Prices, Inflation/Deflation, Interest Rates & The Fed

[armor]

With respect to block chain or bitcoin. None of this is being adopted unless they can use it to enslave humanity. Bitcoin doesn't allow it. Digital currency is just another fiat currency so there's no change there. My prediction is governments will adopt bitcoin as a reserve currency similar to how they did with gold in the past but these will be small countries that have the biggest problems with currencies. First, corporations will pick up bitcoin then governments will follow. It's not enthusiastically, more like kicking and screaming as a last resort.

Improbable. There's absolutely no way bitcoin can scale to handle that much volume of transactions from huge corporations let alone WORLD GOVERNMENTS unless it's forked and run on a different chain, which means a completely different coin.

The banking system is way worse than simply making your transactions transparent. They sell that info already and the government can see your transactions all day, reverse them, freeze them, steal it etc.

The reason blockchain is so hated by governments and banks is because it turned the transparency back on them. With bitcoin you know what the monetary policy is, how much bitcoin there will be in the future, how much inflation there will be, how it is spent etc. Nobody can freeze or reserve transactions. They can see transactions but there are no names attached to it. The banking system is the opposite of this. They don't tell you how much money is printed, how much there will be in the future, what the interest rates will be. It's totally opaque, centrally controlled. Adopting bitcoin is giving up control and that'll never happen for most governments. Imagine what the government would do if they couldn't print money on command like magic to fix all their problems. They'd actually have to become efficient because stealing from their citizens would be off the table.

Not sure what you're getting at here. Bitcoin is just a speculative asset - it's not backed by anything - just like how the U.S. dollar isn't backed by anything. The government has already "adopted" bitcoin. Look at Coinbase, Binance, Kraken or any other big centralized exchange that is given permission by the U.S. government to allow people to trade on their exchanges only after their customers fill out KYC forms. Now why do you think that is?

 

[BURNΞR]

Improbable. There's absolutely no way bitcoin can scale to handle that much volume of transactions from huge corporations let alone WORLD GOVERNMENTS unless it's forked and run on a different chain, which means a completely different coin.



Not sure what you're getting at here. Bitcoin is just a speculative asset - it's not backed by anything - just like how the U.S. dollar isn't backed by anything. The government has already "adopted" bitcoin. Look at Coinbase, Binance, Kraken or any other big centralized exchange that is given permission by the U.S. government to allow people to trade on their exchanges only after their customers fill out KYC forms. Now why do you think that is?

Transaction speed and scaling is a meme that gets pushed around. People aren't paying huge sums of money for bitcoin so they can buy coffee at Starbucks. The whole point is to opt out of the central banking system for a system that is a lot more fair, predictable and not prone to theft and massive inflation.

Kyc is so governments can tax profit. Even if US exchanges shut down it would spring up in other countries. There's also decentralised exchanges now and peer to peer. No kyc there.

 

[armor]

Transaction speed and scaling is a meme that gets pushed around. People aren't paying huge sums of money for bitcoin so they can buy coffee at Starbucks. The whole point is to opt out of the central banking system for a system that is a lot more fair, predictable and not prone to theft and massive inflation.

Agreed, that's why I said it's a speculative asset or store of value. People are using it as a hedge against their government's predatory monetary policies. But to say corporations and world governments will start using it as a means of transaction seems a little far fetched. They can just as easily create their own chain that can handle that type of volume if they wanted to, but I see no reason for them to decentralize.

Kyc is so governments can tax profit. Even if US exchanges shut down it would spring up in other countries. There's also decentralised exchanges now and peer to peer. No kyc there.

So why would they hate blockchain if they are not only profiting from it but also surveilling? Bitcoin transactions are completely transparent and it's not that difficult for governments to track outputs given especially if they originate from an exchange.

I think the one that governments actually DO hate is Monero. Completely private, fungible currency with low fees. The IRS is even offering up a bounty to break it. https://cointelegraph.com/news/the-...-to-anyone-who-can-break-monero-and-lightning

 

[BURNΞR]

Agreed, that's why I said it's a speculative asset or store of value. People are using it as a hedge against their government's predatory monetary policies. But to say corporations and world governments will start using it as a means of transaction seems a little far fetched. They can just as easily create their own chain that can handle that type of volume if they wanted to, but I see no reason for them to decentralize.

So why would they hate blockchain if they are not only profiting from it but also surveilling? Bitcoin transactions are completely transparent and it's not that difficult for governments to track outputs given especially if they originate from an exchange.

I think the one that governments actually DO hate is Monero. Completely private, fungible currency with low fees. The IRS is even offering up a bounty to break it. https://cointelegraph.com/news/the-...-to-anyone-who-can-break-monero-and-lightning

First corporations and small countries will adopt to protect themselves, this has already happened. Governments will push out centralised digital currency like Venezuela did but nobody will adopt because it's the same old scam repackaged in blockchain form. Eventually bigger countries use it to trade with other countries for settlement or keep as reserve currency. This is what I expect as currencies fail and lose trust.

They hate blockchain because they don't control it. And if they made a chain they control nobody with 3 digit IQ will adopt it, because it's always the same monetary scam known to lead to theft. They would keep enough to pay for daily expenditures but the rest would be in a crypto that is scarce and cannot be printed. Another issue is, bitcoin can evolve. Privacy features might be tacked on in the future and even it isn't there is Monero (I see you mentioned this).

There's no guarantee crypto will be profitable for them forever. It's more likely that governments lose more control as the tech evolves. The fact that crypto already enables everyone to effectively have their own off shore account is not making them happy because it shifts the power dynamics of banks and governments between themselves and their serfs.

 

[Arado]

@Arado, I've been thinking a lot about our conversations here as I watch the data accumulate. Let me preface this by saying these are just the observations of a regular dude. I'm not an economist, big time investor, or cool cat bank guy.

For the past few months, I've been paying attention to a few dichotomies regarding inflation and deflation.

Food bank lines vs. grocery store prices vs. restaurant portions
Grocery prices are up but food bank lines are also growing. In my metro, non-profits serving food have also had their costs double and triple since March, greatly straining their budgets as they have record traffic but donations drying up. Flip-side: restaurants, the ones that are left, in my area have raised their prices and obscenely shrunk their portions. Many of them are surviving on credit cards. McDonald's doing record revenue, as would be expected during a financial crash.

Used cars vs. new cars vs. hotel prices vs. airplane fare

Used car prices are up big while new car prices are flat and hotel and airline fare are down by 20% to 25% annually.

Real estate

Up but with a 25% decline in inventory and indications in many areas of constricting inventory and down-trending prices. You can watch in lots of places as houses are starting to get re-listed because buyer financing fell through. I'm seeing this throughout my state in all areas.


What's going on?

Deflation that looks a little like inflation. Businesses are trying to squeeze whatever juice that's left and whatever they can out of whoever will buy as consumers pile into cheaper choices, going so far as to switch to outright handouts. The pain is already becoming acute and we'll probably continue in this direction for the next few years. Some prices are up, but not many while we see a lot of flat numbers or ones that cannot get above board from before the shut down.

Car price references:

Used-Vehicle Market Digs Out from Supply-and-Demand Chaos that Caused Enormous Distortions in Wholesale Prices

After spiking for months, used-vehicle wholesale prices turned south in late August, wholesale volume plunged again.

wolfstreet.com

Dollar’s Purchasing Power Drops to Lowest Ever. Inflation Heats Up, as Fed Wants, After Simultaneous Supply & Demand Shocks

“We’re not even thinking about thinking about” slowing the decline of the dollar’s purchasing power — and thereby labor’s purchasing power.

wolfstreet.com

These are interesting data points and parallel what I've been seeing - costs are increasing and so is the general level of desperation and struggle.

There are broad deflationary forces at play - unemployment spike, working from home, etc but there are also inflationary forces like all the stimulus and QE(which may not be inflationary when not used to monetize deficit spending). and supply destruction from social distancing in restaurants, food supply mismatches, eviction bans, etc.

If the stimulus continues and deficits are monetized, plus restrictions continue while people still keep getting paid without working, so are still consuming grocery food, housing, healthcare, and eating out once in awhile, THEN those costs will keep going up and at some point average Joe is going to start losing faith in the dollar and the inflation narrative takes hold.

If stimulus stops and evictions are allowed to go through and businesses are given a free hand to operate without too many restrictions, without the Fed finding some other way to get money into people's pockets, then the deflationary forces will start to prevail.

This is at least my general sense for how things play out. Obviously many cross currents. In the immediate future it's all about the stimulus.

 

[EndlessGravity]

If the stimulus continues and deficits are monetized, plus restrictions continue while people still keep getting paid without working, so are still consuming grocery food, housing, healthcare, and eating out once in awhile, THEN those costs will keep going up and at some point average Joe is going to start losing faith in the dollar and the inflation narrative takes hold.

So, the crux of your view is with the monetized deficit, we'll more or less see inflation in the mid-term, correct?

 

[Arado]

So, the crux of your view is with the monetized deficit, we'll more or less see inflation in the mid-term, correct?

In terms of timing I have no clue and most macro thinkers disagree with each other since there aren't many data points to analyze the current situation, but it largely depends on how quickly newly printed money gets out to the population, largely through Fed financed massive deficit spending. The banks aren't lending (another source of money in the real economy) so it's all about the fiscal.

You have a cross current in supply chains and the real economy - if things open up, maybe the meat plants can operate at full capacity, maybe evictions can go through and there will be a wave of new properties on the market. But then people will be out spending more on superficial stuff like restaurants, luxury vacations, clothes, etc. to brag on social media, so those things will get more expensive. Urban condos may start being appealing again. Also, will telework/telemedicine/telelearning remain the norm? Those are hugely deflationary (students will opt for 2K Coursera classes over 30K Marxist brainwashing over Zoom). But we've had so many travel related services go bankrupt - that's supply destruction.

Finally, it's a matter of psychology, and that will be influenced by which sectors have too many dollars chasing too few goods. The prices of food and necessities may go up, but what will it take for the average Joe to really start thinking about inflation and then panic buying into hard assets and dumping cash? I have no idea, perhaps others that have lived through similar experiences in Turkey, Lebanon, Venezuela, Argentina, etc. can provide insight. Maybe the trigger fo changing psychology is a combination of food prices, car prices, gold, energy costs, real estate, bitcoin?

 

[Arado]

Cross posting here and on the Bitcoin thread. Raoul Pal still is short term bullish on the dollar but he's more bearish once the 'insolvency' stage passes - the endgame is within sight if these central bank digital currencies get approved.

 

[Blade Runner]

I've been on this train for a while, I agree with it. It probably will take quite a while to develop. I see BTC starting to really rise at the midpoint of next year.

 

[DenizenJane]

To help economy, bank proposes tax on working from home

White collar staff reaping the financial benefits of working from home should be taxed to help others who aren't getting the same advantages, expert say.

www.aol.com

You knew it was coming.

 

[Arado]

 

[EndlessGravity]

Good tweets. They'll print the money, after a drop scares the shit out of them. You agree that the 35% is deflationary though, correct? Foreign banks selling treasuries for USD to maintain debts they can't keep up with, yes?

 

[Arado]

Good tweets. They'll print the money, after a drop scares the shit out of them. You agree that the 35% is deflationary though, correct? Foreign banks selling treasuries for USD to maintain debts they can't keep up with, yes?

That's what happened in March when the Treasury market went no-bid and the Fed had to step in. Luke Gromen even admits this, that we will hit 'air pockets' during which there will be massive dollar shortages, so avoid leverage because can easily get stomped out of positions while the Fed scrambles to fill the hole.

I suppose the 35% is deflationary but I fully expect this ratio to keep going down in the near future, so the key question is at which level of lack of demand for U.S. Treasuries and dollar denominated assets does the dollar lose its status?

 

[Blade Runner]

^ When bitcoin is adopted as the way out (hint, it already is, most don't see it though). The pure competition that is created as an enforcer of different mechanisms of value and game theory make this the single greatest trade of your lifetime. It just needs a particular market cap and then stability, which it will get with increasing valuation.

It is all coming down to this as we move through 2021 into 2022.

 

[NoMoreTO]

Judy Lynn Shelton is an American economic advisor to President Donald Trump.[2] She is known for her advocacy for a return to the gold standard and for her criticisms of the Federal Reserve (which she has compared to the Soviet Union's economic planning).[2][3][4][1] Trump announced on July 2, 2019, that he would nominate Shelton to the Fed.[5][6][7] Her nomination stalled on November 17, 2020, with a 47–50 vote in the Senate, with the possibility of being retried by Majority Leader Mitch McConnell after the Thanksgiving recess.[8][9] - Wikipedia

She seems to get that the federal reserve doesn't work as a currency, or for the people. I found the video to be a calm, slow, breakdown of the currenty system.

 

[EndlessGravity]

I suppose the 35% is deflationary but I fully expect this ratio to keep going down in the near future, so the key question is at which level of lack of demand for U.S. Treasuries and dollar denominated assets does the dollar lose its status?

I still don't understand why you believe there's a lack of demand for treasuries. The falling interest rate is a huge demand. If there was none, who would be buying up all those foreign-sold ones?

From what I understand, we're talking about the most liquid market on the planet. Hoarding treasuries is exactly for times like these. What else would you be able to sell so easily, so quickly, without issue?

 

[Arado]

I still don't understand why you believe there's a lack of demand for treasuries. The falling interest rate is a huge demand. If there was none, who would be buying up all those foreign-sold ones?

From what I understand, we're talking about the most liquid market on the planet. Hoarding treasuries is exactly for times like these. What else would you be able to sell so easily, so quickly, without issue?

There's plenty of liquidity but the fraction of treasuries held by the Fed is going up, while foreign holdings remain flat.

So if the total amount of treasures outstanding increases (due to ongoing deficits) then without Fed printing money to buy them up, foreigners will demand higher rates to buy them up.

Obviously for any asset demand can be found when prices are attractive enough. However, the U.S. won't be able to afford the interest rates that a free market would demand without the Fed providing a floor on the treasury price.

Right now, I think you are right and auctions have gotten sufficient subscriptions. But let's revisit this when the next round of stimulus passes and the government needs to borrow an additional 3 trillion. How much of that will come from the Fed and how much will come from foreign borrowers?

I know Jeff Snyder says that the Fed is a smoke and mirrors game and doesn't actually impact the UST market since it's all psychological, but without Fed support and the promise of a floor on interest rates I don't think there would be the same foreign demand for long dated US treasuries given how insolvent we are. I could be totally wrong and we hit a deflationary spike and everyone flees into treasuries, but I don't think that will last too long.

 

[Arado]

Three different tweets, all to some degree hitting on the same point - free markets are dead, bubbles and idiotic thinking are everywhere, moral hazard reigns.

 

[EndlessGravity]

Three different tweets, all to some degree hitting on the same point - free markets are dead, bubbles and idiotic thinking are everywhere, moral hazard reigns.

Totally meant to reply to your last post and it slipped my mind. You're correct that the Fed is providing material support. However, as your chart shows, the market for UST is huge. They only represent a small portion. Synder is probably right if only because you can watch rates drop...then the Fed says they're lowering rates. Then they try to take credit for it. I have yet to see them materially affect anything they claim to impact.

Those tweets by Groman are straight fire. I hadn't considered the one about the Nikkei, instead having thought we'd one day sink lower the way they did. However, that's a good point.

 

[Blade Runner]

I think I am following his language (more his idea) in the final tweet but it is strangely (or incorrectly) ordered/worded.

Surprised, fact, warning, likely ... those are all opaque in their construction, technically. I believe he is saying, "I am surprised that people don't see that the US is headed right where Japan has already gone." Correct?