12/02/2016 - The Roundtable Insight – The Repercussions Of India’s War On Cash
FRA is joined by Mike Shedlock and Yra Harris to discuss the repercussions of India’s war on cash, along with implications for the rest of the world and what we can expect from global policies that are occurring.
Mike Shedlock / Mish is a registered investment advisor representative forSitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education.
Yra Harris is a recognized Trader with over 32 years of experience in all areas of commodity trading, with broad expertise in cash currency markets. He has a proven track record of successful trading through combination of technical work and fundamental analysis of global trends; historically based analysis on global hot money flows. He is recognized by peers as an authority on foreign currency. In addition to this he has Specific measurable achievements as a member of the Board of the Chicago Mercantile Exchange (CME). Yra Harris is a Registered Commodity Trading Advisor, Registered Floor Broker and a Registered Pool Operator. He is a regular guest analysis on Currency & Global Interest Markets on Bloomberg and CNBC. He has been interviewed for various articles in Der Spiegel, Japanese television and print media, and is a frequent commentator on Canadian Financial Network, ROB TV.
MAJOR FINANCIAL REPRESSION IN INDIA
It’s been estimated that 82% of the entire physical cash currency is now out of circulation, and that’s devastating the economy. The price of gold is going through the roof to upward $3000 USD/oz.
The impact will be different from what a lot of people think. It’s not as financially repressive and they believe it’s an effort to raise more taxes. There’s a lot of black market activity that takes place in India and they’re trying to recoup some of that tax, but it’s interesting that it comes on top of efforts by Larry Summers and others to go to a cashless society. That’s the ultimate act of financial repression because then they can take rates as low as they want and there’s no penalty because everyone is going to spend what they have instead of hoarding their cash.
A lot of the housing transactions are done with black market cash, so this might act to cool off some of the wild inflation we’ve seen in Indian home prices. We can say for sure that central banks around the world are watching this to see what they can do and what they can get away with. The Bank of Japan would like to outlaw cash, the EU banned the 500 Euro note, and Larry Summers in the US is proposing banning the $100 bill. All of this is allegedly to stop the black market in currency, but that’s not the real target. The real target is to get rid of cash, make sure the government can track your spending, and make sure you pay taxes on everything you should be. The reason people aren’t paying taxes is because taxes are too high and banks aren’t safe. The real reason behind this is so governments can confiscate cash at will, so no one in the long run is benefiting from this move.
WHO BENEFITS FROM NEGATIVE INTEREST RATES?
Interest rates have been negative for the last decade, other than the financial crash when the prices of everything crashed. Rising productivity is inherently deflationary. We have more goods produced by fewer people with less effort and less money. Central banks don’t want that. The BIS did a study last year and their perspective was that routine CPI deflation are not damaging at all. The only time you’re going to find it is going back to the Great Depression, and that was an asset bubble bust, not just routine price inflation bust. What central banks have done in their fight against cash is elevate the price of assets until they’ve created bubbles.
White anger sponsored by the Fed helped elect Trump. People still don’t understand the Fed and central banks brought about the very thing they’re railing against by repressionary financial tactics and promotion of inflation.
ITALIAN REFERENDUM
On Dec. 4th, two things happen: we have a referendum in Italy and Italian president Matteo Renzi vowed to step down if the referendum failed, and an election in Austria where Norbert Hofer is anti-immigration and the odds have been very good for him. He will be the first anti-immigration nationalist president of any nation in Europe since the end of WWII.
If Renzi loses, he’s not going to be allowed to resign. They will go with the crisis mode and Renzi is far better off if he loses. It’s extremely difficult to see how things will play out. We’ve got these multiple simultaneous battles going on in France, in the Netherlands, in Austria, and in Italy. There is a serious risk of fracture.
INFRASTRUCTURE SPENDING
It takes an authorization from Congress for Trump to build a wall, and he’s probably not getting it. If Trump can actually divert funds from somewhere to build a wall, as far as wasteful spending goes it’s not the most wasteful thing in the world. If you want to stop people from coming to the US for free handouts, you stop the free handouts, not build a wall. The stock market is mostly reacting to the premise of all these tax cuts and how inflationary this is going to be.
When we look at a potential collapse in global trade, a potential collapse in housing market and stocks, if bond yields, we’re looking at a deflationary outcome. We are not necessarily going to get immediate inflation out of this. Down the line, possibly, but the immediate picture in light of productivity enhancements coming online, millions of taxi jobs vanishing, and a possible collapse in asset prices, this is a very deflationary setup and a rising dollar exacerbates that.
With a huge amount of debt, this is nothing like a Reagan redo. It’s a far different picture from Reagan’s time. If we expect to go through this massive fiscal stimulus in infrastructure and “full employment”, they should be raising rates by 100-200 basis points because that’s what the model says to do. If Trump is able to get real tax reform, it will be a phenomenal presidency.
If Hillary won the election, the stock market would rally because it was more of the same in peoples’ minds. We’re not going to get a huge amount of year end selling of capital gains because a lot of people are going to hold off until 2017 because they think they might see a lower capital gain rate. A lot of people were expecting that selling to take place and it has not shown itself.
Podcast and youtube will be available and posted here shortly ..
Abstract by: Annie Zhou <a2zhou@ryerson.ca>
