Monday, August 2, 2021

Venezuela’s Economic Collapse Was Enabled by its Central Bank

by Maria Horat, Mises:

One of the most remarkable aspects of the economic meltdown in Venezuela is just how far the country has fallen in terms of economic prosperity.

After all, Venezuela was the fourth richest economy in the world in the 1950s. The Venezuelan currency, “the bolivar” was one of Latin America’s strongest currencies during Venezuela’s peak from the 1950s to 1970s.

However, the economic meltdown in Venezuela has its origins, in part, in the founding of the Venezuelan central bank in 1939. This was followed by the nationalization of the oil industry in the 1970s by Venezuelan president Carlos Andrés Perez, which was coupled with the central bank’s easy money policies. The final crisis has come with the socialist /communist measures of the past twenty years.

Toxicity Plus Toxicity Does Not Equal Purification

by Dave Kranzler, Investment Research Dynamics:

Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, ‘Account overdrawn.’ – Francisco’s “Money” Speech – from “Atlas Shrugged”

You have to love it – the City of Houston issues $1.01 billion  “pension obligation” bonds to “ease” the underfunding of the underfunded public pension fund.  “Pension underfunding”  is the politically acceptable euphemism for “debt obligation.”  Underfunding occurs when a pension investment returns PLUS future beneficiary contributions are not enough to cover current beneficiary payments.

Some might say it’s the difference between the NPV of future payouts and the current value of the fund. But that’s horse-hooey. Houston had a cash flow deficit it had to address and it did that by issuing taxpayer obligation debt – $1.01 billion dollars of taxpayer debt.  Furthermore, let’s use a realistic NPV and ROR assumption on any pension fund plus throw-in a real mark to market of illiquid assets like PE fund investments.  Every pension fund in the U.S. is tragically underfunded.

The rational remedy would be to cut beneficiary payments or force larger contributions from current working stakeholder or both.  The problem is that implementing either or both of those remedies might cost elected officials their jobs in the next election.

Instead, the proverbial can is kicked further into the sewage ditch by issuing more debt and using the the proceeds to help the pension fund cover current cash outflows to beneficiaries.  Regardless of what you call it, an underfunded pension liability is simply “debt”.  This bond issue might ensure that Houston’s retired public employees will continue, for now, to receive their expected flow of monthly pension payment, but this bond deal in no way whatsoever “eases” the debt burden of the pension fund.  Rather, it shifts wealth from the taxpayers to the retired public employees.

Similarly, the Trump Tax Cut does nothing more than shift the distribution of wealth from 99.5%’ers to the 0.5%’ers plus big corporations.  In this case, it’s not wealth per se.  Rather, it’s shifting the burden of supporting the Government’s spending deficit from the tax cut beneficiaries (billionaires and big corporations) to the rest of the population.

I could care less what CBO projections show – CBO forecasts are always appallingly inaccurate – the Government’s spending deficit is going to accelerate next year.   Between the cut in tax revenues from Trump’s Tax Cut and the big jump in spending built into the budget for defense and re-paving the roads that were paved during the Obama era, total spending will soar.  The gap between inflows and outflows will be bridged with more Treasury bond issuance.

Read More @ InvestmentResearchDynamics.com

Why Did This Billionaire Just Declare “Cash is Trash”?

from Birch Gold Group:

As the founder of $160 billion investment behemoth Bridgewater Associates, Ray Dalio tends to have a fairly good idea of how the market is moving.

So when he comments on macro trends, people tend to listen. And recently, he made a couple of rather pointed statements about cash that have pundits perking up their ears.

Talking to CNBC at the World Economic Forum in Davos, Switzerland, Dalio warned investors to stay out of cash:

Biden to unveil $6 TRILLION budget, hiking spending to record post-WWII levels

from RT:

President Joe Biden will unveil a federal budget totalling $6 trillion, according to documents seen by the New York Times. The splurge will further raise the US’ national debt and accelerate inflation.

Biden will propose his budget on Friday. A New York Times report on Thursday revealed that the Democratic president will ask Congress for $6 trillion, and to increase this to $8 trillion by 2031. Such a sustained level of government spending has not been seen in the US since World War II.

Biden’s plan would drive the US’ budget deficit to $1.8 trillion in 2022, per the Times’ reporting. The largest prior deficit was $1.4 trillion, following then-President Obama’s economic bailout after the 2008 financial crisis. National debt would grow to 117% of the size of the economy by 2031, and by the end of Biden’s first term in 2024, would reach its highest level in history, passing the previous WWII-era record.

BULLION BANKS READY TO DEPART CME FOR THE LME AND A PHYSICAL MARKET OVER THERE

by Harvey Organ, Harvey Organ Blog:

GOLD UIP $19.40 TO $1735.70//SILVER IS UP HUGELY (52CENTS) TO $17.88//HUGE PREMIUM SPOT/FUTURES FOR BOTH GOLD AND SILVER//A HUGE 146 TONNES OF GOLD STANDING AT THE COMEX FOR JUNE//1.8 MILLION OZ FOR SILVER//TRUMP CUTS OFF HONG KONG FOR FAVOURITE STATUS//MORE SANCTIONS LEVELED AGAINST CHINA//CORONAVIRUS UPDATE THROUGHOUT THE GLOBE//BULLION BANKS READY TO DEPART CME FOR THE LME AND A PHYSICAL MARKET OVER THERE//ATLANTA FED PROJECTS SECOND QUARTER GDP TO DROP TO -51%//MORE SWAMP STORIES

Russia To Cut Dependence On U.S. Dollar, Payment Systems

from ZeroHedge:

Russia will speed up work on reducing its dependence on U.S. payment systems and the dollar as a settling currency in response to U.S. sanctions, Deputy Foreign Minister Sergei Ryabkov said on Monday.

Quoted by Reuters, Ryabkov said that “we will of course intensify work related to import substitution, reduction of dependence on U.S. payment systems, on the dollar as a settling currency and so on. It is becoming a vital need.” The reason for that is that “the US is using its dominating role in the monetary and financial system to impose pressure on foreign business, including Russian companies.”

As a reminder, three years ago the MasterCard payment system stopped serving clients of seven Russian banks without warning after Washington imposed its first set of sanctions on Moscow in 2014. In response, the Russian government ordered the creation of a national payment system. With the support of the country’s banking system, the Mir charge card was introduced in 2015, although there is no information on what its adoption rate has been in the following years.

As we discussed previously, as part of the latest set of Russian sanctions the US has imposed new restrictions on the Russian banking and energy sectors: the ban targets already sanctioned Russian firms, limiting the financing period for them to 14 and 60 days. Additionally, the new law will punish individuals for investing more than $5 million a year or $1 million at a time in Russian energy export pipeline projects or providing such enterprises with services, technology or information support, a provision that has drawn strong condemnation from Washington’s European allies.

US energy companies criticized the tightening of already existing sanctions as damaging for business. At the same time, the European Union expressed concerns the new penalties may undermine the bloc’s energy security. European Commission head Jean-Claude Juncker pledged to prepare an “adequate” response and “within days” if the measure hurt the interests of European companies. So far Europe has to elaborate on what, if any, retaliation to the sanctions it will unveil.

Read More @ ZeroHedge.com

A Russian Woman Working as a College Professor in the US Writes About the Sovietization of Amerika

from Russia Insider:

I’m in the editing and rewriting stage of Live Not By Lies now, but I couldn’t pass up the opportunity to talk yesterday with a woman I’ll call “Clarissa,” whose stories were so good that I’m weaving them into the book’s narrative.

Clarissa is a college professor who emigrated to the US from Russia as a young woman, a few years after the fall of the Soviet Union. She is yet another ex-Soviet bloc person who is extremely anxious about the emergence of soft totalitarianism here. Of course she can’t use her real name, because she fears professional retaliation. It should tell us something that not a single academic from a former communist country that I interviewed for this book was willing to speak using their own name — this, in the Land of the Free. Why not? Because they were afraid of facing professional consequences for speaking out against identity politics and the “social justice” regime. Below, some quotes from our interview:

Do you have a cryptocurrency addiction? This British hospital has a treatment for you

by Simon Black, Sovereign Man:

By the time Louis XIV passed away in 1715, seven decades of his absurd extravagance had nearly bankrupted France.

His reign was marked by constant warfare and the most excessive spending imaginable, from opulent palaces (including Versailles) to a costly welfare state– public hospitals, parks, monuments, museums.

Louis XIV had turned France into the world’s leading power. But it came at a heavy cost.

The national debt was nearly as large as the entire French economy itself, and the government’s annual budget deficit was appalling.