Nomi Prins: Collusion! How Central Bankers Rigged the World

This article was originally published by Adam Taggart at PeakProsperity.com

Nomi Prins, Wall Street veteran turned financial industry reformist returns to the podcast this week to explain the findings within her new book Collusion: How Central Bankers Rigged The World.

Nomi has put together a timeline of exactly when and how the central banks have plundered the wealth of the masses since 2008, either directly or indirectly through the loss of purchasing power of the currencies they control:

The relationship between the Central Banks, the major ones — the Fed, Europe Central Bank, Bank of Japan — all the larger Central Banks in the world and their private banks was effectively, and is effectively, kept secret. The relationships they have with each other, a lot of it is secret; so you have to really dig in to it to find out what’s really going on.

What I did was dig into the documents that I could find and create a timeline. That’s why each chapter in each region starts in 2008. It works with Mexico, Brazil, Japan, China and Europe and juxtaposes that with what the Fed was doing at that time to see how that collusive behavior wound up happening. The secret-ness is in the relationships of the banks, where that money that was fabricated by these institutions actually went, and when — or if — it’s coming back.

The ‘cheat and deceiving’ part of that definition is also apparent: people have been cheated out of their futures from the standpoint of the central banks’ strategies. So when the Feds creates cheap money, companies and banks and countries borrow more from the future because it is so cheap and easy. This deceives many people into thinking that the economy is somehow therefore being helped by this strategy, which is in acutality an emergency strategy. It’s an emergency that’s gone on now for ten years.

Yes there have been some tweaks here and there — interest rates have gone up a little bit in the United States — but all in all, rates are still pretty much 0% on average globally and quantitative easing still exists. The books of the major Central Banks are as big as they were at their heights through this last ten-year period…and they’re still growing. Just look at Europe and Japan.

Look at the stock market. The stock market is really high right now in a lot of different places. Why is it so high? Because a lot of this money went into debt which was borrowed to buy corporate stock, to buy the stock of banks, or to buy the banks themselves. That’s a major form of manipulation and deception as well.

Why is JP Morgan’s stock going up? Is it just because JP Morgan is such a great bank and so helping? Well, no. It’s because it received a lot of help from the Federal Reserve. It funneled that help into its own shares, and it has continued to pay settlements and be fined on egregious activity against its own clients, which are many because it’s the largest bank in the United States among the largest banks in the world.

There are multiple points of cheating and deception that have been enabled or that occur because of Central Banks policies. Some of those policies are secret; but a lot of them are public. You just have to piece the documents and the timelines together.

Click the play button below to listen to Chris’ interview with Nomi Prins (41m:38s).

Ron Paul Blasts Congress" Political And Personal Immorality

Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

Many Americans have been shocked by recent revelations of the extent of sexual harassment in Congress.

However, no one should be too surprised that those who spend their lives defending and expanding the welfare-warfare state engage in immoral personal conduct.

It is only natural that an immoral system, like the welfare-warfare state, tends to attract individuals likely to practice personal immorality.

The welfare-warfare state is built on a foundation of taxation and fiat currency controlled by a secretive central bank. While some type of taxation may be necessary to fund the few legitimate functions of government, taking people’s money to fund a redistributive welfare state at home and a global empire abroad is nothing more than theft. The Federal Reserve’s erosion of purchasing power is also a form of theft.

The welfare-warfare state relies on violence. Every law preventing us from living our lives as we choose — whether forbidding us from working for below minimum wage, preventing us from smoking marijuana or drinking raw milk, telling private business owners who can and cannot use what restroom, or requiring us to purchase government-approved health insurance — rests on the threat of force being used against those who refuse to obey.

The warfare side of the welfare-warfare state is obviously rooted in violence. War inevitably leads to deaths, including the deaths of innocents. A permanent warfare state is also the quickest way to lose our liberties. This is why the Founding Fathers counseled against standing armies and foreign entanglements.

The neocons and “humanitarian interventionists” who control our foreign policy have disregarded the wisdom of the Founders. They actually promote endless wars not to protect our security but to promote “democracy” and “universal human rights.” They are impervious to evidence of the failure of military interventions to achieve these goals and indifferent to the human and fiscal costs of endless war. They dismiss the loss of innocent lives — including the deaths of children — as unavoidable “collateral damage,” while using their influence in the media to spread pro-war propaganda. They also smear their opponents as aiding America’s enemies and sympathizing with terrorists.

No one holding political power wants to admit the system he supports is immoral and a failure. Therefore, defenders of the welfare-warfare state rely on lies and deceptions. They ignore all evidence of the failure of big government to accomplish its ends, instead pretending they can fix the system with a few reforms. They also work with allies in the media to promulgate the lie that without the welfare state the masses would remain poor and uneducated, and without the warfare state we would be overwhelmed by those who hate us for our freedoms. They never mention that many foreigners hate America because of the suffering caused by our hyper-interventionist foreign policy.

The welfare-warfare state is built on violence and deceit.

It is thus inevitable that many of those participating in this immoral system will combine their immoral politics with immoral personal conduct. Hopefully the revelations of sexual misconduct among the welfare-warfare state’s Capitol Hill and media defenders will lead more Americans to question the morality and the wisdom of allowing the federal government to run the world, run the economy, and run our lives.

Is Bitcoin Just A Brilliant Wealth Redistribution Scheme?

Authored by Valentin Schmid via The Epoch Times,

Many older, wealthy people are losing out, while younger risk takers are getting rich...

Normally, the concept of wealth redistribution involves government using force to take from some people and give to others. But the bitcoin revolution is redistributing wealth differently.

For the sake of simplicity, and to avoid confusion, we will talk about only the original bitcoin in this article and avoid the likes of cryptocurrency products such as ethereum and initial coin offerings, as well as recent duplicates of the original protocol.

On the one hand, at a price of $15,500 and a market capitalization of $277 billion at the time of writing, bitcoin has made many people rich. Most of the early bitcoin adopters who made the real money are young and entrepreneurial, and they have been put at a disadvantage by the status quo of the current financial system of fiat and bank money.

On the other hand, we have the representatives of the old money system, the Jamie Dimons and Joseph Stiglitzs of the world, who have made a fortune using the old system (Dimon) or gained prestige and recognition talking and writing about it (Stiglitz). At this moment, they are losing out. The value of their assets is getting crushed in bitcoin terms, and more people are becoming interested in the 8-year-old cryptocurrency.

People holding bitcoin become richer not only relative to U.S. dollars, or euros, or yen, but also relative to the stock market and gold.

The price of one share of JPMorgan stock was worth 0.084 bitcoin on Jan. 3, the first trading day of the year. On Dec. 1, it’s worth only 0.0096, a decline of 89 percent. We can calculate similar numbers for the S&P 500, the 10-year Treasury, and even bitcoin’s competitor for sound money, good old gold.

Bitcoin is often compared with penny stocks, but only the best can compete with bitcoin’s 1,500 percent price rise this year and with a valuation of $277 billion, bitcoin is pushing into the sphere of the heavyweights of finance. But that’s still a far cry from the $8 trillion valuation of global gold, the $20.5 trillion U.S. government debt market, or the $80 trillion of global stocks.

Sophisticated Wealth Redistribution

So what will happen if the price of bitcoin keeps going up, to $50,000, to $100,000, or even to $1 million, a value at which its market cap ($16.7 trillion) would be roughly equal to the combined balance sheets of the Fed, the European Central Bank, and the Bank of Japan (totaling $14.5 trillion)?

It’s not that the $15,500 you spend to buy one bitcoin now is sucked up by the bitcoin blockchain and disappears out of existence.

It is transferred to the person who sold you the bitcoin, and he or she can spend it on other assets or goods and services.

If the price of bitcoin keeps going higher, the relative value of it and other assets will change, similar to the example of JPMorgan stock, which became almost 90 percent cheaper in bitcoin terms this year.

Not only will the dollars in your pocket become worth less in the process (down 92 percent in bitcoin terms this year), but also any other asset that doesn’t keep pace with the rise of bitcoin will drop. People holding bitcoin become richer not only relative to U.S. dollars, or euros, or yen, but also relative to the stock market and gold.

And all this happens without a single government rule or regulation.

However, there are other mechanisms preventing people from getting into bitcoin and participating in the upside, although none of them includes the use of force.

Intellectual Hard Work

The first such barrier is how well you understand bitcoin.

In order to “buy into” bitcoin, you have to believe in the story. Bitcoin’s main value proposition is that it is digital sound money that is not centrally controlled by a government or private party, is censorship-resistant, and is outside of the banking system.

However, though the corruption of the hybrid system of fiat government money and private bank money has been thoroughly exposed, many people still do not perceive the status quo to be a problem, nor do they see the record risks baked into the booming stock market.

It takes another college course’s worth of research to understand the technology behind bitcoin and why, despite its risks, it could provide a new monetary solution and system for the digital age and digital economy.

So for them, bitcoin doesn’t solve a problem, and therefore they won’t have a reason to expose themselves to the gut-wrenching volatility as well as the technological risk still inherent to the system.

A similar argument applies to the status-quo elite, who have greatly benefited from the corrupt system and see bitcoin as a risk to that system. This group includes almost all government officials—especially central bankers—and politicians, as well as the private banking elite. They are incentivized to defend the old system at all costs, but would be smart to hedge their exposure. Some may be doing so in secret.

So these are the first intellectual hurdles to overcome: understanding that our current money system is severely flawed, and that to prosper and make progress, humanity needs an alternative.

To fully understand this, many people spend a few years researching history and economics away from mainstream educational propaganda.

The Gold Trap

Then, there is a second trap. As most of the history of sound money is rightly focused on gold and the gold standard period of the late 1900s, some people who understand the problems of the monetary system are too beholden to their golden beliefs to wrap their heads around bitcoin.

This group of people believes—and they may well be right—that gold will reset the debt-based financial system, as it has always done in history. They are also not participating in the bitcoin upside.

It takes another college course’s worth of research to understand the technology behind bitcoin and why, despite its risks, it could provide a new monetary solution and system for the digital age and digital economy.

It then requires a more nuanced and probability-based investment approach to see that while bitcoin is far riskier than gold and has some disadvantages compared to the yellow metal, it also provides far higher upside. The gold market is relatively expensive, at $8 trillion, while bitcoin is relatively cheap, at $277 billion. Bitcoin also has some striking advantages over gold, which warrant a rise in price.

Once you understand the value proposition and are ready to buy in, you need to jump through some hoops to register with an exchange and safely store your bitcoin, which is another hurdle many people who do not fully understand bitcoin cannot clear.

Winners and Losers

So, by and large, and of course with the usual exceptions and caveats, the old guard of both the political and financial systems and the old guard of sound-money people are not participating in the upside of bitcoin.

This is not because they don’t have any money to invest or because the government prohibits them from doing so. It is their own intellectual inflexibility, lack of curiosity, and risk-aversion that bars them from entry.

As bitcoin becomes ever more secure and ever more mainstream, more people from these groups will hop on the gravy train, but they will be able to afford fewer bitcoin with their assets than they would have now or five years ago.

As these people bid up the price to the stratosphere, the early movers will be richly rewarded and their purchasing power will increase relative to goods and services—and relative to the very assets the old guard now owns that were previously out of reach.

So who are the people who are gaining on the status quo with their crazy cyberpunk cryptocurrency?

They are the pioneers and innovators who built the bitcoin ecosystem and keep working tirelessly to make it more secure and ever more consumer friendly.

It is the former finance professional who learned about sound money on YouTube and spent months educating himself on how bitcoin works.

It is the software developer who first looked at the bitcoin protocol out of technological interest and then learned everything about money and monetary history.

It is the sophisticated investor who understands that a zero interest policy boosts his stock holdings in the short term but exposes them to massive downside when rates start rising again. He knows that diversifying his portfolio with assets outside of the banking system actually increases his risk-adjusted return. He does not think he needs to make an either-or choice between bitcoin and gold.

It is the prudent saver who understands that spending less on frivolous consumption is worth it when he can save in a currency with a sound monetary policy.

Of course, every technology and every sector in finance has its bad apples, scammers, and speculators who have no idea about the underlying value proposition. Bitcoin does, too, but they don’t seem to go beyond the scope and proportion we have seen in banking and government.

In spite of this usual caveat, bitcoin favors risk takers, innovators, savers, and people who are curious and persistent enough to learn new technology as well as history. It favors the little people who are willing to take some risks, over the old elite fighting to maintain their privilege. By rewarding these positive qualities, the voluntary bitcoin wealth redistribution creates a positive incentive cycle, much different than the old model based on bureaucratic force.

Mugabe Out, Mnangagwa In, Inflation Down - Current Annual Rate 32%

Authored by Steve H. Hanke of the Johns Hopkins University. Follow him on Twitter @Steve_Hanke.

Robert Mugabe’s 27-year reign of lawlessness, corruption, and incompetence came to an end late November 2017, after a “soft coup” engineered by Emmerson Mnangagwa (aka “the Crocodile”) successfully unseated the aged dictator. Since then, inflation expectations in Zimbabwe have fallen sharply. In consequence, inflation has fallen like a stone. Indeed, before Mugabe’s resignation, Zimbabwe’s implied annual inflation soared to peak rate of 356% (10/26/17). But, following Mnangagwa’s assumption of power, the implied annual inflation rate has fallen to today’s rate of 32%.  

In 2008, Zimbabwe suffered the second most severe episode of hyperinflation in recorded history. The annual inflation rate peaked in November 2008, reaching 89.7 sextillion (10^23) percent (see table below).

At the peak of Zimbabwe’s hyperinflation episode in November 2008, Zimbabweans refused to use the Zimbabwe dollar. With that, the economy was spontaneously, and unofficially, dollarized. Eventually, the government faced this fait accompli in early 2009, when they dollarized the economy by accepting the dollar as the unit of account for government finances.

This year, Zimbabwe once again experienced a bout of hyperinflation, not due to dollarization, but because the Zimbabwean government is issuing, in effect, a new currency that is circulating parallel to the U.S. dollar. Currently (12/8/17), the annual inflation rate is at 32% (see chart below).

During Zimbabwe’s hyperinflation episode from 2007-2008, the Reserve Bank of Zimbabwe failed to report an accurate measure of inflation rates. When episodes of hyperinflation occur, the only feasible and reliable way to measure the inflation rate is via the application of Purchasing Power Parity (PPP). To do so, data on the exchange rate between the domestic currency and a stable international currency are required. This was not feasible in Zimbabwe. The Zimbabwe dollar was not traded on an organized exchange that reported exchange rates, and the use of black-market exchange rates was not feasible either.

However, the organized stock market in Harare did provide prices that allowed for the calculation of implied Zimbabwe dollar exchange rates. One stock, Old Mutual, was, and still is, listed on both the London Stock Exchange and the Zimbabwe Stock Exchange. Each share of Old Mutual commands the same claim on the company’s earnings and assets, irrespective of the market it is traded on. Therefore, given arbitrage and PPP, the ratio of the Old Mutual share price in Harare to that in London equaled the Zimbabwe dollar/sterling exchange rate.

To convert the resulting Zimbabwe dollar/sterling exchange rate to a Zimbabwe dollar/U.S. dollar rate, I multiplied the Zimbabwe dollar/sterling rate by the sterling/U.S. dollar rate, creating what is known as the Old Mutual Implied Rate (OMIR). By using the OMIR as an exchange rate between Zimbabwe dollars and USD, PPP was then applied as the final link necessary for calculating inflation rates.

When President Robert Mugabe’s party, ZANU-PF, regained control in Zimbabwe in 2013, government spending and public debt surged, resulting in economic instability. To finance its deficits, the government created a “New Zim dollar.” The New Zim dollar is issued at par to the U.S. dollar, but trades at a significant discount to the U.S. dollar. As a result of the issuance of the New Zim dollar, the money supply has exploded in Zimbabwe, and so has inflation.

Employing the same theory and method of measurement that was used to calculate Zimbabwe’s 2007-2008 hyperinflation episode, I was once again able to measure an accurate inflation rate, explained here in a detailed study. After doing so, I found that Zimbabwe experienced hyperinflation for the second time in less than ten years between September 2017 and early November 2017. 

Hyperinflation occurs when the monthly inflation rate reaches 50% per month and remains above that rate for at least 30 consecutive days. This initial threshold was breached on September 14, 2017, and the monthly inflation rate stayed above this rate until November 2, 2017. Currently, the monthly rate of inflation is -68% (see chart below).

In Defense Of Bitcoin Hoarding

Authored by Jeffrey Tucker via The Foundation of Economic Education,

In Internet slang, they are called the HODLers, the people who are clinging to their Bitcoin and refusing to spend it. Instead, they just refresh their wallet apps, feeling richer by day while deferring consumption. Many of these burgeoning millionaires live like paupers. I’ve met many of them: all over the U.S., in Israel, in Brazil. They believe that every dollar they spend today is two dollars they won’t make in a few months. Probably they are right.

Bitcoin is undergoing a historic deflation, which simply means that its value is growing relative to the goods and services it can purchase.

This is in contrast to inflation, in which the value of the currency falls relative to its purchasing power. Inflation inspires spending – better to get rid of the money while it is more valuable. Deflation inspires saving – better to keep it so that your wealth rises over time.

So there is nothing selfish, strange, or weird about holding an asset that is rising in value. It would be irrational to do otherwise. And there is nothing odd about spending like mad in an inflation either. Our expectations of the future determine what we do today in every life and especially in monetary economics.

Some Money! 

This tendency to hold rather than spend is giving rise to a new claim. Bitcoin isn’t really a viable medium exchange, they say. You can’t buy a sandwich with it. Few people are paid in it. Adoption in the retail sector is slow. The total market capitalization is $219 billion and yet the trade volume nowhere near reflects that.

And it is true that most of the big money people are just holding it. James Mackintosh, writing in the Wall Street Journal, summarizes the conclusion: “It has become a vehicle for hoarding by libertarians for gambling by hordes of speculators attracted to its wild price swings.”

I’m looking now at the total market capitalization of the entire sector of cryptoassets: it approaches $400 billion. That is larger than the market cap of JP Morgan, by the way. That valuation is in private hands, growing in value at incredible rates. It’s risen 1,000% in 2017, and many people are predicting much higher growth in 2018.

The Implications

Under old-style Keynesian theory, economic growth is driven by consumer spending, not saving, so anyone who is hoarding money under the mattress is holding back progress. Hoarders are the enemy. “Every such attempt to save more by reducing consumption will so affect incomes,” wrote J.M Keynes, “that the attempt necessarily defeats itself.” He popularized what became known as the “Paradox of Thrift.”

It’s supposed to be counterintuitive. You think that saving up for the future is a good thing. Whoops, you are hurting others and, in the long run, hurting yourself. You should be spending, even going into debt to spend.

But sometimes “counterintuitive” is just wrong. That is the case here. There is no paradox. The intuition is right. Thrift is a good thing, on the individual level or for the whole society. Deferring consumption is the necessary precondition to permit saving. Saving is never wasteful. It’s true that infinite saving is pointless but that’s not how this works.

You are always saving for something. The end of saving is eventual consumption in some form. More importantly for economic growth, saving is the precondition for investment. Investment is what extends the complexity of the structure of production. This leads to employment, expansion of the division of labor, and the eventual rise of wealth.

 Consider the classic case of Crusoe on the island. Every day he is out catching fish to eat. He doesn’t have time to weave a net because he is always fishing with a pole. But at some point, he realizes that he could catch more with a net. In order to gain time, he has to stop fishing. So he saves up a few days of fish so he can eat without fishing, during which time he weaves a net. That net allows him to multiply his catch by 10 times. The deferring of today’s consumption for great overall wealth later is what makes progress possible.

The Policy of Pillage

Once the wrong (Keynesian) theory took hold in the 1930s, it became national policy to incentivize consumption over spending. Gold was confiscated from people. Government spending, it was believed, would goose the economy to make up for the ability or willingness of people to spend. The gold standard itself was destroyed in order to build a monetary system that could be inflationary – so that the money would be worth less in the future than it is today, thereby motivating the desire to spend.

This whole policy became a disaster for economic growth. After World War II, the US underwent a huge expansion as a result of the hoarding that occurred throughout the Depression and the War, and this was despite (and not because of) federal policy.

After the initial boost in economic growth, the Federal Reserve began its inflationary path. The personal savings rate peaked at 15% but then savers were blindsided by a wicked hyperinflation that hit in the late seventies, pillaging the savings that had been built up for the last two decades. No surprise: personal saving fell and fell, incomes flattened, and economic growth became ever more of an uphill climb. In our own times, inflation has been fixed but now we deal with near-zero interest rates, which harms saving as well.

As you can see in the chart, the economic crisis of 2008 traumatized a generation to the point that people began to save at much greater rates. No more would be trust the system to take care of them. It was exactly at this point that Bitcoin came into being, and created something that is really the opposite of the dollar: a currency designed to rise in value over time.

Many of the metaphors surrounding Bitcoin were drawn from the old-world gold standard. We speak of mining, for example, and proof of work (think of miners wearing jeans, panning gold from stream or banging picks into mountains). As with gold, there is a limit on the amount that can be created. And there are multiple levels of standards to determine authenticity and truth in accounting. In some ways, Bitcoin was invented to be the ultimate anti-Keynesian monetary praxis.

Up with Thrift

Now we see the results. Bitcoiners are HODLers. They save. They hoard. They have turned against consumption in favor of saving. I see it myself all around me. Young people who are invested in Bitcoin turn down luxury consumption. They don’t own cars. They bike and walk. They don’t spend big on dinners. They live off cheap groceries. They know that everything they consume today eats into their capacity for consumption, investment, and building wealth for the future.

So much for the Paradox of Thrift. Bitcoin is about the Virtue of Thrift. The pundits can decry it all day. Bitcoin doesn’t care. What’s more, you don’t need economic theory to understand this. You only have to follow the money.

If you ever despair of the future, just consider how much capital is currently being built up in the crypto sector. There will come a time, maybe in five to 15 years, when all this deferred consumption is going to be unleashed on the world economy in the form of real capital to build wealth and prosperity. And consider too: this is not about one economy, not about one nation. It’s about the whole world, capital and prosperity without borders.

The pundits can fulminate all they want. Technology doesn’t care.

Fed Officials Frantically Play Dumb to the Coming Inflationary Storm

The Fed is baffled as to why inflation remains so low.

It’s a clever move, given that the reason inflation is believed to be “low” is because the Fed has been purposefully understating inflation for years.

Perhaps the biggest fraud ever committed in financial history concerns the understating of inflation in the Unites States post-1971. 

By the Fed’s own admission, the US Dollar has lost some 84% of its purchasing power since 1971, and yet the Fed has routinely claimed that inflation has been “subdued” or “under control” throughout that time period (with the brief exception of the inflationary spikes of the ‘70s).

With this level of currency depreciation, incomes would have to rise exponentially to compensate for Americans’ higher cost of living. They haven’t. As a result of this, Americans have increasingly relied on two parents working instead of one, while supplementing their incomes with credit cards and other debt instruments.

The below chart is possibly the single best argument against any claim by the Fed or others than the official inflation numbers are accurate. If income growth was indeed greater than the rise in inflation post-1971 as the below chart suggests, most families would currently have only one parent working and STILL be saving money. Instead, today the norm is for both parents to work and the average US household to be sitting on over $137,000 in debt.

Put simply, the official inflation numbers are garbage.

The Fed purposely wants it this way because understating inflation allows the Fed to

1)   Overstate GDP growth

And…

2)   Paper over the fact that incomes have been on the decline relative to cost of living since the early ‘70s.

So don’t let the Fed fool you with its “gosh, where is the inflation?!? We don’t understand!” act. The Fed KNOWS inflation is rising rapidly. Heck, the $USD has already dropped 10% in the last 12 months that’s DESPITE the Fed hiking rates THREE TIMES.

Put simply, BIG INFLATION is the THE BIG MONEY trend today. And smart investors will use it to generate literal fortunes.

We just published a Special Investment Report concerning FIVE secret investments you can use to make inflation pay you as it rips through the financial system in the months ahead

The report is titled Survive the Inflationary Storm. And it explains in very simply terms how to make inflation PAY YOU.

We are making just 100 copies available to the public.

To pick up yours, swing by:

https://www.phoenixcapitalmarketing.com/inflationstorm.html

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Betrayal! The Pervasive & Defining Crime Of Our Age

Let me apologize in advance for what may be an upsetting piece of writing for some of you. If you"re in a state of shock or exhaustion from recent events, perhaps you should skip this one.

I don"t offer this analysis in order to further distress anyone -- but until you understand what is happening and how that influences your psychological state, you"ll remain the emotional equivalent of a rag doll shaken to-and-fro by events.

Such understanding may not bring you to a place of calm acceptance. But it will set you free.

Betrayal

The recent acts of violence in the US, especially the horrific mass shooting in Las Vegas, are not arising out of a vacuum. Nor are the Brexit vote, the election of Trump, or the recent Catalonian vote for secession, random unconnected acts.

These -- and future similarly disruptive events sure to come -- are all arising out of the fact that we all have been betrayed.

For the purposes of this article, let"s define betrayal as:

the sense of being harmed by the intentional actions of a trusted person or institution. The emotional impacts of betrayal may include shock, a sense of loss, grief, damaged self-esteem, humiliation, self-doubt, shame, and anger.

We"re betrayed every time our trust is violated, in small ways or large. An example of a small betrayal might be hiding a frivolous purchase from your partner when you"ve both agreed to stick to a shared budget. A larger betrayal would be infidelity.

But betrayals aren"t limited to relationships between individuals. They can be perpetrated across groups, even nations. Like the enormous betrayal of trust committed when the US sent its military into Iraq on the basis of falsified ‘intelligence".

No matter the perpetrator, size and scope of a betrayal, the parties involved are only able to heal the damage done if there"s an open and honest dialog where the betrayer admits to their violations and atones openly and honestly. As discussed in much more detail in our excellent podcast with an experienced cognitive therapist, the betrayer must fully atone for their actions, face all consequences, and openly answer every question posed to them by the aggrieved.

If none of that happens, then then the animosity festers and is never ‘gotten over.’ Time does not heal that wound. It only offers a swampy breeding ground for a swarm of resentments.

In other words, if you find yourself increasingly distressed or angry (as I am) about the rampant violations of public trust in today"s world, it’s because you"re paying attention. It means you"re not crazy; you"re normal.

Betrayal Of The Public Trust

In the US, politicians deservedly enjoy a very low approval rating. Their words so rarely match their actions that it’s a too rare delight to find someone of character and conscience in DC.

Instead, we regularly see dirt bags like this:

This congressman is why people hate politics

Oct 4, 2017

Washington (CNN)

Pennsylvania Rep. Tim Murphy has had one hell of a last month.

In early September, the Republican House member admitted to an extramarital affair with a "personal friend"following the unsealing of divorce records that showed he had been involved in a relationship with Shannon Edwards, a forensic psychologist.

It got much, much worse on Tuesday when the Post-Gazette reported on a text message exchange between Edwards and Murphy in which she alleges he urged her to have an abortion.

Murphy"s personal foibles are not the point here. What is the point is that he is someone who has been an outspoken critic of abortion rights in his public life even while apparently being much more willing to consider it when it impacts him personally.

Murphy was a co-sponsor of legislation --passed in the House on Tuesday night-- that would make it illegal for women to abort a baby after the 20-week mark.

He has a perfect 100% score with National Right to Life, having voted with the organization on five key pieces of legislation, including the "No Taxpayer Funding for Abortions Act." As my former Washington Post colleague Aaron Blake expertly documents, Murphy was also touting his anti-abortion stance even as he was reportedly urging his mistress to seek an abortion.

(Source)

A sordid tale indeed. The essence of which is a powerful politician saying one thing but doing another. He loudly espoused strong family values and a staunch right-to-life voting record -- all while conducting an extra-marital affair and pressuring his mistress to get an abortion.

For the constituents who believed in this man, his deeds offer a profound betrayal. 

Tim Murphy represents the credo that the politicians in The Swamp live by: Do as we say, not as we do.

There are so many examples of prominent politicians and religious leaders saying one thing but doing nearly the exact opposite that one hardly knows how to begin listing them all. 

Heck, even "America"s Dad", Bill Cosby, has turned out to be a serial rapist.

All these betrayals have led to a rule I now live by: The more someone proclaims a strong moral position, the more I suspect them of secretly doing the opposite.

It’s time to refuse to put up with this any longer.

Institutionally Betrayed

But the scope of our victimization goes far beyond that conducted by individuals. The very institutions, both public and private, that we rely on are often fleecing us more than serving us.

The betrayals of the Catholic Church in covering up thousands of sexual assaults and tens of thousands of child victims are absolutely devastating.

Pharmaceutical companies quietly fund opposition to medical marijuana ballot initiatives because the data shows that the use of safe and effective marijuana seriously cuts into the extremely profitable sales of highly addictive and deadly opiates.

Car insurance companies rob their most loyal customers by slowly ratcheting up premiums in a scheme called “price optimization” in the industry. (This happened to me because I had not taken the time to shop around recently. I was horrified when I did. I wasn’t as badly screwed as some customers who paying up to 800% more than they should, but it still hurt.)

Of course hospitals with their captive hostage billing rackets are among the worst of the worst. So are private for-profit prisons, indecipherable 48-page phone bills, and Monsanto ghost writing “research” to obscure the probable cancer causing nature of Round Up while certain EPA staffers looked the other way.

In short, it’s difficult to have any sort of optimism about any large US corporations at this point. All of them are busy betraying us in ways large and small, every day, ranging from being evasive about the degree to which they snoop into our private affairs, to the ways in which they limit our access to the free flow of information by altering the results of popular online search algorithms.

In such an environment of pervasive betrayal, it’s difficult to maintain any sense of trust.

It turns out the best strategy is to trust nobody. Especially not a corporation with a large enough staff to segment their actions into enough ‘silos of deniability’, where no one person feels directly culpable for placing profits over people. “Hey Bill, as an exercise, why don’t you run an analysis that shows how many customers we might lose if we steadily increase their insurance rates, and then I’ll run it by legal and accounting…”

It’s time to refuse to put up with this any longer.

Sovereign Betrayal

The behavior of nations is no better on this front.

For example, in response to the highly-democratic Catalan referendum for independence, the EU bureaucracy has been busy betraying any commitments it had to protecting and advancing democracy. The EU Commission First Vice President said this:

STRASBOURG —The Spanish government’s “proportionate use of force” in Catalonia was necessary to uphold the rule of law, the European Commission declared on Wednesday.

As the European Parliament opened a debate on the Catalonia crisis, Commission First Vice President Frans Timmermans sided unequivocally with the Madrid government.

“None of us want to see violence in our societies,” Timmermans went on. “However it is a duty for any government to uphold the law, and this sometimes does require the proportionate use of force.”

(Source)

"Proportionate use of force?"

Wow. That"s an amazing perversion of language. Most of you have seen the pictures of peaceful people being ruthlessly clubbed by Spanish police -- simply because they exercised their right to vote. Here"s a graphic video of a woman"s fingers being methodically and cruelly broken as she lay on her back barely resisting (only watch it if you have a strong stomach).

Police broke my fingers one by one and touched my breasts

A woman dragged out of a polling station in Barcelona by police broke down in tears today as she claimed they had broken her fingers "one by one" and sexually assaulted her while they laughed.

Marta Torrecillas was filmed being violently removed from a school in the city"s upmarket Eixample area as Catalonia voted for independence yesterday.

The clip, captured at Paul Claris School, showed her being manhandled as she tried to walk past officers in full body armour on a day when footage of police brutality sparked outrage around the world.

Her dress was forced up around her thighs - leaving her exposed and humiliated - as she was dragged down towards the exit.She later claimed officers had touched her breasts and broken her fingers "deliberately, one by one".

(Source)

Her crime? Thinking she had the right to peacefully cast a vote. For that she was brutally assaulted, as were hundreds of other people. To which the EU VP merely said “it is a duty of any government to uphold the law.” 

Remember, it was the EU that voted to sanction and then bomb Libya because of concerns that Qaddafi was persecuting civilians (despite virtually no evidence this was the case) .

When your own government protects other people (as a pretext for violent regime change) but persecutes you, it is nothing short of a massive betrayal. Remember, anger, resentment, and humiliation are extremely difficult to ‘get over.’

It’s time to refuse to put up with this any longer.

Betrayal By The Elites

Here in October 2017, the stock and bond markets are in melt-up mode. This is a gigantic theft -- a deliberate transfer of wealth to those who already hold financial assets. The 1% is getting richer and richer while everybody without an already-significant pile of financial assets to their name languishes.

The central banks know exactly what they are doing and why. Stoking a massive boom in financial assets is benefiting their member banks, the ruling classes, the industry titans who fete them at swanky events like Davos, and the rich members of Congress.

Of course, this unfair wealth transfer is a massive betrayal of everybody who needs to save their hard-earned income for the future.

The central banks have vastly reduced the purchasing power of newly-earned money, making assets twice (or more) as expensive as they were just five years ago.  Anyone looking to buy a home, invest in a stock, or purchase a car, clearly can see this.

That’s inflation in every sense of the word. Inflation destroys wealth; it doesn"t grow it.

Here are a few simple questions to frame things.

• Would you rather receive 2% on a ten-year bond or 6%?


• Would you rather get 1 share of a given stock or 2 for the same amount of money?


• Would you rather get a dividend yield of 1.5% or 3%?

Obviously, you’d rather get more than less in every case. You’d take two instead of one for the same money whenever you could.

But the Federal Reserve has decided, using deeply flawed reasoning and no historical perspective, that simply jamming up the value of financial assets for those who already hold them is the best course of action.

Are you one of those who needs to save up for retirement? Tough luck. The Fed has decided you"re the loser in this story. You"ve been betrayed.

It’s time to refuse to put up with this any longer.

Generational Betrayal

One of the very worst forms of betrayal is that levied against an entire generation.

Today, we"re saddling young people with poor job prospects, high student debts, impossibly expensive housing stock, and a crumbling national infrastructure. All while asking them to shoulder the costs of the older generations underfunded entitlement and pension programs.

The statement to young people is clear: “We don’t care about you. We only care about us.”

It"s reprehensible. But that’s what massive betrayals are.

To just focus on housing in the US (and let’s be clear, housing is just as bad a situation in London, Stockholm, and a hundred other cities across the globe), the Federal Reserve has made higher home prices a specific policy goal. Its truly idiotic theory was that higher home prices make people feel richer, and that such people will borrow against the equity in their homes to spend more.

The reason this is idiotic is that a house that costs twice as much isn’t twice as valuable. As the market price goes up, the square footage and amenities remain exactly the same. The only real difference is that your property taxes and insurance costs have climbed, too. So in actuality,  it"s an even larger money drain than before.

Because assets generate cash flow and liabilities consume cash flow, it’s best to think of your primary residence as a liability and not an asset. But few people do that during a housing bubble like the one we"re in now. Just remember that all gains are speculative -- they only matter if you"re able to sell the house and invest the profits elsewhere. Otherwise, your "gains" can easily evaporate with the next market downturn.

The charts below show the astronomical prices homebuyer are faced with today. Here"s the national price index, which has propelled above it"s previous bubble high (remember: the bubble the triggered the Great Financial Crisis?):

(Source)

The view from a regional level often looks even more grim. Here"s what homebuyers in Dallas are experiencing:

Ouch!

Sorry next generation, the boomers driving the Federal Reserve"s policy have decided that you are expendable pawns. To protect their advantage, the older generation has decided to eat its young.

In other words, you’ve been betrayed.

It’s time to refuse to put up with this any longer.

*  *  *

In Part 2: Fighting Back -- A Call To Action, we detail the agency that we as individuals have in this story, to throw off the shackles of our victimhood and secure a prosperous future as protected as possible from the clutches of the betrayers. The betrayals will only come more fast and furious from here. This is expected. Dying systems with failing narratives are always messy and become increasingly desperate in their actions. Start taking steps to seize your future freedom now. Click here to read the report (free executive summary, enrollment required for full access)

Bang For Your Buck? Mapping Where A Dollar Goes Furthest In America

Go to any large, high-density city like New York or San Francisco, and you’ll notice a difference in costs immediately.

The price you pay for groceries, dinner at the restaurant, filling up your tank, or even your daily coffee goes up substantially. With high-paying jobs, booming economies, limited space, and soaring levels of density, cities can be expensive.

DOLLAR DISPARITY

While this effect on costs is most evident in cities, Visual Capitalist"s Jeff Desjardins notes that it’s actually present throughout the country.

What you can buy for your paycheck varies wildly depending on where you are, greatly impacting purchasing power and the cost of living. Sometimes even a short one-hour drive can make a difference in some cases.

Today’s two maps come from TaxFoundation.org, and they look at regional differences in purchasing power, based on information from the Bureau of Economic Analysis.

BANG FOR BUCK, BY STATE

The following map shows the buying power of $100 by state.

If the number is below, such as $90, it means money buys less than the federal average. If a state’s number is higher, such as $110, that means each dollar goes further, giving residents more purchasing power.

Generally speaking, dollars go furthest in states in the Southeast and Midwest parts of the country. Go to places like Arkansas or South Dakota, and you’ll see higher purchasing power.

Here are the five states that have the most buying power:

And here are the five with the least buying power:

BANG FOR BUCK, BY COUNTY

The state map does not tell the whole story, however.

The reality is that density makes a big difference for buying power, and large metropolitan areas tend to be more expensive. The following chart breaks it down based on county, creating a much more interesting contrast.

The above rendition makes it clear that the Bay Area, New York City, and Washington D.C. are the places where the relative value of a dollar is lowest.

Meanwhile, it also shows that metropolitan areas in some parts of the country are not too bad for the cost of living. Cities like Atlanta ($104.10), Nashville ($106.50), Phoenix ($102.90), Milwaukee ($104.50), Kansas City ($106.70), Jacksonville ($104.40), and New Orleans ($104.60) buck the trend, being cheaper than the American average.

Here’s another look – this time with an interactive map that allows you to hover over individual metro areas:

Mark Hanson Warns, Housing Affordability Never Worse... By A Long-Shot

Authored by Mark Hanson via MHanson.com,

Bottom Lines: 

• The income required to buy a median priced builder house has been more diverged from fundamental, end-user, mortgage-needing, shelter-buyer cohort income (purchasing power), which is why builder demand and end-user resales remain anemic.  


• Meaningful sales growth with this affordability backdrop is impossible.


• A mean reversion – via surging wages, new era exotic loans, plunging rates, and/or falling house prices, as speculation ebbs – is inevitable. 

Summary

My chart highlights how for DECADES the income required to buy a median priced house – using popular programs & rates for each era – remained mostly flat (red line) and WELL BELOW the level of household income (black line).

How could house prices rise so much for decades but income required to buy (red) them remain flattish?  Because of the accompanying falling rates/easing credit guideline cycle.  In fact, during Bubble 1.0 house prices soared but exotic loans legitimately made them more affordable than ever, as shown.

But in ’12, as trillions in unorthodox capital, credit & liquidity began to drive massive speculation (just like Bubble 1.0) income required to buy began to surge, with prices, shooting above median HH income (boxed in yellow). Meaningful sales growth with this affordability backdrop is impossible.

…This is the point in this inflationary cycle at which affordability detached from end-user fundamentals.

Now, in ’17, end-user purchase power & house prices have never been more diverged from the multi-decade trend line and a mean reversion – via surging wages, new era exotic loans, plunging rates, and/or falling house prices, as speculation ebbs – is inevitable.

The Cardinal Sin Of Investing: Permanent Impairment Of Capital

Authored by Adam Taggart via PeakProsperity.com,

Last week we presented a parade of indicators published by Grant Williams and Lance Roberts that warned of an approaching market correction as well as a coming economic recession.

The key message was: When smart analysts independently find the same patterns in the data, it"s time to take notice.

Well, many of you did, by participating in this week"s Dangerous Markets webinar, which featured Grant and Lance.

In it, both went much deeper into the structural fragility of today"s financial markets and the many reasons why economic growth will remain constrained for years to come.

The excessive build-up of debt in the system -- and the absolute dependence on its continued expansion to keep the economy from imploding -- is, of course, seen as the prime risk to future growth.

As Lance demonstrates here with several of his excellent charts, so much leverage has been taken on that its servicing is increasingly stealing capital that would otherwise go to savings, consumption and productive investment.

Going forward, the demands of the debt service will simply result in less and less capital available left over to grow the economy:

As financial assets are (supposed to be) valued on future growth prospects, lower forecasted growth demands lower valuations.

Grant calculates that, should the US see another decade of 2% average annual GDP growth (and it has averaged less than that over the past decade), stock prices should be roughly half of what they are today to be considered fairly valued:

And Lance builds further on this, explaining how this moribund growth, coupled with America"s aging demographic trend, will simply savage the nation"s (already troublesomely underfunded) pension and entitlement systems:

But there are a number of other destabilizing risks to fear beyond our terminal debt addiction.

One that Grant believes is not getting enough attention right now is the de-dollarization trend becoming notably apparent across a number of America"s strategic trading partners:

These clips are merely several minute"s worth of the excellent discussion and insights from the full one hour-and-a-half long Dangerous Markets webinar. Those interested in watching the full webinar can learn more here.

It"s little surprise that, given this multitude of concerns and systemic risks, both Grant and Lance advise investors to prioritize caution. They see extremely few undervalued -- or even fairly valued -- asset classes at today"s prices, perceiving nearly everything else at dangerously elevated levels.

In a situation like this, moving your capital to the sidelines may be the best move available. The risks of remaining long are obvious. But betting against the market has been a losing proposition for years -- no one knows how many months/years the central planners may be able to hold reality at bay.

Grant and Lance wrestle every day with market allocation decisions on behalf of their clients (and they discuss a number of potential options in the webinar). But both agree that, since the math is clear a major-to-massive correction will happen at some point, having dry powder set in reserve to deploy at much lower prices is a low-risk/high-reward strategy.

In Part 2: Smart Strategies For Building & Managing Your Cash Savings, we address many of the most frequently-asked questions involved in holding cash right now, including strategies for preserving purchasing power, avoiding bail-ins, fees and other threats to cash savings.

As Grant concludes on the webinar: Permanent impairment of capital is the cardinal sin of investing. Well, today"s markets present a clear and present danger of coming capital impairment for those who don"t take prudent action in advance of a market downturn. Don"t be guilty of inaction.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

Howard Marks Graciously Admits He Was Wrong: "Sees No Reason Why Bitcoin Can't Be A Currency"

Billionaire investor (and self-professed "Bitcoin Dinosaur") Howard Marks made headlines in July when he called Bitcoin a "unfounded fad.. a pyramid scheme" in one of his famous memos, igniting a firestorm of backlash from cryptocurrency advocates.

However, in his most recent Oaktree Capital memo, Marks retracted his position after being educated by some of his Bitcoin-loving friends regarding the cryptocurrency.

There has been particularly spirited response to my comments on digital currencies.  It prompted me to sit down with people ranging from some of my Oaktree colleagues to Steven Bregman and Murray Stahl of Horizon Kinetics (my July memo incorporated some of Steven’s observations on ETFs), and I learned that I’ve been looking at Bitcoin the wrong way.  In particular, I realized that the memo incorporated the wrong joke from my father; instead of “the half-million-dollar hamster,” it should have been this one:

Two friends meet in the street, and Jim tells Sue he has some great sardines for sale. 

The fish are pedigreed and pure-bred, with full papers and high IQs.  They were individually de-boned by hand and packed in the purest virgin olive oil.  And the label was painted by a world-renowned artist.
 
Sue says, “That sounds great.  I could use a tin.  How much are they?” and Jim tells her they’re $10,000. 

Sue responds, “That’s crazy, who would eat $10,000 sardines?” 

“Oh,” says Jim, “these aren’t eating sardines; these are trading sardines.”

I had been thinking about digital currencies like Bitcoin as investing sardines, and that may have been a mistake.  Their fans tell me they’re spending sardines, and while that may be the case, I think at the moment they’re being treated largely as trading sardines.  The question remains open as to whether Bitcoin is (a) a currency, (b) a payment mechanism, (c) an asset class, or (d) a medium for speculation.

The main complaint expressed in my memo was as follows:

Serious investing consists of buying things because the price is attractive relative to intrinsic value.  Speculation, on the other hand, occurs when people buy something without any consideration of its underlying value or the appropriateness of its price, solely because they think others will pay more for it in the future.

In the memo I talked about Bitcoin as an investment asset that should have a value that can be appraised.  While its fans tell me this isn’t the right way to view it, I note that in their February “Bitcoin Review,” even Steven and Murray called it “a new asset class.”  I think this is the weakest claim being made about Bitcoin.  As I said in the memo, “it’s not real” – there is no intrinsic value behind it.

What Bitcoin partisans have told me subsequently is that Bitcoin should be thought of as a currency – a medium of exchange – not an investment asset.  Given that the evolution of Bitcoin is so topical, I think further discussion is in order.  To start, I’m going to present the case for it as a currency.  What are the characteristics of a currency?

• Most importantly, it’s something that people agree can be used as legal tender (to buy things and pay debts), used as a store of value, and exchanged for other currencies.


• Currencies generally are created by governments. However, there have been exceptions: banks issued their own currencies in our nation’s first century, and it can be argued that the “Green Stamps” of my childhood, and airline miles today, have a lot in common with currencies.


• For a long time currencies were backed by (and exchangeable for) gold or silver, but that’s no longer the case. The truth is, there’s nothing behind currencies these days other than their issuing governments’ “full faith and credit.” But what do they promise? New currencies are sometimes created out of thin air (like the euro, which wasn’t legal tender sixteen years ago), and sometimes they’re devalued.


• Currencies change in value relative to each other, in theory based on differential purchasing power, and in practice based on changes in supply and demand (which can stem, among other things, from changes in purchasing power).

Bitcoin fans argue that it qualifies as a currency under these criteria: most importantly, it’s something that parties can agree to accept as legal tender and a store of value.  That actually seems right.

When I first responded to comments on the memo – even before my recent enlightenment – I found myself admitting that much of the criticism I had leveled at Bitcoin is applicable to the dollar as well.  Whereas I said Bitcoin “isn’t real” because it has no intrinsic or underlying value, that’s certainly true of the dollar and other fiat currencies: there’s nothing behind them either.  You can no longer exchange them for gold (and what is gold, anyway?  But that’s another subject).  In fact, government-issued fiat currencies are accorded value only because of a government edict.  Why, the fans of Bitcoin ask, is such an edict superior to an agreement among people to accept a non-government-issued currency?  Fiat currencies have value simply because of faith in the governments that issue them.  If enough people believe in it, why can’t faith in Bitcoin suffice?  If you consider the properties of fiat currencies, these are darn good questions.

So my initial bottom line is that I see no reason why Bitcoin can’t be a currency, since it shares the characteristics listed above, especially the fact that there are people (and businesses and even countries) that accept it as legal tender.

But that’s not good enough for Bitcoin’s fans.  It’s not the same as the dollar, they say; it’s better.   In all the following ways, they’ve told me, Bitcoin is superior to government-issued currency:

• All the relevant data regarding Bitcoin – number outstanding, number newly created, and transactions – are recorded in the “blockchain,” a sort of transparent electronic ledger of which everyone can have his or her own copy.


• Bitcoin can’t be debased by unlimited issuance, since the blockchain process has been set to permit only a gradual increase from today’s 16 million, to 21 million in 2140. In this sense Bitcoin is better than the dollar, of which a lot more can be issued at any time, diminishing its purchasing power through inflation. As Steven and Murray have written, “a purchase of Bitcoin is nothing other than a short sale of the currencies of the world.Merely by limiting the growth of supply, Bitcoin would become more valuable as other currencies devalue.”


• Since the blockchain exists on each person’s individual computer, rather than in a central location, it can’t be hacked, and thus Bitcoin can’t be stolen, counterfeited, or secretly created in amounts exceeding the authorized total. Likewise, Bitcoin isn’t subject to the currency controls on portability that are often imposed by failing governments. (But I wonder whether the technological claims made for the blockchain might be its Achilles’ heel. While I certainly don’t have the ability to assess these claims for myself, I wonder how many of Bitcoin’s advocates do either.)

Where will we go from here?  The partisans claim the outlook for Bitcoin as a currency is bright:

• Since very few people own it today but millions more will want it in the future, demand is sure to rise faster than supply, meaning the price will rise.


• Specifically, the U.S. money supply is almost $14 trillion, so if people and businesses decide to hold just one-third of their wealth in Bitcoin rather than dollars, (and who wouldn’t want to do so given all the advantages described above?), the value of the Bitcoin in circulation will rise to $4.5 trillion, from today’s $73 billion, for a gain of roughly 60x.


• There’s sure to be a network effect: the more people join the Bitcoin movement, the more it will be accepted as legal tender, the more useful it will be, and the more demand will increase.


• Ignoring Bitcoin’s utility as currency, many people will buy just because they believe someone else will pay them more for it. (This time-honored “greater-fool theory” lies at the heart of all speculative manias.) Likewise, people will buy it because of fear of missing out, another bull-market standard.

There’s absolutely no reason why Bitcoin – or anything else – can’t serve as a currency if enough people accept it as such.  While I’d point out that no private currency has gained widespread use in a long, long time, there’s nothing to say it can’t happen.

*  *  *

However, before Bitcoin enthusiasts get too over-excited by Marks" "acceptance," he is not convinced it"s not a speculative bubble...

Being willing to agree that Bitcoin may become an accepted medium of exchange is not the same as saying you should buy it now to make money.  Think about the fact that the price of Bitcoin has risen more than 350% so far this year and 3,900% in the last three years.  To the degree people argue that Bitcoin is a currency, then (a) why is it so volatile? and (b) is that desirable?  You might want to consider whether a real currency can do that, or whether speculative buying is determining Bitcoin’s price.  And whether what’s gone up can come down.

The immediate issue of Bitcoin as a currency still comes down to the question of whether today’s price is right.  The price of a Bitcoin is around $4,600 today.  Can one Bitcoin buy the same amount of goods as 4,600 dollar bills?  Or the much higher amounts that Bitcoin bulls think it will soon be worth?  I don’t think we have enough information to know, but the question isn’t irrelevant.  If it were, this would be another case of “there’s no price too high.”

The other purported use for Bitcoin, given its status as what Marc Andreessen calls a “digital bearer instrument,” is as a payment mechanism.  Its advantages in this regard include the following:

• transactions in Bitcoin can be anonymous (I understand it is often used to pay for opioids),


• payments are made without fees like those charged on credit card transactions and wire transfers,


• there can’t be fraud and merchant charge-backs like with credit cards, and


• it can be particularly useful in emerging nations lacking developed payment systems.

But I see two issues here:

First, I expect there to be many competing transaction systems. Will the banks and other financial institutions cede this territory to Bitcoin? Wouldn’t banks’ systems be more likely to gain acceptance from people other than perhaps millennials? What would happen to Bitcoin’s utility as a payment mechanism if Amazon announced its own? Would you rather transact in Bitcoin or Amazonians?

Second, if Bitcoin were to become the leading non-governmental payment system, what would cause it to appreciate? If you want to pay me in Bitcoin and I’ll accept it, what would cause its price to rise?Adherents would argue that the limited supply relative to the growing use will make the price rise. But that assumes there’s no price so high for Bitcoin that transferees won’t accept it in lieu of dollars. The “pro” side of the argument foresees limitless appreciation, but that doesn’t make sense. Think of any other currency: isn’t there a price at which you wouldn’t accept it? Would you sell your house for euros that are said to be worth two or three times as much as the dollar?

Marc Andreessen wrote an excellent article in The New York Times’ Dealbook, titled “Why Bitcoin Matters” (January 21, 2014).  The article outlined Bitcoin’s potential as a payment system and described many of the advantages listed above.  But it didn’t include one word about why these advantages give Bitcoin appreciation potential.

So what’s my real bottom line?

• Advocates say if Bitcoin is accepted as described above, you’ll make more than 50 times your money. Thus success doesn’t have to be highly probable for buying Bitcoin to have a huge expected return. This is called “lottery-ticket thinking,” under which it seems smart to bet on an improbable outcome that offers a huge potential payoff. We saw it in full flower in the dot-com boom in 1999-2000, and I think we’re seeing it in action again today with regard to Bitcoin.Nothing is as seductive as the possibility of vast wealth.


• Several of the “seeds for a boom” that I listed in “There They Go Again . . . Again” are at work in the Bitcoin surge: (a) there is a grain of underlying truth as set out above; (b) there’s the prospect of a virtuous circle: widespread demand will lead to wider acceptance as legal tender, which will lead to widespread demand; and (c) thus this tree may grow to the sky, as there is no obvious limit to this logic. None of these things necessarily make Bitcoin a mistake. They merely say elements that contributed to past bubbles can be detected today with regard to Bitcoin.


• Finally, Bitcoin isn’t alone. There are hundreds of digital currencies already – including eleven with market capitalizations over a billion dollars – and no limits on the creation of new ones. So even if digital currencies are here to stay, who knows which one will turn out to be the winner? Hundreds of e-commerce start-ups appreciated rapidly in the tech bubble based on the premise that “the Internet will change the world.” It did, but most of the companies ended up worthless.

Marks concludes graciously...

Thanks to the people who took the time to educate me, I’m a little less of a dinosaur regarding Bitcoin than I was when I wrote my last memo. 

I think I understand what a digital currency is, how Bitcoin works, and some of the arguments for it. 

But I still don’t feel like putting my money into it, because I consider it a speculative bubble.  I’m willing to be proved wrong.

"Bitcoin Saved My Life..."

Authored by Joe Withrow via InternationalMan.com,

Eli’s mother was dying from cancer.

Eli is 33 years old. He owns a shoe store in Caracas, Venezuela. His mother has bone cancer.

Venezuela’s currency is the bolivar. It lost 62% of its purchasing power in February. (It lost 67% the month before that.)

That means prices for everything (food, water, and utilities) increased 62% over a month.

Eli couldn’t afford his mom’s medication. So he turned to bitcoin.

You see, Venezuela has capital controls on traditional safe havens like the U.S. dollar (more on that in a moment). That makes it hard for Eli to buy them.

So he buys bitcoins and sells them to a friend in Colombia - who won’t accept bolivars. The friend then buys cancer treatment and medical supplies for Eli.

Said Eli…

Treating my mother’s cancer would have been very difficult without using bitcoins because my business is going bankrupt and I have a lot of debts, so bitcoins enabled me to stay afloat while our currency is collapsing.

Eli’s not the only Venezuelan using bitcoin to survive.

Arley is from the Táchira state on the border with Colombia. He said he buys drugs in Colombia with bitcoins… then resells them after legally importing them to Venezuela.

Things have gotten so bad that authorities are investigating the theft of zoo animals in the Venezuelan state of Zulia. Police believe people are stealing the animals and eating them. It’s another sign of hunger in a country struggling with chronic food shortages.

As you probably know, Venezuela is on the verge of collapse.

President Nicolás Maduro’s socialist government has eroded 99% of the bolivar’s value. That has created a humanitarian crisis.

Today, I want to show you how Venezuelans are fighting back—using bitcoin.

A Worthless Currency

Venezuela has the highest inflation rate in the world at 741%. The Venezuelan bolivar is basically worthless. You can’t even buy a loaf of bread with a wheelbarrow full of them.

So it’s no surprise that Venezuelans are looking for alternative currencies. And the U.S. dollar is one of their favorites.

But the government has tight controls on currency exchanges. It restricts the number of dollars people can buy… and what they can do with them.

The government-controlled exchanges have created a black market for U.S. dollars.

In 2014, you needed 6.25 bolivars to get $1 on the black market. Today, using the black-market rate, you need 16,000 bolivars to get that same $1.

The rising cost of black-market dollars—and tight government controls on their purchase—has pushed Venezuelans into bitcoin.

Bitcoin volume has surged to record highs in Venezuela since the crisis deepened…

Venezuelans are using bitcoins to buy Amazon gift cards. They need to buy the gift cards so they can order goods and food from the online store in the U.S. and other countries. The goods are delivered by courier to Venezuela.

One Caracas-based bitcoin trader said, “Bitcoin is a way of rebelling against the system.”

Protection Against Chaos

We love bitcoin at the Palm Beach Research Group. Personally, I’ve been mining bitcoin since it was trading at $450 over a year ago.

Bitcoin is up 856% since we recommended it in April 2016. Despite those gains, we still believe it’s a strong investment.

But bitcoin is much more than that. It’s quickly becoming the world’s premier chaos hedge.

That’s why Venezuelans are turning to bitcoin. And they’re not the only ones.

In 2013, Cypriots hoarded bitcoin after the Cyprus government closed banks for a month… and confiscated 6–10% of account holders’ money to “bail in” the system.

And during Greece’s 2015 economic crisis, the government shut down banks for a month.

In both cases, Cypriots and Greeks turned to bitcoin. Bitcoin volume in Europe shot up 286% after the Cyprus bank closures. And bitcoin trades in Greece increased 79%.

As you can see, bitcoin has become a functional currency in real-world situations. That’s why it’s rising in value… and will keep rising.

I recommend buying a small amount of bitcoin every month. Remember, you don’t need to buy a full bitcoin… Just a fraction will do.

One day, you’ll be glad you did… I promise.

House Price Bubbles 2.0 In Pictures

By Mark Hanson Of M Hanson Advisers

Bottom Line: House prices and end-user, shelter-buyer fundamentals have never been further apart in key, economically significant cities.

The two charts presented in this note highlight just how diverged house prices have become from end-user, shelter-buyer, employment and income fundamentals in the most populated, economically significant US cities.

I maintain that House prices are always drawn to the purchasing power — or, economic strength — of the end-user, shelter-buyer cohort, as the dominant, permanent demand driver.

But, sometimes House prices, like other asset prices, go through periods of separation from end-user, shelter-buyer cohort fundamentals.  And based on the most recent data of incomes, mortgage rates, and House prices in key cities around the nation, house prices and end-user fundamentals have never been further apart.  Even in Bubble 1.0, the divergence wasn’t this bad because exotic loans, which were the incremental driver of House prices, made for legitimately low monthly payments.

Some positive or negative divergences can be solved through lots of time, as the economy shrinks or grows.  But, over the past several years, as the economy barely grew each year, house prices soared at a pace that exceeded Bubble 1.0 in most regions.

As such, it’s reasonable to assume that the massive divergence in most key metros has been driven largely from the three things that just so happen to be present in all bubbles throughout history; SPECULATION, LEVERAGE, AND EASING CREDIT STANDARDS, regardless if on an individual, corporate, financial market, or Gov’t level.

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THINK ABOUT IT THIS WAY…

If everybody had to buy a house the exact same way — say, with a 30-year fixed, fully-documented mortgage and 20% down — HOUSE PRICES could never detach from the end-user, shelter-buyer employment and income fundamentals for a particular region. In other words, HOUSE PRICES would be attached to and track these fundamentals, perfectly.

But, in times, of increased speculation, leverage, and declining credit standards, the end-user, shelter-buyer employment and income fundamentals get drowned-out and asset prices attach to the incremental spec and high-leverage drivers.  How long and far asset prices are driven by the incremental, spec and leverage drivers determines the scope of the divergence and ultimately the possible downside risk in an asset class.

For housing, in particular, using these data, I can easily calculate the potential HOUSE PRICE downside in each area.

Bottom line:  This massive HOUSE PRICE/fundamentals divergence will close at some point, either from surging wages, plunging credit standards or rates (make monthly payments less), falling HOUSE PRICES, or a combo of all three. 

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Onto the data.

A big problem with house prices experiencing even a “moderate” correction of 10% to 20% — already underway in many of the most over-priced regions — is with between 40% and 50% of all house purchases for years being of the “less than 10% down” variety — and because it takes 8% to 10% equity to sell plus the 3% to 10% down payment on the new house — it doesn’t take much downside to swamp the nation in “NEGATIVE EQUITY” once again. And we know for certain that many homeowners rather pay their credit cards and car payments before their mortgage when they are underwater.

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ITEM 1)  Household income INCREASE needed to Buy the Median Priced House in Key Cities.

Bottom Line:  On a “national” basis the divergence isn’t too bad…6%.  But, in the key cities that drive the US economy, Bubble 2.0 has blown large.  This represents significant downside, especially in the sand states, just like in Bubble 1.0.

ITEM 2)  DIVERGENCE between Actual Household Income & Income Needed to Buy the Median Priced House.

Bottom Line:  Here too, on a “national” basis the divergence isn’t too bad…-6%.  But, in the key cities that drive the US economy, Bubble 2.0 has blown large.