Financial flows: moves, changes and significant events [Archive]

Cara

20th September 2019, 07:22

This seems a fairly significant financial event. The US Federal Reserve has three days in a row now injected funds into the market. The explanation is that this is to keep interest rates low.

I am not sure I understand why this is necessary now - i.e. what changed that makes this needed? Which financial players are no longer injecting funds into the market that the US Fed now has had to do this?

Any insights welcome!

The Fed pumps another $75 billion into markets — its 3rd straight daily injection

The Federal Reserve jumped into financial markets for a third straight day on Thursday in another attempt to keep interest rates from moving higher.

The central bank has injected a total of $203 billion into markets this week — $75 billion on both Wednesday and Thursday, and $53 billion on Tuesday.
This week marked the first time the central bank has taken such steps since the global financial crisis 10 years ago.
The Federal Reserve jumped into financial markets for a third straight day on Thursday in another attempt to keep interest rates from moving higher.

The New York Federal Reserve said late Wednesday (https://www.newyorkfed.org/markets/opolicy/operating_policy_190918) that it would inject another $75 billion into the market on Thursday to keep the federal funds rate within its target range. Short-term rates had earlier this week shot up as high as 10%, threatening to disrupt the bond market and the overall lending system.

The latest overnight repurchase agreement, or repo, came a day after the policy-setting Federal Open Market Committee cut its benchmark interest rate (https://markets.businessinsider.com/news/stocks/federal-reserve-meeting-september-interest-rate-decision-2019-9-1028535360?utm_source=markets&utm_medium=ingest) to a target range of 1.75% to 2%.

In two separate market operations on Tuesday and Wednesday, the central bank offered a total of $128 billion through repos. This week marked the first time the central bank has taken such steps since the global financial crisis 10 years ago.

There remained debate about the exact reason the amount of cash that banks have on hand for short-term funding needs dried up early this week. But the shortage came after businesses had to pay quarterly tax bills at the same time that the Treasury issued billions in new bonds.

Fed Chairman Jay Powell said on Wednesday that the repo operations were temporary and that rates were expected to return to the target range.

"Funding pressures in money markets were elevated this week, and the effective federal funds rate rose above the top of its target range," he told reporters at a press conference following the interest-rate announcement. "While these issues are important for market functioning and market participants, they have no implications for the economy or the stance of monetary policy."

Read more: The Fed cuts rates for 2nd time since financial crisis — but defies Trump's calls for 'big' stimulus (https://markets.businessinsider.com/news/stocks/federal-reserve-meeting-september-interest-rate-decision-2019-9-1028535360?utm_source=markets&utm_medium=ingest)
From: https://markets.businessinsider.com/news/stocks/fed-repo-injects-another-75-billion-into-market-2019-9-1028537926

~~~

This was released over the newswires on the evening of the 17th September and published in the Wall Street Journal. The article identifies the need as being a shortage of cash.

For first time since 2008 the central bank injects funds into money markets after a sudden shortage of cash
For the first time in over a decade, the Federal Reserve Bank of New York took steps Tuesday to relieve pressures that were pushing short-term interest rates higher than the central bank wanted Monday.

Strains developed Monday in short-term financing markets that suggested the central bank could lose control of its federal-funds rate, a benchmark that influences borrowing costs throughout the financial system.

Bids in the fed-funds market on Tuesday morning reached as high as 5%, according to traders, well beyond the central bank’s target range, which is 2% to 2.25%.

The Fed moved Tuesday morning to put $53 billion of funds back into the banking system through transactions known as repurchase agreements. After the moves, the New York Fed said the effective fed-funds rate, or the midpoint of transactions in that overnight market, stood at 2.25%, up from 2.14% on Friday.

The pressures that had sent the fed-funds rate higher were related to shortages of funds for banks, stemming from rising government deficits and the central bank’s decision to shrink its securities holdings in recent years. Its reduced holdings have soaked up funds in the financial system, crimping liquidity.

The Fed is likely to continue to provide funding to ensure the smooth operation of the repo market for some time to come, although it isn’t clear how long that might be, said Gennadiy Goldberg, a fixed-income strategist at TD Securities.

“I think they’re going to be playing this one by ear,” he said. “This is in every way, shape and form an emergency measure.”

The Federal Reserve’s rate-setting committee began a two-day policy meeting on Tuesday at which officials are likely to lower the fed-funds range by a quarter-percentage point to cushion the economy from a broader global slowdown, a decision unrelated to recent funding-market strains.

The New York Fed hasn’t had to conduct such a transaction since 2008 because during and after the financial crisis, the Fed flooded the banking system with reserves when it purchased hundreds of billions of dollars of Treasurys and mortgage-backed securities in an effort to spur growth after cutting interest rates to near zero.

It has been draining reserves from the banking system since 2014, when it stopped increasing its securities holdings. The declines accelerated after the Fed began shrinking its holdings in 2017. Reserves have declined from $2.8 trillion to less than $1.5 trillion last week.

The Fed stopped shrinking its asset holdings last month, but because other Fed liabilities such as currency in circulation and the Treasury’s general financing account are rising, reserves are likely to grind lower in the weeks and months ahead.

The Fed hasn’t announced when it will begin allowing its balance sheet to increase, which would stop reducing reserves.

The strains in funding markets this week have been driven by several factors.

First, reserves have been declining. Second, brokers who buy and sell Treasurys have more securities on their balance sheets due to increased government bond sales to finance rising government deficits.

Then on Monday, these strains were aggravated by a series of technical factors. Corporate tax payments were due to the U.S. Treasury and Treasury debt auctions settled, leading to large transfers of cash from the banking system.

Meantime, postcrisis financial regulations have made short-term money markets less nimble than they used to be. This didn’t matter as much when the banking sector was awash in reserves and could absorb the kind of seasonal swings witnessed this week.

“The issue here is not that the level of reserves is structurally too low. We’ve reached the level where the market doesn’t respond to temporary deposit flows as efficiently or fluidly,” said Lou Crandall, chief economist at financial-research firm Wrightson ICAP.

Monday’s tax payments and debt settlements “drained money from the system, and there was no cash sitting on the side waiting to come in,” said Mr. Crandall.

Banks are holding on to reserves because they don’t think they can part with them and still continue to conduct the normal operations of a bank, such as cashing checks, approving mortgages and allowing companies to draw on letters of credit, Mr. Goldberg said. “Even small confluences of events will start to have outsized effects,” he said.

What happens in this narrow sector of the financial market can be important because funding spikes create the risk of sudden and disorderly efforts by market participants to reduce debts given the lack of cheap and predictable short-term financing.

“This sort of thing can lead to substantial pullbacks, and that can create very unpredictable dynamics in markets,” said Mr. Crandall.

Scott Skyrm, a repo trader at Curvature Securities LLC, said he had seen cash trade in the fed-funds rate as high as 9.25% Tuesday.

“It’s just crazy that rates could go so high so easily,” he said.

On his trading screens, Mr. Skyrm said he could see traders with collateral securities that they were trying to exchange for cash. The rates they were offering would start to rise until an investor with cash available to trade would start to accept their bids, gradually driving repo rates down until investors had exhausted their cash, he said. Then rates would resume their climb.

While there are technical factors to explain why cash would be in high demand this week, including corporate tax payments, the settlement of recently issued Treasury securities and the approach of quarter-end, they didn’t seem to explain the “crazy market volatility,” Mr. Skyrm said.

“It seems like there’s something underlying out there that we don’t know about,” Mr. Skyrm said.

Write to Nick Timiraos at [email protected] and Daniel Kruger at [email protected]

Dow Jones Newswire
September 17, 2019 12:51 ET (16:51 GMT)
From: http://www.ethicalmarkets.com/fed-intervenes-to-curb-soaring-short-term-borrowing-costs/

Cara

20th September 2019, 07:42

The challenges of negative and zero interest rate policy and the bond markets.

Chart of the week: Bond returns soar this year, but income falls further

https://fsinvestments.com/cotw-2019-9-6-v1-blog-823px-380effd5.jpeg

Less than three quarters into 2019, the Bloomberg Barclays U.S. Aggregate Bond Index, a proxy for traditional core fixed income investments, has already generated an equity-like return. Its 9% plus total return through August 30 is nearly triple its annual average from 2010–2018 and well above those of the prior two decades.1

Total returns for bonds are generated from two sources: income from regular interest payments and changes in price. As the chart highlights, the vast majority of 2019’s return came from price appreciation (price return) as the 10-year U.S. Treasury yield declined sharply this year, reaching lows not seen since 2016. (As a reminder, a bond’s price rises as interest rates decline.)

Rising prices bode well for investors seeking total return, yet many investors turn to their fixed income portfolios as a source of income. As interest rates plummeted this year, the income generated by a traditional fixed income portfolio has steadily declined. The income return on the Barclays Agg is below 2.0% through August 30 compared to nearly 7% in the 1990s.2 The Index’s yield has fallen from 3.7% in November 2018 to approximately 2.1% today.2

Today’s historically low interest rates will continue to make it difficult for investors to find competitive levels of income. Additionally, with the 10-year Treasury hovering near 1.5%, investors may not be able to rely on falling interest rates to boost their bonds’ total returns.

1 Bloomberg Finance L.P., as of August 30, 2019.
2 Based on yield-to-worst as of September 5, 2019.

From: https://fsinvestments.com/perspectives/articles/chart-of-the-week-2019-09-06-barclays-agg

~~~

Problems with developed markets and the debt economy as seen by Donald Amstad from Aberdeen Standard Investments. He specifically cites the USD 124 trillion unfunded liabilities. He sees a “looming catastrophe” in the West and thinks that the markets are “just beginning to wake up”.

It’s a rather gloomy outlook and does not take into account some of the topics discussed by Catherine Austin Fitts such as black budgets, the missing trillions, etc.

3WclYu5l4G0

Published on Aug 27, 2019
Donald Amstad from Aberdeen Standard Investments delivers a sobering assessment on the state of developed market economies.

Livewire Markets is an Australian based investment website providing access to the investment insights and opinions of fund managers and investment professionals. Registration is free and gives you access to our daily newsletter featuring the most popular articles and videos.

Visit the Livewire website for more information: https://www.livewiremarkets.com

Developed economies are at a crisis point, the powers of unconventional monetary policy are exhausted, and markets are just beginning to wake up to this. That’s the sobering assessment on the current state of the global economy delivered by Donald Amstad from Aberdeen Standard Investments

His view is that when developed markets finally crack, there will be serious implications for every asset class and economy. However, those economies where monetary policy remains relatively ‘normal’ will be those best placed to respond. In his view, the emerging markets have more levers to pull when compared to developed markets, where the money printing taps have been turned on and interest rate settings are near zero.

The irony is that during the Asian crisis it was the IMF and central bankers from developed markets that convinced the emerging market governments not to print money and ‘take their medicine.’ Amstad says that this was a cathartic process for these economies, and they are now looking on in bewilderment as the West has resorts to money printing of an unprecedented scale.

“In the emerging world, economic and monetary policy is broadly orthodox. It is the West that is running unorthodox economic and monetary policy and it is the West, ironically, that is now on the cliff edge.”

Implications for investors

Amstad says that unconventional monetary policy has been pushed to the limit and that negative yielding bonds are playing havoc with pension funds and with the profitability of banks and other financial institutions. He highlights that while the United States is awash with debt, it is the $125 trillion of unfunded government liabilities that is most concerning.

Furthermore, he says that investors are faced with a scenario where the key defensive or ‘risk-free’ asset in their portfolios appears to be in a bubble. Historically, it has been riskier asset classes that have been the source of financial malaise. For example, it was credit markets in 2007, tech stocks in 2000 and equities in 1987. However, during these periods' bonds have acted as a buffer for balanced portfolios, Amstad questions if this will be the case today.

“What we have never had to cope with before is if there is a bubble in the risk-free asset class. What happens when that goes pop. What is the new risk free?”

Social implications

Central banks have been playing a game of ‘whack-a-mole', using monetary policy tools to quash any flare up in volatility. Under this regime it has been the wealthiest 0.1 per cent of the world population that has benefited from asset price inflation. Amstad argues that we are already seeing financial and economic troubles becoming political and social flare ups.

He expects that these social tensions will only continue to escalate if developed world policy makers are unwilling to take their medicine.

“If they do come out with another bout of QE then banks are going to go bust, pension funds are going to go bust, insurance companies are going to go bust. And if it pushes the stock market back up again, then the 99.9% are probably not going to tolerate more handouts. That leads to social and political instability.”

Watch the full video below for a sobering assessment on the state of developed market economies and the implications for investors.

"I am very worried about the West. I think it is verging on catastrophe and what is interesting of course is the markets are just beginning to wake up to this."

For all the latest insights from Australia's leading Fund Manager's sign up to Livewire for free at http://www.livewiremarkets.com

Cara

21st September 2019, 10:04

This interview is also posted here: http://projectavalon.net/forum4/showthread.php?101087-Catherine-Austin-Fitts-all-things-Fitts&p=1315074&viewfull=1#post1315074

Most interesting in terms of the topic of this thread is the discussion of how the off record / secret financial structures enable unipolarism and the roll-out of the global capital structures in the late 1980s and early 1990s.

Also interesting to hear is how the opacity of financial movements enabled by FASAB 56 legislation means that Kompromat and illegal intelligence agency operations, which are very expensive and difficult to run, can be reduced. Essentially, this legislation is a disintermediation of some of the off the books mechanism and black budget structures that previously were needed to run a unipolar global empire.

~~~

Here is a new interview with James Corbett on the recently enacted US legislation FASAB 56 and the overall context of what Catherine Austin Fitts calls The Financial Coup D’Etat.

Also discussed is how this fits with the 9/11 events and the strategy of globalisation.

Overall this is an excellent interview and discussion. I highly recommend it.

9ZkYVc9N-8E

Published on Sep 17, 2019
SHOW NOTES AND MP3: https://www.corbettreport.com/?p=33017

Catherine Austin Fitts has been following the story of the black budget, the missing trillions, and the back door in the US Treasury for decades. Now, her tireless work on this subject has been published in a comprehensive report from Solari.com, "The Real Game of Missing Money" Volumes 1 and 2. Today James Corbett talks to Fitts about FASAB 56, the missing trillions and the financial coup d'état which has liquidated the wealth of the United States and shipped it out the back door.

Watch this video on BitChute (https://www.bitchute.com/video/9ZkYVc9N-8E/) / DTube (https://d.tube/#!/v/corbettreport/vp5m3hmuczs) / YouTube (https://youtu.be/9ZkYVc9N-8E) or Download the mp4 (https://www.corbettreport.com/mp4/fitts-trillions.mp4)

SHOW NOTES:
Interview 1407 – Mark Skidmore on the Pentagon’s Missing Trillions (https://www.corbettreport.com/interview-1407-mark-skidmore-on-the-pentagons-missing-trillions/)

Solari.com (https://home.solari.com/)

missingmoney.solari.com (https://missingmoney.solari.com/)

FASAB Statement 56: Understanding New Government Financial Accounting Loophole (https://constitution.solari.com/fasab-statement-56-understanding-new-government-financial-accounting-loopholes/)s

Caveat Emptor: Why Investors Need to Do Due Diligence on U.S. Treasury and Related Securities (https://home.solari.com/caveat-emptor-why-investors-need-to-do-due-diligence-on-u-s-treasury-and-related-securities/)

9/11 Trillions (https://www.corbettreport.com/episode-308-911-trillions-follow-the-money/)
From: https://www.corbettreport.com/interview-1479-catherine-austin-fitts-explains-the-financial-coup-detat/

Hervé

23rd September 2019, 14:10

Russia refuses to comply with IMF's demands to put surplus money into other countries' financial systems (https://www.stalkerzone.org/russia-refused-to-comply-with-the-imfs-demands/)

Koba The Stalker Zone (https://www.stalkerzone.org/russia-refused-to-comply-with-the-imfs-demands/)
Sat, 21 Sep 2019 00:00 UTC

https://www.sott.net/image/s26/539149/large/scale_1200_23.jpg (https://www.sott.net/image/s26/539149/full/scale_1200_23.jpg)

Russia's policy has become a concern for Western countries, as the position and decisions of Moscow started to often go against the opinion and notion of the West about world politics.

This happened in the situation with the IMF, when Russia decided to use "surplus" money from the National Wealth Fund of Russia in order to maintain and develop the economy, but the International Monetary Fund forbids to use this money inside the country. According to the IMF, these funds should be invested in securities and assets of foreign states.

The National Wealth Fund of Russia is a reserve fund of the state that is formed at the expense of the oil and gas sector, the additional income of the federal budget, etc. It is something like a "safety cushion" for the Russian economy in the event of a crisis.

As of September 1st 2019 the fortune of the fund is estimated to be at $122.88 billion, which is approximately 7.2% of GDP.

But despite the position of the IMF, Moscow nevertheless decided to invest the so-called "monetary surplus" (this is all the money that exceeds 7% of GDP) in the development of Russia.

According to the Minister of Finance Anton Siluanov, the received money will be used for the construction and modernisation of infrastructure facilities in regions of the country.

======================================

O, the effrontery!

avid

23rd September 2019, 15:51

Charity begins at home....

Cara

26th September 2019, 06:58

New head of the IMF to replace Christine LaGarde (who is taking over as head of the EU central bank).

Things to note:

She is 66. France exerted pressure to waive the age limit rules.
Studied political economy and sociology at the Karl Marx Higher Institute of Economics in Sofia, Bulgaria.
Studied at London School of Economics as a British Council scholar.
Has worked at the World Bank and the European Commission (was commissioner in charge of the EU budget)

IMF names Kristalina Georgieva as new head

https://ichef.bbci.co.uk/news/660/cpsprodpb/B906/production/_108966374_imf_afp.jpg
AFP
Kristalina Georgieva (left) succeeds Christine Lagarde (right) as IMF head

Bulgarian economist Kristalina Georgieva has been selected as the new managing director of the International Monetary Fund.

Ms Georgieva, who was previously chief executive of the World Bank, becomes the first person from an emerging economy to lead the IMF.

She will succeed Christine Lagarde, who is leaving to become head of the European Central Bank (ECB).

Ms Georgieva was the only nominee for the job.

Who is Kristalina Georgieva?

The 66-year-old economist, the daughter of a civil engineer, studied political economy and sociology at the Karl Marx Higher Institute of Economics in Sofia while Bulgaria was still under communist rule.

After graduating in 1976, she got her first taste of capitalism in the UK, as a British Council scholar at the London School of Economics.

Since then, she has built up a strong background in the World Bank and the European Commission, having held various senior roles in both institutions.

She was commissioner in charge of the EU budget before she left to join the World Bank in January 2017.

The head of the IMF has traditionally been a European since the IMF was created in 1945.

Normally, she would have been considered too old for the job. But following pressure from France, the IMF waived its 65-year-old age limit for applicants.

What can we expect from her tenure at the IMF?

Ms Georgieva has been appointed for a five-year term, starting on 1 October.

Speaking after her selection by the IMF's executive board, she described herself as "a firm believer in its mandate to help ensure the stability of the global economic and financial system through international co-operation".

https://ichef.bbci.co.uk/news/320/cpsprodpb/12E36/production/_108966377_georgieva_rtr.jpg
Reuters

She added: "It is a huge responsibility to be at the helm of the IMF at a time when global economic growth continues to disappoint, trade tensions persist, and debt is at historically high levels."

She said the IMF's long-term aim was to support sound monetary, fiscal and structural policies to build stronger economies and improve people's lives.

"This means also dealing with issues like inequalities, climate risks and rapid technological change," she said.

"My goal is to further strengthen the Fund by making it even more forward-looking and attentive to the needs of our members."
From: https://www.bbc.com/news/business-49833220

Cara

26th September 2019, 07:30

Also posted here: http://projectavalon.net/forum4/showthread.php?p=1315737#post1315737

A tweet from Catherine Austin Fitts yesterday (25 September 2019):

CatherineAustinFitts
@TheSolariReport
Big Money Game = WTO designation of China as developing or developed

EDUARDO VINANTE, CPN
@evinante
Pay attention to this: the world is increasing demanding #China to be treated as a #developed #country as it flexes its muscles.

The geopolitical push will make it harder for China to expand markets as was the past.

~~~

There is some media narrative about getting China’s status at the WTO changed or about challenging the WTO itself. I have read elsewhere that there are ongoing US moves against the WTO. It could be an attempt to address both.

Australia PM joins Trump calling for China to drop 'developing economy' status

(Reuters) - Global trade rules are "no longer fit for purpose" and must be changed to accommodate China's new status as a developed economy, Australian Prime Minister Scott Morrison said in a major foreign policy speech in the United States.

The global community had engaged with China to help it grow but now must demand the world's second-largest economy bring more transparency to its trade relationships and take a greater share of the responsibility for addressing climate change, Morrison said.

"The world's global institutions must adjust their settings for China, in recognition of this new status," said Morrison in a speech to the Chicago Council on Global Affairs, referring to China as a "newly developed economy".

"That means more will be expected of course, as has always been the case for nations like the United States who've always had this standing," Morrison said in the speech, according to transcript provided to Reuters.

Global trade rules were "no longer fit for purpose" and in some cases were "designed for a completely different economy in another era, one that simply doesn't exist any more", he added.

Referring to China as a newly developed economy marks a change from Beijing's self-declared status as a developing economy, which affords it concessions such as longer times to implement agreed commitments, according to the World Trade Organization (WTO).

It also puts Australia into line with a campaign led by U.S. President Donald Trump to remove China's developing nation status. In an April 7, 2018 tweet, Trump wrote that China was a "great economic power" but received "tremendous perks and advantages, especially over the U.S."

Morrison has previously urged China to reform its economy and end a trade war with the United States but has until now stopped short of taking a public position on its WTO status.
...
More and from: https://mobile-reuters-com.cdn.ampproject.org/c/s/mobile.reuters.com/article/amp/idUSKBN1W9010

This may all be media noise because here is what is said on the WTO website. I guess it depends on how costly the agreements are to implement and what is the value of having extra time to implement agreements.

Definition of a “developing country” in the WTO

How is the selection made?
There are no WTO definitions of “developed” and “developing” countries. Members announce for themselves whether they are “developed” or “developing” countries. However, other members can challenge the decision of a member to make use of provisions available to developing countries.

What are the advantages of “developing country” status?
Developing country status in the WTO brings certain rights. There are for example provisions in some WTO Agreements which provide developing countries with longer transition periods (https://www.wto.org/english/tratop_e/devel_e/dev_special_differential_provisions_e.htm#legal_provisions) before they are required to fully implement the agreement and developing countries can receive technical assistance.

That a WTO member announces itself as a developing country does not automatically mean that it will benefit from the unilateral preference schemes of some of the developed country members such as the Generalized System of Preferences (GSP). In practice, it is the preference giving country which decides the list of developing countries that will benefit from the preferences. For more information about the GSP, see the United Nations Conference on Trade and Development (UNCTAD)’s website (http://www.unctad.org/Templates/Page.asp?intItemID=1418&lang=1), (opens in a new window).
From: https://www.wto.org/english/tratop_e/devel_e/d1who_e.htm

silvanelf

26th September 2019, 12:50

Same here: I am neither an economist nor a financier.

This seems a fairly significant financial event. The US Federal Reserve has three days in a row now injected funds into the market. The explanation is that this is to keep interest rates low.

I am not sure I understand why this is necessary now - i.e. what changed that makes this needed? Which financial players are no longer injecting funds into the market that the US Fed now has had to do this?

The cause seems to be a liquidity squeeze. Take a look at the repo market. First of all, an explanation of that obscure word:

repo

A repurchase agreement (repo) is a form of short-term borrowing for dealers in government securities. In the case of a repo, a dealer sells government securities to investors, usually on an overnight basis, and buys them back the following day.

https://www.investopedia.com/terms/r/repurchaseagreement.asp

Here is a general explanation, the second link -- published one week ago -- contained an amazing prediction regarding the repo market this week.

zerohedge
Tue, 09/17/2019

Bottom line: even if the Fed does nothing tomorrow, convinced that today's repo was sufficient to put out the funding fire, things will be relatively normal... until next Tuesday when the blowout in repo rates is likely to repeat.

The article below explains what's wrong with the whole financial system! Emphasis is mine.

The Real Story Of The Repo Market Meltdown, And What It Means For Bitcoin

Last week the financial system ran out of cash. It was a modern version of a bank run, and it’s not over yet. Stepping back, it reveals two big things about financial markets: first, US Treasuries are not truly “risk-free” assets, as most consider them to be, and second, big banks are significantly undercapitalized. The event doesn’t mean another financial meltdown is necessarily imminent—just that the risk of one is heightened—since the brush fire can be doused either by the Fed, or by the banks raising more equity capital. However, it provides a “teachable moment” regarding systemic fragility and anti-fragility.

What’s Happening, In Plain English?

Somebody—probably a big bank—needs cash so badly that it has been willing to pay a shockingly high cost to obtain it. That’s the layman’s explanation of what’s happening. Interest rates have betrayed common sense—interest rates in the repo market should be lower than rates in unsecured markets, for example, because repos are secured by assets and thus supposedly lower-risk. But repo rates spiked way above unsecured lending rates last week, even for “risk-free” collateral such as US Treasuries.

Today In: Money

But US Treasuries are not risk-free. Far from it. (By this, I’m not referring to the US potentially defaulting on its debt obligations. Rather, I’m referring to the practice in the repo market that allows more people to believe they own US Treasuries than actually do. It’s called “rehypothecation.”)

Why was someone willing to borrow cash at a 10% interest rate last Tuesday, in exchange for pledging US Treasury collateral that yields only 2% or less? That trade lost someone a whopping 8% (annualized) overnight, but presumably the trade allowed the bank to stay in business for another day. As risk premiums go, 8% is shockingly high—for a supposedly risk-free asset!

-- snip --

The Elephant In The Room

For every US Treasury security outstanding, roughly three parties believe they own it. That’s right. Multiple parties report that they own the very same asset, when only one of them truly does. To wit, the IMF has estimated that the same collateral was reused 2.2 times in 2018, which means both the original owner plus 2.2 subsequent re-users believe they own the same collateral (often a US Treasury security).

-- snip --

This is the real reason why the repo market periodically seizes up. It’s akin to musical chairs—no one knows how many players will be without a chair until the music stops. Every player knows there aren’t enough chairs. Everyone knows someone will eventually lose.

-- snip --

https://www.forbes.com/sites/caitlinlong/2019/09/25/the-real-story-of-the-repo-market-meltdown-and-what-it-means-for-bitcoin/#6733067a7caa

What Happens Next In Repo? The World's Biggest Interdealer Broker Explains

Tue, 09/17/2019

When it comes to the shady events in the shadow banking world of collateral assets and repurchase agreements, nobody does it better than interdealer broker, ICAP, which is not only intimately familiar with just how the Fed's plumbing vision takes place in the real world, but also happens to be the go to firm for pricing on such suddenly critical market stress indicators as repurchase rates.

And sure enough, it was none other than ICAP which first - correctly - said this morning when overnight G/C repo hit 10%...

https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/inline_image_desktop/public/inline-images/overnight%20repo.png?itok=Y9-Vg1Bw

-- snip --

Bottom line: even if the Fed does nothing tomorrow, convinced that today's repo was sufficient to put out the funding fire, things will be relatively normal... until next Tuesday when the blowout in repo rates is likely to repeat.

https://www.zerohedge.com/markets/64-trillion-question-what-happens-next-repo

Cara

27th September 2019, 06:31

Thanks Silvanelf, those articles and quotations were very helpful.

This one in particular was very interesting (your emphasis removed and further snips from me):

...
The article below explains what's wrong with the whole financial system! Emphasis is mine.

The Real Story Of The Repo Market Meltdown, And What It Means For Bitcoin

Last week the financial system ran out of cash. It was a modern version of a bank run, and it’s not over yet. Stepping back, it reveals two big things about financial markets: first, US Treasuries are not truly “risk-free” assets, as most consider them to be, and second, big banks are significantly undercapitalized. ...

What’s Happening, In Plain English?

Somebody—probably a big bank—needs cash so badly that it has been willing to pay a shockingly high cost to obtain it. ... But repo rates spiked way above unsecured lending rates last week, even for “risk-free” collateral such as US Treasuries.

Today In: Money

But US Treasuries are not risk-free. Far from it. (... I’m referring to the practice in the repo market that allows more people to believe they own US Treasuries than actually do. It’s called “rehypothecation.”)

Why was someone willing to borrow cash at a 10% interest rate last Tuesday, in exchange for pledging US Treasury collateral that yields only 2% or less? That trade lost someone a whopping 8% (annualized) overnight, but presumably the trade allowed the bank to stay in business for another day. As risk premiums go, 8% is shockingly high—for a supposedly risk-free asset!

-- snip --

The Elephant In The Room

For every US Treasury security outstanding, roughly three parties believe they own it. ...

-- snip --

This is the real reason why the repo market periodically seizes up. It’s akin to musical chairs—no one knows how many players will be without a chair until the music stops. Every player knows there aren’t enough chairs. Everyone knows someone will eventually lose.

-- snip --

https://www.forbes.com/sites/caitlinlong/2019/09/25/the-real-story-of-the-repo-market-meltdown-and-what-it-means-for-bitcoin/#6733067a7caa

...

In addition to the musical chairs phenomenon described above, I wondered whether some financial player (or players) might have been attacking the US markets?

It does seem to be the case that market trading can be used as a kind of economic warfare (for instance there are examples of national currencies in emerging economies being sold short etc. as a means to induce some kind of “compliance”). I don’t know if this would be possible with the US Repo though and those players would have had to have very deep pockets to afford the 8% mentioned above.

~~~

More on the repo rate liquidity funding is in the following article. Morgan Stanley says the US Federal Reserve might have to continue this type of activity:

The Fed will need to grow its balance sheet 'permanently,' Morgan Stanley says
Jeff Cox | @JeffCoxCNBCcom Published 14 Hours Ago Updated 10 Hours Ago CNBC.com

The Federal Reserve will have to maintain permanent operations in its efforts to stabilize short-term lending markets and keep its target borrowing rate in check, Morgan Stanley says.The result is projected to be a $315 billion balance sheet expansion over the next six months.Morgan Stanley sees the Fed buying a combination of short-term Treasury bills and notes across the duration spectrum.

The Federal Reserve's asset purchases likely will total $315 billion over the next six months as it seeks to stabilize overnight funding markets and contain the movements of its target interest rate, according to projections from Morgan Stanley.

Those permanent moves will be necessary because the current temporary purchases likely won't be enough to stabilize the market for overnight purchase agreements, or repos, the bank said. The Fed just a month ago halted a process that saw a more than $600 billion reduction of the balance sheet, which consists mostly of Treasurys and mortgage-backed securities that it had acquired in its efforts to pull the U.S. economy out of the financial crisis.

"We maintain that these temporary repo operations will not prove to be a sufficient long-term solution to the recent funding pressure," Morgan Stanley strategist Kelcie Gerson said in a note. "Ultimately, the Fed will need to increase the size of its balance sheet permanently."

...

The Morgan Stanley forecast is a bit smaller than one recently from Bank of America Merrill Lynch, which estimated balance sheet expansion at $400 billion this year (https://www.cnbc.com/2019/09/25/the-fed-will-be-growing-its-balance-sheet-again-but-dont-call-it-qe4.html).

The balance sheet currently stands about $3.9 trillion, pushed by three rounds of asset purchases in a process known as quantitative easing. Starting in October 2017, the Fed started allowing some proceeds from its maturing bonds to roll off each month, with a corresponding decrease of bank reserves that has taken the total down to about $1.5 trillion, the lowest in more than eight years.

Turmoil in overnight lending markets (https://www.cnbc.com/2019/09/17/fed-to-conduct-technical-repo-operation-tuesday-to-keep-its-benchmark-rate-where-it-wants-it.html) last week has led the Fed to rethink its balance sheet policy, and Wall Street now is increasingly of the belief that the asset purchases that stopped two years ago will restart again soon. Over the past week the Fed has been running a temporary purchase program (https://www.cnbc.com/2019/09/18/fed-ioer-fed-cuts-rate-on-bank-reserves-amid-repo-turmoil.html) that many market participants now expect to become permanent.

The exact composition of how the Fed will conduct the balance sheet expansion remains to be seen. Fed Chairman Jerome Powell (https://www.cnbc.com/jerome-powell/) said last week that he expects the issue to be discussed at the Oct. 30-31 meeting.

Gerson said the Fed has a number of options for how it conducts the operations, with a standing repo, or repurchase, operation one possibility. However, Gerson said there are some issues with that option that could push the central bank away from it.

The Fed is now temporarily providing cash in exchange for safe assets like Treasurys and agency debt to keep its benchmark interest rate within a target range of 1.75% to 2%. During the repo market troubles last week, the fed funds rate broke its former barrier of 2% to 2.25%.

In its more permanent effort to rebuild reserves, the Fed is likely to purchase $35 billion to $40 billion a month in short-term Treasury bills, plus about $15 billion a month in various maturities "over the next 6 months and beyond," Gerson wrote.

"This will ensure a rebuild of reserves to the longer-run level consistent with efficient and effective policy implementation," she added.
From: https://www.cnbc.com/amp/2019/09/26/morgan-stanley-fed-repo-market-requires-bigger-balance-sheet.html?__twitter_impression=true

So according to this article, the US Federal Reserve were apparently trying to reduce the balance sheet until this intervention (according to paragraph 7 above):

... Starting in October 2017, the Fed started allowing some proceeds from its maturing bonds to roll off each month, with a corresponding decrease of bank reserves that has taken the total down to about $1.5 trillion, the lowest in more than eight years.

To no avail it seems.

~~~

And we have this analysis which states that the effect is to lower the value of the US dollar:

Lisa Abramowicz
@lisaabramowicz1
The New York Fed is effectively increasing the supply of dollars in the economy with its repo operations, and will likely continue to do so. This may eventually drag on the value of the greenback: Morgan Stanley's Hans Redeker https://ft.com/content/6f6f54e2-db7d-11e9-8f9b-77216ebe1f17
41587

~~~

Some questions:

does the comment by the banks (Morgan Stanley and Merrill Lynch) constitute a request / suggestion for more permanent “balance sheet expansion”?
or is it rather a nicely orchestrated media narrative arranged between the US Fed and these banks?
was/is the US Federal Reserve repo intervention a response to some kind of economic attack?
not mentioned in the above but a speculation from me: was/is this Federal Reserve repo action a response to President Trump’s (and his backers, whoever they may be) apparent requests to weaken the US currency to benefit exporters?

Cara

28th September 2019, 14:24

This interview from February 2019 is a discussion with investment and market commentator Jeff Gundlach. I had not heard of him before this interview.

It’s interesting in both its forward and backward looking review of market sentiment and perceptions, in particular in its comparison of different “bear” markets and downturns historically.

It is mostly focussed on domestic US market issues and makes some interesting political speculations. It briefly touches on the wider international sphere, mostly in consideration of emerging markets.

Here is the audio on SoundCloud:
https://soundcloud.com/user-263854734-162601003/jeffrey-gundlach-and-the-powell-put

This is a teaser and the description of the interview shared on YouTube:
BdnGmqjE_jM

Published on Mar 8, 2019
In this wide-ranging interview with Grant Williams, Jeff Gundlach, the founder and CEO of DoubleLine Capital, provides his valuable insights on the dollar, the explosion of the corporate bond market, and the rise of ETFs and passive strategies. He also touches on politics, weighing in on what “wealth tax” proposals will mean for the 2020 election. Filmed on February 20, 2019 in Los Angeles.

About The Interview:
The Powell Put & the Bear Market Rally (w/ Jeff Gundlach) | Interview | Real Vision™
https://www.youtube.com/c/RealVisionT...

Transcript:

Hi. I'm in Los Angeles, California to sit down and have a chat with Jeff Gundlach of DoubleLine. Jeff needs no introduction. He's always got something to say. And he's one of the most cerebral money managers out there today. I'm going to talk to him about politics, the dollar, the bond market, the equity market. There's so much ground I want to cover and we've got a limited amount of his time, so let's dive straight into it.
Sure. Thanks very much. Great to see you again.
Thanks for doing this. I know you've not been well. Neither of us have been, so we'll--
It's the time of year.
It's that time of year. And a very cold Los Angeles. There's so much I want to talk to you about, but I want to start with the stock market. And there's something that has been on my mind, and that is December. Did something change in December? Or was it just a glitch as it's been nailed?
Well, I think that the attitude about Jay Powell really changed a lot during December. Well, it kind of changed twice. First it changed in a way that accelerated the stock market lower. And I think that also has something to do with year end. I think there was-- people adjust things at year end. There may be some selling and the like.
But Powell was thought to be different than the other Fed chairs.
I fell for it too.
Yeah. He was supposed to be non-academic. He doesn't have PhD in economics. And I think the word was pragmatic for Jay Powell. And then he showed up after the rate hike, at the press conference, and he sounded very different than being pragmatic. He's basically said, we're on autopilot with quantitative tightening, which is the last thing that a falling stock market needs to hear, because quantitative easing seems to be correlated with higher prices to quantitative tightening.
It is interesting that the global stock market really accelerated to the downside in October, which is when QT was ramped up to a maximum of 50 billion per month. So Powell says we're on autopilot, which the market was shocked to hear, because they thought it was pragmatic and wouldn't be rigid in his thinking. And then he also used the word models a lot-- inputs to the models. And all of a sudden he sounded as wonky as any Fed chair ever gets. And kind of detached from being pragmatic. The market didn't like that at all.
So when it accelerated-- I think about-- dropped 800 points from when he opened his mouth to the end of the press conference. And that scared him. And we had a complete 180 from the pragmatic Powell to the Powell put, which wasn't supposed to exist at all. And I don't think I can remember a rhetorical shift so rapid and so major from a Fed chair, because just a few days later, with the stock market in freefall, it's all about patience. And I didn't really ever say really that we were close minded on quantitative tightening.

The full interview (no transcript or video, only audio) at the SoundCloud link above.

Cara

30th September 2019, 06:24

Here’s another interview from the same YouTube channel as the post above - RealVision.

This one is with Michael Howell. His approach is to view the global economy from a liquidity perspective. He talks about a “quick recession” and predicts that there will be more quantitative easing from central banks. More in the transcript below.

Zeu9cqJPN14

Published on Sep 14, 2019
Michael Howell, founder and managing director of Crossborder Capital, joins Real Vision to talk about his views on global liquidity and capital flows. He says that the global economy is sputtering, and that central banks will have to reengage in quantitative easing in order to inject liquidity into markets. Howell argues that this will ultimately lead to rallies in equities, gold, bonds and bitcoin. Filmed on August 7, 2019 in London.

...

Will Central Banks Use QE to Prevent a Liquidity Crisis? (w/ Michael Howell)
https://www.youtube.com/c/RealVisionT...

For the transcript visit: https://rvtv.io/2ISs6L6

Transcript:

00:05
MICHAEL HOWELL: The world's financial system is no longer a new money raising system. It's effectively a refinancing mechanism. And if it's a refinancing mechanism, what you need is balance sheet, in other words, size. You're not too worried about the level of interest rates.
00:22
There'll be a lot of pressure being put on the Federal Reserve now to try and cap any dollar appreciation by printing money.
00:29
So effectively, we're in a currency war, but the gold price comes out of this magnificently. And cryptocurrencies, which are pure liquidity play, should do extremely well.

01:04
I'm Mike Howell. I'm Managing Director of Crossborder Capital. We're a fund management and research company based in London. My background prior to that was that I was at Salomon Brothers involved in research. And what we focus on almost entirely is global liquidity and capital flows worldwide.

01:23
What's your macro thesis?
01:26
We think that the world economy is clearly stuttering. It needs a boost. Central banks have been behind the curve. They've basically been tightening too much collectively over the last few months. And what they're going to have to do is to embark on a major easing program. In other words, another QE. That is very bullish for gold. And it's pretty bullish for cryptocurrencies, too.

01:47
Can you explain the context of China's slowdown?
01:50
Yeah, I think one has to go back actually quite a long time or one's going to look at what happened to China starting in 2001, when China was allowed into the world trade organization. As a result of that China built up a huge trade surplus over time. It developed Chinese economy. China became very, very export-driven. And the US accommodated China, accommodated Germany too. But effectively, China was being accommodated by the US trade deficit.
02:18
America is now saying enough is enough. They're no longer prepared to accommodate these big deficit diet China surplus. And this is the background to the tariff dispute. China was reacting to that. America imposed 10% tariffs, I believe, on the 17th of September, within five days, China went and started to tighten monetary policy. Through October, China hit the monetary base very, very hard and curtailed liquidity injections into Chinese money markets. We've seen the biggest slump in liquidity in these Chinese money markets that we've seen for five years probably, and effectively, that is slowing the economy hard.
03:00
Now, if you look at the backdrop, not only is Chinese manufacturing slowing down significantly in the Chinese economy, but China dominates global value chains, in other words, supply chains globally. And as China has slowed down, world exports have also shrunk. And that has hit manufacturing companies worldwide, but particularly in those locations that are involved in these supply chains. In other words, Japan, Taiwan, Korea, and Germany. And those markets have been among the hardest hit through the slowdown. America and service industry generally have come out of this relatively unscathed.

03:41
What are market crevasses?
03:43
We've described the market outlook, in other words, the stock market outlook as a market which is generally rising, but there is risk of very sharp selloff, so what we call crevasses. To protect against that, what you need in portfolios is effectively more bond convexity. Now, what's the reason that you're getting these major selloffs? The major reason really goes back to the restructuring of the global financial system, really in the wake of the GFC, the Global Financial Crisis in 2008.
04:11
We know there's a big buildup of debt, but debt needs to be refinanced. And the way to think about this is that the world financial system is no longer a new money raising system. It's effectively a refinancing mechanism. And if it's a refinancing mechanism, what you need is balance sheet. In other words, size. You're not too worried about the level of interest rates. So, the focus that the markets have and the media has on interest rate cuts, we think are broadly meaningless. What you need to understand is the volume of liquidity markets. In other words, balance sheet size, and in particular, if the private sector is not coming up with balance sheet with central bank balance sheet.
04:52
Now, the key issue with the private sector, which is what makes the whole system a lot more fragile, and contributes to these crevasses is essentially that there was a shortage of safe assets in the system. Now, what do we mean by this? Safe assets are basically high quality bonds, particularly Treasuries, particularly US Treasuries, but to some extent, corporate securities have crept into that collateral mix. And the reason they crept in is there are insufficient Treasuries in the system to provide collateral.
05:23
Most lending now is collateral-based. And the reason for that is that what you have is some very, very big new players in the markets, which we call corporate institutional cash pools that basically come out of foreign exchange reserve managers in Asia, or they come out of US corporates that are running major Treasury piles of cash. And what they need are safe short-term assets to invest in in the money markets. And effectively, what's happening is that the bonds are being repoed and sold back to the CICPs, and that is the mechanism of refinancing.
05:57
That works very well until you started collateral problems. And collateral problems can occur if you get an economic slowdown, for example, and the value of the corporate slice of that collateral tranche comes under pressure. And then the whole liquidity mechanism collapses. That's what we've seen a number of times. We saw it clearly in 2008 with mortgage backed securities. We saw it again briefly in 2018 in December when markets sold off.
06:26
And what's happened every time is the central banks have come in, particularly the Federal Reserve. And that's what happened through December and January. And this is the basis for changing central bank policy now. They're beginning to realize that behind the curve, liquidity has been way, way too tight. And now, what you're seeing is central banks beginning to ease but the leader is the People's Bank of China.

06:49
How tight are the central banks?
06:52
One of the ways that you can gauge the tightness of the US system is to compare Fed Funds Rate, which everybody knows, with the term premia, which is a slightly wonkish concept, but it's the premium that investors prepared to pay for long-term debt, long-term Treasury debt in the US, compare that to the Fed Funds Rate. Normally, the two move extremely closely together. But effectively in the last two years, term premia have collapsed relative to Fed Funds. The collapse in term premier is equivalent to a significant or it implies a significant monetary tightening. And that monetary tightening could be equivalent, on our estimates, to a Fed Funds Rate which looks at around about 5% points. So way, way above reported levels.

07:41
Has China changed its policy to re-ignite stimulus?
07:45
We think China has changed policy. And we think that the decisive move was around mid-May. Now, the geopolitical background of that time was right across the Chinese media, there are reports from Xi Jinping of three red lines that the Chinese put down that say they would no longer negotiate on these three aspects of the trade dispute with America. And those red lines meant that America effectively had to now yield, China wouldn't yield. And they're not going to go back on this because it would be a huge loss of face. In other words, this seems to be a very significant watershed in the whole trade tariff dispute.
08:23
What China did at the same time was to start to inject liquidity back into their money markets. Effectively, what they're saying is, we are ignoring trade. We are starting to stimulate the domestic economy. And we don't really care if the yuan now devalues. The reality is here with us now because the yuan has broken 7 against the US dollar. The magic 7 number.
08:46
China reside to plow money back through the money markets, liquidity injections by the People's Bank that has persisted through May, June, July and into August, and then they're backing that up with other measures of fiscal stimulus infrastructure programs and a lot more is likely in the pipeline.

09:04
How targeted is China's stimulus?
09:07
It is more targeted. It's looking much more at infrastructure programs as far as one can tell at the moment. It's been given certainly to the state-owned banks, and they'll be generally at more into state-owned enterprise. Now, I want to stress here that this is not a first best solution. This is the second best solution. China cannot continue to keep getting growth through debt. We know that. But in the short term, this is the reality that is happening.
09:33
The Chinese economy needs to get between 6% and 6.5% growth a year. China has estimated that the trade dispute could cost it 1.5% points in GDP every year that this persists. It pushed the growth rate significantly below their targeted rate. And therefore, they need to rebalance to get the growth rate up. And hence the stimulus.
09:58
Other central banks will follow the Chinese lead simply because of China's importance in the world economy and the importance of the yuan in terms of a currency within these global value chains. Essentially, what you're seeing at the moment is as China has devalued and started to push in more liquidity, you've seen devaluations generally of companion currencies or peer currencies against the US dollar. Other countries that are experiencing fallout from the slowdown in China will want to try and boost their economies.
10:30
And so we're starting to see an increasing debate in Asia and in Europe about easy monetary policy, already a lot of countries, for example, Australia, are already doing that. The Federal Reserve is starting to cut interest rates. But the most important thing that the Federal Reserve can do is to expand liquidity. And that's what it's doing.
10:49
Now the $64,000 question, which comes back to the dollar is will America allow the US currency to appreciate? In other words, to put it another way, other units to devalue again the US unit? And that with the answer that we think is no. In other words, there'll be a lot of pressure being put on the Federal Reserve now to try and cap any dollar appreciation by printing money. So effectively, we're in a currency war, and every currency, every economy is trying to leapfrog every other economy in terms of monetary ease.
11:21
Who wins out of that? Financial assets should generally do pretty well. But the gold price comes out of this magnificently. And cryptocurrencies, which are pure liquidity play should do extremely well.

11:33
Will we see another coordinated currency accord?
11:36
We call this Shanghai 2.0, which parallels the Shanghai Accord that occurred in early 2016 following the G20 meetings. After those meetings, the G20 countries agreed to stimulate their economies. And that broadly came through in terms of central bank balance sheet expansion, or what we call QE. That launched an equity rally. Equity markets rallied strongly through the back end of 2016, through 2017 and until they hit the hiatus in 2018.
12:08
This is happening again. It is not coordinated this time around, but it's coinciding. It's coinciding, because every country is now trying to react to the slowdown, which we say is China-induced by basically trying to stimulate their economies. And as each one tries to beggar thy neighbor, so to speak, you get a general lift in liquidity worldwide.

12:32
What will the Fed have to do?
12:35
There'll be a lot of pressure now for the US currency's rise, particularly if other countries are beginning to leapfrog the US in terms of monetary easing. Therefore, the US has to keep up. And we think the pressures will start to build on the Federal Reserve and the Treasury to try and maintain dollar parity at current levels. And that will mean more monetary stimulus coming through. So there'd be a lot of pressure on the Federal Reserve to do even more QE.
12:58
The point is against this ground, where generally central banks are easing, this is the environment where equity markets tend to do pretty well. The best time for investors in equities are when central banks are trying to stimulate economies that are very sluggish, such as now. There's a lot of competition now to see who needs the most. And unless the US matches other major economies, you're going to start to see the US dollar rise. And that's something that the administration clearly doesn't want, so they're putting a lot more pressure on the Federal Reserve to expand the QE programs.
13:32
In terms of what this will actually mean, we think there'll be a significant easing of policy. To try and put it into perspective, probably you're going to see the equivalent of 100 basis points of US rates that will be bullish certainly for the front end of the yield curve. It will mean that the yield curve likely steepens and there is a chance that long yields could come down as well. But generally in this environment, when central banks are trying to stimulate economies that are very sluggish, equity markets are the big winners.

14:04
Will monetary easing increase growth or just asset prices?
14:08
Can we grow away out of a slump with credit or debt alone? And the answer is probably not. But it does help to alleviate some of the symptoms. What you're likely to get is much stronger financial asset prices. In other words, if you look at equity markets, we can't expect very much from the E, but the P can expand probably quite significantly. And generally speaking, as far as we can see, well, the equity markets, while not being cheap, are comparatively inexpensive.
14:36
What the big danger for markets is, is if you get a major cracking liquidity as we saw previously in 2008. Now, we don't think that's on the cards, because basically central banks are now beginning to act. That's clearly something one has to watch very carefully.
14:50
Equity markets generally should do pretty well in this environment. And if we're correct, then what we're looking at is what we've termed a quick recession. In other words, investors prepare to look through the outside. What you could easily get is a rally in value with cyclical stocks which have clearly been under great pressure in the last 12 to 18 months. If you look worldwide, we think there is scope for Asia to rebound based on this China reflation trade. And there is scope for Europe to rebound based on what the ECB is likely to do. And in particular, when Christine Lagarde gets into the helm of the ECB, it is likely that there will be some significant easy moves there too.
15:30
I don't think there's any good price inflation in the system. We're in a secular disinflationary environment, which is being compounded by the fact that you've got long-term demographic problems. There simply is excess supply in the world economy. Therefore, if liquidity goes into the system, what you will get is further asset price inflation. And that's the name of the game.
15:52
There's a good chance that bond yields could go down. Now, this is a very dangerous trade. And I think that one has to say wholeheartedly that buying bonds on negative and very low yields, on what could only be a 2, 3 or 5-year view, is a crazy investment. But more and more investors are being browbeaten into doing it. And the reason being is that there is a shortage, a structural shortage of duration in the world economy, and particularly in the US system.
16:20
And what that means is that the duration of US pension liabilities is, for example, around 20 years, whereas the duration of the assets is around 10 years. Now, a lot of pension plans have been holding off, closing that duration gap, because they feel, they believe that bond yields already are too low. But there's a pain trade. And the lower the bond yields get, the more that those plan sponsors will begin to capitulate, and start to buy more bonds. And that's when you cook in a downside flip.
16:51
So there's a very clear asymmetry in the system, because investors will be browbeaten into buying bonds as the yields drop. So it's what he's called in the pound's negative convexity. And that could be a problem. In other words, even though this environment would seem to be unfavorable for bonds, because normally when central banks ease, yield curve steepen. We could be in an environment where actually the curve steepens, but across all maturities, the entire term structure drops.
17:21
Commodities in our view should go up. And I think there's a very interesting parallel here with maybe what went on in the 1930s. Now, it's always very dangerous to go back and look at history. But one of the things that seems to be underway is that the Trump administration is trying to divide the world in two. In other words, there's a China-based system, and there's an American-based system. And in other words, there's a lot more that comes after this trade dispute. In other words, there's attempts to try and divide the world economy. And that was more or less what was happening in the 1930s.
17:52
In that environment, in the 1930s, there was a scramble for resources. And that may be what's on the cards now. A lot of variant TV commentators, I admit, take a very different view. And they say, what's going on is that you will see commodity prices collapse if China is decoupled from the US system. It's possible. There's a logical case for that. But I think the opposite could happen. And with a lot of central bank liquidity being plowed back into the system, I think it's much more likely the commodity prices will rise. The bellwether of that is the gold price. Gold normally leads other commodity prices by around 9 to 12 months. And I don't see any reason why that shouldn't happen now. any reason why they shouldn't happen now.

18:34
What about the US dollar?
18:37
There's a real risk here of the US dollar going up, and the dollar could easily overshoot. And that's one of the dangers one's got to be alert to. Because a stronger dollar is unambiguously negative for global liquidity, because it represents a big monetary tightening. We think the Federal Reserve will try and stop that. It's not in the administration's interest to allow the dollar to appreciate. And we think the pressure on the Federal Reserve will build.
19:03
Now one of the things one got to think about in the background here, both for China and for the US, and for their political leaderships, they face elections, both of them in the next 12 to 18 months, even Xi Jinping as it happens. Although he's been installed as paramount leader for arguably two decades, the reality is that he has to face the politburo for very important debates in 2021. And China is trying to attain what is called middle income status on World Bank numbers.
19:36
And that has been a goal for the Chinese administration. Xi Jinping needs to get that. He needs growth. Trump needs to be reelected. He wants growth. So there'll be a lot of pressure on the policymakers to try and deliver growth for both those two economies.

19:51
When does the US-China trade dispute get resolved?
19:55
Trade is unquestionably the paramount issue. And markets are understandably skittish about the worsening in the trade environment. One looks at the media, the odds continually go up. Everyone's trying to make this trade situation look worse and worse and worse. But it's been very much in China and the US' interest to resolve the trade issue relatively quickly because both leaders need strong economies going into 2020.
20:22
What we think the outcome will likely be is that probably by the end of this month, the end of August, come early September, the cost will be set in terms of Federal Reserve ease. What you're already seeing in terms of the Federal Reserve balance sheet is a significant step having liquidity injections. China, as we noted, is already doing that, we just got to wait for the ECB and Bank of Japan to come in.
20:45
In other words, liquidity is starting to flow into the system now and it normally tends to lead financial markets by around about 3 to 6 months. And therefore, certainly by Q4, markets, we think should be beginning to move strongly upwards again. I think we ought to be under no particular illusions that more liquidity doesn't create growth. It will stabilize economies, it can flatten out the cycle, but it doesn't increase productivity in any way. And it doesn't add to long term economic growth.
21:15
In other words, what it does is it affects in equity markets, the P multiple, it doesn't necessarily affect the E in terms of long term trend in E very much. The problem the world economy has got is it's saddled by debt, and it's saddled by ageing populations. And the West is facing pronounced competition from emerging markets and China. And that broadly is why we've got a secular low growth rate. Liquidity is not going to change that, but it may make us feel better.

21:43
Which assets should one consider buying?
21:47
What we're looking at is effectively a correction of the selloffs. And if we are correct and we've called this the quick recession, China is now easing and trying to stabilize its economy. What you will see is a lot of those markets who have sold off very heavily in the wake of this China slowdown are the ones that could bounce back pretty significantly. But Australia's already had a very big bounce through this year so far, but you're likely to see Europe rebounding strongly, Korea rebounding, and Japan.

22:16
So what's your macro thesis then?
22:19
Punch line unquestionably is watch liquidity. Liquidity is the most important thing in the global economy and global financial markets right now. What do you buy? You buy gold. If you look at global liquidity, it's clearly a very difficult thing to measure and to monitor. We do that systematically and professionally. So we cover 80 countries worldwide. But clearly, everybody can't do that.
22:41
What are the signs that liquidity is moving into markets? Broadly, what we would say is to look at probably three things. One is to look at the price of gold. Gold is a very sensitive asset class. Equally, I've mentioned cryptocurrency, but let's stick with gold. Gold, if gold goes up, it's a sign that liquidity is moving into markets.
23:01
The second thing is to look at the slope of the yield curve. Yield curves always steepen 6 months after liquidity conditions start to improve. And that is a rule, which has worked for 3, 4 decades. It's a very clear rule. Steepening yield curves mean more liquidity, flattening yield curves mean tightening liquidity. Yield curves at the longer end of markets, so looking at the 5 to 10-year spreads or 35 spreads already beginning to steepen. And that's a sign that liquidity is bottoming out and picking up.
23:36
And the third thing to look at, which is sign, if you like, if tension or stress is the corporate credit spread in the US. And the reason for looking at that is if that spread begins to widen out, there is a risk of a crevasse vast in markets, as we warned, because the whole collateral system is fragile and it rests a lot on the integrity of US corporate debt, which is held as marginal collateral. So if credit spreads widen, then you could see a pushback and liquidity could drop. So what I would like to see is rising gold, steepening yield curves, and flat to narrowing US corporate spreads.
From: https://www.realvision.com/tv/shows/the-expert-view/videos/countering-the-global-liquidity-crunch

~~~

This to me is a very significant statement:

the Trump administration is trying to divide the world in two. In other words, there's a China-based system, and there's an American-based system. And in other words, there's a lot more that comes after this trade dispute. In other words, there's attempts to try and divide the world economy. And that was more or less what was happening in the 1930s.

silvanelf

30th September 2019, 17:30

This to me is a very significant statement:

the Trump administration is trying to divide the world in two. In other words, there's a China-based system, and there's an American-based system. And in other words, there's a lot more that comes after this trade dispute. In other words, there's attempts to try and divide the world economy. And that was more or less what was happening in the 1930s.

What if ... the trade war is in reality an already ongoing process of economic decoupling between US and China?

Delisting Chinese firms from US stock markets appears as a major escalation of the trade war. Take a look at the news:

Trump considers delisting Chinese firms from U.S. markets: sources

WASHINGTON (Reuters) - President Donald Trump’s administration is considering delisting Chinese companies from U.S. stock exchanges, three sources briefed on the matter said on Friday, in what would be a radical escalation of U.S.-China trade tensions.

-- snip --

China says it cannot allow its companies to submit to oversight by PCOAB because of rules prohibiting the storage, processing or transfer of any material considered to be state secrets or national security matters.

U.S. hedge fund manager Kyle Bass, a prominent critic of China, said on Friday that Chinese companies should have to play by U.S. rules if they want to sell to U.S. investors.

https://www.reuters.com/article/us-usa-trade-china-limits/trump-considers-delisting-chinese-firms-from-u-s-markets-source-idUSKBN1WC1VP

An article which represents the Chinese view -- emphasis is mine:

An economic decoupling from the United States is looking more likely and China should get ready, scholars in Beijing warned on Saturday, a year after US President Donald Trump fired the first shot in the trade war.

The break-up of the world’s two biggest economies was gradually becoming a real possibility as Beijing and Washington clashed over issues beyond trade and the White House sought to push China out of global value chains, according to Li Xiangyang, director of the National Institute of International Strategy, a think tank under the Chinese Academy of Social Sciences.

“This economic decoupling is completely possible, in theory,” Li told a symposium on the trade war at Renmin University of China on Saturday.

[...]

“The ultimate target [of the United States] is to contain China’s rise … this is a life-or-death game [for them],” Li said, adding that decoupling could be seen as “strategic blackmail” for Washington to try to prevent China from growing stronger.

He made the remarks as debate heats up in both the US and China about a potential economic decoupling.

Chinese President Xi Jinping told an economic forum in St Petersburg last month that he did not want a decoupling from Washington, and he doubted Trump did either.

https://www.scmp.com/news/china/article/3017550/chinese-economists-warn-beijing-prepare-decoupling-us

Cara

2nd October 2019, 07:45

...What if ... the trade war is in reality an already ongoing process of economic decoupling between US and China?...

Thanks Silvanelf, that's an important wider context.

And your question and articles you shared remind me of a piece written by Alastair Crooke published 18 December 2018:

America’s Technology and Sanctions War Will End, by Bifurcating the Global Economy
Alastair Crooke, Strategic Culture Foundation, 18 Dec 2018

“The true reason behind the US-China ‘trade’ war has little to do with actual trade … What is really at the basis of the ongoing civilizational conflict between the US and China … are China’s ambitions to be a leader in next-generation technology, such as artificial intelligence (AI), which rest on whether or not it can design and manufacture cutting-edge chips, and is why Xi has pledged at least $150 billion to build up the sector”, Zerohedge writes (https://www.zerohedge.com/news/2018-12-10/what-trade-war-china-really-about).

Nothing new here: yet behind that ambition, lies another, further ambition and a little mentioned ‘elephant in the room’: that the ‘trade war’ is also the first stage to a new arms race between the US & China – albeit of a different genre of arms race. This ‘new generation’ arms-race is all about reaching national superiority (https://www.zerohedge.com/news/2018-05-25/heres-when-china-will-win-arms-race-us-and-how-bofa-trading-it) in technology over the longer-term, via Quantum Computing, Big Data, Artificial Intelligence (AI), Hypersonic Warplanes, Electronic Vehicles, Robotics, and Cyber-Security.

The blueprint for it, in China, is in the public domain. It is ‘Made in China 2025’ (now downplayed (https://www.zerohedge.com/news/2018-12-12/giant-trade-war-concession-china-prepares-replace-made-china-2025), but far from forgotten). And the Chinese expenditure commitment ($ 150 billion) to take the tech lead - will be met ‘head on’ (as Zerohedge puts it (https://www.zerohedge.com/news/2018-05-25/heres-when-china-will-win-arms-race-us-and-how-bofa-trading-it)), “by a [counterpart] ‘America First’ strategy: Hence the ‘arms race’ in tech spending … is intimately linked with defence spending. Note: military spending by the US and China is forecast by the IMF to rise substantially in coming decades, but the stunner is: that by 2050, China is set to overtake the US, spending $4tn on its military, while the US is $1 trillion less, or $3tn … This means that sometime around 2038, roughly two decades from now, China will surpass the US in military spending.”

This close intimacy between tech and defence in US future defence thinking is plain: It is all about data, big data and AI: A Defense One article (https://www.defenseone.com/technology/2016/09/how-us-air-force-rapidly-mobilizing-cyber-war/131746/) makes this very clear,

“The battle domains of space and cyber are divorced, largely, from the raw physical reality of war. To Hyten [Gen. John E. Hyten, who leads US Air Force Space Command], these two uninhabited spaces mirror one another in another way: They are fields of data and information and that’s what modern war runs on. “What are the missions we do in space today? Provide information; provide pathways for information; in conflict, we deny adversaries access to that information,” he told an audience on Wednesday at the Air Force Association’s annual conference outside Washington, D.C.. The same is true of cyber.

The U.S. wages war with tools that require a lot of information … Inevitably, more adversaries will eventually employ data-connected drones and gunships of their own. The heavy information component of modern-day weapons, particularly that those wielded by air forces, also creates vulnerabilities. Air Force leaders this week discussed how they are looking to reduce the vulnerability for the United States while increasing it for adversaries”.

So, the ‘front line’ to this trade/tech/defence war, effectively pivots about who can design - and manufacture - cutting-edge, semi-conductors (since China already has the lead in Big Data, Quantum computing, and AI). And, in this context, General Hyten’s comment about reducing US vulnerability, whilst increasing it for adversaries takes on major significance: For Washington, the plan is to ramp up export controls (i.e. ban the export) of so-called ‘foundational technologies’ — those that can enable development in a broad range of sectors.

And the equipment for manufacturing chips, or semi-conductors – not surprisingly - is one of the key ‘target areas’ under discussion.

Export controls though, are just one part of this ‘war’ strategy of ‘data denial’ to adversaries. But semi-conductors is one field in which China is indeed vulnerable: since the global semiconductor industry rests on the shoulders of just six equipment companies, of which three are based in the US. Together, these six companies make nearly all of the crucial hardware and software tools needed to manufacture chips. This implies that an American export ban would choke off China’s access to the basic tools needed to manufacture their latest chip designs (though China can retaliate by choking-off the supply of Raw Earth, upon which sophisticated tech, is reliant).

"You cannot build a semiconductor facility without using the big major equipment companies, none of which are Chinese,” said Brett Simpson (https://www.zerohedge.com/news/2018-12-10/what-trade-war-china-really-about), the founder of Arete Research, an equity research group. And, as the FT, notes, the real difficulty is not [so much] designing the chips, but in the making of very cutting-edge chips."

So here is the point: the US is attempting to clasp to itself both the ‘pure’ technology-knowledge, plus additionally, the practical tech supply-chain experience and knowhow, in order to repulse China out from the western tech sphere.

At the same time, another strand to the US strategy – as we have witnessed with Huawei, a global leader in 5G infrastructure technology (in which the U.S. is falling behind) – is to scare everyone off incorporating Chinese 5G in to their national infrastructures - through such devices as the arrest of Meng Wanzhou (for breach of US sanctions).

Even before her ‘arrest’, America has been systematically cutting Huawei out of the global 5G rollout, by quoting the magical words: ‘security concerns’ (Just as it is attempting to cut Russia out of weapons sales in the Middle East, on similar, tech-protective, grounds: i.e. that states should not buy Russian air defence, since this would give Russia a ‘window’ into NATO tech capabilities).

And, as General Hyten made clear, this not just about increasing tech and area denial, and promoting vulnerability for adversaries in terms of chips - but the US also plans to extend tech and area info-denial to space, cyber, avionics and military equipment.

It’s another Cold War - but this time it is about technology and ‘data denial’.

Well, China, with its centralized economy, will throw money and brainpower, into creating its own, ‘non-dollar sphere’, supply lines: for semi-conductors; for components – both for civil and military use. It will take time, but the solution will come.

Clearly, one consequence of this new arms race between the US - and China and Russia - is that specialized, and thinly-populated supply lines will have to be disentangled, and made anew, each in its own separate sphere: that is, on one hand, within the NATO-dollar sphere, and on the other, in the non-dollar sphere, led by China and Russia.

And not only will there be this physical supply-line disentanglement and separation, but should the US persist with its Huawei leverage tactic of ‘War on Terror’-style ‘rendition’ of foreign businessmen, or business women, alleged to have breached any US broad spectrum tech sanctions, there will have to be a disentangling of mixed boardrooms to avoid exposing company officials to individual arrest and prosecution. Limitations on company officers’ travel, where their business spans spheres, is already happening (as a result of the attempted rendition of Meng Wahzhou - and in order to avoid being caught up in tit-for-tat, retribution).

The bifurcation of the global economy was already in process. This stemmed firstly from America’s geo-political financial sanctions regime (i.e. Treasury Wars) – and the consequent attempts by targeted states to de-couple from the dollar sphere. The ‘war hawks’ surrounding the President are now inventing a whole new swathe of ‘tech crimes’ for sanctioning – ostensibly to give Trump oven more of his much-desired negotiating ‘leverage’. Clearly the hawks are using the ‘leverage’ pretext, to up-the-ante against China, Russia and its allies – for far wider ambitions than just giving the President more ‘cards in his hand’: Perhaps rather, to re-set the entire power-balance between America versus China and Russia.

The obvious and inevitable consequence has been an accelerating financial separation from the dollar sphere; and the development of a non-dollar architecture. De-dollarisation in a word.

Effectively, the US seems prepared to burn-down its reserve-currency status, to ‘save’ itself - to ‘Make America Rich Again’ (MARA), and to hobble China’s rise. And while burning down dollar-hegemony, the Administration is burning its own ‘global order’ too: attenuating it from the ‘global’ - down to a reduced sphere of US tech and security allies, facing China and the non-West. The domestic consequences for America will be felt in the new (for Americans) frustration of finding it harder to finance itself, in the manner in which it has grown accustomed, over the last 70 years, or so.

Peter Schiff, CEO and Chief Global Strategist of Euro Pacific Capital, says that (https://www.zerohedge.com/news/2018-12-12/peter-schiff-american-standard-living-its-going-collapse):

“The dollar – [the US] having the reserve currency, [is placing that] status … in jeopardy. And I don’t think the world likes giving America this kind of power that we can impose our own rules and demand that the entire world live by it. So, I think this has a much bigger and broader ramifications other than what’s going on in the stock market today. I think long-term, this is going to undermine the dollar, and its role as a reserve currency. And when that goes, so does the American standard of living: because it’s going to collapse.”

“People think we have the upper hand because we have this huge trade deficit with China. But I think it’s the other way. I think the fact that they supply us with all this merchandise that our economy needs, and the fact that they hold a lot of our bonds [debt], and continue to lend us a lot of money so we can live beyond our means - they’re the ones, I think, that call the tunes, and we have to dance to it.”

This tech and data new Cold War will polarise the global economy into spheres, and already it is polarising it politically, into a new ‘with us, or against us’ American paradigm. Politico notes (https://www.politico.eu/article/telecoms-donald-trump-war-on-huawei-zte-splits-europe/):

“The Trump administration's global campaign against telecom giant Huawei is pitting Europe against itself - over China. In the midst of a ballooning U.S.-China trade conflict, Washington has spent the past few months pressing its EU allies via its ambassadors to take a stronger stance against Chinese telecom vendors such as Huawei and ZTE.

The American push…is exposing fault-lines between U.S. allies in Europe as well as the so-called "Five Eyes" intelligence community — which have largely followed the U.S. lead — and others that resist the American pressure, by stopping short of calling out Chinese tech.

On the other side there is Germany, which wants proof from the United States that Huawei poses a security risk, as well as France, Portugal and a slew of central and eastern EU nations.

[B]The increasingly divergent attitudes show how Donald Trump is forcing allies to take sides in a global dispute and measure their economic interests — often deeply embedded with the Chinese vendors — against the value of a security alliance with Washington.”

The potential for accelerated de-dollarisation is one aspect, but there is another potential flaw inherent to the wholesale repatriation of supply-lines. US corporate earnings have ballooned over the last two decades. Part of this earnings hike stemmed from ‘easy’ liquidity, and ‘easy’ credit; but a major element owed to cost-cutting -- that is to say, off-shoring elements of higher-cost US production (because of wage levels, regulatory costs and employee entitlements) to lower wage, less regulated states. The coming bifurcation of the global economy has therefore, as its inevitable consequence, the repatriation of lower-cost production (in China and elsewhere) to a now higher-cost, and more highly regulated, US and European environment.

Perhaps this is a good thing -- but for sure it means costs and prices will rise in the US and America, and it means that corporate business models will be impaired as they de- off-shore. Americans’ standards of living will decline further (as Peter Schiff foretells).

The alienation and disgruntlement of America’s ‘deplorables’ and Europe’s ‘Yellow Vests’ is evidently a profound problem – and one that will not be solved by a new Cold War. The roots to our present discontents lie precisely with the ‘easy’ liquidity, and the ‘easy’ credit paradigm, which centrifuged-out societies into the asset owning 10% and into the non-asset holding 90% of society, and which degraded so the sense of societal well-being and security.

Of course this discontent can really only be resolved by addressing the question of our hyper-financialised economic paradigm – which is not something the élites will, or want, to ‘touch’.
From: http://www.conflictsforum.org/2018/americas-technology-and-sanctions-war-will-end-by-bifurcating-the-global-economy/

pyrangello

2nd October 2019, 20:28

Cara

3rd October 2019, 12:07

Cara

4th October 2019, 05:00

This posted previously here: http://projectavalon.net/forum4/showthread.php?108184-The-Changing-Emerging-Global-Landscape

~~~

State issued cryptocurrencies are on the way.

China:

China’s Digital Currency Coming Soon, Says Central Bank
By Kalyan Kumar On 8/12/19 at 10:37 AM EDT

At a time, the currency war between the U.S and China is raging in the name of deliberate weakening of yuan, here comes news that the central bank of China is all set to issue its sovereign digital currency.

Disclosing this, Mu Changchun, deputy director of the People’s Bank of China’s payments department, said the PBOC’s cryptocurrency is “almost ready” for release.

Earlier China was maintaining the stand that cryptocurrency creates disorder as speculators sell off the regular currency and would buy up virtual currency.

In the new system, China might be hoping to create stability with the off-blockchain model.

According to reports, the central bank’s researchers have been working on the currency for five years.

The news comes amidst central bankers worldwide taking a skeptical view of Facebook’s plan to create a cryptocurrency named Libra in association with a consortium of companies including Visa and Uber.

No fixation on Blockchain

The cryptocurrency news from China’s central bank said its digital token will have a two-tier system in which the PBOC and commercial banks will be the authorized issuers at tier 1 and tier two.

The significant part is that PBOC is not fussy about making blockchain the exclusive platform. Rather, it will be technology-neutral.

Blockchain is the main decentralized ledger technology platform guiding most cryptocurrencies including bitcoin.

China's digital currency plan gained traction after Facebook announced details of its Libra cryptocurrency in June.

Wang Xin, head of the research bureau at the PBOC, said in June that the central bank is paying “high attention,” to Libra and would ramp up the development of its digital currency.

China wants more control

However, shunning the decentralized blockchain-based offerings reveals Beijing’s intent to exercise more control over its financial system.

According to reports, the PBOC has already filed 52 patents relating to its digital currency in the name of the Digital Currency Research Lab of the PBoC.

The patents registered by the central bank suggest consumers and businesses have to download a mobile wallet and swap their yuan for the digital money, that could be used to make and receive payments.

The PBOC will track every time money changes hands.

Changchun also said the “blockchain platform just couldn't deliver the throughput needed for retail.”

He said the PBOC’s digital currency will serve as a substitute for M0 –coins and notes in circulation, but not M2, including bank deposits.

Mu said the digital currency would boost the circulation of the yuan internationally.
...
From: https://www.ibtimes.com/chinas-digital-currency-coming-soon-says-central-bank-2812278?amp=1&__twitter_impression=true

Iran:

Iran Announces Gold Backed National Cryptocurrency
July 20, 2019

The Tehran News agency has reported that Iran intends to launch a gold-backed cryptocurrency. This comes less than a week after President Trump slammed virtual currencies on Twitter amid tensions between the historic foes. The New agency reported the development on its English website.

Accordingly, the Central Bank of Iran (CBI) has approved the issuance of new cryptocurrencies. This is according to the CEO of Iranian Information and Communication Technology (ICT) FANAP, Shahab Javanmardi.

Shahab described the measure as follows:

“Iran’s cryptocurrency will be supported by gold, but its function is similar to other cryptocurrencies. The crypto asset is designed to maximize the use of Iranian frozen bank assets.”

As a matter of fact, banks like Parsian Bank, Bank Pasargad, Bank Melli Iran and Bank Mellat were working with blockchain startup Kuknos Company on this as early as January. The Financial Tribune reported that the gold-backed cryptocurrency project will be called Paymon.

The Legal Status of Cryptocurrency in Iran

The Iranian government had earlier this year signaled some opposition to Bitcoin and mining in general. This is because the government decried the use of power which is a feature of cryptocurrency mining. Notably, power is subsidized in Iran and many miners took advantage of this opportunity to have large mining farms.

Mehr news reported that CBI was looking to ban private cryptocurrency and encryption services like in China. That said, the status of Bitcoin in the legal system is still quite unclear. Different government agencies have given conflicting positions in the recent past. In this regard, the conundrum of crypto regulation is as unclear in Iran as it is in most countries globally.

...

Ironically, the American government has accused the Iranian government of actually using Bitcoin to circumvent sanctions. This is because Bitcoin is immutable and not subject to centralized control. Therefore, the Iranian government seems to have a “do as I say and not as I do” stance on Bitcoin.

The Role of Politics

...

Iran is similarly in the middle of currency turmoil after more sanctions from the USA. The fact that cryptocurrency is a way to escape the monopoly of SWIFT transfer in finance is lucrative. As such the country is simply taking a logical measure to cope.

Iran is not alone in exploring cryptocurrency. In fact, more than 70 percent of the world’s central banks are looking at the impact of such a coin. The announcement by the Central bank of Iran will certainly up the ante.
From: https://www.asiacryptotoday.com/iran-announces-gold-backed-national-cryptocurrency

Russia:

Russian Engineering Union Proposes Stablecoins “Backed by Material Valuables”
cryptoregradar July 27, 2019

The Russian Engineering Union (‘SoyuzMash’) has requested that the Central Bank of consider exploring blockchain technology as a potential means of exchange for arms deals with foreign customers.

Vladimir Gutenev, the vice-president of SoyuzMash, has indicated that he made the recommendation directly to Elvira Nabiullina, the head of the Central Bank of , alongside “a whole range of measures” also endorsed by the union.

Specifically, Mr. Gutenev recommended the consideration of stablecoins to conduct Russian arms sales, emphasizing the advantages such offered in facilitating the bypassing of economic sanctions. He stated:

The so-called ‘stablecoins’ are cryptocurrency backed by material valuables, especially gold. That is to say, anonymous payments are one of the possible ways to resolve the existing problems.

Mr. Gutenev’s comments also indicated his preference that arms only be exported after receiving full payment upfront, stating:

It’s hard to name any new conditions with respect to competition, because of course, this is not a competitive environment, it is powerful sanction pressure. Whereas previously there were a few reference points according to which one could say that a contract had been fulfilled, we are now encountering cases where for months the delivered equipment and adopted equipment is not paid for, the transactions are very difficult to carry out.

The recommendation was made by the Russian Engineering Union in partnership with an “expert council on military and technological cooperation” of the State Duma’s commission on legal support for the development of defense industry organizations, which was established during 2019.

Russian Cryptocurrency Legislation Expected by the End of 2019

Last month, local media outlet Interfax reported that the Russian deputy finance minister, Alexei Moiseyev, had announced that the country’s lawmakers were discussing allowing the purchase and sale of cryptocurrencies while preparing Russia’s upcoming virtual currency regulation. However, Mr. Moiseyev indicated that cryptocurrency payments will not be legitimated under the bill.

“Like with foreign currency, it would be possible to buy and sell [cryptocurrencies], but impossible to use them for payments,” he stated.

The report also cited the head of the Duma Financial Market Committee, Anatoly Aksakov, as having indicated that Russia must develop and implement a regulatory apparatus for cryptocurrencies before 2020 to comply with the recommendations of the international financial watchdog, the Financial Action Task Force (FATF).
From: https://reginnovate.com/2019/07/27/russia-mulls-cryptocurrency-use-in-arms-sales/

Other countries have also made announcements:

So far, the countries that launched their own Cryptocurrency

To date, countries that have issued their own cryptocurrencies include Ecuador, China, Senegal, Singapore, Tunisia, though these countries will not be standing alone for long with Estonia, Japan, Palestine, Russia and Sweden looking to launch their own national cryptocurrencies. Some of these countries are likely to take it a step further and replace paper tender altogether with China being one nation that is looking to take one step beyond a virtual and paper version.

Of the countries looking to introduce their own cryptocurrencies, the world’s largest economies could force the hands of smaller nations and we would expect momentum to build in the years ahead. Central banks now looking closely at the successes and constraints faced by those who have already stepped into the light, though only in early September, ECB President Draghi stated in a press conference that no member state of the Eurozone can introduce its own digital currency, with the currency of the Eurozone being the euro.
From: https://www.fxempire.com/education/article/the-next-cryptocurrency-evolution-countries-issue-their-own-digital-currency-443966
(I think the article is somewhat out of date as it does not mention Venezuela’s announcement to launch a petro backed cryptocurrency.)

Cara

4th October 2019, 05:01

This posted previously here: http://projectavalon.net/forum4/showthread.php?108184-The-Changing-Emerging-Global-Landscape

~~~

I posted in #14 above (http://projectavalon.net/forum4/showthread.php?108184-The-Changing-Emerging-Global-Landscape&p=1310339&viewfull=1#post1310339) about nation / state issued cryptocurrencies.

In addition to this change (and maybe as a necessary precursor - see in the article below, 2nd last paragraph), it seems there is also work underway by Central Banks to transform payment systems in a significant way - they are aiming at a digital system, with interoperability across regional systems and a span of control that includes ALL payments (including small local banks).

(Bold emphasis in the original, my emphasis underlined)

Lost Within the Rate Cut: The Fed’s Drive to Establish a New Payment System
5 days ago [14 August 2019]

https://stevenguinness2.files.wordpress.com/2019/08/payment-systems-1169825_640.jpg?w=626&h=540
Part way through delivering a press conference following the Federal Reserve’s first rate cut since December 2008, chairman Jerome Powell let it be known that the central bank was ‘looking carefully‘ at developing a new faster payments system. Unsurprisingly, his words on the subject proved the equivalent of screaming into the face of a force ten gale. Besides a handful of financial outlets, nobody heard him. All that analysts and observers were really interested in was the Fed’s stance on interest rates.

This was unfortunate because whilst they may appear banal and complex on the surface, payments systems are of far greater significance than whether a central bank opts to cut or raise interest rates. Anyone keeping pace with the myriad of speeches and publications emanating from central banks will know that globalists are working incrementally to introduce a cashless monetary system under their control. The Federal Reserve are one strand of this strategy as we will discover.

Less than a week after the rate cut, the Fed announced that they were planning to devise a new ‘round-the-clock real-time payment and settlement service (https://www.federalreserve.gov/newsevents/pressreleases/other20190805a.htm).’ Called ‘FedNow‘, the system would be an RTGS run service designed to initiate faster payments.

RTGS stands for ‘Real Time Gross Settlement‘, and is the same model through which the Bank of England and the European Central Bank operate their payment systems. The BOE announced back in May 2017 a blueprint for the introduction of a ‘renewed‘ RTGS service (https://www.bankofengland.co.uk/-/media/boe/files/news/2017/may/a-blueprint-for-a-new-rtgs-service-for-the-united-kingdom.pdf?la=en&hash=C3C5EFE19203BBEDF725BEFB6D45CFDC0504D6FE), whilst the ECB in late 2018 launched a new system dubbed TIPS (https://www.ecb.europa.eu/press/key/date/2018/html/ecb.sp181130.en.html) (TARGET Instant Payment Settlement). It was around the time that TIPS launched that the Fed issued a ‘request for comment‘ on reforming their own system. Taken as a whole, this is a further example of central banks working in coordination.

In a press release announcing ‘FedNow‘, the Fed justified the venture on the premise that the ‘rapid evolution of technology‘ had presented them with a ‘pivotal opportunity‘ to modernise the U.S. payment system. Exactly how long the Fed have been looking into adopting a new payment system is unclear. But if the Wall Street Journal is to be believed, they have been exploring a faster system since at least 2013.

The press release also pointed out that over 10,000 financial institutions are incorporated into the current Fed payment system known as ‘Fedwire‘, and argued that new real time infrastructure developed through the central bank would be best placed to offer full nationwide coverage.

The next stage of ‘FedNow‘ sees the Fed ‘requesting comment on how the new service might be designed‘. As for when it becomes available, the expectation is either 2023 or 2024. The Bank of England’s renewed RTGS system is due to be operational by 2025.

On the day ‘FedNow‘ was announced, Lael Brainard, a member of the Fed’s board of governors, offered up more information on the system in a speech at the Federal Reserve Bank of Kansas City (https://www.federalreserve.gov/newsevents/speech/brainard20190805a.htm). As you might expect, Brainard was there to extol the benefits. The big selling point was 365 days a year access, 24 hours a day, 7 days a week. Funds would be available immediately after payment is sent. It would be a system built on convenience and one that was fit for the speed of the 21st century.

Of greater interest than these superficial benefits, however, is the motivation behind what the Fed are seeking to achieve with ‘FedNow‘. Brainard was equally as explanatory in this regard.

We learned from her speech four key bits of information.

Firstly, fintech companies are openly supportive of the Fed’s new system. These are companies that are part of an industry that has pioneered the creation of distributed ledger technology.

Secondly, the planned implementation for either 2023 or 2024 is not a fixed objective. More important to the Fed is the goal of achieving ‘nationwide access for all‘, meaning that their overarching aim is for ‘FedNow‘ and private sector payment services to work in conjunction (or, as Brainard put it, to ‘interoperate by exchanging payments among services directly).

Thirdly, Brainard told us that no one private sector provider of a U.S. payment system has ever been able to establish nationwide reach by itself. Nationwide coverage would have to encompass the many thousands of small and medium sized banks. Hence why the Fed are now making a determined move to utilise private sector technology and incorporate it into their own system. I would contend that the Fed’s goal is to achieve full spectrum control of America’s payment infrastructure, with all digital transactions falling under their jurisdiction. ‘FedNow‘ would be the mechanism in making this happen.

Fourthly, as Brainard laid out, the path that the Fed are embracing is not one of ‘incremental‘ change. Rather, it is of ‘transformative‘ change. I would take this to mean that the infrastructure underpinning current payment systems must be overhauled to allow for the implementation of fintech devised technology.

An accompanying list of FAQ’s (https://www.federalreserve.gov/paymentsystems/fednow_faq.htm) lent credence to the understanding that fintech is central to the construction of ‘FedNow‘. Here, the Fed expounded that the market for faster payments in the U.S. remains in the ‘early stages‘. Banks and fintech firms can provide a range of services, but the functionality of them is limited which restricts their level of coverage and reliability. They lamented the ‘lack of a universal infrastructure to conduct faster payments‘, which means that at present users who are signed up to one service such as Paypal invariably cannot send or receive payment from a user signed up to another service. As a result, the market remains ‘fragmented‘.

With the Federal Reserve system encompassing twelve regional banks, and the relationships the Fed has with 10,000 plus banking institutions, their belief is that they are ‘well positioned to overcome the challenge of extending nationwide access.’

Throughout their communications there is a preoccupation with the objective of achieving nationwide access. So much so that the Fed board are apparently intending to ‘explore interoperability and other paths to achieving the ultimate goal of nationwide reach.’

‘FedNow’ would provide the necessary universal infrastructure that the Fed are seeking, and allow banks of all description to offer real-time payments.

Undoubtedly this presents an opportunity for the Fed, and indeed central banks throughout the world, to move in and claim hegemony over the next generation of global digital payment systems. But they, along with the Bank for International Settlements and the International Monetary Fund that preside over them, cannot do this by themselves. This is where the private sector comes in, for it is here where the expertise and technological innovation is found.

Within the FAQ’s it is also stated that the ‘FedNow‘ service would ‘operate alongside private sector RTGS services for faster payments‘. Prior to the announcement of the new system, the Federal Reserve board had come to the conclusion that private sector RTGS services ‘cannot be expected to provide an infrastructure with reasonable effectiveness, scope and equity alone.’ A roundabout way of saying that whilst the Fed do not possess the technology, they do have the reach in order to disseminate private sector innovation to every corner of the U.S. The beauty for the Fed is that they would have full regulatory authority over ‘FedNow‘. In conjunction with fintech, their level of control over the payments infrastructure would be unassailable.

If central banks manage to utilise fintech successfully, it will give them a clear path to begin the gradual implementation of central bank issued digital currencies. Back in April I published an article (BIS General Manager Outlines Vision for Central Bank Digital Currencies (https://stevenguinness2.wordpress.com/2019/04/04/bis-general-manager-outlines-vision-for-central-bank-digital-currencies/)) that looked into the subject of CBDC’s more deeply.

In regards to ‘FedNow‘, equally as interesting as what was discussed by the Fed is what was left unsaid. There was no mention throughout any of the supporting documentation of plans to incorporate distributed ledger technology. Instead, there will be ‘engagement between the Fed and the industry to inform the final service design.’ This is a process that is now getting underway.

I would expect that once the final design of ‘FedNow‘ is confirmed, it will have the capability of interacting with systems that use distributed ledgers. This would follow on from the Bank of England who in 2018 announced that their new RTGS service would enable such systems to achieve settlement in central bank money.

Once this has been achieved, the next logical step for central banks is to complete the process of digitising all financial assets through the issuance of central bank digital currency. And as BIS general manager Agustin Carstens warned back in March 2019 (https://www.bis.org/speeches/sp190322.pdf), this would mean that people would no longer have the option of paying with cash. ‘All purchases would be electronic‘.

In a follow up article I will be exploring the process underway at the Bank of England and the European Central Bank to reform their payment systems, and how China is proving to be the test bed for fintech innovation.
From: https://stevenguinness2.wordpress.com/2019/08/14/lost-within-the-rate-cut-the-feds-drive-to-establish-a-new-payment-system/

Cara

4th October 2019, 05:11

From the Financial Times - the large and growing global remittances market. (Normally their content is subscription only and I am not a subscriber, so I am not sure why I was able to access this article.)

Remittances: the hidden engine of globalisation
With 270m migrants around the world, the money they send home now exceeds foreign direct investment

Federica Cocco, Jonathan Wheatley, Jane Pong, David Blood and Ændrew Rininsland August 28, 2019

https://www.ft.com/__origami/service/image/v2/images/raw/http://prod-upp-image-read.ft.com/16596fc8-c8ef-11e9-a1f4-3669401ba76f?source=ig&fit=scale-down&quality=highest&width=640
© FT

Every month Joy Kyakwita presses a button on her phone and does something in common with millions of other people across the globe: she sends money home.

Ms Kyakwita, a London-based lawyer, gives a third of her salary to her family back home in Uganda, including paying money for school fees for her brothers and nephews.

“I believe that when you pay for them to go on a good course, then there is a good chance of them becoming employable,” she says. “And if they are employed then they will be able to help their siblings as well.”

Ms Kyakwita is just one of an estimated 270m migrants around the world who will send a combined $689bn back home this year, the World Bank estimates. That figure marks a landmark moment: this year remittances will overtake foreign direct investment as the biggest inflow of foreign capital (https://www.ft.com/content/6cfd7b78-b92f-11e9-8a88-aa6628ac896c) to developing countries.

Remittances (https://www.ft.com/cash-trails) were once viewed by many economists as a secondary issue for developing economies behind FDI and equity investments. Yet because of their sheer volume and consistent and resilient nature, these flows are now “the most important game in town when it comes to financing development", says Dilip Ratha, head of the World Bank’s global knowledge partnership on migration and development.

41605

The number of people in the world who live outside the country of their birth has risen from 153m in 1990 to 270m last year according to the World Bank, swelling global remittance payments from a trickle to a flood. As migration has increased, these financial snail-trails have become one of the defining trends of the past quarter-century of globalisation - the private, informal, personal face of global capital flows.

For many developing economies, it is a lifeline.

“In times of economic downturn, natural disaster or political crisis, private capital tends to leave and even official aid is hard to administer,” says Mr Ratha. “Remittances are the first form of help to arrive, and they keep rising.”

Remittance inflows help boost countries’ balance of payments and therefore their credit ratings, lowering the borrowing costs of governments, companies and households. In the Philippines, for example, this year’s remittances inflows of $34bn will help reduce what would otherwise be a current account deficit of more than 10 per cent of gross domestic product to a deficit of just 1.5 per cent of GDP.

Remittances are “a relatively stable source of foreign currency in the current account, and that feeds directly into our sovereign ratings”, says James McCormack of Fitch Ratings. “In the case of a country like the Philippines, Egypt or Nigeria, their current account positions would be much weaker in the absence of remittance flows.”

[Image in original]
A heatmap matrix showing bilateral remittance flow between countries, categorised by region. Cells in each column represent a country receiving remittances, while cells in each row represent a country sending remittances. Darker coloured cells means higher share of receiving country's GDP in percent. The graphic shows that countries in EU (pre-2004 expansion) and North America are the biggest senders of global remittances. Other notes include South Asian workers in the Middle East sending lots of remittances back home, and flows within sub-Saharan Africa are increasingly significant.
https://www.ft.com/__origami/service/image/v2/images/raw/ftcms%3Afffbf878-c8e3-11e9-a1f4-3669401ba76f?source=ig&width=2360&format=png&quality=lossless

Some governments have sought to channel remittances into development efforts; Indonesia is the latest country to consider a “diaspora bond” (https://www.ft.com/content/8948d158-db8b-3556-aeec-242a9c9dc575) in a bid to tap the savings of its wealthier overseas residents.

But remittances have economic downsides too. By helping to subsidise low incomes at home they provide a cushion against the impact of slow growth, which eases pressure on governments to reform their policies.

And, by channelling capital into consumer spending, remittances boost imports - which, some economists say, holds back the development of domestic manufacturing.

“No country is ever going to get rich from remittances,” says Gareth Leather of Capital Economics, a consultancy. “I don’t think any government would want to get rid of them, but many would like to get to the point where they are no longer needed.”

Mr Ratha at the World Bank argues, however, that this understates the importance of remittances. “Is consumption bad?” he asks. “Not really. Without it we’d be dead. Investment can wait, consumption can’t.” As incomes rise, he added, people put money into housing, health and education. “This is human capital formation. That’s a great investment in any economy.”

Remittances are also one of the key transmission mechanisms of global economic stress. People move in search of opportunities, so emigration rises when an economy is doing badly. When their host country is doing well and migrants prosper, they send more money home - a countercyclical boost to the struggling economy at home.

But when host countries hit hard times, the shock is transmitted back to migrants’ families in the form of lower remittances. This can export the slowdown to the recipient country, fuelling economic instability on a global scale.

One example is the recent fall in oil prices. It was a blow not only to oil producing countries but also to families across south-east Asia and elsewhere who have breadwinners working in the Gulf.

It proved to be a structural shock for Lebanon, a small economy in which families and the banking system are heavily dependent on inflows from the diaspora.

“We’ve been watching Lebanon closely because remittances have really declined in the past decade, by almost 12 per cent of GDP,” says Frank Gill of S&P Global, one of the big three rating agencies. “This is a key source of funding for the public sector and it’s a major worry for a rating agency, for obvious reasons.”

In May S&P lowered its outlook for Lebanon’s sovereign rating to negative, citing slowing inflows from non-residents as a threat to the country’s fiscal stability.

Although remittances have become one of the chief characteristics of the current era of globalisation, political shifts including the rise of populism raise the question of whether their economic importance will prove short-lived.

The backlash against globalisation is growing and anti-immigration sentiment is rising (https://www.ft.com/content/c5944b9e-b58e-11e9-8cb2-799a3a8cf37b) in many developed countries. So it is possible that both migration and the capital flows that it drives could begin to ebb.

But the World Bank expects 550m people to join the workforces of low and middle-income countries between now and 2030. And the gaping income disparity between developed and low-income countries - $43,000 a year per capita in the former, and $800 a year in the latter - is set to persist.

That means job opportunities abroad will continue to look attractive.

“The structural trends in the world are towards more migration, not less,” says Mr Leather.

And the push from poor countries will be met by a pull from rich ones.

“The western world is ageing, and it’s going to be increasingly reliant on imported labour,” says S&P’s Mr Gill. “I don’t see why that isn’t going to continue.”

Meanwhile, other flows of capital into developing economies are becoming less reliable. FDI, traditionally a key driver of development, is in retreat. Outward FDI from the five principal global sources in recent years - the US, China, Germany, Japan and the UK - fell by two thirds between 2017 and 2018, according to OECD data.

And as a global economic slowdown looms on the horizon, speculative investment flows are also likely to become more volatile.

That leaves the cobweb of remittance flows around the world as one of the main systems by which global capital circulates. And even if migration tails off, the high existing stock of migrants around the world means those flows are likely to continue for decades to come.

In Staines-upon-Thames, the town in Surrey where she lives, Joy Kyakwita has no plans to move back to Uganda. “Now I'm not thinking about that, because I have a big dream in this country,” she says. “I have children who were born here.”

She studied and qualified as a lawyer thanks to financial help from her sister, who came to the UK to work as a nurse. Now she wants to pass that good fortune on to the next generation of her family.

Returning home, she says, has become “no longer about me, but also about my children as well … I would rather support [my wider family] from here”.
From: https://ig.ft.com/remittances-capital-flow-emerging-markets/

~~~

Some months ago I looked into this topic. I was wondering to what extent foreign national workers sending money back to their homes was contributing to global financial flows of cash. What I discovered is that this is considered a large and growing market and several payments providers are looking to take advantage of it. The article above points to the fact that these flows are now larger than foreign direct investment.

The World Bank has quite a few briefing documents on remittances and migration:
https://www.worldbank.org/en/topic/labormarkets/brief/migration-and-remittances

They are the “custodian” of several migration-related “Sustainable Development Goals” (SDG):

increasing the volume of remittances as a percentage of gross domestic product (GDP) (SDG indicator 17.3.2),
reducing remittance costs (SDG indicator 10.c.1), and
reducing recruitment costs for migrant workers (SDG indicator 10.7.1)

Here is their latest report, from April 2019:
https://www.knomad.org/sites/default/files/2019-04/Migrationanddevelopmentbrief31.pdf

This Migration and Development Brief provides updates on global trends in migration and remittances and validates the projections made in the previous Brief in December 2018. It highlights developments related to migration-related Sustainable Development Goal (SDG) indicators for which the World Bank is a custodian: increasing the volume of remittances as a percentage of gross domestic product (GDP) (SDG indicator 17.3.2), reducing remittance costs (SDG indicator 10.c.1), and reducing recruitment costs for migrant workers (SDG indicator 10.7.1). It also presents recent developments on the Global Compact on Migration (GCM).

Remittance trends. In 2019, annual remittance flows to low- and middle-income countries (LMICs) are likely to reach $550 billion. That would make remittance flows larger than foreign direct investment (FDI) and official development assistance (ODA) flows to LMICs. In 2018, remittance flows to LMICs reached $529 billion, an increase of 9.6 percent over 2017. Remittance flows grew in all six regions, particularly in South Asia (12.3 percent) and Europe and Central Asia (11.2 percent). Growth was driven by a stronger economy and employment situation in the United States and a rebound in outward flows from some Gulf Cooperation Council (GCC) countries and the Russian Federation.

Remittance costs. The global average cost of sending remittances remained at about 7 percent in the first quarter of 2019, roughly the same level as in recent quarters, accord- ing to the World Bank’s Remittance Prices Worldwide database. The cost of sending money to Sub-Saharan Africa was 9.3 percent, significantly higher than the SDG target of 3 percent. Banks were the costliest channel for transferring remittances, at an average cost of 10.9 percent. De-risking by international correspondent banks—that is, the closing of bank accounts of money transfer operators (MTOs) to avoid rather than manage the risk in their efforts to comply with anti–money laundering and countering financing of terrorism (AML/CFT) norms—has affected remittance services and may have prevented further reduction in costs. Also, in an apparent example of policy incoherence, remittance costs tend to include a premium, that is a cost mark-up, when national post offices have exclusive partnership arrangements with a dominant MTO. This premium averages 1.5 percent of the cost of transferring remittances worldwide and is as high as 4.4 percent in the case of India, the largest recipient of remittances. Opening up national post offices, national banks, and telecommunications com- panies to partnerships with other MTOs could remove entry barriers and increase competi- tion in remittance markets.

Recruitment costs. SDG indicator 10.7.1, on reducing the recruitment costs paid by migrant workers, was upgraded to a Tier 2 indicator in November 2018. A Tier 2 Indicator is conceptually clear, has an internationally established methodology and standards are available, but data are not regularly produced by countries.

Migration. In the GCC countries, the deployment of workers from South Asia has been declining. Japan has a new policy to admit 345,000 foreign workers over a period of 5 years from the following nine priority countries: Cambodia, China, Indonesia, Mongolia, Myanmar, Nepal, Philippines, Thailand, and Vietnam. Latin America is facing several migratory movements from Central America and Venezuela. Since 2015, around 2.7 million persons have left Venezuela for other countries, especially in South America.

Refugees and asylum seekers. While the European migration crisis is past its peak, LMICs continue to bear the brunt of forced displacement. By mid-2018, the number of refugees worldwide (excluding Palestinian refugees) had reached 20.2 million, according to the United Nations High Commissioner for Refugees (UNHCR). There were more than 2.5 million internally displaced persons in the Lake Chad Basin. The top origin countries for refugees were Syria (6.5 million), Afghanistan (2.7 million), South Sudan (2.2 million), Myanmar (1.2 million), and Somalia (1 million).

Return migration. In Europe, the stock of detected undocumented migrants rose from 1.4 million in 2011 to around 6 million in 2018, due to rejection of a large number of asylum applications. In the United States, the stock of migrants detected to be undocumented increased from around 1.5 million in 2011 to 3.8 million in 2018. Thailand also deported about 100,000 undocumented migrants from Cambodia and Myanmar in 2018.
From: https://www.knomad.org/sites/default/files/2019-04/Migrationanddevelopmentbrief31.pdf

Cara

4th October 2019, 05:20

Digital / crypto currency goes mainstream in the US

US Lawmakers Ask Fed to Consider Developing ‘National Digital Currency’
Nikhilesh De Oct 3, 2019 at 22:00

https://static.coindesk.com/wp-content/uploads/2019/10/Jerome-Powell-860x430.jpg

Two U.S. lawmakers want the Federal Reserve to consider creating a digital dollar.

In a letter sent to Federal Reserve Chairman Jerome Powell (https://static.coindesk.com/wp-content/uploads/2019/10/Foster-Hill-US-Crypto.pdf), Rep. French Hill (R-Ark.) and Rep. Bill Foster (D-Ill.) outline concerns they have about risks to the U.S. dollar if another country or private company creates a widely used cryptocurrency, and ask whether the central bank is looking into creating its own version.

First reported by Bloomberg Law (https://news.bloomberglaw.com/banking-law/lawmakers-ask-fed-to-explore-u-s-dollar-digital-currency), the letter details how the Fed has the right to create and manage U.S. currency policy.

“The Federal Reserve, as the central bank of the United States, has the ability and the natural role to develop a national digital currency,” the Congressmen wrote, adding:

“We are concerned that the primacy of the U.S. Dollar could be in long-term jeopardy from wide adoption of digital fiat currencies. Internationally, the Bank for International Settlements conducted a study that found that over 40 countries around the world have currently developed or are looking into developing a digital currency.”

Indeed, there have been some calls for the global financial system to move away from the dollar. Most notably, Bank of England governor Mark Carney suggested that a digital currency backed by a basket of other financial instruments might help nations make this shift (https://www.coindesk.com/bank-of-england-governor-calls-for-digital-currency-replacement-to-the-dollar).

In Monday’s letter, Foster and Hill wrote that cryptocurrencies are currently used for speculative purposes in the U.S., but their use may “increasingly align with that of paper money in the future.”

The U.S. should not rely on private companies to develop digital currencies, they wrote. The letter specifically mentions the Facebook-led Libra stablecoin.

“The Facebook/Libra proposal, if implemented,” the congressmen wrote, “could remove important aspects of financial governance outside of U.S. jurisdiction.”

The letter goes on to mention recent cryptocurrency efforts by J.P. Morgan (https://www.coindesk.com/jpmorgan-to-start-customer-trials-of-its-jpm-coin-crypto) and Wells Fargo (https://www.coindesk.com/wells-fargo-to-pilot-dollar-linked-crypto-for-internal-settlement).

Path forward

The letter asks a number of questions, including whether the Fed is currently looking into developing a digital currency, whether there are any contingency plans if digital fiat currencies gain traction, what legal, regulatory or national security issues might prevent the Fed from developing a digital currency, what market risks or other issues might result from a Fed cryptocurrency and what benefits there might be to the project.

Hill and Foster are not the only individuals to suggest that the Fed might benefit from creating its own cryptocurrency. Last year, former Federal Deposit Insurance Corporation Chair Sheila Bair also recommended the Fed look into creating a digital currency (https://www.coindesk.com/fed-get-serious-crypto-says-former-fdic-chair) as a way of avoiding being disrupted by the private sector or another nation.

The Federal Reserve is also looking to create a real-time payments system (https://www.federalreserve.gov/newsevents/pressreleases/other20190805a.htm), though it is unclear whether there will be a cryptocurrency-like aspect to it.

In the letter, the Congressmen suggest that it might even be an urgent matter for the Fed, writing:

“With the potential for digital currencies to further take on the characteristics and utility of paper money, it may become increasingly imperative that the Federal Reserve take up the project of developing a U.S. dollar digital currency.”

A message left with the Federal Reserve’s press office was not immediately returned.

Update (Oct. 3, 16:52 UTC): Following the publication of this article, a spokesperson for Hill told CoinDesk that the Congressman does not have a position on the Fed creating a digital currency, and considers the correspondence “more of a fact finding letter.”

Federal Reserve Chairman Jerome Powell image via Federal Reserve / Flickr (https://www.flickr.com/photos/federalreserve/39809420234/in/photostream/)
From: https://www.coindesk.com/us-congressmen-ask-fed-to-consider-developing-national-digital-currency?amp&__twitter_impression=true

~~~

Here we have that phrase again: “real-time payments system”. Coming soon?

Cara

5th October 2019, 06:22

In an interview I heard recently they said JP Morgan bank has 830 million ounces of silver and 25 million ounces of gold. How does that integrate with all of this going on especially the daily borrowings happening? Has this type of money being pumped put ever happened before?

...

Update:
I have just been listening to a Sirius Report podcast (subscription only sadly) that says that a change in JPMorgan’s balance sheet is what triggered the recent trouble in the US repo.

Some more information on JPMorgan:

Too big to lend? JPMorgan cash hit Fed limits, roiling U.S. repos

NEW YORK (Reuters) - JPMorgan Chase & Co (JPM.N) has become so big that some rival banks and analysts say changes to its $2.7 trillion balance sheet were a factor in a spike last month in the U.S. "repo" market, which is crucial to many borrowers.

Rates in the $2.2 trillion market for repurchase agreements rose as high as 10% on September 17 as demand for overnight cash from companies, banks and other borrowers exceeded supply.

While not seen as an sign of distress as it was during the collapse of Bear Stearns and Lehman Brothers in 2008, the spike did prompt the U.S. Federal Reserve to promise to lend at least $75 billion each day until Oct. 10 to relieve the pressure.

Analysts and bank rivals said big changes JPMorgan made in its balance sheet played a role in the spike in the repo market, which is an important adjunct to the Fed Funds market and used by the Fed to influence interest rates.

Without reliable sources of loans through the repo market, the financial system risks losing a valuable source of liquidity. Hedge funds, for example, use it to finance investments in U.S. Treasury securities and banks turn to it as option for raising suddenly-needed cash for clients.

Publicly-filed data shows JPMorgan reduced the cash it has on deposit at the Federal Reserve, from which it might have lent, by $158 billion in the year through June, a 57% decline.

Although JPMorgan's moves appear to have been logical responses to interest rate trends and post-crisis banking regulations, which have limited it more than other banks, the data shows its switch accounted for about a third of the drop in all banking reserves at the Fed during the period.

"It was a very big move," said one person who watches bank positions at the Fed but did not want to be named. An executive at a competing bank called the shift "massive".

Other banks brought down their cash, too, but by only half the percentage, on average.

For example, Bank of America Corp (BAC.N), the second-biggest U.S. bank by assets, with a $2.4 trillion balance sheet, took down 30% of its deposits, a $29 billion reduction.

Overall deposits at the Fed from banks have come down over the past year as a consequence of the central bank's decision to gradually reduce the vast holdings of bonds it had acquired to bolster the economy after the financial crisis. As the Fed has run off its bond portfolio, its deposits from banks have also declined.

"All of the banks were doing this to a degree," said one Wall Street banking analyst, requesting anonymity because he was not authorized to speak on the record, adding: "JPMorgan does look like an outlier here".

(GRAPHIC - Bank reserves held at the Fed: here (https://fingfx.thomsonreuters.com/gfx/mkt/12/6761/6692/Pasted%20Image).jpg)

POST-CRISIS RULES

In the past JPMorgan would have gladly seized the opportunity to lend cash in the repo market, where loans are backed by the best collateral, often U.S. Treasury securities.

But on Sept. 17 even as the majority of repo loans were being made at 5% and above, twice the usual rates, JPMorgan was limited in how much of its remaining cash it could provide because of regulatory and other constraints, a person familiar with the trading said.

The spike in rates reflected extra demand for cash, which was widely anticipated due to corporations requiring cash to make scheduled tax payments and banks and other firms needing it to buy newly-issued U.S. Treasury securities.

Without the constraints on JPMorgan, the rate wouldn't have spiked to 10%, the person said.

JPMorgan made the biggest draws from the Fed late last year and bought securities, winning praise from analysts for locking in fixed interest rates before Federal Reserve cuts. Buying the securities also offset pressure on JPMorgan's mortgage loan portfolio from falling rates.

JPMorgan also needs cash for sudden demands by corporate depositors and to meet government requirements for reserves on checking account deposits.

It must also comply with rules adopted since the financial crisis which require banks to keep additional cash in case they fail and the government needs to transfer their operations in viable condition to other firms. Banks do not disclose how much of this so-called resolution cash they must hold, but some analysts believe the amount is significant.

Another post-crisis regulation imposes a capital surcharge on banks that are most important to the global financial system and it gives JPMorgan particular reason not to make repo loans going into the last three months of the year.

That is especially true for repos with firms from abroad, which include U.S. branches of foreign banks and Cayman Islands-registered hedge funds.

Such loans could push JPMorgan's surcharge higher, requiring it to carry an additional $8 billion of capital, a Goldman Sachs research note said.

JPMorgan's capital surcharge is already the highest of any U.S. bank, which means its must make more profit from its business to produce the same return on shareholder equity.

Goldman analysts see the repo market pressures continuing under the regulatory constraints and what they believe is a shortage of extra cash on deposit at the Fed.

The Federal Reserve has said it is considering bolstering the market in the longer term by encouraging banks to build up their cash deposits. It has also discussed opening a standing repo facility to be a reliable source of cash loans.

(Reporting by David Henry in New York. Additional reporting by John McCrank. Editing by Paritosh Bansal and Alexander Smith)
From: https://mobile.reuters.com/article/amp/idUSKBN1WG439?__twitter_impression=true

Cara

5th October 2019, 11:09

I have read in several articles that there is an attempt to devalue the dollar. Here are two articles on the topic.

The first is a historical review and references agreements made by the world’s leading economies since Breton Woods.

Will the Drive to Devalue the Dollar Lead to a Plaza Accord 2.0?
The Lead-Up to the Plaza Accord

Ronald-Peter Stöferle

To understand the Plaza Accord, one has to look back to August 15, 1971. On this day Richard Nixon closed the gold window. This step de facto ended the Bretton Woods system, which had been created in 1944 in the New Hampshire town of the same name and was formally terminated in 1973. The era of gold-backed currency was well and truly over; the era of flexible exchange rates had begun. Without a gold anchor, the exchange rate of every currency pair was supposed to be driven exclusively by supply and demand. National central banks — and indirectly governments as well — were at liberty to make their own decisions, free of the tight restrictions imposed by a gold standard, but they had to bear the costs of their decisions in the form of the devaluation or appreciation of their currencies. While a gold-backed currency aims to impose discipline on nations, a system of flexible exchange rates enables national idiosyncrasies to be preserved, with the exchange rate serving as a balancing mechanism.

However, unlike any other currency system, the system of free-floating currencies invites governments and central banks to manipulate exchange rates practically at will. Without reciprocal agreements, which can provide planning security to export-oriented companies in particular, the danger of international chaos is very high, as the system of flexible exchange rates lacks an external anchor.

In order to prevent this chaos, a repetition of the traumatic devaluation spiral of the 1930s, and the resulting disintegration of the global economy, IMF member nations agreed in 1976 at a meeting in Kingston, Jamaica, that “the exchange rate should be economically justified. Countries should avoid manipulating exchange rates in order to avoid the need to regulate the balance of payments or gain an unfair competitive advantage."1 And in this multilateral spirit — albeit under an US initiative that was strongly tinged by self-interest — an agreement was struck nine years later that has entered the economic history books as the Plaza Accord.

Macroeconomic Excesses in the 1980s?

In the first half of the 1980s the US dollar appreciated significantly against the most important currencies. In five years the dollar rose by around 150% against the French franc, almost 100% against the Deutschmark, and intermittently 34.2% against the yen (from the January 1981 low).

The significant appreciation of the US dollar was of course reflected in the US Dollar Index, which consists of the currencies of the most important US trading partners, weighted according to their share of trade with the US. The following chart, moreover, shows exchange rates in real terms — i.e., it takes price levels into account, which can vary substantially in some cases.

Real trade-weighted US Dollar Index, 03/1973=100, 01/1980–12/1989
https://mises-media.s3.amazonaws.com/styles/max_1160/s3/stof1a.png?itok=dS9oQZyI
Source: Federal Reserve St. Louis, Incrementum AG

From an interim low of 87.7 in July 1980, the index rose by about 50% to 131.6 by March 1985. Not surprisingly, the US current account balance deteriorated significantly in the first half of the 1980s as a result of this substantial dollar rally, as the following chart shows.

Current account balance, US, Germany, France, United Kingdom, Japan, in % of GDP, 1980–1989
https://mises-media.s3.amazonaws.com/styles/max_1160/s3/stof2a.png?itok=Y4R3sLd_
Source: World Bank, Quandl, Incrementum AG

In 1980 and 1981 the US still posted a moderate surplus, but by 1985 this surplus had turned into a deficit of 2.9%. The trend in Germany and Japan was almost a perfect mirror image. While the two export nations had current account deficits of 1.7% and 1.0% in 1980, their current account balances turned positive in 1981 and 1982, respectively. In 1985, they already posted surpluses of 2.5% and 3.6%. Germany’s current account surplus in particular grew even further in subsequent years.

The Plaza Accord

Representatives of the US, Germany, Japan, France, and Great Britain, a.k.a. the G5 countries, met in September 1985 at the Plaza Hotel in New York under the leadership of US Treasury Secretary James Baker in order to coordinate their economic policies. Their declared aim was to reduce the US current account deficit, which they planned to accomplish by weakening the overvalued US dollar. Moreover, the US urged Germany and Japan to strengthen domestic demand by expanding their budget deficits, which was supposed to give US exports a shot in the arm.

In the Plaza Accord, the five signatory nations agreed to cooperate more closely when cooperation made sense. The criterion cited for adopting a joint approach was “deviation from fundamental economic conditions.” Interventions in the foreign exchange market were to be conducted with the aim of combating current account imbalances. In the short term the target was a 10%–12% devaluation of the US dollar relative to its level of September 1985.

The immediate outcome of the agreement was as desired. One week after the Plaza Accord had been signed, the Japanese yen gained 11.8% against the US dollar, while the German mark and the French franc gained 7.8% each, and the British pound 2.8%. However, the speed of the adjustment in foreign exchange markets continued to be the same as before the Plaza agreement, as the following chart clearly shows.

USD exchange rate vs. DEM, FRF, JPY, GBP, 01/01/1980=100, 01/1980–09/1985
https://mises-media.s3.amazonaws.com/styles/max_1160/s3/stof3a.png?itok=aLRu9CPu
Source: fxtop.com, Incrementum AG

However, the charts also show quite clearly that the depreciation of the US dollar had already begun several months before the official agreement was concluded in the heart of Manhattan. The Dollar Index had reached its peak in March of 1985, i.e., half a year before the Plaza Accord.

Plaza Accord 2.0?

Some people propose the creation of a new version of the Plaza Accord, i.e., a multilateral agreement that includes, inter alia, coordinated intervention in foreign exchange markets. The proponents of a Plaza Accord 2.0 point to the appreciation of the US dollar by almost 40% (particularly in the years 2011–2016), and to the large differences between the current account balances of the leading developed countries. However, such an agreement would represent a new turning point in international currency policy. After all, in 2013 the G8 agreed to refrain from foreign exchange interventions — in a kind of Anti-Plaza Accord (https://www.nber.org/papers/w21813).2

The following chart illustrates the significant appreciation of the US dollar in recent years.

Real trade-weighted US Dollar Index, 03/1973 = 100, 01/2011–04/2019
https://mises-media.s3.amazonaws.com/styles/max_1160/s3/stof4a.png?itok=zw5ds_Fx
Source: Federal Reserve St. Louis, Incrementum AG

And just as was the case thirty years ago, the US has a significant and persistent current account deficit, while Germany, Japan — and these days also China — have significant surpluses. Germany’s surplus, which intermittently reached almost 9%, is particularly striking.

Current account balances of US, Germany, France, Great Britain, Japan, China, in % of GDP, 2010–2017
https://mises-media.s3.amazonaws.com/styles/max_1160/s3/stof5a.png?itok=ln5hKly0
Source: World Bank, Quandl, Incrementum AG

Long before Donald Trump weighed in on the issue, the US Treasury — which is in charge of the US dollar’s external value — repeatedly stressed that the dollar was too strong, especially compared to the renminbi. Time and again the US accused China, Japan, and the eurozone of keeping their currencies at artificially low levels in order to support their export industries.3 The fact that Donald Trump used the term manipulation in a tweet came as a bit of a surprise, as the US has not used this term officially since 1994.4

In any case, such a significant adjustment in exchange rates would have to be implemented gradually; the risk of creating further distortions would be too great. An abrupt adjustment of rates might result in, for example, a significant increase in the pace of US inflation and/or a collapse of the export sectors of countries whose currencies would appreciate.

But as exchange rates — at least in the medium to long term — are mainly determined by fundamentals, exchange rates can change substantially only if underlying macroeconomic conditions (real interest rate differentials, trade and current account balances, the investment climate, and budget balances) change. Regardless of how powerful a government or how watertight an international agreement is, those who enter an agreement cannot get past this fact. As Eugen von Böhm-Bawerk has stated explicitly: “The most imposing dictate of power can never effect anything in contradiction to the economic laws of value, price, and distribution; it must always be in conformity with these; it cannot invalidate them; it can merely confirm and fulfill them.”

1. “The Specificity of the Jamaica Monetary System (https://ebrary.net/7294/economics/specificity_jamaica_monetary_system)”, ebrary.net; see also article IV (iii) of the “Articles of Agreement of the International Monetary Fund (https://www.imf.org/external/pubs/ft/aa/index.htm)”.
2. "The Plaza Accord, 30 Years Later" by Jeffrey Frankel, NBER Working Paper No. 21813, Issued in December 2015 (https://www.nber.org/papers/w21813)
3. See “U.S. tensions rise over China’s currency policy (https://edition.cnn.com/2011/10/07/world/asia/jaime-china-currencies/index.html)”, CNN, October 7, 2011; “U.S. declines to name China currency manipulator (https://www.reuters.com/article/us-usa-china-treasury/u-s-declines-to-name-china-currency-manipulator-idUSBRE8AQ19V20121127)”, Reuters, November 27, 2012.
4. Trump, Donald: Tweet (https://twitter.com/realDonaldTrump/status/1020287981020729344), July 20, 2018.
Ronald-Peter Stöferle is managing partner and fund manager at Incrementum AG, Liechtenstein. He invests using the principles of the Austrian school of economics.
From: https://mises.org/wire/will-drive-devalue-dollar-lead-plaza-accord-20

~~~

The second is based on new quarterly predictions from Saxo Bank contained in their Q4 2019 Quarterly Outlook, The Killer Dollar (https://www.home.saxo/-/media/documents/quarterly-outlook/q4-full-report-2019.pdf):

Weakening the dollar is the last hope for the global economy, economist says
Elliot Smith | @ElliotSmithCNBC
Published 5:39 AM ET Thu, 3 Oct 2019 Updated 8:09 AM ET Thu, 3 Oct 2019 CNBC.com

Weakening the dollar is the last throw of the dice in rescuing the global economy, according to Saxo Bank's Steen Jakobsen.

In the online trading and investment specialist's outlook report for the fourth quarter, published Thursday, Jakobsen said 2019 will most likely be remembered as the year that kickstarted a global recession, despite the lowest ever nominal and real interest rates.

"Monetary policy has reached the end of a very long road and has proven a failure," Jakobsen, who is the chief economist and CIO at Saxo Bank, added.

The U.S. Federal Reserve in September made a second 25 basis point cut to interest rates (https://www.cnbc.com/2019/09/18/fed-dotplot-september-2019.html), moving to a range of 1.75% to 2%. Its initial 25 basis point reduction in July was the central bank's first rate cut since the financial crisis.

The European Central Bank (ECB), meanwhile, recently unveiled a package of measures (https://www.cnbc.com/2019/09/12/european-central-bank-launches-new-bond-buying-program.html) to reinvigorate the euro zone economy, cutting its deposit rate by 10 basis points to -0.5% and launching a massive new quantitative easing (QE) program. A host of other central banks across the world (https://www.cnbc.com/2019/08/07/central-banks-are-cutting-interest-rates-aggressively-here-is-why.html) have also embarked on dovish policy shifts.

Fears for the global economy have been exacerbated of late by the weakest manufacturing data out of the U.S. for over a decade, which compounded already fragile readings from across the euro zone and beyond.

"In a global system of failed monetary policies and a long and difficult path to fiscal policy, there is only one other tool left in the box for the global economy and that is lower the price of global money itself: the U.S. dollar," Jakobsen said.

The outlook report pointed to an estimated $240 trillion of debt worldwide, roughly 240% of global GDP, and argued that too much of this debt is denominated in dollars, due to the greenback's role as global reserve currency and the deep liquidity of U.S. capital markets.

This means the prospects for all asset classes have become a function of U.S. dollar liquidity and direction, Saxo Bank economists suggested.

"If the dollar rises too much, the strain in the system increases: not only for U.S. exports, but also for the emerging market with its high dependence on USD funding and export machines," Jakobsen said.

"Weakening the Killer Dollar will likely put the final nail in the coffin of the grand credit cycle that started in the early 1980s, when the U.S. balance sheet was reset, and the USD was anchored by Volcker's victory over inflation after Nixon abandoned the gold standard in 1971."

Paul Volcker was Chair of the Fed between 1979 and 1987, and in 1980, he took the famously bold move of almost doubling the Fed funds rate to its highest point in history to put an end to double-digit inflation.

The cycle since then has been "turbocharged by globalization" and "lending money into existence via offshore USD creation," the note added.

Saxo projected that a weaker USD could buy some time for the global markets, adding that it would not offer a structural solution, but represents the easiest quick fix and the one likely to face the least political opposition.

White House pressure

U.S. President Donald Trump has repeatedly chastised the Federal Reserve for what he perceives to be insufficient action to weaken the dollar, disadvantaging the U.S.

In a tweet Tuesday, the president wrote Fed Chair Jerome Powell and the central bank "have allowed the Dollar to get so strong, especially relative to ALL other currencies, that our manufacturers are being negatively affected."

While market expectation is for the Fed's policy path to remain largely unchanged, the Trump administration is likely to ramp up its pressure on the currency, Saxo analysts project.

Saxo Bank Head of FX Strategy John Hardy highlighted that as foreign central banks have lost the ability and willingness to accumulate USD reserves, they have increasingly sought funding from domestic sources.

"U.S. savers' and U.S. banks' balance sheets simply can't absorb the torrent of issuance. Something has to give, and that something will be the Fed: whether it wants to or not," Hardy said.

He suggested that in Q4, the Fed will likely be forced to respond in an increasingly substantial capacity to further liquidity provision, and the Trump administration may even wrest control of policy.

"A heel-dragging Fed and dark clouds gathering over the economic outlook almost ensures that the Trump administration will be scrambling for the funding it needs to ensure Trump's re-election in 2020," Hardy said.
From: https://www.cnbc.com/amp/2019/10/03/saxo-weakening-the-dollar-is-the-last-hope-for-the-global-economy.html?__twitter_impression=true

Hervé

5th October 2019, 13:54

Russia's largest oil company Rosneft ditches dollar for Euro (https://oilprice.com/Latest-Energy-News/World-News/Russias-Largest-Oil-Company-Ditches-Dollar-In-New-Oil-Deals.html)

Tsvetana Paraskova Oil Price (https://oilprice.com/Latest-Energy-News/World-News/Russias-Largest-Oil-Company-Ditches-Dollar-In-New-Oil-Deals.html)
Sat, 05 Oct 2019 11:00 UTC

https://www.sott.net/image/s27/540554/large/d38bab34d58c96be7846d3df5c2623.jpg (https://www.sott.net/image/s27/540554/full/d38bab34d58c96be7846d3df5c2623.jpg)

Russia's largest oil company Rosneft has set the euro as the default currency for all new exports of crude oil and refined products, as the state-controlled giant looks to switch as many sales as possible from U.S. dollars to euros in order to avoid further U.S. sanctions against it.

As of September, Rosneft is seeking euros as the default option of payment for its crude oil and products, Reuters reported (https://www.reuters.com/article/russia-oil-rosneft-euro/update-1-russias-rosneft-seeks-euros-for-all-new-export-deals-documents-idUSL5N26O30S?rpc=401&) on Thursday, quoting tender documents the Russian firm has published.

"Rosneft has recently adjusted all the new contracts for export supplies to euros," a trader at a company that regularly procures oil from Rosneft told Reuters, adding that buyers have already been notified of the change.

Rosneft is the biggest oil exporter from Russia, selling around 2.4 million barrels per day (bpd) of oil, according to Reuters estimates.

In the latest tender for a spot sale of 100,000 tons of Urals blend loading from the port of Primorsk at the end of October, Rosneft specifies that the default currency in the payment should be in euros, according to the tender document cited by Reuters.

The United States has not ruled out (https://oilprice.com/Latest-Energy-News/World-News/US-May-Slap-Sanctions-On-Rosneft-For-Trading-Venezuelan-Oil.html) imposing sanctions on Rosneft over its involvement in trading oil from Venezuela. Rosneft has been reselling the oil (https://www.reuters.com/article/us-russia-venezuela-oil/rosneft-becomes-top-venezuelan-oil-trader-helping-offset-u-s-pressure-idUSKCN1VC1PF) from the Latin American country to buyers in China and India and thus helping buyers hesitant to approach Venezuela and its state oil firm PDVSA because of the U.S. sanctions on Caracas, and, at the same time, helping Venezuela to continue selling its oil despite stricter U.S. sanctions.

In August, Rosneft told customers that oil product sales in tender contracts will be priced in euros (https://oilprice.com/Latest-Energy-News/World-News/Rosneft-To-Sell-Oil-Products-In-Euros-To-Avoid-Possible-New-US-Sanctions.html) instead of U.S. dollars, trading sources told Reuters (https://www.reuters.com/article/us-russia-rosneft-tenders-euro/russias-rosneft-to-switch-to-euros-in-oil-products-tenders-traders-idUSKCN1VB15J?rpc=401&) back then.

Rosneft's move was seen by traders and analysts as a future hedge against potential new U.S. sanctions on Russia and/or its oil industry.

Related:

Iran is China's secret weapon for killing off the US dollar's global reserve status (https://www.sott.net/article/421440-Iran-is-Chinas-secret-weapon-for-killing-off-the-US-dollars-global-reserve-status)

'We Are The Vaccine Against The Cancer of Unilateralism' - Delegates From 120 Nations Meet in Venezuela to Plot Escape From U$ Hegemony (https://www.sott.net/article/417579-We-Are-The-Vaccine-Against-The-Cancer-of-Unilateralism-Delegates-From-120-Nations-Meet-in-Venezuela-to-Plot-Escape-From-U-Hegemony)

Pepe Escobar: How Yemen's Houthis are bringing down a Goliath (https://www.sott.net/article/421054-Pepe-Escobar-How-Yemens-Houthis-are-bringing-down-a-Goliath)

Alastair Crooke: Germany stalls and Europe craters (https://www.sott.net/article/418379-Alastair-Crooke-Germany-stalls-and-Europe-craters)

Cara

10th October 2019, 05:18

It seems the United Nations is running a deficit and is at risk of running out of money.

United Nations could run out of money in a few weeks, Secretary General warns
Updated on: October 8, 2019 / 11:54 AM

United Nations — The United Nations is running a deficit of $230 million, Secretary General Antonio Guterres said on Monday, and may run out of money by the end of October. In a letter intended for the 37,000 employees at the UN secretariat and obtained by CBS News' Pamela Falk, Guterres said unspecified "additional stop-gap measures" would have to be taken to ensure salaries and entitlements are paid.

"Member States have paid only 70 percent of the total amount needed for our regular budget operations in 2019. This translates into a cash shortage of $230 million at the end of September. We run the risk of depleting our backup liquidity reserves by the end of the month," he wrote.

To cut costs, Guterres mentioned postponing conferences and meetings and reducing services, while also restricting official travel to only essential activities and taking measures to save energy.

Although 129 States out of 193 have now paid their regular annual dues, the most recent being Syria, UN Spokesperson Stéphane Dujarric told correspondents at the regular briefing in New York, others needed to pay "urgently and in full".

"This is the only way to avoid a default that could risk disrupting operations globally. The Secretary-General further asked governments to address the underlying reasons for the crisis and agree on measures to put the United Nations on a sound financial footing."

Guterres had asked member states earlier this year to up contributions to the world body to head off cash flow problems, but they refused, a UN official told French news agency AFP on condition of anonymity.

"The ultimate responsibility for our financial health lies with Member States," Guterres said.

Not including what it pays for peacekeeping operations, the UN's operating budget for 2018-2019 is close to $5.4 billion, with the United States contributing the largest share at 22 percent.

As the Council on Foreign Relations explained earlier this year, U.S. contributions are vital to the UN's operations, and cuts to discretionary contributions implemented by Mr. Trump's administration have already forced the UN agency that serves Palestinian refugees to make deep cuts.

The White House has been pushing for a broad reassessment of the U.S. contribution to the UN budget since Mr. Trump took office.
From: https://www.cbsnews.com/amp/news/united-nations-could-run-out-of-money-in-october-secretary-general-antonio-guterres-says-today-2019-10-08/?__twitter_impression=true

Cara

10th October 2019, 05:23

The OECD has a proposal to impose more tax on multinationals.

OECD proposes plan to make multinationals pay more tax
Revolution in corporate taxation would stop digital giants shifting profits round the world to minimise tax bills

October 9, 2019 9:04 am by Chris Giles in London

The OECD has proposed a revolution in corporate taxation, overturning a century of rules that had allowed digital groups such as Facebook, Apple, Amazon, Netflix and Google to shift profits around the world to minimise their tax bills.

The proposals, which were unveiled on Wednesday after months of behind-the-scenes negotiations, are aimed at extracting more corporate tax from large multinationals whether they are digital or own highly profitable brands, such as luxury goods makers or global car companies.

The winners would be large countries including the US, China, UK, Germany, France, Italy and developing economies. These would see an increase in their rights to levy tax on corporate income earned from sales in their territories, while the companies themselves, tax havens and low tax jurisdictions such as Ireland would lose.

The OECD’s aim, it said, was to create a new and “stable” international corporate tax system because “the current rules dating back to the 1920s are no longer sufficient to ensure a fair allocation of taxing rights in an increasingly globalised world”.

The OECD had indications over the summer that its proposals were likely to win support from the leading global economies and this, it hopes, will persuade countries not to go down a unilateral route with domestic digital sales taxes, such as that proposed by France and the UK, which would further inflame global trade tensions.

The Paris-based international organisation is seeking agreement in principle from the G20 by the end of January so that it can work up detailed rules.

The main problem it sought to address was that multinationals, whether they were the digital giants or had very profitable intangible brands, could shift the profits to low tax jurisdictions and leaving little corporate tax revenue for large economies to collect despite most of their business activity taking place in these large economies.

It has proposed breaking a taboo in international corporate taxation that countries only had a right to tax activities from companies that had a physical presence on their soil.

Instead, the OECD proposed that countries should have a right to tax a proportion of the global profits of highly profitable multinationals wherever these might have been shifted around the world.

It would enable France, for example, to tax an element of the sales of Google to French advertisers and the US to have greater taxing rights over the profits attributable to the brands of the French luxury brand company LVMH related to the sales in America.
From: https://amp.ft.com/content/b16fd228-ea72-11e9-a240-3b065ef5fc55?__twitter_impression=true

Cara

11th October 2019, 10:06

The World Economic Forum (WEF) has released its Global Competitiveness Report.

This is the same elite group that meets to discuss and decide on global economic issues. They are also the group that recently agreed a rather close working relationship with the United Nations (here (http://projectavalon.net/forum4/showthread.php?108184-The-Changing-Emerging-Global-Landscape&p=1307994&viewfull=1#post1307994)).

Here is their report:

Global Competitiveness Report 2019

Ten years on from the global financial crisis, the world economy remains locked in a cycle of low or flat productivity growth despite the injection of more than $10 trillion by central banks. The latest Global Competitiveness Report paints a gloomy picture, yet it also shows that those countries with a holistic approach to socio-economic challenges, look set to get ahead in the race to the frontier.

The Top 10
https://assets.weforum.org/editor/large_KIcTBlV7eokZrH22-YNuxoxV8F99YgWek7_u3oOdk54.jpg

Long-term growth: the final frontier

This year’s Global Competitiveness Report is the latest edition of the series launched in 1979 that provides an annual assessment of the drivers of productivity and long-term economic growth. With a score of 84.8 (+1.3), Singapore is the world’s most competitive economy in 2019, overtaking the United States, which falls to second place. Hong Kong SAR (3rd), Netherlands (4th) and Switzerland (5th) round up the top five.

Building on four decades of experience in benchmarking competitiveness, the index maps the competitiveness landscape of 141 economies through 103 indicators organized into 12 themes. Each indicator, using a scale from 0 to 100, shows how close an economy is to the ideal state or “frontier” of competitiveness. The pillars, which cover broad socio-economic elements are: institutions, infrastructure, ICT adoption, macroeconomic stability, health, skills, product market, labour market, the financial system, market size, business dynamism and innovation capability.

What is competitiveness?

What is economic competitiveness? The World Economic Forum, which has been measuring countries' competitiveness since 1979 (http://reports.weforum.org/global-competitiveness-report-2019/), defines it as: “the set of institutions, policies and factors that determine the level of productivity of a country." Other definitions exist, but all generally include the word “productivity".

The Global Competitiveness Report is a tool to help governments, the private sector, and civil society work together to boost productivity and generate prosperity. Comparative analysis between countries allows leaders to gauge areas that need strengthening and build a coordinated response. It also helps identify best practices (https://www.weforum.org/agenda/2019/02/oecd-most-productive-economies-2019/) around the world.

The Global Competitive Index (http://reports.weforum.org/global-competitiveness-report-2019/) forms the basis of the report. It measures performance according to 114 indicators that influence a nation’s productivity. The latest edition (http://reports.weforum.org/global-competitiveness-report-2019/) covered 141 economies, accounting for over 98% of the world’s GDP.

Countries’ scores are based primarily on quantitative findings from internationally recognized agencies such as the International Monetary Fund and World Health Organization, with the addition of qualitative assessments from economic and social specialists and senior corporate executives.

Explore the full report (http://reports.weforum.org/global-competitiveness-report-2019/)

A lost decade

Economic tipping point and a widening competitiveness gap

The world is at a social, environmental and economic tipping point. Subdued growth, rising inequalities and accelerating climate change provide the context for a backlash against capitalism, globalization, technology, and elites. There is gridlock in the international governance system and escalating trade and geopolitical tensions are fuelling uncertainty. This holds back investment and increases the risk of supply shocks: disruptions to global supply chains, sudden price spikes or interruptions in the availability of key resources.

The Global Competitiveness Report 2019 reveals an average across the 141 economies covered of 61 points. This is almost 40 points short of the “frontier”. It is a global competitiveness gap that is particularly concerning, given the world economy faces the prospect of a downturn. The report’s survey of 13,000 business executives highlights deep uncertainty and lower confidence.

While the $10 trillion injection by central banks is unprecedented and has succeeded in averting a deeper recession, it is not enough to catalyse the allocation of resources towards productivity enhancing investments in the private and public sectors.

However, some of this year’s better performers appear to be benefiting from global trade tensions through trade diversion, including Singapore (1st) and Viet Nam (67th), the most improved country in 2019.

The principal culprits

Persistent weaknesses in the drivers of productivity growth are among the principal culprits. In advanced, emerging and developing economies, productivity growth started slowing in 2000 and decelerated further after the crisis. Between 2011 and 2016, “total factor productivity growth” – or the combined growth of inputs, like resources and labour, and outputs – grew by 0.3% in advanced economies and 1.3% in emerging and developing economies.

The financial crisis added to this deceleration through “productivity hysteresis”– the long-lasting delayed effects of investments being undermined by uncertainty, low demand and tighter credit conditions. Beyond strengthening financial system regulations, many of the structural reforms designed to revive productivity that were promised by policy-makers in the midst of the crisis did not materialize.

The injection of cash by the world’s four major central banks may have even contributed to divert more capital towards the financial market rather than to productivity-enhancing investments.

Who’s the best in class?

1 With a score of 84.8 out of 100, Singapore is the country closest to the frontier of competitiveness

2 Other G20 economies in the top 10 include the United States (2nd), Japan (6th), Germany (7th) and the United Kingdom (9th) while Argentina (83rd, down two places) is the lowest ranked among G20 countries

3 Asia-Pacific is the most competitive region in the world, followed closely by Europe and North America

4 The United States may have lost out to Singapore overall, but it remains an innovation powerhouse, ranking 1st on the business dynamism pillar, 2nd on innovation capability, and 1st for finding skilled employees

5 Nordic countries are among the world’s most technologically advanced, innovative and dynamic while also providing better living conditions and social protection

6 Denmark, Uruguay and Zimbabwe have increased their shares of renewable sources of energy significantly more than other countries at their respective levels of competitiveness

Winning the game – how to get ahead?

The index examines the relationship between competitiveness and the two other dimensions of sustainable development – social cohesiveness and environmental sustainability. It shows that there are no inherent trade-offs between competitiveness and sustainability, and between competitiveness and social cohesiveness. This suggests a “win-win” policy space, where a productive, low-carbon, inclusive economy is possible, and it is the only viable option going forward.

The report is a reminder to apply a holistic approach and to better balance short-term considerations against factors whose impact is felt beyond quarterly results and election cycles. For example, the results of the index show that labour and education policies have not been keeping up with the pace of innovation in most countries, including in some of the largest and most innovative economies.

For least-developed and emerging economies, their fragile economic foundations make them highly vulnerable to shocks. With extreme poverty reduction decelerating and nearly one-half of humanity still struggling to meet basic needs, the report suggests the need for sustained, productivity enhancing economic growth remaining critical for improved living standards.

In parallel, the unfolding climate crisis requires urgent, decisive and coordinated action by policy-makers. Supporting economic growth at all costs can no longer be a sole objective.

Governments must better anticipate the unintended consequences of technological integration and implement complementary social policies that support populations through the Fourth Industrial Revolution. The report shows that several economies with strong innovation capability like South Korea, Japan and France, or increasing capability, like China, India and Brazil, must improve their talent base and the functioning of their labour markets.

https://assets.weforum.org/editor/large_VxffWinJ7TPA_BfvCm2dCd979jMAR2kSgON0P8WZvCU.jpg

The world’s largest economies also have room for improvement on technology governance. Based on how the legal frameworks in their countries are adapting to digital business models, only four G20 economies made it into the top 20: United States (1st), Germany (9th), Saudi Arabia (11th) and the United Kingdom (15th). China ranks 24th in this category.

Education, education, education

Talent adaptability is critical. It pays to enable the workforce to contribute to the technology revolution and to be able to cope with its disruptions. Talent adaptability also requires a well-functioning labour market that protects workers, not jobs. Advanced economies such as South Korea, Italy, France and, to some extent, Japan need to develop their skills base and tackle rigidities in their labour markets. As innovation capacity grows in emerging economies such as China, India and Brazil, they need to strengthen their skills and labour market to minimize the risks of negative social spillovers.

Economic growth does not happen in a vacuum

Sustained economic growth remains the surest route out of poverty and a core driver of human development. For the past decade, growth has been subdued and remains below potential in most developing countries, seriously hampering progress on several of the UN’s 2030 Sustainable Development Goals (SDGs). The competitiveness landscape of 2019 does not bode well. Individual countries, the aid community and all stakeholders must step up their efforts urgently.

The world is not on track to meet any of the SDGs. Least developed countries have missed the target of 7% growth every year since 2015. Extreme poverty reduction is decelerating. 3.4 billion people – or 46% of the world’s population – lived on less than $5.50 a day and struggled to meet basic needs. After years of steady decline, hunger has increased and now affects 826 million – or one in nine people – up from 784 million in 2015. A total of 20% of Africa’s population is undernourished. The “zero hunger” target will almost certainly be missed.

The index shows that there is little determinism and fatalism in the process of economic development. Economic growth does not happen in a vacuum. Some basic building blocks are required to jumpstart the development process, and more are needed to sustain it. In the current volatile geopolitical context, and with a likely downturn ahead, building economic resilience through improved competitiveness is crucial, especially for low-income countries.

So as monetary policies begin to run out of steam, it is crucial for economies to rely on fiscal policy and public incentives to boost research and development, enhance the skills base of the current and future workforce, develop new infrastructure and integrate new technologies.
From: https://www.weforum.org/reports/how-to-end-a-decade-of-lost-productivity-growth

~~~

This seems to be their diagnosis of the problem:

Subdued growth, rising inequalities and accelerating climate change provide the context for a backlash against capitalism, globalization, technology, and elites. There is gridlock in the international governance system and escalating trade and geopolitical tensions are fuelling uncertainty. This holds back investment and increases the risk of supply shocks: disruptions to global supply chains, sudden price spikes or interruptions in the availability of key resources.

And this seems to be their recommended solution:

as monetary policies begin to run out of steam, it is crucial for economies to rely on fiscal policy and public incentives to boost research and development, enhance the skills base of the current and future workforce, develop new infrastructure and integrate new technologies

Cara

11th October 2019, 10:32

Turkey is joining Russia’s SWIFT alternative.

Turkey Joins Russia's Ruble-Based Alternative To SWIFT
Wed, 10/09/2019 - 04:15

After repeated warnings over the past couple of years, Turkey and Russia have signed a pact to increase use of the ruble and lira in cross-border payments, with Turkey signing on to Russia's alternative to SWIFT, the international telecommunications protocol used by banks and central banks the world over.

Though SWIFT is an international cooperative owned by its members, with more than 10,000 banks worldwide relying on its system for handling sizable inter-bank transactions, the safety of the network was brought into question after a series of cyberattacks in 2015 and 2016 resulted in the theft of $101 million from the Central Bank of Bangladesh.

For the first time since SWIFT's laucnh, the hacks stoked doubts about the system's safety, and prompted many US rivals, including Russia, to ramp up work on their alternatives to SWIFT.

In addition to Turkey, China and Russia have signed agreements to bolster trade between the two countries, including settling a larger percentage of their bilateral trade in rubles and renminbi. For China, bilateral trade with Russia grew from $69.6 billion in 2016 to $107.1 billion last year. China is Russia's biggest partner for imports and exports.

There has also been talk about India joining Russia's SWIFT alternative as Washington continues to threaten New Delhi with sanctions over its decision to purchase Russian-made missile-defense systems.

According to Reuters (https://www.reuters.com/article/russia-turkey-forex/russia-turkey-agree-on-using-rouble-lira-in-mutual-settlements-idUSR4N26O04T), Russian Finance Minister Anton Siluanov signed the agreement with Ankara on Tuesday. The agreement, signed on Oct. 4, will encourage the two countries to start using Russia's system in mutual settlements.

The agreement envisions Turkish banks and companies becoming connected to the Russian version of the SWIFT payment system, while enhancing the infrastructure in Turkey to allow Russian MIR cards, designed by Moscow as alternative to MasterCard and VISA, to work.

Though President Trump on Tuesday reiterated his love and respect for Turkish President Recep Tayyip Erdogan, it's worth remembering President Putin's warning about the potential ramifications of American sanctions (https://www.zerohedge.com/news/2019-06-12/putin-sets-table-leave-dollar-behind), which risk undermining the dollar's dominance of the global financial system by driving more countries to use alternatives to SWIFT.

For example, President Trump's sanctions against Iran prompted Washington's European Union allies to try and launch their own SWIFT alternative (https://www.zerohedge.com/news/2019-01-31/eu-launches-paris-based-instex-skirt-us-sanctions-iran) to make payments to Iran.

As Putin warned, American sanctions against Russia are a "colossal strategic mistake" and eventually risk undermining the dollar-based hegemony of the global financial system.
From: https://www.zerohedge.com/geopolitical/turkey-joins-russias-ruble-based-alternative-swift

Cara

13th October 2019, 09:21

Also relevant here:

Does Trump have it backwards? This economist points out that if you count services and profitability, the Chinese are probably running a trade deficit with the US.

irMmR9SzPDY

And that's why they can't cave into Trump's demands.

Thanks TomKat.

This is a useful (and not mentioned) part of the story to know. Trade in services is not typically included in the trade war media narrative.

Cara

14th October 2019, 03:13

Some seem to be openly advocating the re-emergence of the gold standard.

Central Bank Issues Stunning Warning: "If The Entire System Collapses, Gold Will Be Needed To Start Over"

It's not just "tinfoil blogs" who (for the past 11 years (https://www.zerohedge.com/article/feds-nemesis-exters-2-quadrillion-liquidity)) have been warning that a monetary reset is inevitable and the only viable fallback option once trust and faith in fiat is lost, is a gold standard (something which even Mark Carney hinted at recently (https://www.zerohedge.com/news/2019-08-24/why-mark-carney-thinks-dollar-can-no-longer-be-worlds-reserve-currency)): central banks are joining the doom parade now too.

An article published by the De Nederlandsche Bank (DNB), or Dutch Central Bank, has shocked many with its claim that "if the system collapses, the gold stock can serve as a basis to build it up again. Gold bolsters confidence in the stability of the central bank's balance sheet and creates a sense of security."

1182929467469193217

ECB’s Rehn Says FT Story on QE Is ‘Greatly Exaggerated’

While gloomy predictions of a monetary reset are hardly new, they have traditionally been relegated to the fringe of mainstream financial thought - after all, as Mario Draghi stated on several occasions in recent years, the mere contemplation of a "doomsday scenario" is enough to create the self-fulfilling prophecy which materializes it. As such, it is stunning to see a mainstream financial institution open up about the superior value of limited supply, non-fiat, sound money assets. It is also hypocritical given the diametrically opposed Keynesian practices regularly engaged in by central banks and official institutions worldwide: after all, just a few months back, the IMF published a paper (https://www.imf.org/en/Publications/WP/Issues/2019/02/15/Destabilizing-the-Global-Monetary-System-Germanys-Adoption-of-the-Gold-Standard-in-the-Early-46548) bashing Germany's adoption of the gold standard in the 1870s as the catalyst for instability in the global monetary system.

Fast forward to today, when the Dutch Central Bank is admitting not only did gold not destabilize the monetary system, but it will be its only savior when everything crashes.

The article, titled "DNB's Gold Stock (https://www.dnb.nl/en/payments/goud/index.jsp)" states:

"A bar of gold retains its value, even in times of crisis. This makes it the opposite of "shares, bonds and other securities" all of which have inherent risk and prices can go down.

Photo of gold bars from the DNB's article "Goud van DNB."
https://www.zerohedge.com/s3/files/inline-images/dutch%20gold.jpg?itok=IRomIDa3

According to the IMF's latest data, the DNB holds 615 tons (15,000 bars) of gold mainly in Amsterdam, with other stores in the U.K. and North America; the value of this gold reserve is over €6 billion ($6.62 billion). Calling gold the “trust anchor,” the article details briefly why the hard asset is so important to wealth building and the global economy, claiming: "Gold is... the trust anchor for the financial system. If the whole system collapses, the gold stock provides a collateral to start over. Gold gives confidence in the power of the central bank's balance sheet."

Why this sudden admission of what goldbugs have been saying for years? Perhaps it has to do with the fact that on October 7, the bank announced (https://www.dutchnews.nl/news/2019/10/dutch-central-bank-to-move-part-of-gold-reserves-to-haarlem/) it would soon be moving a large part of its gold reserves to "the new DNB Cash Center at military premises in Zeist."

Almost as if the Netherlands is preparing for the grand reset, and is moving its most valuable asset to a "military" installation just for that purpose.

As bitcoin.com tongue-in-cheek points out, "DNB is no stranger to playing along with the Keynesian, inflationary games of the global monetary system. A system which, according to some, is now more a Ponzi scheme based on force and blind faith than sound economic principle. That notwithstanding, the centralized financial powers of the world know the real score, and that’s why hard assets like gold are hoarded and locked down while everyday, individual residents of these geopolitical jurisdictions are encouraged to spend and spend, going further into debt to prop up ultimately unsound national economies."

It is hardly a coincidence that in its preparation for monetary doomsday, the Dutsch Central Bank is also set to begin cracking down on crypto exchanges and wallets, stating that "firms offering services for the exchange between cryptos and regular money, and crypto wallet providers must register with De Nederlandsche Bank."

While the push for greater KYC/AML transparency is a growing global trend, and is hardly surprising in a world in which trillions in assets reside in "tax-evading" offshore jurisdiction, the remarkable aspect of this latest crackdown against crypto - which many see as a modern, more efficient form of "gold" - is the fact that invasive regulations and restrictions by central banks can be seen as yet another means of stockpiling precious assets. This time, not gold bars, but bitcoin and crypto.

As for the timing of the "great monetary reset", which other central banks have already quietly hinted at themselves amid massive repatriation of physical gold from the New York Fed to various European central banks such as Germany and Austria, we are confident that the trust-keepers of the current establishment - such as other central banks and the IMF - will be kind enough to provide ample advance notice to the citizens of the "developed" world to exchange their fiat into hard assets. Or, then again, perhaps not.
From: https://www.zerohedge.com/markets/central-bank-issues-stunning-warning-if-entire-system-collapses-gold-will-be-needed-start

AutumnW

14th October 2019, 18:10

Russia and Iran are seeking a SWIFT alternative.

SWIFT = “The Society for Worldwide Interbank Financial Telecommunication provides a network that enables financial institutions worldwide to send and receive information about financial transactions in a secure, standardized and reliable environment.”
https://www.swift.com/

Kremlin aide says Iran, Russia looking for alternative to SWIFT

IRNA – The aide for Russian president for international affairs said Iran and Russia are looking for an alternative network to replace the Society for Worldwide Interbank Financial Telecommunication (SWIFT) whose key is unlawfully held by the secretary of US Department of Treasury.

Iran and Russia will take measures for expansion of direct financial transactions and use of national currencies, Uri Ushakov told reporters on Friday.

Ushakov said that Tehran and Moscow are trying to make Iranian SEPAM and Russian System for Transfer of Financial Messages (SPFS) cooperate to put SWIFT aside.

He added that the prominent joint project of Russia and Iran is building a nuclear power plant in Iran, the second phase of which is in progress and the concreting process will soon start.

The Kremlin aide also said that in the upcoming meeting of Iran’s President Hassan Rouhani and Russia’s President Vladimir Putin, the issue of Syria will be discussed, alongside the mutual issues and the topic of the Joint Comprehensive Plan of Action (JCPOA).

He said that in the aftermath of the US withdrawal from the deal, the goal is now to preserve the JCPOA. Russia is in touch with all the remaining signatories of the deal, including Iran, adding that Russia has had active talks with France and is loyal to the international deal.

Saying that Rouhani and Putin are to meet for the third time this year, Ushakov added that strengthening the economic and trade relations between Iran and Russia is among the most important issues.

He said that in 2018, the trade grew by 2% reaching $1.7b and in the first half of 2019 it has grown by 17% to reach $1.1b and that the big oil companies of Russia, such as Gazprom, Rosneft‎, Lukoil, Zarubezhneft, and Tatneft are discussing exploitation of Iran’s big fields.

...
From: https://theiranproject.com/blog/2019/09/14/kremlin-aide-says-iran-russia-looking-for-alternative-to-swift/

It can't happen soon enough. This is one of the main reasons for all the current tension in the area. The U.S. And its global financial dominance can get stuffed.

Cara

17th October 2019, 04:36

Posted in its own thread (http://projectavalon.net/forum4/showthread.php?108927-Bank-of-Canada-considers-eliminating-cash-to-better-track-individuals) by Justplain and also relevant here:

Do we really want to have cash eliminated so that Big Brother can track our every financial transaction? I think not.

The Bank of Canada is considering launching a digital currency that would help it combat the “direct threat” of cryptocurrencies and collect more information on how people spend their money, The Logic has learned.

An internal Bank of Canada presentation, prepared for Governor Stephen Poloz and the bank’s board of directors, offers the most detailed public insight yet into the bank’s thinking on a proprietary digital coin. According to the presentation, the currency would be widely available. It would initially coexist with coins and paper money, eventually replacing them completely.

The presentation, titled “Central Bank Money: The Next Generation” and acquired by The Logic via an access-to-information request, was prepared by Stephen Murchison, an adviser to Poloz tasked with leading the bank’s digital currency research, for a September 2018 board meeting. Murchison presented it as part of a two-year research project on whether or not the bank should issue its own digital money.

https://business.financialpost.com/technology/blockchain/bank-of-canada-exploring-digital-currency-that-would-replace-cash-track-how-people-spend-money

Cara

17th October 2019, 06:33

Another couple of gold-related announcements.

First, in Russia:

Moscow Exchange Launches Gold Futures in Derivatives Market
October 10, 2018

https://russiabusinesstoday.com/wp-content/uploads/2018/09/MOEX.jpg

The Moscow Exchange will begin trading of deliverable gold futures on its Derivatives Market.

The new contract will link Moscow Exchange’s Precious Metals and Derivatives markets as gold will be delivered via the Precious Metals Market spot section.

The contract will be quoted in rubles per gram and will expire monthly, the Moscow Exchange said. The contract size is ten grams, and its acronym is GLD (ticker symbol GO). At launch, the contract series with expiration in November and December 2018 and January 2019 will be introduced, MOEX said.

“Moscow Exchange’s trading volumes in commodities futures have more than tripled over the past four years, accounting for more than 20% of total derivatives trading. The new contract will help expand MOEX’s derivatives offering and expand trading options for our participants. It will further enhance the Precious Metals Market and give impetus to the creation of a Russian gold benchmark,” says Igor Marich, Managing Director of the Money and Derivatives Markets at Moscow Exchange.

Currently, the Moscow Exchange offers trading in precious metals (gold and silver) as well as cash-settled futures on precious metals (gold, silver, platinum, and palladium).
From: https://russiabusinesstoday.com/manufacturing/moscow-exchange-launches-gold-futures-in-derivatives-market/

~~~

This one from the UAE.

UAE to establish federal platform for gold trading

The gold trade accounts for 20% of the UAE's total non-oil exports

By Bernd Debusmann Jr13 Oct 2019

https://www.arabianbusiness.com/sites/default/files/styles/fb_share_style_image/public/images/2019/08/14/gold-trading.jpg?itok=GV7l_AWD
The move – approved by the UAE Cabinet – is part of a larger policy to enhance the UAE’s position as a global hub for gold and jewellery trading.

The UAE will establish a federal platform for gold trading and the tracking of gold sources, the government has announced.

The move – approved by the UAE Cabinet – is part of a larger policy to enhance the UAE’s position as a global hub for gold and jewellery trading.

The policy has three main pillars – governance, sustainability and innovation – with 10 separate strategic programmes and initiatives, also including the establishment of a federal platform for gold trading and tracking, international marketing of the gold sector, and the use of technology in the production of gold.

Additionally, the policy will develop tools and initiatives that stimulate growth “in order to facilitate doing business and bring added value to this vital sector”, according to the UAE’s state-run WAM news agency.

The gold trade accounts for 20 percent of the UAE’s total non-oil exports.
From: https://amp.arabianbusiness.com/amp/article_listing/aben/commodities/430310-uae-to-establish-federal-platform-for-gold-trading?__twitter_impression=true

~~~

Perhaps related: last year the UAE introduced VAT (value added taxation). Shortly after its introduction, gold traders were made “exempt” from it:

The UAE Cabinet has adopted a law to introduce the VAT Reversed Charge mechanism for investors in gold, diamond and precious metals.

Under the mechanism, there will only be documented entries of five percent VAT in the books of both buyers and sellers but no payment of the fee.
From: https://www.arabianbusiness.com/retail/395591-uae-adopts-law-to-exempt-gold-diamond-trading-from-vat

Cara

20th October 2019, 05:17

It seems there is a “change in sentiment” concerning the value of the so-called “unicorns” of the stock market. These unicorns seem mostly to have built their business model around breaking the traditional employment models and transforming employees into part-time, piece-work, “free” agents.

This article compares and contrasts the fall-out in the stock market as investors decide these businesses are over-valued with the bust that occurred after the dot-com bubble.

My view is that this bubble is somewhat smaller in scale than the dot-com bubble (especially as compared with the debt and derivatives market).

Another thought I had was that although the changing nature of business models was over-hyped in the dot-com boom, it was mostly hyped in terms of timing, i.e. how soon the change would come about. However, if I look at the world today, there are very few businesses or organisations which do not have some kind of internet enabled aspect to their business. So the transformation came, but it took a little longer (a couple of decades).

Will the same kind of “overshoot —> scale back —> slow, but widespread change” occur for this latest disaggregation of business models? If so, expect fewer and fewer jobs and more and more labour arbitrage models.

~~~

The Not-Com Bubble Is Popping
The unicorn massacre unfolding today is exactly the opposite of what happened in 2000.

Derek Thompson, Oct 18, 2019

Staff writer at The Atlantic

https://cdn.theatlantic.com/assets/media/img/mt/2019/10/RTX155JU/lead_720_405.jpg?mod=1571333507
Twitter logo displayed at the New York Stock Exchange
Brendan McDermid / Reuters

It is easy to look at today’s crop of sinking IPOs—like Uber, Lyft, and Peloton—or scuttled public offerings, like WeWork, and see an eerie resemblance to the dot-com bubble that popped in 2000.

Both then (https://en.wikipedia.org/wiki/Pets.com) and now (https://en.wikipedia.org/wiki/Blue_Apron), consumer-tech companies spent lavishly on advertising and struggled to find a path to profit.

Both then (https://www.marketwatch.com/story/sock-puppet-kills-petscom) and now (https://www.cnbc.com/2019/10/15/softbank-is-in-talks-with-jp-morgan-on-wework-bailout-package.html), companies that bragged about their ability to change the world admitted suddenly that they were running out of money.

Both then (https://time.com/3741681/2000-dotcom-stock-bust/) and now (https://www.ft.com/content/272d408e-de40-11e9-b112-9624ec9edc59), the valuations of once-heralded tech enterprises were halved in a matter of weeks.

Both then (https://ideas.ted.com/an-eye-opening-look-at-the-dot-com-bubble-of-2000-and-how-it-shapes-our-lives-today/) and now (https://www.nytimes.com/2019/07/29/technology/uber-job-cuts.html), there was a widespread sense of euphoria curdling into soberness, washed down with the realization that thousands of workers in once-promising firms were poised to lose their jobs.

But if you look closer, today’s correction isn’t much like the dot-com bubble at all. In fact, it might be more accurate to say that what’s happening today is the very opposite of the dot-com bubble.

Let’s first understand what exactly that bubble was: a mania of stock speculation, in which ordinary investors—from taxi drivers to Laundromat owners to shoe-shiners—bid up the price of internet-related companies for no good reason other than “because, internet.” Companies realized (https://www.nber.org/papers/w23223.pdf) that they could boost their stock price by simply adding the prefix e- (as in “e-Bay”) or the suffix com (as in Amazon.com) to their corporate names to entice, and arguably fool, nonprofessionals. “Americans could hardly run an errand without picking up a stock tip,” The New York Times reported (https://www.nytimes.com/2000/12/24/opinion/the-dot-com-bubble-bursts.html) in its postmortem.

As prices became untethered from reality, the Nasdaq index doubled in value between 1999 and 2000 without “any plausible candidate for fundamental news to support such a large revaluation,” as the economists J. Bradford DeLong and Konstantin Magin wrote (https://www.nber.org/papers/w12011) in a paper on the bubble. The crash was equally swift and arbitrary. Between February 2000 and February 2002, the NASDAQ lost three-quarters of its value “again without substantial negative fundamental news,” DeLong and Magin wrote. By late 2000, more than $5 trillion (https://fivethirtyeight.com/features/why-the-housing-bubble-tanked-the-economy-and-the-tech-bubble-didnt/) in wealth had been wiped out. This sudden rise and sudden collapse in asset prices—without much change in information about the underlying assets—is the very definition of a bubble.

The current situation is different, in at least two important ways.

First, in the dot-com bubble, public investors got hosed. Today, it’s public investors that are doing the hosing.

When the web browser Netscape went public on August 9, 1995—the day many cite as the beginning of the dot-com bubble—its stock skyrocketed from $28 to $75 in a matter of hours, even though the company wasn’t profitable. In today’s market, the opposite is happening: Unicorns with no positive earnings are getting slaughtered at the gates. WeWork’s valuation fell more than 80 percent pre-IPO when investors balked at its mounting losses. Peloton, Lyft, and Uber have also struggled to persuade public markets to grade them on a curve; all saw their stock prices fall on the day of the public offering. Institutions and retail investors are refusing to fork over to unicorns the valuations that private investors were expecting—particularly Softbank, a major backer of Uber, Lyft, and WeWork.

This isn’t a picture of mass mania. It’s a picture of public sobriety, where the masses are diagnosing an acute fever in private markets.

Second, there is little sign of a crisis for firms whose main product is pure software.

Judging from the news, you might think this has been a terrible year for technology companies. But tech IPOs have been strong for the past two years, “as long as what you’re buying is actually a real tech company,” JP Morgan’s chair of market and investment strategy, Michael Cembalest, wrote in an October 7 research note. By “real tech,” Cembalest was referring to companies whose principal product is software, rather than, say, WeWork, which is in truth a real-estate company caught wearing an Actual Tech Company costume before Halloween.

You might not have heard about these “real tech” companies—like Zscaler, Anaplan, and Smartsheet—because they mostly sell business-to-business software or cloud services. But all of them are trading more than 100 percent above their listed IPO price. The problematic firms, Cemablest wrote, are those that aren’t pure tech. Either they sell hardware plus software (like the stationary-bike company Peloton) or they own a digital marketplace for humans to transact goods and services in the physical world, like Uber, Fiverr, and Lyft. All those companies are trading below their IPO price.

This underlines one of the quiet truisms of the state of technology in 2019: Consumer tech grabs most of the headlines. But enterprise tech, whose top clients are other businesses, grabs most of the profit. For example, everybody knows that Amazon is a dominant retailer. What they might not know is that Amazon now makes two-thirds of its profit from Amazon Web Services (https://ir.aboutamazon.com/static-files/65796041-1d63-43e7-abdd-5b235cdbfc4f), its cloud-computing platform. (From an earnings standpoint, it is not too cheeky to say that Amazon is a data-storage provider with a secondary e-commerce division.) Meanwhile, Google’s cloud business is growing rapidly, and Microsoft’s cloud-computing product, Azure, has helped to make it the most valuable company in the world.

The problem with tech today isn’t so much that software failed to eat the world (https://www.wsj.com/articles/SB10001424053111903480904576512250915629460), but that the most celebrated unicorns weren’t actually software companies. They have struggled to achieve liftoff because their feet are stuck in the mud of the physical world—whether it’s labor costs for Uber and Lyft, or real-estate costs for WeWork. These upstart renegades are getting cut down in the public square, while enterprise-software companies are building profitable businesses by selling shovels at the gold rush—or cloud services at the consumer-tech fair.

What we’re seeing today isn’t a dot-com bubble. If anything, it’s a not-com bubble—a period of inflated expectations for companies that had no business being valued like pure tech companies in the first place.
From: https://www.theatlantic.com/ideas/archive/2019/10/are-we-cusp-next-dot-com-bubble/600232/?utm_source=twitter&utm_medium=social&utm_campaign=share

Cara

22nd October 2019, 06:16

Mervyn King, Former Governor of the Bank of England: The World Turned Upside Down: Economic Policy in Turbulent Times - October 19, 2019

423181828578806

~~~

Coverage of the speech from the UK’s Guardian:

World economy is sleepwalking into a new financial crisis, warns Mervyn King
Past crashes spawned new thinking and reform but nothing has changed since 2008 banking meltdown, says former Bank of England boss

Larry Elliott in Washington
Sun 20 Oct 2019 12.42 BST

The world is sleepwalking towards a fresh economic and financial crisis that will have devastating consequences for the democratic market system, according to the former Bank of England governor Mervyn King.

Lord King, who was in charge at Threadneedle Street during the near-death of the global banking system (https://www.theguardian.com/business/financial-crisis) and deep economic slump a decade ago, said the resistance to new thinking meant a repeat of the chaos of the 2008-09 period was looming.

Giving a lecture in Washington at the annual meeting of the International Monetary Fund (https://www.theguardian.com/business/imf), King said there had been no fundamental questioning of the ideas that led to the crisis of a decade ago.

“Another economic and financial crisis would be devastating to the legitimacy of a democratic market system,” he said. “By sticking to the new orthodoxy of monetary policy and pretending that we have made the banking system safe, we are sleepwalking towards that crisis.”

He added that the US would suffer a “financial armageddon” if its central bank – the Federal Reserve – lacked the necessary firepower to combat another episode similar to the sub-prime mortgage sell-off.

King (https://www.theguardian.com/business/mervyn-king), Mark Carney’s predecessor as Bank of England governor, said that following the Great Depression of the 1930s there had been new thinking and intellectual change.

“No one can doubt that we are once more living through a period of political turmoil. But there has been no comparable questioning of the basic ideas underpinning economic policy. That needs to change.”

The former Bank governor said the economic and political climate had rarely been so fraught, citing the US-China trade war, riots in Hong Kong, problems in key emerging countries such as Argentina and Turkey, the growing tensions between France and Germany over the future direction of the euro, and the increasingly bitter political conflict in the US at a time when the willingness of the US to act as the world’s policeman was disappearing.

“Ripples on the surface of our politics have become breaking waves as the winds of change have gained force,” he said.

King said the world economy was stuck in a low growth trap and that the recovery from the slump of 2008-09 was weaker than that after the Great Depression.

“Following the Great Inflation, the Great Stability and the Great Recession, we have entered the Great Stagnation.” King said that in 2013 the former US Treasury secretary Larry Summers had reintroduced the concept of secular stagnation, a permanent period of low growth in which ultra-low interest rates are ineffective: “It is surely now time to admit that we are experiencing it.”

Standard models were unhelpful in two important areas of economic policy – getting the world economy out of its low growth trap, and preparing for the next financial crisis.

“Conventional wisdom attributes the stagnation largely to supply factors as the underlying growth rate of productivity appears to have fallen. But data can be interpreted only within a theory or model. And it is surprising that there has been so much resistance to the hypothesis that, not just the United States, but the world as a whole is suffering from demand-led secular stagnation.”

King said the world entered and departed from the global financial crisis with a distorted pattern of demand and output. To escape permanently from a low growth trap involved a reallocation of resources from one component of demand to another, from one sector to another, and from one firm to another.

“There has been excess investment in some parts of the economy – the export sector in China and Germany and commercial property in other advanced economies, for example – and insufficient in others – infrastructure investment in many western countries. To bring about such a shift of resources – both capital and labour – will require a much broader set of policies than simply monetary stimulus.”

He added: “It is the failure to face up to the need for action on many policy fronts that has led to the demand stagnation of the past decade. And without action to deal with the structural weaknesses of the global economy, there is a risk of another financial crisis, emanating this time not from the US banking system but from weak financial systems elsewhere.”

King said it was time for the Federal Reserve and other central banks to begin talks behind closed doors with politicians to make legislators aware of how vulnerable they would be in the event of another crisis.

He said: “Congress would be confronted with a choice between financial armageddon and a suspension of some of the rules that were introduced after the last crisis to limit the ability of the Fed to lend.”
From: https://amp.theguardian.com/business/2019/oct/20/world-sleepwalking-to-another-financial-crisis-says-mervyn-king?CMP=share_btn_tw&__twitter_impression=true

Cara

23rd October 2019, 06:40

Some central banks are buying gold:

1186731538458841088

Update: apparently the German Bundesbank did not buy gold. The IMF database has been amended:

1186981756794265601

silvanelf

25th October 2019, 13:44

Burning other people's cash has some positive effects on the economy due to the 'multiplier effect.'
I would recommend to read the whole article at the link below.

Here’s What I’m Worried About with the Everything Bubble

How cash-burn machines power the real economy, and what happens to the economy when investors refuse to have more of their cash burned.

[...]

I’m not going to call it “tech,” because most of the startups in that so-called tech space aren’t tech companies. They’re companies in mundane businesses. And many of these companies aren’t startups anymore but mature companies that have been in business for over a decade and now have tens of thousands of employees. And then there is the entire shale-oil and gas space that has turned the US into the largest oil and gas producer in the world.

They all share two things in common:

One, they’re fabulously efficient, finely tuned, and endlessly perfected cash-burn machines.
And two, investors in these companies count on new cash from new investors to bail out and remunerate the existing investors.

This scheme is a fundamental part of the Everything Bubble, and there is a huge amount of money involved, and it has a big impact on the real economy in cities where this phenomenon has boomed, and everyone loves it, until these hoped-for new investors start seeing the scheme as what it really is, and they’re suddenly reluctant to get cleaned out, and they refuse to bail out and remunerate existing investors. And suddenly the money runs out. Then what?

-- snip --

The shale oil-and-gas sector spends a lot of the negative cash flow in the oil patch, but also the locations where the equipment they buy is manufactured, such as sophisticated computer equipment, the latest drilling rigs, big generators, high-pressure pumps, and the like.

So an oil driller in Texas will transfer some investor money to manufacturers in distant cities. And the employees at these manufacturing plants buy trucks and boats and used cars, and they buy houses, and all kinds of stuff, and all of those hundreds of billions of dollars that investors plowed into the industry got transferred and recycled endlessly.

This is the multiplier effect of investors plowing their cash into money-losing negative cash-flow operations.

-- snip --

https://wolfstreet.com/2019/10/23/heres-what-im-worried-about-with-the-everything-bubble/

Cara

26th October 2019, 07:47

An interview with Nomi Prins (now added to post #2's list of commentators (http://projectavalon.net/forum4/showthread.php?108637-Financial-flows-moves-changes-and-significant-events&p=1314792&viewfull=1#post1314792)) with Sprott Money's Ask the Expert. The conversation covers:

the injection of liquidity into repo rate by the US Federal Reserve;
the role of the US dollar as reserve currency;
an outlook on gold, silver;
thoughts on debt jubilee

eWs6IhvonD8

October 25, 2019

Bestselling author Nomi Prins is an American author, journalist, and public speaker. A former managing director at Goldman Sachs and senior managing director at Bear Stearns, her latest book is Collusion: How Central Bankers Rigged the World. Her previous book All the Presidents' Bankers explored over a century of close relationships between 19 Presidents from Teddy Roosevelt through Barack Obama and the key bankers of their day, based on original archival documents. Prins also received recognition for her whistleblower book, It Takes a Pillage: Behind the Bonuses, Bailouts, and Backroom Deals from Washington to Wall Street , for her views on the U.S. economy, for her published spending figures on federal programs and initiatives related to the 2008 bailout, and for her advocacy for the reinstatement of the Glass–Steagall Act and regulatory reform of the financial industry.

This month, Nomi answers seven of your listener-submitted questions, including:

• When will the U.S. dollar end its reign as global reserve currency?
• Should you be concerned about gold confiscation?

Plus: If the financial system crashes, are you at risk?
From: https://www.sprottmoney.com/Blog/ask-the-expert-nomi-prins-october-2019.html

Cara

26th October 2019, 07:55

President Xi of China made some interesting statements about Blockchain and digital currency on Thursday (24 October 2019) at the 18th collective study of the Political Bureau of the Central Committee in Beijing.

President Xi Says China Should ‘Seize Opportunity’ to Adopt Blockchain

William Foxley
Oct 25, 2019 at 11:12 UTC Updated Oct 25, 2019 at 11:46 UTC
NEWS

Xi Jinping, President of the People’s Republic of China and General Secretary of the Communist Party of China, said the country needs to “seize the opportunity” afforded by blockchain technology.

Speaking as part of the 18th collective study of the Political Bureau of the Central Committee on Thursday in Beijing, Xi said blockchain technology has a wide array of applications within China, listing topics ranging from financing businesses to mass transit and poverty alleviation.

“We must take the blockchain as an important breakthrough for independent innovation of core technologies,” Xi told committee members.

“[We must] clarify the main direction, increase investment, focus on a number of key core technologies, and accelerate the development of blockchain technology and industrial innovation.”

The Chinese president’s statements on blockchain are believed to be his first in-depth remarks on the technology.

Xi further said it would be “necessary to implement the rule of law network” into existing and future blockchain systems. To this end, Xi argued for a top-down approach concerning implementation, calling for guidance and regulation. Xi said testing of the tech should be widespread, including the investments in training platforms and “innovation teams” before implementation.

His speech also called for the creation of “Blockchain+,” a platform alluding to personal development such as education, employment and food and medicinal safety, among other basic needs.

Since a 2017 decision by the People’s Bank of China, cryptocurrencies are banned in the country, although a digital renminbi is being developed by the central bank and likely to launch soon.
From: https://www.coindesk.com/president-xi-says-china-should-seize-opportunity-to-adopt-blockchain

It sounds like a top-down, government driven, blockchain-enabled system that orchestrates the delivery and provision of social services is in the works.

TomKat

26th October 2019, 23:28

A recent talk by Danielle Dimartino Booth on the demise of price discovery on Wall Street. And other things:

https://youtu.be/gh16UlreKfo

Cara

28th October 2019, 04:39

This is a rather stark graph showing rising levels of debt.

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Cara

30th October 2019, 06:01

An alternative to SWIFT emerges:

Russia, China & India to set up alternative to SWIFT payment system to connect 3 billion people
28 Oct, 2019 11:48 / Updated 1 day ago

Members of the BRICS trade bloc Russia, India, and China have decided to connect their financial messaging systems to bypass the SWIFT international money transfer network.

Russia’s financial messaging system SPFS will be linked with the Chinese cross-border interbank payment system CIPS. While India does not have a domestic financial messaging system yet, it plans to combine the Central Bank of Russia’s platform with a domestic service that is in development.

The new system is expected to work as a “gateway” model when messages on payments are transcoded in accordance with a certain financial system.

According to Izvestia, the parties involved will work on a single platform, without experiencing any difficulties with transactions.

Russia began development of SPFS in 2014 amid Washington’s threats to disconnect the country from SWIFT. The first transaction on the SPFS network involving a non-bank enterprise was made in December 2017.

“We have an opportunity to connect both foreign banks and foreign legal entities to the SPFS. Today, about 400 users are participating in the system. Agreements have already been concluded with eight foreign banks and 34 legal entities,” Alla Bakina, the director of the Bank of Russia’s national payment system, was cited as saying by Vesti.

Bakina explained that traffic through the system has been growing and currently accounts for around 15 percent of all internal traffic, up from 10-11 percent last year.

The EAEU (Eurasian Economic Union) countries are currently working with the Bank of Russia on technical options for connecting to the SPFS. Iran, which has officially joined the Russia-led free-trade zone (EAEU) this month also seeks to develop a joint alternative to SWIFT. Last year, SWIFT cut off some Iranian banks from its messaging system.SWIFT is based in Belgium, but its board includes executives from American banks with US federal law allowing the administration to act against banks and regulators across the globe.

Instead of SWIFT, a system that facilitates cross-border payments between 11,000 financial institutions in more than 200 countries worldwide, Moscow and Tehran will use their own domestically developed financial messaging systems to conduct trade.
From: https://www.rt.com/business/472016-russia-india-china-swift/amp/?__twitter_impression=true

Cara

31st October 2019, 05:13

China planning to be the first state to issue sovereign digital currency:

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Cara

2nd November 2019, 05:40

One view of the different banks involved in the bullion market:

1189822604573581312

Cara

6th November 2019, 06:28

Hungary’s central bank seems to signalling an exit of the eurozone:

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I do not have access to the Financial Time article but here is a comment on that article:

Hungarian central bank governor calls for eurozone exit mechanism
November 4, 2019

EU member states part of the bloc’s common currency zone should be allowed to leave in coming decades, while those countries that remain in the eurozone, should build a “more sustainable global currency” in the future, György Matolcsy, the governor of the National Bank of Hungary (NBH) has said.

In an editorial published by the Financial Times, Mr Matolcsy argues that two decades after the euro was launched, “most of the necessary pillars of a successful global currency”, which include a common state, a budget covering at least 15-20 per cent of the eurozone’s total GDP, a eurozone finance minister and a corresponding finance ministry “are still missing”.

“The time has come to seek a way out of the euro trap,” the Hungarian central bank governor stressed, adding that the common currency was not the right way to fasten Europe’s integration since none of the necessary preconditions were met.

According to him, most eurozone member countries were in a better situation before they adopted the common currency. Citing a recent study from the Centre for European Policy, he said that euro had created both winners and losers, with Germany being the biggest winner.

“The common currency was not needed for European success stories before 1999 and the majority of eurozone member states did not benefit from it later,” he continued, noting that most eurozone states were badly hit by the 2008 financial crisis, resulting in the piling up of “huge government debts.”
From: https://emerging-europe.com/news/hungarian-central-bank-governor-calls-for-eurozone-exit-mechanism/

Cara

7th November 2019, 05:39

And some parties in Germany seem to be flying a “weather balloon” to test response to the idea of a centralised European deposit insurance scheme:

Germany’s Scholz Gives Ground On Eurozone Banking Union Plan (FT)
Last Modified: 04:01 PM, Tue Nov 05, 2019
Sam Fleming and Jim Brunsden in Brussels and Guy Chazan in Berlin

FT.com. 05 November 2019
Finance minister says Berlin should support common deposit insurance scheme

Germany’s finance minister has offered hope of a breakthrough in plans to create a full eurozone banking union by ending Berlin’s opposition to a common scheme to protect savers’ deposits.

Olaf Scholz said that Europe’s global role would be undermined if it failed to complete the integration of the eurozone’s financial sector. The plan to centralise oversight of eurozone banks was conceived seven years ago in response to the region’s deep sovereign debt crisis.

“The need to deepen and complete European banking union is undeniable. After years of discussion, the deadlock has to end,” Mr Scholz wrote in an opinion article for the FT.

He said that Brexit, which would see the EU losing the City of London — its largest financial centre — also meant it was time for the bloc to promote better integration of its banks.

The European Central Bank and EU chiefs in Brussels have long urged governments to end political divisions over further banking union. They have argued that the project is vital to ensure that bankrupt banks can be safely wound down without the need for large taxpayer bailouts, and to make the eurozone more resilient to economic shocks.

The most surprising element in Mr Scholz’s proposals is his plan for a common EU scheme to shield depositors during a banking collapse. Germany has previously rejected such plans amid public hostility to any perceived attempt to put taxpayers on the hook for shaky banks in other countries.

The reinsurance system would act as a backstop to national funds, helping to ensure that governments can honour their legal obligation to protect deposits of up to €100,000 in the event of a banking collapse.

Accepting some form of common European deposit insurance mechanism was “no small step for a German finance minister”, Mr Scholz wrote.

However, his proposals come with heavy caveats and conditions, which are bound to spark concern in EU member states with weaker finances or fragile banking sectors.

They will also be contentious within Germany. Officials in Berlin emphasised that the initiative — in a so-called non-paper, for discussion only — was Mr Scholz’s alone and had not been co-ordinated with German chancellor Angela Merkel. It remains uncertain whether she will back the plans.

Past efforts to shift the debate in Germany foundered on the opposition of conservatives in Ms Merkel’s Christian Democratic Union, as well as the Sparkassen, or savings banks, which have their own, jealously-guarded deposit insurance scheme.

“Europe will not move closer together by shifting burdens on to others,” Helmut Schleweis, president of the German Association of Savings Banks (DSGV), said in September. “It is not the right moment to communitise deposit insurance schemes.”

However, there have been signs of a change of heart within the German finance ministry as the banking union project stalls.

Mr Scholz said that Brexit and the risk of dependency on China and the US compelled the EU to make headway.

He has coupled his offer on deposit insurance with tough reform demands to help maintain discipline in bank supervision and resolution, and minimise the risk that Germany could be saddled with the costs of bank failures elsewhere in Europe.

These conditions are likely to be unpopular in many other EU countries, especially those with weaker banking systems such as Italy.

His demands include amending EU capital rules to remove incentives for banks to buy up large quantities of their home country’s sovereign debt; further action to reduce bad debts in the EU banking system; and the establishment of common European rules on calculating companies’ taxable profits.

Mr Scholz also wants the EU to harmonise bank insolvency law, saying a patchwork of national rules undermines EU attempts to make sure senior creditors share the cost of dealing with bank failures.

Copyright (C) 2019 The Financial Times Ltd. All rights reserved.
From: https://archive.infodesk.com/item/c1569ed8-0fbc-4e3f-9e01-5465fc58b45b.html?VERSION=2&CU=imf5992

Cara

7th November 2019, 07:15

The digital payments sector continues to expand. China expects to play this game too:

China’s TenCent extends WeChatPay to foreigners:

1192295095988473856

Cara

10th November 2019, 05:38

The ratings agency Moody’s has downgraded their outlook on some Indian institutions. I do think ratings agencies are political so this may not be entirely about financial and economic prospects. It may well be a move to “persuade” someone / people to cooperate with something.

Moody’s downgrades outlook on SBI, HDFC Bank, Infosys, TCS and 17 others - The Economic Times
Nov 08, 2019, 04.13 PM IST

NEW DELHI: After downgrading India’s sovereign outlook, Moody’s Investors Service on Friday downgraded its view to 'negative' from 'stable' on many top Indian companies, including SBI, HDFC Bank, TCS, Infosys, BPCL, NTPC, NHAI and GAIL.

Moody’s has downgraded outlook on companies belonging to information technology, infrastructure as well as oil and gas sectors. In total, the rating agency on Friday cut outlook on 21 Indian firms.

Other financial institutions that have seen a downgrade are Exim Bank, Hero FinCorp, Hudco and Indian Railway Finance Corporation (IRFC).

However, the agency kept rating and outlook unchanged on Bank of India, Canara Bank, Oriental Bank of Commerce, Syndicate Bank and Union Bank of India.

Ratings of the above-mentioned financial institutions are unlikely to be upgraded in the next 12-18 months, Moody’s said.

The agency also downgraded the outlook on eight non-financial corporates to negative from stable. They are BPCL, HPCL, Indian Oil, ONGC, Oil India, Petronet LNG, Infosys and Tata Consultancy Services.

It also downgraded outlook on a number of sovereign-linked infrastructure companies. They include NTPC, NHPC, NHAI, GAIL, Power Grid, Adani Green and Adani Transmission.

In case of Exim Bank, Hudco, IRFC and SBI, Moody’s Investors Service said close links between these four companies and the government is the key reason for their downgrade. Moody’s believes that these companies will receive government support in times of need.

For HDFC Bank, it reasoned that due to the “strong linkages between a bank's business and the sovereign credit profile, including by way of large direct exposure to government debt and exposure to common underlying operating conditions, the Baseline Credit Assessment (BCA) of a bank is capped at the sovereign rating of the country that it operates in”.

“Moody's does not have any particular governance concern for all the issuers impacted by today's rating action. Moody's does not apply any corporate behavior adjustment to the banks and views their risk management framework as consistent and commensurate with their risk appetite,” the New York-based rating agency said in a release.

"Ratings for Infosys and TCS are constrained to no more than two notches above the sovereign rating. Therefore a sovereign rating downgrade will also result in downgrade of the A3 ratings of Infosys and TCS," says Kaustubh Chaubal, a Moody's Vice President -- Senior Credit Officer.

Moody’s earlier downgraded India’s outlook from ‘stable’ to ‘negative’. The rating agency said its outlook partly reflects lower effectiveness of the government and policy in addressing long-standing economic and institutional weaknesses than it had previously estimated. This is leading to a gradual rise in debt burden from already high levels.

Meanwhile, Moody's has also upgraded the Baseline Credit Assessment (BCA) of GAIL to ‘baa2’ from ‘baa3’, based on its expectation that the company will maintain strong financial metrics over the next 2-3 years; a situation which is more consistent with a baa2 standalone profile.
From: https://m.economictimes.com/markets/stocks/news/moodys-downgrades-outlook-on-sbi-hdfc-bank-infosys-tcs-and-10-others/amp_articleshow/71969932.cms?__twitter_impression=true

Cara

10th November 2019, 06:18

Italian court finds some bankers guilty:

1193136151479148544

The article:

Italian court convicts DB, Nomura in Monte Paschi derivative trial
Nov 9, 2019 — 7.33am

Milan | An Italian court has convicted 13 former bankers from Deutsche Bank, Nomura and Monte dei Paschi di Siena over derivative deals that prosecutors say helped the Tuscan bank hide losses in one of the country's biggest financial scandals.

The verdict, read in court on Friday by lead judge Lorella Trovato, also ordered fines and asset seizures worth a total of €68 million ($109 million) from Deutsche Bank and €91.5 million from Nomura.

Monte dei Paschi's former chairman Giuseppe Mussari, one of five former executives from the Tuscan bank on trial, was given the heaviest sentence of seven years and six months in jail. Bloomberg
Monte dei Paschi reached a settlement with the court over the case in 2016 at a cost of €10.6 million.

The case centres on two complex derivatives transactions - known as Alexandria and Santorini - that Nomura and Deutsche Bank arranged for Monte dei Paschi in 2009.

Prosecutors said the deals helped Monte dei Paschi, which was founded in 1472 and is Italy's fourth biggest lender, hide more than €2 billion of losses racked up after the costly acquisition of a smaller rival in 2008.

"We are disappointed with the verdict. We will review the rationale for it once it is published," Deutsche Bank said in a statement.

Nomura also said it was disappointed. "After thoroughly examining the content of the judgment, the company will consider all options, including an appeal," it said.

The scandal, together with more losses suffered by Monte dei Paschi during the euro zone debt crisis, threatened to destabilise Italy's financial industry and forced the Siena-based lender to seek an €8 billion state bailout in 2017.

In the trial, which started in Milan in December 2016 and took 100 hearings to complete, the three banks and 13 defendants faced allegations of false accounting and market manipulation between 2008 and 2012.

Monte dei Paschi and its former top managers were also accused of misleading regulators.

All defendants have always denied wrongdoing and none of them will serve time in jail before the lengthy appeals process is exhausted.

Monte dei Paschi's former chairman Giuseppe Mussari, one of five former executives from the Tuscan bank on trial, was given the heaviest sentence of seven years and six months in jail.

Deutsche Bank and Nomura were both convicted as institutions for failing to prevent wrongdoing by their employees.

All six defendants linked to Deutsche Bank and the two who once worked for Nomura were handed jail terms.

They include sentences of four years and eight months each for Ivor Dunbar, former co-head of Global Capital Markets at the German bank, Michele Faissola, its former head of Global Rates, and Michele Foresti, its former head of Structured Trading.

Nomura's former chief executive for the EMEA region, Sadeq Sayeed, was also given a sentence of four years and eight months while Raffaele Ricci, the former head of the bank's EMEA Sales, was handed a sentence of three years and 5 months.

Lawyers for the defendants said they expected to appeal the verdict once the full ruling is released.
From: https://www.afr.com/world/europe/italian-court-convicts-db-nomura-in-monte-paschi-derivative-trial-20191109-p538yr?&utm_source=twitter&utm_medium=social&utm_campaign=nc&eid=socialn:twi-14omn0055-optim-nnn:nonpaid-27/06/2014-social_traffic-all-organicpost-nnn-afr-o&campaign_code=nocode&promote_channel=social_twitter

Cara

11th November 2019, 04:43

Central bank of Tunisia launches blockchain based digital currency. The currency was developed by a Russian company, Universa (https://universablockchain.com/):

Central Bank of Tunisia Announces It’s Blockchain-based Digital Currency

The Central Bank of Tunisia has issued for testing, a Central Bank Digital Currency (CBDC) “E-dinar.” Russia-based Universa has created the blockchain for the E-dinar. According to Universa, it is the first Central Bank in the world to convert a part of its reserves into digital currency.

The CBDC will be issued online as well as through 2000 kiosks that open throughout Tunisia. It can be used to make payments in restaurants, cafes, shops, etc. by scanning a QR code. It has also planned to make international payments, thus bypassing the US dollar.

Users will have a digital wallet that they can top up via a browser application. A mobile app is planned for the future.

Universa’s CEO, Alexander Borodich, explains why CBDC is not a cryptocurrency. It is not a separate currency; it is the digital version of fiat currency. Further, he says that as CBDC will run on blockchain technology, it means,

Electronic banknotes cannot be faked – each such banknote, like the paper version, is protected by cryptography… And the production of such a banknote is 100 times cheaper than wasting ink, paper, electricity for the printing press.

The major difference between Cryptocurrency and CBDC is that cryptocurrency uses cryptography to secure transactions, while CBDC uses cryptography to secure electronic banknotes. Quantity of CBDC is linked with fiat currency, and hence, it cannot be mined like a cryptocurrency. CBDC is akin to stablecoin as every electronic banknote will be backed by physical fiat currency.

Universa cannot see transactions, nor can it access encryption keys. It claims that Malaysia, Argentina, Brazil, and China could also convert a part of their reserves into CBDC.
From: https://www.namecoinnews.com/central-bank-of-tunisia-announces-its-blockchain-based-digital-currency/amp/?__twitter_impression=true

Franny

11th November 2019, 05:12

Nice way to put it:

It is not a separate currency; it is the digital version of fiat currency.

Cara

11th November 2019, 09:34

The UK’s Financial Times tweeted:

“Benoît Cœuré will head a new unit of the Bank for International Settlements charged with finding public alternatives to private digital currencies such as Facebook’s Libra”

1193790488777760769

From Wikipedia (https://en.m.wikipedia.org/wiki/Benoît_Cœuré):

Benoît Georges Cœuré (French: [bənwa kœʁe]; born 17 March 1969[1]) is a French economist who was appointed to the Executive Board of the European Central Bank (ECB) in 2011.

Cara

12th November 2019, 05:54

This video is of a discussion held at the Institute of International Finance (IFF) annual meeting in Washington D.C. in October 2019 (https://www.iif.com/Events/Meeting-Home-Page?meetingid={DBB919A3-1602-E911-80FD-000D3A01109B}).

The participants are Tim Adams, President and Chief Executive Officer, IIF (Moderator) and Raymond Dalio, Founder, Co-Chairman and Co-Chief Investment Officer, Bridgewater Associates.

An article by Ray Dalio was posted previously by Jayke here (http://projectavalon.net/forum4/showthread.php?108184-The-Changing-Emerging-Global-Landscape&p=1322256&viewfull=1#post1322256) in The Changing / Emerging Global Landscape (http://projectavalon.net/forum4/showthread.php?108184-The-Changing-Emerging-Global-Landscape)

A couple of quotations from the conversation:

'We're in a situation in which truth, rationality, is not being brought to bear on what I believe is our biggest problem.'

'Next downturn we will not have monetary policy as we know it.'

WoOQfIU4ds8

The agenda for the IFF meeting:
https://www.iif.com/Portals/0/Files/Event%20Files/2019_IIF_AMM_Agenda.pdf?=2019-11-12-94347

Cara

15th November 2019, 03:43

The growth of Fintech continues. Google wants to be a bank. So they aim to control both information and money (which in some ways is a kind of information).

Google wants to be your bank and will soon offer accounts
7 hours ago
News
Silicon Valley continues to invade your wallet.

Google plans to offer checking accounts to customers starting in the US next year, a source familiar with Google's plans told CNN Business.

Google is partnering with Citigroup and a credit union at Stanford University for the initiative.

https://imageresizer.static9.net.au/szn-_Bs2m2YUj_E8mcHO1QRWxV8=/1200x0/https%3A%2F%2Fprod.static9.net.au%2Ffs%2F82d69b9e-6983-4a29-a14f-e251c6d47675
Google is getting into banking (Supplied)

"We're exploring how we can partner with banks and credit unions in the US to offer smart checking accounts through Google Pay, helping their customers benefit from useful insights and budgeting tools, while keeping their money in an FDIC or NCUA-insured account," a company spokesperson said.

But Google doesn't plan to take center stage on the checking accounts.

Instead, the financial institutions' brands will be put on the accounts and banks will be responsible for the financial plumbing and compliance.

Partner banks and credit unions will offer these smart checking accounts through Google Pay.

Google also hasn't decided whether the accounts would charge fees.

The push into checking accounts is the latest instance of a Big Tech company moving into the financial services space.

Amazon also wants to introduce checking accounts for customers.

Facebook announced its Libra cryptocurrency project earlier this year.

And Apple has teamed up with Goldman Sachs to launch a credit card, while its Apple Pay service has become a go-to payment method for many iPhone customers.

Google is attempting to deepen its relationship with consumers by entering into finance, Dan Ives, managing director of equity research at Wedbush Securities, told CNN Business.

"The company has an unmatched position within the consumer life cycle and now they're trying to leverage where they are," Ives said.

Facebook hope the currency could drive more e-commerce on its services and boost ads on its platforms. (Supplied)
Google already offers smart home devices like Nest and Google Assistant and just entered into health and wellness world with its planned acquisition of Fitbit.

"The missing piece is banking," said Ives.

Ives said Google's initiative probably won't cause big banks any concern for now, but Big Tech's ongoing expansion of its financial footprint will likely pose a competitive threat in the future -- especially as it shows no signs of letting up

"This is just the tip of the spear in terms of where [tech giants are] going," said Ives.

Politicians in Washington, who are already investigating the dominance of big tech companies, will probably review Google's move closely.

Google's effort could draw scrutiny given Washington's distaste for both Big Tech and big banks, Jaret Seiberg, an analyst at Cowen and Company, said in an analyst note.

"We have trouble seeing how combining the two is going to produce an outcome that either Democrats or Republicans will embrace," Seiberg said.

There's no release date set for Australia at this time.
From: https://amp.9news.com.au/article/9963412d-5e68-49a8-8e34-e15936dabd6c?__twitter_impression=true

Cara

19th November 2019, 08:15

This is more for reference than an update. These are papers from a recent conference on how central banks can address and incorporate blockchain technologies.

Digital currencies, central banks and the blockchain: policy implications

October 25, 2019, Oesterreichische Nationalbank, Vienna

According to many experts and media commentators the world is currently undergoing a digital transformation. This notion refers to the economic and social effects brought about by digital technologies, digital data and the internet. The OECD in a recent report lists the increase in computing power, the blockchain, artificial intelligence, big data, cloud computing, 5G networks and the internet of things as the most important technologies driving this transformation. In public discussions on the digital transformation it is often expected that money, a key component in economic activity, must adapt too to serve an increasingly digital economy. Central Bank Digital Currencies (CBDC) are often believed to play an important role in the adaption to a digital economy. In this workshop we want to contribute to the debate by discussing various issues related to central bank digital money and the implications of new, digital technologies for the monetary and financial system of the future.

Downloads

Program (https://www.oenb.at/dam/jcr:a74c10a3-e254-44ed-b427-5b64dd1164d3/Program_CBDC_FINAL.pdf) (PDF, 87 kB)

Presentations
Itai Agur – Designing Central Bank Digital Currencies (https://www.oenb.at/dam/jcr:bfdddedd-47c2-4d7e-bdd2-ae28d6bf86b1/AGUR.pdf) (PDF, 387 kB)
Beat Weber – Designing Central Bank Digital Currencies (Discussion) (https://www.oenb.at/dam/jcr:7d11e72b-8886-4aa1-88cb-daab407d7f55/WEBER-OeNB-CBDC-WS.pdf) (PDF, 904 kB)
Dirk Niepelt – A Central Bank Digital Currency in Our Monetary System? (Discussion) (https://www.oenb.at/dam/jcr:9b7781a9-f0e5-42a4-89e2-a6b98118a28a/NIEPELT.pdf) (PDF, 766 kB)
Rainer Böhme – The technology behind CBDCs: state of the art, design options, and implications (https://www.oenb.at/dam/jcr:0b5d72a7-e154-4495-8084-098f470325ff/BOEHME.pdf) (PDF, 2 MB)
Tarik Roukny – Vertically Disintegrated Platforms (https://www.oenb.at/dam/jcr:05222ded-8775-4289-849b-dda90cc825db/ROUKNY.pdf) (PDF, 1018 kB)
Julien Prat – Vertically Disintegrated Platforms (Discussion) (https://www.oenb.at/dam/jcr:a88128ef-d554-42f7-960b-1210c93a5dbd/PRAT.pdf) (PDF, 1.1 MB)
Raphael Auer – Embedded supervision: how to build regulation into blockchain finance (https://www.oenb.at/dam/jcr:e6bcde16-77d9-418a-8b58-2ae21dfbc5e0/Auer-Embedded-supervision_presentation-2019-11-13.pdf) (PDF, 1.2 MB)
Maarten van Oordt – Embedded supervision: how to build regulation into blockchain finance (Discussion) (https://www.oenb.at/dam/jcr:ef26d46d-dcf5-4d9a-8c4a-702995381702/VAN-OORDT.pdf) (PDF, 577 kB)
Linda Schilling – Cryptocurrencies, Currency Competition and the Impossible Trinity (https://www.oenb.at/dam/jcr:c7f5fc58-895f-4587-83fc-b13570ec6777/SCHILLING.pdf) (PDF, 215 kB)
Paul Pichler – Cryptocurrencies, Currency Competition and the Impossible Trinity (Discussion) (https://www.oenb.at/dam/jcr:95f79166-730b-47cc-9ad8-8818da6833ca/PICHLER.pdf) (PDF, 188 kB)
From: https://www.oenb.at/en/Monetary-Policy/Research/workshops/2019-10-25-digital-currencies.html

Cara

26th November 2019, 06:05

This is an interesting article in that it covers a change in both sentiment and policy about the importance of gold holdings for central banks.

Admittedly, it is written by a gold proponent but - whether or not you believe gold to have any special significance as an asset class - it is useful as a signal of how some of those with money and power are reading and responding to the current world situation.

German Central Bank: Gold Is the Bedrock of Stability for the International Monetary System
Jan Nieuwenhuijs

European central banks are slowly preparing for plan B: gold.

https://live.staticflickr.com/4604/27854360639_547a939df1_c.jpg
Deutsche Bundesbank [CC BY-NC-ND 2.0 (https://creativecommons.org/licenses/by-nc-nd/2.0/)]

Written by Jan Nieuwenhuijs, formerly known as Koos Jansen.

It was long believed in the gold space that Western central banks are against gold, but things have changed, for quite some years now. Instead of discouraging people from buying gold, or convincing them that gold is an irrelevant asset, many of these central banks are increasingly honest about the true properties of this monetary metal. Stating that gold is the ultimate store of value, that it preserves its purchasing power through time and is a global means of payment. Such statements, combined with actions that will be discussed below, reveal that more and more central banks are preparing for plan B.

The Bundesbank (the German central bank) published a book last year named Germany’s Gold. In the introduction, written by the President of the Bundesbank Jens Weidmann, the view of this bank leaves no room for interpretation. Weidmann writes (emphasis mine):

Ask anyone in Germany what they associate with gold and, more often than not, they will say that it is synonymous with enduring value and economic prosperity.

Ask us at the Bundesbank what our gold holdings mean for us and we will tell you that, first and foremost, they make up a very large share of Germany’s reserve assets ... [and they] are a major anchor underpinning confidence in the intrinsic value of the Bundesbank’s balance sheet.

The Bundesbank produced this publication to give a detailed account, the first of its kind, of how gold has grown in importance over the course of history, first as medium of payment, later as the bedrock of stability for the international monetary system.

1110914507487019008

For Keynesians these comments might read like the Bundesbank (BuBa) is a “goldbug.” Its remarks, however, are simply common sense. Gold has enduring value. The world over it is associated with economic prosperity. Every reserve currency in the world today is underpinned by vast gold reserves. Otherwise, monetary authorities wouldn’t trust holding the respective currencies, next to holding their own gold reserves. Gold truly is the bedrock of stability for the international monetary system.

Central Banks and Exter’s Pyramid

What springs to mind when reading Weidmann’s statement is Exter’s Inverse Pyramid. John Exter was an American economist that in the 1960s conceived an upended pyramid of financial assets. Underneath the pyramid is gold that forms the base of most reliable value; all asset classes within the pyramid on progressively higher levels involve more risk. Exter would sometimes refer to his model as the debt pyramid; hence, he positioned gold outside of it as it’s the only asset that has no liability against it.

https://cdn2.hubspot.net/hubfs/4490872/Exters%20Pyramid%20by%20Voima.png
Exters Pyramid by Voima

Tellingly, when Exter addressed the Economic Society of South Africa in Johannesburg on November 16, 1966, he said (source (https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1813-6982.1967.tb02474.x)):

Gold is the hard core of our international monetary system.

“Bedrock” (Weidmann) and “hard core” (Exter) are similar, and both point to gold’s strength and what it can carry. An essential element of capitalism is investing—directly, indirectly, through bonds or equity—that involves risk. The higher the risk, the higher the return. The lower the risk, the lower the return. What falls outside of the investment realm has zero risk and no return, but provides the base that carries the debt system. This safe haven is gold, the only asset refuge that has no counterparty risk.

In the Balance of Payments and International Investment Position Manual (BPM6 (https://www.imf.org/external/pubs/ft/bop/2007/pdf/bpm6.pdf)) drafted by the International Monetary Fund (IMF), we read:

Financial assets are economic assets that are financial instruments. Financial assets include financial claims and monetary gold held in the form of gold bullion … A financial claim is a financial instrument that has a counterpart liability. Gold bullion is not a claim and does not have a corresponding liability. It is treated as a financial asset, however, because of its special role as a means of financial exchange in international payments by monetary authorities and as a reserve asset held by monetary authorities.

The IMF considers all financial assets to have counterparty risk, except gold.

On page 112 of BPM6 the IMF lists all international reserve assets by descending order. Crowning the lineup is physical gold, followed by cash, debt securities, equity, and finally derivatives. Nearly an exact copy of Exter’s Pyramid.

https://www.voimagold.com/hs-fs/hubfs/IMF%20reserve%20assets%20gold%20.png?width=1494&name=IMF%20reserve%20assets%20gold%20.png
IMF reserve assets gold

Another appearance of the pyramid can be found on the website of the Dutch central bank, De Nederlandsche Bank (DNB). Since April 2019 DNB’s gold information page reads:

A bar of gold always retains its value, crisis or no crisis. This creates a sense of security.

Shares, bonds and other securities are not without risk, and prices can go down. But a bar of gold retains its value, even in times of crisis. That is why central banks, including DNB, have traditionally held considerable amounts of gold. Gold is the perfect piggy bank—it’s the anchor of trust for the financial system. If the system collapses, the gold stock can serve as a basis to build it up again. Gold bolsters confidence in the stability of the central bank’s balance sheet and creates a sense of security.

Exter’s pyramid all over. Kindly note the similarity between DNB’s and BuBa’s comments on gold providing essential confidence in their balance sheets. It goes to show these two central banks have a long history of cooperating.

I tweeted about DNB’s candid approach last April (a few months later, it went viral).
1122884837323497474
Let’s continue with another quote, this time from the Bank of Finland (BOF (https://www.suomenpankki.fi/en/media-and-publications/releases/2008/gold--the-basis-of-a-monetary-system-the-bank-of-finland-museums-newest-seasonal-exhibition/)):

Gold – The basis of a monetary system

Gold is called the eternal payment instrument and has been used as a medium of exchange for thousands of years. Gold is a genuinely global means of payment that has maintained its value throughout history.

One more, from the Banque de France (BDF (https://www.banque-france.fr/sites/default/files/medias/documents/816152_fiche_or.pdf)):

Key facts

Gold is a highly sought-after precious metal, considered to be the ultimate store of value.

All central banks quoted agree gold preserves its purchasing power through time.

Preparing for Plan B

Next to strong statements by central banks, they’re acting accordingly. Shortly after the Great Financial Crisis (GFC), central banks as a sector became net buyers; and Germany, the Netherlands, Austria, Hungary and Turkey, among others, repatriated gold. Mainly from the Bank of England in London and the Federal Reserve Bank of New York.

https://cdn2.hubspot.net/hubfs/4490872/World%20Total%20Official%20Gold%20Reserves%2080.png
World Total Official Gold Reserves 80

According to BuBa, their repatriation scheme had three objectives: cost efficiency, security, and liquidity. Cost efficiency is about the storage costs in every location. Security involves the safety of the vaults and where those vaults are. The current trend is to have a significant fraction of gold on home soil due to the geopolitical environment. Liquidity is about owning bars that adhere to prevailing industry standards and are located in liquid marketplaces such as London, i.e., to make payments in times of changes in the financial system. This latter aspect deserves special attention.

https://www.voimagold.com/hs-fs/hubfs/Storage%20locations%20Germany%E2%80%99s%20official%20gold%20reserves.png?width=1800&name=Storage%20locations%20Germany%E2%80%99s%20official%20gold%20reserves.png
Storage locations Germany’s official gold reserves.

As we’ve seen, Western monetary authorities mention gold to be, “the anchor of trust for the financial system,” “the bedrock of stability for the international monetary system,” and, “a genuinely global means of payment.” They’re also saying that “if the system collapses, the gold stock can serve as a basis to build it up again.” One wonders if these entities are preparing for a new type of international gold standard. They see it as one possible outcome, as in recent years, several central banks have upgraded their gold reserves to current gold industry standards, also referred to as London Good Delivery (http://www.lbma.org.uk/good-delivery).

Throughout history, bars of different purities were traded in wholesale markets. By 1954 every new bar accepted in the London Bullion Market—the center of gold trade since the 18th century—was required to be at least 995 parts per thousand fine and weighing in between 350 and 430 fine troy ounces. Although not every old bar was promptly upgraded. Some remained as they were, in vaults in London and other places. These bars now trade a at discount, usually equal to the cost of upgrading and, if necessary, transporting them to London.

After the GFC many central banks were holding bars that were cast before 1954, which are currently not liquid in wholesale markets. In response, the French, Swedish and German central bank, that I know of, have upgraded their gold reserves to solve this liquidity issue.

From the Banque de France (http://www.lbma.org.uk/assets/Alchemist/Alchemist_91/Alch91Goulard.pdf):

Since 2009, the Banque de France has been engaged in an ambitious programme to upgrade the quality of its gold reserves. The target is to ensure that all its bars comply with LBMA [London Bullion Market Association] standards so that they can be traded on an international market.

From the Swedish Riksbank (https://www.riksbank.se/en-gb/press-and-published/notices-and-press-releases/press-releases/2018/the-riksbank-upgrades-some-of-its-gold/):

To ensure that the Riksbank has the most liquid gold reserve possible, in 2017 the Riksbank upgraded the part of its gold reserve that did not meet the LGD [London Good Delivery] standard by replacing these bars with new gold bars that do meet the standard.

I don’t have a quote from BuBa itself on their upgrade operation. However, connecting a few dots uncovers when and how they did it. BuBa released a bar list (https://www.bundesbank.de/en/tasks/topics/bundesbank-publishes-gold-bar-list-647172) in 2015 disclosing all their gold to be 995 fine or higher. In the book Germany’s Gold, a bar is displayed on page 110 with the subscription:

In the course of the relocation [repatriating] of gold holdings in 2013 and 2014, this bar … was melted down from old bars stored at the Fed and newly manufactured. The remelting served to obtain a detailed picture of the fineness of bars which were produced by various refiners in different years. They are among the Bundesbank’s newest gold bars.

https://www.voimagold.com/hs-fs/hubfs/Germanys%20Gold%20page%20110.jpg?width=2703&name=Germanys%20Gold%20page%20110.jpg
Germanys Gold page 110

While BuBa states this bar was melted for assaying purposes, in reality, it was part of making their entire stack at least 995 fine. One, because it doesn’t require melting a whole bar for assay testing. Two, on November 11, 2017, the Financial Times (https://www.ft.com/content/4edf00ee-a43c-11e7-8d56-98a09be71849) published an article on how BuBa repatriated its gold. The article states:

more than 4,400 bars transferred from New York were taken to Switzerland, where two smelters remoulded the bullion into bars that meet London Good Delivery standards for ease of handling.

Just like that one bar wasn’t melted to ‘obtain a detailed picture of the fineness,’ an additional 4,399 bars weren’t melted ‘for ease of handling.’ They were all refined for one reason: to meet London Good Delivery criteria and make Germany’s gold reserves wholly liquid.

Conclusion

According to John Exter, when the debt pyramid has grown in excess and becomes unstable, bubbles burst. Investors, seeking safety, will run down the ladder until they find solid ground (the bedrock). This foundation is gold, which can’t default or be arbitrarily devalued.

The GFC was caused by too much debt (a credit binge). When Lehman fell, and the house of cards came crumbling down, the quickest solution authorities could think of, ironically, was more debt. We went from “extend and pretend” to “delay and pray.” Central bank intervention can be effective, for a while, until the underlying problem resurfaces with a vengeance. Presently the world is more in debt than before the GFC. The Institute of International Finance estimates global debt to GDP is now 320%.

When reading the mainstream media, one can be persuaded to think all central banks are willing to “print” money to infinity and lower interest rates as far as they can—or launch a variety of the same—pushing us further into the abyss. Some of them, though, aren’t that ignorant and are actively preparing for when paper currencies are forced to be devalued by the weight of debt issued in said currencies.

There’s one more development at a Western central bank I like to share. The Banque de France—whose vaults were a vibrant part of the global gold market during the classical gold standard—has not only upgraded its metal but also enhanced its entire vaulting infrastructure since the GFC. From BDF (http://www.lbma.org.uk/assets/Alchemist/Alchemist_91/Alch91Goulard.pdf):

Since the 2008 financial crisis, there has been renewed interest in gold from reserve managers.

As well as upgrading its stock, the Banque de France is taking various other steps to ensure it meets LBMA criteria [these standards apply for trading across the globe] … The renovation of the historical vaults housing the gold reserves has nearly been completed: the floor will be able to support heavy forklift trucks, and intermediary shelves have been inserted between the existing shelves to ensure the gold is only stacked five bars high, making handling easier. Other storage facilities will be available soon: either strong rooms for storing bare bars on shelves or large vaults to store sealed pallets, facilitate handling, transportation and auditing. By the end of the year, a new IT system will be in place to improve our ability to respond to market operation needs and other custody services.

So, after the GFC, not only have Western central banks changed the way they talk about gold—that is, they have become more honest regarding gold’s function as a safe haven—but, as a sector, central banks have also become net buyers. Many central banks have redistributed their gold, carefully considering all possible future risks and developments. A few central banks have upgraded their gold to current industry standards to be able to trade frictionless in international markets. One central bank, BDF, has even enhanced its entire vaulting infrastructure. And this is just based upon publicly available information.

We’re all too familiar with central banks in the East openly buying gold, stimulating citizens to buy gold, setting up new gold exchanges, and de-dollarizing. In the West, these subjects are more sensitive for political reasons. As a result, since the GFC, Western central banks gently started moving towards gold, not to cause any shocks in the market. In 2015, I called this “the slow development towards gold (https://www.bullionstar.com/blogs/koos-jansen/why-austria-is-repatriating-gold-from-london/),” and it’s continuing still.

It’s beyond the scope of this article to discuss every probable international monetary development and attribute a percentage chance to each of them. I think it’s clear though, that many central banks are preparing for gold to play a resolving and pivotal role in future global finance. Why else buy, redistribute and upgrade gold, next to enhance trading facilities, increase transparency and then advertise gold’s financial features? Keep in mind what Pericles said (https://twitter.com/JanGold_/status/1191453023819780102) around 500 BC, “the key is not to predict the future but to prepare for it.”

Currently, Exter’s Pyramid has grown too big and is unstable. The moment the pyramid falls, “gold will do its job (https://www.bloomberg.com/news/videos/2019-10-08/any-pullback-in-gold-is-a-buying-opportunity-says-ubs-s-schnider-video).” History teaches us gold protects its owners through all types of weather, and central banks know this. Ever wondered why virtually every central bank owns gold? Because gold is physical. Immutable, yet divisible. Independent and without counterparty risk. It is the ultimate store of value—as it retains its purchasing power through time—and works as an eternal payment instrument.
From: https://www.voimagold.com/insight/german-central-bank-gold-is-the-bedrock-of-stability-for-the-international-monetary-system?hs_amp=true&__twitter_impression=true

Cara

27th November 2019, 03:53

Another country’s central bank - this time Poland - is repatriating gold reserves:

Poland brings home 100 tons of gold from Bank of England
26 Nov, 2019 09:11

Poland, which has been rapidly boosting its bullion reserves over the past two years, has repatriated around 100 tons of gold from the Bank of England’s vaults in London.

Around half of Warsaw’s holdings in the UK were transferred back to the National Bank of Poland (NBP), the central bank’s governor, Adam Glapinski, announced on Monday.

“The gold symbolizes the strength of the country,” Glapinski told reporters. Some photos and videos emerged online showing the official holding a gold ingot in front of a bank vault.

While half of Poland’s reserves are still stored in England, the country’s central bank said that it may continue to repatriate the precious metal if the “reserve situation is favorable.”

Poland could generate “multi-billion” profits from selling its bullion holdings, but currently no plans to do so, Glapinski said.

Poland has become the 22nd biggest bullion holder in the world; it purchased about 125 tons in 2018 and 2019, increasing its gold reserves to 228.6 tons. The bullion stockpile is now worth around $10.8 billion, according to the NBP.

Also on rt.com Bullish on bullion: Serbia joins global gold-buying spree, adding more of the precious metal to its coffers
Central banks around the world have been on a gold-buying spree, pushing total bullion demand to a three-year high in the first half of 2019, according to the World Gold Council. While Russia, China, and Turkey are the top bullion purchasers, Poland, Hungary, and Serbia are also adding to their stockpiles as they seek to diversify their reserves amid global economic uncertainty.
From: https://www.rt.com/business/474325-poland-repatriates-gold-london/amp/?__twitter_impression=true

Cara

27th November 2019, 06:11

The following article is about the programme of debt monetisation and its effects on the economy.

The Next Wave of Debt Monetization Will Be a Disaster

Commentary

According to the International Monetary Fund (IMF) and the Institute of International Finance (IIF), global debt has soared to a new record high.

The level of government debt around the world has ballooned since the financial crisis, reaching levels never seen before during peacetime. This has happened in the middle of an unprecedented monetary experiment that injected more than $20 trillion in printed money into the economy and lowered interest rates to the lowest levels seen in history.

The balance sheet of the major central banks rose to levels never seen before, with the Bank of Japan at 100 percent of the country’s GDP, the European Central Bank (ECB) at 40 percent, and the Federal Reserve at 20 percent.

If this monetary experiment has proven anything, it’s that lower rates and higher liquidity aren’t tools to help deleverage debt, but to incentivize it. Furthermore, this dangerous experiment has proven that a policy that was designed as a temporary measure, due to exceptional circumstances, has become the new norm.

The so-called normalization process of raising interest rates lasted only a few months in 2018, only for asset purchases and rate cuts to resume.

Despite the largest fiscal and monetary stimulus in decades, global economic growth is weakening, and the productivity growth of leading economies is close to zero. Money velocity, a measure of economic activity relative to money supply, thus, goes down.

It’s been explained many times why this happens. Low rates and high liquidity are perverse incentives to push the crowding-out of the private sector by government; they also perpetuate overcapacity, due to endless refinancing of nonproductive and obsolete sectors to lower rates, and the number of zombie companies—those that can’t pay their interest expenses with operating profits—rises.

More Spending

We are witnessing in real-time the process of zombification of the economy and the largest transfer of wealth from savers and productive sectors to the indebted and unproductive.

However, as monetary history has always shown, when central planners face the evidence of low growth, poor productivity, and higher debt, their decision is never to stop the monetary madness but to accelerate it.

That’s why the message that the ECB and IMF are trying to convey is that there’s a savings glut, and the reason why negative rates aren’t working as expected is that economic agents don’t believe rates will stay low for much longer, so they’re holding on to investment and consumption decisions.

This is complete nonsense. With household, corporate, and government debt at still elevated levels and close to pre-crisis highs, the notion of excess savings is ludicrous.

What informs such a misinformed opinion? The often-repeated “there is no inflation” fallacy. If money supply is high and rates are low but inflation doesn’t creep up, then surely there must be a savings glut. False. There’s massive inflation in financial assets and housing, but there’s also a clear rise in inflation in non-replicable goods and services versus replicable ones, which means that the official consumer price indices (CPI) misrepresent the true cost-of-living increase.

That’s the reason why there are demonstrations all over the eurozone against the rising cost of living, while at the same time, the ECB is repeating that there’s no inflation.

When central planners blame economic agents for a nonexistent savings glut and repeat that there’s no inflation when there’s clearly a lot, they also tend to add a conclusion: If households and corporations are unwilling to spend or invest, then the government must do it.

This is, again, a false premise. Households and corporations are spending and investing. There’s no evidence of a lack of capital expenditure, let alone solvent credit demand. The private sector simply isn’t investing and spending as much as governments would want them to, which, among other reasons, is because the private sector does suffer the consequences of taking a higher risk when the evidence of debt saturation is clear to all those who risk their capital.

Debt Monetization

Unfortunately, the next wave of central bank action will be the full monetization of government excess. The excuse will be the so-called “climate emergency” and “green new deals.” Yet governments don’t have better or more information about the best course of action for energy transition. By artificially picking winners and losers, ignoring the positive forces of competition and creative destruction to deliver faster innovation and progress, governments tend to delay, not accelerate, change.

In any case, it will happen. The ECB, always happy to repeat the mistakes of Japan with an even stronger impetus, is likely to start new programs of debt monetization for green projects and claim it’s a different, radical, and new measure—as if it wasn’t doing so already with the Renewable Energy Directive.

The result is easy to predict, unfortunately. Governments hate two things that disruptive technologies do: reduce consumer prices and generate lower tax revenues. Yes, disruptive technologies are, by definition, disinflationary both in CPI and in tax receipts. Furthermore, disruptive technologies also demolish government control of the economy.

These three reasons—lower inflation, lower tax revenues, and less control—are the reasons why governments will never adopt true changes in the economic growth pattern. And because of these reasons, the massive spending financed with new money creation is likely to be even worse for economic growth.

Not only is it likely to be an even bigger crowding-out of the private sector, but it will also make economies less dynamic, less productive, and more indebted.

There are ways to incentivize change and a green revolution. It’s called competition and creative destruction. None of those are favored by governments, not because they are evil, but because governments have the incentive to maintain the obsolete sectors via subsidies.

If the previous $20 trillion stimuli have delivered more debt, less growth, and rising discontent among the middle class that always pays for government experiments, the next episode, à la Sen. Elizabeth Warren (D-Mass.), will likely be the last step toward full Japanization.

If anything, what are already prudent spending and investment decisions from the private sector are likely to be even more conservative, and the resulting negative productivity growth will mean lower salaries and employment, but higher debt and a larger government footprint in the economy—which is, in reality, the ultimate goal of these massive plans.

The reader may think that this time is different, but it’s not, because the incentives are the same. What I’m completely sure is that, once it fails as well, many will demand even more stimuli to solve the problem.

Daniel Lacalle is chief economist at hedge fund Tressis and author of “Escape From the Central Bank Trap,” published by BEP.
From: https://www.theepochtimes.com/the-next-wave-of-debt-monetization-will-be-a-disaster_3153766.html/amp?__twitter_impression=true

Cara

28th November 2019, 14:54

Also relevant here for the first part of the interview.

The latest discussion between Catherine Austin Fitts and Greg Hunter on USAwatchdog.com.

The opening 10 minutes focusses on the message recently conveyed by Russian President Putin on the downward movement of the dollar. ...

Putin Predicting US Dollar Collapse is Serious Warning – Catherine Austin Fitts
By Greg Hunter’s USAWatchdog.com

Investment advisor and former Assistant Secretary of Housing Catherine Austin Fitts thinks Vladimir Putin saying “the dollar is going to collapse soon” is a flashing warning for the U.S. dollar’s value in the not-so-distant future. Fitts explains, “What Putin is saying is the dollar is going into a steep decline, and what was interesting about his comment is he said ‘soon.’ . . . What is the ability of the U.S. military versus the Russian or Chinese military to defend the dollar’s position? That is intelligence that Putin has, and because Putin has this intelligence, people really stood up and I really stood up and took notice. If Putin has access to that intelligence, and I don’t, which is saying the dollar could go into a deep decline, we need to take a serious look at it. The dollar is clearly under pressure, and if you look at reserves, the central banks are buying gold and selling dollars, including the Russians and Chinese.”

Fitts also points out, “The dollar is holding, and yet, if you look at the price of household goods in America, where I live, it’s approximately 8% to 10% a year in prices of household goods (going up), and you can tell the money printing has been significant. If you look at what the Fed is doing in the repo market, we are really on the next QE. So, we’ve got a problem with currency debasement, and what Putin is saying is it’s going to go faster, a lot faster in 2020, and that is an issue I am looking at. . . . One of the scenarios I am looking at is the dollar declines significantly in 2020. . . . When you have real household inflation at 10% every year for the past five years, the dollar has really already taken a hit as are many fiat currencies around the world. . . . What has really supported the dollar is its huge market share both in trade and traditionally in reserves. . . . You need to withstand a scenario where in 2020, instead of getting 10% inflation, you need to withstand 20% or 25% inflation in real household goods. . . . I have been saying for many, many years the dollar is strong. This is the first time I started to see the potential for a crack in the armor. I think we have to be prepared for the potential for a more serious decline than we’ve been dealing with for the last five years.”

What adds to the uncertainty of the U.S. dollar is the “missing” $21 trillion that was discovered by Dr. Mark Skidmore and analyzed and recognized as a huge problem by Catherin Austin Fitts, publisher of the popular Solari Report. Also, analysis Fitts has done on the government making the “missing money” a “national security issue” with FASAB rule 56 (Federal Accounting Standards Advisory Board) makes the secret money a hidden horror the general public is totally unaware of. Fitts explains, “The dollar is under pressure because we have been talking about the ‘missing money’ and FASAB rule 56, and the dollar is not what it used to be. If you look at the integrity behind the dollar, it’s not there. If you read “The Real Game of Missing Money,” which we did this big article for investors to do due diligence, the arrangements behind the dollar and the Treasury market do not have integrity. The deceleration of the integrity of the dollar is very significant and serious. . . . You’ve got to be more resilient, and it’s not just finances, you’ve got to be more resilient in terms of safety. If we have this kind of breakdown with the rule of law with FASAB rule 56, it’s not going to take long before it breaks into your neighborhood.”

Join Greg Hunter as he goes One-on-One with Catherine Austin Fitts, the publisher of The Solari Report found on Solari.com.

WaP67PnF_v8

From: https://usawatchdog.com/putin-predicting-us-dollar-collapse-is-serious-warning-catherine-austin-fitts/amp/?__twitter_impression=true

silvanelf

28th November 2019, 16:44

The latest discussion between Catherine Austin Fitts and Greg Hunter on USAwatchdog.com.

The opening 10 minutes focusses on the message recently conveyed by Russian President Putin on the downward movement of the dollar. ...

Putin Predicting US Dollar Collapse is Serious Warning – Catherine Austin Fitts
By Greg Hunter’s USAWatchdog.com

[...]

Fitts also points out, “The dollar is holding, and yet, if you look at the price of household goods in America, where I live, it’s approximately 8% to 10% a year in prices of household goods (going up), and you can tell the money printing has been significant. If you look at what the Fed is doing in the repo market, we are really on the next QE. So, we’ve got a problem with currency debasement, and what Putin is saying is it’s going to go faster, a lot faster in 2020, and that is an issue I am looking at. . . . One of the scenarios I am looking at is the dollar declines significantly in 2020. . . .

Now I've noticed these suspicious words again: "repo market". Therefore I'm posting here an interesting article about this topic -- some parts of the article go over my head, but anyway.

What’s Behind the Fed’s Bailout of the Repo Market?
by Wolf Richter • Nov 6, 2019

Whose Bets are Getting Bailed Out by the Fed’s Repos & T-Bill Purchases?

The repo market blew out in mid-September. It had already briefly blown out at the end of 2018, then settled back down. But the issues started bubbling up again. By the end of July, the repo problems made their way into the Fed’s meeting, as we learned when the minutes of that meeting were released in August.

The repo market is huge. According to the Securities Industry and Financial Markets Association SIFMA, the average daily repos and reverse repos outstanding in 2018 totaled nearly $4 trillion. Repos accounted for $2.2 trillion, reverse repos accounted for $1.7 trillion. The Fed is now playing in both, repos and reverse repos.

So the repo market – with about $2.2 trillion outstanding – blew up in mid-September and repo rates spiked to 10% before the Fed stepped into it to calm it down and keep some financial outfits from blowing up. Perhaps the Fed was fretting about contagion spreading to the rest of the financial system and potentially cause some real damage.

--- snip ---

https://wolfstreet.com/2019/11/06/whats-behind-the-feds-bailout-of-the-repo-market/

silvanelf

28th November 2019, 17:45

Many thanks to Jim Sinclair's Mineset (https://www.jsmineset.com/), who republished the article!

China, Russia, BRICS And Now UAE: Everybody Wants A Gold Trading Platform!
October 15, 2019

This article was written by Rory Hall and originally published at The Daily Coin

China started something when they opened the Shanghai Gold Exchange where physical gold is traded to a global market. Russia began trading gold futures on the Moscow Exchange which was followed by China and Russia announcing they would open the BRICS Gold Exchange to assist the other members of the BRICS alliance to acquire more gold. This was followed by India stating they would be pursuing a gold spot exchange market and next up is the United Arab Emirates (UAE) announcing they, too, are going to open a physical gold trading platform. WOW! That’s a lot of physical gold changing hands on a daily, weekly, monthly and yearly basis.

This is all pointing towards what seems to be a likely conclusion – a new gold pricing mechanism that is operated by the Shanghai Gold Exchange instead of COMEX in Chicago and New York or the LBMA in London.

It seems that slowly and surely, the major gold producing nations of Russia, China and other BRICS nations are becoming tired of the dominance of an international gold price which is determined in a synthetic trading environment which has very little to do with the physical gold market.

The Shanghai Gold Exchange’s Shanghai Gold Price Benchmark (https://www.bullionstar.com/blogs/ronan-manly/shanghai-gold-benchmark-price-new-sge-gold-fix/) which was launched in April 2016 is already a move towards physical gold price discovery, and while it does not yet influence prices in the international market, it has the infrastructure in place to do so. Source (https://www.bullionstar.com/blogs/ronan-manly/russia-china-new-gold-trading-network/)

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http://alt-market.com/index.php/articles/3963-china-russia-brics-and-now-uae-everybody-wants-a-gold-trading-platform

Cara

2nd December 2019, 06:17

The gold repatriation trend continues, now with a new spin that the UK can’t be trusted to hold the gold.

1200317971626893312

Ron Mauer Sr

21st March 2020, 17:25

Could this be true??

An interesting power game. Copied from from elsewhere.

=================
In recent days, China broke many records, and earned absolutely everything,
$ 20 billion in the first news and bought about 30% of the shares of companies that belong to the West in China.

President Xi Jinping has surpassed Europeans and intelligent American Democrats.

He played a wonderful game in front of the eyes of the entire world.

Due to the situation in Wuhan, the Chinese currency began to decline, but the Chinese Central Bank took no action to stop this collapse.

There were also many rumors that China didn't even have enough masks to fight the Corona Virus.

These rumors and Xi Jinping's statement that he is ready to protect Wuhan residents by blocking borders has led to a sharp decline in share prices (44%) in Chinese technology and the chemical industry.

Financial sharks began selling all Chinese stocks, but no one wanted to buy them and they were completely devalued.

Xi Jinping made a great move at this time, waiting for a whole week and smiling at the press conferences as if nothing special had happened.

And when the prices fell below the allowed limit,
he ordered to buy ALL the shares of Europeans and Americans at the same time!

Then, the "financial sharks" realized that they had been cheated and bankrupt.

But it was too late, because all the shares had passed to China, which at this time not only earned
$ 2000 Billion,
but thanks to the simulation,
once again becomes the majority shareholder of companies built by Europeans and Americans.

The shares now belong to their companies and have become owners of the heavy industry on which the EU, America and the entire world depend.

From now on, China will set the price and the income of its companies will not leave the Chinese borders, but remain at home and maintain all the Chinese gold reserves.

Therefore, the American and European "financial sharks" proved stupid and in a few minutes the Chinese collected most of their shares, which now produce billions of dollars in profits!

You don't remember such a bright movement in the history of the stock market!

The Chinese president at Wuhan Hospital without muzzle ..
China officially announces victory over the Corona virus

Did the Chinese deceive the world with the Corona Virus? And they saved their economy ?!

This is what the Americans and Europeans think, after they sold their shares in high-value-added technology companies for a minimal price to the Chinese government.

According to them, the Chinese leadership used an "economic tactic" that made everyone swallow the bait easily, before they asserted that China did not resort to implementing a high political strategy to get rid of European investors, in support of China's economy, which would bypass the US economy with this step ..!

And because it teaches the science of certainty that Europeans and Americans are looking for excuses to slow and bankrupt the Chinese economy, China has sacrificed some hundreds of its citizens, instead of sacrificing an entire people ..!

Through this tactic, China succeeded in "deceiving all", as it reaped about $ 20 billion in two days, and the Chinese president succeeded in deceiving the European Union and the United States of America in the eyes of the world, and played an economic game of a tactical nature, which was unthinkable. !

Before the Corona virus, most of the stocks and stakes in investment projects at "Technology and Chemicals" production plants were owned by European and American investors ..!

This means that more than half of the profits from the light and heavy technological and chemical industries went to the hands of foreign investors, not to the Chinese treasury, which led to a decline in the Chinese currency, the yuan, .. and the Chinese central bank could not To do something against the continuous fall of the yuan ..!

There was even widespread news that China was unable to purchase masks to prevent the spread of the deadly virus. These rumors and the Chinese President’s statements that he is “not ready to save the country from the virus” have led to a sharp drop in the purchase prices of shares of technology companies in China, and the empires of “foreign” investors have raced to offer investment shares for sale at very low prices, and with attractive offers, "Never seen before" in history ..!

The Chinese government waited for foreign share prices to reach their "almost free" minimums, and then issued an order to purchase them. And bought the shares of Americans and Europeans ..!

And when European and American investment financiers realized that they had been deceived, it was too late, as the shares were in the hands of the Chinese government, which in this process nationalized most of the foreign companies erected on its soil in a near-free manner, without causing a political crisis or a single shot .. !

The same sources confirmed and pointed out that "Corona" is a "real" virus, but it is not a terrible danger that has been promoted across the world ..!

China began to take out the anti-virus vaccine, this vaccine that it had owned from the beginning on the shelves of refrigerators after it had received its goal ..!