Connect with us

Precious Metals

Why Bitcoin Is The Best Weapon Society Has Against Inflation And Wealth Inequality

Why Bitcoin Is The Best Weapon Society Has Against Inflation And Wealth Inequality

Authored by Martin Leo Rivers via Forbes.com,

For bitcoin…

Published

on

This article was originally published by Zero Hedge

Why Bitcoin Is The Best Weapon Society Has Against Inflation And Wealth Inequality

Authored by Martin Leo Rivers via Forbes.com,

For bitcoin enthusiasts, one of the most compelling things about the cryptocurrency is its ability to side-step fiat monetary systems that dilute the value of cash holdings through inflation.

That isn’t anywhere near as complicated as it sounds. Put very simply, central banks grease the wheels of their economies by continually printing new money. A higher money supply makes it easier for companies to spend and service their debt. But there’s a catch: for every new dollar you add to the spending pool, the buying power of each individual dollar falls proportionally.

Again this is simpler than it sounds: changing the money supply doesn’t magically create wealth or value. If your economy is a nursery and your money supply is crayons, then doubling the number of crayons in the room doesn’t make the kids any richer. They all have twice as many crayons as they had before, so they all double the number they offer when bartering for toys, books and so on. In real terms, nothing has changed because the new supply of money is being evenly shared between everyone in the nursery.

Where things get more complicated – and where bitcoiners have rightly identified a need for a different, fairer system – is what happens when supply and distribution aren’t evenly matched?

Central bankers claim this isn’t a concern, because they contend that all the cash ultimately trickles down to the man on the street – be it through stimulus checks or higher wages or fatter pension funds or whatever other pathway they conjure up. In practice, of course, we know that simply doesn’t reflect reality.

In the real world, billionaires have, by far, been the biggest winners from covid-era money printing. They’ve taken their higher money supply (including vast sums of borrowed money, which is cheaper and easier to obtain when interest rates are low) and they’ve pumped it into inflation-beating asset classes such as the stock market, real estate, collectibles and so on. The middle classes have done the same, but on a smaller scale: building their savings during covid lockdowns and then allocating a healthy chunk of those funds to assets that have appreciated in value nicely.

Now consider the poor and the working classes. What little bonus cash they’ve received during the pandemic has either been spent on survival or stagnated. Unable to get on the property ladder, they can neither benefit from rising house prices nor start building equity by replacing rent (money that goes into someone else’s pot) with mortgage payments (money that goes into their own). Stock markets may, technically, be within their reach, but at a profound handicap due to high transaction fees and a limited understanding of investment strategies (the kind of knowhow that rich people simply pay someone else to worry about).

This imbalance results in one thing: inequality.

If you’re rich, you can take a higher money supply and use it to your advantage. If you’re poor, you really can’t. You’re stuck with whatever cash holdings you have in the new economy. And, as we know, the value of those holdings is actively being diluted through inflation. The more money is printed, the poorer you get.

Interest rates, of course, could save the day – if central banks wanted them to. When the interest rate rises above the inflation rate, any of us can grow the value of our cash simply by dumping it in a savings account. But policymakers don’t want this, because just about the only thing holding up the global economy right now is easy access to debt. As soon as the interest rate paid by borrowers increases, the shaky foundations of our covid-era economic recovery will collapse. Businesses and homeowners who binged on cheap loans will suddenly be unable to make repayments. Waves of bankruptcies and foreclosures will cripple the global economy.

Small wonder that central bankers – none of whom are working class, by the way – prefer the easy option of hammering poor people. “This might not be perfect,” they rationalize, “but everything seems to be stable and everyone I know is doing rather well!” That, in a nutshell, tells you why central banks are the biggest driver of wealth inequality.

So, what to do? Well, as long as central bankers and politicians are in the driving seat, there’s really no way of changing the direction of this economic journey. Those in power will always promote policies that advance their own personal interests, and they will do whatever is necessary to delay a global economic crash – even one that would, in the long-run, probably be good for society as it would precipitate structural reforms to the current, broken system.

If there is a solution, it would have to be an alternative monetary system that’s resilient to both inflation and central bank manipulation.

No prizes for stating the obvious there: civilization has aspired to have such a system for millennia. Trouble is, it’s never been that easy to build a monetary network that’s backed by no-one and yet protects the interests of everyone so convincingly that ordinary people will trust it with their life savings. Never, that is, until 2009, when the launch of the bitcoin monetary network gave the world its first taste of decentralized blockchain technology.

The boring bit

Convincing readers about the technical benefits of blockchain is a bit like convincing overweight people about the health benefits of dieting. The proof is in the pudding, as it were. And the average person on the street has no more inclination to become an expert in food science – the ‘how’ or ‘why’ a given diet is effective – than they do computer programming.

That said, you can’t understand the genius behind bitcoin without having at least a basic grasp of the revolutionary nature of blockchain technology – so here goes.

Trust is everything. I’ve already alluded to the fact that creating a monetary system from scratch is virtually impossible because money has no value unless enough people believe it has value. The easiest way to foster that belief is to get a government to pledge to uphold – or back – its value (think of that “promise to pay the bearer on demand” you see on banknotes). Another, more tenuous way is to come up with a universally appealing asset that has a fixed supply. Gold ticks this box nicely: it’s aesthetically attractive; it can’t be forged because of its unique density; and it can’t be manufactured by anyone, so there’ll only ever be as much gold on the planet as the planet already holds (shiny asteroids notwithstanding).

Then again, gold is a pain in the ass. It’s heavy, so it’s a burden to carry and transfer. It’s not easily divisible, so it’s hard to pay precise amounts with it. Not many people do their weekly shop with gold. But what if you could create a digital version of gold that weighs nothing, moves at the speed of light, and is divisible to the tiniest fraction of value. Sounds great. Also impossible. Until 2009.

If you only understand one thing about what blockchain technology does, let it be this: for the first time in history, blockchains give us genuinely immutable data.

That means the information contained within them cannot be changed. Ever. How they achieve this takes time to understand: it’s to do with the decentralized nature of the ledger, which lists all the transactions ever made on the blockchain and is secured by 1) the number of copies in existence (full nodes, all of which are cross-checked against each other); 2) the process through which new data is written (cryptographic encryption); and 3) the energy consumption of the network (the hashrate, which makes it impossible to overpower – or change the course of – the encryption process). I might have lost you there. But the end result isn’t difficult to grasp. Once you have immutable data, you have the ability to create autonomous digital money.

By ensuring that bitcoin’s transaction history can never be altered, mankind has created a digital asset that satisfies five of the criteria for money: it’s durable, portable, scarce, divisible and fungible (interchangeable). The final criteria – acceptability, or the willingness of people to conceive of bitcoin as real money – will be determined not by its technical traits but by humanity’s attitude towards it. In an increasingly digital age, the outlook is favorable.

Bitcoin’s detractors – and there are many; typically old, middle class people who’ve become very rich from the status quo – cite a different definition of money: that it must be embraced by society as a medium of exchange; a unit of account; and a store of value.

Bitcoin fails on all fronts, they say, as too few people use it on a daily basis, and the price is too volatile to measure or store value. Maybe so, today. But it’s also attained a market cap of $1 trillion in just 12 years. Is that not rather swift progress?

And what of the dollar and the other fiat currencies? Are they convenient mediums of exchange across international borders? Do they give us stable, predictable prices year after year? Most important of all, are they a store of value in an era of high inflation? If you’ve ever complained about the rising cost of living, you already know the answer.

Tyler Durden
Mon, 11/22/2021 – 15:05










Author: Tyler Durden

Precious Metals

Gold price prediction: bearish formation to define direction in the short term

Gold price movements at the beginning of the week are rather subtle. Notably, it ended the past week on a low amid the strengthening US dollar. In the…

Gold price movements at the beginning of the week are rather subtle. Notably, it ended the past week on a low amid the strengthening US dollar. In the new week, the focus will be on the Fed policymakers’ speeches and overall performance of the greenback.

Strengthening dollar

The dollar index, which measures the value of the greenback against a basket of six currencies, is on a rebound after easing late-last week. On Wednesday, it surged to $96.95, which is its highest level since July 2020. At that level, it was in the overbought territory with an RSI of 73. Even with the subsequent corrective pullback, it ended the week above $96, which has been a crucial support zone for over a week now. Earlier on Monday’s session, it was up by 0.29% at 96.35.

In the new week, the newly re-elected Fed Chair’s testimony and speeches from other Fed officials will likely impact gold price. In the recent Fed meeting minutes, a rising number of policymakers highlighted their willingness to speed up the tapering of asset purchases and hiking interest rates if high inflation persists.

Investors will also be keen on the Treasury yields. Rising yields usually support the US dollar while exerting pressure on precious metals. The benchmark 10-year US bond yields ended the week down by 9.4% at 1.48 after surging to a one-month high at 1.69 earlier in the week. However, it has since rebounded above the psychological 1.50.

Gold price technical outlook

Gold price ended last week below the psychologically crucial level of 1,800 after rebounding above it earlier in Friday’s session. While it is on a rebound in Monday’s session, it remains below this key support-turn-resistance zone. At its current level, the precious metal has erased most of the month’s gains. Indeed, it is only 1.93% above the month’s low of 1,759.18. At the time of writing, it was up by 0.05% at 1,794.29.

On a four-hour chart, gold price is trading below the 25 and 50-day exponential moving averages. At the same time, it has formed a head-and-shoulder pattern, which is a bearish formation.

Based on these technical indicators, the precious metal will likely record further losses in the new week. The horizontal channel between the 50-day EMA at 1,813.40 and November’s low at 1,759.18 will remain a crucial one in the ensuing sessions. Notably, this range has been an important one since mid-October.

In the immediate term, the 25-day EMA at 1,800.98 will be the resistance level to look out for. Past that level, it may hit the horizontal channel’s upper border of 1,813.40 before pulling back to around the psychological zone of 1,800. On the flip side, a drop below the current price will likely place the support at 1,775.00 or lower at the channel’s lower border of 1,759.18.

gold price
gold price

The post Gold price prediction: bearish formation to define direction in the short term appeared first on Invezz.







Author: Faith Maina

Continue Reading

Precious Metals

The US Dollar Implosion: Questions To Consider For Non-Bitcoiners

The US Dollar Implosion: Questions To Consider For Non-Bitcoiners

Authored by Riste Simnjanovski via BitcoinMagazine.com,

One approach to…

The US Dollar Implosion: Questions To Consider For Non-Bitcoiners

Authored by Riste Simnjanovski via BitcoinMagazine.com,

One approach to orange-pilling no-coiners is to simply draw attention to the various economic uncertainties facing the U.S. Dollar today…

SUMMARY

The purpose of the article is to examine the current state of the U.S. dollar in reference to the average American’s mentality during economic hardship. The article will serve as a potential onboarding ramp for non-bitcoin holders through an exploration of current events and posing of questions to the reader.

PRE-INTRODUCTION, FROM ME TO YOU, BEFORE WE BEGIN…

If you currently work, or have ever worked, what was the goal? OK, slow down there, turbo. Don’t just read that question and move forward, stop, think, and genuinely ask yourself, why did I work? Why do I work? Have you found a passion in your life where work and engagement run hand-in-hand? Perhaps you are paid to do what you love; are you even paid at all? If so, how do you take payment? Is it with U.S. dollars, exchange or trade, food, material goods, gold or silver, cryptocurrency (tokens or fractions of tokens) or some other means? Have you been paid in eggs for working on a chicken ranch? Are you a computer programmer, plumber, rocket scientist, attorney, mathematician, pediatric dentist, professor, kindergarten teacher, food service worker, engineer, manager, car salesperson, banker, peace officer, government employee or run a lemonade stand? Maybe something else entirely. The point is, you’ve been lied to. We’ve been lied to. So let’s talk, and please, keep an open mind and do your best to not get reckless as I lay out my position. In the end, know that I love you, the community that supports me loves you, and all we’re trying to do is share a position that could benefit you and your family.

Humans, in modern times, exchange time for money, in the form of “work.” We often have grandiose ideals of work, or perhaps, genuinely, you despise the notion of work. There are foundational theorists I could include here to appease the academic community; however, in truth, at this point, I don’t care if the academic community is impressed with this work, I’ve lost respect for many of them and they genuinely have no idea who I am. In reality, I’ve lost most of them already through my use of a first-person narrative, missing references and/or citations, using “and/or” like I just did, twice, ending sentences with a preposition, et cetera, so relax and cheer up. This could get ugly.

Before I was born in the 1970s, my parents bought a home in Southern California, a three-bedroom, two-bath, single-story place on about a quarter acre for around $36,000. Today, the home is “valued” closer to the $1 million mark than it is to the original $36,000 they spent. Here is the first question: Did the home go up in value? A normal response is “Yes, that ‘asset’ appreciated.” I would argue, as many others might as well, that in fact, “No, that home has not changed in any manner whatsoever.” So what happened?

The truth is that the original $36,000 U.S. dollars that home was purchased for now is not enough for a down payment on that same home a several decades later. Why is that? Consider that the home has not changed, rather, the amount of U.S. dollars required to purchase that same home has increased. So, which is it, is the home more valuable or is the U.S. dollar less valuable (or powerful) and, as such, that same home now REQUIRES more U.S. dollars to own? If the latter is the case, we have a problem. When you hear the media say “the U.S. dollar is strong” that is only because they are comparing it to worse fiat currencies. It’s akin to saying, “This is the best tasting crap of all the crap.” It’s still crap you’re eating.

A bigger question is why is “work” in the past worth “less” than work in the present or in the future? My position is that this “work” should not be any less valuable for a person who worked for a lifetime in 1914 to purchase and pay off a home versus someone today or 100 years into the future. And that is the challenge, is it not? Why can’t value in the monetary system be stored for future use; why does the “value” depreciate and lose purchasing power immediately once transferred to the worker? Moreover, why can a government simply “print” value? The moment someone is “paid” for their work, that U.S. dollar (and let’s be real, it isn’t just the U.S. dollar, it’s any/all currency printed by any/all governments with no actual value or backing, I’m just picking on the USD for now) purchase less than it did the day before? That is terrifying. This scenario is also why most Americans chase “gains” in a stock market or risky investments; the goal is to “make money” but in reality, the money (currency) is simply the vehicle necessary to exchange for the possessions, items, things or time they really want. So what do you want? A nice home, security, your business’s cash on hand to not deteriorate in purchasing power, time with the family, something else?

THE AMERICAN LOVE-HATE RELATIONSHIP WITH GOVERNMENT

Americans don’t trust their government. Remember that the Constitution was written to limit governmental authority and provide as much freedom to citizens as possible, not vice versa. Yet, the same untrusting Americans habitually entrust this same government with their livelihood and future economic selves. The dichotomy of this is puzzling. A typical American worker distrusts the government and in the same breath accepts payment for their labor in a form that, once accepted, loses value exponentially, indefinitely and until that value has disappeared. How is this rational? Why haven’t the masses realized that the home they live in has never increased in value — ever. The amount of U.S. dollars required to purchase that same home has increased. Put in another way, the dollar’s purchasing power has decreased, violently, and one needs more of the plummeting currency for the same goods or services.

How does this not sink into the consciousness of American consumers? At the lumberyard, a two-by-four board may cost $2 one day and $20 the next. Did the board increase in “value” or are more dollars simply required to purchase the same piece of wood? How about blueberries? Bottled water? A gallon of gas? Have those items increased in value, have they changed in any way whatsoever, or have they remained constant and the variable society has missed the devaluation of the dollar? Queue a distracting supply-and-demand argument from a professor who has taken a few economics classes here. Dear professor, no one wants to hear your consumer price index rants when it costs the average person a day of work to fill their gas tanks and another day of work to buy groceries.

The more horrifying realization comes when an American spends a lifetime working to accumulate dollars and attempts to store that economic energy in a bank. How is it equitable that a couple who managed to save $250,000 should have 3%–20% or more of their purchasing power stolen through inflation, annually, by a government who can print dollars, at will, and literally steal the economic energy of a family who worked an entire lifetime for the promise of security? In exchange for devaluing your U.S. dollars, the bank would like to offer you a teaser rate of 0.01% interest. Enough already.

Why would any rational person save something that another person could create from nothing? The answer: We are irrational. We cling to what we know, what we’re told, and what we’re sold. We are not independent thinkers, we seek approval, and we seek significance through material goods in the past and virtual goods in the future. We attempt to finance our happiness through the leveraged debt of our time.

Ironically, governments work to ensure taxation limits the political, social and fiscal expansion of the lower and middle classes. On a Likert scale of zero to 100, where zero was the required burden of “0%” taxation and 100 was “100%” taxation of an individual’s income; the 0% population would be completely free, essentially sovereign entities, and the 100% taxed population would be, for all intents and purposes, slaves or indentured servants. This is why, I propose, corporate billionaires pay no taxes and why they have so much political influence.

American employees rationally dismiss logic and entrust their hard-earned economic future to those whom they trust the least. They place their hard-earned economic energy, in hopes of conserving their purchasing power in a bank, only to find that their purchasing power was whittled away with inflation, reckless federal spending, governmental expansion and monetary policy. Americans put in grueling work weeks, forgo invaluable time with loved ones and then exchange those hard-earned hours for pieces of printed paper with no true monetary backing. To go a step further, some attempt to invest these earned pieces of paper in a rigged financial system or worse yet, attempt to “save” a debased currency in a banking system that systematically and methodically devalues their efforts and savings each time a new dollar is printed. As such, I hope I’ve gotten your attention in an attempt to, at a minimum, question the current status quo of American savings and investing. Perhaps there is an alternative.

U.S. DOLLARS ARE A MEDIUM OF EXCHANGE, NOT A STORE OF VALUE

Before one understands concepts such as inflation, deflation, devaluation, debasement, et cetera, they must come to the realization that every moment they are on Earth, the U.S. dollar in their pocket or bank account is losing purchasing power. As such, the longer that dollar is not spent, the less it will purchase in the future. The U.S. dollar, or any fiat currency for that matter, is a terrible store of value and, for all intents and purposes, is not a long-term store of value. Think of the dollar in your pocket like a perishable good from the grocery store. To be an exceptional store of value, the medium in which economic energy is converted into stored economic energy, that medium (the store of value) must, at a minimum, store that same value over an extended period of time. Why shouldn’t I be able to work for an hour, save that hour’s purchasing power if I did not need it, and then pass that purchasing power onto my children, or children’s children? This should not be a radical idea; this should be a question every rational person in America, every person in the world for that matter, asks of their government. As humanity becomes more aware of fiat currencies, workers will undoubtedly discover the difference between currency and money. Gold and silver bugs, you’ve been preaching about this for a while, thanks for the continued history lessons.

For the purposes of this article, it is understood that the printed U.S. dollar has no true value other than what is perceived to be its value by those around them. Simply put, the dollar is something one can use to exchange for goods or services, it is not a store of value. Taken a step further, the U.S. dollar is a written declaration of debt. So, when the government, via the Federal Reserve, prints more currency, they are creating new debt, not simply increasing the monetary supply. The alarming truth is that the moment “faith” in the U.S. dollar begins to deteriorate, Americans will offload paper debt-dollars in an attempt to acquire assets or true historically perceived stores of wealth (e.g., gold, silver, commodities, property) and digital assets (bitcoin/BTC).

In this vein, Americans, while engaged in heated discourse about society and the monetary system, act in a manner in line with what society expects. Americans put their faith and future, in hopes of currency having purchasing power decades from now, into savings accounts designed to systematically siphon purchasing power from them. A logical question that arises: Why does currency need to be invested or saved at all? The answer: Because if it isn’t, any currency saved will have less purchasing power in the future. Again, the ringing question is, why can’t you store your economic energy for future usage?

The average American should be aware of the fact that one hour of work 30 years ago produced “X” amount of currency and that currency, if deployed today, would purchase less than half of what it did at the time the currency was earned. Sadly, this timetable is accelerating. Inflation shouldn’t be a “fact of life” or reality for any logical person. This reality does not make sense. This fact, inflation, is beyond unfair; inflation is downright cruel and inhumane.

Some pundits would argue that an hour of work today has the same purchasing power of an hour of work a year ago, 10 years ago or beyond; it doesn’t. One may argue that, sure, when the minimum wage was $0.10 per hour or $7.00 per hour, a loaf of bread, a gallon of gas, or a home was proportional to the amount earned at these times. Unfortunately, that is inaccurate and is part of the lie Americans have been taught to believe. The “proportional lie” is where the wealth gap, the inequity and the systematic decimation of the middle class have occurred. This is not a Democratic or Republican issue, the issue is not with politics per se, it is with the financial system as a whole and a public lack of understanding.

Why does an hour of work from 30 years ago become, over time, less valuable than an hour of work completed 30 minutes ago? Additionally, why can’t American workers simply store that economic energy and deploy it when they see fit? The reality is that as a result of currency debasement and continued currency creation, each dollar earned is devalued (can purchase less in the future than it could versus when it was immediately earned) by each additional dollar printed and put into circulation. The reason a dollar today will have less purchasing power in the future is because the federal government has already spent the dollars Americans have earned and as such, to pay off their (the government’s) debt in future dollars, plus interest, your dollars must become less valuable.

Every moment you don’t spend your currency is a moment that you lose purchasing power; and this is exactly how the Federal Reserve and the federal government want it. Continue to spend, continue to consume and discourage saving; or better yet, risk your economic stored energy in a stock market where the system can, in an instant, separate you from your wealth and transfer it to someone or something with no appreciable, economic or socially supportive skill set. Americans want to shock the system with an old mentality? Liquidate all cash holdings, purchase tangible assets, commodities and items with true stores of value; someone would have done well with toilet paper, paper towels and cleaning products during the beginning of the COVID-19 pandemic in early 2020; as did firearms and ammunition dealers; as did persons selling live chickens that would eventually produce eggs for consumption. Note that these examples did not “increase in value,” rather the dollars required of them increased and conversely, the dollars’ purchasing power decreased. Imagine a system where millions of workers stopped working for the system and began working for themselves and any excess “value” they earned was not stored in a bank to depreciate and die, but potentially “paused in time” and retained purchasing power, indefinitely. This is the promise of Bitcoin.

While a complete detachment from the system is improbable for the masses, one can begin to see the logic of the social “fringe” and perhaps empathize with those whom the media casts out as doomsayers, paranoid or illogical. How does someone who lives on an environmentally sustainable farm, with its own well water, food source and neighbors willing to barter when crops are harvested, threaten America? By definition, it is American. The threat lies in the fact that these farmers have detached themselves from the system as much as possible. We’ve been conditioned that the “rich” or “poor” are the problem; this isn’t the case, monetary policy is the problem. The politicians, on both sides, who benefit from loose monetary policy are the problem. A legacy banking system that steals percentages of every digital transaction is the problem.

Let’s get back to that rancher. In some cases, the rancher’s home is paid off, they live below their means, their waste is often recycled and reused back into the land or animals, they have invested in tangible assets that hold their value (a farmhouse, stables, land, livestock, gold, silver, weapons, tools, machinery, etc.). The real threat is that these assets are privately held in the family’s hands and not as binary inputs on a server. They are real, tangible, valuable and a historically true store of value; yet they are imperfect. Homes and stables need repair, land is taxed, livestock get sick and die, gold and silver require storage, and so on. Of course, “assets” are still subject to government overreach via taxation and law, in an attempt to force the government’s will on the rancher’s livelihood and independence. Even farming families today have explored options of wealth preservation outside physical, tangible assets. Once the farmer has the tractors and supplies needed, what are they to do with potential excess currency earned from an abundant year? Should every morning they wake prior to sunrise, every splinter, cut, scrape, blood, sweat or tear be converted into a currency and then placed in a bank to subsequently die a slow death or is there an alternative for their family? Why can’t the rancher store excess economic energy from abundant years and deploy that same energy when crop yields are potentially low in the future?

COST OF LIVING

What is a loaf of bread worth to the average family? One may posit that a typical response, in any given amount, would be associated with the U.S. dollar. Perhaps one would suggest, in 2021, $2.00 or $4.00 would be a fair price for a loaf of bread. The purpose of this section is to propose that any U.S. dollar amount is irrelevant. As a commodity, bread, electricity, fuel or other essentials for existence are traded in exchange for human energy. In modern times, Americans have expended energy in the form of work, exchanged that energy for a currency (the U.S. dollar) and then used that currency to purchase essential commodities for existence, pleasure or prosperity.

A standard loaf of bread in 1904 has been reported to cost between $0.04 to $0.08, with an average annual family income of $438.00 to $827.00 (according to conflicting reports). When divided by 50 work weeks per year, at five days per week and thus totaling 250 work days per year, the daily average income for an American worker in 1900 was $1.75 to $3.31 per day. This meant that, in 1900, depending on a person’s average income, they could purchase between 21 and 41 loaves of bread per day of work. I know this is a lot of bread, but follow me here for a minute.

In 2013, the real median income level, measuring half of households below and half above this level, in the United States was $57,000 per year. When dividing this number by 250 (as conducted above) with a reported average recorded price of a loaf of bread being $3.75, equals over 60 loaves of bread per day of work. One could then argue that either the cost of living has gone down, the technological advancements of bread-making have made it more efficient and thus, driven the prices down, or perhaps something out of an economist’s playbook, a mathematical formula that takes into account government subsidies on wheat producers addresses this dilemma. Trust me, I’m sure a model is being worked on by a tenured professor somewhere. Perhaps the fact that the government subsidized the American farmer and thus drove down the cost the raw materials needed to make bread played a factor? Either way, life is easier and the cost of living is cheaper today, right? This is the lie you’ve been told. This section suggests these assumptions are inaccurate and outright dangerous.

The annual or real median income level reported above includes the incomes of multimillionaires and billionaires in the census. The key term is “median.” Remember, in school, you probably learned that mean is the average, median is the “middle” value and mode is the highest frequency (most repeated) value. One would have been better suited to explore the mean or mode for the “real income level” but in doing so, statistics begin to look unfavorable for the American worker.

How would these results change if a minimum wage earner were examined? The federal minimum wage, in 2013, was $7.25. Per day, a minimum wage earner in 2013 earned $58.00. This would translate to approximately 15.5 loaves of bread per workday; a far cry from the potential 60 loaves in 2013 earned by the “median” American data and well below even an average laborer in 1900. With these calculations, for a minimum wage earner to earn the equivalent commodities (in this example, bread), the minimum wage for a U.S. laborer would need to earn a minimum of $18.75 per hour. These results do not compensate for state or federal taxes; however, this is not a call for an $18.75 per hour minimum wage. By simply raising the minimum wage, short-term purchasing power is increased, yet, in the long term, simple inflation washes away the purchasing power. For example, in an America with an $8.00 minimum wage, perhaps a loaf of bread is $4.00. In an America with an $18.75 minimum wage, that loaf of bread may double in price; moreover, the taxes paid by the employee would increase.

Unfortunately, simply raising the minimum wage of American employees will not solve the issue. A massive influx of dollars by the Federal Reserve has crushed any hopes of the poverty line moving in any direction but up. Detailing the current issues with the inflationary challenges presented by a fiat currency and the challenges presented in this article, in reference to an increased cost of living but decreased currency for survival, one can imagine the impossible task presented to a minimum wage worker attempting to provide for their family as well as attempt to prepare for the future.

A POTENTIAL SOLUTION

For thousands of years, gold was the “go to” store of value for individuals, nations and thriving economies. There are history books riddled with tales of everything from buried treasure to mass murder in attempts to take possession of the golden rock. In several instances, physical gold backed printed paper currencies, well, that was until the debasement of the currency reached a threshold that was unstainable and the “backing” was broken. Queue Nixon’s 1971 speech and the lie in the use of the phrase “suspend temporarily” or Romans clipping the edges of coins or melting them down with cheaper metals. Again and again, we’ve been lied to.

Gold is good, but it isn’t perfect as a store of value. Each year around 2% is mined and thus, the supply increases. When the price increases, miners are incentivized to ramp up production, and thus, pricing fluctuates in accordance with the supply. Bitcoin is different as there will only be a set supply ever created, 21 million. Moreover, as currency continues to be printed, gold continues to be mined, Bitcoin’s production remains constant, until, well, there are no more to be mined, ever.

This will be the second major lie I’ll cover. Big banks, media tycoons, members of Congress, senators, politicians, doctors, lawyers, dentists, professors, peace officers, even some kids, own bitcoin. The Chinese government essentially banned Bitcoin and yet they own, as of 2021, around 300,000 coins. American politicians seek to regulate the digital asset on one hand, and mayors and professional athletes are scurrying to be paid in bitcoin as the legal landscape unfolds.

What do many of these pro-Bitcoin Americans know about the digital asset that non-Bitcoin owners do not? My assumption is that, honestly, most Americans haven’t given this much thought. Odds are, you are in one of a few camps at this point. One, you hold bitcoin and continue to accumulate — as such you’re probably reading this article for affirmation, I feel you. Two, you do not hold bitcoin and are beginning to become increasingly aware that your purchasing power has been diminished — it’s OK to ask questions, this community is a good egg for the most part. Three, you own some Bitcoin, or have in the past, but you trade altcoins like a degenerate in your mom’s basement — no love lost here, but please don’t begin to spew those OG arguments about BitcoinSV and how massive gains in LawnClippingsCoin are the only way to go for real gains. The question I have for the third group is this: What is your end goal for the coin(s), NFTs or tokens that you hold? If the answer is to sell them at a profit, then that is the ultimate trajectory for the coin, to be habitually “gotten rid of” so please be careful with those hot potatoes.

Bitcoin is different. The holders of the digital asset, in many instances, may never sell, ever. Many see the asset, the property, beyond something of “digital gold;” they see digital property, digital real estate and a claim on future prosperity. This mindset should tell you more about the trajectory of Bitcoin than the daily price predictions. Non-Bitcoin holders, your first step in considering when to “get off of zero” (i.e., not holding any Bitcoin) is to work to answer the questions I’ve laid out above. Consider yourself, your family and those you care for. Explore options of how to “store your economic energy” and what instruments and tools are at your disposal. After hundreds of hours of homework (years for me), you’ll probably come to the same conclusion I did in 2016 (after being exposed to cryptocurrencies in 2012). Bitcoin (BTC) is a potential solution. Bitcoin, with all the volatility and negative news at times, is my safer bet, long term, than the dollar. Now, I could be wrong, we could all be wrong, and there is always the disclaimer that this is not financial advice and that I’m not a financial planner, however, what keeps me up at night is knowing that every dollar I have today will purchase less tomorrow. One suggestion, exchange your fiat, depreciating, U.S. dollars, when you have excess, for a true store of value. From my perspective, that store of value is bitcoin. Do this every day, week, month or year. Accumulate, buy often and consistently. I wish you the best.

Tyler Durden
Mon, 11/29/2021 – 03:30















Author: Tyler Durden

Continue Reading

Economics

Weekly Market Pulse: This Again??!!

Here we go again. Or maybe, more accurately here we go still. COVID has reared its ugly head again, this time in the form of a new variant called Omicron….

Here we go again. Or maybe, more accurately here we go still. COVID has reared its ugly head again, this time in the form of a new variant called Omicron. The name surprised some folks because the next letter in the Greek alphabet was Nu but the WHO thought that sounded too much like “new” so they skipped that one as Greek speakers are generally confined to Greece these days. And the next letter was “Xi” which the WHO said was a common last name and that their policy required “avoiding causing offense to any cultural, social, national, regional, professional, or ethnic groups.” Well, goodness no, wouldn’t want to offend anyone, certainly not the most famous man with the last name of Xi. What I’m trying to figure out is if I actually slept through epsilon, zeta, eta, iota, kappa, lambda and mu or if WHO thought those might offend someone too, like maybe some fraternity or sorority. They sure didn’t seem to mind offending Animal House fans by naming the last one Delta. Maybe they were worried about offending nerds (Lamda, Lamda, Lamda). Ah, WHO cares?

About the only thing we know for sure is that last Friday’s selloff didn’t have anything to do with the name because that happened while the WHO was deep into research on the Greek alphabet and who it might offend. We were having a nice pleasant Thanksgiving week, eating turkey and ham and yams, watching football – if that’s what you call what the Lions play – and just generally enjoying a couple of days away from the market when WHAM! Here comes Mu or Nu or Xi or Omega or whatever and the market tanks like it hasn’t done since all the way back in February. Worst week since, um, well, last month. The S&P 500 was down 2.2% last week which, in normal times, would be barely worth a mention. But in today’s speculative market, that qualifies as a correction and Twitter is all atwitter this evening about the rebound everyone expects tomorrow.

We don’t know anything about this new variant yet and so there is no way to judge the impact. Yes, some countries are closing borders but they can be opened just as quickly. I have said since the onset of this pandemic that we better learn how to live with this thing because it isn’t going away. And unless Omicron turns out to be an extremely deadly version of COVID, my guess is that people are just going to go on with their lives; COVID exhaustion has set in. So, whatever the state of the economy was prior to the arrival of the big O, that’s what it is now too no matter the WHO’s permanent state of panic.

The global economy is still recovering from the COVID shock – the shutdowns and the response. The first two quarters of this year were a big rebound as the vaccines were rolled out. Last quarter was a bummer with the emergence of the delta variant (or at least that was the accepted wisdom). And this quarter so far is looking like a pretty good rebound from that slowdown. The Chicago Fed National Activity index rebounded in October to 0.76, a big improvement from -0.18 in September. The 3 month average is now 0.21, showing growth as just a bit above trend. Until the new variant news hit Friday, markets were starting to confirm the improvement in the economy. Both nominal and real rates were up on the week – for a change – and the economic data was almost uniformly positive. But rates were down hard on Friday and finished the week in the red. We’ll see if that lasts this week.

When it comes to economic and market data I try not to react too much to any one report. I learned a long time ago that the first pass on economic data is really just a guess and revisions can change your entire view of the economy. And this week we got reason number bajillion why that is true. Last month we got a report on goods trade that showed a large drop in exports. A lot of pixels were expended in explaining why that was a big warning sign about the global economy. But the drop was confined to one category of goods called “industrial supplies” and I warned that we didn’t know what caused it. Well, since then we discovered that the biggest drop was in “non-monetary gold” which means essentially nothing to the global economy. I don’t know why it dropped that month but it rebounded this month and the entire drop has now been wiped away. There were some other weak items in that category as well – crude oil and petroleum products – but none of it was that surprising or important to the global economy. The point is that one shouldn’t make any rash judgments about the markets or the economy based on one report.

And the same applies to the latest virus news, whatever it might be. The emergence of the Omicron variant could be negative – or not. It may evade the vaccines – or not. It may be deadly – or have mild symptoms with low hospitalization and death rates. We just don’t know. I do believe, based on my own reading about coronaviruses, that COVID-19 will eventually mutate into something our immune systems can handle. It could become like the flu or even better like the common cold (which is actually a bunch of viruses). That is, after all, what coronaviruses do (not all viruses obviously). They evolve and mutate to a form that allows it and its host to survive. How long that takes is anyone’s guess but if history is a guide it doesn’t happen quickly. You could be talking years before we reach that point. In the meantime, we need to do the best we can and live with it. Because it isn’t going away. Still.


 

As I said above, the economic data released last week was almost uniformly positive. New and existing home sales rebounded although both are still down year over year. Durable goods were lower for the second straight month but ex-transportation orders were up a solid 0.5%, the eight consecutive monthly gain. Core capital goods were also higher again, up 0.6% for the sixth consecutive gain.

Personal income and consumption were both up in October as wages and salaries continue to move up. Incomes fell off some after the end of the extended unemployment benefits but that is rapidly fading in the rear view mirror. Consumption remains well above the pre-COVID trend and shows little sign of abating. And by the way, that is true of real, inflation adjusted consumption too. Incomes are still struggling a bit after inflation and taxes are taken into account; real disposable income was down 0.3% last month and 0.9% year over year.

Despite that we continue to classify the current environment as one of falling growth. That is primarily due to real rates which are still near their lows of this cycle at -1.07% for the 10 year TIPS. The nominal 10 year at 1.48% is still quite a bit below the peak last spring of about 1.75%. Lastly, the yield curve continues to flatten although it is still a long way from flat or inverted. The dollar is also still in an uptrend, hitting its highest level since June 2020 last week before pulling back on Friday. While we might see some near term weakness the short term trend is obviously up.

 

We get more housing data this week in the form of pending home sales which will give us a better idea of how the market is right now.

Jobless claims should be interesting this week. Last week’s report dropped under 200k. The last time initial weekly claims were that low the summer of love was just ending (September 1969 for all you youngsters out there). It seems like a possible seasonal adjustment mistake but maybe not. The trend should put this week’s number up around 250k.

We get payrolls this week and that is often a market moving event. It is backward looking and subject to huge revisions but for some reason people still pay attention so we will too, at least for this week.

Finally, we get the ISM reports this week.

Stocks were down across the board last week while bonds were mostly higher (in the chart below is shows the 3-7 Year Treasury index as down for the week but that is wrong for some reason; the ETF for the index was up on the week.) Corporate bonds, high grade and junk, were down last week as spreads have widened every so slightly. Junk spreads are still very tight historically so just something to keep an eye on at this point.

Commodities also took a beating last week as crude oil dropped below $70. Blame it on omicron I guess but it was due for a pullback in any case. The commodity line below is the GSCI index which we sold months ago. Our preferred index right now is the BCOM which was down about half as much as the GSCI last week. In any case, commodities are still the best performing asset of the ones we track and own in our portfolios.

In a strong dollar year it isn’t surprising to see foreign markets lagging. Global ex-US stocks are up just about 5% this year while EM, Asia ex-Japan and China are all down YTD. Japan is clinging to a small gain. It is hard to fathom the gap in performance between US and international markets over the last decade. Just truly stunning and the reversal, when it comes, will likely be just as spectacular. But we aren’t there yet.

Value outperformed last week but it wasn’t anything to write home about.

With everyone expecting the market to rebound tomorrow I wouldn’t be surprised at all to see us take another leg down. A lot of Friday may have been nothing more than a convenient excuse to take profits in a wildly overvalued market. A 2% down day hasn’t changed that. About the only thing that would is a certified bear market but with the economy at least okay for now, that doesn’t seem likely. So, what do we do to our portfolios? Nothing is the usually the best answer to that and this is no exception. Our portfolios continue to be defensive with a larger than normal allocation to cash. That’s what the current environment of falling growth and rising dollar calls for. Maybe omicron will be the catalyst for the long overdue correction of at least 10%. With margin debt as high as it is, it probably wouldn’t take much more to really accelerate the selling, forced or otherwise. And 10% is nothing, a normal market fluctuation that comes, on average, about every 19 months. This is the 20th month since the bottom of the COVID bear. Just sayin’.

Joe Calhoun









Continue Reading

Trending