Credit deflation and the reflation cycle to come (part 2)

[Hancock]

4 hours ago, goldbug9999 said:

No it doesn't because all the CB's can (indeed have been) collude to keep rates low, so long as no major CB breaks ranks there is no safe harbour currency (other than bitcoin and PMs of course) and thus no need to defend a currency by raising rates.

it could be argued that everyone having near 0 rates is a nash equilibrium from which theres no escape i.e. every CB knows that any IR rate hike will be copied by all the others thus negating their advantage but with everyone worse off (by their measure) once a new equilibrium is established.

But the Fed did raise considerably (for modern times), granted they went back on it, but they've certainly shown their willingness to do so.

I believe you are correct eventually, but they have to drag this out for a long while yet, and part of the game as has been shown is to taper and tighten, plus the fact they've not had to deal with this level of inflation before, including wage inflation.

[DurhamBorn]

2 hours ago, Nomad said:

What is to stop the BoE writing off the debt for the govt bonds it has bought?

I think all CBs will do everything they can to keep rates as close to zero as possible, they know that a massive bubble has been created that would collapse if rates ever went back to a more "normal" level. They have managed to suppress rates for 12 years to create the bubble, I don't think they have any option but to keep rates below 1%, anything more and a lot of people will be in trouble. 

I really just think this is going to run and run. Unfortunately I along with anybody who has been prudent over the last 15 to 20 years will be the losers.

It doesnt need to cancel the bonds because it hands all its profits back to the government,so the BOE issues the bond,the government pays the coupon and the BOE hands that coupon back to the government at the end of the year minus the BOEs costs and funding its RPI linked final salary pension scheme.The more they fail,the higher their pensions.

Interesting though they have had to deal at the long end,so the government now is hugely exposed to shorter term debt and that means if the BOE has to stop printing the government has to re-finance in the real world and would see higher rates demanded.

[DurhamBorn]

1 hour ago, Lightscribe said:

Bit more anecdotal breaking news: 

Tesco bank closing current accounts by October 15th.

WTF is happening by October 15th??

and the MBNA for reference 

Tesco have half card only tills now.I went on one ,filled it up and when they asked for payment i said i wanted to pay cash.They said they would have to get the manager and i could pack then go to another till with the manager to pay.When the manager arrived i said i wanted to pay cash at that till,so they could keep the conveyor full and put it back on the shelves,il go to Aldi instead and walked out.

I will be doing the same in any Tesco i pass.

Home Bargains also have a traffic light thing and a big long line of sheep.I just walk to the front and walk in.Always get a load of comments,but i just ignore them.Staff never say anything.

[Castlevania]

46 minutes ago, DurhamBorn said:

Looks like Elliot stake building,could find a big European utility make a move.

Or they could do what they’ve done at GSK and have a good moan telling the CEO and board that they’re all useless and their strategy is rubbish.

[Democorruptcy]

14 hours ago, Queasing said:

Declining owner occupier a disaster when 'generation rent' enter retirement with crap pensions and no owned outright residence. I'm sure those in power / housebuilders have a plan to fix this, compulsory Help to buy?

Their plan is that it won't be their problem because they won't be in power then. They will be away spending their loot.

[Castlevania]

Gold hammered at the open in Asian trading.

[wherebee]

55 minutes ago, Castlevania said:

Gold hammered at the open in Asian trading.

Smashed down.  miners in Oz will take a hammering today, I think.

I suspect the chinese gvt have smashed it as the news of their vaccine failure is growing, and chinese rush to gold in times of trouble.  They might be trying to head off more outflows from the stock market.

Might be time to pick up some more GDXJ.

[Harley]

4 hours ago, Castlevania said:

Gold hammered at the open in Asian trading.

Currently recovered half the 3% fall but needs closer investigation later.  Looks important.

[Lightscribe]

https://amp.ft.com/content/4bb77dd2-ad49-4f26-990a-cf6513b54057?__twitter_impression=true
 

Stable coins’ rise has echoes of Bretton Woods

A half-century on from the decision that defined the current monetary set-up, calls are mounting for a new ideas to address old monetary problems.

Ousmène Jacques Mandeng is director of advisory boutique Economics Advisory Ltd and a Visiting Fellow at the School of Public Policy of the LSE. He currently works on a number of leading central bank digital currency (CBDC) projects and other blockchain-related payments applications. Here he explains why calls for stable coins hark back to the era defined at the Bretton Woods conference.

Fifty years ago, an embattled Richard Nixon dropped a monetary bombshell: the dollar would no longer be pegged to gold. The currency markets were thrown into chaos as the mechanism that underpinned fixed exchange rates was killed off overnight. The Bretton Woods era had ended and a new monetary order took shape.

Until now, it has lasted without serious challenges. For many currencies, floating rates remain the norm. Bar the euro, there have been no other major multilateral attempts to return to a system of fixed exchange rates.

But the introduction of so-called global stable coins by the private sector suggests there is still interest in returning to a Bretton Woods style monetary order.

The case for an international currency is as strong today as it was then, but remains difficult to implement.

To explain why, we need to delve into the political economy that has shaped the global monetary order. The Bretton Woods system emerged upon the initiative of the US during World War II. The idea was to establish a postwar framework of fixed exchange rates to facilitate a resumption of international trade considered critical for a sustained growth in GDP and jobs. Under the system all currencies were expressed in terms of the dollar or gold. The system was adopted in July 1944 at the United Nations Monetary and Financial Conference at Bretton Woods, New Hampshire, with the establishment of the IMF to ensure any revaluation of exchange rates had its approval.

The system had considerable successes. It followed the tradition of the gold standard, which in some variation or other was the international monetary standard from the last quarter of the 19th century (with interruptions during World Wars I and II) until Bretton Woods and can therefore be credited with laying the foundation of economic and financial globalisation.

However, while the fixing of all exchange rates endowed the international economy with a de facto common currency — and facilitated trade as a result — countries soon had to subordinate their domestic economic policies to maintaining the fixed exchange rates and the system showed considerable strains.

In 1965, criticism grew louder that, in particular, the US benefited unfairly as it was able to finance its external deficits with its own currency endowing it with what was described as an “exorbitant privilege”. Because the US issued increasing amounts of dollar debt also to finance the war in Vietnam, confidence sagged that it had enough gold to cover it. After different attempts to limit the dollar’s gold convertibility, during the early 70s persistent conversions of dollar holdings into gold caused a precipitous decline of US gold reserves. On 15 August 1971, the US decided unilaterally to close the “gold window”, ending the Bretton Woods system.

The idea underlying global stable coins is similar to that of fixed exchange rates: it rests on the conversion of national currencies into a third currency or basket of currencies. While there are different approaches, the most promising ones involve a floating rate common currency that circulates in parallel to existing national currencies. The supply of global stable coins would be a function of national currency tenders and convertibility into national currencies would be on demand at the prevailing exchange rates, respectively. Global stable coins need to be able to respond flexibly to positive and negative demand shocks. Defining the “optimum” currency or basket is complicated though and no attempt has been made to propose a single global stable coin amid the great variety of economic conditions across countries. Nor should it be.

Global stable coins are of course stable only until they are not. In the event of a sudden drop in demand, conversion into national currencies should in principle be straightforward as they are not constrained by wider economic policy considerations as typically national currencies would be. However, a very prompt move out of a stable coin could significantly reduce liquidity in that coin, precipitating conversion and possibly creating some depreciation pressure if doubts exist about its convertibility. Without any credit or liquidity mechanism, stable coins could leave holders stranded. For stable coins to serve as effective medium and instil confidence, some support mechanism would probably need to be in place to convey utmost trust in their convertibility.

We’re not about to overhaul the current system right now. Yet interest in global stable coins is indicative of a desire to overcome the limitations of national currencies and adopt a medium fit for international exchanges. It was a similar rationale that gave rise to the Bretton Woods system too. Earlier government-driven attempts like the IMF’s Special Drawing Right and the European Currency Unit have had mixed results. If that remains the case, the private sector may fill the gap.

 

[Lightscribe]

7 hours ago, DurhamBorn said:

Tesco have half card only tills now.I went on one ,filled it up and when they asked for payment i said i wanted to pay cash.They said they would have to get the manager and i could pack then go to another till with the manager to pay.When the manager arrived i said i wanted to pay cash at that till,so they could keep the conveyor full and put it back on the shelves,il go to Aldi instead and walked out.

I will be doing the same in any Tesco i pass.

Home Bargains also have a traffic light thing and a big long line of sheep.I just walk to the front and walk in.Always get a load of comments,but i just ignore them.Staff never say anything.

I think cash is a gonner after all of this. Naturally the government would like to see the back of ‘virus ridden’, dirty, anonymous cash too.

Maybe the new £50 Alan Turing quote is prophetic of what we can expect next.

“This is only a foretaste of what is to come, and only the shadow of what is going to be.”

Enigma > cryptography > CBDCs

[Majorpain]

6 hours ago, Castlevania said:

Gold hammered at the open in Asian trading.

Paper PM's hammered, sadly you are not going to picking up physical at that price.  

$5bn dumped at any price makes it look like someone is trying to offload their much more than $5bn shorts.

[Castlevania]

Or someone got margin called. 

[Talking Monkey]

7 minutes ago, Castlevania said:

Or someone got margin called. 

Summat strange happened last night silver was down to nearly 22 its back to 24 now. Must have been a bloody big margin call

[sancho panza]

8 hours ago, DurhamBorn said:

It doesnt need to cancel the bonds because it hands all its profits back to the government,so the BOE issues the bond,the government pays the coupon and the BOE hands that coupon back to the government at the end of the year minus the BOEs costs and funding its RPI linked final salary pension scheme.The more they fail,the higher their pensions.

Interesting though they have had to deal at the long end,so the government now is hugely exposed to shorter term debt and that means if the BOE has to stop printing the government has to re-finance in the real world and would see higher rates demanded.

I hadn't considered it from this aspect but you're absolutely right.

BoE pension fund has been 90% in index linkers since I've been watching it over the years.So they tell us inflation is transitory but postion themselves as if it isn't.

WHat DB's saying here is bang on.As long as we, the public, are postioned for transitory inflation then the BoE will be able to add/roll it's linkers without having to overpay.

Interesting as well that the inflation measure used to set the payouts on these linkers is RPI not it's cheaper cousin CPIH which si the one used for our pay rises....................................

I'd forgotten about this DB so thanks for the reminder and the perspective

It's scandlaous.It really is.Theyve been telling us not to worry about inflation for years but at the same time stuffing their pension pot to the gills with RPI hedges....

https://www.bankofengland.co.uk/-/media/boe/files/about/human-resources/pensionreport.pdf

[MrXxxx]

"What do I do waiting for the BK that may never arise?"

Interesting discussion here:

 

[MrXxxx]

Electric vs Hydrogen vehicles?

Wish JCB shares were available.

 

[Majorpain]

1 hour ago, Castlevania said:

Or someone got margin called. 

Potentially, however that would mean big margin calls with PM's curiously seem to always happen at the most illiquid trading times!

[goldbug9999]

12 hours ago, BurntBread said:

Isn't that the opposite of a Nash equilibrium? My recollection is that a NA is where each player cannot do any better, under the assumption that all the other players keep their strategies unchanged.

My simplistic interpretation is that you stick to the current strategy (low IR) because, knowing the strategy of your "enemies" (to not have a significantly lower IR then peers) you know a change in strategy (running a higher IR) will be futile.

[sancho panza]

Hattip kaplan .

The backdrop for the BK is set up but it could still be a while before it plays out-market irrational longer than you can stay solvent etc.

Chart of companies in teh US on 20+ times sales.................history doesn't repaet etc

 

[sancho panza]

7 hours ago, wherebee said:

Smashed down.  miners in Oz will take a hammering today, I think.

I suspect the chinese gvt have smashed it as the news of their vaccine failure is growing, and chinese rush to gold in times of trouble.  They might be trying to head off more outflows from the stock market.

Might be time to pick up some more GDXJ.

The miners are normnally leveraged to the rpice but aren't dropping as hard as I'd expect.

I'll be looking to get some on at this level in calls in some US based stocks eg Anglogold.

Oil a bit similar underlying getting mullered,shares not really reacting as much as you'd expect.

dyodd etc.

[CVG]

2 minutes ago, sancho panza said:

The miners are normnally leveraged to the rpice but aren't dropping as hard as I'd expect.

I'll be looking to get some on at this level in calls in some US based stocks eg Anglogold.

Oil a bit similar underlying getting mullered,shares not really reacting as much as you'd expect.

dyodd etc.

For both of those, it would be interesting to see a 5 year chart mapping the equity to the underlying in order to see how they are normally correlated.

[DoINeedOne]

1 hour ago, MrXxxx said:

Electric vs Hydrogen vehicles?

Wish JCB shares were available.

 

Amazing video thanks for sharing few things from the video

Siemens working on big hydrogen electrolyzers

Hydrogen has 3X more energy per litre to diesel

JCB has the data coming in by the minute from all there machines sold for example how many hours used, how different countries vary etc...

They buy batteries from 5 different sources who all say batteries will be more expensive next year and onwards due to rising costs like copper etc...

His son owns a hydrogen bus company that might be worth keeping an eye on https://ryzehydrogen.com/about/

[sancho panza]

56 minutes ago, CVG said:

For both of those, it would be interesting to see a 5 year chart mapping the equity to the underlying in order to see how they are normally correlated.

It doesnt really show like that as your start point is key.I prefer to measure from key peaks and trooughs as it shows best.

eg from July 20 high in goldies

 

you also have to be wary that returns from the stocks are distorted by the high dividend yields on oilies which may detract from stcok performance vs the udnerlying.

 

from spet 2018 to july 20

[goldbug9999]

3 hours ago, Lightscribe said:

https://amp.ft.com/content/4bb77dd2-ad49-4f26-990a-cf6513b54057?__twitter_impression=true
 

Stable coins’ rise has echoes of Bretton Woods

A half-century on from the decision that defined the current monetary set-up, calls are mounting for a new ideas to address old monetary problems.

Ousmène Jacques Mandeng is director of advisory boutique Economics Advisory Ltd and a Visiting Fellow at the School of Public Policy of the LSE. He currently works on a number of leading central bank digital currency (CBDC) projects and other blockchain-related payments applications. Here he explains why calls for stable coins hark back to the era defined at the Bretton Woods conference.

Fifty years ago, an embattled Richard Nixon dropped a monetary bombshell: the dollar would no longer be pegged to gold. The currency markets were thrown into chaos as the mechanism that underpinned fixed exchange rates was killed off overnight. The Bretton Woods era had ended and a new monetary order took shape.

Until now, it has lasted without serious challenges. For many currencies, floating rates remain the norm. Bar the euro, there have been no other major multilateral attempts to return to a system of fixed exchange rates.

But the introduction of so-called global stable coins by the private sector suggests there is still interest in returning to a Bretton Woods style monetary order.

The case for an international currency is as strong today as it was then, but remains difficult to implement.

To explain why, we need to delve into the political economy that has shaped the global monetary order. The Bretton Woods system emerged upon the initiative of the US during World War II. The idea was to establish a postwar framework of fixed exchange rates to facilitate a resumption of international trade considered critical for a sustained growth in GDP and jobs. Under the system all currencies were expressed in terms of the dollar or gold. The system was adopted in July 1944 at the United Nations Monetary and Financial Conference at Bretton Woods, New Hampshire, with the establishment of the IMF to ensure any revaluation of exchange rates had its approval.

The system had considerable successes. It followed the tradition of the gold standard, which in some variation or other was the international monetary standard from the last quarter of the 19th century (with interruptions during World Wars I and II) until Bretton Woods and can therefore be credited with laying the foundation of economic and financial globalisation.

However, while the fixing of all exchange rates endowed the international economy with a de facto common currency — and facilitated trade as a result — countries soon had to subordinate their domestic economic policies to maintaining the fixed exchange rates and the system showed considerable strains.

In 1965, criticism grew louder that, in particular, the US benefited unfairly as it was able to finance its external deficits with its own currency endowing it with what was described as an “exorbitant privilege”. Because the US issued increasing amounts of dollar debt also to finance the war in Vietnam, confidence sagged that it had enough gold to cover it. After different attempts to limit the dollar’s gold convertibility, during the early 70s persistent conversions of dollar holdings into gold caused a precipitous decline of US gold reserves. On 15 August 1971, the US decided unilaterally to close the “gold window”, ending the Bretton Woods system.

The idea underlying global stable coins is similar to that of fixed exchange rates: it rests on the conversion of national currencies into a third currency or basket of currencies. While there are different approaches, the most promising ones involve a floating rate common currency that circulates in parallel to existing national currencies. The supply of global stable coins would be a function of national currency tenders and convertibility into national currencies would be on demand at the prevailing exchange rates, respectively. Global stable coins need to be able to respond flexibly to positive and negative demand shocks. Defining the “optimum” currency or basket is complicated though and no attempt has been made to propose a single global stable coin amid the great variety of economic conditions across countries. Nor should it be.

Global stable coins are of course stable only until they are not. In the event of a sudden drop in demand, conversion into national currencies should in principle be straightforward as they are not constrained by wider economic policy considerations as typically national currencies would be. However, a very prompt move out of a stable coin could significantly reduce liquidity in that coin, precipitating conversion and possibly creating some depreciation pressure if doubts exist about its convertibility. Without any credit or liquidity mechanism, stable coins could leave holders stranded. For stable coins to serve as effective medium and instil confidence, some support mechanism would probably need to be in place to convey utmost trust in their convertibility.

We’re not about to overhaul the current system right now. Yet interest in global stable coins is indicative of a desire to overcome the limitations of national currencies and adopt a medium fit for international exchanges. It was a similar rationale that gave rise to the Bretton Woods system too. Earlier government-driven attempts like the IMF’s Special Drawing Right and the European Currency Unit have had mixed results. If that remains the case, the private sector may fill the gap.

 

Typical FT dross. "blockchain" - what the fuck have CBDCs got to do with blockchains ??. Also the "private stable coins" are just $ proxies and do not in fact imply some yearning for a new BW type regime any more or less than presence of the $ itself.

 

[arrow]

2 hours ago, sancho panza said:

 

Oil a bit similar underlying getting mullered,shares not really reacting as much as you'd expect.

 

Ogzd , gazprom now showing over a 1.5% rise on HL/investing.com. If accurate, not sure why yet