Daily Archives: May 9, 2017

Stealth U.S. Dollar Collapse Possible as King Dollars Influence Wanes

The U.S. dollar collapse has been on many peoples radar for, well, forever. Its remarkable resilience is a testament to the strong relative fundamentals the American political and socio-economic system enjoys versus the rest of the world. Thats why King Dollar is still the worlds reserve currency today. But what if this narrative is changing? What if degrading fundamentalsincluding competition from upstart currenciesthreaten to tip the balancetowards persistent dollar selling?Will the U.S. dollar collapse? It can, if the snowball turns into an avalanche.

Most people are familiar with Americasnew-normal slow growth paradigm. What many dont knowand still cling tois that the great economic machine known as America isnt coming back. Not in the way we remember it, at least. Its essentially a numbers game now, and problems like huge debt levels and workplace automation are only going to increase. Without the return of economic growth, the dollar is destined for continued debasement through the printing press.The only other option is a U.S.dollar devaluation by way of default, or high inflation. Both will kill the dollar through different means.

Adding further pressure to the deficit, President Donald Trump has signaled a very dovish tone towards deficit spending. In Trumps Budget Blueprint released on March 15, 2017, he advocates $1.0 trillion in infrastructure spending and does not include reformsfor the real elephants in the room: Social Security, Medicare, and Medicaid. (Source: America First, The White House, March 15, 2017.)

Given that Trump has already pledged that Social Security wont be touched and favors increases in things like veterans care, federal government spending is only going up, not down. Theres no inclination that controlling entitlement spending is on anyones radar; certainly not from the administration still looking for their first win in Congress. Theres even an ambitious attempt to raise Defense spending by $54.0 billion per year, which is already 10-times higher than the annual budget of Americas next nearest rival. Under these conditions, the federal deficits will only balloon faster than the 150% debt-to-GDP ratio projected by the Congressional Budget Office by 2050.

This shouldnt come as a shock to anyone paying attention. After all, they didnt call Trump the Debt King for nothing. Over-indebtednessalmost sunk the Trump empire on a couple of occasions; and actually did in the case of individual assets like Trump Hotels and Casinos Resorts in 2004. Should his policies of much lower corporate tax rates (35% down to 15%) combined with increased federal outlay spending come to fruition, its practicallyimpossible for tax receipts to bridge the gap.

That is, unless you believe annual economic growth can sustainat four percentindefinitely, which it cannot. The averagebusiness expansion growth rate has been contracting since the mid 1970s. Not coincidentally, this occurred during Americas industrial manufacturing peak. GDP growth cycles that used to peak ateight percent, then six percent, then four percent,are now barely able to crack two percentgrowth in a good quarter. Americas workforce is aging and losing productivity, and now something even more ominous is lurking in the background.

Automation is about to enter stage right,and its threatening to engulf the workplace. Between 1990 and 2017, industrial robots unleashed in the workplace (around 670,000 in total) eliminated 6.2 jobs for every 1 job they created. But the real kicker: wages declined between 0.25% and0.50% for every 1000 robots that entered a company workforce.(Source: Six jobs are eliminated for every robot introduced into the workforce, a new study says, Recode, March 28, 2017.)

Now, imagine the wage deflation assured to take placewhen dozens of large multi-national companies start laying off workers. Some of these companies employ 250,000 people or more worldwide. If only 10% of these workers getreplaced by automation over the next few years, wages could fall 2.5%-5.0% or more for the remaining in-house workers. How is this not monumentally deflationary in nature? Deflation is kryptonite to high deficits.

Evenworse, there are indications that job losses will be much higher than 10%. A recent study predicted that 38% of jobs will be automated by the early 2030s. This includes high-paying financial service positions, which carry a 61% riskrate. All told, fourout of 10 U.S. jobscould be eliminated, which will add pressureto the 30-year lowlabor participation rate currently plaguing the economy. (Source: Watch out America, robots are coming for your jobs: Report finds 38% of US jobs will be automated by 2030,Mail Online, March 2, 2017.)

Again, why am I talking so much about automation in a U.S. dollar collapse article? Because without real organic economic growth, brought about by higher wages and tax receipts, deficit spending can only ramp higher. This will only lead to higher debt servicing costs asinterest rates gradually normalize and the debt servicing principal steadily increases.

Thus, from a supply-side perspective, the die has already been cast. Theupcoming dollar collapse is a mathematical certainty; all thats remaining is a demand-side catalyst.We believe one might have arrived.

The U.S.dollar collapse scenario hasnt happened yet, but more signs keep pointing inthat direction. The scenario will truly occur when all the collapse pieces are in place, which hasnt happened yet. One important piece will be shifting worldwide interest and necessity away from the dollar. Some rival currenciesmost notably of the digital varietyare starting to pose a serious challenge.

Bitcoins rise to preeminence has been astonishing. Its currently trading at all-time highs of $1,460 (as of this writing), having risen 1400-fold in just five years. Thats what real growth looks like.

Major industrialized nations like Japan and Russia are just starting to recognize Bitcoin as legal tender. Such a move would signal a huge step towards eventually recognizing them as legitimate Central Bank assets. Also, because cryptocurrencies are not centrally managed, Americas rivals would have a huge incentive to accumulate cryptocurrencies as reserves instead of recycling U.S. dollars. From a foreign perspective, breakingup the dollars reserve currency status would serve to knock out Americas ability to finance its war machine; something Russia and China both crave.

In fact, it seems Russia and China are not waiting around for blockchains rise to take matters into their own hands. The Russian CentralBank opened a Beijing-based bank in March 2017, signaling its intent to forge alliances with China, with the ultimate intent of establishing a gold-backed system of bilateral trade. This would bypass the need to use the U.S. dollar altogether, as an Eastern gold standard gradually forms. Once the G20 industrialized nations stop requiring U.S. in trade, one of the main drivers of demand dries up. (Source: Moscow and Beijing join forces to bypass US dollar in world money market, South China Morning Post, March 18, 2017.)

Various other nations are working bilaterally as well to circumvent the dollars dominance in foreign trade. Iran, Argentina, and Libya during theMuammar Gaddafi years (some believe his desire to bypass the dollar by trading with gold ultimately led to his demise). This trend is unstoppable as more nations attempt to break free from the dollar shackles. On the road to ruin, the U.S.dollar collapse timeline requires the underpinnings of support be severed. Critical mass will be achieve when enough countries choose to ditch the dollar and trade with another currency.

Aside from all of these negative events, perhaps the U.S. dollars time has simply come. Nothing lasts forever. The world changes, and the balance of power ebbs and flows through the decades. America is no longer the economic superpower it once was. Its a graying, uber-mature, hollowed-out economy with financial debt and social security obligation it can never pay back. The weakening dynamicsplaying out in America areno different than those of the Roman Empire, who gradually diluted the amount of minted silver in their coins to five percent of their original value. Why? Topay for such things as defense against the barbarians and pork projects for their over indulged monarchy. Surely, this sounds familiar.

As a testament to the nothing lasts forever meme,numerous different countries have both held and relinquished the world reserve currency mantle over the centuries. The average period of reserve currency dominance is around 90 years (since 1450), and the U.S. is right up against this timeline now. We simply may be approaching the time where the U.S. economy istoo mature and its indebtedness too great for the worlds currency power structure to shift somewhere else.

When will the dollar collapse?U.S. dollar collapse predictions are notoriously tough to pin down. My best guess is that it will be a gradual process, rather than an event. Its the fraying at the edges which will gradually eat away at dollar supremacy. The catalyst to really kick-start a crisis might be a credit downgrade or an unforeseen catastrophe. But if history is any guide, the dollars reserve currency status is lying on quicksand, and once it sinks,the dollars value will careen lower. Again, think gradual timelines, picking up pace as the crisis wears on.

Its the inevitable result when a mature economy gets complacent, coupled with huge liabilities it can no longer avoid. The die has been cast.

Read more:

Ominous Signs of the Coming U.S. Dollar Collapse Abound - Lombardi Letter

The thought of Tier 1 FX desks being run by teams of entitled, unaccountable gray cardigan-wearing Caravan Club members with civil service pension plans should be enough to send the entire industry striking up prime brokerage relationships in Hong Kong, New York and Singapore.

Just one month remains before Britains electorate goes to the polls to elect the prime minister that will lead the country for the next four years after incumbent premier Theresa May called a snap General Election two weeks ago.

Never since the dark days of the late 1970s has there been such a polarization between potential candidates, Theresa Mays evident attempts to emulate the late and great Baroness Margaret Thatcher a far cry from opposition leader Jeremy Corbyns old-fashioned extreme left aspirations.

It is entirely possible to listen to a speech by Mr Corbyn, or read his party manifesto, whilst reminiscing over the several meter high piles of refuse adorning the streets of every town and city, the three day working week and the nationwide industrial disobedience that brought Britains proud industrial empire to its knees forty years ago.

There are far more considerations this time than socio-economic preferences, however, as todays world is an electronic one, and Londons financial markets economy, which leads the world and is responsible for 176 billion in revenues and is so efficient that it employs only 0.0009% of the European Unions workforce yet produces 16% of all tax receipts for the entire 28 member states and has a 76 billion trade surplus.

It is patently evident that Londons financial sector especially the non-bank electronic trading sector with its prime of prime brokerages, connectivity and integration suppliers, and their relationship with the eFX divisions of Canary Wharfs Tier 1 banks is a pinnacle of commercial excellence and leads the world.

Not very much scratching beneath the surface of Jeremy Corbyns hammer-and-sickle toting shadow cabinet is required to note something quite sinister, that being the socialist Labor Partys disdain for Britains largest and most revenue driving business, Londons financial markets industry.

Just three years ago, there was a substantial amount of discourse mounting in London with regard to the European Unions predilection for the intrinsically socialist Tobin Tax on transactions that are placed in trading financial instruments.

That has now gone completely quiet, as Britain opposed it on principle and has managed to fend it off, however in 2013, eleven European Union member states, all of which were led by left-wing governments, announced their wish to move ahead with introducing a financial transactions tax.

At that time, the nations which include France and Germany intended to use the tax to help raise funds to tackle the debt crisis, and the tax had the backing of the European Commission which was reinforced after the 2014 election the highly unpopular Jean-Claude Juncker as President.

The other countries that wished to introduce it were Italy, Spain, Austria, Belgium, Greece, Portugal, Slovakia, Slovenia and Estonia, all nations with absolutely no place in the worlds highly advanced financial markets economy. Greeces government accountants, when not asleep for half of the day, cannot tell the top from the bottom of their balance sheets, Italy is rife with corruption, Portugal is agrarian, Belgium has invoked outright bans of retail electronic trading instruments and Slovakia, Slovenia and Estonia have absolutely no Tier 1 bank presence.

Jeremy Corbyns policies echo this line of thinking.

The Tobin tax was originally proposed to target the FX market when it was orchestrated by James Tobin in the 1970s, and whilst Britain has managed to remain free from its burden until now, Jeremy Corbyn is a staunch advocate of implementing it.

In September 2015, Jeremy Corbyn and Shadow Chancellor and equally leftist John McDonnell made a schedule to meet four times per year with a seven-strong group comprising of economic academics (rather than business leaders) one of which was Anastasia Nesvetailova, a self-designated expert on the international financial sector and its role in the global financial crisis of 2007-09. Ms. Nesvietailova, is an academic who spends her day in the classroom rather than the boardroom, thus is a theorist and has no practical experience. Just the type of policy advisors favored by the left.

During one particular conversation, the Labor Partys support for the implementation of the Tobin Tax on all trading transactions was raised, as was, rather alarmingly, the potential of a Britain free of dominance of the financial sector.

Bearing this in mind, it is worth looking at John McDonnells credentials and viewpoint.

Mr. McDonnell is a former trade unionist who backs renationalizing banks and imposing wealth taxes. He actually lists generally fomenting the overthrow of capitalism as one of his interests in the Whos Who directory of influential people. He also advocates the complete public ownership of all banks.

Mr McDonnell has served as Chair of the Socialist Campaign Group in Parliament and the Labour Representation Committee, and was the chair of the Public Services Not Private Profit Group. He is also Parliamentary Convenor of the Trade Union Co-ordinating Group of eight left-wing trade unions representing over half a million workers

The thought of Tier 1 FX desks being run by teams of entitled, unaccountable gray cardigan-wearing Caravan Club memberswith civil service pension plans should be enough to send the entire industry striking up prime brokerage relationships in Hong Kong, New York and Singapore.

Mr McDonnell has also said publicly that if he was able to, he would have assassinated Margaret Thatcher in the 1980s, a comment that when challenged, he retracted and said it was a joke.

Well, Mr McDonnell, that kind of extreme anti-business mentality combined with a will to bring the entire financial markets sector to its knees in the rebellious quest for overthrowing capitalism is not welcome.

Mr McDonnell wrote in 2012 that a financial transaction tax would halt the frenetic, madcap speculation in the City and raise money for infrastructure investment.

If the City resists then lets make it clear that capital controls would follow, he said in a piece for Labour Briefing, a left-wing website.

He has also said he wants to take the power to set interest rates away from the Bank of England and to give it back to government. This would reverse a decision by the Blair government to let the central bank decide monetary policy.

If his choice of senior cabinet ministers is not enough to ensure that this odious relic of the dark days of socialism stays out of office, Mr. Corbyns affection for Venezuelan communist dictator Hugo Chavez should do the trick.

In 2013, Mr. Corbyn tweeted Thanks Hugo Chavez for showing that the poor matter and wealth can be shared. He made massive contributions to Venezuela & a very wide world just after president Chavez passed away.

The hard-left policies of Mr Corbyns idol Hugo Chavez have left a once-rich nation brutalized and devastated and with 2,200% inflation, strict capital control laws and an inability to do business with any free market nations.

Venezuela shows quite clearly just how catastrophic socialism is. So you might then expect those well-meaning folk who held up Chavez as a paragon to admit their mistake. Naomi Campbell, Diane Abbott, Seumas Milne and Owen Jones in the UK; Sean Penn, Oliver Stone and Michael Moore in the US. Not a peep from any of them.

Hugo Chavez successor Nicolas Maduro has turned out to be a first class economic incompetent. In 2016, imports collapsed by more than 50% (largely due to socialist trade sanctions) and the economy nosedived by 19%.

The budget deficit is around 20% of GDP. The minimum wage is now the equivalent of 25 a month. Conversely, Londons financial sector employs several middle managers between the ages of 25 and 35 who easily earn between 150,000 to 200,000 per annum, rising to over 500,000 for a senior executive position, and professional mobility the chance of switching to new firms and accelerating ones career is among the best in the world.

After a Central Bank estimate that suggested that the Venezuelan economy had contracted by 19% last year was leaked to the press, Mr Maduro fired the banks president and replaced him with a Marxist loyalist demonstrating another very problematic aspect of left wing control, censorship and that anyone who speaks against the ideology, whether right or wrong, will be removed from office.

Up to 640 billion of oil money was lavished on the countrys poor during the oil boom years, creating a gargantuan dependency culture. The country quintupled its national debt and hundreds of thousands of homes (of questionable construction quality) were handed to the poor. President Chavez created a massive and unsustainable bubble which is now beginning its slow, painful collapse.

At the heart of Venezuelas economic chaos lie market distortions. Gasoline is sold locally for less than 1 British pence per litre and it receives 12 billion of state subsidies a year. The country has a complex monetary arrangement that makes use of three different exchange rates simultaneously.

This feeds rampant corruption because those with close connections to the president can buy dollars from the state at 10 bolivars a dollar but sell them at 3,300 bolivars a dollar on the black market a classic case of do as I say, dont do as I do.

Price controls have made it unprofitable for small businesses to sell staple goods, leading to widespread shortages. Carjackings and kidnappings are now epidemic. Caracass murder rate is 80 times higher than that of London, which over the last 15 years has become very safe indeed, especially in Central London, and in particular, the Square Mile where it would be extremely rotten luck to have even so much as a wallet stolen from a pocket.

It does not bear thinking about should a government with these views and ideas which are aimed at instilling a new world order gain office, hence London will likely be business as usual on June 9 once the sensible rather than anarchic have done the right thing at the polling booths.

Read the original here:

Jeremy Corbyn's hard-line socialism and Bolivarian aspirations would destroy the electronic trading business - Op Ed - FinanceFeeds (blog)