Tuesday, September 19, 2017

BIS Quaterly Review

The latest BIS email alert is on their new quarterly review (summary pasted in below). A blog reader here pointed out the following to me:

"under Special Features;  Central Bank Cryptocurrencies, a 17 page paper,  too long for me to read in full, but with a very good breakdown of the many possible types, uses,  and issues with each."
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September 2017 BIS Quarterly Review: Strong outlook with low inflation spurs risk-taking

17 September 2017

Press release

Low inflation despite a stronger economic outlook helped push markets up in recent months and reduced the expected pace of tightening of monetary policy in major economies. Signs of increased risk-taking have become apparent in a number of areas, including narrow credit spreads, increased carry trade activity and looser bond covenants.
"All this puts a premium on understanding the 'missing inflation', because inflation is the lodestar for central banks," said Claudio Borio, Head of the Monetary and Economic Department.
The September 2017 issue of the Quarterly Review:
  • Shows a pickup in the growth of international debt securities in the first half of 2017, when total stocks rose to $22.7 trillion. The outstanding stock of securities issued by banks grew at its fastest pace in six years.
  • Calculates that credit-to-GDP ratios remained well above trend levels for a number of jurisdictions, often coinciding with wide property price gaps. Demand from projects financed by property developers may play a role.
  • Reviews the doubling in outstanding government debt of emerging market economies since 2007, to $11.7 trillion at end-2016. Government debt rose from 41% to 51% of GDP over the same period. Emerging market government borrowing is mostly at longer maturities, at fixed rates and in local currencies, and its pattern increasingly resembles that of advanced economies.
  • Reports on new data initiatives aimed at assessing the exposure of economies to foreign currency risk. From now on, the BIS will regularly publish a currency breakdown of cross-border loans and deposits. Bank loans can be added to debt securities to estimate the build-up of total foreign currency debt. Country-level estimates of total US dollar, euro and yen credit provide a better gauge of foreign currency indebtedness of borrowers in a given country and its vulnerability to currency fluctuations. The BIS is also releasing new data series on monetary policy rates and exchange rates.  
Special features look at topical issues in global markets and economics:
  • Claudio Borio, Robert McCauley and Patrick McGuire (BIS)* analyse the amount of debt incurred by borrowing through FX swaps and forwards, a missing element in assessments of financial stability risk. The authors estimate the size, distribution and use of this missing debt, and assess its implications for financial stability. The off-balance sheet dollars owed by non-banks outside the United States may exceed their $10.7 trillion of on-balance sheet dollar debt (as of Q1 2017). The missing debt is secured with foreign currency, is mostly short-term and is likely to generally serve as a hedge for FX exposures in cash flows and on balance sheets. But rolling over short-term hedges of long-term assets can still spark or amplify funding and liquidity problems during periods of stress.

  • "This research is the first to put a number on the amount of dollar debt missing from balance sheets and fills in a gap in our understanding of liquidity risk posed by financial firms operating across different currencies," said Hyun Song Shin, Economic Adviser and Head of Research.
  • Morten Bech (BIS) and Rodney Garratt (UCSB)* outline how central banks might create and use blockchain-based digital currencies. They identify two types of such potential central bank cryptocurrencies, one for consumers and the other for large-value payments, and compare them with existing payment options.
  • Codruta Boar, Leonardo Gambacorta, Giovanni Lombardo and Luiz Pereira da Silva (BIS)* find that countries which frequently use macroprudential tools have tended to have higher and more stable economic growth rates. On the other hand, ad hoc interventions could hurt growth.
  • Torsten Ehlers and Frank Packer (BIS)* argue that more consistent standards for green bonds could help develop the market for instruments to finance investments with environmental or climate-related benefits. Although there is some evidence that investors have paid a premium on average at issuance for certified green bonds, the bonds have not generally under performed conventional ones in the secondary market.

Sunday, September 17, 2017

Another Crisis? Fed's Dudley Does Not See One Coming

New York Fed CEO William C. Dudley gave a speech recently in New York outlining how he sees things going in the US economy. Notably absent is any mention of concern that the US might see any kind of new major crisis any time soon or that markets are in an overvalued bubble condition. 


In fact, Mr. Dudley says he thinks things are going pretty well and that the Fed should be able to stay on course to shrink its balance sheet in the months ahead. He adds that he does not think the shrinking of the balance sheet is likely to have much impact. Below are excerpts from the introduction and the concluding remarks sections of the speech.  

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"Good evening.  It is a pleasure to have the opportunity to speak at this Money Marketeers event.  In my remarks, I will focus on two topics:  1) The economic outlook and the implications for monetary policy, and 2) the Fed's balance sheet normalization process, which is likely to begin relatively soon.  As always, what I have to say reflects my own views and not necessarily those of the Federal Open Market Committee (FOMC) or the Federal Reserve System.
Overall, the economy remains on a trajectory of slightly above-trend growth, which is gradually tightening the U.S. labor market.  Over time, this should support a rise in wage growth.  When combined with a firmer import price trend-partly reflecting recent depreciation of the dollar-and the fading of effects from a number of temporary, idiosyncratic factors, that causes me to expect inflation will rise and stabilize around the FOMC's 2 percent objective over the medium term.  In response, the Fed will likely continue to remove monetary policy accommodation gradually.  But, the upward trajectory of the policy rate path should continue to be shallow, in part because the level of short-term interest rates consistent with keeping the economy on a sustainable long-run growth path is likely to be considerably lower than it was in prior business cycles. 
The process of balance sheet normalization-in which an increasing proportion of maturing Treasuries and agency mortgage-backed securities (MBS) repayments are allowed to run off the Fed's balance sheet-should also exert some monetary policy restraint over time.  But, I believe this impact will be quite modest.  Not only is this shift in policy now widely anticipated, but we have also seen that the impact on the level of long-term interest rates has been small as expectations have adjusted."

. . . . 

"To sum up, I expect that the U.S. economy will continue to perform quite well, with slightly above-trend growth leading to further gradual tightening of the U.S. labor market.  As this occurs, I would anticipate that wage growth will firm and that price inflation will gradually rise.  In response, I expect that we will continue to gradually remove monetary policy accommodation.  Balance sheet normalization will likely be part of this process.  But, we expect this to have only a mild impact and to run passively in the background.  Short-term interest rates will remain the primary tool of monetary policy."
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Friday, September 15, 2017

Jim Rickards on Trump and the Fed

In this new article, Jim Rickards suggests that Trump will have an historic opportunity to shape the Federal Reserve since there so many vacant seats to fill, probably including Janet Yellen. Below are a couple of excerpts from the article.

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"Donald Trump has the opportunity to appoint a higher percentage of the Board of Governors of the Federal Reserve system at one time than any president since Woodrow Wilson.

President Wilson signed the Federal Reserve Act during the creation of the Fed in 1913 when they had a vacant board. At that time, the law said the secretary of the Treasury and the comptroller of the currency were automatically on the Fed’s board of governors. But besides that, President Wilson selected all five of the other participating members.

Now Trump has the opportunity to fill more seats on the Fed’s Board of Governors than any president since then."

. . . .

"But don’t be surprised if Trump goes with a hard-money board. In fact, that’s what I expect. These will be hard-money, strong-dollar people, contrary to a lot of expectations. Trump advisers include hard-money advocates like Dr. Judy Shelton, David Malpass, Steve Moore and Larry Kudlow. I expect Trump to heed their advice."

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My added comments: It's interesting that Jim Rickards expects President Trump to go with a "hard-money board" filling positions with "strong-dollar people" given his forecast for a much weaker dollar. Perhaps he expects the dollar to weaken substantially first and then get some support from the new Fed members later? Time will tell.

Tuesday, September 12, 2017

Canada Explores Central Bank Digital Currency

We have covered the concept of central bank digital currencies here on the blog for some time now. While it is clear that the idea is being looked at by many central banks, we are still waiting for the first central bank digital currency to arrive. 



This article on the OMFIF web site explains how The Bank of Canada is researching the idea. It is clear that research is still in progress, that this project will not replace cash any time soon, and that various ideas on how to actually implement a central bank digital currency are being studied. Below are a few excerpts. 

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"Digital currencies aren't new. Most money in advanced economies is already digital: a bank account balance is but a computerised entry in a ledger at a commercial bank. However, the digital money of the future could have very different characteristics from present forms.

. . . . .

It's no wonder that the possibilities of new digital currencies have sparked the interest of the private sector and the central banking community. The questions raised are of fundamental significance to the core functions of central banks because they have implications for monetary policy, financial stability, funds management and currency issuance.

Research-driven decisions: The Bank of Canada is approaching the subject from three angles: research, experimentation and co-operation. The bank has been investigating questions related to private and central bank digital currencies for some years, and is building a set of research papers. It aims to examine the underlying benefits and risks of digital currencies to the functioning of the economy, and for the central bank mandate.

. . . . .

Other research has highlighted the importance of making sure there is a need for the digital currency. If it simply provides another payment mechanism when cash is a viable alternative, there are circumstances under which the wellbeing of people could be reduced by its introduction.

Research on whether a central bank should issue a digital currency is still under way. The Bank of Canada has outlined a framework for analysis that highlights the importance of understanding the types of new economic activity that could be enabled. There are many considerations to be explored, not least who should have direct access to the central bank balance sheet and what this would imply for the transmission of monetary policy and financial stability."



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My added comments: This statement in the article above is one I find interesting:

"Other research has highlighted the importance of making sure there is a need for the digital currency. If it simply provides another payment mechanism when cash is a viable alternative, there are circumstances under which the well being of people could be reduced by its introduction."

It points out the fact that central banks already issue "digital currency" for the most part. Unless there is a compelling reason like significant cost savings or some advantage to the public that does not currently exist, it is fair to ask if just issuing a "central bank digital currency" based on "blockchain" is really needed. They go on to say that in some cases where cash is a viable alternative, the well being of the public could be reduced by introducing a central bank digital currency. This does not sound like a ringing endorsement of replacing cash with a blockchain based "central bank digital currency" to me.

Friday, September 8, 2017

US Dollar Watch

Sometimes a very long term chart can provide a perspective that you don't get looking at a much shorter time frame. Now that the US dollar has sunk into the potentially key 90-92 level, perhaps a look at its long term chart would be worthwhile.


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Note the very long term downtrend in play. In the last major crisis in 2008 the US dollar sunk to an all time low just above 70 on this index. It appears that the next key area lower to watch is the 85-86 area. Failure to hold there could well indicate we are headed back down 80 fairly quickly. If you see the dollar drop below 70 at any time in the coming months or years, we would then be at new all time lows. Just below is a look at how the dollar has done over the past one year.




It is oversold right now and should bounce in here somewhere soon. If it does not, the 80 level seems likely to arrive fairly quickly. It has only taken about 4 months to drop nearly 10% down to the present level. I will remind readers of this note we published on 8-1-17 about Jim Rickards forecast on the dollar made to me by email back in March of this year.



My email to Jim dated 3-27-17:

"I am not a technical analysis expert by any means. However, this chart indicates to me that the USD has once again reached an important support level here around 99. It appears to me that if that fails, 95-97 would show up pretty quickly. After that, an even sharper drop looks possible. 


If you look back in time the 99 level seems pretty pivotal and the 200 day average sits just below right now at 98.44. The last time this happened the dollar held and rallied. So the next few days/weeks are probably important for direction if I read this chart correctly."


Jim's email reply dated 3-27-17:

"I expect the dollar will hold, and gold will pause to catch its breath, but only temporarily.


By late June or early July, I expect the dollar to come down a lot and gold to rally. We're just not there yet.
We'll need one more Fed rate hike in June to drive a spike in the economy. Then the Fed will flip-flop to ease again, and we're off to the races."  ------    James Rickards
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Added note: Venezuela, which has suffered a horrific devaluation of its own currency lately, will now try to get away from the US dollar if possible.

Paola Subacchi - Saving the International Order

This article by Paola Subacchi appearing on Project Syndicate makes some of the same points we have made here for some time in regards to the prospects for global consensus on changes to the existing monetary system. While I constantly see articles that seem to suggest that some kind of new global monetary system will be imposed by the IMF, the reality that I find over and over again is that the consensus that would be needed for that kind of change simply does not appear to exist at this time. Below are a few excerpts from the article.

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"This autumn, the International Monetary Fund and the World Bank will once again hold their annual conference in Washington, DC. At a time when the liberal world order that these institutions underpin is under threat, they cannot afford to stick with business as usual. Instead, they must consider deep reforms – and that will require abandoning the paternalistic, even hostile, tone that has often dominated discussion of the topic."

Since the election of Donald Trump as US president last November – the culmination of an upsurge in nationalist-populist sentiment across the Western world – the weaknesses of existing multilateral frameworks have come increasingly to the fore. But the current crisis of the liberal world order has been a long time in the making.

In fact, it has been apparent since before the turn of the century that the post-World War II governance structures were untenable, because the assumptions that formed their foundation were beginning to crumble. In particular, with emerging economies, especially China, on the rise, the division between the West and the “rest” was narrowing fast.

Yet the global economy’s institutional underpinnings – the IMF and the World Bank – have remained largely unchanged. Indeed, the multilateral institutions on which global governance rests do not look all that different today than they did in 1944, when Britain’s John Maynard Keynes and America’s Harry Dexter White convened representatives from 44 countries in in Bretton Woods, New Hampshire, to design the post-WWII international order."

. . . .

"To be sure, since the 2008 financial crisis, there has been much debate about globalization, governance, international cooperation, and the tension between open markets and domestic politics. Well-rehearsed discussions of issues like financial surveillance, coordination, moral hazard, international lenders of last resort, a debt-resolution regime, and sustainability in development finance will surely inform the work of the eminent persons group.

But discussion does not imply consensus, and I am not convinced that agreement on any of these topics is strong enough to produce concrete policy action. The question of how to pursue governance and quota reform in the Bretton Woods institutions – critical to these bodies’ survival – is nowhere near answered. And Trump’s US, which is engaged in its own rethinking of its role in world affairs, remains a wild card."


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My added comments: I put the last paragraph above in bold italics because it basically says almost exactly what we have been saying here for some time. When I see articles saying that the IMF will do this or will do that I have to ask this question:

How will the IMF do anything significant to change the existing monetary system without the global consensus of the major powers that are its members (not to mention all the other nations that are members).?

No such consensus appears anywhere on the near horizon at this time as best I can tell. Readers here are probably tired of hearing this, but this is why I am convinced that the world will have to see a major global financial crisis of the kind Jim Rickards and others are predicting before we are likely to see any kind of movement towards consensus on these huge issues. All of the individual governments and central banks at the IMF have to work on behalf of the interests of their own nations first and foremost. Those interests simply do not line up too many times to get much consensus on the big issues. 

Things can always change and if they do we would certainly report that here. But it is important to report things accurately based on the information that is available. At this time, the best information I know of suggests no such major monetary system change is on the near term horizon at either the IMF or the BIS. 


Tuesday, September 5, 2017

Centralbanking.com - Email Exchanges Between Allan Meltzer & Robert Pringle

Earlier this year, we ran a two part article featuring a series of email exchanges between Centralbanking.com Founder Robert Pringle and economist Allan Meltzer where they talked about monetary system reform. 


Now Centralbanking.com has published a new more time extended version of their email exchanges that I think readers would find fascinating. Below is a just a brief excerpt. You can read the full article here on Centralbanking.com. They discuss a wide variety of issues related to monetary policy and the need for reforms.

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Robert Pringle 


"Allan Meltzer was a mentor and friend for more than 40 years. We met in 1974, when I was editing The Banker, and angrily trying to draw attention to the link between monetary growth and inflation – a link denied by the Bank of England (BoE), UK Treasury, all politicians except Keith Joseph and many commentators. Allan and Karl Brunner, a fellow monetarist, invited me to participate in a new venture, the Interlaken Seminar on Analysis and Ideology – an early effort to apply individualistic, economic reasoning to broad sociological and political issues. The mornings were spent discussing academic papers and the afternoons walking in the Alps – the best format for a week-long seminar ever developed! I attended several of these annual get-togethers in the 1970s, and we kept in touch subsequently. Allan was a strong supporter of Central Banking Publications from the start and a natural choice to be a founder member of our editorial advisory board. I believe he was pleased with the way it has developed. “It’s where I go to learn about the people and the policies” of the central banking world, he said. 
Apart from the formal interviews that he gave to Central Banking and numerous contributed articles, he and I also kept up a lively private email correspondence. I would often bounce ideas off him. He would invariably respond. The following is a selection of our exchanges. It covers, among other topics, the markets, the US Federal Reserve Board, central bank independence, money and banking." 
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Added note: Robert Pringle gave us this additional comment by email to use in an article here on this blog about Allan Meltzer written by John Taylor:
"I first met Allan when he was looking for people with a wide range of interests to invite to a seminar series that he was setting up with Karl Brunner. It was called officially the Interlaken Seminar on Analysis and Ideology that met annually from 1974 to the late 1980s. The aim of the Seminar ( as he put it in his own tribute to Brunner ) was to extend economic analysis into many areas of social policy. As he described it, the conference organization was as unusual as the topics discussed: "We met only in the morning. Afternoons were given over to hiking in the Swiss Alps, or for a few playing golf. The idea was to have informal discussions while hiking. We reassembled for dinner."

You can imagine how much I, as a young financial writer with an interest in economic history and sociology , leapt at the chance of participating. It was a top rate group with future nobel laureates such as Jim Buchanan and others participating - only about 25 of us in all.  I was privileged to attend for several years - every year in fact until  I joined the G30 in New York in 1980.

We have remained in touch ever since. He was a tremendous supporter of Central Banking and a founding member of our editorial advisory board from 1990. 

By the way, he wanted John Taylor to be the next Fed chair."           

All best,
Robert

Sunday, September 3, 2017

Nikkei Asian Review: China sees new world order with oil benchmark backed by gold

There have been many rumors and hints for some time that at some point China might make a push to try and undercut the so called Petrodollar and steer the world away from the US dollar if possible. This new article in the Nikkei Asian Review says China is prepared to take a bold step forward in this plan soon. It will be interesting to see if this does materialize any time soon and what the US reaction to it may be. Below are some excerpts from the article.

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"China is expected shortly to launch a crude oil futures contract priced in yuan and convertible into gold in what analysts say could be a game-changer for the industry.

The contract could become the most important Asia-based crude oil benchmark, given that China is the world's biggest oil importer. Crude oil is usually priced in relation to Brent or West Texas Intermediate futures, both denominated in U.S. dollars.

China's move will allow exporters such as Russia and Iran to circumvent U.S. sanctions by trading in yuan. To further entice trade, China says the yuan will be fully convertible into gold on exchanges in Shanghai and Hong Kong."

. . . . .

"If Saudi Arabia accepts yuan settlement for oil, Gave said, "this would go down like a lead balloon in Washington, where the U.S. Treasury would see this as a threat to the dollar's hegemony... and it is unlikely the U.S. would continue to approve modern weapon sales to Saudi and the embedded protection of the House of Saud [the kingdom's ruling family] that comes with them."



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Added notes: DrStephen Leeb has been predicting for some time that something like this was in the works in China. It is certainly something to keep an eye on. Jim Rickards adds his comments on it here on his Twitter feed. Russia Insider runs this article and then another comment by Jim Rickards.


Added note 9-7-17: Sputnik News adds this story along these same lines 

Added update 9-15-17: The Daily Coin publishes this article with email comments by gold researcher Koos Jansen about the article featured above in the Kikkei Asian Review. He questions the significance of the article and suggests that this may be much ado about nothing. Here are a couple of quotes by Koos from the Daily Coin article:

"In my opinion the story is misleading. The journalist in question from Nikkei Asian Review confirmed to me he used no official sources on the oil benchmark backed by gold” story."

. . . .

"Surely China is working hard to promote their currency internationally. And they are eager to have more oil and gold priced and traded in renminbi. It’s also true that Russia and Iran, and other countries, like to use less dollars in international trade. But, in my very humble opinion, the Nikkei story should be taken with grain of salt."

Saturday, September 2, 2017

Jim Rickards on Potential Market Risks

In this recent article we noted that Yale School of Management has a blog that covers potential systemic risk and also offers a masters degree in the study of systemic risk. In this recent interview, Jim Rickards gives his latest thoughts on a couple of risks he sees out there at this time.





Jim mentions that he sees the economy starting to roll over in many different areas which could lead to a significant stock market down turn into the end of this year. He also provides an update on the prospects for war with North Korea. In that regard, Jim told me in an email earlier this year to pay close attention to the time frame between November 2017 and February 2018 for the potential for an actual shooting war to break out. Obviously that event would have significant impact on the markets if it were to happen.


Added note: It appears that both Russia and China are getting increasingly nervous that a war will break out between the US and North Korea. Also, Australia agrees to join with the US if such war does happen.

Friday, September 1, 2017

Systemic Risk Blog - Yale School of Management

On this blog we watch for and report any signs of potential risk to the financial system since that is clearly something that can trigger a serious financial crisis. Such a crisis could then lead to major changes in the monetary system that could impact all of us. Readers here may know we have a full page of documented articles that talk about various kinds of systemic risks identified by either the IMF or the BIS. 


However, this is not the only blog that monitors systemic risk. Did you know that the Yale School of Management has such a blog?  In fact, Yale even offers a masters degree in the study of systemic risk. It's good to know that someone else takes this topic seriously. Below is an example article from the Yale blog that talks about the risks that clearinghouses for derivatives (CCP's) have to deal with. Here are a couple of excerpt paragraphs.
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Example article - The Failure of a Clearinghouse: Empirical Evidence (Banque de France)


"By insulating its members from bilateral default risk, clearinghouses, or central clearing counterparties (CCPs), play a critical role in the orderly settlement of transactions, both in over-the-counter and in exchange-based markets. Following the objective decided at the G20 Pittsburg summit in 2009, central clearing is mandatory for standardized derivatives in most countries, as regulators expect it to prevent market breakdowns or financial contagion. However, a new risk arises: the CCP itself could fail, with dramatic effects for financial stability.

Against this background, our paper is the first to empirically study the failure of a CCP by relying on internal documents from both the CCP and the major clearing member which failed. The failing CCP was the Caisse de Liquidation des Affaires en Marchandises. It was the only clearinghouse operating in the Paris Commodity Exchange, a market most active for sugar futures. Between 1973 and 1974, a six-fold increase in global sugar prices (see Figure I) spurred trading activities. Starting in November 1974, margins calls due to the collapse of prices induced the largest clearing member, and ultimately the CCP, to fail.   . . . . "



Wednesday, August 30, 2017

News Note: Cato Institute 35th Annual Monetary Conference

A thank you to a reader who alerted me to this event which will be held in Novermber by the Cato Institute in Washington, D.C. Below I have pasted in a bit of the information. Click on the link to get the full set of information. There will be a strong slate of speakers including John Taylor, Judy Shelton, and Kevin Warsh. Dr. Lawrence White who we have featured here will also be a speaker. 

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35th Annual Monetary Conference

THE FUTURE OF MONETARY POLICY


Thursday, November 16, 2017
9:00AM — 6:15PM

Cato Institute • 1000 Massachusetts Avenue, NW • Washington, DC


Monday, August 28, 2017

OT: Hurricane Harvey Heroes

This post will take a break from the news and issues we normally cover to offer a small, but heartfelt tribute to the thousands of ordinary people who have suddenly turned into heroes. This tragedy will have an enormous impact on the lives of tens of thousands of people without a doubt. The disruption to normal life will not go away quickly for many and for some a normal life will never return.

While there will always be a few people that try to take advantage of the misfortune of others, once again we are seeing that the overwhelming majority of people just want to try and help out a neighbor if they can. It's inspiring to see ordinary citizens turn into heroes when things like this happen. It won't fix all the heartbreak and loss that will come with this event, but it does remind us that most people will want to help.


Our thoughts and prayers go out to all those impacted and to those directly involved in trying to help those impacted. I have no doubt that an enormous wave of additional support will follow later from local, state, and federal governments along with massive support from churches and charities across the state and the US (and even the world). It's just what people do when a neighbor needs help

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Saturday, August 26, 2017

Gold Wars

Gold is not the main focus of this blog although it is an important signal we monitor that can indicate that something important may be happening the in the monetary system. Gold has been in and out of the official monetary system for a long time so people do view it more like money than just a commodity like zinc for instance.


Gold tends to generate a lot of emotional reaction from people who love it or who seemingly hate it for various reasons. There are all kinds of articles and blogs that discuss gold and its love/hate relationship with the monetary system. For instance, the same people (central banks) that tend to disparage gold as something out of place in a modern monetary system also happen to hold tons and tons of it in their vaults. The tension that clearly exists when gold is talked about as an alternative to the currencies of the central banks is really there and there are many places that cover those issues.


What I would like to focus on for this article is to look at some new developments in the gold space that may indicate that interest in gold as some kind of alternative payments system might be increasing. Below are some thoughts on it.
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Gold has always been something people around the world look to when there are signs of potential trouble in the world. The most recent example is the flare up between the US and North Korea. When the rhetoric ramped up to a level where people began to pay attention and think an actual shooting war might be possible, gold immediately reacted. People like Ray Dalio were instantly suggesting everyone should own at least 5-10% of a portfolio in gold as an insurance hedge (something we have long talked about and people like Jim Rickards have consistently recommended). Readers should understand that no where near that allocation to gold exists currently and if fund managers and investors actually followed that advice, the demand for gold would explode far above the amount that is available at any given time and the price would explode along with it.

The potential for something like this to happen is always out there even with gold no longer used like money as part of the monetary system. Now we have private sector initiatives popping up that are actually trying to modernize gold in a way they hope will encourage people to use it more like money again and not just as an insurance hedge or long term store of wealth. Goldmoney was the first to enter this space and tries to make it easier to use gold in your account with them like money to spend in commerce. This is how they describe their debit card on their web site:


What is a Goldmoney Mastercard® Prepaid card?


The Goldmoney Mastercard® card is a prepaid card available in several currencies that can be linked to verified Full Holdings. You may sell metals to currency within your Holding to load a prepaid card and use it anywhere Mastercard is accepted.
Recently, BullionCoin launched with a more extensive plan to try and get a 100% gold (and silver) backed cryptocurrency to be used in commerce. They do this by offering an incentive to merchants to accept BullionCoin in payment for goods and services and will also offer the end user a debit card for purchases. To the end user it will work the same as any debit card they already use at merchants that accept BullionCoin for payment. It appears that perhaps the first shot in possible Gold Wars may have been fired at BullionCoin as the ABX announced it was pulling out of its partnership with BullionCoin based for one reason on the potential for a lawsuit filed by a "competitor" for "alleged infringement of intellectual property rights" (BullionCoin fired back by denying any lawsuit exists).

Now we learn that coming up in the fourth quarter of 2017, another gold linked payments system called GlintPay plans to launch as well. The article appearing in TechCrunch on Glint had this to say:

"However, I understand that Glint will offer a frictionless way to both store and spend your money in gold, including at the point of sale, just like a regular local currency. The bigger picture is that gold historically has been a better storage of value than any government-created currency, and therefore — with the aid of technology — is (arguably) a good candidate for an alternative global currency. The startup has already been authorised and is regulated by the U.K.’s FCA, under, presumably, an Electronic Money Institution license."

So we are clearly going to have competition now in the gold backed payments system space with blockchain also entering the picture for some of the products. This Bloomberg article lists some more coming soon that will be based on blockchain. We can expect that these private ventures will compete aggressively for the existing base of consumers who like to own gold and silver even as they all also try to expand that base of people with global marketing efforts. This is where we may see some additional Gold Wars in the future as we have already seen with BullionCoin. Whoever can attract substantial institutional support may gain an advantage in these wars as promotion and marketing helps influence people to try something new.

It will be interesting to see how these new private ventures impact the gold market and how successful they are in attracting broader adoption of gold backed currency for use like money in regular commerce. They will all be fighting legal tender laws and probably tax reporting rules that will be obstacles to overcome in many countries. 

But if they are successful in bringing in lots of people globally who are not currently interested in owning gold and silver, their impact on those markets could be significant as a new source of demand for physical gold and silver. This could be true  even if some of these products cannibalize from existing gold buyers. Right now it is estimated that just 1% of global capital is invested in gold. A seemingly tiny increase to just 2% is actually a huge increase in demand for the physical metal in relation to the available supplies from mining each year (which are starting to drop off). The same concept applies to silver. It bears keeping an eye on in the future as the Gold Wars heat up.
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Added notes: While no one can predict the future, this article on silver does make some good points about how it appears to be undervalued at this point in time. Silver is selling at a price not very much above what it costs to mine it and it looks like mine production may have peaked out and is starting to decline. Eventually the price of silver has to react to this situation or some mines will have to be closed which will speed up the decline in production. Meanwhile, demand for silver is likely to remain steady or increase in the coming years with nations like China in the middle of large programs to expand the use of solar energy. Also, any time demand for gold picks up as an insurance hedge, silver tends to benefit from that as well and is more affordable for the average person.

Treasury Secretary Mnuchin created quite a stir when he suddenly showed up at Fort Knox to seemingly check out the US gold stored there. This created an immediate renewal of the ongoing battle between those who believe that much of the gold supposedly held at Fort Knox has been sold off and those who say the physical gold is still there, but may have ownership claims against it on paper (has been swapped or leased). Of course, since the gold has not been audited for many years, no one can prove their claims one way or the other. It is somewhat odd that Secretary Mnuchin suddenly shows up for to do this photo op holding a gold bar. We won't speculate here because we leave that to others. The fact this week is that for whatever reason, the Treasury Secretary of the US showed up at Fort Knox to say "the gold is safe" for some unexplained reason.

Andrew Maguire surfaced again to do a new interview with King World News. In this interview he repeats that the 250 ton gold buy order he has talked about most of this year is still coming, but has been delayed past the date he initially expected. As we might expect, after the partnership between BullionCoin and the ABX fell apart, the credibility of Andrew Maguire is in question by many people who follow events in the gold market. All we can do here is report what happens. So far, the prediction of this large gold buy that is supposed to "reset" the gold price much higher has not materialized. The failure of BulllionCoin and ABX after much promotion of it by Andrew Maguire on his Twitter feed (see documented list of all statements made in 2017 here) does not inspire confidence. If such a large gold buy order does in fact show up and cause a much higher "reset" of the gold price, we will report that here. If it does not, we will also report that here. It seems there are all kinds of Gold Wars out there and discovering the truth is quite difficult. This is why we try to avoid speculation and report what actually happens.

In this new article, Jim Rickards says "Weird Things are Happening With Gold"