Credit deflation and the reflation cycle to come (part 10)

[spunko]

Following on from Part 9:

 

[stockton]

Currently in France for the summer holiday, having my pants down.

Don't move to Europe, look further afield is my current thinking.

[Bricormortis]

 

i post this here because I am interested in opinions on whether this is a credible scenario ?

Its someones post from elsewhere. Apologies for the format.

Are CBDC's as programmable money an attempt at capital control ? or more importantly can gold be caught up in capital control ? 

Currency (or capital) controls can be imposed unilaterally, in a coordinated fashion or tit-for-tat. Extreme movements in exchange rates or selling of debt can produce the kind of controls to prevent runs on a currency. CBDC’s are intrinsically, capital controls, programmed money.

In any conflict with China that country would liquidate its US debt holdings. They are already doing so. Japan’s currency is becoming more and more unstable as is China’s which moves in lock step. Given that gold is now a tier one asset it acts a backstop for debt, currencies and equity capital. Any capital controls would therefore apply to gold. A peg would have to be imposed against any CBDC cross.

Normally, conflict would lead to a rise in gold but imply a decline in the currency pair. Imposing a gold price will be required to counter this.

As an aside, I think digital currencies would also be outlawed in this scenario.

CBDC’s are a mechanism for capital controls. Any flight to the USD will put the Euro under extreme strain. The EU is in a severe sovereign debt crisis like everyone else. European banks are stuffed by statute with debt bought at zero or sub zero rates. In war rates always rise, they have already, therefore those European banks and other institutions face staggering losses on those bonds they were forced to buy. Some thing’s gotta give.

All countries to a greater or lesser extent are facing the same crisis and they will act to stop capital flight. The sovereign debt crisis is coming and on the horizon, capital controls.

This country (the UK) had capital controls when I was young. You had to take travellers cheques to buy a round of drinks in Spain! I think Thatcher’s gmt stopped it. It may seem strange but we live in very strange times. WW3 is being engineered to provide the excuse for the repudiation of sovereign debt – to default.

The Harris campaign already suggests they will impose (disastrous) price controls, this can easily be extended to gold in the event of a currency crisis, to prevent capital flight. It’s been done before. Will it be done again? Yes. When? Now seems more plausible than ever.

On the other hand, all of the above will happen and gold will be excluded from price controls and rocket.

[leonardratso]

went cash machine yesterday, thought id get out £400 - done it in the past, bank allows it, however cash machine stopped me and said only 250 allowed daily, thats different.

[Axeman123]

10 minutes ago, Bricormortis said:

I am interested in opinions on whether this is a credible scenario ?

I definitely think international capital flows will be more controlled over time. It is worth noting however that we all ready have digital currencies in all but name. People already interact with currency almost entirely digitally, and many younger people never handle physical cash. Many young people look horified if offered a banknote for something, and act like the only way to use it is to deposit to a bank so it can be available to spend via ApplePay etc. Its like my generation being offered a cheque. Eliminating the legacy paper bearer tokens (ie banknotes) and adding programmability are the only real changes needed to complete the change to a defacto CBDC.

The most likely scenario for CBDCs and gold etc IMO is a repeat of what has worked for the elite in the past: a crisis will occur, and a CBDC will be proposed as the only solution. Intially the new CBDC will be backed in some manner, and this will be claimed to make it immune to the inflation that has killed the dollar. There will probably be a conversion factor applied at switch-over (eg one new unit equaling slightly more than one USD) and all prices in purchasing power terms will notably jump higher in the process - hidden via redonomination and rounding up etc - just ask anyone that lived through adoption of the Euro in their country what the immediate effect was on individual purchasing power. Once everyone is on the new currency the backing and convertibility etc will be whittled away by a series of changes each described as tidying up etc excercises. This would be a repeat of the USD etc, and could take decades to come all the way back to the current situation.

What might the crisis to remove physical cash be? The obvious candidate of a plague spread by banknotes seems to have been tried already and failed. Retailers were working on phasing cash out as inconveinient etc but people have pushed back. My guess is we will see huge quantities of banknotes suddenly declared fake. Small sums in affected notes will be exchangeable at no cost, medium sums at a haircut, and large sums will be forfeit. That will scare the hell out of people holding banknotes beyond essential. Next the cost to the exchequer of exchanging bad notes will become a talking point, comparisons to X number of hip replacements or Y new council houses etc will be bandied about. Speculation that banknote users are often dodgy etc and that exchanging their bad notes constituted a bailout will be astroturfed in the media. Finally it will be announced that in a future counterfeit situation there would be no bailout.

Gold would simply be offered in digitally tokenised form for the masses, and eventually the tokens would lose convertibility to physical. A slow strangle of regulation etc would keep holding physical as a niche undertaking. Tales of grandpa getting robbed of his life savings in physical gold and having no recourse etc would be used to sell tokenised gold as the better option. As the generation with the propensity to hold physical die their heirs would naturally funnel it to the banking system for the security of tokenised gold.

[Hail the Tripod]

Sold my VODA shares today for a 7% gain. 
Might buy some more PHNX.

[Harley]

1 hour ago, Axeman123 said:

There will probably be a conversion factor applied at switch-over (eg one new unit equaling slightly more than one USD) and all prices in purchasing power terms will notably jump higher in the process - hidden via redonomination and rounding up etc - just ask anyone that lived through adoption of the Euro in their country what the immediate effect was on individual purchasing power.

I did (Germany) and exactly this - for example, all that most restaurants did was change the top of the menu from DEM to EUR, so an immediate uplift in prices.

Edited August 19 by Harley

[Harley]

Just listened to this and an excellent clear round up, very much aligning with the theses and language here.  IMO, will be the most timely and important listen for some time.

Thoughtfulmoney with Stephanie Pomboy & Grant Williams.  I seem unable to post Youtube links so here: https://www.youtube.com/watch?v=T08b-pt07w8 or https://yewtu.be/watch?v=T08b-pt07w8

Edited August 19 by Harley

[DurhamBorn]

2 hours ago, Hail the Tripod said:

Sold my VODA shares today for a 7% gain. 
Might buy some more PHNX.

Can you send me a photo please,its just iv never seen VOD with a profit next to it.In the words of my dad "if they bring me back to life in 100 years that dogshit will still be in a loss"

[Hail the Tripod]

33 minutes ago, DurhamBorn said:

Can you send me a photo please,its just iv never seen VOD with a profit next to it.In the words of my dad "if they bring me back to life in 100 years that dogshit will still be in a loss"

 

Edit to add: looks like I exaggerated. In the end it was only 6.62%.

Second edit to add: put half of the realised funds into more PHNX and half into more WDS in the end.

Edited August 19 by Hail the Tripod

[leonardratso]

so it is possible then, well i never, isnt it amazing, i never thought id ever see that in my lifetime.

[Harley]

1 hour ago, Hail the Tripod said:

 

Edit to add: looks like I exaggerated. In the end it was only 6.62%.

Second edit to add: put half of the realised funds into more PHNX and half into more WDS in the end.

Mine was only 4%.  Bought on 8 Jul24 and 18 Jul24 and sold on 9 Aug24.  I don't know why (looking at the chart) I sold as it's still running.  Maybe I was not using end of day data.

PHNX looks a bit rich tech wise but WDS......!

Edited August 19 by Harley

[Hail the Tripod]

12 minutes ago, Harley said:

PHNX looks a bit rich tech wise but WDS......!

I can’t resist a juicy dividend and a good story of potential. Time will tell.

At least I managed to resist the pull of a short term dalliance with Adriatic Metals. That’s a seductive probable widow maker.

[Shits McGee]

2 hours ago, Hail the Tripod said:

 

Edit to add: looks like I exaggerated. In the end it was only 6.62%.

Second edit to add: put half of the realised funds into more PHNX and half into more WDS in the end.

What do those numbers next to the £ sign mean?

[leonardratso]

4 minutes ago, Shits McGee said:

What do those numbers next to the £ sign mean?

think thats his loss, so lost 19,999 down the back of the settee then found 21,324 down the back of the settee.

Edited August 19 by leonardratso

[Hail the Tripod]

4 minutes ago, Shits McGee said:

What do those numbers next to the £ sign mean?

Basically just points in a highly immersive VR game. As best I can tell.

[snaga]

6 minutes ago, Shits McGee said:

What do those numbers next to the £ sign mean?

1 = one

9 = nine

5 = five

let me know if you need more help.

[janch]

6 hours ago, Axeman123 said:

just ask anyone that lived through adoption of the Euro in their country what the immediate effect was on individual purchasing power

It happened here when we had decimalisation in 1971.

It's just happened to me here too.  The local Tescos has relocated and changed into a smaller more expensive Tescos.  Gone are the cheapo Stockwell etc brands.  Now you have to go to a big one in a car to get the value lines.

 

[Harley]

1 hour ago, Hail the Tripod said:

I can’t resist a juicy dividend and a good story of potential. Time will tell.

At least I managed to resist the pull of a short term dalliance with Adriatic Metals. That’s a seductive probable widow maker.

I'm doing me head in atm looking at divs versus price changes.  Was modelling holding a portfolio of monthly div/interest players (funds or ETFs) but in and out somewhat according to the techs.  Backtesting says I would have been out of most on ex-div day or in and then down.  Bottom line divs/yield muck up techs so either buy and hold or stick to total return plays.  Or, best of all, trade div/interest (i.e. post div recovery!).

 

Edited August 19 by Harley

[Bobthebuilder]

2 minutes ago, Harley said:

I'm doing me head in atm looking at divs versus price changes.  Was modelling holding a portfolio of monthly div/interest players (funds or ETFs) but in and out somewhat according to the techs.  Backtesting says I would have been out of most on ex-div day or in and then down.  Bottom line divs/yield muck up techs so either buy and hold or stick to total return plays.

 

As you said to me a while ago, "income investing does me head in".

[Harley]

21 minutes ago, Bobthebuilder said:

As you said to me a while ago, "income investing does me head in".

Sorry if I repeat myself but I so want it to be true!  Life would then seem so much simpler and predictable.  A monthly income portfolio to live off (where income is not at the cost of capital) and a balanced portfolio to preserve/grow capital.  But life ain't fair.  Best I can see for income with a degree of capital protection (without TA, macro, etc) is just interest bearing accounts and gilts/bonds to maturity.  Risks, but mostly different from a balanced portfolio.  Anyways, I'll keep trying as I'm an OK trend trader but can't keep doing that forever!

PS:  This is what happens: take the dog for a walk, have a brill idea, come home and model it, find it's a shite idea, waggy dog turns up expectant for another walk!  Maybe if I got rid of the dog...?!

Edited August 19 by Harley

[JMD]

8 hours ago, Bricormortis said:

 

i post this here because I am interested in opinions on whether this is a credible scenario ?

Its someones post from elsewhere. Apologies for the format.

Are CBDC's as programmable money an attempt at capital control ? or more importantly can gold be caught up in capital control ? 

Currency (or capital) controls can be imposed unilaterally, in a coordinated fashion or tit-for-tat. Extreme movements in exchange rates or selling of debt can produce the kind of controls to prevent runs on a currency. CBDC’s are intrinsically, capital controls, programmed money.

In any conflict with China that country would liquidate its US debt holdings. They are already doing so. Japan’s currency is becoming more and more unstable as is China’s which moves in lock step. Given that gold is now a tier one asset it acts a backstop for debt, currencies and equity capital. Any capital controls would therefore apply to gold. A peg would have to be imposed against any CBDC cross.

Normally, conflict would lead to a rise in gold but imply a decline in the currency pair. Imposing a gold price will be required to counter this.

As an aside, I think digital currencies would also be outlawed in this scenario.

CBDC’s are a mechanism for capital controls. Any flight to the USD will put the Euro under extreme strain. The EU is in a severe sovereign debt crisis like everyone else. European banks are stuffed by statute with debt bought at zero or sub zero rates. In war rates always rise, they have already, therefore those European banks and other institutions face staggering losses on those bonds they were forced to buy. Some thing’s gotta give.

All countries to a greater or lesser extent are facing the same crisis and they will act to stop capital flight. The sovereign debt crisis is coming and on the horizon, capital controls.

This country (the UK) had capital controls when I was young. You had to take travellers cheques to buy a round of drinks in Spain! I think Thatcher’s gmt stopped it. It may seem strange but we live in very strange times. WW3 is being engineered to provide the excuse for the repudiation of sovereign debt – to default.

The Harris campaign already suggests they will impose (disastrous) price controls, this can easily be extended to gold in the event of a currency crisis, to prevent capital flight. It’s been done before. Will it be done again? Yes. When? Now seems more plausible than ever.

On the other hand, all of the above will happen and gold will be excluded from price controls and rocket.

I think CBDCs will be (tangentially) used to control the populous (spending, saving, capitol controls etc, however I'm still dubious that the technology or expertise will be able to do much more than very basic monitoring) - but imo that would NOT be the main motivation behind introducing a CBDC. I think the main driver - after a terrible unforeseen(?) crises - will be to provide a convenient excuse for governments to facilitate a currency reset. Basically an epic debt jubilee.

Governments would then introduce a dual balance sheet system, with the current/'old' assets and liabilities on BS1 and with BS2 being the new home for the 'new' assets and liabilities. But the big unknown part is predicting what/how assets - including gold - will be allowed to be transferred across to BS2, and crucially using what conversion rate. For BS1 to balance some assets, perhaps say gold would need to be massively revalued, or perhaps government would just create perpetual bonds - as they are 'equity instruments' and not debt! So there are many unknowns but your question about gold is a good one.

I suspect the ideal timing from a government perspective for introducing CBDCs, would be after all financial assets can be traded digitally on a blockchain. And then once gold becomes just yet another digital asset (even if backed by the physical, but probably held in government vaults!) - I guess all investors will then be forcibly (BalanceSheet2) reduced into 'being happy and owning nothing' physical.    ...Of course none of this stuff is certain, but must say, day by passing day, its looking depressingly more and more certain that the only feasible financial escape option left will be to relocate?

Edited August 19 by JMD

[Bobthebuilder]

44 minutes ago, Harley said:

Best I can see for income with a degree of capital protection (without TA, macro, etc) is just interest bearing accounts

Bang on cue I get an email today saying H&L are reducing the interest on cash.

[Mandalorian]

1 hour ago, Harley said:

  A monthly income portfolio to live off (where income is not at the cost of capital)

I keep telling you.  Not possible 🤣

[BurntBread]

8 minutes ago, Mandalorian said:

I keep telling you.  Not possible 🤣

He means that the company does not pay out more than it generates from on-going business operations (less whatever is needed for investment to maintain that business).