Saturday, May 28, 2022

What Few Expect: Inflation Will Surge, Destabilizing the Status Quo

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by Charles Hugh Smith, Of Two Minds:

Few seem to ponder what global shortages in key commodities might do to prices.

If there is any economic truism that is accepted by virtually everyone, it’s that inflation is low and will stay low into the foreseeable future. The reasons are numerous: technology is deflationary, globalization is deflationary, central banks will keep interest rates near-zero essentially forever, and so on.

Just for laughs, let’s look at healthcare, almost 20{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of America’s entire economy, as an example of low inflation forever. If being up over 200{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} in the 21st century is low inflation, I’d hate to see high inflation.

Here’s the official Consumer Price Index (CPI), which as many have noted, severely distorts real-world inflation by claiming big-ticket items such as college tuition and healthcare are mere slivers in household budgets.

Note the remarkably stable trend line in CPI over the past 40 years. This certainly doesn’t shout “inflation is near-zero and will stay low indefinitely.”

Read More @ OfTwoMinds.com

Watch the Fed’s New Guard, Not the Old

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by Jim Rickards, Daily Reckoning:

Expert consensus was almost unanimous that the Fed had sent a hawkish message after its September meeting. A December rate hike was “still on the table.”

But with or without a December rate hike, the experts were clear that the Fed was still on a path to tighten rates at a sustained tempo.

The view was expressed in all of the major news outlets.

Markets got the message. The dollar rallied, the euro declined, gold traded down and interest rates ticked up. That’s exactly what you would expect if the Fed gave hawkish signals based on continued moderate growth.

There was only one thing wrong with this story, as I explained at the time: everything.

And Friday’s exceptionally weak core PCE inflation data only drives home the point.

Friday’s data practically guarantee the Fed will not raise rates in December. The economy is not strong and the Fed may not raise rates again until well into 2018 — if then.

How can so much time, effort and talent be devoted to such a simple task and still get the wrong result? How could they get it so wrong?

The answer is that the so-called experts are using the wrong model of Fed behavior. As I’ve said many times, if you have the wrong model, you will get the wrong result every time. This happened again following the September Fed meeting and Janet Yellen’s subsequent press conference.

So what’s wrong with the mainstream model?

Its major shortcoming is that it pays attention to the Fed projections of growth and interest rates. These are the so-called “dots” (because they’re presented as a set of dots on a chart showing dates and rates.) All of the members of the board of governors and the regional reserve bank presidents are invited to provide their own dots.

The media glom onto the dots, compute an average of the dots and then treat the average as a consensus of Fed opinion. They project Fed policy based on this consensus. Markets react to the consensus estimate.

Here’s the problem. The dots are a joke. No one in the Fed headquarters in Washington takes them seriously. Starting the “dots” was an attempt at transparency by Ben Bernanke. The Fed can’t seem to get rid of them.

The media love them. But they are a joke. Pay no attention to them.

There’s a much more important Fed story that hasn’t gotten much media attention. But this story, not the Fed’s “dots,” could have a dramatic impact on interest rates going forward.

I’m talking about a changing of the guard that’s taking place at the Fed. I’ve mentioned it before, but I want to reinforce the point…

To review, the Federal Reserve’s Board of Governors is made up of seven appointees. That means that they can make a majority decision with four votes. The real power within the Fed is found on this seven-member Board of Governors.

Here’s the remarkable part:

As of last month, four of the seven Fed board seats are now vacant.

Trump inherited two board vacancies from Obama. Then in April, Federal Reserve Governor Daniel Tarullo resigned. His departure gave Donald Trump a third appointment.

Then on Sept. 6, Fed Vice Chairman Stanley Fischer suddenly and unexpectedly resigned. His resignation marked the fourth vacancy.

That means Donald Trump will be able to shape the Fed’s majority in a remarkable fashion. Remarkably, he now has the opportunity to appoint a higher percentage of the Board of Governors of the Federal Reserve system at one time than any president since Woodrow Wilson.

Read More @ DailyReckoning.com

Why Precious Metals Are The Better LONG-TERM Store Of Value Over Bitcoin

by Steve St. Angelo, SRSrocco:

Many precious metals investors are starting to question whether gold and silver are still the best store of wealth in the future.  The reason Alternative Media community is starting to have doubts about their gold and silver investments is due to the rapidly rising value of the cryptocurrency market.  Also, a number of precious metals analysts have jumped ship and are now only supporting the cryptocurrencies as the next best thing since sliced bread.

While some precious metals analysts now believe that Bitcoin and cryptocurrencies are the better assets to own in the future rather than gold and silver, I do not belong to that group or mindset.  I differ from these analysts based upon my energy analysis.  Unfortunately, these analysts that promote cryptocurrencies as the “New” digital assets of the future, are ignorant about the Falling EROI – Energy Returned On Investment, or are clueless to the dire energy predicament the world is facing.

I’ve received many emails from followers who wanted to know my opinion on the matter of “Precious Metals vs. Cryptos.”  So, I thought it would be a good idea to discuss the fundamental reason why I believe the precious metals are still the KEY ASSETS to own in the future.

GOLD vs. BITCOIN:  Price & Monetary Traits

While the gold price has increased significantly since 2000, Bitcoin’s price has gone up exponential in a short period.  The amount of gold that can be now purchased with one Bitcoin has increased dramatically from less than a half ounce at the beginning of 2017, to 3.4 oz currently:

Normally, exponential price rises do not last.  However, Bitcoin might be the one asset that is an exception to the rule….. FOR A WHILE.  Many cryptocurrency analysts are forecasting a $10,000+ price by early 2018.  I have no idea if Bitcoin will reach $10,000 next year, but I am more concerned about what happens in the next 5-1o years.  Even though the Bitcoin price might shoot higher, it could also correct much lower and trade flat for several years as it did after its spike in 2013.

Read More @ SRSrocco.com

Trump Gets Final List Of Fed Candidates, Yellen Gets The Cold Shoulder

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from ZeroHedge:

Picking up on a story reported previously by both the WSJ and Politico – oh and Bloomberg itself – Bloomberg writes that Trump’s advisers have delivered the final list of candidates they recommending as candidates to lead the Fed and have ended the search. While only a “small handful” of the president’s closest advisers have seen the final list of names, it did not prevent them from leaking it, and the result is what we already know from previous leaks namely that in addition to Yellen, Trump is considering Gary Cohn, Kevin Warsh and current Fed governor Jerome Powell, who as Politico reported overnight, is said to have the blessing of Steven Mnuchin.

Also confirming what the WSJ reported previously, Trump’s chief economic advisor Gary Cohn – himself under consideration – has recused himself from the selection process.

In fact, the only incremental news in the latest report seems to be that while Janet Yellen remains under consideration, “few, if any, of Trump’s inner circle are advocating for her re-appointment.”

Furthermore, we can cross out economist Glenn Hubbard and U.S. Bancorp Chairman Richard Davis, both of whom have been floated as possible candidates, although Trump has no intention of interviewing them.  A potential wildcard is Stanford economist John Taylor, a favorite of fiscal conservatives, who is also said to be under consideration.

It has also been previously reported that Trump has spoken to Yellen, Cohn, Warsh and Powell about the Fed post, although there is no frontrunner at the moment.

According to Bloomberg, “the latest developments show that Trump is closer to making a final selection than previously known.” Last Friday, Trump said that he is “two or three weeks away from announcing his nominee” for the post overseeing the nation’s central bank.

Meanwhile, speaking at the Vanity Fair New Establishment Summit on Tuesday in Los Angeles, Jeffrey Gundlach – who accurately predicted Trump’s presidency – predicted that Neel Kashkari would be picked as next Fed chair. “I actually have a very non-consensus point of view. I think it’s going to be Neel Kashkari… He happens to be the most easy money guy that’s in the Federal Reserve system today and that’s why he may win.”

The Bond King said that Trump needs someone who will keep rates low in order to keep his populist reputation and help his base voters and that’s why he’ll pick Kashkari. “A stronger dollar is not good for achieving that agenda,” he said.

Gundlach also is confident that Yellen would not get reappointed: “I
think there is no chance that she wants to be chairwoman, nor do I think
the president wants her to be,” said the manager of $109 billion.

Judging by the latest PredictIt odds, if Gundlach is right, and if he is willing to bet some money on it, he could make a killing, as Kashkari does not even have a contract. As to the current ranking, Warsh remains in top spot with 38{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} odds, although following today’s Politico news, Powell surged to second place with 31{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} odds, and now following the Bloomberg report, John Taylor finds himself in third spot with 20{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} odds, above both Gary Cohn in 4th and Janet Yellen who has tumbled to 5th with just 13{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} odds of being reappointed.

Read More @ ZeroHedge.com

BANKER RAIDS FAIL IN THEIR ATTEMPT TO CAUSE GOLD AND SILVER OPEN INTEREST TO FALL

by Harvey Organ, Harvey Organ Blog:

SPAIN IS NOW PARALYZED WITH STRIKES AND PROTESTERS/WORK IN PROGRESS

GOLD: $1272.00 down $2.75

Silver: $16.61  up 1 CENT(S)

Closing access prices:

Gold $1271.10

silver: $16.63

SHANGHAI GOLD FIX:  FIRST FIX  10 15 PM EST  (2:15 SHANGHAI LOCAL TIME)

SECOND FIX:  2:15 AM EST  (6:15 SHANGHAI LOCAL TIME)

SHANGHAI FIRST GOLD FIX: $n/a DOLLARS PER OZ

NY PRICE OF GOLD AT EXACT SAME TIME:  $n/a

PREMIUM FIRST FIX:  $8.24 (premiums getting larger)

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SECOND SHANGHAI GOLD FIX: $n/a

NY GOLD PRICE AT THE EXACT SAME TIME: $/na

Premium of Shanghai 2nd fix/NY:$13.00 (PREMIUMS GETTING LARGER)  

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LONDON FIRST GOLD FIX:  5:30 am est  $not important

NY PRICING AT THE EXACT SAME TIME: $not important

LONDON SECOND GOLD FIX  10 AM: $1283.10

NY PRICING AT THE EXACT SAME TIME. 1283.10

For comex gold:

OCTOBER/

NOTICES FILINGS TODAY FOR SEPT CONTRACT MONTH: 1601 NOTICE(S) FOR  160,100OZ.

TOTAL NOTICES SO FAR: 2040 FOR 204,000 OZ  (6.345 TONNES)

For silver:

OCTOBER

 

 12 NOTICES FILED TODAY FOR

 

60,000  OZ/

Total number of notices filed so far this month: 316 for 1,580,000 oz

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

 

end

Let us have a look at the data for today

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In silver, the total open interest SURPRISINGLY ROSE BY  249 contracts from  182,960  UP TO 183,209  CORRESPONDING TO ANOTHER RAID THAT SILVER UNDERTOOK IN YESTERDAY’S TRADING (DOWN 8 CENTS ). THE CROOKS TRIED TO COVER AS MUCH OF THEIR SILVER SHORTS AS POSSIBLE BUT IT LOOKS LIKE THEY FAILED

RESULT: A SMALL SIZED RISE IN OI COMEX  DESPITE THE  8 CENT PRICE FALL AND CONSTANT TORMENT. IT SURE LOOKS LIKE OUR BANKERS FAILED AGAIN IN THEIR ATTEMPT TO COVER THEIR MASSIVE SILVER SHORTFALL

 In ounces, the OI is still represented by just UNDER 1 BILLION oz i.e.  0.915 BILLION TO BE EXACT or 131{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of annual global silver production (ex Russia & ex China).

FOR THE NEW FRONT OCT MONTH/ THEY FILED: 19 NOTICE(S) FOR 95,000OZ OF SILVER

In gold, the open interest FELL BY A  MUCH SMALLER THAN EXPECTED 152 CONTRACTS DESPITE ANOTHER WICKED FALLin price of gold ($8.25 ) .  The new OI for the gold complex rests at 530,731. WEHAVE NOW ENTERED GOLDEN WEEK (ONE WEEK OF CHINESE HOLIDAY)..SO EXPECT TORMENT FOR THE REST OF THE WEEK AS THE CROOKS DO NOT HAVE TO WORRY ABOUT PHYSICAL DELIVERIES FOR A WEEK. OUR BANKER FRIENDS WERE NOT SUCCESSFUL IN THE ATTEMPT TO COVER MORE OF THEIR GOLD SHORTS.

 

Result: A SMALL SIZED DECREASE IN OI WITH THEFALL IN PRICE IN GOLD ($3.75) 

we had: 1601 notice(s) filed upon for 160,100 oz of gold.

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With respect to our two criminal funds, the GLD and the SLV:

GLD:   WOW

Tonight , A HUGE CHANGE  in gold inventory at the GLD AGAIN WITH THE CONTINUAL DRUBBING GOLD HAS TAKEN THESE PAST FEW WEEKS. THIS HUGE WITHDRAWAL WAS REPORTED LATE LAST NIGHT:  WITHDRAWAL OF  10.35 TONNES

Inventory rests tonight: 854.30 tonnes.

SLV

Today: a SMALL change in inventory:  A WITHDRAWAL OF 142,000 OZ TO PAY FOR FEES

INVENTORY RESTS AT 326.615 MILLION OZ

 

end

.

First, here is an outline of what will be discussed tonight:

1. Today, we had the open interest in silver SURPRISINGLY ROSE BY 249 contracts from 182,960  DOWN TO 183,209 (AND now A LITTLE CLOSER TO THE NEW COMEX RECORD SET ON FRIDAY/APRIL 21/2017 AT 234,787) . IT  SEEMS THAT  OUR BANKERS WERE UNSUCCESSFUL IN COVERING THEIR SHORTS.  WITH GOLDEN WEEK IN CHINA, EXPECT THE BANKERS TO HAVE CONSTANT TORMENT THROUGH THIS COMING WEEK AS THEY TRY AND COVER AS MANY AS POSSIBLE OF THEIR SILVER/GOLD SHORTS.

RESULT:  A SMALL SIZED INCREASE IN SILVER OI  AT THE COMEX WITH THE FALL IN PRICE OF 8 CENTS IN FRIDAY’S TRADING. EXPECT CONSTANT TORMENT FOR THE REST OF THE WEEK. OUR BANKER FRIENDS WERE UNSUCCESSFUL IN THEIR ATTEMPT TO COVER ANY OF OUR SILVER SHORTS

(report Harvey)

.

2.a) The Shanghai and London gold fix report

(Harvey)

 

2 b) Gold/silver trading overnight Europe, Goldcore

(Mark O’Byrne/zerohedge

and in NY:  Bloomberg

3. ASIAN AFFAIRS

)Late MONDAY night/TUESDAY morning: Shanghai closed /Hang Sang CLOSED / The Nikkei closed UP 44.50 POINTS OR 0.22{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}/Australia’s all ordinaires CLOSED UP 0.81{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}/Chinese yuan (ONSHORE) closed/Oil DOWN to 50.30 dollars per barrel for WTI and 55.60 for Brent. Stocks in Europe OPENED GREEN .  ALL YUAN FIXINGS CLOSED

Read More @ HarveyOrganBlog.com

Keiser Report (Ep. 1131)

from Keiser Report:

Stacy interviews Erik Voorhees of ShapeShift.io about the latest crackdowns on Initial Coin Offerings in the cryptocurrency space. They also discuss whether or not bitcoin is a store of value or a payment system. Or both.

John Rubino – Catalonia Succession Vote Brutally Suppressed

by Kerry Lutz, Financial Survival Network:

John Rubino returns… First, again our thoughts and prayers go out to the victims and the loved ones involved in the Las Vegas Massacre. There are just no words to describe the horror. John and I discussed the Catalonian succession vote in Spain. Seems that the powers that be didn’t want to see it happen and attacked innocent people who were voting. There were hundreds of injuries for absolutely now reason. And the vote, largely symbolic, still went to independence. As John says, “It’s easy for a small area to setup a country these days.”

Click HERE to listen.

Read More @ FinancialSurvivalNetwork.com

Puerto Rico Relief Efforts Pale to that for Just One Wall Street Bank

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by Pam Martens and Russ Martens, Wall St On Parade:

With 3.4 million fellow American citizens undergoing an epic humanitarian crisis in Puerto Rico, a United States territory, as critically-needed food and water remain undistributed for lack of manpower and proper logistical coordination by the Trump administration, there is no better time than the present to assess how corporate welfare trumps the rights of individual citizens of the United States.

President Trump, the man who ran on a so-called populist agenda, has Tweeted the following regarding the situation in Puerto Rico (italic emphasis added below):

September 25: It’s old electrical grid, which was in terrible shape, was devastated. Much of the Island was destroyed, with billions of dollars owed to Wall Street and the banks which, sadly, must be dealt with. Food, water and medical are top priorities – and doing well.

September 29: The fact is that Puerto Rico has been destroyed by two hurricanes. Big decisions will have to be made as to the cost of its rebuilding!

September 30: Such poor leadership ability by the Mayor of San Juan, and others in Puerto Rico, who are not able to get their workers to help. They want everything to be done for them when it should be a community effort. 10,000 Federal workers now on Island doing a fantastic job.

When Donald Trump made these Tweets, the situation was as follows in Puerto Rico as the result of Hurricane Maria making a direct hit on the island: most of these U.S. citizens have no electric power, no air conditioning in sweltering heat, no working refrigerators or running water because of the lack of electricity, with tens of thousands of homes missing their roofs and/or walls.

Instead of focusing on the simple reality that citizens in the midst of an epic humanitarian disaster of this magnitude must be forgiven for wanting assistance, Trump portrayed Puerto Ricans as welfare slackers, wanting “everything to be done for them.” This Tweet was reminiscent of another super rich, out-of-touch Republican who wanted to run the country on behalf of people like himself. In 2012, Mitt Romney was captured on tape during a campaign fundraising event making the following remarks:

“There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that’s an entitlement. And the government should give it to them. And they will vote for this president no matter what…And so my job is not to worry about those people. I’ll never convince them that they should take personal responsibility and care for their lives.”

But when the President invoked the “billions of dollars owed to Wall Street and the banks which, sadly, must be dealt with” in the earliest days of this humanitarian disaster, he topped even Romney for his callous disregard for American citizens who were not born with a silver spoon in their mouth.

The U.S. government’s treatment of debt-riddled Puerto Rico today and the serially-charged, debt-riddled Wall Street banks before, during and after the 2008 financial crash of their own making, says all we need to know about the fragility of democracy in the U.S. today.

In 2007, long before most Americans realized how financially distressed Wall Street had become, the Federal Reserve (the central bank of the U.S.) secretly began funneling money under the table to some of the biggest financial firms in the world at almost zero percent interest. After the media filed Freedom of Information Act lawsuits to find out the extent of this handout to Wall Street and Senator Bernie Sanders added an amendment to the Dodd-Frank financial reform legislation, the bipartisan watchdog for Congress, the Government Accountability Office (GAO), finally revealed in 2011 that the Fed has sluiced $16 trillion in secret cumulative loans to Wall Street banks and their foreign counterparties between 2007 and 2010.

Just four banks, Citigroup, Morgan Stanley, Merrill Lynch and Bank of America received $7.8 trillion, almost half of the total $16 trillion. (See chart below from the GAO report.) Senator Bernie Sanders poignantly said about the bailout: “This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else.”

The serially-charged, now felony-bank Citigroup, received a bailout that makes the financial needs of Puerto Rico to rebuild seem like chicken feed. The U.S. Treasury infused $45 billion in capital into Citigroup to prevent its total collapse; the government guaranteed over $300 billion of Citigroup’s assets; the Federal Deposit Insurance Corporation (FDIC) guaranteed $5.75 billion of its senior unsecured debt and $26 billion of its commercial paper and interbank deposits; and the Fed secretly sluiced $2.5 trillion in almost zero-interest, cumulative loans to Citigroup. All of this largess was given despite Citigroup’s scurrilous history of ripping off American citizens.

Trump’s lack of compassion for fellow Americans struggling to survive in a corporate-owned “democracy” reminded us of what Neil Barofsky had revealed in his book Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall StreetBarofsky was the Special Inspector General of the Troubled Asset Relief Program during the financial crisis.

Barofsky revealed in his book that the former New York Fed President, Tim Geithner, whom President Obama elevated to be his Treasury Secretary, had confided that the hidden purpose of a Federal program ostensibly to help struggling homeowners avoid foreclosure was actually a spurious maneuver to help Wall Street banks. Barofsky wrote:

“For a good chunk of our allotted meeting time, Elizabeth Warren grilled Geithner about HAMP, barraging him with questions about how the program was going to start helping home owners.  In defense of the program, Geithner finally blurted out, ‘We estimate that they can handle ten million foreclosures, over time,’ referring to the banks. ‘This program will help foam the runway for them.’

“A lightbulb went on for me.  Elizabeth had been challenging Geithner on how the program was going to help home owners, and he had responded by citing how it would help the banks. Geithner apparently looked at HAMP as an aid to the banks, keeping the full flush of foreclosures from hitting the financial system all at the same time. Though they could handle up to ‘10 million foreclosures’ over time, any more than that, or if the foreclosures were too concentrated, and the losses that the banks might suffer on their first and second mortgages could push them into insolvency, requiring yet another round of TARP bailouts.  So HAMP would ‘foam the runway’ by stretching out the foreclosures, giving the banks more time to absorb losses while the other parts of the bailouts juiced bank profits that could then fill the capital holes created by housing losses.”

Read More @ WallStOnParade.com

Bitcoin is Not New and Improved Money

by Michael Pento, Market Oracle:

Cryptocurrencies are being billed as a new and improved form of money that has been offered to us courtesy of technological evolution. There is a big problem with this conclusion. That is, digital money is not money at all. And proving this truth serves to underscore why gold has been utilized as the best form of money for thousands of years.

In the 2013 film titled “Her,” lonely Theodore, played by Joaquin Phoenix, falls in love with Samantha, an operating system. Despite Samantha’s lack of physical presence, the two have a somewhat normal relationship that includes vacations, socializing with friends, fights and even jealousy. But just as the audience starts buying into this unconventional pairing the plug is pulled on Samantha, and she disappears into a cyberspace vortex; leaving poor and lonely Theodore heartbroken.

And, at the dawn of the twenty-first century, this is where we are as a society.  In a place where the digital and real world collide. Social Media has supplanted socializing, texts have replaced phone calls, and artificial intelligence may soon outstrip actual intelligence: robots may soon rule the world! 

In this fast-changing environment, it’s easy to believe that cyber currencies should inevitably replace fiat money; and even that “barbarous relic” gold. After all, the motivation to find as many escapes from debt-based central bank confetti is indeed alluring.

And herein lies the attraction of cryptocurrencies such as Bitcoin – it uses the revolutionary blockchain technology that is managed by the free market, not by government. It is decentralized, anonymous, and has been hugely profitable. In fact, this year we have seen digital currency prices go higher not by percentages but by multiples. This has caused Bitcoin to achieve the “most crowded trade” status, measured by sentiment in the monthly global Bank of America Merrill Lynch Fund Managers survey; as its price has surged by 330 percent this year alone.

But, JPMorgan’s CEO Jamie Dimon isn’t beguiled. He believes the online currency is just as fleeting as the Theodore’s Samantha and will soon leave investors equally as heartbroken. He contends that bitcoin “is a fraud.” “It’s just not a real thing, and eventually it will be closed.”  But it’s not just Jamie Dimon, who has a vested interest in protecting the banking system and the fiat currency that inhabits it, that is questioning Cryptos. Founder of the world’s largest hedge fund Ray Dalio believes Bitcoin is a bubble. Dalio contends that unlike gold, “it’s not an effective store-hold of wealth.”

And Oaktree Capital Management’s Howard Marx agrees stating “…they are not real – nobody has been able to make sense to me of these currencies.”  Marx explains that one of the biggest pitfalls of bitcoin and its fellow cryptos is they are mostly used to buy other “imaginary” money or used it to invest in companies that create other new currencies.

And now some government regulators appear to agree with these sentiments, making the speculation of Bitcoin’s demise closer to reality.

In fact, the Chinese government has just become the first to put the kibosh on crypto’s – and this should sound warning bells to all those enamored with cyber “money.”   On September 4th, China’s central bank banned Initial Coin Offerings (ICOs) maintaining it was an illegal public finance mechanism.  ICOs are a hybrid between an initial public offering, crowd-funding and venture capital that permits start-ups to raise funds using virtual money. Regulating what a crypto-currency could be used for was the first crack in the armor for Bitcoin in China.
 
China has long been a repository for bitcoin, which came in the aftermath of the 2008 financial crisis as an alternative to fiat currencies. Much of the world’s bitcoin is mined in China. And, according to the WSJ, more than 80{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of global bitcoin activity took place in yuan at the start of this year.

But recently, China’s central bank has devised new rules to end commercial trading in virtual currencies under the guise of trying to reign in the chaotic marketplace. And this is sure to offer a template for other nations’ regulators.
  
Beijing’s clampdown on bitcoin is part of a larger effort to root out risks to the country’s financial system. This is prompting virtual-currency activity in China to move off exchanges, where individuals can trade with each other privately. However, it’s difficult to imagine that when relegated to the shadows these virtual currencies will enjoy the same popularity.

Indeed, this is where cryptocurrencies fail the definition of real money: They are not at all rare or indestructible. Once a government decides to shut down cryptocurrency exchanges, the liquidity evaporates rather quickly. And once Bitcoin transactions become illicit, what retailer would risk fines or imprisonment just to transact in digital money? Since an online retailer needs to use a public application to accept cryptocurrencies, then it cannot simultaneously be kept secret from the prying eyes of government—unless you believe retails will move en masse to the dark web. This is different than gold, which can be exchanged for goods and services furtively offline—making it much more difficult for a government to trace and regulate. Cryptocurrencies are decentralized in nature but do rely on a functioning internet to consummate a transaction. Be it an act of nature or war. However the grid goes down, so goes your Bitcoin.

More importantly, new digital currencies are being created by the day. In fact, there are nearly one thousand already floating around. What is the true value of something that can be created by virtual fiat and in innumerable quantities? It takes about $1,300 worth of physical and human capital to pull an ounce of gold from the ground. While it may take a lot of time and energy to mine for new bitcoins, it takes next to nothing to create a totally new cryptocurrency.

Many analysts have attributed the sharp rise in bitcoin over the last year to Chinese investors, who began buying it up in lieu of the yuan amid worries that the Chinese currency would weaken and to escape capital controls. Since the government’s recent clampdown, the country’s share in Bitcoin has dropped dramatically along with its price (over 20{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} in the past month). The bottom line is that the central planners in China aren’t going to let a bunch bits and bytes supplant their command and control of the economy.

Read More @ MarketOracle.com