Update: Here is a live feed of Christine Lagarde who now faces the unenvious task of explaining why she hiked 50bps at a time when Credit Suisse is on the verge of collapse and every incremental rate hike by the ECB makes keeping deposits at the bank that much more difficult

Earlier:

With BBG publishing an unexpected CYA trial balloon just 30 minutes before the ECB announcement, according to which ECB Vice President Luis de Guindos told finance ministers on Tuesday that “some European Union banks could be vulnerable to rising interest rates“, and which sent expectations of a 50bps rate hike to just 35% from 60% earlier, it would have provided the central bank with the needed cover to hike less than most had expected.

However, it was not meant to happen, and moments ago the European Central Bank hiked 50bps as it guided last time, in the process assuring that Europe’s banking crisis would get even worse before (if) it gets better.

Saying that “Inflation is projected to remain too high for too long”, the Governing Council today “decided to increase the three key ECB interest rates by 50 basis points, in line with its determination to ensure the timely return of inflation to the 2% medium-term target.” The ECB cited that “the elevated level of uncertainty reinforces the importance of a data-dependent approach to the Governing Council’s policy rate decisions, which will be determined by its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.”

That said, the ECB was quick to note that “the Governing Council is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area.”

It also said that “the euro area banking sector is resilient, with strong capital and liquidity positions”  and added that “the ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy.”

Looking ahead, the ECB shared the following forecasts:

HICP Inflation Forecast:

• 2023: 5.3% (prev. 6.3%)
• 2024: 2.9% (prev. 3.4%)
• 2025: 2.1% (prev. 2.3%)

GDP Growth projections:

• 2023: 1.0% (prev. 0.5%)
• 2024: 1.6% (prev 1.9%)
• 2025: 1.6% (prev. 1.8%)

But noted that that…

• new macroeconomic projections were finalised in early March, before the recent emergence of financial market tensions.
• These market tensions imply additional uncertainty around the baseline assessments of inflation and growth.
• Prior to these latest developments, the baseline path for headline inflation had already been revised down, mainly owing to a smaller contribution from energy prices than previously expected.

But perhaps most importantly, the ECB refrained from providing any guidance and refrained from signaling any future rate hikes in the statement, something it had done previously.

As the dust settles, we have seen a dovish reaction with EGBs lifting to fresh session highs and the EUR coming under pressure…

… with the dovish move perhaps a function of the lack of forward guidance, with the statement seemingly not presenting any bias for further policy tightening: likely to provide policymakers with maximum flexibility in light of recent market uncertainties. Alternatively, the market is expecting more easing from the ECB now that the banking crisis is expected to get worse due to tighter financial conditions. Sure enough, the Stoxx 600 Banks index extended a drop to 1% after the ECB decision, and spoos promptly droppedto session lows and were last trading below 3900.

Here is the full ECB press release:

Inflation is projected to remain too high for too long. Therefore, the Governing Council today decided to increase the three key ECB interest rates by 50 basis points, in line with its determination to ensure the timely return of inflation to the 2% medium-term target. The elevated level of uncertainty reinforces the importance of a data-dependent approach to the Governing Council’s policy rate decisions, which will be determined by its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.

The Governing Council is monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area. The euro area banking sector is resilient, with strong capital and liquidity positions. In any case, the ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy.

The new ECB staff macroeconomic projections were finalised in early March before the recent emergence of financial market tensions. As such, these tensions imply additional uncertainty around the baseline assessments of inflation and growth. Prior to these latest developments, the baseline path for headline inflation had already been revised down, mainly owing to a smaller contribution from energy prices than previously expected. ECB staff now see inflation averaging 5.3% in 2023, 2.9% in 2024 and 2.1% in 2025. At the same time, underlying price pressures remain strong. Inflation excluding energy and food continued to increase in February and ECB staff expect it to average 4.6% in 2023, which is higher than foreseen in the December projections. Subsequently, it is projected to come down to 2.5% in 2024 and 2.2% in 2025, as the upward pressures from past supply shocks and the reopening of the economy fade out and as tighter monetary policy increasingly dampens demand.

The baseline projections for growth in 2023 have been revised up to an average of 1.0% as a result of both the decline in energy prices and the economy’s greater resilience to the challenging international environment. ECB staff then expect growth to pick up further, to 1.6%, in both 2024 and 2025, underpinned by a robust labour market, improving confidence and a recovery in real incomes. At the same time, the pick-up in growth in 2024 and 2025 is weaker than projected in December, owing to the tightening of monetary policy.

Key ECB interest rates

The Governing Council decided to raise the three key ECB interest rates by 50 basis points. Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 3.50%, 3.75% and 3.00% respectively, with effect from 22 March 2023.

Asset purchase programme (APP) and pandemic emergency purchase programme (PEPP)
The APP portfolio is declining at a measured and predictable pace, as the Eurosystem does not reinvest all of the principal payments from maturing securities. The decline will amount to €15 billion per month on average until the end of June 2023 and its subsequent pace will be determined over time.

As concerns the PEPP, the Governing Council intends to reinvest the principal payments from maturing securities purchased under the programme until at least the end of 2024. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance.

The Governing Council will continue applying flexibility in reinvesting redemptions coming due in the PEPP portfolio, with a view to countering risks to the monetary policy transmission mechanism related to the pandemic.

Refinancing operations

As banks are repaying the amounts borrowed under the targeted longer-term refinancing operations, the Governing Council will regularly assess how targeted lending operations are contributing to its monetary policy stance.

***

The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation returns to its 2% target over the medium term and to preserve the smooth functioning of monetary policy transmission. The ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed. Moreover, the Transmission Protection Instrument is available to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across all euro area countries, thus allowing the Governing Council to more effectively deliver on its price stability mandate.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:45 CET today.

Authored by Michael Maharrey via SchiffGold.com,

As the old saying goes, if it looks like a duck, walks like a duck, and quacks like a duck, it’s probably a duck.

Well, if it looks like a bailout, walks like a bailout, and talks like a bailout, it’s probably a bailout.

In the aftermath of the Silicon Valley Bank and Signature Bank failures, nobody in the Biden administration or at the Federal Reserve wants to call the actions they took a “bailout.”

But make no mistake — it was without a question a bailout.

As Peter Schiff pointed out in a podcast, “Nobody wants to admit it’s a bailout because, obviously, the bailouts were not popular, and so they want to distance themselves from that language. But this absolutely is a bailout.”

What exactly is a bailout?

Investopedia defines it this way:

A bailout is when a business, an individual, or a government provides money and/or resources (also known as a capital injection) to a failing company. These actions help to prevent the consequences of that business’s potential downfall which may include bankruptcy and default on its financial obligations.”

Of course, individuals can be bailed out as well as companies.

Bailing Out Depositors

The FDIC insures bank deposits of over $250,000. But there were a lot of accounts in both SVB and Signature Banks above that threshold. Under the Treasury Department plan, bank customers won’t lose one dime – and that includes their uninsured deposits over $250,000

On the Sunday after government regulators took over the two institutions, the FDIC created “bridge banks” to handle both insured and uninsured customer deposits. Banking regulators assured depositors that they would have full access to all of their funds.

Since the FDIC will be covering deposits that weren’t originally covered, how can you call it anything other than a bailout?  The government rode in on a white horse and saved wealthy depositors who stood to lose millions in uninsured deposits with an injection of government money.

As Mises Institute senior editor Ryan McMaken pointed out in an article, the government effectively backstopped bad banking decisions made by rich people and corporate leaders. He pointed out that the $250,000 FDIC insurance already covered most average depositors.

Moreover, it is extremely easy to acquire deposit insurance on much more than $250,000 by simply keeping money at more than one bank. That $250,000 limit applies to the deposits at each bank where a depositor keeps funds. For customers with high liquidity needs, the financial sector offers tools for dealing with the risk of exceeding FDIC limits.

In an illustration of the laziness and arrogance that so characterizes our modern financial class, however, many of the wealthiest depositors at Silicon Valley Bank couldn’t be bothered with managing their deposits, and they essentially ignored the deposit-insurance rules that even a ten-year-old understands when opening his first bank account.

By bailing these people out, the government incentivizes even more lazy decision-making in the future.

And as Schiff pointed out, the bailout effectively raised FDIC protection from $250,000 to infinity.

They just set the precedent. I know they haven’t codified it into law. But they just set the precedent of bailing out the depositors of these two banks.”

Bailing Out Banks

But the Fed and the Treasury didn’t bail out banks, did they?

Well, actually, they did.

The Fed created a “Bank Term Funding Program” (BTFP) that will offer loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging US Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. Banks will be able to borrow against their assets “at par” (face value).

According to a Federal Reserve statement, “the BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.”

In other words, the plan creates a mechanism for banks to acquire capital they couldn’t otherwise access under normal market conditions. Practically speaking, any bank teetering on the brink can get an infusion of cash based on their bond holdings without selling into the market at a big loss as SVB was forced to do.

In simple terms, any failing bank now has easy access to a cash infusion.

That, my friends, is a bailout.

So, while the government can plausibly claim it is not bailing out SVB or Signature Bank – both institutions are being allowed to go under – it is bailing out banks that are in situations similar to the one SVB and Signature Bank were in before they collapsed.

As Schiff noted in another tweet, “All the banks that were dumb enough to buy long-term Treasuries and MBS (mortgage-backed securities) when yields were at all-time record lows have now been bailed out by the Fed.”

That was a lot of banks.

McMaken sums it up.

The official propaganda coming out of the administration, and from the usual Fed fanboys, is that none of this is a bailout. That’s a lie. The new steps being taken by the Fed and by the Treasury Department’s FDIC are indeed ultimately bailouts for billionaires and other wealthy depositors. Moreover, this new program will require at least a partial return of quantitative easing. There’s no way to guarantee such huge sums of money without having to fall back on inflationary monetary policy yet again. This also means price inflation won’t be going away.”

Virgin Orbit Holdings Inc. shares crashed in premarket trading on a report that it’s “furloughing nearly all its employees and pausing operations for a week” as it searches for an emergency funding lifeline. 

CNBC reported that on Wednesday, executives from Virgin, the satellite launch firm founded by Richard Branson, held a meeting with their staff to discuss the company’s uncertain future. The executives informed the employees that those furloughed would not receive any pay but could use their Paid Time Off (PTO). The company will maintain only a skeleton team. 

“Virgin Orbit is initiating a company-wide operational pause, effective March 16, 2023, and anticipates providing an update on go-forward operations in the coming weeks,” a Virgin Orbit spokesperson told Bloomberg. 

Shares of the company plunged 45% to 55 cents in premarket trading in New York after the late Wednesday announcement. Shares are down more than 90% since peaking at around $10 in 2021. 

During its last earnings announcement, Virgin Orbit disclosed an operating loss of $149 million for the first nine months of 2022, indicating that the company has been burning up its cash reserves. To support its operations, the company has been receiving periodic funding from Virgin Investments Ltd.

Besides a funding crunch, the company was hit with a major setback after a rocket launch failure in January. 

Virgin Orbit CEO Dan Hart withdrew from an appearance on a panel at a space industry conference in Washington, D.C., earlier this week. 

By Steven Kopits of Princeton Policy Advisors

Readers will recall that, for the last several months, I have noted that US oil production per the EIA’s weekly Petroleum Status Report was inconsistent with the data from the EIA’s monthly Drilling Productivity Report (DPR) 

The graph below shows that state of play as of last week.  The two red arrows at right show the contradictory trends, with total oil production essentially flat while shale oil production is shown rising at a healthy clip.  I have noted that this contradiction would have to be resolved by either increasing the weekly numbers or reducing shale oil output.  

We now have the answer.  

The graph below shows the state of play as of March 14th, when the EIA issued the March DPR.  It shows simply massive downward reductions in US shale oil output.  In the March report, shale oil output from the key plays is reduced by 443,000 bpd for January and 250,000 bpd for February.  If we go back one more month to the January DPR, shale oil production has been reduced by 542,000 bpd for December 2022.  This is a huge revision, more than 4% of total US crude and condensate production over a two month period.

With this revision, as the current graph (below) shows, US shale oil production is largely flat over the last four months, and trends in shale oil supply are consistent with the overall US crude oil supply (including conventional onshore wells, Gulf of Mexico offshore, and Alaska).  I need hardly point out that this is not good news, as the visible peak of horizontal oil rigs is now beginning to pair up with plateauing oil production, just as we would expect. 

The most plausible interpretation is that US crude and condensate production will stagnate for the balance of the year.  As I wrote in The Oil Supply Outlook (Feb. 2), the plateau has been expected since at least 2017 (see Fig. 6), so it should come as no surprise.  I think the surprise, however, will be in production trends going forward.  The EIA sees a long platuea in US oil production.  I think it more likely that we’ll see the beginning of an erosion in supply from 2024.

In light of this, President Biden’s approval of drilling in Alaska is not hard to understand, but don’t expect it to have a material impact on supply anytime soon.

Never before has it been clearer how useless ESG investing has become than in the case of Silicon Valley Bank. The bank, which donated to Black Lives Matter causes and frequently touted its virtuous diversity and equity policies, has blown a hole directly through “woke” capital allocators who sought it out for this appeal.

…as opposed to…you know…the quality of the bank’s assets and its ability to generate cash. 

“Hundreds” of ESG managers have been stung by the Silicon Valley Bank collapse, Bloomberg has reported. A new report says that “915 funds registered under European Union regulations as either ‘promoting’ ESG or declaring it as their ‘objective’ had exposure” to the bank. 

The bank “tick[ed] several boxes” for these managers, including a low carbon footprint. However, the “G” in ESG – which stands for governance – seemed to take a back seat to the “E” and the “S”. 

Sasja Beslik, a sustainable finance veteran who’s now the chief investment officer at NextGen ESG told Bloomberg: “There are a lot of lazy asset managers taking ESG scores for granted. The bank’s failure was a sign that managers who go “all in on carbon are not necessarily managing other risks.”

Former senior banker at HSBC Rebecca Self said that focusing on just one component of the ESG moniker was the problem. But Rebecca – what ever happened to good ole’ ‘investing for returns’, we have to ask?

Now, SVB’s lack of a chief risk officer is being scrutinized by the Federal Reserve and other regulators tasked with performing a post-mortem on the bank and its shareholders. The bank’s former CRO was Laura Izurieta, Bloomberg wrote, who was replaced by CRO Kim Olson in late 2022. 

Shivaram Rajgopal, an accounting professor at Columbia University’s business school, added: “People worry about ‘G’ only in a crisis, no one talks about ‘G’ when stock prices are going up.”

“Get the ‘G’ wrong and it undermines everything else,” said Paul Clements-Hunt, who helped coin the ESG term back in 2004. Amundi SA, the asset management arm of BNP Paribas SA and BlackRock Inc. all had exposure to SVB due to its ESG appeal. 

Clements-Hunt concluded: “For SVB to get a high overall ESG rating based on its tech and clean-tech focus without deep consideration of ‘G’ is just poor analysis.”

Hong Kong based asset manager Alp Ercil added that there was “a massive governance issue”. Ercil concluded: “And it’s going to be a huge case study that hopefully Wharton will write on the ‘G’ component of ESG.”

We won’t hold our breath waiting for that…

Authored by Gabrielle Bauer via The Brownstone Institute,

Remember the mega-hit book The Bonfire of the Vanities? While a work of fiction, the book shone a harsh light on the all-too-real world of lies, corruption, and hypocrisy in high places. In one of my favorite scenes, the power-couple protagonists attend a party at the home of the aptly named Bavardage family, where all the guests blab at each other with deep-fake enthusiasm, making sure to display their “boiling teeth” at all times.

Like the high society portrayed in the book, the Covid regime was replete with rot, from taped-up basketball nets and masked toddlers to vaccine passports and… slogans. Some of the slogans were carefully crafted by governments, while others sprang from the weeds of social media. They all drew from the same playbook, capitalizing on fear and using emotional manipulation to activate people’s guilt circuits. They served as thought-stopping mantras that precluded honest communication about the pandemic. To anyone with even a slightly nuanced worldview, their plodding earnestness grated like an earworm.  

With three years of pandemic history behind us, it’s high time to put these clunkers to bed.

I’ve collected a baker’s dozen of the slogans that have dogged us for the past three years, and explain why they deserve to be torched and thrown into an unmarked grave. 

Two weeks to flatten the curve. Here’s a case where a big fat laugh emoji would do the job of a thousand words. Anyone remember what happened when the two weeks were up? Yeah, so do I. The “experts” decided that we need to keep doing something. And that something was more lockdowns.

Stay home, save lives. This sanctimonious and bossy slogan sent the message that mental health didn’t count, livelihoods didn’t count, arts and culture didn’t count, religious communion didn’t count, and the dreams people had spent years pursuing didn’t count. The only thing that counted was preserving metabolic life—or at least, pretending we were doing that.

Follow the science. I’m not the first person to note that the only constant in science is change. Questioning science is science. But that’s not even the main reason “Follow the science” makes no sense. Science is information. It tells you what is, not what to do about it. That depends on our values: How important do we consider attendance at school? Live music and theater? Comforting people at the end of life? There are no mathematical coefficients for weighting these parameters. Health policy professor Leana Wen put it well in a recent Washington Post article: “Underneath it all is values: Whose rights are paramount? The individual who must give up freedoms, or those around them who want to lower infection risk? Yes, science should guide such debates, but it cannot lead all the way to the answer.”

We’re all in this together. Is that so? Was the worker delivering DoorDash orders in the same boat as the Netflix-and-chill couples perfecting new sourdough recipes during lockdown? Was the event planner who lost a 10-year business in the same boat as the Amazon shareholders? Was the foreign student stuck in a low-ceilinged apartment in the same boat as the well-connected mom who hired a power tutor for her kids?

Muh freedumb. During Covid, safety became the all-consuming preoccupation and freedom got branded as right-wing stupidity. Freedom to take a walk on the beach? Stop killing the vulnerable! Freedom to earn a living? The economy will recover! The demotion of freedom—that noble ideal of liberal democracy—to a caricature has been painful to observe. Without freedom, we have nothing resembling a life. Pandemic or not, freedom needs a place at the discussion table.

Mask it or casket. Hyperbole much? The glib phrase was designed to frighten, rather than inform, its cuteness making it all the more irritating. When a statement deviates so sharply from reality, it loses its power. People don’t take it seriously, even if they insist on Twitter that they do. 

The virus doesn’t discriminate. This one was especially weaselly because it contained a grain of truth that people could latch onto. Young or old, healthy or frail, anyone could catch the virus. But the risk of serious harm from the virus was orders of magnitude higher in certain groups, especially the old and frail. Experts downplayed this sharp risk gradient, plunging everyone into an abyss of fear. Not cool.

Can’t do X if you’re dead. We heard this a lot in the early months, as a justification for maintaining this or that restriction. You can’t attend a jazz concert if you’re dead. You can’t go backpacking in Nepal if you’re dead. For all its slickness, the slogan doesn’t stand up to logical scrutiny. It sets an actual scenario (restriction on an activity) against an improbable counterfactual (dying if the restriction is lifted). It’s like warning someone who’s about to drive across country, which is riskier than taking a bus, that “you can’t enjoy the coastal cities if you’re dead.” Said nobody ever.

Listen to the experts. OK, but which experts? The scientists that governments allowed to speak? What about the scientists with hundreds of citations in prestigious journals but divergent views? Can we listen to them, too? And what about mental health experts? Or economists? Historians? Bioethicists and philosophers? A pandemic isn’t just a scientific problem to solve, but a human one. Scientists do not get to decide what gives meaning to life and what trade-offs are worth making when steering the human family through a pandemic. Some of the sharpest insights about Covid have come from people outside of science. We ignore them at our own peril.

My mask protects you, your mask protects me. More naked emotional manipulation. The message was clear: if you don’t mask, you’re a bad person (presumably a fate worse than death). In fact, the mask is more of a cultural signifier than a viral transmission blocker. As the recent Cochrane review of physical interventions to slow viral transmission has made clear, whatever evidence exists for community masking is underwhelming at best.

Pandemic of the unvaccinated. That one aged rather poorly. A February 2023 Lancet article concluded that the “SARS-CoV-2 vaccines are insufficiently efficacious in preventing infections.” We can debate the fine points, but by now we all know that vaccinated people both catch and transmit Covid. What’s more, a Danish meta-analysis was unable to find credible evidence that mRNA vaccines reduced mortality, leaving statisticians with the unenviable job of torturing the data in subgroup analyses. (Perhaps six-toed people born on a Tuesday have lower hospitalization rates during the month after getting their boosters.) I started out with a lot of hope in the vaccines. I got vaxxed up and boosted myself. But let’s call a spade a spade: the vaccine purveyors overpromised and underdelivered.

You may be done with Covid, but Covid isn’t done with you. The statement isn’t the gotcha that people think it is. Of course Covid isn’t done with us. Neither is the common cold or the flu. Neither are thunderstorms and volcanoes and earthquakes and a thousand other forces of nature. When people say they’re done with Covid, they simply mean they’re done turning the world into an infection control zone. “I believe that pandemics end partially because humans declare them at an end,” says University of New Hampshire history professor Marion Dorsey, quoted from a Scientific American article titled “People, not science, decide when a pandemic is over.” Spanish flu chronicler John Barry concurs: a pandemic ends “when people stop paying attention to it.” And there’s nothing the shrinking cast of Covidians can do about it.

Stay safe. These words, generally used at the end of a social interaction, became the verbal equivalent of touching wood—a knee-jerk utterance to ward off the evil eye. It always reminded me of the “praise be” muttered by the handmaids in Margaret Atwood’s iconic novel: mechanical and dystopian. One of my friends responds to the words with “Stay dangerous.” Stay alert, stay curious, stay ready to think for yourself. If there’s anything I wish for us all in year four of the Covid era, it’s this.

While global banks spontaneously combust in the background, at least there’s a sliver of good news for one asset class: eggs, where prices look like they may have finally topped out. 

For the first time in 5 months, the price of eggs – driven higher by the world’s worst ever outbreak of bird flu – finally declined last month, falling 6.7%, according to a new report from Bloomberg. 

Combined with the prices of oranges and bacon also falling, it’s looking as though Americans once again may be able to afford breakfast. Who would have thought?

Egg prices had skyrocketed due to a shortage of supply that came about due to avian influenza killing tens of millions of birds. 

But even despite egg prices topping out, the CPI index for food was still up 0.4% last month, Bloomberg noted. This is down from 0.5% in January, but still represents rising prices due to bread, beef, ham and potatoes all seeing prices continue to rise, along with frozen vegetables.

For the year, First Watch Restaurant Group Inc. is estimating commodity inflation of 4% to 6%, the report says. Despite being a mid single digit rise, it is still down from the stunning 18% increase that printed last year. 

As prices spiked last year, First Watch and other restaurant groups were more reliant on the spot market to secure supply, helping stoke the demand that kept prices accelerating higher. 

The egg bubble has burst pic.twitter.com/DDpOORsb1b

— zerohedge (@zerohedge) March 14, 2023

Authored by Luke Broyles via BitcoinMagazine.com,

What is the “top” for an immutable money that becomes the standard for humanity? Why it’s time to get off zero…

How much bitcoin does it take to get rich and fund your lifestyle? How little bitcoin does it take to protect yourself against inevitable inflation, bank runs and fiat demise? Are you “too late” to Bitcoin? What would a 1% allocation do?

These are questions that newbies and veterans of Bitcoin alike ask themselves and each other and, oftentimes, there isn’t a clear answer.

Let’s provide a solid framework to answer that question.

THERE IS NO ‘TOP’ FOR AN IMMUTABLE MONEY STANDARD

January 2009 was BTC‘s first price prediction. Hal Finney predicted that bitcoin could become the global-dominant payment system, or $10 million per coin (Finney’s calculation would be closer to $40 million today). But bitcoin would not surpass $1.00 until April 2011… Over two full years later.

Source

What Finney understood is that upon the invention of perfect money all global wealth would inevitably consolidate into it. Henry Ford, Nikola Tesla and others also foresaw this.

A closed (monetary) system inevitably absorbs all open (productivity) systems. Money is the technology that prices everything else within its own ledger. There is no “top” price prediction for an immutable monetary standard of the human race, the standard.

Source: Author

IT’S ABOUT PURCHASING POWER, NOT PRICE

So, a better way to think of bitcoin’s value is not in price, but in purchasing power. Overlaying a share of monetary stock with a given amount of productivity (or economic value) is a better way to predict the money’s value. It’s worth noting that in a finite ledger, wealth inequality as we know it today does the reverse as we expect today (a topic for another time).

First, let’s clarify “entities.” We have 10 arbitrary “groups,” loosely based on today’s wide-ranging estimates of mega-rich entities to those in poverty.

Source: Author

Second, we have to account for what is often attributed to the “Pareto principle“: The vast majority of productivity is created by the minority of people, and the vast majority of that productivity is created within the minority of that minority.

Source

Third, we must account for the monetary stock to fill into our matrix. It is often said there will “only be 21 million bitcoin,” however this is not true. Accounting for lost bitcoin, there could easily be lower than 16 million.

When we loosely follow a Pareto distribution and today’s current ranked distribution of entities, the below is what we get. Fascinating results. Michael Saylor, the U.S. government and a few select others have become Bitcoin’s 10 “mega rich” entities already.

Source: Author

Additionally, an average person today is more prosperous than a 20th century billionaire was. Therefore, if Bitcoin merely survives… as little as 800,000 sats could purchase a lifestyle in the future far more luxurious than an upper-middle class lifestyle today, since bitcoin is actually reflecting the real prosperity gains of the globe.

Let’s go further. There are only just over two million bitcoin left on exchanges and just under two million left to be mined. Let’s take a hyper-bullish scenario and assume there are only four million BTC to be distributed, not 16 million. If we do the math here, things only get more absurd.

Source: Author

In this scenario, as little as $14.81, $100, or 75,000 sats (in the right time horizon) could be literally life changing to a person or company of the future.

What if global wealth and prosperity increases tenfold? What if the global population increases by two billion? What if another two million bitcoin are lost? What if a nation-state begins secretly stacking, and another three million bitcoin are held? What if a multi-billionaire tomorrow allocates 20% of their wealth to bitcoin, to absorb 100,000 BTC off the market? What if companies in the future employ billions of AI bots to create productivity to fight over the remaining BTC? What if just two of these scenarios occur?

What if in a few centuries energy companies do not burn coal or rely on fission, but mine asteroids, use fusion and begin construction of a Dyson swarm? Based on our model, what if these future companies have entire balance sheets of 10 to 1,000 BTC? How does one price that?

An entity selling the rights to solar real estate or trading a contract to an asteroid seems insane to us. Mock as we may, we have less in common with the future than the past.

Source

ARE YOU TOO LATE?

So, are you too late? Absolutely not.

A closed monetary system is designed to never be too late for anyone, no matter how much or little productivity they have. When humans sell rights to the sun or other celestial bodies in the solar system, it is almost certain to be sold in exchange for bitcoin. Stop thinking you are “too late.” It’s absurd.

The question is: What do you do with this information? If you’re a USD millionaire in 2023, you have no excuse to not buy 0.06 BTC. At $20,000 per BTC, this 0.12% allocation could save your portfolio. If Bitcoin survives, eventually this 0.12% will be more valuable than the other 99.88% of your portfolio. Even better, allocate 1% for 0.5 BTC since stock markets move 1% in a day. You can buy your “BTC insurance” with just a day’s volatility.

Not a USD millionaire? You have no excuse to not buy $100 of bitcoin (0.005 BTC as of this writing) and lock it down… just in case. You spend that much on insurance on an unlikely event, why not spend it on a likely event? Most won’t, because understanding BTC is accepting many uncomfortable truths.

You’ll soon realize that allocating 1% puts your other 99% at higher risk as you suck liquidity out of the fractional-reserve Ponzi.

The longer Bitcoin survives, the lower its risk and the higher its upside. It is designed to be a better savings tool as a function of time. Personally, I think my 16 million model is too bearish and the four million model is too bullish (for now).

Source

Either way, the highest-risk allocation to bitcoin is 0%. Either bitcoin is trending toward zero, or everything else is. There is no third option.

Thanks, everyone, for your ideas. Keep sharing that Bitcoin signal, and get off zero if you are still on it.

Source: Author

Authored by Pepe Escobar via The Cradle,

In an exclusive interview with The Cradle, Russia’s top macroeconomics strategist criticizes Moscow’s slow pace of financial reform and warns there will be no new global currency without Beijing…

The headquarters of the Eurasian Economic Commission (EEC) in Moscow, linked to the Eurasia Economic Union (EAEU) is arguably one of the most crucial nodes of the emerging multipolar world.

That’s where I was received by Minister of Integration and Macroeconomics Sergey Glazyev – who was previously interviewed in detail by The Cradle –  for an exclusive, expanded discussion on the geoeconomics of multipolarity.

Glazyev was joined by his top economic advisor Dmitry Mityaev, who is also the secretary of the Eurasian Economic Commission’s (EEC) science and technology council. The EAEU and EEC are formed by Russia, Belarus, Kazakhstan, Kyrgyzstan, and Armenia. The group is currently engaged in establishing a series of free trade agreements with nations from West Asia to Southeast Asia.

Our conversation was unscripted, free flowing and straight to the point. I had initially proposed some talking points revolving around discussions between the EAEU and China on designing a new gold/commodities-based currency bypassing the US dollar, and how it would be realistically possible to have the EAEU, the Shanghai Cooperation Organization (SCO), and BRICS+ to adopt the same currency design.

Glazyev and Mityaev were completely frank and also asked questions on the Global South. As much as extremely sensitive political issues should remain off the record, what they said about the road towards multipolarity was quite sobering – in fact realpolitik-based.

Glazyev stressed that the EEC cannot ask for member states to adopt specific economic policies. There are indeed serious proposals on the design of a new currency, but the ultimate decision rests on the leaders of the five permanent members. That implies political will – ultimately to be engineered by Russia, which is responsible for over 80 percent of EAEU trade.

It’s quite possible that a renewed impetus may come after the visit of Chinese President Xi Jinping to Moscow on March 21, where he will hold in-depth strategic talks with Russian President Vladimir Putin.

On the war in Ukraine, Glazyev stressed that as it stands, China is profiting handsomely, as its economy has not been sanctioned – at least not yet – by US/EU and Beijing is buying Russian oil and gas at heavily discounted prices. The funds Russians are losing in terms of selling energy to the EU will have to be compensated by the proposed Power of Siberia II pipeline that will run from Russia to China, via Mongolia – but that will take a few more years.

Glazyev sketched the possibility of a similar debate on a new currency taking place inside the Shanghai Cooperation Organization (SCO) – yet the obstacles could be even stronger. Once again, that will depend on political will, in this case by Russia-China: a joint decision by Xi and Putin, with crucial input by India – and as Iran becomes a full member, also energy-rich Tehran.

What is realistic so far is increasing bilateral trade in their own currencies, as in the Russia-China, Russia-India, Iran-India, Russia-Iran, and China-Iran cases.

Essentially, Glazyev does not see heavily sanctioned Russia taking a leadership role in setting up a new global financial system. That may fall to China’s Global Security Initiative. The division into two blocs seems inevitable: the dollarized zone – with its inbuilt eurozone – in contrast with the Global South majority with a new financial system and new trading currency for international trade. Domestically, individual nations will keep doing business in their own national currencies.

The road to ‘de-offshorization’

Glazyev has always been a fierce critic of the Russian Central Bank, and he did voice his misgivings – echoing his book The Last World War. He never ceases to stress that the American rationale is to damage the Russian economy on every front, while the motives of the Russian Central Bank usually raise “serious questions.”

He said that quite a few detailed proposals to reorient the Central Bank have been sent to Putin, but there has been no follow-up. He also evoked the extremely delicate theme of corruption involving key oligarchs who, for inscrutable reasons, have not been sidelined by the Kremlin.

Glazyev had warned for years that it was imperative for Moscow to sell out foreign exchange assets placed in the US, Britain, France, Germany, and others which later ended up unleashing sanctions against Russia.

These assets should have been replaced by investments in gold and other precious metals; stocks of highly liquid commodity values; in securities of the EAEU, SCO, and BRICS member states; and in the capital of international organizations with Russian participation, such as the Eurasian Development Bank, the CIS Interstate Bank, and the BRICS Development Bank.

It seems that the Kremlin at least is now fully aware of the importance of expanding infrastructure for supporting Russian exports. That includes creating international exchange trading marketplaces for trade in Russian primary goods within Russian jurisdiction, and in rubles; and creating international sales and service networks for Russian goods with high added value.

For Russia, says Glazyev, the key challenge ahead in monetary policy is to modernize credit. And to prevent negative impact by foreign financial sources, the key is domestic monetization –  “including expansion of long and medium-term refinancing of commercial banks against obligations of manufacturing enterprises and authorized government bodies. It is also advisable to consistently replace foreign borrowings of state- controlled banks and corporations with domestic sources of credit.”

So the imperative way to Russia, now in effect, is “de-offshorization.” Which essentially means getting rid of a “super-critical dependence of its reproduction contours on Anglo-Saxon legal and financial institutions,” something that entails “systematic losses of the Russian financial system merely on the difference in profitability between the borrowed and the placed capital.”

What Glazyev repeatedly emphasized is that as long as there’s no reform of the Russian Central Bank, any serious discussion about a new Global South-adopted currency faces insurmountable odds. The Chinese, heavily interlinked with the global financial system, may start having new ideas now that Xi Jinping, on the record, and unprecedentedly, has defined the US-provoked Hybrid War against China for what it is, and has named names: it’s an American operation.

What seems to be crystal clear is that the path toward a new financial system designed essentially by Russia-China, and adopted by vast swathes of the Global South, will remain long, rocky, and extremely challenging. The discussions inside the EAEU and with the Chinese may extrapolate to the SCO and even towards BRICS+. But all will depend on political will and political capital jointly deployed by the Russia-China strategic partnership.

That’s why Xi’s visit to Moscow next week is so crucial. The leadership of both Moscow and Beijing, in sync, now seems to be fully aware of the two-front Hybrid War deployed by Washington.

This means their peer competitor strategic partnership – the ultimate anathema for the US-led Empire – can only prosper if they jointly deploy a complete set of measures: from instances of soft power to deepening trade and commerce in their own currencies, a basket of currencies, and a new reserve currency that is not hostage to the Bretton Woods system legitimizing western finance capitalism.

The Consumer Price Index (CPI) provides a steady indication of how inflation is affecting the economy. This big picture number is useful for policymakers and professionals in the financial sector, but most people experience inflation at the cash register or checkout screen.

As Visual Capitalist’s Nick Routley details below, since the start of the 21st century, U.S. consumers have seen a divergence of price movements across various categories.

Nowhere is this better illustrated than on this chart concept thought up by AEI’s Mark J. Perry.

It’s sometimes referred to as the “chart of the century” because it provides such a clear and impactful jump-off point to discuss a number of economic forces.

The punchline is that many consumer goods – particularly those that were easily outsourced – saw price drops, while key “non-tradable” categories saw massive increases.

We’ll look at both situations in more detail below.

Race to the Top: Inflation in Healthcare and Education

Since the beginning of this century, two types of essential categories have been marching steadily upward in price: healthcare and education.

America has a well documented “medical inflation” issue. There are a number of reasons why costs in the healthcare sector keep rising, including rising labor costs, an aging population, better technology, and medical tourism. The pricing of pharmaceutical products and hospital services are also a major contributor to increases. As Barry Ritholtz has diplomatically stated, “market forces don’t work very well in this industry”.

Rising medical costs have serious consequences for the U.S. population. Recent data indicates that half of Americans now carry medical debt, with the majority owing $1,000 or more.

Also near the top of the chart are education-related categories. In the ’60s and ’70s, tuition roughly tracked with inflation, but that began to change in the mid-1980s. Since then, tuition costs have marched ever upward. Since 2000, tuition prices have increased by 178% and college textbooks have jumped 162%.

As usual, low income students are disproportionally impacted by rising tuition. Pell Grants now cover a much smaller portion of tuition than they used to, and the majority of states have cut funding to higher education in recent years.

Globalization: A Tale of Televisions and Toys

Even though essentials like education and heathcare have rocketed up, it’s not all bad news. Consumers have seen the price of some goods and services drop dramatically.

Flat screen televisions used to be a big ticket item. At the turn of the century, a flat screen TV would cost around 17% of the median income of the time ($42,148). In the early aughts though, prices began to fall quickly. Today, a new TV will cost less than 1% of the U.S. median income ($54,132).

Similarly, cellular services and software have gotten cheaper over the past two decades as well. Toys are another prime example. Not only are most toys manufactured overseas, the value proposition has changed as children have new digital options to entertain themselves with.

Over a long-term perspective, items like clothing and household furnishings have remained relatively flat in price, even after the most recent bout of inflation.