3% inflation “preserves the value of money”. Actually, thanks to the power of compounding, it halves the value of your money over 14 years.I wonder how a central bank can get away with such palpably false statements. There is no possible way that 2 or 3% inflation in any way preserves the value of money. There has yet to be a good explanation of why any target at all is reasonable, other than 0%.
Nobody seems to question it though, which I find very odd.
I suspect we will be hearing a lot more about Robert Triffin in the next few years. He was a Belgian economist who was hugely critical of the since collapsed Bretton Woods monetary system. He laid out the issues with having a national currency as a global currency (rather than having gold underlying it). He predicted the following would happen with the USD:
1. If your national currency is the global reserve currency, you have to be willing to supply lots of it to other countries as part of their reserves.
2. In doing so you can accept goods in return for the USD which will be held as reserve currency by others, effectively for free.
3. That means you run massive trade deficits, because countries don’t redeem the dollars for goods. They hold them for trade elsewhere since they are forced to use it.
4. To maintain your status you have to continually accept more goods from abroad than you produce because the world needs the dollars. As a result, your domestic manufacturing comes under pressure and moves overseas.
5. In the end, industry becomes hollowed out. Manufacturing capacity collapses and large parts of your community live in the gift of reserve currency status.
This is actually the Trump narrative. Bring back our factories etc. but he’s fighting a war he can’t win unless the US is prepared to give up reserve status. The USA has become a financial gulag, if you’re in on the game it’s a great place to be, otherwise you’re on the street.
In the end it doesn’t matter if they are prepared to or not, it always happens, generally at the 95 year mark. We’re overdue.
Governments around the world have not made the path for bitcoin easy. They have realised that stopping decentralised currencies is not really possible in a meaningful way (and they have tried). State sponsored hacking doesn’t work either, again the protocols are designed such that you would need to individually hack many thousands of computers around the world, there is simply no centralised database to target. That is in fact the whole point of decentralisation.
Benoit Couere: formerly ECB and currently at the Bank for International Settlements:
“Bitcoin is the evil spawn of the financial crisis,”
“Bitcoin has no intrinsic value and hasn’t caught on much, as people predicted it would”
Head of the Bank for International Settlements Agustín Carstens:
“So my message to young people would be: Stop trying to create money!”
Creating money is his job, in fact it’s the thing that pays his wages.
Finally, the Hermes scarf lady at the ECB, who immediately defaulted to money laundering and terrorism. The last bastion of a failed argument.
“Cryptocurrencies are a potentially major new vehicle for money laundering and the financing of terrorism”.
Bitcoin, despite being difficult to buy and awkward to store, would rank #1 in the ASX 200. It is bigger than the top 2 companies on the ASX and it has more volume every day than the entire ASX. Australian consumers are free to buy bitcoin on any exchange they wish, all unregulated, paying anywhere from 2-10% commission. They get clipped twice because of the conversion from USD-AUD then AUD-BTC. It is in fact a complete rip-off and ASIC and the ACCC should be jumping up and down for better options.You cannot regulate by hiding.
You cannot regulate by saying “we did nothing” so it’s not our fault. Eventually, regulation will come because of the force of demand. Secure and liquid vehicles, like an ETF will emerge, so people can buy an asset for which their is clear demand in a safe and reasonable way.
DeFi stands for decentralised finance. Think matching lenders and borrowers directly without an intermediary. Then extend that idea to all financial products.
Currently DeFi is “booming”. That is, an enormous amount of money is pouring into the space but it isn’t exactly clear for what and to do what. That said, as always, some people are making easy money, albeit at great risk. If you are in and out quickly it can work well though.
Here’s an actual trade from last week where a trader made $45,000 for doing nothing but passing tokens in a circle. Before I explain, you need to know the cast in the play.
USDC = A USD Stable Coin issued by Circle Finance
USDT = A USD Stable Coin from ifinex ($11 billion in market cap)
Ether = Ethereum ($50 billion in market cap)
Uniswap = a decentralised exchange
Aave = a borrowing platform
CurveFi = A stablecoin trading platform
dYdX = Andressen Horowitz backed DeFi plaform. (Worth a look here)
…so now the trade.
In more detail:
1. The trader has $45,000 in cash
2. Trader then borrows $405,000 in USDC stablecoins from the dYdX chain (10x leverage but backed 115% with collateral in BTC)
3. Then conducts a swap transaction across chains for 1,071 Ether
4. Then swaps the Ether for USDT on Uniswap – receives USD492,798
5. Swaps back Tether into 492,730 USDC on a different chain, CurveFi
6. Repays the $405,000 USDC at dYdX
7. Makes US$45,000 for the round trip
This kind of opportunity was forcing the price of Ethereum upwards. If you know how to operate the chains and have the liquidity (and the collateral for the borrowing for which you post BTC) you can do it. It is no different from Wall Street, except that the arbs are currently much bigger.
The big risks in this transaction were 4 and 5. If you get stuck in Ether at the wrong moment and cannot find liquidity at the price you need you can have a very big problem. With 10x leverage it doesn’t take much. For example if the Ethereum price suddenly dropped 10% you would be wiped out and your position closed.
……..and guess what happened on Wednesday evening. The Ethereum price dropped 10% cue mini DeFi meltdown.
As has become the custom, we’ll end with the European Central Bank. This week they rolled out Isabel Schnabel, a member of the Executive Board.
For Isabel, the road to the mahogany table has been long and hard. She started at university in 1998. Then in 2003 she went to another university before going to another one. In 2007 she went to another university before her last stop in 2015, at a university.
After that varied career of never having an actual job, she managed to join the Executive Committee of the second most important central bank in the world.
Here she is telling you that negative interest rates have worked very well indeed.
- The ECB now owns 50% of Eurozone debt.
- Youth unemployment in Europe has never been higher than it has in the last decade.
- Greece and Italy are technically bankrupt and have been since 2008.
- Most banks in Southern Europe live on ECB life support. They are bankrupt too
- By your own measures there has hardly been any inflation in Europe for a decade, your policy is so obviously failed I wonder why you cannot see it.
- The eurozone economy has vastly under-performed every other meaningful economy in the world since the launch of the Euro.