Lyth0s' Economic Troubles Thread

[lyth0s]

I'll try to keep this thread updated with the latest important economic troubles of the fiat world with small commentary and how it relates to bitcoin when appropriate.

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[lyth0s]

2/2/15 News

Australia cuts rates after long calm; Aussie dollar dives

After almost a year and a half of holding its policy interest rate unchanged, the Reserve Bank of Australia cut by a quarter percentage point Tuesday, citing weak inflation and a stronger-than-desired currency. The move put the cash rate at a historic low of 2.25%. With the interbank market having priced in a 60% chance of a cut, according to Reuters, the Australian dollar fell sharply on the news, dropping to 76.72 U.S. cents from 78 U.S. cents just before the announcement. Stocks rose, meanwhile, with the S&P/ASX 200  up 1.1%, extending its pre-decision gain of 0.3%. In comments accompanying the move, RBA Gov. Glenn Stevens said that the consumer price index "recorded the lowest increase for several years in 2014," and " it appears likely that inflation will remain consistent with the target over the next one to two years," given weak growth in labor costs. Meanwhile, Stevens repeated the RBA view that the Australian dollar remained "above most estimates of its fundamental value, particularly given the significant declines in key commodity prices."

--I expect them to begin QE within the next 2-3 years


China debt party nears the end of road  

As China enters its third year of slowing growth, there is growing concern the debt reckoning cannot be kicked down the road any longer, and the days of almost unlimited risk-free credit are coming to a close, writes Craig Stephen.

--China is much more fragile than most people think


Demand for residential mortgages continues to soften

Demand for residential loans continued to weaken, despite the fact that banks have made it easier to get a mortgage, according to a survey released by the Federal Reserve Monday. “Weakening demand for residential loans...is broadly consistent with the weakening in home sales activity in recent months,” said Millan Mulraine, deputy head for U.S. research at TD Securities.

--I believe we've been in another housing market bubble for the past 1-2 years, it may pop this year alongside the stock market. IF the fed does decide to increase interest rates this year I would then expect housing prices to drop even further.


Euro Parity with Dollar by Year-End

A stronger-than-expected reaction to the European Central Bank’s asset-purchase program and increased risks of a crisis to the euro bloc have added to the pace of the common currency’s downward trajectory, says Barclays’ currency research group in a note to clients.

The bank predicts the euro will weaken to $1.08 by the end of June, and to $1.05 by the end of September. But Barclays anticipates that by the end of the year the euro will be trading at a 1-to-1 ratio with the dollar for the first time since 2002, the year it entered circulation as a physical currency. That forecast is down from Barclays’ earlier prediction that the euro would trade at $1.07 by the end of 2015

--But aiming for 2% inflation is good! Right?

[lyth0s]

2/4/15 News


Volatility in currencies nears highest level in two decades

Only after the Asian financial crisis in 1997 and the days following the collapse of Lehman Brothers in 2008, have currencies been more volatile, said Bank of America Merrill Lynch strategist David Woo

--Currency volatility is increasing without any graphical evidence of a return to stability.

U.S. stocks end lower as ECB reject Greek bonds as collateral

Just when U.S. stocks were rebounding, late-day news that the European Central Bank is rejecting Greek bonds as collateral sent stocks south, with the S&P 500 finishing lower on Wednesday.

After a four-day rally, which sent oil price up more than 20% oil prices fell sharply Wednesday, with March WTI crude CLH5, +0.87%  dropping nearly 9% to settle at $48.45 a barrel.

As a side note...looks like bitcoin volatility is almost lower than oil volatility

ECB blocks banks from using Greek debt as collateral

The European Central Bank said Wednesday it would suspend a waiver it had extended to Greek public securities used as collateral by the country’s financial institutions for central bank loans.

--Greece has less than 3 billion euro in reserve for government expenditures. Now without being able to raise additional funds through selling of there junk bonds (high chance of being unable to pay them back) they will have to borrow from the ECB's emergency lending program at higher interest rates which leads to even more debt. At this point if Greece was unable to find additional money to fuel their expenses their government will become bankrupt within the next 4 weeks (but creditors are almost always more willing to take restructurings to at least get some of their money back)


Euro/USD is slipping: https://www.google.com/finance?q=EURUSD&ei=_2TQVNnWH4uNrQGCpoHQBA will we reach parity this year?

[ajw7989]

Interesting stuff thanks for sharing. The Euro/USD might have some real impact soon. Since I use USD hopefully they equalize 

[tabnloz]

2/2/15 News

Australia cuts rates after long calm; Aussie dollar dives

After almost a year and a half of holding its policy interest rate unchanged, the Reserve Bank of Australia cut by a quarter percentage point Tuesday, citing weak inflation and a stronger-than-desired currency. The move put the cash rate at a historic low of 2.25%. With the interbank market having priced in a 60% chance of a cut, according to Reuters, the Australian dollar fell sharply on the news, dropping to 76.72 U.S. cents from 78 U.S. cents just before the announcement. Stocks rose, meanwhile, with the S&P/ASX 200  up 1.1%, extending its pre-decision gain of 0.3%. In comments accompanying the move, RBA Gov. Glenn Stevens said that the consumer price index "recorded the lowest increase for several years in 2014," and " it appears likely that inflation will remain consistent with the target over the next one to two years," given weak growth in labor costs. Meanwhile, Stevens repeated the RBA view that the Australian dollar remained "above most estimates of its fundamental value, particularly given the significant declines in key commodity prices."

--I expect them to begin QE within the next 2-3 years

And they have plenty of more room to cut. The RBA has been talking down their dollar for a while (it was over 1.05US for a while). As Asia slows it has finally descended with commodities tanking (and really without RBA intervention other than talking). So anyways, .65c is traditional levels and it will get there as the slowdown finally hits. If Aus joins the QE madness, things will be real bad elsewhere.

[stonerider]

thanks lythos! very interesting and I find your comments insightful.

[westhamfan]

I'm liking the look of this thread. I'll definitely be keeping an eye of it over the next few weeks.

[tabnloz]

Not sure if OP is looking to moderate this thread, but I'll add this to the stack of news today

Denmark rates go negative on 4th cut in 3 weeks

http://www.zerohedge.com/news/2015-02-05/it-will-now-cost-you-075-save-money-denmark-danish-central-bank-cuts-rates-fourth-ti

[lyth0s]

Not sure if OP is looking to moderate this thread, but I'll add this to the stack of news today

Denmark rates go negative on 4th cut in 3 weeks

http://www.zerohedge.com/news/2015-02-05/it-will-now-cost-you-075-save-money-denmark-danish-central-bank-cuts-rates-fourth-ti

I kept the thread open to moderation in case discussion gets too off hand or if I get flooded with personal insults etc.

Great article find. I will add it to my list today

[lyth0s]

thanks lythos! very interesting and I find your comments insightful.

Thank you stonerider, I appreciate the feedback

[lyth0s]

News 2/5/15

It Will Now Cost You 0.75% To Save Money In Denmark: Danish Central Bank Cuts Rates For FOURTH Time In Three Weeks

It has become a weekly thing now. In its desperation to preserve the EURDKK peg, the Danish central banks has cut rates into negative, then cut them again, then again last week, and moments ago, just cut its deposit rate to negative one more time, pushing NIRP from -0.5% to -0.75%, its fourth "surprise" rate cut in the past 3 weeks!

--I imagine that Denmark will soon also have to unpeg themselves from the Euro and more countries will soon follow. You cant simply start printing 60 billion Euro a month for 2 years and just hope that other countries "buy" your inflation from you.....unless your currently the world reserve currency such as the USD, but who knows for much longer that will last. Also with the USD and Euro falling on hard times that gives the BRIC's (Brazil, russia, india, china and south africa's soon-to-be version of the IMF) to potentially come in and make some major changes.

Greece and Germany can’t even agree to disagree

...Schaeuble stressing that bailout promises must be kept if Greece is not to lose international trust and confidence and, lastly, Varoufakis pointing out that Greece will never recover under the weight of its current debt load.

Greece and its European partners — including Germany — have to come to an agreement before the current bailout program ends on Feb. 28 or Greece is at risk of running out of money. However, during Thursday’s press conference Varoufakis stepped up his push for a bridge loan to buy time for negotiations with the country’s creditors.

--Time is ticking before Greece could default. Germany ~= ECB and neither wants to really work on keeping Greece from defaulting. I really wonder what Greece will end up doing under these circumstances...

Very weird: Corporate bond rates go negative

In an unprecedented event, the yield on Nestle's corporate debt went negative this week.

That means investors are essentially willing to pay for the right to park their cash in the safety of the Swiss chocolate company. The bonds might as well come with a note saying: "In Nestle we trust."

"You're looking at something that's never happened before. It's a brand-new phenomenon," said Richard Salditt, a credit analyst at Bloomberg Intelligence. "Strange things are going on in financial markets."

--Just found this. Even companies that are being considered as "safe havens" for money have a negative yield rate! WTH is going on in our financial world today.


That's all I have for today. Maybe tomorrow will be more interesting.

[johnyj]

Nice posts, keep it going!

The negative interest on bonds proved that people who have fiat money are desperately buying any asset that they can get their hands on. I have not been able to imagine a possible event to trigger the collapse of fiat money, but I think it is coming from the shaken confidence, and it is getting close

[tabnloz]

Nice posts, keep it going!

The negative interest on bonds proved that people who have fiat money are desperately buying any asset that they can get their hands on. I have not been able to imagine a possible event to trigger the collapse of fiat money, but I think it is coming from the shaken confidence, and it is getting close

Forgot where I read it, but an interesting perspective on this: yields are chasing down the dis-inflation rate. If nominal rates are -3% then even if bonds go to -1% it is still a +2% in effect. But the combination of this, deflation and currency wars all lead to either hyperinflation or monetary reset.

Lythos good point re: Denmark. Being smaller than the EU / US, how long can they expand their balance sheets before it affects them negatively? 

[johnyj]

Nice posts, keep it going!

The negative interest on bonds proved that people who have fiat money are desperately buying any asset that they can get their hands on. I have not been able to imagine a possible event to trigger the collapse of fiat money, but I think it is coming from the shaken confidence, and it is getting close

Forgot where I read it, but an interesting perspective on this: yields are chasing down the dis-inflation rate. If nominal rates are -3% then even if bonds go to -1% it is still a +2% in effect. But the combination of this, deflation and currency wars all lead to either hyperinflation or monetary reset.

Lythos good point re: Denmark. Being smaller than the EU / US, how long can they expand their balance sheets before it affects them negatively?  

I think that will not be a problem, the asset side keeps growing and the liability side (money) is actually hold by the large commercial banks, as long as these banks have a mutual agreement with central bank to not let their huge stash of cash flow out, there will be no inflation

[lyth0s]

Nice posts, keep it going!

The negative interest on bonds proved that people who have fiat money are desperately buying any asset that they can get their hands on. I have not been able to imagine a possible event to trigger the collapse of fiat money, but I think it is coming from the shaken confidence, and it is getting close

Yeah I agree with this. People are looking for any stable asset they can that will hopefully do better than an inflated currency (which would then end up also bumping the price of the asset up).

Nice posts, keep it going!

The negative interest on bonds proved that people who have fiat money are desperately buying any asset that they can get their hands on. I have not been able to imagine a possible event to trigger the collapse of fiat money, but I think it is coming from the shaken confidence, and it is getting close

Forgot where I read it, but an interesting perspective on this: yields are chasing down the dis-inflation rate. If nominal rates are -3% then even if bonds go to -1% it is still a +2% in effect. But the combination of this, deflation and currency wars all lead to either hyperinflation or monetary reset.

Lythos good point re: Denmark. Being smaller than the EU / US, how long can they expand their balance sheets before it affects them negatively? 

So much of the market price of any asset or currency (which I also view as an asset) is just based on the sentiment of the investors. I don't think there will be a fixed number at which it would start to have an effect. I think it will be more of a gradual change away from fiat and I'll post an article in a minute on the subject.

I'm think that will not be a problem, the asset side keeps growing and the liability side (money) is actually hold by the large commercial banks, as long as these banks have a mutual agreement with central bank to not let their huge stash of cash flow out, there will be no inflation

Well the idea behind QE is to print money to give to banks, the banks should then be loaning out that money to business etc and thus not only spur economic growth but also cause a bit of inflation to reach their 2-3% inflation goals. Eventually that money will hit the market and then a while down the road people will realize that monetary policy has made the money less valuable and THEN inflation hits. I honestly expect to see BIG changes in peoples (mainstream) attitude to fiat currencies by the end of 2016.

[johnyj]

Well the idea behind QE is to print money to give to banks, the banks should then be loaning out that money to business etc and thus not only spur economic growth but also cause a bit of inflation to reach their 2-3% inflation goals. Eventually that money will hit the market and then a while down the road people will realize that monetary policy has made the money less valuable and THEN inflation hits. I honestly expect to see BIG changes in peoples (mainstream) attitude to fiat currencies by the end of 2016.

That's the plan, but now every major institution knows this and they will not loan out that money to business (due to already severe over production of almost everything), those money just went to other area like commodities and bonds

[lyth0s]

Well the idea behind QE is to print money to give to banks, the banks should then be loaning out that money to business etc and thus not only spur economic growth but also cause a bit of inflation to reach their 2-3% inflation goals. Eventually that money will hit the market and then a while down the road people will realize that monetary policy has made the money less valuable and THEN inflation hits. I honestly expect to see BIG changes in peoples (mainstream) attitude to fiat currencies by the end of 2016.

That's the plan, but now every major institution knows this and they will not loan out that money to business (due to already severe over production of almost everything), those money just went to other area like commodities and bonds

You're spot on.

[lyth0s]

News 2/6/15

Ex-Credit Suisse CEO: Invest in Gold and Bitcoin Long-term, Not Fiat

The only investment that demonstrably keeps its value over a long period is gold, and in future perhaps also bitcoins.

...they'll no longer be buying when rates sink, and no longer be selling when they rise. It simply costs too much in terms of capital... Therefore markets can tumble a lot faster than in the past...

Central banks can print money limitlessly and these days they are telling us that openly. It's therefore no longer recoverable.

--This is what I mean when I say there will be a gradual movement of smart money then mainstream money into bitcoin as more and more people realize that eventually their fiat will be worth nothing due to limitless printing by the central banks.

Recent numbers published by the US Bureau of Economic Analysis.
GDP growth for Q4 was reported as 2.6%: http://www.tradingeconomics.com/united-states/gdp-growth
GDP deflator for Q4 all the sudden went from the usual 1.4% to -0.1% !!! Tricky bastards! : http://www.tradingeconomics.com/united-states/gdp-deflator

My analysis:
What does that mean? Real GDP growth for the US in Q4 was only 1.1%!!! which is an absolutely terrible growth rate. The government uses the GDP deflator to supposedly account for inflation/deflation in GDP numbers, but that also gives them a LOT of lead way to fudge the numbers however they want and thus they are reporting a much better (still mediocre though) GDP growth than actually occurred for Q4.

[tabnloz]

Here's google translate of a Denmark bank introducing negative .5 deposit rates for some customers

"For the first time in the history of Denmark is it going to cost money to have a regular bank account in a bank.

Thus introduces FIH from next month minus interest on customers' bank accounts. This brings the bank's customers continue to fork out for funds deposited in an account at FIH.
The new system applies to the bank's day -to-day account, which is what you might call a regular salary account - minus interest rate of 0.5 per cent . shall enter into force on 9 March and will both apply to residential and business customers .
not surprisingly,
According to one expert , it is far from surprising that FIH introduces less interest .
- FIH is about to close their bank down , and by introducing less interest forcing some existing customers out . So if someone were to do it, it was them , said John North, director of Mybanker .
FIH justify the step with the bank pays money to funds deposited in the National Bank.
It happens after three hectic weeks in which National Bank has reduced the deposit rate four times - most recently yesterday afternoon , when it was lowered by a further 0.25 basis points to -0.75 percent .
- It is expensive for FIH , but you could say that it comes at an opportune time . But it is also a proof that it is bad business , customers are the acidic , says John Norden .
Calls for calm
Although FIH now has taken the historic step and introduced less interest , there are no indications according to John Norden that other banks will follow suit.
- We are in a very unusual situation with low interest rates , but I do not think it gets other banks to do the same. It is clear that there is a pain threshold , but it is difficult to say when it is reached, explains John parts."

[aantonopoulis]

Following  

Maybe central bankers are trying to tell us something..  time to get your value out of virtual fiat asap.