1. Another Day, Another Fraud in Cryptocurrency Land

    Remember tether? That’s a cryptocurrency that calls itself a “stable coin.” A stable coin says that its value remains constant against some other type of currency.

    In theory, this offers the benefits of cryptocurrency usage (anonymity, easy transfer abroad, etc.) without the volatility that comes from speculation and panics (bitcoin fell 80% in a matter of weeks in early 2018). Tether was supposedly anchored to the dollar. Tether accomplished this by simply taking dollars from tether buyers and putting those in escrow accounts.

    When tether users wanted to convert back to dollars, they could simply deliver the tethers and receive dollars from the escrow at a set exchange rate. Or so they said.

    From the start, tether has been plagued by rumors that they did not keep all of the proceeds in dollars. Some forensic specialists estimated that dollars paid for tether were converted to bitcoin and used to prop up bitcoin and other crypto markets. The actual powers behind tether have been mysterious and many suspect that they are miners or others who had a vested interest in propping up bitcoin and that the escrow dollars are long gone as the price of bitcoin imploded.

    Now, according to this article, tether has admitted that it does not back all of its coins with dollars. In fact, many of the dollars have been diverted to loans to affiliates. The ability of those affiliates to repay the loans is not clear. The use of the loan proceeds is also not clear.

    Tether has produced some statements showing that dollar reserves are sufficient. However, those statements are not from major banks and have not been audited. It’s also not clear if the “dollar reserves” are liquid dollars or just dollar-denominated notes of dubious creditworthiness. Perhaps all is well at tether, but there is substantial room for doubt.

    The cryptocurrency market has been swamped with frauds, thefts and mysterious coin disappearances. The best approach is to avoid the market entirely except for a very small handful of coins that do have valid use cases and protective governance. Tether is not on that list.

    Institutional investors can schedule a proof of concept with the world’s first predictive data analytics firm combining human and artificial intelligence with complexity science. Check out Jim Rickard’s company at Meraglim Holdings to learn more.

  2. Is the Brexit Battle Coming to an End? Don’t Bet on It

    You’ve probably heard enough about Brexit by now. The famous U.K. referendum on whether to remain in the EU or leave (“Brexit”) took place on June 23, 2016, with a victory for the “leave” position. But the Brexit debate began even earlier when then-Prime Minister David Cameron announced the referendum as part of his election campaign in February 2016.

    Of course, Cameron thought this was a safe bet to get votes and that the U.K. people would never prefer leaving to remaining. Cameron won his election but lost the Brexit gamble and soon resigned. This was one of the greatest political blunders in U.K. history.

    After the referendum itself, a new U.K. government under Theresa May was stuck trying to negotiate the actual terms of Brexit with the EU. May’s problem was that the referendum itself had two choices (leave or remain) but the political process had numerous choices (hard Brexit, soft Brexit, no Brexit and a new referendum among others). Even politicians bunched in one of these choices could not agree among themselves exactly what the terms might be.

    As a result, there is no majority for anything definite, just shifting majorities that say no to one idea or another. Still, the clock is ticking and there are only two weeks left before a “hard Brexit” (with no EU concessions) becomes final.

    As this article reports, there is a majority in favor of buying time by extending the deadline as the negotiations continue. As they say in Washington cliffhangers, “When you’re out of land, build more land.” That seems the most likely outcome as of now since the EU formerly indicated a willingness to extend the deadline.

    The real crunch will come in the months ahead if the extended negotiations don’t produce any consensus. At that point, May’s government may fall and the cry for a new referendum will become deafening. That’s not an easy solution either because those who voted “leave” in 2016 will feel betrayed.

    Contrary to elite expectations “leave” may win again. This is just one more element of uncertainty now dominating the global stage. Pounds sterling will rally on each bit of good news and crash again as good news turns to bad. This roller-coaster ride has a long way to run.

    Institutional investors can schedule a proof of concept with the world’s first predictive data analytics firm combining human and artificial intelligence with complexity science. Check out Jim Rickard’s company at Meraglim Holdings to learn more.

  3. Another Economic Elite Joins the Attack on Modern Monetary Theory

    If Modern Monetary Theory (MMT) were a quarterback down on the ground, someone would call a penalty for piling on. Ever since MMT started to get traction among the front-runners in the Democratic 2020 presidential race, mainstream economists and wealth managers have been lining up to call it “garbage” and explain why it won’t work.

    MMT says there is practically no limit on how much money the Treasury can borrow or the Fed can print. By combining forces, the Treasury can borrow enough money to finance the Democratic wish list of Medicare for all, free tuition, free child care and the Green New Deal. If markets balk at so much Treasury borrowing, the Fed can step in and just monetize the debt by printing money and stashing the Treasury notes away on its balance sheet.

    The elites have attacked this theory by saying that higher Treasury borrowing will lead to higher interest rates and Fed monetization will lead to inflation. Those voicing this criticism of MMT include Jay Powell, Larry Summers, Larry Fink, Jeff Gundlach, Jamie Dimon and Ray Dalio. Now, according to this article, you can add famed Harvard economist Ken Rogoff to the list. Rogoff (and the other MMT critics) make the point that MMT risks higher inflation and possible lost confidence in the dollar by overseas investors.

    The problem with the critics is that Ben Bernanke inadvertently made the case for MMT from 2008–2014. He printed over $3.5 trillion to bail out the banks (and preserve Jamie Dimon’s bonus) and nothing happened. There was no inflation, interest rates remained low and foreign investors continued to have a huge appetite for more Treasury debt. All that the MMT crowd are asking is if you can print $3.5 trillion to protect Jamie Dimon, how about printing another $3.5 trillion to help everyday Americans with health care and tuition?

    In fact, there are legitimate criticisms of MMT, but the monetary elite are unable to articulate them. They seem like hypocrites because they supported money printing when it helped banks but won’t support it when it helps everyday Americans.

    This debate will become more pointed as the 2020 presidential campaign continues. If elites want to stop the MMT train, they’ll have to bring up their game and start pointing to the real reasons MMT does not work. I’ll be explaining these reasons in debates and on TV appearances in the days to come.

    Institutional investors can schedule a proof of concept with the world’s first predictive data analytics firm combining human and artificial intelligence with complexity science. Check out Jim Rickard’s company at Meraglim Holdings to learn more.

  4. The Run on the Global Gold Banks Is Gathering Speed. Where’s Your Gold?

    Everyone is familiar with the traditional “run on the bank,” which has happened many times in real life and was memorably portrayed in the classic film It’s a Wonderful Life.

    It begins with a nervous depositor loudly demanding that all his savings be converted to cash and withdrawn from the bank. Other customers hear the demand and rush to the teller to demand their savings too. Soon, a line forms and word spreads that the bank is in trouble. The line stretches around the block, and by late in the day the bank has to close its doors because it’s out of cash and has no liquid assets to meet depositor demands.

    These classic runs ended in the U.S. in the mid-1930s with the creation of FDIC deposit insurance, although something close to a run developed in 2008, which the Fed had to squash by guaranteeing all bank deposits of any size and not just the $250,000 limit covered by FDIC insurance.

    What about gold? Gold deposits are not covered by FDIC insurance. Two central banks – the Federal Reserve Bank of New York and the Bank of England – hold about 6,000 tons of gold each.

    This gold is not mainly owned by the U.S. or U.K. but is overwhelmingly owned by other countries (and the IMF) and held in custody for their benefit. What would happen if a run on the gold banks started to spin out of control?

    It looks like that’s exactly what’s happening. In the past eight years, several central banks led by Germany have demanded repatriation of part or all of their gold from the Fed and BoE depositaries. Austria, Netherlands and Hungary have also withdrawn some of their gold and returned it to their home country vaults. Now, according to this article, Romania has introduced legislation that would cause it to join the race to gets its gold before the gold runs out and the Fed’s doors are shut for good.

    This gold run on the bank is gathering momentum. Of course, major players like China and Russia already keep their gold at home and are not subject to U.S. or U.K. blackmail. Venezuela found out the hard way when they recently tried to withdraw some of their gold from the Bank of England and were told that they could not have it.

    If you have gold, keep it in safe, nonbank storage. The banks will freeze it just when you most need it. Don’t be a victim like Venezuela and soon many others.

    Institutional investors can schedule a proof of concept with the world’s first predictive data analytics firm combining human and artificial intelligence with complexity science. Check out Jim Rickard’s company at Meraglim Holdings to learn more.

  5. Is There More to Economics Than Economists Believe? Yes, Says El-Erian

     

    The list of policy and predictive failures by mainstream economists is longer than the typical 9-year-old’s Christmas list.

    They failed to foresee the 2007 mortgage bubble and the 2008 financial crisis. They cheered “green shoots” in 2009 when that was a complete illusion. They welcomed the “recovery summer” in 2010, which was nothing but more of the same punk growth. They spent six years pursuing QE and seven years with zero interest rates and had nothing to show for it except an inflated balance sheet, inflated asset values and $4 trillion of lost wealth through below-trend growth.

    The latest failure was proclaiming “synchronized global growth” in 2017 when there was nothing of the sort. Major economies are now slipping into recession.

    In this article, prominent economist Mohamed A. El-Erian says it’s time for economics to learn from failure and improve their analysis or face marginalization in the policy debate. He says economists should avoid the “herding” instinct (running in a consensus-based pack regardless of whether they’re right or wrong) and be more critical of Fed communications strategies.

    He also says trade analysts should be less accepting of simple “free trade” dogma and work harder to see the perspectives of the victims of free trade who have lost good-paying jobs and benefits. Finally, he says that economists should adopt an interdisciplinary approach that integrates behavioral psychology, complexity and branches of applied mathematics that are outside the traditional (and flawed) equilibrium models.

    These are recommendations we have been pointing to for years.

    El-Erian’s suggestions are solid and long overdue. Just don’t hold your breath waiting for economists to follow his advice. They seem determined to persist in flawed methodologies until they are rendered completely irrelevant in the public debate on economics.

    Institutional investors can schedule a proof of concept with the world’s first predictive data analytics firm combining human and artificial intelligence with complexity science. Check out Jim Rickard’s company at Meraglim Holdings to learn more.

  6. After a Decade of Denial, Central Banks Admit Currency Wars Are Real

    When I wrote my first book, Currency Wars, in 2011, I was met with a wave of rejection and ridicule from central bankers. They uniformly denied that monetary policy was used to manipulate exchange rates. They insisted that monetary policy was exclusively used to achieve domestic policy goals related to price stability and unemployment.

    The idea that one country would deliberately cheapen its currency to promote exports or allow other countries to do the same to help world growth was rejected out of hand. This was all despite the fact that the accusation of currency wars was first proclaimed in 2010 by Guido Mantega, who was then the finance minister of Brazil.

    Of course, there was ample evidence to prove that central banks were manipulating foreign exchange rates exactly as I described, although central bankers insisted that this was not “beggar thy neighbor” as in the 1930s but rather “enhance thy neighbor” (in the words of Ben Bernanke in a speech on March 25, 2013).

    Whatever the rationale, currency war-style manipulation of exchange rates was and is a primary goal of monetary policy. At last, a major central bank has admitted the obvious. As revealed in this article, economists now take the view that low and negative interest rates can have a stimulative effect on an economy even when there are already ample liquidity and no impediment to borrowing.

    This happens through the exchange rate mechanism where low rates produce a cheap currency, which in turn stimulates exports and creates export-related jobs. This is especially true in a country like Japan, which relies on exports of electronics, robots and other high-tech goods to keeps its economy humming.

    This is one reason why currency wars last so long in a world burdened by excessive debt and insufficient growth. Finally, economists and central banks are coming clean about a dynamic I first described a decade ago.

    Institutional investors can schedule a proof of concept with the world’s first predictive data analytics firm combining human and artificial intelligence with complexity science. Check out Jim Rickard’s company at Meraglim Holdings to learn more.

  7. Can Huawei Be Trusted With Your Data? Not Even Close

    Huawei is China’s “national champion” in the field of digital technology and telecommunications. It is the largest cellphone maker in China and a leader in the next-generation 5G technology that will revolutionize mobile devices with much faster speeds for streaming and apps.

    A global struggle for dominance in 5G is underway between Huawei and various U.S. companies including Apple, AT&T and Verizon as well as European competitors such as T-Mobile (Deutsche Telekom) and Vodafone. What sets Huawei apart is that much of its technology was stolen from Western firms and its equipment comes with hidden back doors and trapdoors designed to steal your personal information and relay it to the Communist Party of China for purposes of surveillance, blackmail and theft.

    The CFO of Huawei is currently under arrest in Canada awaiting extradition to the U.S. to stand trial on charges of sanctions violations. This article reports that Huawei denies these allegations and claims that it would not hand over customer data to the Chinese government. But experts point out that Huawei really has no choice and that if the Chinese government wants the data (they will), then Huawei will have no choice except to turn them over.

    Western companies and governments are banding together to deny Huawei access to or participation in their new 5G systems for reasons of national security. China is retaliating by denying Western companies opportunities in the Chinese mobile phone market. In the end, the world is likely to have two 5G systems, one in the West that excludes Huawei and one in China than bans Western firms.

    This may be suboptimal from the perspective of uniform standards and interoperability, but it is the price everyone must pay to preserve national security against Chinese attacks.

    Institutional investors can schedule a proof of concept with the world’s first predictive data analytics firm combining human and artificial intelligence with complexity science. Check out Jim Rickard’s company at Meraglim Holdings to learn more.

  8. Cashless Society? Not So Fast. $100 Bills Are Now More Popular Than Ever

    We’ve written many times about the move toward a cashless society, in which physical cash would become either obsolete or illegal (probably both) and all payments would be made in digital form with credit cards, debit cards, smartphones and other forms of electronic money. The motivation for this is to lock consumers into easily traceable electronic payment systems that can be frozen or locked down with a few keystrokes in the event of a financial panic or run on the bank.

    The other benefit of digital money is the ability to impose negative interest rates because you won’t be able to protect your wealth by pulling cash out of the bank and stuffing it in your mattress (or a local nonbank vault). Yet a funny thing happened on the way to a cashless society. Cash is back!

    As described in this article, there has been a surge in the volume of $100 bills in circulation. There are currently 12 billion $100 bills in private hands, with a face value of $1.2 trillion. For the first time, the number of $100 bills in circulation exceeds the number of $1 bills.

    Economists are unsure what’s behind this sudden popularity. Most expect it has to do with criminal activity including drug sales, tax evasion and money laundering. No doubt that’s part of the story.

    A more powerful explanation may not have to do with criminality but with everyday citizens just trying to protect their wealth from hacking, digital confiscation, frozen accounts and failed banks. Another driver comes from capital controls, which prevent citizens from moving their funds abroad.

    A suitcase full of $100 bills on an airplane is a simple solution. One million dollars in $100 bills weighs exactly 22 pounds and fits neatly into a small suitcase or backpack in the overhead compartment. (By way of contrast, one million dollars in gold weighs about 50 pounds at current market prices.)

    Governments will not give up on their efforts to make all money digital, but for the time being citizens are fighting back with physical $100 bills!

    Institutional investors can schedule a proof of concept with the world’s first predictive data analytics firm combining human and artificial intelligence with complexity science. Check out Jim Rickard’s company at Meraglim Holdings to learn more.

  9. How Can You Pay for the Green New Deal and Free Health Care? Try “MMT”!

    The leading Democratic candidates for president and numerous members of Congress have come out in favor of Medicare for All, free child care, fee tuition, a guaranteed basic income even for those unwilling to work and a Green New Deal that will require all Americans to give up their cars, stop flying in planes and rebuild most commercial buildings and residences from the ground up to use renewable energy sources only.

    The costs of these programs are estimated at $75–95 trillion over the next 10 years. To put those costs in perspective, $20 trillion represents the entire U.S. GDP and $22 trillion is the national debt.

    It used to be easy to knock these ideas down with a simple rebuttal that the U.S. couldn’t afford it. If we raised taxes, it would kill the economy. If we printed the money, it would cause inflation. Those types of objections are still heard from mainstream economists and policymakers, including Fed Chair Jay Powell, as described in this article. But now the big spenders have a simple answer to the complaint that we can’t afford it.

    Their answer is, “Yes, we can!” That’s because of a new school of thought called Modern Monetary Theory, or MMT. This theory says that the U.S. can spend as much as it wants and run the deficit as high as we want because the Fed can monetize any Treasury debt by printing money and holding the debt on its balance sheet until maturity, at which time it can be rolled over with new debt.

    What’s the problem? Bernanke printed $4 trillion from 2008–2014 to bail out the banks and help Wall Street keep their big bonuses. There was no inflation. So why not print $10 trillion or more to try out these new programs?

    There are serious problems with MMT (not the ones Jay Powell and mainstream voices point to). But very few analysts can really see the flaws.

    I’ll be in an MMT debate with a leading proponent in a few weeks and I’ll be sure to send out a link once I have it. For now, get used to the rise of MMT. It will be a central feature of the 2020 election campaign. The disastrous consequences are a little further down the road.

    Institutional investors can schedule a proof of concept with the world’s first predictive data analytics firm combining human and artificial intelligence with complexity science. Check out Jim Rickard’s company at Meraglim Holdings to learn more.

  10. Will The Mueller Report End the Trump Investigations? Don’t Bet on It

    By now, most Americans are tired of the endless news reports about the Mueller investigation and allegations of “Russian collusion” by Donald Trump. There’s not a shred of evidence that Trump colluded with Russians, despite daily allegations for the past two years. (There’s ample evidence that Hillary Clinton did collude with Russians to produce the discredited “dossier” on Trump, but that’s a story for another day).

    The Mueller investigation report should be released soon and it’s already shaping up as the greatest anticlimax in U.S. political history. Mueller secured a lot of indictments of peripheral figures and put a number of people behind bars, but none of them was convicted for campaign collusion or obstruction related to Russia. These were the main mandates for Robert Mueller.

    None of this has touched Trump. Does this mean the White House and the American people can get back to normal? No way!

    The Democrats know that Mueller will not implicate the president, so they are already moving toward new investigations of… whatever. As shown in this article, committees in the House of Representatives have issued information requests to over 80 Trump associates demanding tax returns, financial statements, emails and interviews covering events that go back as far as 10 years, long before Trump ran for president. This is an abuse of power (because it does not relate to presidential conduct in the execution of laws passed by Congress).

    Many of the recipients may simply ignore the letters, which is their legal right. This may result in subpoenas, but those can be resisted also with court orders. In other words, Mueller settles nothing and the “witch hunt” will continue until either Trump is impeached or the next presidential election arrives.

    Get ready for two more years of dysfunction in Washington, regardless of the contents of the Mueller report.

    Institutional investors can schedule a proof of concept with the world’s first predictive data analytics firm combining human and artificial intelligence with complexity science. Check out Jim Rickard’s company at Meraglim Holdings to learn more.