Tag Archives: gold

Economics, Finance, News, Politics

Why the Fed can’t stop prices from going up anytime soon – but may have more luck over the long term

Above: Photo Adobe Stock

The Federal Reserve has begun its most challenging inflation-fighting campaign in four decades. And a lot is at stake for consumers, companies and the U.S. economy.

On March 16, 2022, the Fed raised its target interest rate by a quarter point – to a range of 0.25% to 0.5% – the first of many increases the U.S. central bank is expected to make over the coming months. The aim is to tamp down inflation that has been running at a year-over-year pace of 7.9%, the fastest since February 1982.

The challenge for the Fed is to do this without sending the economy into recession. Some economists and observers are already raising the specter of stagflation, which means high inflation coupled with a stagnating economy.

As an expert on financial markets, I believe there’s good news and bad when it comes to the Fed’s upcoming battle against inflation. Let’s start with the bad.

Inflation is worse than you think

Inflation began accelerating in fall 2021 when a stimulus-fueled demand for goods met a COVID-19-induced drop in supply.

In all, Congress spent US$4.6 trillion trying to counter the economic effects of COVID-19 and the lockdowns. While that may have been necessary to support struggling businesses and people, it unleashed an unprecedented bump in the U.S. money supply.

At the same time, supply chains have been in disarray since early in the pandemic. Lockdowns and layoffs led to closures of factories, warehouses and shipping ports, and shortages of key components like microchips have made it harder to finish a wide range of goods, from cars to fridges. These factors have contributed to a worldwide shortage of goods and services.

Any economist will tell you that when demand exceeds supply, prices will rise too. And to make matters worse, businesses around the world have been struggling to hire more workers, which has further exacerbated supply chain problems. The labor shortage also worsens inflation because workers are able to demand higher wages, which is typically paid for with higher prices on the goods they make and the services they provide.

This clearly caught the Fed off guard, which as recently as November 2021 was calling the rise in inflation “transitory.”

And now Russia’s war in Ukraine is compounding the problems. This is mostly because of the conflict’s impact on the supply of gas and oil, but also because of the sanctions placed on Russia’s economy and the ancillary effects that will ripple throughout the global economy.

The latest inflation data, released on March 10, 2022, is for the month of February and therefore doesn’t account for the impact of Russia’s invasion of Ukraine, which sent U.S. gas prices soaring. The prices of other commodities, such as wheat, also spiked. Russia and Ukraine produce a quarter of the world’s wheat supply.

Inflation won’t be slowing anytime soon

And so the Fed has little choice but to raise interest rates – one of its few tools available to curb inflation.

But now it’s in a very tough situation. After arguably coming late to the inflation-fighting party, the Fed is now tasked with a job that seems to get harder by the day. That’s because the main drivers of today’s inflation – the war in Ukraine, the global shortage of goods and workers – are outside of its control.

So even dramatic rate hikes over the coming months, perhaps increasing rates from about zero now to 1%, will be unlikely to make an appreciable impact on inflation. This will remain true at least until supply chains begin to return to normal, which is still a ways off.

Cars and condos

There are a few areas of the U.S. economy where the Fed could have more of an impact on inflation – eventually.

For example, demand for goods that are typically purchased with a loan, such as a house or car, is more closely tied to interest rates. The Fed’s policy of ultra-low interest rates is one key factor that has driven inflation in those sectors in recent months. As such, an increase in borrowing costs through higher interest rates should prompt a drop in demand, thus reducing inflation.

But changing consumer behavior can take time, and it’ll require more than a quarter-point increase in rates at the Fed. So consumers should expect prices to continue to climb at an above-normal pace for some time.

Higher interest rates also tend to reduce stock prices, as other investments like bonds may become more attractive to investors. This in turn may lead people invested in stock markets to reduce their spending because they feel less wealthy, which may help reduce overall demand and inflation. The effect is minimal, however, and would take time before you see the impact in prices.

The good news

That is the bad news. The good news is that the U.S. economy has been roaring at the fastest pace in decades, and unemployment is just about down to its pre-pandemic level, which was the lowest since the 1960s.

That’s why I think it’s unlikely the U.S. will experience stagflation – as it did in the 1970s and early 1980s. A very aggressive increase in interest rates could possibly induce a recession, and lead to stagflation, but by sapping economic activity it could also bring down inflation. At the moment, a recession seems unlikely.

In my view, what the Fed is beginning to do now is less taking a big bite out of inflation and more about signaling its intent to begin the inflation battle for real. So don’t expect overall prices to come down for quite a while.

Jeffery S. Bredthauer, Associate Professor Of Finance, Banking and Real Estate,, University of Nebraska Omaha

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Elon Musk, News, Observation, Politics, Tech

‘Inappropriate Giveaway of Galactic Proportions’: Outrage Over $10 Billion Taxpayer Gift to Bezos Space Obsession

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“No,” said Sen Bernie Sanders. “Congress should not provide a $10 billion handout to Jeff Bezos for space exploration as part of the defense spending bill. Unbelievable.”

Progressives on Wednesday slammed what they called a proposed $10 billion handout to Amazon founder Jeff Bezos—the world’s first multi-centibillionaire—in the 2022 National Defense Authorization Act as a “giveaway of galactic proportions” in the face of growing wealth inequality and the inability of U.S. lawmakers to pass a sweeping social and climate spending package.

“Jeff Bezos’s business model includes feasting on public subsidies—and the U.S. Senate must not acquiesce to his demands.”

According to Defense News, Senate Majority Leader Chuck Schumer (D-N.Y.) plans to merge the $250 billion U.S. Innovation and Competition Act of 2021 (USICA)—aimed largely at countering the rise of China—with next year’s NDAA, which would authorize up to $778 billion in military spending. That’s $37 billion more than former President Donald Trump’s final defense budget and $25 billion more than requested by President Joe Biden. The NDAA includes a $10 billion subsidy to Bezos’ Blue Origin space exploration company.

“Providing Jeff Bezos with $10 billion of taxpayer money would be an inappropriate giveaway of galactic proportions,” Stuart Appelbaum, president of the Retail, Wholesale, and Department Store Union (RWDSU), said in a statement Wednesday.

“Jeff Bezos shouldn’t receive taxpayer subsidies for his personal projects—period,” he continued. “In at least two recent years, one of the richest people on the planet paid no income tax; yet he then demands billions in taxpayer funds for a project that’s already been awarded to another company. This is the height of hubris.”

“Rather than waste $10 billion on a redundant space contract for Bezos, that money could be used to adequately fund Social Security Disability, Medicare and Medicaid, and the food stamps that many of his own employees at Amazon and elsewhere have to rely on to make ends meet,” Appelbaum said.

“Jeff Bezos’s business model includes feasting on public subsidies—and the U.S. Senate must not acquiesce to his demands,” he added. “Furthermore, until Jeff Bezos changes the way his employees are mistreated and dehumanized at Amazon and elsewhere, no elected official should support the passage of subsidies for him or any of his projects.”

Sen. Bernie Sanders (I-Vt.) has condemned the NDAA for containing $52 billion in “corporate welfare” for Big Tech. Explaining why he would vote against the NDAA, Sanders said Tuesday that “combining these two pieces of legislation would push the price tag of the defense bill to over $1 trillion—with very little scrutiny.”

“Meanwhile,” he added, “the Senate has spent month after month discussing the Build Back Better Act and whether we can afford to protect the children, the elderly, the sick, the poor, and the future of our planet. As a nation, we need to get our priorities right.”

Originally published in Common Dreams by BRETT WILKINS and republished under Creative Commons license (CC BY-NC-ND 3.0)

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Business, Economics, Finance, Observation, Tech

There’s more to Money than Dead Presidents: Crypto is Alive and Well

Above: photo – Dead Presidents Collage – Lynxotic

Haters like Buffet and Mark Cuban’s cheerleading are off base and spreading confusion

Disclaimer first: This opinion article is not investment advice and does not advocate buying any investment vehicle or currency

There are so many misconceptions propagated far and wide these days that it’s hard to choose a place to start. First it’s important to recognize that crypto currencies are not stocks or companies, yes that’s obvious but one of the biggest “anti” argument these days is that there’s an absurdity to the aggregate total value of a “coin” being more than the market cap of the stock of a particular company.

“Ethereum is now worth more than Bank of America”, this nonsense comparison goes, as if the market cap of a stock and the price of a coin times the number of coins in existence has any meaning whatsoever.

Following this logic, however, beneath all the hype, both pro-crypto and anti-crypto, lies a hidden thread to an actual underlying truth.

Though based on obvious common sense, this thread is potentially confusing and convoluted, to say the least. But without seeing it clearly the misconceptions will just keep getting more ridiculous.

In order to illustrate the conundrum a bit of background is needed. For example:

Stocks, in the US are priced in dollars. But how are dollars priced? Isn’t just as accurate to say that when the “price” of the DJIA moves higher (3,4050 at this writing) it is the value of the dollar, in relation to the DJIA that went down?

While this requires a kind of mental gymnastics, these are only due to the constant bombardment meant to keep you from seeing this 100% valid way of viewing stock valuations based in dollars.

There’s another kind of tacit misinformation and that is stating that “inflation” is only relevant when it’s measured by the government. For example if the “bull market” that began in 2009 and continues into 2021 represented a huge increase in stock prices, that is asset inflation.

The inverse of asset inflation is a reduction in dollar value. Less shares of a given stock can be bought for the same number of dollars. The dollars are worth less.

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And further, crypto, such as BitCoin is measured as having more or less value in dollars. Who is to say the massive rise in the dollar “value” of BitCoin is not representative of a decline in the “intrinsic” value of dollars.

The truth is often hidden in plain sight and that is what drives traditional markets

And that is precisely the point. BitCoin’s existence, which is locked in the mind of Satoshi Nakamoto (if he indeed exists) was indicated cryptically (no pun intended) to be a kind of answer to the instability of the global financial system as was evidence in the crisis of 2008. Taking place nearly concurrently with the birth of the idea of BitCoin.

Seeing the dollar as having a “stable” value and measuring a companies value, via it’s share price, is, let’s just say, perhaps 100 times more absurd than the Dogecoin dog.

Why? Because, for nearly a century the dollar is not backed or moored to anything but the government’s hope that it will retain value and laws that prohibit you and I from using other vehicles as “legal tender”.

The data (and opinions) on this are seemingly endless and yet absolutely critical to understanding our monetary system and where crypto may or may not fit in.

Horseshoe Nails and The Isle of Yap

Many interesting historical facts point toward the reality that money and coinage has always been just as much about the abstract belief in the system, more than any particular “intrinsic” value.

On the Micronesian Isle of Yap there was a functioning monetary system based on huge stones. A New York Times article, published in 1971 described the curious system:

“Every piece has an owner, and everyone knows who the owner is. Even when the money changes hands, it usually stays put. Yapese stone money is the largest and heaviest “coin” in the world.

In earlier days, brave islanders paddled by canoe 300 miles across open ocean to Palau where they cut slices from huge stalactites and brought them back as money. The value depended on how many men were drowned bringing them back. Nowadays, value is usually determined by measurements. We heard various versions, ranging from $10 radial inch to $42 a foot.”

Another article explains that many “wealthy” home (hut) owners displayed their money by leaving it leaning against the front of the house, where all could see the prosperity.

And, as for the prevention of fraud and corruption in any monetary system? Could any be more corrupt than the one that led to credit default swaps and mortgage-backed securities imploding and all the BS that nearly brought down the world’s banking system?

And that is not new either. In the 1800s traveling bank examiners journeyed throughout the US to check on the gold reserves claimed by various banks. More often than not, they found far less gold than was claimed (in today’s fractional banking system little attempt is made to reduce the leverage in the system).

A common, clever, trick to try to “leverage” what little gold was actually on hand was to pile gold coins and ingots on top of a bed of horseshoe nails, hoping that the examiner would weigh the entire concoction only, and never notice the bogus hidden attempt to bolster the weight.

Bitcoin’s system at least attempts to circumvent this typically human brand of fraud and corruption.

In the article “What is Cryptomining” on Techspot a chart was published to illustrate how Satoshi Nakamoto tried to solve the classic trust delimma with the proof of work mining system.

“For example, if Alice has $100 at the beginning of the day, she could promise Bob, Charlie, and David independently that she’d send them each $100 by the end of the day. While Alice could show them that she owns $100 and they’d all be content and agree to the transaction, Alice only has $100. Thus, if at the end of the day, the public ledger (which once finalized is set in stone, so to speak) includes 3 transactions initiated by Alice for $100, the system would be broken and no one would want to use it.

With a centralized system such as in modern day banks, there would exist a single ledger that can validate how much money a certain individual has, and thus it can guarantee that the customer cannot spend more than they own. When talking about a decentralized, peer-to-peer system, however, who’s there to stop a clever individual from spending their money multiple times quickly before getting caught?

To address this potential issue, crypto miners enter the playing field. Essentially, miners play the role of the decentralized banker, and will perform the required gruntwork to ensure that the system is functioning as expected without double-spending. In return for their work, they will be rewarded with some cryptocurrency.”

Buffet, Cuban, Musk & Munger

In clonclusion, Buffet, Munger and The Wall Street Journal may have knowledge and experience but they have also derived benefit from a system that favors those already holding capital, one that also has a tendency to crush those trying to build it.

So, it’s fairly obvious that they are “talking their book” and data mining to produce a self-congratulatory outcome, when they expound on all the reasons that they hate crypto (Munger even called it “disgusting”).

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As for Musk and Cuban, what’ve they got to lose? At least they “get it”, at least they are open to the idea of a future that has crypto as a part of the financial system. But where will they stand if there is government resistance in a big way, and if attempts to stop the entire crypto movement or “de-fang” it in ways that make it less viable as a true alternative to the status quo? That, my friend, will be the 1000 BitCoin question.

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