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Friday 10.21.2016

Cashless Society – War On Cash to Benefit Gold?

Cash is the new “barbarous relic” according to many central banks, regulators, and some economists and there is a strong, concerted push for the ‘cashless society’. Developments in recent days and weeks have highlighted the risks posed by the war on cash and the cashless society.

The Presidential campaign has been dominated for months and again this week by the power of information that has been gathered through unconventional means – whether due to email hacks, leaked microphone tapes or even late-night twitter rants. Both presidential candidates have got things to say when it comes to the gathering of information and both are for it. Hillary Clinton sees a thin line between national security and your personal privacy. Donald Trump has openly said that he is open to mass surveillance and as he puts it, putting the country before personal liberty.

Neither candidate is afraid to say that they support information snooping and gathering for the sake of national security. In the ‘punch and judy’ show that has been the U.S. election, important financial and economic matters have been eschewed in favour of salacious allegations regarding alleged sexual advances etc.

Access to your information is one thing, it is how it is read and what is done with it that is pertinent. In a cashless society information replaces cash. How that information is interpreted is entirely subjective and the chances of any recourse when someone has misread your cash transaction seem to be increasingly slim.

European Central Bank keeps door open for more stimulus

European Central Bank head Mario Draghi has left open the possibility that the bank might extend its stimulus program of 80 billion euros in monthly bond purchases beyond its earliest end date in March. He made no promises, however, other than to say there would be no abrupt stop.

He indicated Thursday that a decision about the future of the stimulus program, which aims to push up weak inflation and growth by lowering borrowing rates, would only come at the bank's Dec. 8 meeting.

"An abrupt end to the bond purchases? I think it's unlikely," Draghi said at a news conference. "Our decisions in December will tell you what we are going to do in the coming months."

He spoke after the central bank's governing council made no changes to any of its record low interest rates or other stimulus programs, at a meeting that has been widely seen as a prelude to the next one. The bank will then have new projections for inflation and growth on which to base a decision.

Media’s hypocrisy laid bare in “un-American” charge against Trump

Here's What the Shanghai Accord Means for the Dollar

The Shanghai Accord in its simplest form is a weaker dollar, a weaker dollar for imported inflation, a weaker dollar to stimulate U.S. exports (as noted previously here). It was a way for China to cheapen their currency without breaking the peg to the dollar.

You would cheapen the dollar, and then China would keep the peg, and the Chinese yuan would cheapen along with it. That framework came out at the end of February, and it was a very good guide for policy from February through June or July.

The problem is, and this is really important to understand, all of these processes are dynamic, and a lot of them are in conflict. In other words, the central banks want things that conflict with each other.

For example, the Federal Reserve (Fed) wants inflation. They say so. It’s not a secret. One of the ways to get inflation is a cheaper currency, but they also want to raise rates. Which is why they have to raise rates, so they can cut them in the next recession. Raising rates makes the dollar stronger. How do you reconcile a weaker dollar, which imports inflation, with a stronger dollar, which creates deflation? You can’t. They’re completely opposite goals, but this is where the approach diverges.

The Power To Make Or Break Nations—The World’s $1.7 Trillion Oil Business

The oil bust, today’s volatile market and relentless OPEC chatter, it’s easy to lose sight of the fact that the oil market—even at current valuations—is somewhere near the $1.7 trillion mark, and as such, has the unique power to build or break nations.

Often referred to as the oil curse, many countries, such as Venezuela, Algeria and others, depend almost entirely on oil and gas income to sustain their economies. And while oil—or any single resource for that matter—is seldom a saving grace for a country with limited growth, the recent fall of crude oil prices have introduced a whole new level of desperation in governmental entities that have allowed their economies to rely solely upon oil.

The thirst for oil and natural gas drilling never seems to die, regardless of price. In fact, there is an increasing number of countries that become entangled in this oil curse in order to bring new wealth to their citizens, despite today’s difficult price environment.

This is a lofty goal, and may even be well intentioned, but more often than not, funds derived from oil make their way to the top tier of government—and seem to get stuck there—or reside with private corporations based in other countries. Even with infrastructure developments introduced by the governments using the new money, the poor tend to stay helplessly poor. A number of Asian countries, notably China, Malaysia and Indonesia, have adopted a dual-track development strategy that pursues a strong manufacturing sector alongside natural resource exports. But this setup requires strong and disciplined national parties that are able to continue an economic plan despite changes in executive leadership or political ideologies.

Deutsche Bank is too interconnected to fail

Despite his deep seated concerns for US growth, popular Canadian economist David Rosenberg is more optimistic for the global growth outlook, which he thinks could surprise on the upside, based on the turnaround stories in emerging markets and a fiscal stimulus out of Germany.

In an interview with Real Vision TV, Rosenberg welcomed the realization, even among central banks, that policy has really hit the limits, saying it’s time for something new, with fiscal policy able to pick up the baton.

“There are some interesting things happening right now overseas in Southeast Asia, even parts of Latin America, and in India,” Rosenberg said. “And I think that actually when you do a bottom-up approach towards your global GDP growth forecast, say, for the next year, the next two years, it's probably going to be higher, not lower. And the question is going to be, how much higher? And then will it be sustained?”

These views and plenty more, including Rosenberg’s call for a multi-trillion-dollar fiscal boost in the US to stave off the threat of recession, are featured in the full length interview on Real Vision.

Keiser Report: J is for Junk Economics

Apple wants to get rid of cash because "consumers don’t like it"

Apple is striving towards a cashless society as the tech giant’s CEO pledges to “take cash out of the system”. Tim Cook, the CEO of Apple, has told Asia’s Nikkei news agency that consumers aren’t too keen on physical currency, and that they'd much rather use cashless services such as Apple Pay.

“We'd like to be a catalyst for taking cash out of the system,” Cook was quoted as saying. “We don’t think the consumer particularly likes cash." His comments came as Apple prepares to launch Apple Pay in Japan this month. At the time of the announcement, Cook said:

“We're incredibly excited to bring iPhone 7 to customers in Japan so they can experience the magic of Apple Pay. Apple Pay will transform your daily routine, from making your commute easier and more convenient than ever with Suica [a contactless smart card used to pay train fares in Japan] right on your iPhone 7 and Apple Watch Series 2, to using your favourite cards to make secure and private purchases with a single touch."

Apple Pay launched on 20 October 2014, arriving as one of the first modern, smartphone-based contactless payment systems. It’s currently supported by most recent Apple smartphones, as well as the Apple Watch and several versions of the iPad. It makes use of a built-in near-field communication (NFC) antenna, as well as a dedicated chip that stores encrypted payment information.

Blockchain platform developed by banks to be open-source

A blockchain platform developed by a group that includes more than 70 of the world's biggest financial institutions is making its code publicly available, in what could become the industry standard for the nascent technology.

The Corda platform has been developed by a consortium brought together by New-York-based financial technology company R3. It represents the biggest shared effort among banks, insurers, fund managers and other players to work on using blockchain technology in the financial markets.

Blockchain, which originated in the digital currency bitcoin, works as a web-based transaction-processing and settlement system. It creates a "golden record" of any given set of data that is automatically replicated for all parties in a secure network, eliminating any need for third-party verification.

Banks reckon the technology could save them money by making their operations faster, more efficient and more transparent. They are racing to build products using the technology that will generate new revenue, with dozens of patent applications filed for blockchain-based products by Wall Street's top lenders. R3 says it hopes its platform will become the industry standard, although its intention is indeed for firms to build products on top of it.

'I Had Nothing to Do With That!' Obama Dodges Blame For Skyrocketing Premiums

President Barack Obama offers multiple excuses for why health insurance premiums continue to skyrocket, including blaming Republicans and insurance companies for the problems.

He complains that too many reporters spend more time discussing premium increases than explaining why he isn’t responsible for them.

“No, I had nothing to do with that,” Obama said, calling it “complicated” despite the “hysteria” that was growing. Obama traveled to Florida to argue that Obamacare was working well, but needed to be fixed.

During his speech, he pointed out that when smart phone companies released a product that had bugs in it, they fixed it. “Unless it catches fire. Then they pull it off the market,” he admitted, likely referring to the disastrous exploding Samsung Galaxy S7. But the president argued that companies weren’t trying to repeal smart phones, but rather fix the problems with the modern devices rather than return to rotary dial up phones. “We’re not going to go back,” Obama said, challenging Republicans who repeatedly called for an Obamacare repeal.

To Some, it “Feels More Like a Crash”

“There’s enormous risk in public markets because that’s the one that central banks have distorted to the greatest extent,” El-Erian, chief economic adviser at Allianz SE, told Bloomberg TV, in reference to stock and bond markets. He confessed to the heresy of holding 30% of his portfolio in cash.

“It’s very hard to say I’m going to buy a basket of public equities and go to sleep for the next five to 10 years and feel good about the returns. Similarly with bonds,” he said.

These “public markets” are not the only markets that central banks have totally distorted and larded with “enormous risks.” Practically everything that is an asset has been inflated, including residential and commercial real estate in much of the country, and assets that are the objects of admiration of the wealthy: collector cars and art.

But these markets have started to crack at the edges, and some of the cracks are spreading. Collector car prices fell again in October. They’ve been on a relentless skid since their peak in September 2015, according to data by Hagerty, which specializes in insuring classic cars. Auction activity experienced “another significant drop this month,” Hagerty reported.

It’s The End Of The Bond Bull Market And A US Recession Is Aready Underway

Government bond yields have been rising over the past few weeks, which is great news for yield investors but may indicate more disturbing stresses are developing in the financial system. What’s more, recent rapid sell-off in bonds, and most importantly the cause of the sell-off, is leading many investors to question whether the almost 35-year bond bull market is over.

Japanese, UK, and US 30-year bonds have lost 12%, 11% and 8% respectively since yields bottomed in Q3. If the three-and-a-half-decade bond rally is finally coming to close (something plenty of analysts have suggested in the past but have never been correct. Analysts speculated that the Japanese bond market rally, in particular, was over in 1998 –when yields spiked from 0.8% to 2.2% — and more recently in 2010–yields spiked from 0.8% to 1.3%– but over the long-term bond yields have continued to trend lower) it will be the most important shift in the investment environment for a generation of investment professionals.

As he notes: The bull market in government bonds has provided a familiar backdrop for the entire careers of 99% of people now working in finance. It has also been an essential part of our 20-year-old Ice Age thesis. The rapid recent sell-off in bonds, and most importantly the cause of the sell-off, is leading many investors to question whether the almost 35-year bond bull market is over.

Albert Edwards seems to be of the belief that this bond market meltdown is the bottom of the market as there is potentially something bigger than just traders bidding up yields behind the move. “I sense though that this time around, the current bond sell-off is leading to concerns, not just of a cyclical sell-off but that something more might be in the air,” Edwards writes in the weekly strategy note. He continues, “One after another, central banks, supranational organizations, and now governments themselves (with the UK leading the way) are calling for a decisive shift away from relying on monetary policy and toward greater fiscal stimulus.”

Feds plan new cyber regulations for banks

The largest and most interconnected global financial institutions and the companies that provide them payment services should face tighter rules on cybersecurity, the three top U.S. bank regulators said. The proposal came Wednesday in a joint advance notice of proposed rule-making from the Board of Governors of the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.

In the proposal, the regulators argue that financial service providers increasing reliance on computer networks increases “opportunities for high-impact technology failures and cyberattacks.” Because the whole sector is interconnected, a single “cyber incident or failure” in the wrong place might have “potentially systemic consequences,” such as a financial crash.

The new “enhanced” rules cover only a certain category of financial institutions — basically those with more than $50 billion in assets, labeled systemically important by the Dodd-Frank post-crisis financial reforms. They aim “at increasing their operational resilience and reducing the impact on the financial system of a cyber event experienced by one of [them],” said Martin Gruenberg, Chair of the Federal Deposit Insurance Corporation, in a statement.

Certain IT systems at those larger institutions — the ones deemed by regulators as “sector-critical” — would be subject to more stringent regulations. Sector critical systems could include those that “support the clearing or settlement of at least five percent of the value of transactions (on a consistent basis)” in markets for T-bills, stocks and bonds, foreign exchange and federal funds — and maybe derivatives as well.

Top Fed Official: Big banks 'eroded' America's trust

"Deep-seated cultural and ethical problems have plagued the financial services industry in recent years," New York Federal Reserve President William Dudley said at a conference on banking culture Thursday. "This has eroded the industry's trustworthiness."

Dudley is one of the country's top bank regulators. He worries that these tactics will hurt banks long term. His remarks come on the heels of the fake accounts scandal at Wells Fargo (WFC), where the bank created as many as 2 million unauthorized credit and debit accounts.

The scandal has led to a huge public outcry, multiple investigations, and has led to the resignation of its CEO John Stumpf. Dudley did not name Wells Fargo but his comments hinted at some of the problems at the bank. Several former employees told CNNMoney that they were retaliated against for filing ethics complaints within the bank.

Dudley asked: "When people speak up to point out potential conduct issues, how are they treated? Are they held up as examples to emulate, or are they discouraged or even penalized?" The Fed has not acted on Wells Fargo. Instead its leaders say the Consumer Financial Protection Bureau, which has fined the bank, will lead the way and the Fed will coordinate with it.

Debt Up $236,991,525,500.74 Since First Trump-Clinton Debate

The federal debt has ballooned $236,991,525,500.74 in the 22 days since the first presidential debate between Donald Trump and Hillary Clinton, U.S. Treasury statistics show.

The data shows that at the close of business on Sept. 26, the federal debt was $19,529,588,502,748.67. At the end of Tuesday's business day, it was 19,766,580,028,249.41.

CNS News reports the debate-period debt rise is more than all the debt the feds accumulated between the founding of the country and the end of fiscal 1944.

According to CNS News, the hike translates into a daily increase of $10,772,342,068.22 – and $1,843.48 for every person who voted in the 2012 presidential election.

CBO: Fannie Mae and Freddie Mac should keep $5 billion in profits per year

The Congressional Budget Office set forth an examination of both a legislative and non-legislative reform proposal for Fannie Mae and Freddie Mac. The office is charged with producing independent analyses of budgetary and economic issues to support the Congressional budget process.

As written in the budgetary document released today, the language clearly indicates the federal government’s total stranglehold on operations at the government-sponsored enterprises.

The reason stated for this? The protection of taxpayers from providing another bailout. However, this model cannot be sustained in its current manifestation. Moving forward, the current administration intended to wind down government control of Fannie and Freddie. The fact that it hasn’t happened remains proof of a lack of political will.

Further, under current agreements, the net worth of the two GSEs is expected to reach zero in 2018. While none of this is new, this situation results in two fundamental points the CBO report addresses. The first is the future of Fannie Mae and Freddie Mac remains uncertain. The second, the results indicate, is that any proposed solution should be non-legislative. The CBO refers to this best option as the “illustrative solution.”

Should the government continue to fund Obamacare?

The allure of cheap doctors, drugs and dentists in Mexico

When Vic Yepello has a toothache he doesn't call any of the dentists listed in page after page of the phone book. He calls Mexico. When the day of the appointment comes, he hops in his car and drives east, going far beyond any of the dental offices within a few miles of his Palm Springs home. He heads south and eventually farther east. About three hours and 165 miles later, he parks in a lot that costs him $6 a day and then walks the final 300 feet across the U.S.-Mexico border.

Yepello, a 70-year-old real-estate agent and cycling nut, has made the journey to Los Algondones four times in the last 15 months. The village, wedged up where Mexico meets California and Arizona, has earned the nickname "Molar City" by catering to thousands of foreigners a year — mostly Americans — who come seeking deals on fillings, crowns and false teeth. While they're there, many also stock up on cheap prescription drugs and eyeglasses.

For an appointment last May, Yepello left home before 7 a.m. Including one pit stop on the way, he arrived in Los Algondones with plans to have his teeth cleaned, shop for glasses and buy some heavy-duty ibuprofen. The trip was a follow-up to a root canal and a crown he had gotten six months earlier. Lately, a tooth above that dental work had begun to feel sore. “So I’m just going to have them X-ray that, take a look and it and see if there’s something going on there,” Yepello said during the morning drive.

After a relatively brief stint in the exam chair, some time spent popping into the eyeglass shop and pharmacy, and a break for lunch in the village, he made it back home in time for dinner with his husband. It's hard to say how many people make similar trips each year, but the number from California alone is easily in the hundreds of thousands if not millions. More than 6 million private vehicles (a number that excludes buses) entered Mexico from the U.S. in 2015, but border authorities aren't counting how many people in all of those cars and trucks are making the trip for medical reasons.

Households Are Using Prepaid Cards More Than Ever Before

Weeks after federal regulators finalized rules aimed at making prepaid cards safer and less costly for consumers, a new report from the Federal Deposit Insurance Corp. finds that more households are relying on the financial products than ever before.

The FDIC report, which looked broadly at the behaviors and attitudes of household without access to traditional bank accounts, found that 9.8% of all households in the U.S. reported using prepaid cards as their primary financial tools.

That figure is up from 7.9% just two years ago, the FDIC says, noting that the increases were primarily seen among lower-income households, less-educated households, younger households, black households, and working-age disabled households.

Use of prepaid cards was most prevalent among unbanked households. An estimated 27.1% of unbanked households used a prepaid card in 2015, compared to 15.4% of underbanked households and 6.9% of fully banked households.

U.S. Workers Put in Staggeringly More Hours Than Europeans Do

A recent study found that, on average, Europeans work fewer hours than Americans do. According to the paper, Americans work nearly 25% more hours than Europeans. In other words, that’s an additional 258 hours per year or an hour more each weekday. The working paper, which has not yet been published, was written by three economists—Alexander Bick of Arizona State University, Bettina Bruggeman of McMaster University in Ontario, and Nicola Fuchs-Schundeln of Goethe University Frankfurt.

The authors looked at 18 European countries and the U.S. Of the 19 total countries they examined, the U.S. came out on top averaging 26.1 hours per person per week; Italy worked the fewest hours with an average of 18.4 hours.

The study looked at hours per person. It doesn’t only include people currently in the workforce, but those either retired or taking time off for some other reason, like unemployment or vacation. Ultimately, it doesn’t measure productivity, but rather total time spent at work.

The disparity in hours worked between the U.S. and Europe could be explained in various ways or, more likely, is an amalgamation of numerous different reasons. Taxes, for one, are much higher in Europe than in the U.S. According to Bloomberg, that gives European workers less incentive to work longer hours. It may also have something to do with labor unions, which generally have more power in Europe than they do in the U.S.

NEWS to Disturb the Comfortable...

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