The Federal Reserve and Money...Aspects which are not widely known

SUZNV · July 11, 2022

5 hours ago, Andrei Moutchkine said:

Commodity exchanges, and a bunch of other trading enterprises of various stripes, hold physical gold for clearance purposes. Or supposed to, at least. There is a "paper gold" which is 1:1 to physical. It is called a warehouse receipt to the said "locker" Also the main mechanism how US/UK hemorrhage gold, as those have been taken out of the country and used as collateral. Which is why they also used values that are actually much higher than physical gold itself. None of those contradicts the quotations being in dollars or whatnot, but the clearing is in gold.

I think, this time around, the dollar and euro are broken. No longer useful reserve currencies. I mean, after wanton theft of Russian assets, nobody trusts them anymore. I hear Chinese and Arab capital is fleeing USA. Dunno about Venezuela, but Iran will be rolling in dough soon enough. Now that they are effectively in a free trade zone with entire Russia/EAC, the sanctions on them don't do much. Turkey is also in, albeit for more complicated reasons. Something like that

https://www.reuters.com/markets/commodities/exclusive-how-an-indian-cement-maker-bought-russian-coal-using-yuan-2022-07-07/

I do know about these Commodity exchanges, there is 2 type: allocated and unallocated paper gold contracts. The locker type is the allocated one. The only problem with that is you have to trust the custody completely + the manipulated gold price is the solid evidence. 1: If you can trust US/UK gold custodies, then you can trust the US/UK treasuries themselves. 2: the gold price itself was manipulated 1:100 so why bother with trading with petrol gold lockers with oil price is nominated by USD? Allocated gold is simply another paper market with promised delivery if requested. The custodies can even rent gold from somewhere else to pass the auditing. Search for JPMorgan Gold Spoofing.

The name eurodollar confuses you that is about Euro and Dollar. Eurodollar only means the system of issuing dollars loan using US treasuries as collateral outside of the US,aka offshore USD printing and out of control from the FED, invented in Western Europe after Bretton Woods which made US the world reserve currency and pegged in Gold (ever wonder why the standard of this names Basel?). This system had existed and expanded long before Euro Zone and Euro were created. Sometimes I wonder if the petrol dollar or conspiracy theory myths were advocated by US media because it made the world believe FED is still in control and therefore make Fed "tools" more psychology more efficient.

The Russia financial sanction is more about Western political clowns are trying to deceive their voters. They try to show public they have morale while trying to create as much backdoor as possible otherwise the economy will collapse after decades of political will in Green energy, especially Euro zone after decades of advocating Green Energy (now even nuclear and natural gas are marked Green). If we disregard about the suffering of Ukraine people, it is a wise calculating of Putin except history proves many times things not always going according to plan.

The article you quoted is just one example of it. I can give you better example is India is buying cheap oil from Russia in Yuan as well, and then refine it to fuel and diesel and then selling final product out to international market and lots of Western political clowns secretly thanks India for that. All they need to do is pretend hey, it is India free will and nothing they can do about it. It is how Western politics work.

It is not an example of a failed eurodollar system while Yuan is not performing well comparing to USD and CCP do exactly the same money printing like Western counterparts (even worst in local gov and private debts).

Same story US admin team allows South East Asia countries as a bridge for China goods, especially in solar panel.

I don't like the financial sanction, but technically in war, even a proxy one like Ukraine, it is common sense to utilize all the financial weapon you can have. Western politicians will have to show the public they are doing something damaging to reputation and economy in the name of their morale and claim the failure in the Economy to Putin (and covid to China).

The most effective long sanction part is the technology parts. Even China doesn't have the technical availability for complicated oil extracting maintaining service for Easter Siberia or high end chips. Why Venezuela suffers from sanction with that much amount of oil? Because they are lacking of extracting equipment with the highest productivity. Same long term prospect for Russia oil and mining industry.

With the USD rate in the rise, naturally foreign reserves in developing countries are draining and they try to secure as much USD as possible to pay back eurodollar debts as rolling over with higher interest rate is not a good option. This will temporarily cause the capital flight out of US which pushed the price of US assets down, which will reduce the wealth effect and slower inflation rate (with a recession following) but consider US is the consumption market of the world, elsewhere wouldn't look much better. But have you consider how many investors outside of US is accumulating USD and waiting to buy US assets with a bargain? In the recession world, the safest assets seems to be the USD to short other devaluation currencies.

How many countries will have the ability to pay back debt for China's Belt and Road debt trap but defaulting like Sirilanka (which Russia-Ukraine war is a direct squeeze in both oil price and the interruption of Road part). China in desperate needs for USD now face a risk of defaulting which is much worst than US capital flight as it will never coming back. Start printing money when Fed increase rate and Quantify tightening, yuan will only a medium of exchange rather than keep them for long, and the same story with buying Chinese bonds. I speculate anyone who encouraging people to invest in China since last summer simply try to sell their hot potato.

I don't see how they can reset the eurodollar debt bubble either. We are exploring uncharted territories. I don't think anyone can plan in this decentralized world without some surprising unintended consequences, we have countless examples in history for this.

Edited July 11, 2022 by SUZNV

Tom Nolan · July 14, 2022

https://oilprice.com/Energy/Crude-Oil/Oil-Prices-Plunge-4-As-Market-Braces-For-Oversized-Interest-Rate-Hike.html

Oil Prices Plunge 4% As Market Braces For Oversized Interest Rate Hike

By Tsvetana Paraskova - Jul 14, 2022, 10:00 AM CDT

Oil prices have fallen by 4% this morning.
Markets are bracing for a potential supersized interest rate hike.
On top of the expected large rate hike, oil prices were weighed down on Thursday by Wednesday’s EIA weekly inventory report.

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Oil prices plunged early on Thursday amid expectations of a large Fed rate hike at the end of the month and signs of weakening U.S. gasoline demand as prices remain elevated.

As of 10:46 a.m. ET on Thursday, WTI Crude was down by 4.61% at $91.64, and Brent Crude traded down 3.53% at $95.67, for a third consecutive day of losses.

The higher-than-expected U.S. inflation data for June and crude and gasoline builds, both reported on Wednesday, weighed on market sentiment and prices on Thursday.

The U.S. Bureau of Labor Statistics announced on Wednesday consumer prices for June 2022, saying that over the last 12 months, the all items index jumped by 9.1 percent—the fastest consumer price increase since November 1981.

The figure was above expectations and prompted intensified market speculation that the Fed, which meets on July 26-27, could opt for another major rate hike to curb inflation after raising the key interest rate by 75 basis points in early June. The latest rise in June resulted in market sell-offs as traders and speculators started fretting that the aggressive rate hikes would lead to a recession.

At this month’s meeting, the Fed could even decide on a supersized rate hike of 100 basis points, with traders pricing in a nearly 80% probability of a full percentage-point rise, Reuters notes, citing an analysis of the contracts by CME Group.

On top of the expected large rate hike, oil prices were weighed down on Thursday by Wednesday’s EIA weekly inventory report, which showed crude and gasoline builds for the week to July 8.

“The large build in gasoline inventories was driven by a steep decline in implied demand over the week, which fell by 1.35MMbbls/d. This resulted in implied gasoline demand averaging 8.06MMbbls/d, which is the lowest level seen for this stage of the year in at least a decade,” Warren Patterson, Head of Commodities Strategy at ING, said on Thursday.

By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com:

Tom Nolan · July 14, 2022

EXCERPTS

...The true cost of capital was distorted for so long... ....In 2021, global debt reached a record $303T, according to the Institute of International Finance, a global financial industry association. This is a FURTHER jump from record global debt in 2019 of $226T, as reported by the IMF in its Global Debt Database. Volcker was jacking rates into a planet with about $200T LESS debt. Paul Adolph Volcker Jr. was the 12th chair of the Federal Reserve from 1979 to 1987

Interest rate hikes today - hand in hand with a strong U.S. Dollar - carry 100x the destructive power than the Carter – Reagan era.

At the same time, you add lighter fluid on to the credit risk fire in emerging markets with a raging greenback. Global banks have to mark to market most of these assets. If global rates reset higher and stay at elevated levels, the sovereign debt pile is in gave danger....

glboal%20debt.jpg?itok=rQlL_XL8

Taken from...

"Take The Tragedy In Sri Lanka And Multiply By Ten": The Fed Just Lobbed A Financial Nuke That Will Obliterate The Global Economy

https://www.zerohedge.com/markets/take-tragedy-sri-lanka-and-multiply-ten-fed-just-lobbed-financial-nuke-will-obliterate

Benjamin Miller · July 18, 2022

On 6/15/2022 at 6:27 AM, Meredith Poor said:

Anti-Semitic tirade. Not necessarily limited to Jews, but certainly inclusive. Some people know how to interpret the codewords. Others aren't used to that kind of language over their dinner table, so they don't know what it means.

A lot of Westerners, particularly highly educated Westerners, have pretty much lost their anti-Semitic prejudices. In many parts of the world one still sees 'mainstream' media channels publishing material that Westerners would avoid or discard. This is one of the markers of a non-Western author, someone being subsidized by a hostile sponsor.

Putting this into context. The term cabal comes from the medieval Latin term Cabala, meaning reception of lore or tradition. It is a general term to describe the Jewish mystical teachings of the TANAKH. These teachings were compiled into a collective work known as the Cabala in the 1520s.

In the 1660s, the term cabal became associated with the meetings of small private groups with nefarious intentions. It was "[p]opularized in English 1673 as an acronym for five intriguing ministers of Charles II (Clifford, Arlington, Buckingham, Ashley, and Lauderdale), which gave the word its sinister connotations". See cabal | Etymology, origin and meaning of cabal by etymonline.

I want to make it abundantly clear. I am a practicing orthodox Jew. Though I find the term cabal off putting to say the least, I also have to beg the question. Is there something to be gained from taking a deeper look at the underlying principle of what Tom Nolan has to say. Simply discarding seem hasty.

Perhaps Mr. Nolan would like to elaborate. Are you implying that the Federal Reserve is a Jewish conspiracy to control international money markets? If not, please clarify your position.

Tom Nolan · July 18, 2022

https://oilprice.com/Energy/Energy-General/Fake-Money-Is-Fueling-A-Very-Real-Debt-Crisis.html

Fake Money Is Fueling A Very Real Debt Crisis

By ZeroHedge - Jul 17, 2022, 12:00 PM CDT

Soaring global debt has pushed investors into new assets to preserve their wealth.
Total global debt including derivatives and unfunded liabilities is over $3 quadrillion.
Commodities such as food and energy and many raw materials like precious metals could go up exponentially, and paper assets like stocks, bonds, and bitcoin could implode.

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Fool’s Gold comes in many guises, whether it is in fake paper money, Ponzi investment schemes, fake and manipulated gold derivatives, Bitcoin, or just fake gold discoveries in Uganda, all of which are discussed in this article.

‘The tendency of an inconvertible paper money is to create fictitious wealth, bubbles, which by their bursting, produce inconvenience.’ – Lord Liverpool 1810 (UK Prime Minister 1812-27)

The elegant and understated courtesy of the English is well known. “Inconvenience” is for an early 19th-century aristocrat what a modern Englishman today would call a “bloody mess.“

Confucius described this trait 2,500 years ago:

“The noble-minded are calm and steady. Little people are forever fussing and fretting.” – Confucius

As we know from history, paper money doesn’t just cause an inconvenience, as Lord Liverpool said, but a collapse of the monetary system and of the economy involved.

In today’s decadent and morally bankrupt world, leaders tend to be “fussing and fretting little people” who frantically “create fictitious money and wealth”. This is why, as we enter the final stage of this era, we will see more sackings of leaders (Boris Johnson), assassinations (Abe), and escapes (Gotabaya Rajapaksa, Sri Lanka President).

Social unrest and civil wars will sadly be commonplace too.

The combination of weak leaders and fake money is a fitting end to a major economic cycle. It actually couldn’t end in any other way.

But the world has of course not yet seen the end of the current era, which started with private bankers taking control of the US monetary system in 1913.

Some of us believe we have a good idea of how this will all end, but only future historians and other observers will tell us the exact course of events.

The Austrian economist Ludwig von Mises gave us a very likely outcome of how the financial system will end:

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

IMPOSSIBLE FOR CENTRAL BANKERS TO TURN OFF THE MONEY SPIGOTS

Von Mises first alternative of a voluntary abandonment is of course totally unacceptable to current governments and central bankers. Don’t believe for one moment that Powell or Lagarde would contemplate turning off the tap that has kept them and their money-forging friends in power for decades.

Yes, they will make gestures like the Fed is now attempting with QT (quantitative tightening). So the balance sheet of the Fed has come down $70 billion since mid-March – BIG DEAL!

That’s a 0,7% reduction in 3 1/2 months for a balance sheet that has grown by 240% or $5.3 trillion since end of August 2019. In 2006 the Fed balance sheet was $900 billion and today it is $9 trillion, a mere 10-fold increase.

Let’s just remind ourselves that the current problems in the world did not start with Covid in early 2020, but with irreparable damage to the financial system which central banks couldn’t conceal beyond August 2019.

The beginning of the end of this 100+ year financial era was the Great Financial Crisis -GFC- which started in 2006.

As I have illustrated in many articles, the cast producing this damage to the financial system changes, but their actions are all the same. Through the privately owned Fed, they are all working for their own “charitable” purpose of personal gain and control for the private bankers.

AFTER US THE FLOOD

After Us The Flood is what Louis XV's mistress Madame de Pompadour told the French King after they lost a critical battle against Prussia in the 18th century. That event was the beginning of the downfall of France and the French Revolution.

AFTER US THE FLOOD – Après Nous Le Déluge

Since 2006, the balance sheets of the major central banks (Swiss National Bank, Bank of China, Bank of Japan, ECB, Fed) have grown exponentially from under $5 trillion to $36 trillion – a 7-fold increase!

GLOBAL DEBT UP 200X SINCE 1971 AND GOING TO 2,000X

But we must remember that irresponsible debt-creating central banks are only part of the problem. The real money printers are the commercial banks. So if we look at total global debt, it has grown from $100 trillion in 2000 to $300 trillion today. In 2006 (not shown) total global debt was $120 trillion.

As the graph below shows, total global debt including derivatives and unfunded liabilities is over $3 quadrillion. When the financial system crashes, these derivatives will prove worthless as counterparties fail and the central banks will print $2-3 quadrillion in a futile attempt to save the banks and the system.

Sensible historic comparisons are no longer possible since the debt creation folly of the last 50 years is totally unprecedented in history.

In 1971, when Nixon closed the gold window, global debt was $1.5T.

After 50 years of irresponsible monetary policies, debt has grown 200X. When we reach a total debt of $3 quadrillion in the next 5 to 10 years, with the assistance of the derivative collapse, the increase will be 2,000X since 1971.

I can hear some people calling this sensational scaremongering. But I am sure that these people would have said the same about the 200X debt expansion since 1971.

THE COMING EXPONENTIAL MOVE WILL BE TERMINAL

Also, it is important to understand how exponential moves happen. I explained this in an article from 2017 called “Only Contrarians Will Survive”

In that article I illustrated that exponential moves really move exponentially and that they are terminal:

“Imagine a football stadium which is filled with water. Every minute one drop is added. The number of drops doubles every minute. Thus it goes from 1 to 2, 4, 8 16 etc. So how long would it take to fill the entire stadium? One day, one month or a year? No it would be a lot quicker and only take 50 minutes! That in itself is hard to understand but even more interestingly, how full is the stadium after 45 minutes? Most people would guess 75-90%. Totally wrong. After 45 minutes the stadium is only 7% full! In the final 5 minutes the stadium goes from 7% full to 100% full.”

So for the same reason, debt is likely to grow exponentially in the next 5-10 years, as the world experiences hyperinflation. But we must also remember that as commodities such as food and energy plus many raw materials like precious metals go up exponentially, all the bubble assets (stocks, bonds, and property) will implode in real terms. See my recent article “Concurrent Deflation and Hyperinflation Will Ravage The World”

We could of course blame Nixon for the debt disaster that the world is now in. But that would be too simple. Governments have throughout history interfered with the laws of nature and the simple law of supply and demand.

As clueless central bankers (and before that governments) interfere in the natural ebb and flood waves of the economy, these natural cycle movements become extreme tops and bottoms. These excessive moves lead to speculative asset and credit bubbles (inflation/hyperinflation) followed by a deflationary collapse or implosion just as von Mises said (see quote above).

As I explain above, it is totally natural that the end of major cycles creates exponential moves, as we have experienced in this century in both debt and assets such as stock and property.

But what few people realize is that the frantic money printing and debt creation that has taken place in this century indicate the end of a 100-year-old monetary era.

The next few years will be like the final 5 Stadium minutes when the debt goes up exponentially by, say, 14X (the Stadium going from 7% to 100% full) before it all collapses.

CRYPTOS – FOOL’S GOLD

These final moves also lead to the creation of instruments that become “fool’s gold”.

In my view, cryptocurrencies are a form of fool’s gold. Cryptos might have been a wonderful speculative investment for a few investors, but many who entered late have experienced losses of 70 to 90% so far.

As far as I am concerned, and the investors we advise, cryptos have nothing to do with wealth preservation and will certainly never replace gold. Bitcoin is a binary investment that might go to $1 million but it could just as well go to ZERO, so obviously not a good risk.

“Blockchain is a fraud” – Brazilian professor

A Brazilian Professor of computer science, Jorge Stolfi, tweeted in May this year:

“Every computer scientist should be able to see that cryptocurrencies are totally dysfunctional payment systems and that “blockchain technology” (including “smart contracts”) is a technological fraud.”

Stolfi explains how he and 1,500 specialists, including Harvard lecturers and Google’s principal Cloud engineer, delivered a critical letter to the US congress, warning about cryptocurrencies.

He explains in an interview why cryptos are a pyramid scheme similar to Madoff.

Stolfi: “These pyramid schemes collapse when there are no more fools to fool.”

He also says that Bitcoin won’t exist in 20 years. He calls blockchain a technological fraud that can never be used as a payment system, due to its snail processing speed compared to Visa for example.

El Salvador and Fool’s Gold

El Salvador clearly believed in Fool’s Gold as they announced last year that they would be the first country to accept Bitcoin as legal tender. They were also going to fund the project by issuing $1 billion in bonds secured with Bitcoin. That project is obviously delayed after BTC fall of 2/3. Bitcoin City would be built and would have no taxes except VAT. And now it seems the City would have no revenues either after the BTC losses.

Sounds like Shangri-la turned to hell to me. Sadly for them, they have lost more on their BTC purchases than the country can afford to lose and their debt is now JUNK.

All the Bitcoiners who hailed El Salvador as the future model of money and went there on Pilgrimages are now very quiet.

Well, Ponzi schemes always collapse without fail and it seems that this might be the destiny of Bitcoin and other Cryptos. Most of them are down 70% or more on their way to oblivion.

We will certainly stick to physical gold!

Fool’s Gold in Uganda

So Uganda has officially declared that they have discovered 31 million tonnes of gold ore deposits, which is expected to produce 320,000 tonnes of refined gold!

Let’s remind ourselves that all the gold ever mined in history is around 190,000 tonnes. So this find would treble the gold in the world.

Sounds to me like another Fool’s Gold story. Uganda is quite notorious for corruption and fraud. They clearly hope to borrow major amounts of money based on this so-called find, which is in no way properly proven or documented.

Or maybe this comes from the Bitcoin crowd. They are of course elated by this “fake” gold discovery since it makes BTC much more unique with a limit of 21 million coins issued.

Or could the Ugandan government have confused tonnes with ounces?

STOCK MARKETS FOOL’S GOLD – COLLAPSE IMMINENT

Current asset markets and especially stocks have also turned into fool’s gold. Investors now believe that stocks can only go up and that the Fed and other central banks will be there to save them indefinitely. How shocked these investors will soon be!

As I often say, forecasting markets is a mug’s game and that is why we prefer to focus on risk. And as I outlined in my last article, (“The Implosion Will Be Fast, Hold Onto your Seats”) risk is now extreme, both fundamentally and technically.

Most stock markets in the world are already down 20-30% in 2022. What few investors realize at this stage is that the fall we have seen so far is not just a normal correction but the beginning of a long-term secular bear market with dramatic falls to come.

Technically it looks like the next major fall is imminent. So protecting risk by being out of stocks is strongly advisable.

Precious metals are in a small correction of a major long term bull market which is the inevitable collapse of the currency system. Gold might come down initially with stocks by $100 or so but the next major move of gold up will be both substantial and long term.

Remember that physical precious metals must be owned, not as a speculative investment, but as the best form of wealth preservation you can hold.

By Zerohedge.com

More Top Reads From Oilprice.com:

Tom Nolan · July 18, 2022

EXCERPT

When you boil it all down, inflation is the loss of a currency’s purchasing power.

FROM...

https://www.zerohedge.com/personal-finance/peter-schiff-tale-two-dollars

SUZNV · July 18, 2022

On 7/11/2022 at 12:40 AM, Andrei Moutchkine said:

Commodity exchanges, and a bunch of other trading enterprises of various stripes, hold physical gold for clearance purposes. Or supposed to, at least. There is a "paper gold" which is 1:1 to physical. It is called a warehouse receipt to the said "locker" Also the main mechanism how US/UK hemorrhage gold, as those have been taken out of the country and used as collateral. Which is why they also used values that are actually much higher than physical gold itself. None of those contradicts the quotations being in dollars or whatnot, but the clearing is in gold.

I think, this time around, the dollar and euro are broken. No longer useful reserve currencies. I mean, after wanton theft of Russian assets, nobody trusts them anymore. I hear Chinese and Arab capital is fleeing USA. Dunno about Venezuela, but Iran will be rolling in dough soon enough. Now that they are effectively in a free trade zone with entire Russia/EAC, the sanctions on them don't do much. Turkey is also in, albeit for more complicated reasons. Something like that

https://www.reuters.com/markets/commodities/exclusive-how-an-indian-cement-maker-bought-russian-coal-using-yuan-2022-07-07/

These countries you are mentioning what they need is USD to buy back their currencies and pay their USD debt to slow down inflation for their people because they are doing just as much "printing" but didn't do much "tightening". When people didn't trust US dollars, they wouldn't trust anyone to do the gold custody but their countries for these clearing houses and won't trust each other currency as well. And because transferring money nowadays is only on ledger system, not physical money, or they do the same kind of gold keeping ledger, or they have to physically shipping gold around on US guarded sea. Ultra inconvenient and require the trust of US will let that ship of gold pass, but if is the case, why would not' they keep using US dollars and push the dollars out of their hands ASAP to buy what they want. The current situation they try to use other currencies because USD is too expensive to have a hand on, with higher interest rate than before, which increase risk for both borrowers and lenders. As the medium of exchange, gold is out of the question because of its liquidity and the real medium of exchange to settle in the Eurodollar system is US treasury bonds/notes/bills (not physical USD).

Again, it is not US printing paper USD and distributing around the world. USD "printing" nowadays any foreign institutions can do it via loan as long as they satisfy Basel3 accounting rules with assets, with the most "safe" assets are US, Japan, Euro treasury bonds and with basel 3, gold and among them, US treasury bill still be the most prestige. It is not they physically hold these treasury bills, but the US treasury will label who their creditors are (but won't know if these bills are rehypothecation how many times). Fed tried to introduce US bank reserve (not USD) to oversea since 2018 with SWAP agreement to increase the liquidity but seems nothing much so far.

See, I trust gold more than any government, but still keep it as minimal as an no counter party risk insurance for retirement in case of USD hyperinflation than when in recession and USD is up, it doesn't have any help in my USD car loan, or mortgage or credit cards in recession time. The developing countries are in the same situation.

That precisely some bitcoin maximalists consider bitcoin as the value of trust in long run than speculation in short run. Everyone is trapped with USD otherwise. No one have a clue on how to solve this and the Central Banks & politicians are trying to issue CBDCs to isolate the cost of basic needs, UBI, with asset prices so they can keep their public servants jobs and more controls. They tried to reset the current debt situation and promised you be happy even if you own nothing, sound like Buddhism Elder to me, the only uneasy part is they consider themselves The One who can solve every problem until they mess up big.

Andrei Moutchkine · July 25, 2022

On 7/18/2022 at 9:51 PM, SUZNV said:

These countries you are mentioning what they need is USD to buy back their currencies and pay their USD debt to slow down inflation for their people because they are doing just as much "printing" but didn't do much "tightening". When people didn't trust US dollars, they wouldn't trust anyone to do the gold custody but their countries for these clearing houses and won't trust each other currency as well. And because transferring money nowadays is only on ledger system, not physical money, or they do the same kind of gold keeping ledger, or they have to physically shipping gold around on US guarded sea. Ultra inconvenient and require the trust of US will let that ship of gold pass, but if is the case, why would not' they keep using US dollars and push the dollars out of their hands ASAP to buy what they want. The current situation they try to use other currencies because USD is too expensive to have a hand on, with higher interest rate than before, which increase risk for both borrowers and lenders. As the medium of exchange, gold is out of the question because of its liquidity and the real medium of exchange to settle in the Eurodollar system is US treasury bonds/notes/bills (not physical USD).

Again, it is not US printing paper USD and distributing around the world. USD "printing" nowadays any foreign institutions can do it via loan as long as they satisfy Basel3 accounting rules with assets, with the most "safe" assets are US, Japan, Euro treasury bonds and with basel 3, gold and among them, US treasury bill still be the most prestige. It is not they physically hold these treasury bills, but the US treasury will label who their creditors are (but won't know if these bills are rehypothecation how many times). Fed tried to introduce US bank reserve (not USD) to oversea since 2018 with SWAP agreement to increase the liquidity but seems nothing much so far.

See, I trust gold more than any government, but still keep it as minimal as an no counter party risk insurance for retirement in case of USD hyperinflation than when in recession and USD is up, it doesn't have any help in my USD car loan, or mortgage or credit cards in recession time. The developing countries are in the same situation.

That precisely some bitcoin maximalists consider bitcoin as the value of trust in long run than speculation in short run. Everyone is trapped with USD otherwise. No one have a clue on how to solve this and the Central Banks & politicians are trying to issue CBDCs to isolate the cost of basic needs, UBI, with asset prices so they can keep their public servants jobs and more controls. They tried to reset the current debt situation and promised you be happy even if you own nothing, sound like Buddhism Elder to me, the only uneasy part is they consider themselves The One who can solve every problem until they mess up big.

I think USD is candy wrappers. They've done it now. Cash that has some kind of additional circulation restrictions and can be cancelled retroactively is no longer cash. Why would anybody trust it anymore? See that there is a bit of selloff of US treasures outside the "first world" already.

https://ticdata.treasury.gov/Publish/mfh.txt

In general, you don't need a specific intermediate currency at all if you work with currency pairs, a rational. This way, the spread is zero. Currency traders have been doing that all along.

Andrei Moutchkine · July 25, 2022

On 7/11/2022 at 1:24 PM, SUZNV said:

I do know about these Commodity exchanges, there is 2 type: allocated and unallocated paper gold contracts. The locker type is the allocated one. The only problem with that is you have to trust the custody completely + the manipulated gold price is the solid evidence. 1: If you can trust US/UK gold custodies, then you can trust the US/UK treasuries themselves. 2: the gold price itself was manipulated 1:100 so why bother with trading with petrol gold lockers with oil price is nominated by USD? Allocated gold is simply another paper market with promised delivery if requested. The custodies can even rent gold from somewhere else to pass the auditing. Search for JPMorgan Gold Spoofing.

The name eurodollar confuses you that is about Euro and Dollar. Eurodollar only means the system of issuing dollars loan using US treasuries as collateral outside of the US,aka offshore USD printing and out of control from the FED, invented in Western Europe after Bretton Woods which made US the world reserve currency and pegged in Gold (ever wonder why the standard of this names Basel?). This system had existed and expanded long before Euro Zone and Euro were created. Sometimes I wonder if the petrol dollar or conspiracy theory myths were advocated by US media because it made the world believe FED is still in control and therefore make Fed "tools" more psychology more efficient.

The Russia financial sanction is more about Western political clowns are trying to deceive their voters. They try to show public they have morale while trying to create as much backdoor as possible otherwise the economy will collapse after decades of political will in Green energy, especially Euro zone after decades of advocating Green Energy (now even nuclear and natural gas are marked Green). If we disregard about the suffering of Ukraine people, it is a wise calculating of Putin except history proves many times things not always going according to plan.

The article you quoted is just one example of it. I can give you better example is India is buying cheap oil from Russia in Yuan as well, and then refine it to fuel and diesel and then selling final product out to international market and lots of Western political clowns secretly thanks India for that. All they need to do is pretend hey, it is India free will and nothing they can do about it. It is how Western politics work.

It is not an example of a failed eurodollar system while Yuan is not performing well comparing to USD and CCP do exactly the same money printing like Western counterparts (even worst in local gov and private debts).

Same story US admin team allows South East Asia countries as a bridge for China goods, especially in solar panel.

I don't like the financial sanction, but technically in war, even a proxy one like Ukraine, it is common sense to utilize all the financial weapon you can have. Western politicians will have to show the public they are doing something damaging to reputation and economy in the name  of their morale and claim the failure in the Economy to Putin (and covid to China).

The most effective long sanction part is the technology parts. Even China doesn't have the technical availability for complicated oil extracting maintaining service for Easter Siberia or high end chips. Why Venezuela suffers from sanction with that much amount of oil? Because they are lacking of extracting equipment with the highest productivity.  Same long term prospect for Russia oil and mining industry.

With the USD rate in the rise, naturally foreign reserves in developing countries are draining and they try to secure as much USD as possible to pay back eurodollar debts as rolling over with higher interest rate is not a good option. This will temporarily cause the capital flight out of US which pushed the price of US assets down, which will reduce the wealth effect and slower inflation rate (with a recession following) but consider US is the consumption market of the world, elsewhere wouldn't look much better. But have you consider how many investors outside of US is accumulating USD and waiting to buy US assets with a bargain? In the recession world, the safest assets seems to be the USD to short other devaluation currencies.

How many countries will have the ability to pay back debt for China's Belt and Road debt trap but defaulting like Sirilanka (which Russia-Ukraine war is a direct squeeze in both oil price and the interruption of Road part). China in desperate needs for USD now face a risk of defaulting which is much worst than US capital flight as it will never coming back. Start printing money when Fed increase rate and Quantify tightening, yuan will only a medium of exchange rather than keep them for long,  and the same story with buying Chinese bonds. I speculate anyone who encouraging people to invest in China since last summer simply try to sell their hot potato.

I don't see how they can reset the eurodollar debt bubble either. We are exploring uncharted territories. I don't think anyone can plan in this decentralized world without some surprising unintended consequences, we have countless examples in history for this.

You cannot clear several millions USD instantaneously. The fastest it gets is overnight.

I think the custodians were all right, while it lasted. This form of paper gold actually started acquiring a life of its own when used as a loan collateral in Europe. Actually, started to cost more than physical gold. (The German legislative wasted a considerable effort trying to invent a way to attach a VAT to those transactions) Maybe this is why the US commodity exchanges are running short on gold?

I don't think electronic dollars ever actually leave the US, regardless how they are issued. I am only aware of the EU issuing dollar-denominated bonds, though. Basel is called Basel because this is where the BIS is?

How stupid do they think the electorate is? Putin seems a near-omnipotent being, if you listen to them.

The Chinese know an old Soviet "unit of accounting" trick. That is, not all yuan are created the same. This could be very useful. (I think the actual invention goes to revolutionary France and made them very, very rich)

Don't think this

https://en.wikipedia.org/wiki/Unit_of_account

explains jack. It really is alien to American style finance. There is a capital flight TO USD from EUR and other "1st world currencies" now. Otherwise, the heck away from it, due to loss of trust.

You are not up-to-date. Russia and China are no Venezuelas. Chinese SMIC reports shipping a 7nm process, which is about the latest gen. (any equipment for under 28nm is under US sanctions) Venezuelan oil is extra heavy, and cannot be extracted without mixing in a significant portion of lighter oil coming from elsewhere. Russia does not have this problem. Hypothetically, they may lack in exploration software like what Schlumberger or Haliburton provides. Or not. Everything else related to oil exploration they do have domestically, even offshore rigs of late.

Actually, Sri Lanka owes more to US than it does to China. Also with higher interest and shorter term. Now is the time to refinance in China? (Will have to wait for some form of a new government) The Russian-Ukrainian squeeze is more of a story for local consumption, because this is where most of their tourists came from. Russian grain and oil is still available for shipping to Sri Lanka, all you have to do is to pay.

Yes, the Indian traders are making a killing on Eurofags playing hard to get. Not only on oil, but pretty much everything. Suddenly, much new spruce must have sprung up in India, for all the timber they offer. Apparently, rubles are now acceptable with HK and Singapore banks.

Andrei Moutchkine · July 25, 2022

On 7/18/2022 at 1:28 PM, Tom Nolan said:

https://oilprice.com/Energy/Energy-General/Fake-Money-Is-Fueling-A-Very-Real-Debt-Crisis.html

Fake Money Is Fueling A Very Real Debt Crisis

By ZeroHedge - Jul 17, 2022, 12:00 PM CDT

Soaring global debt has pushed investors into new assets to preserve their wealth.

Total global debt including derivatives and unfunded liabilities is over $3 quadrillion.

Commodities such as food and energy and many raw materials like precious metals could go up exponentially, and paper assets like stocks, bonds, and bitcoin could implode.

Join Our Community

Fool’s Gold comes in many guises, whether it is in fake paper money, Ponzi investment schemes, fake and manipulated gold derivatives, Bitcoin, or just fake gold discoveries in Uganda, all of which are discussed in this article.

‘The tendency of an inconvertible paper money is to create fictitious wealth, bubbles, which by their bursting, produce inconvenience.’ – Lord Liverpool 1810 (UK Prime Minister 1812-27)

The elegant and understated courtesy of the English is well known. “Inconvenience” is for an early 19th-century aristocrat what a modern Englishman today would call a “bloody mess.“

Confucius described this trait 2,500 years ago:

“The noble-minded are calm and steady. Little people are forever fussing and fretting.” – Confucius

As we know from history, paper money doesn’t just cause an inconvenience, as Lord Liverpool said, but a collapse of the monetary system and of the economy involved.

In today’s decadent and morally bankrupt world, leaders tend to be “fussing and fretting little people” who frantically “create fictitious money and wealth”. This is why, as we enter the final stage of this era, we will see more sackings of leaders (Boris Johnson), assassinations (Abe), and escapes (Gotabaya Rajapaksa, Sri Lanka President).

Social unrest and civil wars will sadly be commonplace too.

The combination of weak leaders and fake money is a fitting end to a major economic cycle. It actually couldn’t end in any other way.

But the world has of course not yet seen the end of the current era, which started with private bankers taking control of the US monetary system in 1913.

Some of us believe we have a good idea of how this will all end, but only future historians and other observers will tell us the exact course of events.

The Austrian economist Ludwig von Mises gave us a very likely outcome of how the financial system will end:

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

IMPOSSIBLE FOR CENTRAL BANKERS TO TURN OFF THE MONEY SPIGOTS

Von Mises first alternative of a voluntary abandonment is of course totally unacceptable to current governments and central bankers. Don’t believe for one moment that Powell or Lagarde would contemplate turning off the tap that has kept them and their money-forging friends in power for decades.

Yes, they will make gestures like the Fed is now attempting with QT (quantitative tightening). So the balance sheet of the Fed has come down $70 billion since mid-March – BIG DEAL!

That’s a 0,7% reduction in 3 1/2 months for a balance sheet that has grown by 240% or $5.3 trillion since end of August 2019. In 2006 the Fed balance sheet was $900 billion and today it is $9 trillion, a mere 10-fold increase.

Let’s just remind ourselves that the current problems in the world did not start with Covid in early 2020, but with irreparable damage to the financial system which central banks couldn’t conceal beyond August 2019.

The beginning of the end of this 100+ year financial era was the Great Financial Crisis -GFC- which started in 2006.

As I have illustrated in many articles, the cast producing this damage to the financial system changes, but their actions are all the same. Through the privately owned Fed, they are all working for their own “charitable” purpose of personal gain and control for the private bankers.

AFTER US THE FLOOD

After Us The Flood is what Louis XV's mistress Madame de Pompadour told the French King after they lost a critical battle against Prussia in the 18th century. That event was the beginning of the downfall of France and the French Revolution.

AFTER US THE FLOOD – Après Nous Le Déluge

Since 2006, the balance sheets of the major central banks (Swiss National Bank, Bank of China, Bank of Japan, ECB, Fed) have grown exponentially from under $5 trillion to $36 trillion – a 7-fold increase!

GLOBAL DEBT UP 200X SINCE 1971 AND GOING TO 2,000X

But we must remember that irresponsible debt-creating central banks are only part of the problem. The real money printers are the commercial banks. So if we look at total global debt, it has grown from $100 trillion in 2000 to $300 trillion today. In 2006 (not shown) total global debt was $120 trillion.

As the graph below shows, total global debt including derivatives and unfunded liabilities is over $3 quadrillion. When the financial system crashes, these derivatives will prove worthless as counterparties fail and the central banks will print $2-3 quadrillion in a futile attempt to save the banks and the system.

Sensible historic comparisons are no longer possible since the debt creation folly of the last 50 years is totally unprecedented in history.

In 1971, when Nixon closed the gold window, global debt was $1.5T.

After 50 years of irresponsible monetary policies, debt has grown 200X. When we reach a total debt of $3 quadrillion in the next 5 to 10 years, with the assistance of the derivative collapse, the increase will be 2,000X since 1971.

I can hear some people calling this sensational scaremongering. But I am sure that these people would have said the same about the 200X debt expansion since 1971.

THE COMING EXPONENTIAL MOVE WILL BE TERMINAL

Also, it is important to understand how exponential moves happen. I explained this in an article from 2017 called “Only Contrarians Will Survive”

In that article I illustrated that exponential moves really move exponentially and that they are terminal:

“Imagine a football stadium which is filled with water. Every minute one drop is added. The number of drops doubles every minute. Thus it goes from 1 to 2, 4, 8 16 etc. So how long would it take to fill the entire stadium? One day, one month or a year? No it would be a lot quicker and only take 50 minutes! That in itself is hard to understand but even more interestingly, how full is the stadium after 45 minutes? Most people would guess 75-90%. Totally wrong. After 45 minutes the stadium is only 7% full! In the final 5 minutes the stadium goes from 7% full to 100% full.”

So for the same reason, debt is likely to grow exponentially in the next 5-10 years, as the world experiences hyperinflation. But we must also remember that as commodities such as food and energy plus many raw materials like precious metals go up exponentially, all the bubble assets (stocks, bonds, and property) will implode in real terms. See my recent article “Concurrent Deflation and Hyperinflation Will Ravage The World”

We could of course blame Nixon for the debt disaster that the world is now in. But that would be too simple. Governments have throughout history interfered with the laws of nature and the simple law of supply and demand.

As clueless central bankers (and before that governments) interfere in the natural ebb and flood waves of the economy, these natural cycle movements become extreme tops and bottoms. These excessive moves lead to speculative asset and credit bubbles (inflation/hyperinflation) followed by a deflationary collapse or implosion just as von Mises said (see quote above).

As I explain above, it is totally natural that the end of major cycles creates exponential moves, as we have experienced in this century in both debt and assets such as stock and property.

But what few people realize is that the frantic money printing and debt creation that has taken place in this century indicate the end of a 100-year-old monetary era.

The next few years will be like the final 5 Stadium minutes when the debt goes up exponentially by, say, 14X (the Stadium going from 7% to 100% full) before it all collapses.

CRYPTOS – FOOL’S GOLD

These final moves also lead to the creation of instruments that become “fool’s gold”.

In my view, cryptocurrencies are a form of fool’s gold. Cryptos might have been a wonderful speculative investment for a few investors, but many who entered late have experienced losses of 70 to 90% so far.

As far as I am concerned, and the investors we advise, cryptos have nothing to do with wealth preservation and will certainly never replace gold. Bitcoin is a binary investment that might go to $1 million but it could just as well go to ZERO, so obviously not a good risk.

“Blockchain is a fraud” – Brazilian professor

A Brazilian Professor of computer science, Jorge Stolfi, tweeted in May this year:

“Every computer scientist should be able to see that cryptocurrencies are totally dysfunctional payment systems and that “blockchain technology” (including “smart contracts”) is a technological fraud.”

Stolfi explains how he and 1,500 specialists, including Harvard lecturers and Google’s principal Cloud engineer, delivered a critical letter to the US congress, warning about cryptocurrencies.

He explains in an interview why cryptos are a pyramid scheme similar to Madoff.

Stolfi: “These pyramid schemes collapse when there are no more fools to fool.”

He also says that Bitcoin won’t exist in 20 years. He calls blockchain a technological fraud that can never be used as a payment system, due to its snail processing speed compared to Visa for example.

El Salvador and Fool’s Gold

El Salvador clearly believed in Fool’s Gold as they announced last year that they would be the first country to accept Bitcoin as legal tender. They were also going to fund the project by issuing $1 billion in bonds secured with Bitcoin. That project is obviously delayed after BTC fall of 2/3. Bitcoin City would be built and would have no taxes except VAT. And now it seems the City would have no revenues either after the BTC losses.

Sounds like Shangri-la turned to hell to me. Sadly for them, they have lost more on their BTC purchases than the country can afford to lose and their debt is now JUNK.

All the Bitcoiners who hailed El Salvador as the future model of money and went there on Pilgrimages are now very quiet.

Well, Ponzi schemes always collapse without fail and it seems that this might be the destiny of Bitcoin and other Cryptos. Most of them are down 70% or more on their way to oblivion.

We will certainly stick to physical gold!

Fool’s Gold in Uganda

So Uganda has officially declared that they have discovered 31 million tonnes of gold ore deposits, which is expected to produce 320,000 tonnes of refined gold!

Let’s remind ourselves that all the gold ever mined in history is around 190,000 tonnes. So this find would treble the gold in the world.

Sounds to me like another Fool’s Gold story. Uganda is quite notorious for corruption and fraud. They clearly hope to borrow major amounts of money based on this so-called find, which is in no way properly proven or documented.

Or maybe this comes from the Bitcoin crowd. They are of course elated by this “fake” gold discovery since it makes BTC much more unique with a limit of 21 million coins issued.

Or could the Ugandan government have confused tonnes with ounces?

STOCK MARKETS FOOL’S GOLD – COLLAPSE IMMINENT

Current asset markets and especially stocks have also turned into fool’s gold. Investors now believe that stocks can only go up and that the Fed and other central banks will be there to save them indefinitely. How shocked these investors will soon be!

As I often say, forecasting markets is a mug’s game and that is why we prefer to focus on risk. And as I outlined in my last article, (“The Implosion Will Be Fast, Hold Onto your Seats”) risk is now extreme, both fundamentally and technically.

Most stock markets in the world are already down 20-30% in 2022. What few investors realize at this stage is that the fall we have seen so far is not just a normal correction but the beginning of a long-term secular bear market with dramatic falls to come.

Technically it looks like the next major fall is imminent. So protecting risk by being out of stocks is strongly advisable.

Precious metals are in a small correction of a major long term bull market which is the inevitable collapse of the currency system. Gold might come down initially with stocks by $100 or so but the next major move of gold up will be both substantial and long term.

Remember that physical precious metals must be owned, not as a speculative investment, but as the best form of wealth preservation you can hold.

By Zerohedge.com

More Top Reads From Oilprice.com:

Why Biden Could Come Back From Saudi Arabia Empty-Handed

ESG Funds Reel As Investors Pile Into Energy And Defense Stocks

Boris Johnson Resigns As Energy Crisis Worsens And Scandals Mount

Cryptocurrencies were never intended as a vehicle of wealth accumulation, only as a better medium of exchange. If you "invest" into them, you are on your own. (Having said that, I profiteered dandily from spare crypto change lying around myself. Over a sufficiently long period of time, it grew a lot) Any kind of spare cash, crypto or not, is supposed to be a crap investment.

Edited July 25, 2022 by Andrei Moutchkine

SUZNV · July 26, 2022

16 hours ago, Andrei Moutchkine said:

You cannot clear several millions USD instantaneously. The fastest it gets is overnight.

I think the custodians were all right, while it lasted. This form of paper gold actually started acquiring a life of its own when used as a loan collateral in Europe. Actually, started to cost more than physical gold. (The German legislative wasted a considerable effort trying to invent a way to attach a VAT to those transactions) Maybe this is why the US commodity exchanges are running short on gold?

I don't think electronic dollars ever actually leave the US, regardless how they are issued. I am only aware of the EU issuing dollar-denominated bonds, though. Basel is called Basel because this is where the BIS is?

How stupid do they think the electorate is? Putin seems a near-omnipotent being, if you listen to them.

The Chinese know an old Soviet "unit of accounting" trick. That is, not all yuan are created the same. This could be very useful. (I think the actual invention goes to revolutionary France and made them very, very rich)

Don't think this

https://en.wikipedia.org/wiki/Unit_of_account

explains jack. It really is alien to American style finance. There is a capital flight TO USD from EUR and other "1st world currencies" now. Otherwise, the heck away from it, due to loss of trust.

You are not up-to-date. Russia and China are no Venezuelas. Chinese SMIC reports shipping a 7nm process, which is about the latest gen. (any equipment for under 28nm is under US sanctions) Venezuelan oil is extra heavy, and cannot be extracted without mixing in a significant portion of lighter oil coming from elsewhere. Russia does not have this problem. Hypothetically, they may lack in exploration software like what Schlumberger or Haliburton provides. Or not. Everything else related to oil exploration they do have domestically, even offshore rigs of late.

Actually, Sri Lanka owes more to US than it does to China. Also with higher interest and shorter term. Now is the time to refinance in China? (Will have to wait for some form of a new government) The Russian-Ukrainian squeeze is more of a story for local consumption, because this is where most of their tourists came from. Russian grain and oil is still available for shipping to Sri Lanka, all you have to do is to pay.

Yes, the Indian traders are making a killing on Eurofags playing hard to get. Not only on oil, but pretty much everything. Suddenly, much new spruce must have sprung up in India, for all the timber they offer. Apparently, rubles are now acceptable with HK and Singapore banks.

You can using multilayer to make the chip smaller with severe complication and limited room to improvement + lose the speed of producing mass amount of chip. China can achieve this via using multi layer + a bunch of US technology. This is why China can provide only around 25% of its chips demand, especially high end chips. Can do it but not scalable and hard to go far.

I don't know where your idea about capital flight out of US came from. Maybe with some countries like China but most of the capital flight back to US currently when USD is up compares to other currency.

Changing label in gold custody doesn't guarantee physical deliver on US control international water, who will have enough credit for custody of Western's rivals?. From large bank to large bank the electronic is instantly but it took a few day to show on your account because it is doing in batch. Do you think every small business will need a gold a account and trust to do that?

Andrei Moutchkine · July 26, 2022

8 minutes ago, SUZNV said:

You can using multilayer to make the chip smaller with severe complication and limited room to improvement + lose the speed of producing mass amount of chip. China can achieve this via using multi layer + a bunch of US technology. This is why China can provide only around 25% of its chips demand, especially high end chips. Can do it but not scalable and hard to go far.

I don't know where your idea about capital flight out of US came from. Maybe with some countries like China but most of the capital flight back to US currently when USD is up compares to other currency.

Changing label in gold custody doesn't guarantee physical deliver on US control international water, who will have enough credit for custody of Western's rivals?. From large bank to large bank the electronic is instantly but it took a few day to show on your account because it is doing in batch. Do you think every small business will need a gold a account and trust to do that?

Ha! If you look closer, you will see that the overwhelming majority of every modern chip's area is wasted on caches, which is just SRAM. All of that just because of the "memory wall" (DRAM being orders of magnitude slower / not getting any faster) Now, go productiize any of the fast RAM technologies that are no slower than logic, and all that crap goes by the way of the dodo. The transistor counts drop a couple of orders of magnitude across the board right there.

Another impediment is the iterative programming paradigm. Native vector machines need no caches. Say, the Cray-1 used a 128-way memory interleave (think 128 RAM banks in parallel) to have a memory in sync with the CPU at like 20 Mhz 32-bit. Today, that'd be the GPUs like Nvidia and AMD. (If they weren't such morons and supported anything better than single precision floats. They do develop towards a more general-purpose vector paradigm with the time, though)

Multi layer being difficult is also a paradigm specific for makers of logic only. Flash guys do it with abandon. They are at what, like 96 layers now?

And DRAM guys are stuck

https://www.micron.com/about/blog/2021/january/inside-1a-the-worlds-most-advanced-dram-process-technology

that still looks like 19 nm if you ask me. That trench capacitor is a bitch. I think actually the fastest piece of RAM I've got is a DDR2. It's the only one to get <12 ns latency. Very difficult to find parts for this bin, and it's been like that for the last 20-30 years. And so it is everywhere. Contrary to popular belief, the computers haven't been getting really faster much lately. They've been doing more identical tasks at once, but it is not quite the same thing. So, all this crud can fall by wayside in a second. I give you an example of such a disruptive technology. Once upon a time, they got a couple of Russian guys in who invented this thing to US

https://en.wikipedia.org/wiki/Rapid_single_flux_quantum

Which is basically the first working natively superconductor logic family. The Russian guys were using it to build analog devices called SQUIDs before. They gave them the standard CPU design textbook (Patterson & Hennessy) and they made the industry standard "my first student CPU" with it. Which happens to be a MIPS R3000 or whereabouts, which Wiki informs us is about a 125,000 gate design. (already, mostly cache I think) Only that they could clock it at something like a Thz and it benched about petaflop. The first official Top500 machine which benched a petaflop was the IBM Roadrunner, with, let's see, 12,960 Cell CPUs. (some kind of PlayStation) Ever since, such a nifty device generally remains shelved. Why that is? Because a petaflop machine needs at least a petabyte/s memory bandwidth to do anything useful, and nobody has figured out how to connect that much RAM to a single CPU yet. This can come back in no time.

Don't think that the Russians are buying into the bullshit gospel about the lithography gap being insurmountable ever again. Because USSR gobbled it up once, while being only a couple of years behind. Much less so than Russia is today, on the face of it. Then, for example, the original Berkeley RISC came along and kicked all the industry out of the water for a couple of years. It was made using a student fab at Stanford, which was nowhere near the best Soviet grade. Another hypothetical scenario. Everybody abandons silicon and goes full into GaN. The advantages are multiple. The scale of integration of that stuff is currently like replacing 6 discrete parts with one. Now, that stuff is thin film deposition, not lithography. The thin film guys like AMAT are obviously angling to match the resolution with CPUs. This is why you are getting a "Retina" display on your iPhone which got more pixels that you can really use. Got to help the community. The basic rule of Silly Valley is that billions invested into yesterday's tech may be a competitive advantage today, but is a deadweight dragging you down tomorrow. Get used to it.

USD being up or down is only useful as instantaneous measurement, because you don't see the money supply. Nonetheless, assuming all the money printing in the "first world" is coordinated, there is indeed, a capital flight from other "reputable countries" to US right now. So, how come are all of your markets are so badly down right now? Could it be that you've got some somewhat less-than-reputable customers, who aren't exactly Russians, but have also been similarly naughty? What is to prevent them being expropriated next, now that ad hoc moral judgements are game for it? (There sure as heck is absolutely no resemblance of any kind of rule of law behind any of this) Look at the extreme example of ruble, which has been growing against the dollar. They just had to slash the interest rates again, from 9.5% to 8%, because there is actually a small amount of DEFLATION now. Meaning, ruble current accounts will be gaining around 8% a year. This is where your interest rates should be, because this is where your current inflation is. You cannot afford this, though, because the entire pile of debt will come crashing down big time.

Well, I think the particular trick with warehouse receipts to NYMEX gold store only worked for banks that had a broker there anyway. It did completely destroy the liquidity in the American gold trading. Presumably, all the gold is now in Shanghai, backing up the bulging petroyuan? I don't really know this. What I do know that it is absolutely impossible in German/continental law for a warehouse receipt to have a different value than the principal. Ditto for other "traditional securities" like the bill of lading. That is, they are no derivatives

https://de.wikipedia.org/wiki/Traditionspapier

(Note the solitude of the article. The Nazis are sulking an Anglo-Saxon pig dogs breaking their stuff) In US, the securities are generally entities of contract law. That is, anything goes if the other party to the contract is stupider than you. In Europe, not so much. All the securities are special entities, the oldest of which goes back to the Laws of Hammurabi

https://en.wikipedia.org/wiki/Bottomry

(this is the one they should've used for those fertilizers in Beirut) In German case, the whole stuff gets very beautiful and elaborate. It is a polymorphic inheritance OOP framework, except made on paper. Supposedly, Napoleon's Academy of Sciences was making experiments on the Germans. So, in Germany, even a subway ticket is a special bearer security, which you can use to derive the rights of the dudes controlling the tickets to beat you up! Elsewhere, like here in Austria, they'll just beat you up with no legal basis whatsoever if you haven't got one As far as the all important question of where do they get to apply the magic VAT, the Austrians replaced the tomes Germans wrote on the subject with a single weaselly sentence like "we reckon those are not subject to VAT as long as they are in custody of authorized parties" This does not make it any easier, BTW. No VAT = Zahlungsmittel = cash equivalent instrument. There is a similar confusion with respect to transacting in BTC now, of course. BTC generates no taxes and is therefore valid cash, somehow. Alternatively, it does not generate any obvious added value either

SUZNV · July 26, 2022

2 hours ago, Andrei Moutchkine said:

Ha! If you look closer, you will see that the overwhelming majority of every modern chip's area is wasted on caches, which is just SRAM. All of that just because of the "memory wall" (DRAM being orders of magnitude slower / not getting any faster) Now, go productiize any of the fast RAM technologies that are no slower than logic, and all that crap goes by the way of the dodo. The transistor counts drop a couple of orders of magnitude across the board right there.

Another impediment is the iterative programming paradigm. Native vector machines need no caches. Say, the Cray-1 used a 128-way memory interleave (think 128 RAM banks in parallel) to have a memory in sync with the CPU at like 20 Mhz 32-bit. Today, that'd be the GPUs like Nvidia and AMD. (If they weren't such morons and supported anything better than single precision floats. They do develop towards a more general-purpose vector paradigm with the time, though)

Multi layer being difficult is also a paradigm specific for makers of logic only. Flash guys do it with abandon. They are at what, like 96 layers now?

And DRAM guys are stuck

https://www.micron.com/about/blog/2021/january/inside-1a-the-worlds-most-advanced-dram-process-technology

that still looks like 19 nm if you ask me. That trench capacitor is a bitch. I think actually the fastest piece of RAM I've got is a DDR2. It's the only one to get <12 ns latency. Very difficult to find parts for this bin, and it's been like that for the last 20-30 years. And so it is everywhere. Contrary to popular belief, the computers haven't been getting really faster much lately. They've been doing more identical tasks at once, but it is not quite the same thing. So, all this crud can fall by wayside in a second. I give you an example of such a disruptive technology. Once upon a time, they got a couple of Russian guys in who invented this thing to US

https://en.wikipedia.org/wiki/Rapid_single_flux_quantum

Which is basically the first working natively superconductor logic family. The Russian guys were using it to build analog devices called SQUIDs before. They gave them the standard CPU design textbook (Patterson & Hennessy) and they made the industry standard "my first student CPU" with it. Which happens to be a MIPS R3000 or whereabouts, which Wiki informs us is about a 125,000 gate design. (already, mostly cache I think) Only that they could clock it at something like a Thz and it benched about petaflop. The first official Top500 machine which benched a petaflop was the IBM Roadrunner, with, let's see, 12,960 Cell CPUs. (some kind of PlayStation) Ever since, such a nifty device generally remains shelved. Why that is? Because a petaflop machine needs at least a petabyte/s memory bandwidth to do anything useful, and nobody has figured out how to connect that much RAM to a single CPU yet. This can come back in no time.

Don't think that the Russians are buying into the bullshit gospel about the lithography gap being insurmountable ever again. Because USSR gobbled it up once, while being only a couple of years behind. Much less so than Russia is today, on the face of it. Then, for example, the original Berkeley RISC came along and kicked all the industry out of the water for a couple of years. It was made using a student fab at Stanford, which was nowhere near the best Soviet grade. Another hypothetical scenario. Everybody abandons silicon and goes full into GaN. The advantages are multiple. The scale of integration of that stuff is currently like replacing 6 discrete parts with one. Now, that stuff is thin film deposition, not lithography. The thin film guys like AMAT are obviously angling to match the resolution with CPUs. This is why you are getting a "Retina" display on your iPhone which got more pixels that you can really use. Got to help the community. The basic rule of Silly Valley is that billions invested into yesterday's tech may be a competitive advantage today, but is a deadweight dragging you down tomorrow. Get used to it.

USD being up or down is only useful as instantaneous measurement, because you don't see the money supply. Nonetheless, assuming all the money printing in the "first world" is coordinated, there is indeed, a capital flight from other "reputable countries" to US right now. So, how come are all of your markets are so badly down right now? Could it be that you've got some somewhat less-than-reputable customers, who aren't exactly Russians, but have also been similarly naughty? What is to prevent them being expropriated next, now that ad hoc moral judgements are game for it? (There sure as heck is absolutely no resemblance of any kind of rule of law behind any of this) Look at the extreme example of ruble, which has been growing against the dollar. They just had to slash the interest rates again, from 9.5% to 8%, because there is actually a small amount of DEFLATION now. Meaning, ruble current accounts will be gaining around 8% a year. This is where your interest rates should be, because this is where your current inflation is. You cannot afford this, though, because the entire pile of debt will come crashing down big time.

Well, I think the particular trick with warehouse receipts to NYMEX gold store only worked for banks that had a broker there anyway. It did completely destroy the liquidity in the American gold trading. Presumably, all the gold is now in Shanghai, backing up the bulging petroyuan? I don't really know this. What I do know that it is absolutely impossible in German/continental law for a warehouse receipt to have a different value than the principal. Ditto for other "traditional securities" like the bill of lading. That is, they are no derivatives

https://de.wikipedia.org/wiki/Traditionspapier

(Note the solitude of the article. The Nazis are sulking an Anglo-Saxon pig dogs breaking their stuff) In US, the securities are generally entities of contract law. That is, anything goes if the other party to the contract is stupider than you. In Europe, not so much. All the securities are special entities, the oldest of which goes back to the Laws of Hammurabi

https://en.wikipedia.org/wiki/Bottomry

(this is the one they should've used for those fertilizers in Beirut) In German case, the whole stuff gets very beautiful and elaborate. It is a polymorphic inheritance OOP framework, except made on paper. Supposedly, Napoleon's Academy of Sciences was making experiments on the Germans. So, in Germany, even a subway ticket is a special bearer security, which you can use to derive the rights of the dudes controlling the tickets to beat you up! Elsewhere, like here in Austria, they'll just beat you up with no legal basis whatsoever if you haven't got one As far as the all important question of where do they get to apply the magic VAT, the Austrians replaced the tomes Germans wrote on the subject with a single weaselly sentence like "we reckon those are not subject to VAT as long as they are in custody of authorized parties" This does not make it any easier, BTW. No VAT = Zahlungsmittel = cash equivalent instrument. There is a similar confusion with respect to transacting in BTC now, of course. BTC generates no taxes and is therefore valid cash, somehow. Alternatively, it does not generate any obvious added value either

1st, RAM is the most lag behind in chip tech in term for size for Integrated circuit. If there is truly an advantage in new technology then who would have the capital to invest in?

Second, modern chip nowadays go through a heavily capitalized supply chain of more than 20 countries from the raw material to equipment to final designs for cost JIT optimization + expertise in applications which TSMC and Samsung are the best non-US example. Both Russia and China plan to replace this supply chain by themselves with shared technologies like Open Source Code in programing? If that is the case, all the Western need to do is use it and put the capital in or offer relatively more freedom to Russia or China engineers. Rome was not built in a day. US is lag behind in fabricating skill TSMC have so it is nothing about the Silicon Valley. Any country where their gov allows citizen to hold USD can access these stocks.

There is no shortcut for high end hardware techs. Arguably software industry is where you can shortcut things with ideas, not hardware yet they are running on hardware infrastructure. Yet China need to steal the ARM library in software.

Mind you China has their own financial and social problems after 30 years of developing without a single adjustment. We have seen this in Japan before yet China was in average income trapped. I suspect Vietnam would follow in next 20 years because their policy learn from China, only years behind. I separate with what I wish and what reality is. Historically politicians screwed up big and people pay the price, multiply the price for political wills economies (for both West or East).

-------------------

About US market, market up and down. A rules of thumbs when USD goes up compare to other currencies, US assets, along with many other USD nominated like Gold will go down.

Secondly majority of US mega international corporations revenue is from oversea, so when USD is up compares to other currencies, naturally their Q report revenue will be down when oversea revenue converted back to USD. Lower revenue will reduce the stock price and future expectation. Especially tech stocks where need cheap capital to grow and weak USD to improve their Q report from oversea.

However there is no panic sell like dot com or 2008 era yet, so I am speculating that it will be down much furthers but it is normal. People are just keep waiting for the bottom. It is not an example of capital flight. The % of foreign own US assets have always been up since WW2. I cannot say the same for China or Russia or even India. Wall Street is not solely belong to US people, yet the US treasury debt is. There is currently a surging amount of foreigners invest in US properties recently.

In countries where they have dollar shortages in short term, naturally they will have to sell off US assets to get the USD to balance their currencies. But mind you the US 10y treasury yield has not passed 3.2% imply a heavy demand in long term bonds. This is not a sign of inflations long term as long as someone is readily accept 3.2% of return in next 10 years (off course they can rent out this treasury for higher yields).

In both Western or Eastern countries in capital flight, long term trend is not that hard to observe because they do slowly but very hard to change direction. I don't think Russia-China have the same level of trust US have with their allies, especially Japan, UK, Australia etc. Trust need to be earned, not given.

---------------

I don't like the paper gold/silver manipulation but the sole purpose of paper gold or silver is for liquidity, so they will just increase the paper vs physical ratio until their is truely a gold/silver bank run. The gold price pay in Rouble is now much higher than the gold price in USD, yet people will not draining these gold custodies for Rouble. I can only assume that or Rouble will not have good credits in the long run, or people afraid of Western escalating sanction to ignore such a huge arbitrage. Anyway good opportunities for physical gold or silver bugs to stack up, I somewhat envy their positions if they are debt free bugs.

Edited July 26, 2022 by SUZNV

Tom Nolan · August 3, 2022

https://finance.yahoo.com/news/analysis-u-banks-face-trillion-110441647.html

REUTERS - August 2nd

Analysis: U.S. banks face trillion-dollar reverse repo headache

Tom Nolan · August 3, 2022

Tom Nolan · August 14, 2022

(circa 2006) Gary Franchi interviews Chicago Federal Reserve Bank’s Jerry Nelson.

One of the questions asked was:

“People have often questioned about the Federal Reserve being a private bank or a private corporation.

Is that in fact true?”

ANSWER: “It is. …We are literally owned by the banks in our district….”

QUOTES

“…the insatiable foreign demand for our $100 dollar bills. They don’t use them as a medium of exchange overseas. They use them as a store of value. (countries listed)…”

“…a hundred dollar bill costs us 7 cents…in the interim, American commerce and industry doesn’t give them away. We are getting 100 dollars worth of something…Belgium chocolate, French wine…for something that costs us 7 cents. It is not a bad markup…They can have all they want. Almost none never comes back….”

(15 MINUTE VIDEO)

If you watch Corbett Report’s Documentary “Century of Enslavement: The History of The Federal Reserve” you would find out more about the owners and controllers of money supplies. - https://www.corbettreport.com/corbett-report-documentaries/

Tom Nolan · August 30, 2022

The Jackson Hole Federal Reserve meeting (Thursday-Saturday) August 25-27.
On Friday after the ‘Fed Speak’, stocks took a fast dive following a few weeks of a “Complacency Rally”.

IMF Deputy Managing Director Gita Gopinath commented on Fed Chair Powell’s Jackson Hole speech:
“Well, I think the point he very firmly and resolutely conveyed was that the priority is to bring inflation down. And that requires staying the course.
And it will take time, and that he sees rates as being close to 4% through 2023. And it’s important not to prematurely loosen policy.
So I think he was very clear that this is the number one priority.
There will likely be pain— some pain for the economy…”

“…Most of these central bankers share the view that the priority was to get back to price stability. And they needed to take strong action to make sure that happens.
And we look at the data, and we have about 85 central banks that have been raising rates multiple times over the past year.
So we are in a global monetary policy tightening cycle….”
https://archive.ph/hqcvR

VIDEO of Powell at Jackson Hole
(5 minutes) – Kitco
Powell’s ‘direct’ anti-pivot message: history warns against ‘prematurely’ slowing down
https://www.youtube.com/watch?v=dFr23l78sec

A pivot from the Federal Reserve is not coming, and interest rates will remain elevated for longer than markets expect, said Federal Reserve Chair Jerome Powell at the Jackson Hole symposium.

“Restoring price stability will likely require maintaining a restrictive policy stance for some time,” Powell said Friday. “The historical record cautions strongly against prematurely loosening policy.”

Powell also did not rule out another 75-basis-point hike at the September meeting, reiterating that a lot will depend on the macro data released in the next three weeks.

“Another unusually large increase could be appropriate at our next meeting,” Powell said. “Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook.”

The Fed plans to act aggressively now, so inflation does not become entrenched, which is a much costlier scenario to fix.

“The successful Volcker disinflation in the early 1980s followed multiple failed attempts to lower inflation over the previous 15 years. A lengthy period of very restrictive monetary policy was ultimately needed to stem the high inflation and start the process of getting inflation down to the low and stable levels that were the norm until the spring of last year,” Powell noted. “Our aim is to avoid that outcome by acting with resolve now.”

Tom Nolan · September 1, 2022

https://www.zerohedge.com/markets/straw-breaks-markets-back-fed-must-do-39-trillion-qt-control-inflation-which-it-cant

monetary%20tightening%20solomon_1.jpg?it

"The Straw That breaks The Market's Back": The Fed Must Do $3.9 Trillion In QT To Control Inflation... Which It Can't Possibly Do

EXCERPTS

...For much of the past 6 months, Wall Street was confident that it would be the Fed's rate hikes which started in March from 0.0%, and have since crept up to 2.25-2.50%, and are expected to rise another 1.00%-1.25% before the Fed eases back on the breaks...

...Tadesse warns "it could be a ramp-up in QT, this time on a larger scale to erode a much larger balance sheet, that could surprise markets." This is a prudent warning because three months after QT started at a pace of $47.5BN per month from June through August, starting Sept, the Fed will double the pace of Quantitative Tightening to $95Billion, draining twice as much liquidity from the market...

...Tadesse's analysis also shows that it would take implicit rate tightening of about 450bp from a QT that would slash $3.9 trillion from Fed balance sheet! ...

...The problem - as Tadesse calculates - is that such aggressive monetary tightening with a focus solely on inflation containment, even at the cost of inducing recession, would require overall monetary tightening of about 11.6%. And since rates have already been tightened by 2.5% (with only a de minimis tightening via QT for now), another 9.25% of monetary tightening might be expected via policy rate hikes and an aggressive QT program. The policy rate could go up by as much as 4.5%, with the remainder coming from QT (right-hand chart above).

In practical terms, at a rate of 12bp per $100bn of QT (SocGen had previously calculated the price impact of QT), this amounts to a QT programme of about $3.9tn, roughly equivalent to the net growth in the Fed’s balance sheet during the pandemic (which would be logically symmetric).

Tom Nolan · September 1, 2022

https://www.gainesvillecoins.com/blog/what-happened-650-billion-sdrs-issued-2021

What Happened to the $650 Billion in SDRs Issued in 2021?

A bazooka issuance of 456 billion new SDRs (~$650 billion) by the IMF in August 2021, “to boost global liquidity,” has accomplished very little of what was intended. Numerous nations are teetering on the brink of collapse and global growth is declining. Paltry SDR trading volume over the past year confirms the flaws of this asset.

As we shall see, the SDR is mainly used to grease the IMF’s wheels of bureaucracy....[ARTICLE CONTINUES]

Tom Nolan · September 1, 2022

https://www.fxempire.com/forecasts/article/u-s-dollar-index-dx-futures-technical-analysis-edging-higher-ahead-of-us-manufacturing-pmi-report-1113195

U.S. Dollar Index (DX) Futures Technical Analysis – Edging Higher Ahead of US Manufacturing PMI Report

By:James Hyerczyk

Updated: Sep 1, 2022,

Supporting the notion of slower growth are regional PMI’s from South Korea, Japan and China that all pointed to slowing global economic activity.

The U.S. Dollar is trading higher against a basket of major currencies on Thursday, underpinned by higher U.S. Treasury yields and lower Euro, British Pound, Canadian Dollar and Japanese Yen.

A drop in investor sentiment is also driving investors into the safety of the U.S. Dollar amid weakness in the global stock markets. This move is being fueled by worries over a recession that could have a worldwide impact.

Supporting the notion of slower growth are regional purchasing managers’ indexes from South Korea, Japan and China on Thursday that all pointed to slowing global economic activity as rising interest rates, high inflation, the war in Ukraine and China’s COVID curbs took a heavy toll.

At 07:00 GMT, September U.S. Dollar Index futures are trading 109.040, up 0.375 or +0.35%. On Wednesday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $29.12, down $0.01 or -0.05%.

All of the major currencies are feeling the heat from the threat of higher U.S. interest rates. Expectations for a 75-basis point U.S. rate hike at next month’s Federal Reserve meeting are rising on the back of solid economic data, with Fed funds futures last pointing to a 75% chance of such an increase.

Later today at 11:30 GMT, traders will get the opportunity to react to the latest Challenger Job Cuts report. This will be followed at 12:30 GMT by Weekly Unemployment Claims, Revised Nonfarm Productivity, and Revised Unit Labor Costs. At 14:00 GMT, the major report is the ISM Manufacturing PMI report. Data on Construction Spending will also be reported.

The ISM Manufacturing report is expected to come in at 52.1, down slightly from 52.8. A move under 50.0 will indicate a contraction.

Daily-September-U.S.-Dollar-Index.jpg?fu

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 109.445 will signal a resumption of the uptrend. A move through 107.480 will change the main trend to down.

The minor trend is also up. A move through 108.235 will change the minor trend to down. This will shift the momentum to the downside.

The minor range is 107.480 to 109.445. Its pivot at 108.465 is the nearest support. This is followed by the major support at 107.780.

Daily Swing Chart Technical Forecast

Trader reaction to 108.840 is likely to determine the direction of the September U.S. Dollar Index on Thursday.

Bullish Scenario

A sustained move over 108.840 will indicate the presence of buyers. If this creates enough upside momentum then look for a surge into this week’s high at 109.445. A trade through this level could trigger an acceleration to the upside.

Bearish Scenario

A sustained move under 108.840 will signal the presence of sellers. The first downside targets are 108.465 and 108.235.

A failure to hold 108.235 could extend the selling pressure into 107.780, followed by 107.480.

For a look at all of today’s economic events, check out our economic calendar.

Tom Nolan · September 8, 2022

September 8th Thursday morning...

The dollar index steadied around 109.5 on Thursday, hovering close to a 20-year high hit in the previous session, as investors braced for Federal Reserve Chair Jerome Powell’s speech for more clues on the central bank’s rate hike path. Powell will speak at the Cato Institute conference later on Thursday, delivering what could be his last public remarks until the Sept. 20-21 policy meeting. In the latest commentary, Fed Vice Chair Lael Brainard stressed the need to bring rates to restrictive levels to get inflation under control, while Boston Fed President Susan Collins said that bringing inflation back down to 2% is the central bank’s main priority. Markets are currently leaning towards another 75 basis point rate hike at this month’s meeting, which would bring the fed funds rate to 3%-3.25%. Meanwhile, traders also await the European Central Bank’s policy decision later today, where it is expected to move more aggressively to tackle inflation despite mounting recession risks.

https://tradingeconomics.com/united-states/currency

Tom Nolan · September 12, 2022

By:James Hyerczyk

Updated: Sep 12, 2022,

https://www.fxempire.com/forecasts/article/crude-oil-price-update-choppy-trade-as-investors-switch-to-demand-concerns-1122957

Crude Oil Price Update – Choppy Trade as Investors Switch to Demand Concerns

A stronger greenback could lead to lower foreign demand because crude oil is a dollar-denominated commodity.

Strong Dollar Expected to Weigh on Crude Demand

The Federal Reserve and the European Central Bank (ECB) are expected to raise rates aggressively in an effort to drive down stubborn inflation. Both moves could lift the U.S. Dollar.

A Fed rate hike would make the U.S. Dollar a more attractive investment, while an aggressive ECB rate hike could drive the Euro Zone into recession, which could also encourage investors to move money into the dollar. A stronger greenback could lead to lower foreign demand because crude oil is a dollar-denominated commodity.

Daily-October-WTI-Crude-Oil-3.jpg?func=c

Edited September 12, 2022 by Tom Nolan

Tom Nolan · September 16, 2022

https://finance.yahoo.com/news/repo-blew-three-years-ago-110000463.html

2d8186f10145ec257df5cb7835111a09

Repo Blew Up Three Years Ago and Funding Markets Are Still Weird

Fri, September 16, 2022

(Bloomberg) -- It’s been three years since the turmoil in the market for repurchase agreements froze the funding universe and forced a Federal Reserve intervention. Yet risks still linger as another test approaches.

Banks are drowning in the abundance of cash in the financial system as the result of pandemic-era fiscal and monetary stimulus. Meanwhile, there’s a lack of investable assets -- like Treasury bills -- that’s pushing overnight rates lower, and forcing eligible counterparties to park more than $2 trillion a day at the Fed’s reverse repo facility as the first and sometimes only resort.

That’s a far cry from three years ago.

Back then, dealer balance sheets running into capacity constraints after a spurt of Treasury auction size growth and the Fed shedding some of its holdings, and estimates as to the financial system’s ideal level of bank reserve balances needed to finance it all were uncertain.

Ultimately, there weren’t enough reserves, and the cost of financing run-of-the-mill Treasuries spiked on a day when funding conditions were already expected to be more challenging as a result of corporate tax payments removing cash from the market.

The dislocations forced the Fed to restart repo operations for the first time since the 2008 financial crisis, and eventually begin buying Treasury bills to rescue dealer balance sheets. Those daily interventions have morphed into the Standing Repo Facility, or SRF, which was officially introduced in July 2021, to prevent short-term rate markets from blowing up.

Between the new facility and the trillions of dollars of liquidity still sloshing around the system, some market participants have declared victory, arguing policy makers can handle any future turmoil. But doubts persist.

“The risks of another September 2019 event haven’t been completely eliminated,” said Blake Gwinn, head of US interest rates strategy at RBC Capital Markets. “The steps the Fed has taken make it a little less likely, but I don’t think those risks have completely gone away.”

Gwinn said bank reserve scarcity shares the blame with rules that prevented banks from providing more cash to the repo market.

In the wake of the blowup, JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon in October 2019 told analysts that while the bank had the cash, its hands were tied.

When the broader markets unraveled in March 2020, the Fed actually exempted both reserve balances and Treasuries from banks’ supplementary leverage ratio calculation in order improve dealer intermediation during the stressful period.

The exemption expired in March 2021, but the central bank has pledged it would propose changes to the rule.

Officials have said the SRF and its foreign counterpart would serve as important tools to support smooth market functioning and effective implementation of monetary policy.

Yet in the Fed’s latest senior financial officers’ survey released in July, a majority of respondents said the facility’s introduction had no effect on banks’ demand for reserves, while others noted they aren’t currently eligible to be a counterparty.

These aren’t immediate concerns, especially since the monetary authority only just accelerated the pace of its balance-sheet unwind, or quantitative tightening. This month, it increased its monthly caps for the amount of Treasuries and holdings of mortgage-backed securities that it will let mature to $60 billion and $35 billion, respectively.

Like then, reserve balances are a potential pinch-point.

Banks’ cash that’s parked at the Fed has fallen by roughly $1 trillion since December, and those outflows are expected to accelerate now that QT is running without “training wheels,” according to Mark Cabana, head of US interest rates strategy at Bank of America Corp.

That means: as reserves start to plunge, banks will have to begin competing with money-market funds for cash, resulting in higher funding costs, with the accumulation of Treasuries and MBS on dealer balance sheets adding to the pressures.

Analysts concede that markets are still at least a year away from any signs of scarcity emerging, though there are some who believe the central bank could have to slow or halt QT if reserves drop too quickly. Either way, the two days in 2019 still loom over the funding markets.

“Three years later the ultimate legacy is people are terrified of funding spikes higher, especially over quarter-end, year-end,” said Deutsche Bank strategist Tim Wessel, who worked on the New York Fed’s money-markets desk in 2019. “The legacy of those few hours is people being concerned enough about funding over year-end to term out funding, and constantly focused on dealer balance sheet and huge widening of any funding instrument that crosses year end.”

Tom Nolan · October 8, 2022

https://www.zerohedge.com/economics/latest-recession-signal-money-supply-growth-plummeted-three-year-low-august

In Latest Recession Signal, Money-Supply Growth Plummeted To Three-Year Low In August

by Tyler Durden

Saturday, Oct 08, 2022 - 01:25 PM

Authored by Ryan McMaken via The Mises Institute,

Money supply growth fell again in August, dropping to a 36-month low. August's drop continues a steep downward trend from the unprecedented highs experienced during much of the past two years. During the thirteen months between April 2020 and April 2021, money supply growth in the United States often climbed above 35 percent year over year, well above even the "high" levels experienced from 2009 to 2013.

During August 2022, year-over-year (YOY) growth in the money supply was at 4.35 percent. That's down from July's rate of 4.84 percent, and down from August 2021's rate of 8.28 percent. The growth rate peaked in February 2021 at 23.12 percent.

The growth rates during most of 2020, and through April 2021, were much higher than anything we'd seen during previous cycles, with the 1970s being the only period that came close. Since then, however, we have seen a fast fall from previous highs and such rapid declines generally point to economic contraction in following months.

The money supply metric used here—the "true" or Rothbard-Salerno money supply measure (TMS)—is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2. The Mises Institute now offers regular updates on this metric and its growth. This measure of the money supply differs from M2 in that it includes Treasury deposits at the Fed (and excludes short-time deposits and retail money funds).

In recent months, M2 growth rates have followed a similar course to TMS growth rates. In August 2022, the M2 growth rate was 4.077 percent. That's down from July's growth rate of 5.25 percent. August's rate was also well down from August 2021's rate of 13.42 percent. M2 growth peaked at a new record of 26.91 percent during February 2021.

Money supply growth can often be a helpful measure of economic activity, and an indicator of coming recessions. During periods of economic boom, money supply tends to grow quickly as commercial banks make more loans. Recessions, on the other hand, tend to be preceded by slowing rates of money supply growth. However, money supply growth tends to begin growing again before the onset of recession.

Another indicator of recession appears in the form of the gap between M2 and TMS. The TMS growth rate typically climbs and becomes larger than the M2 growth rate in the early months of a recession. This occurred in the early months of the 2001 and the 2007–09 recession. A similar pattern appeared before the 2020 recession.

Notably, this has happened again beginning in May this year as the M2 growth rate in fell below the TMS growth rate for the first time since 2020. Put another way, when the difference between M2 and TMS moves from a positive number to a negative number, that's a fairly reliable indicator the economy has entered into recession. We can see this in this graph:

In the two "false alarms" over the past 30 years, the M2-TMS gap reverted to positive territory fairly quickly. However, when this gap firmly enters negative territory, that is an indicator that the economy is already in recession. The gap has now been negative for 3 of the past 5 months. Interestingly, this indicator also appears to follow the pattern of yield curve inversion. For example, the 2s/10s yield inversion went negative in all the same periods where the M2-TMS gap pointed to a recession. Moreover, the 2s/10s inversion was very briefly negative in 1998, and then almost went negative in 2018.

This is not surprising because trends in money supply growth have long appeared to be connected to the shape of the yield curve. As Bob Murphy notes in his book Understanding Money Mechanics, a sustained decline in TMS growth often reflects spikes in short-term yields, which can fuel a flattening or inverting yield curve. Murphy writes:

When the money supply grows at a high rate, we are in a “boom” period and the yield curve is “normal,” meaning the yield on long bonds is much higher than on short bonds. But when the banking system contracts and money supply growth decelerates, then the yield curve flattens or even inverts. It is not surprising that when the banks “slam on the brakes” with money creation, the economy soon goes into recession.

In other words, a sizable drop in the TMS growth levels often precedes an inversion in the yield curve, which itself points to an impending recession. Strong recession signals can be found elsewhere, as well. GDP growth turned negative in both the first and second quarter of this year, and two consecutive quarters of negative growth virtually always indicate recession. Average national home price growth in the US has recently turned negative for the first time in a decade. Real weekly earnings have gone negative for the past 17 months in a row. Consumer debt is surging as consumers borrow more money to make ends meet in this inflationary environment.

In other words, numerous other indicators point to just what we would expect: economic weakness and recession following a drop in money supply growth.

Tom Nolan · October 9, 2022

Sunday Oct 9, 2022 (Long article citing graphs and quotes from Fed officials)

Fed officials remain steadfast: Hike rates and hold them there

https://finance.yahoo.com/news/fed-officials-remain-steadfast-rate-hikes-122927740.html

Fed officials cautioned markets against hoping for rate cuts next year by sending the unified message that they intend to hike rates and hold them there, even if confronted with signs of a weakening economy....

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