Author Archives: CRONKITE
“Despite the quiet nature of things lately from a geopolitical standpoint, coupled with the mainstream media’s obsession with new nominal highs in the various paper indexes, there is definitely turbulence below the surface. There have already been a number of thought-provoking articles written regarding the future of dollar hegemony and the purpose of this week’s piece is to hopefully add to the discussion and stimulate some thought.
The first important thing to remember is that unless one has access to credible inside information, most of what we read is speculation, and most of the commentators will readily admit that. I’m going to do the same thing here. Opinions will be clearly noted and facts will be referenced. Despite the abstract sounding nature of the term, ‘dollar hegemony’ is the paradigm that allows America to do what it is currently doing; namely spending money it doesn’t have on things it doesn’t produce (or need). It is the leverage mechanism that is used globally to politely – and sometimes with extreme prejudice – cajole other nations into doing what is in the Anglo-American banking syndicate’s best interests. The fact that the entire paradigm is a complete fabrication without foundation is lost neither on the powerbrokers that perpetrate the scam, nor the parties the scam is perpetrated on.
The main reason the dollar standard, or dollar hegemony, has lasted so long has been mainly been due to a lack of alternatives. Countries who attempted to stray from the dollar were labeled as enemies (remember the ‘axis of evil’?) and contrived wars were launched or economic sanctions were applied until compliance was achieved. That assertion is mostly fact, part opinion, but when it quacks like a duck and walks like a duck you don’t call it a horse. However, as the wealth has shifted from America to other parts of the world due to our persistent lack of production, coupled with overconsumption and resulting debt load, alternatives to the dollar standard are beginning to show themselves.
The Dollar Standard’s Far-Reaching Effects
So why spend the time discussing this? Does it really matter to the average person? Absolutely. It couldn’t matter more from a financial standpoint. Every financial transaction you engage in as an economic actor rests firmly on this fraudulent paradigm. Without the dollar standard, your credit cards, paper scrip, and bank accounts would buy nothing. Without the dollar standard, your net worth, minus whatever tangibles you happened to own, would drop to zero, with negative equity because your debts would still exist, just not in dollar form.
That is probably one of the hardest things to grasp – the idea of not using the paper dollar. We’ve become so separated in a time manner from the pre-not-so-USFed era that we’ve lost our bearings on what it is like without the paper dollar. How many people are alive that remember what it was like before 1913? Take it another step back – there is not a person alive today that was alive and aware when the banking panic of 1907 took place. The portion of our population that remembers the great depression is dwindling every day and we ignore those people and their testimonies for the most part. We’re so much smarter now than they were back then, aren’t we? I’ve got news for you: those Americans were tougher than 99% of us today, this author included.
Think of feudalism for a minute if you would. I’ve mentioned that previously in other articles and believe that is the direction we’re headed. Let’s face it; America is not ‘rich’ as the quislings on television would have you believe. We’re broke. Sure we have a bunch of stuff, but it is mostly borrowed from others who now have the power over us. In my opinion, America is little more than a nation that is quickly becoming the land of the fee and the home of the debt slave. This is probably where some of you will choose to stop reading and that’s fine. Whether you believe it or not doesn’t make it any less true and ignoring it won’t make it go away. Believe me, I hate that reality as much as you do, but patriotism is about more than just waving flags and singing the Star Spangled Banner. It is also about taking responsibility, tightening the belt, and cleaning up our messes in the hopes of passing along a country better than the one we received.
Geopolitical Moves to End the Dollar Standard – Destruction from Within
So we’ve had this cushy lifestyle, by and large, since the mid 1980s or so. Madison Avenue had figured out how to remove the stigma of debt servitude and the deals had been cut with the Arabs to create the petrodollar (we buy their oil, they buy our junk USGovt bonds). So things were sort of copacetic with one minor problem; we’d started shedding our industry. See, we cut a deal (my opinion here) with the Chinese to create what I’ll call the WallyWorld dollar. In exchange for unfettered access to the American consumer, who was by then beginning to be armed with credit cards, the Chinese would also become purchasers of our bonds. One of the necessary steps here was to depreciate the dollar to harm American exports and make the imported junk from China more appealing.
Now maybe this wasn’t an explicit treaty or anything like that, but there was a definite trend shift in trade and monetary policy. The 1990s included a bevy of additional ‘free trade’ agreements that did nothing but further the de-industrialization of America and fuel the industrial revolution in China. This period from the mid 1980s through the end of the millennium also featured significant destruction of the USDollar from a domestic price perspective. According to the USGovt’s delusional consumer price index (CPI), prices rose 57% from 1986 through 2000 (a period of 14 years). According to the newly cooked numbers, they’ve risen an additional 36% from 2000 to the present (almost 13 years), which, as many know, has been one of the most notorious inflationary periods in history even if the BLS insists otherwise.
To put it another way, from 1986 to 2013, the dollar lost around 54% of its purchasing power due to the above and sub-equilibrium interest rates to encourage indebtedness. The less the dollar has purchased, the more EVERYONE has borrowed to fill the gap – from the government to the consumer and every entity in between.
Tying this back to the dollar standard, if you’re one of the parties around the world that uses this currency for your international trade, then how do you feel about it losing its purchasing power in such a manner? You probably don’t like it very much. One of the functions of money is to act as a store of value and the USDollar has become like trying to hold sand between your fingers. The harder you squeeze to hang onto it, the more it slips away. The simpletons in academia and government like to pretend that either a) nobody has noticed this annoying trend, and/or b) they don’t really care or feel they can do anything about it, and/or c) because this is America and we’re just entitled to do whatever we please.
But so far, these are all moves that have served to systematically undermine the dollar standard from within. Well, there are some pretty prominent statesman who said the only way this country would fall would be from within. So maybe those old folks weren’t so dumb after all.
Geopolitical Moves to End the Dollar Standard – Destruction from Without
However, the above only represents half the story – and a very abbreviated version of it at that. There have been a whole raft of agreements over the past half dozen years in particular that have sought to undermine the dollar standard. It is pretty simple how it works. If the dollar is the ‘reserve’ currency, then that creates automatic demand for dollars because countries need to keep a given amount (subject to policy changes and economic conditions) for settling their international trades. As the purchasing power of the dollar has decreased this has increased the demand for dollars because countries needed more to purchase the same amount of goods. This is one of the biggest (and perhaps the main one) reasons the ‘fed’ has been able to get away with its inflationary policies without going into Weimar mode. Couple that with military strong-arm tactics and order has been maintained for the most part – up until now.
Conversely, what more and more countries are doing is cutting deals with other countries and settling the transactions in some other currency – or even gold in some cases. These actions that exclude the dollar reduce aggregate demand for dollars and make it harder for the ‘fed’ to hide its inflationary tactics such as QE. Assisting in that cause is the fact that most other central banks are doing the exact same thing; they’re attacking their own currencies to make them cheap to facilitate exports. As if you can’t have a strong currency AND a strong export base. We might get into that another day, but for now it is a race to the bottom. However, China for one is making a power play. Their gold-buying habits have become very well documented. From the article:
“The increased appetite for gold also reflects rising wealth. China’s rural per capita income in the first nine months of the year jumped 12.5% from a year earlier, while urban per capita disposable income rose 9.5%. In April, when the price of gold fell 14% in two days, Chinese media showed images of women clearing shelves in gold shops.”
The actions of the Chinese demonstrate the huge disconnect in thinking between East and West. But it isn’t rural Chinese buying gold that should concern Americans, it is the actions of the central bank and the deals the country has cut with Russia, Venezuela, and Iran, to name a few, that will impact the future of the dollar standard.
As indicated in the article below, Venezuela is set to start selling the Chinese oil priced in Yuan rather than USDollars. The deals to provide the oil were cut several years ago and at the time myself and many others opined that the trades would eventually be settled in Yuan rather than dollars. That pretty much takes Venezuela off America’s bully list. China will protect her interests as Russia did in the case of running to the side of Syria as the US screamed for war a few months back. Oh, by the way, where is all the outrage from our leaders at the alleged chemical weapons attacks? (emphasis on alleged) Stories rise and fall from the news based on political expediency rather than anything else. If you want backup for that assertion, just go and look up some of the stuff that has gone on in places like Liberia and Mali…..”
“CHAPEL HILL, N.C. (MarketWatch) — Here’s something really scary: The stock market may be forming a dangerous triple top of major long-term significance.
That’s because the Dow, in inflation-adjusted terms, is no higher today than it was at the 2000 and 2007 tops. It should give us pause to note that the market — strong as it has been — is only back to the level that turned the market back on two prior occasions.
That puts the market in a “make or break” position. On the one hand, it would be a sign of significant strength if the market were able to break through the “resistance” created by the 2000 and 2007 tops
On the other hand, if the market were to turn down from close-to-current levels — and thereby form a triple top — then it would mean that the market on three occasions had tried, and failed, to break through to higher levels. According to the theory behind technical analysis, that would mean that current levels represent particularly strong resistance — and make it that much harder for the market to break through in the future as well.
In other words, if you believe in technical analysis, the market is at a very critical juncture.
Take a look at the accompanying chart, which plots the Dow in constant 2013 dollars. Compared to the Dow’s current level of close to 16,000, the October 2007 bull market top was near 15,800 and the Dow at its early 2000 top stood at close to 16,200.
To be sure, as David Aronson points out, a chart of the inflation-adjusted S&P 500 index tells a slightly different story. Aronson is president of Hood River Research, a firm that employs sophisticated modeling to “enhance the profitability of quantitative investing strategies,” and the recent author (with Dr. Timothy Masters) of “Statistically Sound Machine Learning for Algorithmic Trading of Financial Instruments.” …”
“I am glad (and sad) to say that the Balance Sheet Recession in the USA appears to be over. Yesterday’s Z.1 report from the Fed confirmed that households have indeed begun releveraging. Household debt showed its first year over year gains (on a quarterly basis) in Q3 since the crisis began. …”
“WASHINGTON—Regulators are set to usher in a new era of tough banking oversight on Tuesday that drills to the core of Wall Street’s profitable markets and trading businesses, according to a draft of the rule reviewed by The Wall Street Journal.
The so-called Volcker rule will put in place new hurdles for banks that buy and sell securities on behalf of clients, known as market making, and will restrict compensation arrangements that encourage risky trading, according to the draft.
Five U.S. financial regulatory agencies are expected to approve the rule, which bans banks from making bets with their own money and limits their ability to invest in certain trading vehicles, such as hedge funds and private-equity vehicles.
The approval would bring to an end a 2½-year effort to complete the 2010 Dodd-Frank provision. The final language of the Volcker rule could change before Tuesday’s vote. Regulators have told firms that they don’t expect to strictly enforce the rule’s provisions until 2015.
The rule, which hasn’t been publicly released, will require banks to provide “demonstrable analysis of historical customer demand” for financial assets they buy and sell on behalf of clients. That essentially requires a firm to prove it has engaged in a certain type of trading previously. It is an effort to keep banks from attempting to disguise bets made for a profit—so-called proprietary trading, which would be banned—as permissible market-making activity.
Multiple new requirements in the recent copy of the rule reviewed by the Journal are designed to discourage traders from hunting for loopholes to engage in proprietary trading. It states that “compensation arrangements” for traders should be designed “not to reward or incentivize prohibited proprietary trading.”
Bank chief executives, meanwhile, will be required to “attest in writing…that the banking entity has in place processes to establish, maintain, enforce, review, test and modify the compliance program” set up for the Volcker rule.
The draft of the rule shows how regulators are trying to push Wall Street to curb risky trading activity that critics say puts customer deposits at risk….”
“Art Cashin says the yield on the U.S. 10-year note remains the “North Star” for stocks and if it tops 3 percent we’ll see some “outright selling” in the stock market.
Cashin, UBS’ director of floor operations at the NYSE, said on CNBC, “Interestingly, on Friday it spiked up to 2.93. Stocks hesitated a little bit, but it came right back below it.”
Referring to Friday’s Dow gain of almost 200 points after….”
“U.S. household net worth climbed to a record in the third quarter as home prices marched higher and the value of stocks and mutual funds surged, boosting the economic outlook.
The Federal Reserve said Monday net worth increased $1.9 trillion to $77.3 trillion in the third quarter, the highest level since records started in 1945.
The value of residential real estate rose by $428 billion between July and September, and corporate equities and mutual funds were up by $917 billion over the period, it said….”
Can you feel the awakening of global conciseness ?
“Former U.S. Rep. Allen West, R-Fla., is joining the National Rifle Association and other gun-rights groups to warn about a back-door attack on the Second Amendment by the Obama administration’s Environmental Protection Agency.
In a column posted on his website Sunday, West wrote about the Doe Run company’s lead-producing plant in Herculaneum, Mo., which is being forced to close after the EPA required it to spend up to $100 million on upgrades.
Doe Run, the last primary lead smelter in the United States, has been around since 1892 but is closing on Dec. 31.
West accused Obama of using the EPA to advance “backdoor gun control … while we are all distracted with Obamacare and Iran nuclear negotiations.”
West argued the Obama administration’s “new extremely tight air-quality restrictions” have led to the end of lead as the primary metal in bullets — making ammunition much more expensive and less accessible and leaving America no choice but to turn to overseas operations to produce lead bullets, a situation West says is akin to a federal power grab on guns.
“Come 2014, all ammunition sold to civilian gun owners in America will have to be imported, a result of President Obama’s crackdown on sulfur dioxide and lead emissions and accompanying harsh Environmental Protection Agency regulations,” wrote West….”
“A GROUNDBREAKING new Irish technology which could be the greatest breakthrough in agriculture since the plough is set to change the face of modern farming forever.
The technology – radio wave energised water – massively increases the output of vegetables and fruits by up to 30 per cent.
Not only are the plants much bigger but they are largely disease-resistant, meaning huge savings in expensive fertilisers and harmful pesticides.
Extensively tested in Ireland and several other countries, the inexpensive water treatment technology is now being rolled out across the world. The technology makes GM obsolete and also addresses the whole global warmingfear that there is too much carbon dioxide in the air, by simply converting excess CO2 into edible plant mass.
Developed by Professor Austin Darragh and Dr JJ Leahy of Limerick University’s Department of Chemistry and Environmental Science, the hardy eco-friendly technology uses nothing but the natural elements of sunlight, water, carbon dioxide in the air and the minerals in the soil.
The compact biscuit-tin-sized technology, which is called Vi-Aqua – meaning ‘life water’ – converts 24 volts of electricity into a radio signal, which charges up the water via an antennae. Once the device is attached to a hose….”
The number of banking institutions in the U.S. has dwindled to its lowest level since at least the Great Depression, as a sluggish economy, stubbornly low interest rates and heightened regulation take their toll on the sector.
The number of federally insured institutions nationwide shrank to 6,891 in the third quarter after this summer falling below 7,000 for the first time since federal regulators began keeping track in 1934, according to the Federal Deposit Insurance Corp.
The decline in bank numbers, from a peak of more than 18,000, has come almost entirely in the form of exits by banks with less than $100 million in assets, with the bulk occurring between 1984 and 2011. More than 10,000 banks left the industry during that period as a result of mergers, consolidations or failures, FDIC data show. About 17% of the banks collapsed.
The consolidation could help alleviate concerns that the abundance of U.S. banks leads to difficulties in oversight or a less-efficient financial system. Meanwhile, overall bank deposits and assets have grown, despite the drop in institutions.
“Seven thousand is still an awful lot of banks,” particularly in an era where brick-and-mortar branches are becoming less profitable, said David Kemper, chief executive of Commerce Bancshares Inc., a regional bank based in Missouri. “There’s no reason why we need that many banks, especially if those smaller banks have a much lower return on capital. The small banks’ bread and butter is just not there anymore.”
Still, the falloff is raising alarms among boosters of community banks, who say such lenders—which represent the vast majority of U.S. banks—are critical to the economy because they are more likely to make small-business loans. The number of physical bank branches in the U.S. is also shrinking. From the end of 2009 through June 30 of this year, the total number of branches dropped 3.2%, according to FDIC data.
“All too often, the large banks use their models and their algorithms, and if you don’t fit in their boxes, you don’t get the loan,” said Sheila Bair, the former FDIC chairman who is now a policy adviser at the Pew Charitable Trusts think tank.
Unlike before the financial crisis, new startup banks aren’t rushing to take the place of exiting institutions. Every year from 1934 to 2009, investors in the U.S. chartered at least a few and sometimes hundreds of new banks, according to the FDIC data. The Bank of Bird-in-Hand opened in Bird-in-Hand, Pa., on Monday—it was the first new bank startup in the U.S. since December 2010.
The reticence stems from slim profits and rising regulatory costs as Washington tries to ensure banks won’t fail en masse as they did during and after the 2008 financial crisis, bankers and industry consultants say.
SNL Financial, a firm that tracks bank data, said the median loan-growth rate for banks with less than $100 million in assets was about 2% during the year ending Sept. 30, well behind the roughly 3.4%-to-7% rate for midsize banks, or those with assets as high as $10 billion.
FDIC researchers, in a study of community banks released in December 2012, found that, as net interest margins—the difference between the interest charged on loans and that paid on deposits—declined across the industry in recent years as interest rates dropped….”
“A world, in which former permabears David Rosenberg, Jeremy Grantham and now Hugh Hendry have thrown in the towel and gone bull retard, and where none other than the Chief Investment Officer of General Re-New England Asset Management – a company wholly-owned by Warren Buffett’s Berkshire Hathaway, has issued one of the direst proclamations about the future to date and blasts the Fed’s role in creating the biggest mess in financial history, is truly upside down.
While the topic of CIO John Gilbert is Twitter, and specifically the investors in the second coming of the irrational exuberance bubble, about which he says that “following such a crowd is an excellent hedge against ever being financially independent. Gravity wins in time“… what Gilbert is really talking about, is the Fed. To wit:
It should be obvious to everybody by now that such stock market largesse is made in Washington. The specific address is the Eccles Building on Constitution Avenue, home of the Federal Reserve. In fact as citizens and U.S. taxpayers, we think it would be an expression of gratitude if Twitter were to take a little pressure off of the Fed and buy some Treasury bonds themselves….
We may be seeing the leading edge of a wave of credit problems among corporate borrowers in emerging market economies. Lest one think it does not affect the U.S. and other developed market countries, recall the Asian crisis chronology. Thailand devalued its currency in the summer of 1997 and few outside of Thailand cared. But contracting Asian demand reduced demand for oil, and Russia (whose exports are 80% oil) defaulted in August of 1998. Risk spreads widened, and five weeks later, Long Term Capital Management was insolvent. That was a systemic event and caused disruption in markets in general, and a stock market decline.So for those who believe that they are protected from loss by central bank behavior, a little history is in order. As usual.…
This is a major component of the downside to the Fed’s program. They have created a systemic risk in the world financial system for which they take little or no responsibility, because that which happens outside the U.S. is not their assignment. But as custodians of the reserve currency, it ends up that way.
Since we obviously agree with everything the GenRE CIO says we can only assume with absolute certainly that he does not speak for his ultimate employer: the man who according to many has benefitted the most from the Fed’s largesse: Warren Buffett.
Full letter below (pdf)
History Ignored, Again
It would seem fair if Twitter were to share. The company’s initial public offering was a staggering success, of course. Priced at $26, the stock closed its first day of trading at $45 per share……”
“Since stocks rise when the Fed is adding assets and tank when the Fed pauses…
Now that financial pundits are claiming the current stock market rally is good to go until 2016, it’s appropriate to see where the market will be in 2016 if current trends hold.
Let’s start with the well-known correlation between the Federal Reserve’s balance sheet and the stock market: stocks rise when the Fed is adding assets and tank when the Fed pauses. (Chart courtesy of STA Wealth Management)
Courtesy of Market Daily Briefing, let’s look a little closer at the Fed’s ballooning holdings of home mortgages (MBS) and Treasury bonds, and extend those trends into the future:
By mid-2016, the Fed will have nearly doubled its Treasury bonds from $2.16 trillion to over $3.5 trillion, and its mortgage holdings will double from $1.44 trillion to $3 trillion…..”
“The virtual currency craze is on a tear, with new virtual currencies emerging every day. The New York Times just ran a series of articles about them last week. “Charles Ponzi would be so proud!” one person appropriately commented at the bottom of this article.
1. A unit of account—the Bitcoin (BTC)—in which all transactions are recorded and goods and services are priced.
2. A payment system, supposedly secured and anonymous.
3. A means of payment—bitcoins—that is needed to complete all transactions in the payment system (there are coins of several denominations and the coin with a face value of one BTC is called the “bitcoin”).
Given the craze over bitcoins, their price in US dollars (USD) has soared with a BTC 1 coin going for as much as USD 1200 at one point, leaving Business Insider’s Joe Weisenthal saying:
“At this point, I have zero idea what a ‘fair’ price for Bitcoin is.”
I have an answer to that question, but before I reveal it (pretend you did not read the title of this post), let’s spend a bit of time getting to know the Bitcoin, starting with its payment system.
All transactions that have occurred since the beginning of the bitcoin system are recorded on a ledger called the “blockchain.” The system is setup so that every ten minutes or so a new page—called a “transaction block,” or just “block”—is added to the ledger. This new page refers to all past transactions requests (by referring to the immediate previous block) and records all the new transactions requests.
The ledger is crucial to the system because it allows users to verify that a transaction request between two parties is not fraudulent. For example, Mr X. uses the bitcoin payment system to send a request to buy a pizza from Joe’s Pizza. Joe’s Pizza wants to make sure that this is a valid transaction.
That requires verifying that Mr. X holds enough bitcoins to pay for the pizza (the ledger will tell from which past transactions he got his bitcoins), and that he is not trying to double spend the bitcoins. This verification process is done by the accountants of the system, who are called the “miners.”
Usually Joe’s will wait for confirmation from several miners (the rule of thumb seems to be six confirmations) before agreeing to sell the pizza (“confirmation” means that a recorded transaction request is included in following blocks). Anybody can be a miner, you just need a computer.
Adding a page on the ledger is extremely difficult (more here) and requires time and CPU power. A miner can only add a page to the ledger after meeting a specific encryption requirement called the “proof of work.” The proof of work involves encrypting new transaction requests in the form of a 16-digit hexadecimal number—called “hash” or “digest”—that must be no greater than a target value set by the system.
Come get your $0.29 rags yo….
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Silicon Valley is starting to catch Bitcoin fever – though the entrepreneurs and venture capitalists being drawn to the virtual currency claim that the biggest profits will come from using it to build a new digital finance industry rather than just as a vehicle for speculation.
Digital currency companies that have attracted early rounds of venture capital in recent weeks include Circle Internet Financial, headed by Jeremy Allaire, a serial entrepreneur from the media technology industry, and Ripple Labs, whose founder, Chris Larsen, was behind pioneering peer-to-peer lending company Prosper.
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Prominent investors who have been drawn to the field include Jim Breyer, a partner at Accel and early backer of Facebook, as well as Google’s venture capital arm, which has invested in Ripple and Buttercoin, a Bitcoin exchange.
Bitcoin’s tech industry backers argue that the shared protocols and common technology standards on which it is based echo the open technologies that lie at the heart of the internet. That could make it the foundation for a low-cost, standards-based financial system independent of the traditional banking industry.
“It reminds me of the internet protocols in the mid-1990s,” said Mr Breyer, who is also a director of retailer Walmart. Bitcoin was an “enormous ecommerce opportunity” for merchants, because it could greatly reduce transactions costs and make it easier to buy online, said Mr Breyer, who contributed to a $9m investment in Circle – the biggest first-round financing for a payments start-up, according to the company.
“It’s sort of like we’re in 1996,” said Mr Larsen. That could make possible the same sort of disruption in finance that the media and communications worlds faced with the rise of the internet. While riding the Bitcoin wave, his company has also created its own virtual currency, Ripples….”