White Paper by the Bank of Canada explores a feature of central bank digital currencies (CBDC) called loss recovery. Note how the assumption is that CBDC will have a time expiry meaning the currency held in the CBDC account will have a time limit after which it will no longer be usable or accepted. As CBDC are implemented, it will be interesting to see the development of potential financial and social controls:

• time expiry of a certain amount of currency, effectively implementing a Keynesian-based policy of fostering spending in the economy
• jurisdictional applicability of the currency – in other words the currency may not be usable outside of the jurisdiction, effectively implementing capital and exchange controls
• limits or prohibitions of spending the currency on certain products or services
• climate and social controls on spending behaviors, effectively implementing a social credit control system
• negative interest rates, effectively implementing negative interest rate policies by the central bank and eliminating the potential for bank “runs”
• devaluation of the currency – periodically implemented through coordination with monetary policies or through currency exchanges with other CBDCs, other payment systems or physical cash

Bank of Canada White Paper on CBDC

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Note: Economist Russell Napier has pointed to considering the 1942 to 1951 era as an analogy to what type of financial repression is potentially in store over the next few years. Economist Stephanie Kelton in The Deficit Myth also provide analysis on the financial repression era from 1942 to 1951.

Source: GFD, FMRCo, Bloomberg, Haver Analytics, FactSet, Fidelity

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Disclaimer: The views or opinions expressed in this blog post may or may not be representative of the views or opinions of the Financial Repression Authority.

“By week’s end the global stocks were down as the onset of OMICRON concerns were spreading fear of additional global restrictions. Over the weekend, it was reported that the DUTCH were shutting down and other nations raised their protocol levels. That should stem travel, especially during the winter holidays. Be patient as this is a liquidity-starved week and the algos will be delivering plenty of volatility.”

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“THE MOST HAWKISH OUTCOME OF THE FED THIS WEEK WOULD BE TO END ALL PURCHASES OF SOVEREIGN DEBT AMD MBS AS IT WOULD MAKE ALL OF 2022 FED MEETINGS LIVE FOR RAISING RATES. Powell’s FORWARD GUIDANCE PROMISES WERE THAT THE FED WOULD NOT BEGIN TO RAISE RATES UNTIL TAPERING OF BOND PURCHASES WAS COMPLETED.”

Link Here to the Blog Post

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Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States

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“If the G-7 nations would coordinate their policy decisions and the DOLLAR were to weaken, then the U.S. YIELD CURVE would probably reverse its recent FLATTENING action. Pay attention to currency levels. A critical currency outlier continues to be the Chinese yuan as it continues to rally in direct contravention to conventional wisdom: weak Chinese economy, weak currency. It is making a 40-month high Wednesday. Does this mean a further commodity rally as the CHINESE ECONOMY shifts to more domestic consumption? .. There was a Financial Times piece last week by Ruchir Sharma titled, “China is Faltering, but the World is not Feeling the Effects.” Sharma, a Morgan Stanley global strategist noted “exports have fallen as a share of China’s GDP from above 35 percent before 2010 to less than 20 percent today.”I s this the sea change in the global economy that Professor Michael Pettis has been discussing for many years? If so, what will the impact be on the world economy and especially will the disinflationary force of China’s one billion workers be felt through higher prices as the Chinese export less and consume more?”

Link Here to the Blog Post

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See also this related article – Link Here, based on the data from the China Beige Book:

“A paradigm shift has taken place in how Beijing approaches its economic priorities and management. Many China watchers have missed it because they are relying on a series of misperceptions and flawed forecasts based on China’s old growth playbook ..

With the Beijing Olympics in early 2022 and the critical 20th Party Congress following next fall, Beijing will almost certainly find it useful at some point to ease monetary conditions. But these will be political considerations based on a political calendar. For now, stimulus is less urgent, and medium-term growth will be far more subdued, than the Wall Street consensus is expecting. “

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” La violencia siempre destruye, ya lo sabía Aristóteles -y lo repitieron muchos como santo Tomás de Aquino- al que, obviamente, no leyeron en el Gobierno. Y no solo que no lo leyeron, sino que creen todo lo contrario, creen que los problemas de la violencia se solucionan con más violencia. Como dice Roberto Cachanosky “Un control lleva a otro, hasta que se termina ahogando por completo la actividad privada o el Gobierno termina hundiéndose en una catástrofe económica, social y política”.”

Link Here to the Article

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“According to our models, valuations are much more compelling in Asia than they are in the United States. Thus, I like Asia over the U.S., particularly in the case of Japan. Japan is one of the most inexpensive stock markets in the world. And, with the recent victory of the Liberal Democratic Party, the political outlook has eliminated a source of uncertainty. What’s more, in the past few months, Japan has done a stellar job in getting their COVID case count down and their vaccination rates up. And of course, the recent cheapening of the Yen is a boon for their large cap exporters.

It is still very difficult to get a pulse of the Japanese consumer, but the business sector seems to be in very good shape. I think the industrials will perform well, especially with the upcoming fiscal stimulus and the weakening of the Yen. So large cap exporters will probably benefit the most.

If you’re looking for a hard asset that is unloved and underowned, gold and gold mining stocks will be a very good place to be. Very recently, gold has been firming despite a strong U.S. dollar. If I’m right with my forecast and the dollar depreciates next year and real interest rates stay negative, this will be a very important tailwind for gold. There’s also the prospect that China continues to embark on its regulatory crackdown on crypto currencies, which should also be a positive for gold. Finally, you see it on a technical basis: Gold has been breaking out.”

Link Here to the Article

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“The main concern for the world is not TRADE but the massive amount of DOLLAR-DENOMINATED DEBT. In the last decade, global debt has grown to $330 trillion from $200 trillion, according to IMF, BIS and IIF. The dollar’s status as the world’s reserve currency means a large percentage of the DEBT is denominated in U.S. currency, especially because the Fed’s aggressive QE policy has sustained very low interest rates to enable DOLLAR funding for many emerging market businesses.

Many emerging market central banks have begun raising rates to keep their currencies attractive so as not to create stress for their private sector dollar borrowers. But how high can rates go in Brazil, Mexico, Russia and others before their economies begin to slow?

The Europeans need to be more concerned about its policy of LOWER FOR LONGER sending the DOLLAR to levels that cause global systemic stress in the DEBT markets. Lagarde is pursuing a one-dimensional goal in a multi-faceted world. While some may not think this is ODIOUS it will prove to be reprehensible. Market signaling mechanisms are broken in the face of massive QE purchases so there are no market forces to upset the ECB agenda, or the BOJ’s. The FED is going it alone … maybe. Perhaps it’s time for a G-7 meeting?”

Link Here to the Blog Post

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” ‘Estanflación’, estancamiento con “inflación” -suba del IPC, en rigor-, es un término acuñado por un político británico, Iain Macleod, en 1965, cuando muchos economistas dudaban de que una economía con poco o ningún crecimiento y tasas de “inflación” más altas de lo normal fuera posible, según cuenta Laura Sánchez de Investing.com. La peor estanflación que se recuerda en EE.UU. ocurrió durante la década de 1970.”

Link to the Article Here

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“THE GOLD/CURRENCY SPREADS DISCUSSED IN THIS BLOG HAVE BEEN A MARKET RESPONSE TO THE LOOMING CREDIBILITY GAP OF ALL CENTRAL BANKS IN A FIAT CURRENCY WORLD. Listening to the recent speeches from ECB and FED members there still seems to be a race to be the greatest liquidity provider in a QE-dominated world. The move to buy the precious metals in the face of rising short-term interest rates is a response to concerns that the CENTRAL BANKS HAVE NO ANSWERS TO THE TRAP OF FORWARD GUIDANCE AND ITS MANTRA OF LOWER FOR LONGER.”

Link Here to the Blog Post

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“If my conjecture is correct get prepared for increased volatility, especially in the U.S. DOLLAR and precious metals, but be patient as this story will unfold in the wake of Congress finally passing an infrastructure bill.”

Link Here to the Blog Post

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