financial writer James Grant probably knows more about interest rates than anyone on the planet. So we should pay attention when he suggests America’s four-decade experiment in rates that only go down, down, and down appears to be over.

The striking thing about the bond market and interest rates is that they tend to rise and fall in generation-length intervals. No other financial security that I know of exhibits that same characteristic. But interest rates have done that going back to the Civil War period, when they fell persistently from 1865 to 1900. They then rose from 1900 to 1920, fell from 1920 or so to 1946, and then rose from 1946 to 1981—and did they ever rise in the last five or 10 years of that 35-year period. Then they fell again from 1981 to 2019–20.

So each of these cycles was very long-lived. This current one has been, let’s say, 40 years. That’s one-and-a-half successful Wall Street careers. You could be working in this business for a long time and never have seen a bear market in bonds. And I think that that muscle memory has deadened the perception of financial forces that would conspire to lead to higher rates.

—James Grant, speaking to the Octavian Report

Continue reading→

Leave a comment

Posted in Banking, Debt, Economics, Economy, Governments, History, Uncategorized

Tagged ,

How To Resist CBDCs—5 Ways You Can Opt Out of This Dystopian Future, by Nick Giambruno

Posted on January 31, 2023 | 1 comment

There are ways around central banks’ planned digital fiat currencies. From Nick Giambruno at internationalman.com

How To Resist CBDCs
 

There’s an excellent chance governments worldwide will soon force their citizens to use central bank digital currencies (CBDCs).

CBDCs enable all sorts of horrible, totalitarian things.

They allow governments to track and control every penny you earn, save, and spend. They are a powerful tool for politicians to confiscate and redistribute wealth as they see fit.

CBDCs will make it possible for central banks to impose deeply negative interest rates, which are really just a euphemism for a tax on saving money.

Governments could program CBDCs to have an expiration date—like some airline frequent flyer miles—forcing people to spend them, for example, before the end of the month when they’d become worthless.

CBDCs will enable devious social engineering by allowing governments to punish and reward people in ways they previously couldn’t.

Suppose governments impose lockdowns again for flu season, so-called “climate change,” or whatever pretext they find convenient. CBDCs could be programmed to only work in a geographic area. For example, your payments could be denied if you travel more than a mile from your home during a lockdown.

Suppose the people in charge want to encourage people to take a pharmaceutical product. With CBDCs, they could easily deposit money into the accounts of those who complied and deduct it from those who didn’t.

Undoubtedly, CBDCs will be paired with a sort of social credit system. Such a system is already in place in China today. In the West, it’s likely to come in a different flavor. Perhaps CBDCs will be paired with an ESG score.

Did you commit a thought crime on social media? Or perhaps you read too many politically incorrect articles online? Did you exceed your monthly meat consumption allowance? Then expect some financial punishment thanks to the CBDCs.

CBDCs are, without a doubt, an instrument of enslavement. They represent a quantum leap backward in human freedom.

Unfortunately, they’re coming soon.

Continue reading→

1 Comment

Posted in Banking, Currencies, Governments, Tyranny

Here’s How “Prosperity” Ends: Global Bubbles Are Popping, by Charles Hugh Smith

Posted on January 30, 2023 | 1 comment

Debt bubbles always pop. From Charles Hugh Smith at oftwominds.com:

So here we are: the global credit-asset bubbles are popping, and the illusory “prosperity” generated by the bubbles is about to tumble off a cliff.

There are two kinds of prosperity, one fake, one real. Bogus “prosperity” depends on credit-asset bubbles inflating, magically creating “wealth” not from labor, production or improving productivity, but from the value of assets soaring as bubbles inflate.

This bubble-generated “wealth” then fuels a vast expansion of credit and consumption as assets soaring in value increases the collateral available to borrow against, and the occasional sale of soaring assets generate capital gains, stock options, etc. which then fund sharply higher consumption.

When the value of a modest home skyrockets from $200,000 to $1,000,000 in a few years, that $800,000 in gain was not the result of any improvement in utility. The house provides the same shelter it did when it was worth 20% of its current value. The $800,000 is gain is the result of the abundance of low-cost credit and the global search for a yield above zero.

Eventually, this vast expansion of “money” chasing yields and seeking places to park all the excess cash trickles into the real economy and the result is inflationary. Consider how soaring home prices affect rents.

When an investor bought the modest home for $200,000, the costs of ownership were low due to the costs being linked to the value: the property tax, insurance and mortgage were all based on the valuation. (The costs of maintenance were unrelated to valuation, of course, being based on the age and quality of construction.) Let’s say the modest house rents for $1,500 per month.

Continue reading→

1 Comment

Posted in Banking, Business, Collapse, Debt, Economics, Economy

This Week’s FOMC: What Does Jay Powell Really Care About? by Tom Luongo

Posted on January 30, 2023 | Leave a comment

Is Jay Powell trying to stop the globalists? From Tom Luongo at tomluongo.me:

With the markets still firmly convinced the Federal Reserve will hike the Fed Funds Rate by just 25 basis points (0.25%) on Wednesday, I find it fascinating that no less a figure than Mohamed El-Erian, former head of PIMCO, argued for the Fed to stay the course and surprise markets with another 50 basis point move this week.

I agree with him. Completely.

I know you’re shocked.

This article came out on the same day as the latest US GDP figure (Q4 +2.6%), home sales (slowing but not terminal), inventories (down), and jobless claims (uninteresting).  It was followed up with week ending data about consumer spending and the Fed’s favorite inflation indicator, the PCE deflator, coming in cooling as expected, and now just barely below the FFR, 4.4% vs. 4.5%.

Oooh, positive real yield expectation of 0.1%. Quick, everyone the Fed made it safe to save in dollars again!

As the kids say on teh Twitterz, “SMFH.”

Continue reading→

Leave a comment

Posted in Banking, Currencies, Debt, Economics, Economy, Government

As West, Debt, & Stocks Implode, East Gold & Oil Will Explode, by Egon Von Greyerz

Posted on January 29, 2023 | 1 comment

There is no way the world can escape a massive debt implosion. From Egon Von Greyerz at goldswitzerland.com:

“The risk of over-tightening by the European Central Bank is nothing less than catastrophic” says Prof Kenneth Rogoff .

At Davos he also said: “Italy is extremely vulnerable. But this could pop anywhere. Global debt has gone up massively since the pandemic: public debt, corporate debt, everything.”

Rogoff believes that it is a miracle that the world averted a financial crisis in 2022, but the odds of a major accident are shortening as the delayed effects of past tightening feed through.

As Rogoff said: “We were very fortunate that we didn’t have a global systemic event in 2022, and we can count our blessings for that, but rates are still going higher and the risk keeps rising.”

But lurking in the murkiness is also the global financial assets/liabilities which is almost $500 trillion including the shadow banking system at 46% of the total. The shadow banking sector includes  pension funds, hedge funds and other financial institutions which are largely unregulated.

oil

Shadow banking is not subject to the normal mark-to-market rules. Thus no one knows what the real position or losses are. This means that central banks are in the dark when it comes to evaluation of the real risks of the system.

Clearly, I am not the only one harping on about the catastrophic global debt/liability situation.

Continue reading→

1 Comment

Posted in Banking, Business, Collapse, Currencies, Debt, Economics, Economy, Geopolitics, Governments

Tagged ,

Russia’s intentions are clarifying, by Alasdair Macleod

Posted on January 27, 2023 | 1 comment

The Russians have a not-so-secret weapon that would devastate the U.S.: back the ruble with gold. From Alasdair Macleod at goldmoney.com:

We have confirmation from the highest sources that Russia and the Shanghai Cooperation Organisation (SCO) are considering using gold for pan-Asian trade settlements, fully replacing dollars and euros.

In an article written for Vedomosti, a Moscow-based Russian newspaper published on 27 December, Sergey Glazyev, a prominent economic adviser to Vladimir Putin who is heading up the Eurasian Economic Union committee charged with devising a replacement for dollars in trade settlements sent a very clear signal to that effect. It appears he will drop earlier plans to design a new commodity-linked trade currency because it has been superseded.

Furthermore, increasing numbers of nations have joined or have applied to join the SCO as dialog members, including Saudi Arabia and other important Gulf Cooperation Organisation members. The economic benefits of discounted energy, China’s investment capital, and sound money are the ingredients for a new, Asia-wide industrial revolution, while the economies of the western alliance sink under rising prices, rising interest rates, collapsing financial markets, and collapsing currencies.

While it will mark the end of the road for the western alliance and its fiat currencies, Putin must be careful not to take the blame. Now that the alliance is racking up tanks and other equipment for the Ukrainians, they are actively promoting a new battle, with NATO getting almost directly involved. It is that action which will drive up commodity prices, undermine western financial markets, undermine government finances, and ultimately collapse their currencies. 

Putin is likely to use NATO’s impetuous action in defence of Ukraine as cover for securing Russia’s future as an Asian superstate, which will be the west’s undoing.

Introduction

We forget, perhaps, that from 1 March 1950 the Soviet rouble was on a gold standard at 4 roubles 45 kopecks for 1 gram of pure gold until 1961, when Khrushchev devalued it and refixed it to the dollar. Stalin had been a signatory to the Bretton Woods agreement but refused to join it and make the rouble subservient to the dollar as its intermediary for a gold standard.

Continue reading→

1 Comment

Posted in Banking, Currencies, Debt, Economics, Economy, Energy, Eurasian Axis, Geopolitics, Governments, History, Money

Tagged , , , ,