Credit deflation and the reflation cycle to come (part 8)

[DurhamBorn]

6 minutes ago, darkmarket said:

I strongly agree, and I suspect the implications of rates at that level are simply too unpalatable and so there will be continued attempts to quietly introduce capital controls under flimsy pretexts. To have this ugly arbitrage persist in the global capital of FX trading settlement is disturbing.

The official regulations come from the BoE via the FCA, the latest being a clear attempt to introduce friction and minimise selling of GBP. Worse, it looks like while those were implemented openly, the banking cartel has silently gone much farther, applying extra-legal and extra-regulatory restrictions to major institutions.

Tied to liquidity for gilts i think.The rates are too low at the moment on gilts across the curve and so if they are to sell gilts they need to increase the rates by around 2%.Pension funds are mostly in run down now,so likely slight net sellers rather than buyers.Its technical,but when i ran "where will it come from" several years ago,it flashed saved labour,ie pensions in gilts,and that proved deadly accurate as private sector workers in lifestyle funds ie most,have found out.

Today?,well if i run that through its very very obvious where is is coming from.Housing Equity.Gilts will force mortgage rates higher pushing down equity that needs to be given to the buyers of gilts.Of course in simple terms,they took your pension worker bee for bennies,immigrants and public sector pensions,now we need your housing equity.

The reason they cannot take more from pensions is because the BOE cannot print.If they print sterling will implode over 48 hours i suspect.Its off the table.

[Yadda yadda yadda]

3 minutes ago, DurhamBorn said:

Of course in simple terms,they took your pension worker bee for bennies,immigrants and public sector pensions,now we need your housing equity.

They're evil and hate ordinary working people.

[darkmarket]

4 minutes ago, Axeman123 said:

To be honest how many people with ~45k gbp liquid would risk transmitting it to and from some dodgy exchanges for a mere 300 gbp profit? (using 1 whole btc as an example) It sounds like the definition of pennies in front of a steam roller to me, 0.6% gain vs 100% potential loss. Transmitting that 45k to buy and hold in hopes of a ten bagger obviously is a different calculation.

The pain in the arse factor of actually getting fiat onto and off exchanges, transaction limits applied to this by banks, and the potential to lose your bank accounts by association with crypto are likely what is holding people back. You could argue that is a form of capital controls of course.

The industry has evolved so far beyond that point it's now unrecognisable.

You have the top global market makers and high-frequency traders transferring hundreds of billions worth annually in any currency you care to mention, the major exchanges have matching engines that handle more trades than most national stock markets.

It's a systemically important industry at this point. The UK media has absolutely failed to inform its audience of those changes and innovations.

4 minutes ago, DurhamBorn said:

Tied to liquidity for gilts i think.The rates are too low at the moment on gilts across the curve and so if they are to sell gilts they need to increase the rates by around 2%.Pension funds are mostly in run down now,so likely slight net sellers rather than buyers.

Yes, this looks like the key dynamic.

5 minutes ago, DurhamBorn said:

now we need your housing equity.

And yes, it was such an obvious set-up. The trap is set, and everyone's inside now.

[Axeman123]

2 minutes ago, darkmarket said:

The industry has evolved so far beyond that point it's now unrecognisable.

You have the top global market makers and high-frequency traders transferring hundreds of billions worth annually in any currency you care to mention, the major exchanges have matching engines that handle more trades than most national stock markets.

It's a systemically important industry at this point. The UK media has absolutely failed to inform its audience of those changes and innovations.

AIUI those institutions aren't moving fiat on and off exchanges, they are swapping USD stable-coins between exchanges then trading back and forth between the stable-coins and BTC etc to exploit arbitrage. Some are likely holding collateral as BTC in cold storage and borrowing other crypto against it to trade with. There aren't the equivalently liquid GBP stable coins, hence the big spreads don't get arbitraged out.

I am not convinced about it being systematically important. The market cap just isn't there...(yet?).

[darkmarket]

Just now, Axeman123 said:

AIUI those institutions aren't moving fiat on and off exchanges, they are swapping USD stable-coins between exchanges then trading back and forth between the stable-coins and BTC etc to exploit arbitrage. Some are likely holding collateral as BTC in cold storage and borrowing other crypto against it to trade with. There aren't the equivalently liquid GBP stable coins, hence the big spreads don't get arbitraged out.

I am not convinced about it being systematically important. The market cap just isn't there...(yet?).

If they use a stablecoin, it's because they are faster and usually arbitrage depends on millisecond advantages. But they also regularly settle seven- and eight-figure amounts, because the allocation to bitcoin is not consistent against other asset classes.

It's not a normal situation at all - look at all the other currency pairs. I'm not sure what you're trying to argue to be honest.

[Axeman123]

9 minutes ago, darkmarket said:

It's not a normal situation at all - look at all the other currency pairs. I'm not sure what you're trying to argue to be honest.

USD stable coins enable rapid arb without going back and forth with the legacy financial systems. There aren't equally liquid GBP stable coins hence the spread isn't closed by arb traders.

[darkmarket]

Just now, Axeman123 said:

USD stable coins enable rapid arb without going back and forth with the legacy financial systems. There aren't equally liquid GBP stable coins hence the spread isn't closed by arb traders.

But that implies capital controls on the underlying GBP too, which is exactly my point.

[One percent]

5 hours ago, Pip321 said:

 

Agree with @Red Debt Redemption

I would be wary of ignoring the ISA allowance….in a world where Martin Lewis had been telling everyone for years not to bother with ISAs (because they paid 0.5%, and non ISAs paid 0.7%) it’s worth bearing in mind things change.

If you earn 5% on £50k that’s £2500 plus another £500 on that other account, that’s £3000 and some is going to get taxed.

Instant access (should you need access to buy that house) with Virgin at 5.09%. 

Not personal advice because it is very individual and lots of factors….but what if the house purchase is delayed or more likely next tax year some bird gives you £200k for services rendered 😂…..then those missed ISA allowances have gone.

My experience is I have used ISAs since they were invented….and for fear of having a funny meme with a gloating man doing a beard thingy 😂…..its the one thing where I am now feeling very smug # because there is a chunk of money in them. 

#Not least because my savings are mainly not being taxed because I don’t want to support this shower of shite who will spend my money on something that no longer represents me or the UK population. 

 

I had to cash in my ISAs in my divorce and now that’s all been settled, most of my money is not in tax protected accounts (I’m doing what i can each year to rectify that). Ive just had a letter from the tax man for the year 22/23 asking for a lump sum to cover my interest. 

[One percent]

3 hours ago, DurhamBorn said:

He is using NI because only workers gain.The tax allowance frozen is now obvious to capture pension income.He is using NI cuts so workers get the same as an increasing tax allowance,but retired etc lose out.I can understand why,but doing it this way to capture back some of the public sector pension increases is also hitting much lower pension privte sector workers.There will be huge political pressure as well once the state pension hits the tax allowance,but that will be Labour problem.

He probably also doesn’t want people paying NI to look at their payments, look at the pension promise (it’s going to age 70), look at the state of the NHS, where gimmigrants get priority treatment, look at the state of NHS dentistry, look at how much they would get if they fell on hard times, and think “what the fuck am I paying all this money for?   

[One percent]

1 hour ago, darkmarket said:

I strongly agree, and I suspect the implications of rates at that level are simply too unpalatable and so there will be continued attempts to quietly introduce capital controls under flimsy pretexts. To have this ugly arbitrage persist in the global capital of FX trading settlement is disturbing.

The official regulations come from the BoE via the FCA, the latest being a clear attempt to introduce friction and minimise selling of GBP. Worse, it looks like while those were implemented openly, the banking cartel has silently gone much farther, applying extra-legal and extra-regulatory restrictions to major institutions.

Rookie question incoming.  What are ‘capital controls’ and what do they look like please?  

[Yadda yadda yadda]

2 minutes ago, One percent said:

Rookie question incoming.  What are ‘capital controls’ and what do they look like please?  

Controls preventing you taking sterling out of the country. Perhaps you would only be allowed to convert £1,000 to foreign currency for holidays. There are also sneakier ways to do it.

[nirvana]

2 minutes ago, One percent said:

Rookie question incoming.  What are ‘capital controls’ and what do they look like please?  

that's when you can't take any money out the bank and you're stuck in Whitby with all the other scratters and gimmigrants

just stay in & get high on the self grown stash comrade sis

[One percent]

1 minute ago, Yadda yadda yadda said:

Controls preventing you taking sterling out of the country. Perhaps you would only be allowed to convert £1,000 to foreign currency for holidays. There are also sneakier ways to do it.

Do they really do that though?  It seems that the uk is a free for all for any and all foreigners.  The french own our electricity, how does ‘capital controls’ affect their profits?   

[Yadda yadda yadda]

3 minutes ago, One percent said:

Do they really do that though?  It seems that the uk is a free for all for any and all foreigners.  The french own our electricity, how does ‘capital controls’ affect their profits?   

If they did this the rules would be carefully crafted. Difficult to see how they would do it when a lots of immigrants would riot if they couldn't send money home.

[darkmarket]

3 minutes ago, One percent said:

Rookie question incoming.  What are ‘capital controls’ and what do they look like please?  

Capital controls are restrictions on the transfer of a currency outside the jurisdiction of issuance.

I'm too young to remember personally, but they were a feature of British life between WWII and the Thatcher era. These days, China is the primary major economy that places restrictions on the movement of its currency.

The relationship with national bonds/gilts is described in what's called the impossible trinity, whereby an economy can only have a maximum of two of the following three attributes:

1. FIxed exchange rate

2. Free movement of capital

3. Independent monetary policy

https://www.economicshelp.org/blog/glossary/policy-trilemma-the-impossible-trinity/

The UK has a floating exchange rate, so it should be able to have the other two. But it seems that risks to/from monetary policy and/or the value of Sterling are leading to restrictions on the free movement of capital.

I'm not an expert, so open to correction on the above.

[One percent]

Just now, Yadda yadda yadda said:

If they did this the rules would be carefully crafted. Difficult to see how they would do it when a lots of immigrants would riot if they couldn't send money home.

It amazes me that other countries have all sorts of rules (rightly imho) about who can buy property, who can take money out and how much. Yet our illustrious leaders will sell anything to anyone.  Apparently, Whitehall, which houses most of gover Has been sold off and is leased back.  

[One percent]

3 minutes ago, darkmarket said:

Capital controls are restrictions on the transfer of a currency outside the jurisdiction of issuance.

I'm too young to remember personally, but they were a feature of British life between WWII and the Thatcher era. These days, China is the primary major economy that places restrictions on the movement of its currency.

The relationship with national bonds/gilts is described in what's called the impossible trinity, whereby an economy can only have a maximum of two of the following three attributes:

1. FIxed exchange rate

2. Free movement of capital

3. Independent monetary policy

https://www.economicshelp.org/blog/glossary/policy-trilemma-the-impossible-trinity/

The UK has a floating exchange rate, so it should be able to have the other two. But it seems that risks to/from monetary policy and/or the value of Sterling are leading to restrictions on the free movement of capital.

I'm not an expert, so open to correction on the above.

Thank you, that’s illuminative.  However, a question from that.  Are they really restricting movement of stirling?  Everything points to the opposite.  

[darkmarket]

Just now, One percent said:

Thank you, that’s illuminative.  However, a question from that.  Are they really restricting movement of stirling?  Everything points to the opposite.  

It seems very likely, otherwise institutions would have closed the arbitrage I mentioned. I'd love to know of another explanation, but I really don't think there is one.

You may think, that's fine, I can still send my savings back to my family in Poland (though not Russia), or I can still sell my house in the UK when I want to retire at home in Barbados, but it tends to be the case that once capital controls are imposed in one area, they spread to another.

I'm as surprised as you are, it would be fatal to the UK and London in particular to gain a reputation of having capital controls.

[One percent]

1 minute ago, darkmarket said:

It seems very likely, otherwise institutions would have closed the arbitrage I mentioned. I'd love to know of another explanation, but I really don't think there is one.

You may think, that's fine, I can still send my savings back to my family in Poland (though not Russia), or I can still sell my house in the UK when I want to retire at home in Barbados, but it tends to be the case that once capital controls are imposed in one area, they spread to another.

I'm as surprised as you are, it would be fatal to the UK and London in particular to gain a reputation of having capital controls.

Au contraire. I think capital controls would be a very good thing, especially for housing.  Huge swathes of property are owned and left empty by foreigners who see it (rightly at the moment) as an investment. This means that there is a lot of property sitting empty and we know the state of the housing market (i hate to call it that as it’s not a market, it’s about where people can afford to live). There has been articles recently about bishop’s avenue and large mansions just falling into disrepair because they are not viewed as homes, but as investment opportunities. 

[Joncrete Cungle]

26 minutes ago, One percent said:

Rookie question incoming.  What are ‘capital controls’ and what do they look like please?  

Ended in 1979 by Maggie, limited the amount of money you could change / take on holiday, for the plebs. Re introduction of capital controls was in the last Green Party literature I read a few years ago. I think Labour floated the idea a few years ago also.

[Yadda yadda yadda]

3 minutes ago, One percent said:

Au contraire. I think capital controls would be a very good thing, especially for housing.  Huge swathes of property are owned and left empty by foreigners who see it (rightly at the moment) as an investment. This means that there is a lot of property sitting empty and we know the state of the housing market (i hate to call it that as it’s not a market, it’s about where people can afford to live). There has been articles recently about bishop’s avenue and large mansions just falling into disrepair because they are not viewed as homes, but as investment opportunities. 

They would be stopping us buying abroad not the other way round.

[darkmarket]

1 minute ago, One percent said:

Au contraire. I think capital controls would be a very good thing, especially for housing.  Huge swathes of property are owned and left empty by foreigners who see it (rightly at the moment) as an investment. This means that there is a lot of property sitting empty and we know the state of the housing market (i hate to call it that as it’s not a market, it’s about where people can afford to live). There has been articles recently about bishop’s avenue and large mansions just falling into disrepair because they are not viewed as homes, but as investment opportunities. 

Limitations on the inward flow of capital are even more unusual. Trudeau introduced them at the peak of the Canadian bubble, it seems in an effort to protect investors in the CCP and from China.

I do understand your point, but I think it would be easier to achieve the same outcome by placing restrictions on the types of eligible buyer (citizenship, number of homes, etc) in specific areas rather than to resort to an outright restriction on the movement of capital, even inbound.

[One percent]

3 minutes ago, Joncrete Cungle said:

Ended in 1979 by Maggie, limited the amount of money you could change / take on holiday, for the plebs. Re introduction of capital controls was in the last Green Party literature I read a few years ago. I think Labour floated the idea a few years ago also.

Thanks.  But then they are currently not in place.  

2 minutes ago, Yadda yadda yadda said:

They would be stopping us buying abroad not the other way round.

Ah.  

[One percent]

2 minutes ago, darkmarket said:

Limitations on the inward flow of capital are even more unusual. Trudeau introduced them at the peak of the Canadian bubble, it seems in an effort to protect investors in the CCP and from China.

I do understand your point, but I think it would be easier to achieve the same outcome by placing restrictions on the types of eligible buyer (citizenship, number of homes, etc) in specific areas rather than to resort to an outright restriction on the movement of capital, even inbound.

Ta. From replies, i seem to have got hold of the wrong end of the stick.  Silly me thought it would be a mechanism for protecting British citizens.   

[Yadda yadda yadda]

1 minute ago, One percent said:

Thanks.  But then they are currently not in place.  

Ah.  

No they're not currently formally in place. There are regulations on areas like Crypto that could be argued to have that effect. Crypto is a method of moving large sums across borders.

Capital controls would be brought in to defend the pound. We don't export enough so excess sterling either buys dollars and weakens the pound or it buys UK assets. The latter has a multiplier effect leading to the profits buying more assets or dollars. As you would expect there is no free lunch - a balance of trade deficit makes the country poorer over time. At some point the UK is no longer credit worthy in the eyes of exporting nations or they can't find any assets they want to buy. At that point we have to equalise imports to exports.

I'm sure that an old edition of Top Gear, lamenting the decline of UK car manufacturers, pointed out that in 1948 we only imported 57 cars* whilst we exported 10s of thousands. This was because of capital controls and the imports were luxury cars. The rich are too important to inconvenience. The modern version would restrict foreign holidays. Arguably climate legislation will be used as a form of capital control. Using less imported fuel and travel less means spending less on foreign goods.

*It was a two digit number.

11 minutes ago, One percent said:

Ta. From replies, i seem to have got hold of the wrong end of the stick.  Silly me thought it would be a mechanism for protecting British citizens.   

Lol, you must have known that is impossible these days.