“Sorry, Jim. Not buying your predictions of imminent central bank digital currency,” a reader writes from Nebraska.
We got a surprising amount of pushback last week after Jim Rickards said, “Central bank digital currencies (CBDCs) are coming even faster than many anticipated.”
Why does that matter? “In a world of CBDCs,” he said, “the government will know every purchase you make, every transaction you conduct and even your physical whereabouts at the point of purchase.
“It’s a short step from there to negative interest rates, account freezes, tax withholding from your account and even putting you under FBI investigation if you vote for the wrong candidate or give donations to the wrong political party.”
Not everyone thought Jim was persuasive — including the reader above: “As fractious as this country has become, as restive as certain segments of the population are, as powerful as the banking lobby is and with a Treasury Department that cannot bring itself to eliminate pennies and nickels because of fearing to spook spenders, I doubt CBDCs will happen in my lifetime.
“But then,” he hastened to add, “I am 75.”
Anyway, we’ll share a couple of other skeptical takes from readers today — along with Jim’s replies.
“The ‘War on Cash’ is getting old,” says a reader in New Jersey. “You talk about CBDCs like they’re some kind of bogeyman. Yes, they’re digital — so what? So are your bank accounts and credit cards.
“If the government wants to know what you’re doing they just look at your cellphone records, your credit card charges, your car tags (used to pay tolls and parking), etc. They can also seize them, lock them, etc., if they really want to.
“Jim needs to find something a little more novel to have us running in fear (as usual). The War on Cash looks like it was finished a long time ago.
“You can’t get your hands on enough of the paper stuff anyway to handle the typical American’s living expenses.
“Nevertheless, keep up the good ideas and entertainment!”
“You are exactly the type of person the neo-fascists were hoping to find,” Jim replies.
Oof, tough love for the readership there!
But hear out Jim’s analogy: “As you are gradually being deprived of oxygen you are grateful for the few air molecules that are still allowed in your bubble.
“You are correct that ample means of government surveillance and possible interdiction exist through current digital channels and electronic devices. The IRS freezes bank accounts every day. Police use highway toll cameras to track vehicles all the time. Phone records are routinely subpoenaed in investigations, and so on.
“The point is that these surveillance channels make cash more rather than less important. Since cash is physical, not digital, and leaves no electronic footprints it is one of the few payment channels left that is not under surveillance. That makes it a medium for free speech, free association and other liberties currently under threat.
“The reason the government has prioritized CBDCs is that they want to cut off that last channel and move from massive surveillance to total surveillance. Once cash is gone, the only widely accepted payment media that are non-digital will be silver and gold. So when you say the war on cash is getting old I take that to mean you can’t wait to be totally under the thumb of the government.”
But hey, don’t take it from Jim. Take it from the head of the Bank for International Settlements — often called “the central banks’ central bank.”
Its chief is Agustín Carstens, previously head of the Bank of Mexico. Compared with other central bankers, he is refreshingly direct.
Here’s what he said during a conference in October 2020: “We don’t know who’s using a $100 bill today and we don’t know who’s using a 1,000 peso bill today. The key difference with the CBDC is the central bank will have absolute control on the rules and regulations that will determine the use of that expression of central bank liability, and also we will have the technology to enforce that.”
Agustín Carstens, the scariest monetary overlord you’ve never heard of
About a year and a half after Carstens laid the power elite’s cards on the table, Joe Biden signed Executive Order 14067 — bringing Carstens’ dystopian vision a huge step closer to reality.
Before we move on, another objection: If CBDCs posed a threat to the banks, wouldn’t the banks put a stop to it?
“For the last few days,” a reader writes, “Jim Rickards has noted that with CDBCs, we would no longer need the banks to process credit card payments — it would all be handled through the government.
“With the banking lobby so strong, wouldn’t the banks lobby against such a change? Or is there another way for the banks to keep this revenue stream or find another revenue stream with the government’s help?”
Jim’s reply: “You are correct that the banks will lobby to preserve their role in the financial system. It is also correct that while the Fed regulates banks, the banks are the legal owners of the Federal Reserve System regional banks.
“While the banks will preserve a role for themselves in the payment system, it will not necessarily be as extensive or as profitable as today. Current credit card payment acquisition and settlement fees are about 2.50% of gross charges. These are divided among the merchant acquirer, VISA/Mastercard and the issuing banks.
“In the future of CBDCs, that fee may be as low as 0.50% or even lower. There will be some disintermediation and reduced revenues from payment settlement and clearance. But that is not a big part of credit card revenue in any case. Most of the money is made by charging 20% or 25% interest on unpaid balances. Those will still exist in a CBDC world because the Fed will not act as a lender or take that kind of credit risk.
“So even if payments are made in CBDCs through Fed accounts, the banks still have a large role to play as credit providers. That’s where the money is.”
We’ll add our own thought to Jim’s: Never underestimate the capacity for American crony capitalism to take a bad idea and make it even worse.
In other words, it’s entirely conceivable the U.S. version of a CBDC would be constructed in a way that resembles our health care system. It would have all the top-down government control you see in other countries — but with added layers of administrative bloat and stupendously higher costs, all to benefit a parasitic cartel. It’s the American way!
If you hate what’s happened to the health care system, wait till these guys get their hands on your money once and for all. Seriously, if you haven’t examined Jim’s warning closely, please do so before it’s too late.
To the markets — where for once good news is not bad news.
The wonks at the Bureau of Labor Statistics regaled us this morning with the June jobs report. They conjured 372,000 new jobs for the month — a figure higher than even the most optimistic guess among dozens of economists polled by Econoday.
With that, the country is now only 524,000 jobs shy of the February 2020 pre-pandemic level — as you see on the red line of the big chart from Calculated Risk depicting the job losses and recoveries from every recession since World War II.
The official unemployment rate held steady at 3.6%.
Hard to say the job market is slowing down — which means the Federal Reserve is likely to continue tapping the monetary brake pedal. This morning, traders in the market for fed funds futures are pricing in a 95% probability the Fed will raise short-term interest rates by another three-quarters percentage point at the end of this month.
For much of this year, hotter-than-expected job numbers have given Wall Street the willies: Higher interest rates translate to less EZ money flowing Wall Street’s way.
But today is an exception and the stock market is not freaking out.
At last check the major U.S. indexes are either flat or slightly in the green. The S&P 500 is over 3,900 for the first time in nearly two weeks.
Longer-term interest rates are moving higher, the 10-year Treasury note at 3.08%. Yes, that’s still lower than the 2-year yield — thus the recession omen known as the inverted yield curve is still in play.
Volatility, thy name is oil: A barrel of West Texas Intermediate is back above $104 for the first time since Tuesday, after a quick trip below $96 on Wednesday.
Precious metals are stuck in the mud, gold at $1,748 and silver at $19.34. But cryptos are perking up — Bitcoin approaching $22,000 after news that the youth-friendly Robinhood trading app is enabling all its users to send and receive Bitcoin.
It’s taken four months… but now we’re learning some of the backstory behind the nickel meltdown at the London Metals Exchange in March.
As you might recall, Western sanctions targeting Russia sent nickel prices sky-high — so high it threatened to ruin the Chinese tycoon Xiang Guangda — known in Chinese commodity circles as “Big Shot.”
To save Xiang from registering $8 billion in losses, the exchange cancelled scads of nickel trades after they’d been executed.
A Bloomberg story this week brings some color to the whole debacle: On March 8, “more than 50 bankers had arrived at [Xiang’s] office wanting to hear how he planned to respond to the crisis. He told them simply: ‘I’m confident that we will overcome this.’”
As Bloomberg columnist Matt Levine quips, “If FIFTY BANKERS ever arrive at your office all at once, (1) you have done something terrible but (2) it is absolutely their problem, not yours.”
But on a serious note, “The LME canceled trades and shut down the market not for some good neutral reason,” Levine writes, “but because it was bullied by a giant trader who decided that he preferred not to follow the rules, and the LME couldn’t risk the chaos of trying to hold him to the rules. So it put his losses on other people instead, people who did follow the rules and could meet their margin requirements.”
Yep. As we said at the time, cancelled LME trades undermine the rule of law in the financial system every bit as much as freezing the assets of Russia’s central bank and freezing the bank accounts of Canadian truckers.
“F*** NO my children will not be drafted,” a reader writes as reactions continue rolling in to our Tuesday edition. “D.C. swamp creatures will have to fight me first.
“This (hypocritical?) opinion coming from an engineer at a military prime contractor. Don’t care. Will never let my children join the military. F*** empire building. Bring the boys and girls home.”
But another reader wonders if we’re being alarmist: “What politician has recently (past three months) asked for a draft?”
The 5: A fair question. Then again, as we said on Tuesday, it would require an incident leading to substantial casualties among U.S. troops before a critical mass of the public would back a draft.
Still, it lurks in the background. Korean War veteran and now-retired Rep. Charles Rangel (D-New York) was a dogged advocate for bringing back the draft.
In more recent years, there’ve been regular attempts in Congress to make women register for the draft along with men — usually as an amendment tacked on to the annual defense spending bill. Who knows, with Ukraine in the mix it just might pass this year during the lame-duck session after November midterms.
Finally, a reader ties in one of our themes this week to the explosion that struck the Georgia Guidestones: “I guess someone doesn’t buy into that ‘Liberal World Order’ agenda… Heh.”
The 5:
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
