Hold My Money, Please, I'll Even Pay You!

Hold my money, please, I'll even pay you?

A currency crisis is on deck, but few see it coming.--Mike "Mish" Shedlock

Until this past week, no country had ever sold 10-year debt that gives investors a yield of below 0%. And no country had ever issued a 100-year bond denominated in euros. But in the latest stark sign of how easy the era of easy money has become, Switzerland on Wednesday sold 10-year bonds that investors are actually paying to hold, while Mexico lined up a rare transaction to borrow euros it promised to repay a century from now—at a yield of 4.2%... Reserve prepares to raise interest rates, the European Central Bank is forcefully driving them down. The Swiss National Bank, eager to keep its currency from soaring too far above its eurozone neighbors’, has itself shoved interest rates below zero. Read more at: Mish's Global Economic Trend Analysis: Milestones in Bond Insanity: Negative 10-Year Yield on Swiss Bonds, Mexico Sell 100-Year Bonds Denominated in Euros; Are 1000-Year Bonds Next?


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Dollars, Euros, Gold

Currency has two primary purposes -- medium of exchange, and store of value -- when it loses either, you better have a viable option:

Argentina’s black market for hard cash: Buenos Aires deliverymen will bring the currency you need.: " . . . This year extreme inflation has sparked the country’s latest economic crisis, and locals are increasingly desperate to acquire foreign currencies. “Three things are stable here—dollars, euros, and gold,” Miguel Figueira, a Buenos Aires bank auditor, tells me. This isn’t the first time the peso has gone wobbly—in fact, many Argentines say they’re used to financial crises, which seem to occur like clockwork every 10 to 15 years. The most recent was in 2002, when the country defaulted on billions of dollars in debt. Hyperinflation saw the peso’s value slashed in half. Banks froze citizens’ savings accounts to prevent them from taking out their money, which had been deposited in dollars. Unemployment and poverty skyrocketed; the recovery took years. . . ." (read more at the link above)

When is the last time you heard the Fed concerned about the Dollar as medium of exchange or store of value?

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Money is not Wealth

Thanks to Bernanke et al, it is no longer so hard to understand--money is not wealth--

RealClearMarkets - What Happened To All Of That Money?: ". . . .As hard as it is for most people in today's modern era to grasp, as evidenced by the coin gambit, money is not wealth. Money can represent wealth, and, at times, even become a workable but temporary substitute, but money will never be able to replace true wealth as the central object, subject and foundation of the capitalist system. Of course, the capitalist system has found itself fettered by this modern obsession with money (included in the usage of debt as a centralized lever of control) and the political approval of economic central management, but, by and large the developed world still finds itself in some hybrid form of capitalism. While every major system continues to move to disproportion away from free markets and into the heavy handed, centralized approach, what is needed is less hybrid and more capital. The central agency of true wealth is that it distributes economic success without the need for nudging or control. Debt, on the contrary, is the very embodiment of economic slavery - the overconsumption of current needs at the expense of encumbrance on future prosperity. Unfortunately for the developed world, that encumbrance began collecting rent in August 2007. . . .What is holding back recovery is not the recession of debt and credit, but the ongoing lack of genuine income streams and opportunities. Good assets, those that can and do generate positive and sustainable cash flow, are what remain in short supply. Recreating old channels for credit production does absolutely nothing to remedy that central economic problem. Sustainable jobs do not come from Wall Street speculation or London trading of derivatives and rehypothecated central bank certificates. . . . "

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The Coming Disintermediation of Money

I've written about the coming disappearance of cash and coinage, but the disintermediation of our financial system is likely to be opposed by banks and government--you know, the guys in government who baled out Wall Street, and the banks, governmental agencies and others who profit from the status quo--

Me, My Money, and My Devices | MIT Technology Review: " . . . Mobile payments, meanwhile, still seem to many an unnecessary complication. But the appeal of being in constant contact with your money—and information about your money—will prove irresistible. Back in the days when electronic devices were expensive, someone had the clever idea of giving dumb plastic cards to all of us and the more expensive card readers only to merchants. Now that we have a virtual card and card reader right in our pocket in the form of a smart phone, who will be content to carry a credit card we cannot ourselves read? Banks and card issuers profit from the status quo; Non-banks have stolen an early march on mobile payments in the United States. Google sees mobile payments as a rich new source of customer insight. For Apple, they have been central to building a vibrant developer ecosystem—you can buy an app with the press of a button. PayPal sees the opportunity to attach an account not only to every e-mail account but to every mobile number. The largest mobile payment program in the United States is currently run by Starbucks coffee shops. . . ."

I'll have more on this tomorrow.

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Cashing Out of Corruption

As I wrote recently, cash and coinage will soon disappear, but who will object to this disappearance of paper money and coins? Why, of course, bureaucrats, corrupt government officials, and crooks--

Cashing Out of Corruption | MIT Technology Review: " . . . Although the Afghan government recently sought proposals to expand mobile payments, such efforts have moved slowly in part because of “determined” resistance from some bank and police officials, says Loretta Michaels, a Washington, D.C., consultant who worked in Afghanistan with Roshan to implement the mobile money system. Corruption is a sensitive diplomatic issue with U.S. troops exiting the country, even as tens of billions in aid still pours in. McGowan, the USAID analyst, says electronic payments have the benefit of rooting out graft without singling out specific officials or looking like an “anticorruption crusade.”. . ."

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Everything you need to know about Washington in one sentence--

"Politicians votes will follow the money unless it will cost them an election."  --Steve Blank 

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