Chinese Central Bank research head issues dubious report

From the surreal department this week:

China loves the US dollar again as America roars back

Jin Zhongxia, head of the central bank’s research institute, said America’s energy revolution and export revival had shaken up the global landscape and would lead to a stronger dollar over time. “The dollar’s global dominance will continue,” he said.

Not sure what reality this fellow lives in, but in the reality I'm examining United States is on projection to:

• Spend $38 trillion in national budget over next 10 years
• Spend $14 trillion over 10 years purely on borrowed money (deficit spending)
• Bogus sequestration debate going on right now only refers to cuts of $1.2 trillion over those same 10 years, with "sky will be falling if those cuts are done" propaganda to use scare tactics even about this issue

Nothing about the propagandized and in-denial state of today's American fiscal policy has anything remotely in sync with predictions in that report. Name me one state or empire on the face of this planet which built its way to prosperity with a perpetual welfare-warfare policy. Oh right, The Roman Empire? Proves the point.

And that's just a point about fiscal policy alone. I'm not even referring to the smoke and mirrors monetary policy.

Could the statement from Chinese Central Bank have anything to do with the fact that: They are stocked up on such an enormous load of US Treasuries, and are forced to keep them propped up with not many avenues left to unload them? A sort of calm before the storm perhaps?

Bye-bye to Canadian Penny coin! US Penny to follow suit too?

A story from 2 weeks ago which probably did not get as much publicity as it should have, considering the amount of concerns it raises:

Canada stops distribution of penny coin

The Canadian penny is being withdrawn from circulation because production costs have exceeded its monetary value.

The Royal Canadian Mint will no longer distribute the coin to financial institutions around the country, but it will remain legal tender.

This coin, most of which was composed of a steel-nickel alloy with copper plating dropped in value compared to the cost of the metal itself! The Royal Mint of Canada has authority over coinage in Canada. This is not an authority which falls in the jurisdiction of the "Bank of Canada" central bank issuing fiat paper currency.

The situation is remarkably parallel in the US. The US Mint which is a legitimate government entity, being a child organization of The US Treasury has authority over all coinage in the US. It has absolutely no relationship with the private Federal Reserve central bank, apart from distribution of coins from the mint. In hazy terms, all metal coins in the US represent something more genuinely representing "money", as opposed to the fiat paper currency.

• Issuance of coins is actually under jurisdiction of a legitimate government body of US Treasury, as opposed to fiat paper notes.

• As authorized by US Constitution, the US Congress does in fact have authority over issuance of coins. The US Congress has absolutely no authority over issuance of fiat paper currency, ever since the fateful Federal Reserve Act of 1913. The fact that the coins don't conform to the "Only gold and silver as legal tender" part of US Constitution is a separate and far bigger topic. This is the reason for my use of the word "hazy" above.

• The coins actually are backed by some physical resource of tangible value; the metal out of which they're coined. The fact that the value of these metals fluctuates and most of the times is supposed to be negligible compared to the coin face value is besides the point. As the Canadian penny example illustrates, metal value fluctuations or inflation can actually make the backing resource more valuable than coin face value itself. In comparison, the fiat paper currency notes have practically no physical resource backing them. That is exactly the definition of the word 'fiat' in the first place.

• And by the way, yes, in a past life I did in fact work as a Chemical Engineer in the paper industry. Nobody with a straight face can tell me that the physical resource of paper "backing" US paper notes amounts anywhere close to their face value. At least we haven't yet reached that Zimbabwe or Argentina level of hyperinflation yet. But you never know, which is one of the reasons this blog came into existence in the first place!

To come back to the point, all US metal coins are something far more genuinely representing "money", as opposed to the fiat paper notes. If every single person holding any paper assets in American currency were to go to a bank tomorrow, and request conversion of such assets into coins, overnight it would bring the American economy tumbling down like the deck of cards it is. By corollary, it would also take down the entire global economy tumbling down with it. Of course, such a scenario will not ever take place; but you get the point about importance of coins in American currency system.

Considering these facts, if the retirement of Canadian penny ever has a parallel in the US (retirement of American penny), it would be an extremely worrying sign. At an elementary level, proportionality of something genuinely representing "money" compared to fiat currency would drop.

I say, the American public better watch out for signs of any such moves of removing metal coins out of circulation in the US. And especially not be hoodwinked by any propaganda of "equal conversion between coins and paper currency to be guaranteed by Federal Reserve central bank", under any circumstances.

French government tightening cash transaction controls

In first signs of currency crunch pre-shocks and associated government overreaches, here comes a headline from troubled Europe:

France Plans To Prohibit Cash Payments Over €1,000

France becomes the latest as Prime Minister Jean-Marc Ayrault plans to erect new controls on cash transactions in order to tighten up tax collection and meet the country’s optimistic budget deficit target of 3% of GDP. The government needs euros and they need some fast.

In the government plan labeled “Fight against fraud,” France’s fiscal residents would see the cash transaction limit decrease from €3,000 to €1,000 per purchase.

Uh-oh.

No, seriously this reads like a big warning. It calls for an even bigger increase of overly bloated and dysfunctional government bureaucracies. All the while absolutely no solution for the root cause of ailing currency crisis is even part of proposed remedy.

As ridiculous and "across-the-ocean" this may sound to American populace, it is in fact a strong warning of an impending tsunami on these shores. Such "tightening controls" are exactly what await here, as no real solution for deficit reduction has ever been discussed by US Congress and Executive Branch during the "debt ceiling" circus. The level of discussion during that circus was of the level of "whether to curtail proposed spending increases from 20% to 19%".

There are strong historical precedents for such dishonesty, for example in the collapse of the Roman Empire. This script has played out with an eerie familiarity before.

Say what?! Amazon enters digital currency fray!

On heels of the recent Bitcoin discussion, a rather surprising new development to report. Online retailer giant Amazon has jumped into the fray of digital currency, cryptography and semi-bartering.

With Amazon minting currency, Fed at risk

This month, Amazon launched its own coins — a virtual currency that can be used to buy stuff for your Kindle tablet. It is a very tentative move to start with: more like loyalty points on a reward card than actual cash. But every river needs to start with a spring — and with the web’s mightiest retailer behind it the coins could grow into something significant.

Say what again?! Amazon, a giant public corporation is planning to compete with central banking - more specifically Federal Reserve - and their fiat money printing monopoly? Surely, it is not the first time something like this is happening with private sector loyalty money in a Western industrial nation. The most famous and old case is with loyalty money from Canadian Tire Corporation in Canada. Check below for more information.

Canadian Tire Money

But most certainly, Amazon is a lot bigger corporation - a giant - compared to Canadian Tire. Their overall business model also involves commodities/services of lot more diverse nature. On a related note, let us also not for forget all the controversy surrounding dubious sales tax imposition by State of California on Amazon from last year.

Amazon.com and California Sales Tax brouhaha

Getting back to the original topic, issuance of competing currency by a major American corporation opens up a very interesting can of worms. If Amazon now, what's next? eBay/PayPal with their own version of competing currency? Such ideas set the stage for major headaches for central bankers; not to mention various government taxation policies.

A big difference between such corporation competing currencies and Bitcoin however is, Bitcoin follows a completely distributed, un-centralized model. An almost anarchic one, to put it shortly. If central bankers/government bodies feel threatened by competing currencies issued by corporations and wish to kill them with the force of gun, at least they have centralized entities to target. It is a lot harder to do with Bitcoin.

In any event, the fun is just getting started with the Wild Wild West world of competing currencies. Fasten your seat belts if/when getting on the wild ride!

Virginia pushes for own non-Central Bank currency & other Bitcoin musings

Couple of separate issues to blog about today, although at a high level both of them are related in the aspect of "competing parallel currencies".

Fresh off of the press from few hours ago, legislature in Virginia moves closer to investigate feasibility of their own currency!

Push for own currency in Virginia moves closer to reality

Regardless of whether such an idea ends up being "pie-in-the-sky" as of today, the very fact that there is even discussion at a state legislature level to challenge Federal Reserve's hegemony is a big achievement. The Fed's out of control money printing encourages governments at various levels to run up unsustainable debts. Injecting more paper currency into money supply in such situation is akin to providing more drug syringes to an out of control drug addict. It takes constitutional conservatives in such an environment to seriously discuss the societal danger posed by out-of-control debts. One can only hope that such conversation moves to state legislatures in more and more states across the country.

And continuing with Bitcoin related discussion from previous post, here is a snippet of actual Bitcoin discussion from mainstream media!

Bitcoin in mainstream media news

Ignoring the obligatory portions in which it talks about "transactions by criminals", "shady underworld dealings" etc., once again the conversation of a non-Central Bank backed currency is slowly creeping in at more and more mainstream places. There is nothing more capitalistic and free-market than a discussion of competing currencies themselves. If a loosely coupled digital currency like Bitcoin ends up being flawed, fine. So be it, but let the market decide such successes or failures. Prospects of debasement of the "other big monopolistic reserve currency" do not inspire a lot of confidence either.