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THIS WEEK’S EDITORIAL
INDIA BUYS S400 MISSILES — WILL MAKE KALASHNIKOV RIFLES: India has recently received delivery of S400 missile systems from Russia. This is the culmination of a $5.5 Billion deal agreed in 2018. The S400 Missile system is seen as a major defensive weapons system that is supreme. Turkey — a member of NATO –has also purchased S400 systems.
India has had close ties to Russian armaments historically but today it likes to play two hands by being linked to both Russia and the United States in its geo-political stance. The US is not happy about this. The sale (and purchase) of US military hardware denominated in US Dollars is a key component of maintaining US Dollar dominance globally. Purchasing nations must either earn US Dollars in trade settlements or borrow US Dollars to meet the sales agreements. Such terms are not negotiable as far as the US is concerned.
Of course, Russia is not so fussy. They will accept a combination of currencies as settlement of international trades. Thus, this lessens emphasis on the use of US Dollars globally in trade settlements.
Moscow and New Delhi also sealed a deal last Monday that will let India produce more than 600,000 AK-203 Kalashnikov assault rifles.
Of course, Kalashnikov rifles are as highly regarded in the weapons world as the Russian S400 missile systems. But again, this is all about which currency is used for settlement. The US always (strongly) enforces US Dollar settlements for military hardware. Many see the hardware as the key component of such deals but that view overlooks the fact that they are all about ensuring the increased circulation of global Eurodollars to be used as settlement currency in international trade. The real weapon here is the currency of settlement — not the hardware purchased. Eurodollars are offshore US Dollars — in circulation on the ledgers of offshore banks.
INDIA REGULATES CRYPTO: Television reports from India have reported that the government is circulating a discussion paper on a proposed bill to be put to the Indian Parliament which says that private cryptocurrencies will be regulated but will not be recognized as legal currency in India. The legislation is also reported to describe cryptocurrencies as assets (digital commodities) that will be overseen by the country’s market watchdog, the Securities and Exchange Board of India.
This means that India appears to have decided to follow the US lead not to ban Crypto investments by their citizens but to regulate them. This is contrary to China’s position. China has recently taken a strong position in regard to discouraging the mining and trade of all digital “Crypto” commodities. The US is now leading the regulation route if Gary Gensler’s comments last week are reflective of US Government stance. Gensler is the Chairman of the Securities and Exchange Commission in the US.
Why does America support the regulation pathway? Because the entire Crypto world is actually a US Dollar Proxy world. The prices of Crypto’s are mostly reflected in US Dollar terms and when they are exchanged back into fiat currency, they are mostly traded back into US Dollars held by the Stablecoin operators. Thus the Crypto world generates sustained and increasing demand for US Dollars globally. This all assists and supports US Dollar dominance.
SATOSHI NAKAMOTO WINS COURT CASE — AUSTRALIA TO REGULATE CRYPTOS: Craig Wright, the Australian who maintains that he is Satoshi Nakamoto, was in the news again last week in regard to a judgement in his court case in Florida. This was all about the ownership of potentially US$ 54 Billion worth of Bitcoin assets. Wright won the case.
Meanwhile, Australia has decided to regulate Bitcoin and other Cryptos more forcefully, especially the exchanges where they are traded, again following the United States in this regard. The Australian Treasury will begin putting together a licensing system in early 2022 for digital currency exchanges. And the Reserve Bank of Australia (the central bank) will explore the idea of a CBDC — a central bank digital currency — a form of electronic cash.
THE IMPORTANCE OF CASH: As readers of BOOM will know, increased use of cash is critical to the future health of the advanced economies. Our money supply is tilted way too much in favour of bank credit money (money created as a bank loan, collateralized against real assets and bearing interest). Cash must return to a strong position in the money supply. It adds greatly to economic stability by being non-interest bearing money and is essentially a non-interest bearing loan from the sovereign to the people.
BOOM strongly supports expansion in the use of cash greatly from its current position where it represents only 2 % of the money in existence in advanced economies. Having 98 % of our money supply bearing interest and being collateralized against assets at creation is foolish in the extreme and leads to asset price inflation, progressive inequality and, ultimately, social dis-harmony which brings political instability.
So — the advanced economies need to increase the use of cash as a priority. And they need it to be created in steadily increasing volumes and put to work in the real economy of goods and services. This can be achieved by careful volume controls and without causing CPI inflation and/or currency collapse.
EL SALVADOR AND BITCOIN: Three months ago, the nation of El Salvador, led by President Nayib Bukele, decided to recognize Bitcoin as a legitimate currency. Currently, the El Salvadorean Treasury has reportedly invested in a holding of 1,220 Bitcoins (representing US$ 61 Million in US Dollar value at an average price of $ 50,000). It has even launched a bond issuance to raise $ 1 Billion from international investors with the aim of investing half of the proceeds into Bitcoins and half into infrastructure inside the nation.
Investors in such bonds will be handing US Dollars over to El Salvador to speculate in a highly volatile digital commodity called Bitcoin. In return, the investors will receive an annual interest payment each January of just 6.5 %. If global investors wanted to invest $ 500 Million in Bitcoin, it would make more sense to invest directly, would it not? Why would any sane investor hand such funds over to El Salvador in return for a paltry 6.5 % annual return and a risk of default?
In essence, the El Salvadorian Treasury is now seeking to become a speculator in Bitcoin. They are saying to potential bond investors — “gimme your money, I’d like to play with it”.
There is a point of significance to understand here between a currency and an asset. Assets are not currencies and currencies are not assets (except when they are deposits in banks — when they are, in fact, a loan to the bank and become liabilities of the bank).
BOND PRICES CONTINUE TO STABILIZE: US sovereign bond prices continue to stabilize as expected by BOOM. This is lowering expectations of rising prospective yields and the sovereign bond yield curve is slowly flattening in real time in response.
Debt to the Penny data shows that the US Treasury is having no difficulty in finding non central bank buyers for its new bond issuance. This is important as those buyers fund the budget deficit of the US government which continues to grow.
Last year, Total US Government Debt rose by $ 4.5 Trillion (yes, in just one year). So far this year, by comparison, it has risen by only $ 1.2 Trillion. BOOM is expecting a further large increase in US sovereign bond issuance beginning in early 2022.
Total US Government debt outstanding is currently at $ 29 Trillion but $ 6.2 Trillion of that is owed to Intra-Governmental investors. So the Net Debt figure is $ 22.6 Trillion. Relax, this is not a big number for a nation with an annual GDP of $ 21 Trillion and the dominant global currency.
BITCOIN CONTINUES TO WEAKEN: The total Market Capitalization of the Crypto markets is continued to fall towards US$ 2 Trillion over the last week. A fall below that level will harm the confidence of long term holders. The all-time Peak of market capitalization was close to $ 3 Trillion on 11th of November — just one short month ago. That date is also the historical Peak price for BITO (the Proshares Bitcoin Strategy ETF) and GBTC (the Grayscale Bitcoin Trust) — both of which are traded on conventional markets during conventional trading hours — on the American Stock Exchange and the OTC market in the United States.
Bitcoin Dominance in the Crypto markets is now at 40.8 %. Bitcoin’s lowest level on record was around 32.8 % in Mid-January, 2018.
YET ANOTHER CRYPTO CRIME: Yet another Crypto Crime was reported last week. Hackers apparently stole Millions of Dollars’ worth of Cryptos from the BitMart exchange. It has been reported that BitMart pledged to compensate users who lost money after a major “security breach” saw hackers steal $196 million worth of cryptocurrency.
In economics, things work until they don’t. Until next week ………… Make your own conclusions, do your own research. BOOM does not offer investment advice.
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Russia and India have agreed to ditch the dollar as a means of mutual settlements, as Washington continues to impose sanctions on Moscow.
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https://english.almayadeen.net/news/politics/russia-india-abandon-us-dollar-in-mutual-settlements
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Speaking of India …
“World’s First Killshot Murder Trial: India Charges Bill Gates and Adar Poonawalla, Seeks Death Penalty. The Indian Bar Association (IBA) reports that MURDER charges were filed in India’s High Court.”
Reuters, Snopes, AP, and a host of other highly reliable “fact checkers” deny this is true. However, the link below which lists the complaints seems to burst that balloon.
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Excellent references Stucky, thanks. It is clear that resistance is building now in many arenas and locations. A vote today in UK parliament reveals at least 100 Tory rebels who are fighting hard for the rights of the Brits – there is hope that our constitution is strong enough to defeat the criminals in our Establishment who are beholden to the Davos cabal and their crony City banksters.
Meh, another incorrect series of yakety from Boom.
If El Salvador’s treasury is using OPM (other people’s money) – and only promising 6.5% interest payments – isn’t that good business sense on their part? Any losses would be incurred by the speculators; the interest payments are not that low now but are going to be low in a year or so, as CBs around the world are slowly responding to rising inflation finally. I’d never buy that crap but if some people do, good for El Salvador…
Equally, the notion that “long term investors” in Bitcoin are at the $47K level. No, only short term morons who missed the boat/jumped on the bandwagon late are in at that or higher prices.
Yes, bitcoin and the cryptocurrencies are a bubble. But so is everything else.