Economic Predictions for H2 2022, Part 3: Battle of the New Currency Competitors
All currencies appear to be on a march into hell with the bloated dollar holding up by far the best, though the US economy faces abundant hazards. The star players to come out of the wings during this currency war will be central bank digital currencies. While the dollar is sinking in purchasing power locally, it is holding up grand against other currencies. Therefore, as global financial meltdown moves us ultimately toward a global digital currency replacement, the interim champion will be the digital dollar in 2023.
A US digital dollar got underway this year
Before we get to the global solution to a global crash, nations will launch their own digital currencies, and that is already plainly materializing in the US this year. It's been talked about by the Fed for a few years as I laid out repeatedly in my first Patron Posts (see "cashless society"). Now the launch countdown for the digital dollar has officially begun, and I expect a US central bank digital currency (CBDC) to be phased into actual use in 2023.
A US dollar in the form of a CBDC is no longer relegated to the arcane discussions of central bankers at their global confabs where Augustin Carstens, general manager of the global Bank for International Settlements (whose extraordinary rotundity is apropos figuratively as a representative of all bloated central banks), pontificates on the pros and cons of CBDCs. This year, a US CBDC moved from the theoretical to real implementation.
Right out in the open, The Hill wrote this year ...
Whenever the White House says it is working on a plan that would transform a vital part of the U.S. economy, and that the administration is doing so with the “highest urgency,†it should go without saying that the press should pay close attention to what’s going on.
"Biden is planning a new digital currency. Here’s why you should be very worried"
As can be expected, the press paid very little attention, even though The Hill is a left-leaning mainstream political publication expressing stern warnings about Biden's big monetary plans.
Even more importantly, the press should eagerly and comprehensively inform the public of the potential risks associated with such a proposal.
Crickets. But that's why we have me, so I will pick up the beat on CBDCs again as I did in my early Patron Posts. Even The Hill observed,
Unfortunately, that’s not happening today, and the effects of the media’s negligence could reverberate for decades to come.
Unfortunately, even after The Hill publicly kicked the watchdog, still crickets.
On March 9, the Biden administration released an executive order (EO) instructing a long list of federal agencies to study digital assets and to propose numerous reports about their use and proposals to regulate them. Much of the executive order is focused on cryptocurrencies such as bitcoin and ethereum, which run on blockchain technology and have become increasingly popular among many investors and consumers in recent years.
O.K. Well, we wouldn't expect too much reaction to that part, and didn't get much about that kind of analysis until crypto blew up. (A little more on that below.) Finally, the numerous implosions in the crypto world got some attention to this issue, BUT the part about a CBDC still completely evaded attention:
But there is an even more important part of the EO: President Biden has instructed the federal government and Federal Reserve to lay the groundwork for a potential new U.S. currency, a digital dollar.
That is the part the press is still all ignoring, and it's the most important part. The government's internal work of implementing a CBDC began by executive order this March and has gone almost without comment. As even the somewhat liberal and therefore somewhat government-loving Hill warns,
If the United States were to adopt a digital currency like the one discussed in Biden’s executive order, it would be one of the most dramatic expansions of federal power ever made, one that could put individuals and businesses in grave danger of losing their social and economic freedoms.
We have now arrived at the fulcrum moment of implementation:
Among other important actions, the White House executive order directs several federal agencies, including the Treasury Department, to study the development of a new central bank digital currency (CBDC) and to produce a report within 180 days of the EO discussing the potential risks and benefits of a digital dollar.
In other words, by the start of this fall, multiple government agencies are to have finished and turned in their reports on how they will implementent use of a US CBDC and how it will impact their operations. Now, we all know government is slow, so the timeline will likely be extended for agencies that fail to meet this brisk (for government) pace, but this is the first phase of actual government implementation, and extensions are not likely to be long because ...
The order further directs the Treasury Department, Office of the Attorney General and Federal Reserve to work together to produce a “legislative proposal†to create a digital currency within 210 days, about seven months.
If the proposal legally establishing a US CBDC is going to congress by sometime in October (210 days from the March executive order), congress will be asking for all the necessary information from various agencies to be completed. Most likely, it will be studied during the remainder of the year with any significant decisions being tabled until the new congress is installed in January, but things appear to be moving with some serious impetus now.
According to The Hill, and I'm not sure this is accurate,
A digital dollar would not merely be a digital version of the existing U.S. dollar, but rather an entirely new currency that would, at least at first, exist alongside today’s currency. Similar to cash, the CBDC would be used to pay for goods and services and would likely be managed by the Federal Reserve, the central bank of the United States....
I'm not clear on what sense it would be a new currency separate from the dollar and not just a digital expression of the dollar as it will NOT be a cryptocurrency. That is what many do not realize. CBDCs are not crypto at all. They are still Fed fiat or central-bank fiat currencies. Their value will be determined by central banks choosing how many to issue, interest rates and all the things central banks now do to manage their currencies. I don't know in what sense it will be managed separate from the dollar.
It's not even clear they will be "crypto" in the most important (to many, at least) aspect of keeping users anonymous at a level where the government cannot tell who is spending how much, as clearly the government is mandating this, and clearly the government ALWAYS wants as much information about how you are using "its" money as possible. Hence, even The Hill warns that people and businesses are "in grave danger of losing their social and economic freedoms."
It is important to understand that the digital dollar would not be similar to cryptocurrencies like bitcoin. Cryptocurrencies operate on blockchain technology, which is decentralized by design. No group or individual can truly control cryptocurrencies once they are launched.
As reported in earlier Patron Posts, the Fed likes the idea of a CBDC because it hopes to be able to feed the new money directly to the public for the most rapid and well lubricated monetary stimulus ever seen. In their own writings, they have anticipated you will be given a direct Fed bank account, and with a few key strokes every bank account of that kind in the nation can get free money deposited directly into it order to create INSTANT stimulus for the economy.
However, I see an ulterior motive there. Call me cynical, and that may be true; but, even if I am being cynical, the following MO will still be exploited even if it is not the driving motive: Central banks will get you to switch to digital currencies by making that pathway your only access to this fast cash in times of needed stimulus (such as are certain to come upon us VERY quickly as the present recession that is not a recession becomes a depression that is not a depression).
Just as with the vaccines, the government will likely say you have to sign up for a Fed account (whether it is directly held at the Fed or indirectly connects to the Fed via a local bank) in order to participate in the fast cash. You want to enter a public event, then get your vaccine. You want to get your fat-cat cash, then sign up for the federal CBDC because that is the only way it is coming because here's the catch ...
Digital dollars ... would be traceable and programmable. The Federal Reserve (or some other designated entity) would have the ability to create more digital dollars whenever it sees fit, and, depending on how the legislation is written setting up the currency, the dollars could be formulated to have various rules and restrictions built into their design.
Of course they will.
Who, after seeing how vaccines have been manipulated via vaccine passports, cannot see the following as accurately describing how digital cash will be used to manipulate you with far greater reach into your daily activities (for the public good, of course, such as saving us from global warming or damaging economic activity, etc.):
For example, a digital dollar could be crafted to restrict fossil-fuel use, to give bonuses to people for spending at particular businesses, to enact de facto price controls by disallowing users from spending too much on particular products, or even to redistribute wealth....
Ah, the delightful possibilities for near total control of the masses are endless. But, of course, it cannot start out in its ultimately controlling form. So, expect something more like the currently unfolding crash that is not officially happening to happen much to the surprise of the powers that be, who are artfully telling us everyday that it is not happening, to get bad enough to make people desperate for the new cash to help offset the inflation they are experiencing; then the new money can be launched as a benign savior.
In January, the Fed outlined a few examples of possible “design choices†for a digital dollar, including that “a central bank might limit the amount of CBDC an end user could hold.â€
As I say, the opportunities for control are boundless. Its on-off functions and limits may be particularly helpful for the appropriation of future oligarch wealth by the government without due process during times of war.
When even the somewhat liberal-leaning, mainstream Hill gives the following warning, you can be sure you should be wary:
There are many reasons to believe Biden’s plan for a digital dollar involves a design that will give the federal government and/or Federal Reserve control over much of society and the economy.
I mean, why do you supposed Biden told all government agencies to report in on how they might implement the arrival of the digital dollar? I'm sure he would like to see the ways in which they foresee they might be able to leverage it to the success of their mandated agenda so that it is created with those possibilities built in. Just in case, there is anyone out there dim enough to not figure out for themselves that the government will use digital currency to directly manipulate them:
Biden’s executive order states that the CBDC and other policies governing digital assets must mitigate “climate change and pollution†and promote “financial inclusion and equity.â€
They're not even being sly in how much they will manipulate the currency and you via the currency, and they haven't even implemented it yet. They are so brazen, they are stating with, so far, complete lack of interest by the press, that they want all branches of government to report on how they will use the new digital currency to mitigate climate change and pollution. Perhaps, for example, it won't work in gas pumps after you've pumped your limit of traceable gas.
The opportunities for control are endless, limited only by the press's willingness to let everyone know what happens and the willingness of the masses to stumble blindly forward in accepting it without question. But, hey, we've already seen how readily the majority accepted vaccines because of a relatively minor health scare. (My Covid without the vaccine was less bad than most colds I get each year, though I know that is not the case for everyone; but this is hardly the Bubonic Plague; yet all of society was locked down and the economy virtually shut off.)
As an act of comfort and assurance,
The White House transcript) promised that in creating a new digital currency, the Biden administration will “continue to partner with all stakeholders — including industry, labor, consumer, and environmental groups, international allies and partners.â€
"Partner" or "intrude?" Even The Hill gets it and is quite objective about it:
Why would labor unions, industry organizations and environmental groups be involved in the development of a new currency — unless, of course, there is a plan to program that currency to advance various causes special-interest groups care about?
Said one senior economist at the Fed,
“The best we can hope for†is for Congress to “respond to the electorate’s concerns†about privacy.
While that will be your sole protection as you are forced increasingly to use the new CBDC or perish in the eventual cashless society, we all know how those protections are eroded when times of crisis come as we saw under the greatly misnomered Patriot Act and again under the severe erosion of personal liberties, such as the ability to attend public events, during the minor Coronacrisis that was made major by the government's mandates.
Crypto carnage
For the Fed's CBDC, the timing of the recent crypto carnival couldn't have been better. In my very first Patron Post on the subject of Fed digital currencies, I wrote back in early 2019 that the Fed will need ...
to convince the public that it is in the “best security interest of the American people†to let the Fed issue the ONLY legal digital currency in order to avoid some of the scandals we’ve already seen (more of which are certain) There are bound to be some digital currencies that aren’t anything other than a digital Ponzi scheme.
My claim back then was that scandals and schemes, certain to emerge, would make the Fed's CBDC all the more important in the minds of many. While the US CBDC won't be the ONLY digital currency, the rapid implosion of many cryptos opens the doors wide for the Fed to ride into the cleared out battlefield like the cavalry with something that will appear to the general public to give similar benefits but with none of the risks that blew up in the grand crypto explosions we recently saw.
Now, if you're a crypto guy, all of this can be dealt with in stride, I suppose; but, for the average person out there who hasn't given a lot of thought to crypto, the recent bankruptcies, runs and scandals all raise the fear of unknown risks and Ponzi schemes and the desire for regulation, and who better than the Fed to come in to provide the safety we have come to believe in?
Now, you know I don't think the Fed is the one to come in and save us from anything. We need to be saved from the Fed, but most of the US population do not think like me ... and most do not think like the cryptoverse either. So, I am certain the recent unravelling in crypto will play directly into the Fed's hands as I said it would back in 2019 when the coming out of the Fed's debutant arrived. Whatever god central banksters offer their sacrifices to, they were praying or whirling their magic chakras or whatever for a moment just like this to frame the emergence of their champion onto the digital currency scene.
At the periphery of the US financial world, the crypt bubble has popped -- the "periphery" being the fringes of finance where the greatest risks are taken in hopes of the greatest gains -- the parts likely to go down before the core of finance. As with the dot-com bust or the consolidation of major auto manufacturers after WWII, the strong hands will survive. However, most cryptos will end as a quivering heap of rust, burning under the desert sun.
Some will survive in this time of consolidation. While I am not by any means a crypto expert, I imagine Bitcoin will rule with a few others ... just like the Big Three did -- Ford, General Motors and Chrysler -- after numerous other contenders like Hudson, Desoto, Packard and Studebaker got absorbed or went broke or faded away. Huge and highly speculative gambles are made on the fringes of new industries, and they may look promising for a long time, but in the end only a core survives, the industry consolidates and fortunes are lost, even if they were a beloved product to many. Crypto is at that stage of a great consolidation.
The Fed will be glad to arrive with its CBDC during a time when the competition from digital currencies that actually do offer a fairly opaque level of anonymity has been damaged. Even more advantageous than the thinning out of the competition, the fear raised by the meltdown will boost the Fed's public argument for the need of a CBDC with tight and dependable Fed oversight, though a CBDC is of no interest to those who value cryptocurrencies because they are cryptic.
We saw the same dynamic of thinning and consolidating in the dot-com bust. In the process, come bankruptcies and restructurings, so expect to see more of those in the months ahead as the dwindling economy thins out the weak and the dying. The contagion in such corporate mass extinction events spreads to stocks, bonds, and, thereby, to banks. So we may also have our Bear-Sterns and Layman moments due to the crypto crash, but we won't likely see which corporations are going to fail with any more forewarning than Bear-Sterns and Layman gave. As financial conditions tighten, the tide goes out and we find out who was swimming without a swim suit, as Warren Buffet famously said. This, however, is a tsunami running out.
Toward the end of this year and especially moving into next year CBDCs will rise to fill the void and will probably seek to dominate Bitcoin or flush it if they can with political pressure, but it has such a decentralized structure and wide international grass-roots -- and, yes, also criminal -- use that forcing it out of existence will not be easy to do.
(For further reading on the Ponzi schemes involved in the crypto LENDING realm, you can try this podcast on the "Magic Ponzi Business" if you have access.)
That said, don't underestimate the government's ability to entirely crush crypto currencies IF they decide they want to. I hear crypto people claim the government cannot do that because it cannot cut off your ability to access crypto, but that fails to recognize how government operates. While government might prefer the convenience of being able to cut off access, it certainly doesn't need that. If it ever decides it wants to end cryptos, it can simply declare them contraband. While that would not cut off your access, it can put you in prison if government finds out you've been using it. It can close own organizations known to be using it, and none of that requires the government being able to trace your transactions. That's the part people don't get.
We're not there to worry about that yet, but don't be overconfident of the argument that crypto is untouchable by government. That's wishful thinking. I can just about guarantee you that some governments will decide to make it contraband -- whether it is China defending its new CBDC or the US getting even more authoritirian than what we already saw under Biden with the vaccines. Here is the thing to be aware of: they don't have to follow the transactions to prove you used it or to see what you purchased or who you transacted with. They only need a warrant to search everything electronic you have to see if any money entered from known crypto sources, to get testimonies, to subpoena documents, or to check your emails, etc. to find that you wrote to someone about using it in order to get evidence that you've used any. And they don't need to be able to shut down your access. They only need to be able to shut you down by throwing you in prison for using contraband items. And that threat will effectively shut down the use of crypto, except in illegal operations, should the government decide to do that.
That's not a problem now; but the point is the idea that crypto provides a safe store of cash the government can never know about doesn't prevent them from keeping you from using any of it by putting a serious threat of prison in your path if they decide they don't want you to use it. Once truly anonymous, legal cash is gone, there is no failsafe against the long arm of the law if the authoritarians decide they really want to come after you; but, for now, that's not a problem. Heck, they can make cash, itself, contraband, too, if they want to -- just like they made personal ownership of gold illegal other than minimal amounts of jewelry -- in order to enforce use of their CBDCs down the road; and I fully believe they will ... in time to come.
However, I'm getting ahead of the times.
Precious metals
Notice I did not promote the virtues of gold or silver at the start of our present stock-market/bond-market bust as many in the alternative press did. Instead, I reported that boring cash is where I've chosen to be even though that is a guaranteed loss in value during high inflation, too.
Some people may have wondered why I would choose to be in Fed cash when I know it is losing 9% a year? The answer is simple. PMs are losing twice as much. While precious metals have not fallen as much as stocks or bonds, they have still lost twice as much as cash since the start of the year because, first, you lose whatever they dropped in dollar value over the past six months. Then, if you did sell them at the end of six months to buy stuff, the dollars you got back were still devalued by whatever inflation happened over the time you held the metals anyway. That means you still take the loss to inflation on everything that remains after you took the dollar-price loss in the value of your PMs.
In other words, if you bought a thousand dollars worth of gold in January and sold it for $900 at the end of June so you could go buy yourself something you needed, you took about a 10% loss on the total investment, but the $900 you got back at the end of the period also fell in purchasing power by inflation anyway so it buys less meat than $900 would have bought in January. You have 10% less money, and what you have left buys less than it would have. That is just how hard it is to protect yourself from inflation unless you buy something that actually goes up by as much as inflation takes the dollar down. Then you break even. Gold, I did not believe would do that at this point.
Precious metals do have the ability to do that, but they're rigged! I've aways warned about how rigged they are, and last month the whole nation learned it quite openly. I've warned many times that I believe one of the biggest reasons central banks own PMs in such large quantities is so they can manipulate them to protect their currency against its greatest rivals. Now Jamie Dimon's corporate global banking conglomeration just proved how true that is even with Fed proxies. JPM has, since the days of the Great Depression, been one of the Fed's tools (back before it was all merged and modified into the JPM that its today, of course). Dimon's scandal is one more fact to fall in place along the way. Banks manipulate gold. Plain and simple. It's been suspected for years. Now we know the situation is "Guilty as charged on this blog all along."
That doesn't mean precious metals don't have a place in your savings. They always eventually recover their value; but the notion that they can be counted on to be there when you need them most, is misguided because that is exactly when central banks want their value to drop to protect their own currencies. So, diversify, if you are looking for protection from government interferences. You may have some crypto and some gold or silver, but have other things that can be stored and have value and some land, and remember that there are other minerals the government may pay a little less attention to than everyone's standbys.
For now, however, your government cash is still more secure than anything as they are not going to just yank the plug on cash the second they introduce their CBDC.
As we go deeper into this global recession and financial collapse in the waning summer, I think precious metals will recover their foothold and begin to restore lost ground if other banks become reluctant to get caught at Dimon & Company's game now that it has everyone's attention. That event will likely pressure the appointed market watchdogs to become more cognizant of what is happening and more aggressive in battling gold and silver manipulation.
I'm not a financial advisor, so weigh what I've said here against whatever else you hear. I'm just saying what I believe will happen as I lay out my predictions for the remainder of the year. While I'm giving my opinion of what I think is likely to happen with precious metals -- especially the money metals, gold and sliver -- it's not an opinion I hold strongly. Never underestimate the hidden manipulators.
Other markets to fall
Stocks, on the other hand, have further to fall, and real estate has much further to fall as it has only just begun to join the avalanche of the collapsing Everything Bubble.
Stocks are at a particularly interesting inflection point. Many see the current rally and have been speculating the onset of recession means the Fed will pivot. I've said, "Nonsense." The Fed will not pivot -- not in time to save the stock market. This time is different. In past times, the Fed's back was not up against the wall due to being pushed forward by inflation.
When the jobs report came in misguidedly high (watch for the revisions down the road as we've seen in the past where figures got corrected by close to a million jobs when the year was finally past), these same investors said, "The strong jobs market proves we're not in a recession. That's good for stocks," so stocks went up for exactly the opposite reason. The market is responding as "bad news is good news and good news is good news. Up no matter what!"
That just speaks of delirium where investors are believing what they want to believe and following raw emotions/sentiment. No surprise with that, but here is the thing with that: We've already seen reality constantly bash its way through sentiment for many months on end now, bringing us decisively into the a bear market, ending the bull market, crushing the promises of Elliott Wave Theorists; and reality is going to keep bashing heads. So, this bear rally is just a very easily anticipated bull trap.
In fact, Mott Capital has done an excellent job of laying out on Seeking Alpha how exactly similar (in both scale and timing) prior bull traps have been during the fiercest of bull markets to what we have seen up to date. Rather than reiterating the case they made quite clearly, I'll just refer you to a link to that article with all of its graphs. Some will argue the past is not prologue, but that is not the point. It doesn't prove what the future does, but it DOES prove how major bear markets during times of great collapse act exactly like what we've seen so far, so that the rally also means nothing in terms of indicating any future safety or risk-benefit. The exact action we've seen from the start of the year to the present day puts us 100% in line with where big bear rallies typically put in a big bear turn for the market's greatest fall of all.
And the timing for that could't be better: August and September are typically months with some weak spots for stocks compared to other months; and for some reason October loves a surprise if it's going to be a really big one more than any month, though, otherwise, it tends to do OK. So, we are entering a period known for weak patches and big drops at a time when the entire global economy is cued up with bad news to fall at any moment.
Will it be a severe turn in Putin's War, the advent of war with China, a severe collapse of the Chinese economy which is showing many major stress marks, the insolvency of some emerging-market nations, another euro crisis with a Grexit or Italeave? Will it be another Lehman moment as we find out who was swimming naked and playing too deep with the wrong crypto partners? Bank-on-bank contagion? An autumn wave of Covid that matches the previous waves? Monkeypox catching up to Covid? Both clobbering us at the same time? The shortages, due in part to sanctions, suddenly turning out far worse than the government has foreseen as possible? Will the drought In the US become worse than anticipated and shut off all Hoover power sometime this fall? Will droughts in Europe shut off already limited power production and close rivers to transportation along already badly backlogged supply routes? Dementia death of the US president with Kamala stepping in and the AOC league in tow to turn all economic policy upside-down and inside-out after the elections are past? The election, itself, turning into street war because people are convinced they were rigged?
There are just SO MANY practically foreseeable black swans that you can hardly even call them black swans. You can list so many that the most inconceivable idea of all is the hope that two or more of them don't assail us at the same time. What is even more inconceivable to me is that investors actually believe the stock market will just rise right through all of that and hit a new high!
So, another prediction: the stock market tunnels to a new low before the end of the year and likely begins its longest drop of all, and the Fed does not pivot in time to save it. Events will jackhammer the heads of stock investors into the ground unless they have chosen narrowly and precisely. There are so many likely bad events plainly visible in cue, it is almost inconceivable it won't happen. Along the way, I'm not sure what bonds are going to do. Flight of capital from stocks and other flailing economies and currencies could drive US treasury yields down, in spite of Fed QT, which would most naturally press them up. I can't imagine which of those countervailing forces prevails in that battle.
Here is the link to the Mott Capital article on how perfectly this stock market is repeating the patterns of the worst crashes: "The S&P 500 May Be Near The Most Dangerous Phase Of The Bear Market." Expect a long fall ... and, by "fall," I do mean both the stock market's plunge and the season (long in its parade of adverse events).