CBDC Means Central Bank DIRECT Control (Central Bank Digital Currency Is Frought With Moral Hazard Risks)

Central bank digital currencies (CBDCs) are the digital form of a government-issued currency that isn’t pegged to a physical commodity (in other words, CBDCs are digital FIAT currency). They are similar to cryptocurrencies, except that their value is fixed by the central bank and equivalent to the country’s fiat currency, which is the US Dollar.

The US Federal Reserve has not created a CBDC … yet. Our woefully corrupt El Presidente Jose Biden (more of a Latin American, tinhorn Banana Republic dictator than as US President) has ordered the study of a CBDC. Since everything Biden touches reeks of “boodle” I am suspicious as to Biden’s motives.

There are some positives to a CBDC, mostly with WHOLESALE CBDCs. Wholesale CBDCs are similar to holding reserves in a central bank. The central bank grants an institution an account to deposit funds or use to settle interbank transfers. Central banks can then use monetary policy tools, such as reserve requirements or interest on reserve balances, to influence lending and set interest rates.

It is the RETAIL CBDC that is the cause for concern. Retail CBDCs are government-backed digital currencies used by consumers and businesses. Retail CBDCs eliminate intermediary risk—the risk that private digital currency issuers might become bankrupt and lose customers’ assets.

There are two types of retail CBDCs. They differ in how individual users access and use their currency:5

Token-based retail CBDCs are accessible with private keys or public keys or both. This method of validation allows users to execute transactions anonymously.
Account-based retail CBDCs require digital identification to access an account.

The real problem with CBDCs is that The Federal Reserve and Federal government can trace EVERY EXPENDITURE of a household. Including political contributions, firearm and ammo purchases, etc. With this much information at their disposal, this allows for DIRECT CONTROL of the population.

Given that we now know that Biden used social media platforms to pass false narratives and repress alternative views, can we trust The Federal Reserve with this much information about consumer spending? Of course not. This is a consolidation of censorship and repression of individual liberties.

Yes, paper and coin currency serve a purpose in society as an alternative to barter. Imagine trying to buy a Ford F-150 Lightning (LMAO!) using barter? Ok, we have a system of credit where you can obtain a car loan. But barter, an old system of exchange, is inefficient. That leaves us with physical currency (certain restaurants only allow payment in cash). But many consumers are using Debit Cards as a substitute for physical cash, so this is a giant step towards RETAIL CBDC already.

Alternatives to the US Dollar? Of course, gold and silver are popular choices historically. Then we have rise of the cryptocurrencie market, which some Congressional members want heavily regulated or banned. Why? First, there are some shady crypto activities (see Sam Bankman-Fried and his shady political contributions to Democrats). Second, cryptos are volatile. Why is this of any interest to Congress? Third, cryptos can be used for illegal activities (but so can cash. Just watch Netflix’s Narcos for the shipment of US Dollars to Columbia in mattresses, etc. No, the goal of some members of Congress is to overregulate or obliterate alternatives to the US Dollar … unless The Federal government does it, like The Fed’s CBDC!

My favorite crypto site is Coinbase where they allow trading in 325 different crypto currencies.

With Biden’s Department of Injustic and several Democrat state Attorney Generals indicting Biden’s top political opponent Donald Trump with the intent of preventing him from campaigning for President (sounds so much like other Totalitarian regimes in history), trust in the Federal government and Federal Reserve are almost nonexistant.

Here is chart of the purchasing power of the US Dollar (blue line) since the creation of The Federal Reserve system and core CPI YoY which is still relatively high at 4.86%. That is over twice The Fed’s target rate of 2%.

I am sure that Billions Biden doesn’t understand moral hazard risk. For him, there is no risk, But for the middle class and lower wage worker class, CBDC represent a clear moral hazard risk, particularly if cash vanishes and Congress tries to ban cryptos.

The face of why so many Americans don’t trust The Fed. Or The Biden Administation.

Or this face, Urban Joe Biden (Stalin was Country Joe).

Eyes Wide Shut? Sam Bankman-Fried And The Absence Of Risk Management (The Collapse Of Cryptos As The Fed Tightens Fighting Bidenflation)

One of the great ironies of the Sam Bankman-Fried debacle is that while SBF was a generous donor to Democrats (and a few RINOs) and President Biden, it was Biden’s green energy policies that were part of the nail in SBF’s crypto empire. As inflation exploded upon Biden taking office (and massive overspending by Congress), The Federal Reserve jumped in to cool inflation leading to the downfall of cryptos in terms of price.

M2 Money YoY (green line) shows the massive growth money with the Covid economic shutdowns in 2020. Cryptos skyrocketed after that much money was printed by The Fed. Cryptos fell shortly after peaking in April/May 2021, then peaked again in a horrific display of asset volatility in October/November 2021.

What happened in late 2021 to crush cryptos? Ah, expectations of Fed rate increases (red line) started to soar meaning the punchbowl for cryptos was being taken away. The Fed giveth and The Fed taketh away.

The risk management question is … how did SBF and Alameda Research’s Caroline Ellison didn’t notice the relationshop between crypto prices and changing Federal Reserve monetary policy? Even worse, why didn’t investors ask questions??

Take a gander at Bitcoin relative to US diesel fuel prices (orange line) and The Fed’s inflation counterattack (red line). Sam and Sweet Caroline (who was seen walking free in NYC) must not have been monitoring how rapidly rising diesel prices would permeate the entire economy in terms of price increases. M2 Money YoY (green line) has been declining as the expectations of Fed rate tightening (red line) has increased.

SBF donated a huge amount to the midterm elections, the party that went along with Biden’s war on fossil fuels. Then inflation ensued as energy and food prices skyrocketed, leading The Federal Reserve to fight inflation by removing the monetary punchbowl. So, in a sense, SBF donations led to his own collapse.

Apparently, SBF, Caroline Ellison and the other FTXers were engaged in orgies and not paying attention to the impact of inflation and Fed policies on cryptos.

Lastly, how did Gary Genslar and the SEC not see any of this? In the same way that Fed Chair Ben Bernanke didn’t see the financial crisis as it was rapidly unfolding: eyes wide shut.

I read that Nicole Kidman underwent psychiatric treatment after filming “Eyes Wide Shut.” I saw it and was bored out of my mind.

Zoltan! US Dollar Purchasing Power For Consumers Sinking Faster Than The Titanic As Zoltan Pozsar Suggests Bretton Woods III With Money Backed By Commodities

Zoltan!

(Forbes) – Credit Suisse’s Zoltan Pozsar argues Bretton Woods II crumbled when the G7 countries seized Russia’s foreign exchange reserves. Keeping money inside financial institutions like the IMF was considered risk free. That is clearly no longer the case. Similarly, Bretton Woods I collapsed when Nixon took the US of the gold standard back in 1971 when dollars were convertible to gold at a fixed exchange rate of $35 an ounce. This led to Bretton Woods II, backed by “inside money” or the dollar, which itself is not linked to gold or any other commodity.

Now the basis of this system, which has operated for the past 50 years, is being called into question. The sanctions on Russia, which showed that reserves accumulated by central banks can simply be taken away, raised the question of “what is money?”

That question may explain why Pozsar believes a huge shift in the way the world organizes money and reserves is now underway, “creating a “Bretton Woods III backed by outside money,” (gold and other commodities). Including crude oil and bitcoin.

At least crude oil has fallen below $100 as Biden merrily drains the Strategic Petroleum Reserve (SPR). Gasoline prices have fallen slightly as this is being done before the midterm elections with political, not economic, intent. Once the midterms pass, will Biden continue draining the SPR until there is little left forcing the US to convert to “green energy”?

The purchasing power of the consumer dollar took a plunge under Biden as other commodities such as Bitcoin and crude oil soared.

An alternative asset, gold, have generally risen under Biden’s Reign of Error, but particularly after the Russian invasion of Ukraine.

Politicians love to spend money, often recklessly. And with The Fed monetizing Federal government expenditures, the purchasing power of the US dollar for consumers is sinking faster than The Titanic.

Zoltan! The New Financial Order aka Bretton Woods III Centered Around Commodity-based Currencies In The East (US Yield Curve Signaling Recession)

Zoltan!

Credit Suisse’s Zoltan Pozsar wrote an interesting research note on how the Russia invasion of Ukraine and the G7’s response is causing a major upheaval of the global financial order.

Coindesk: The foundations of Bretton Woods II crumbled last week when the G7 seized Russia’s foreign exchange reserves, the investment bank said.

The Russian-Ukrainian war will create a new world financial order from which Bitcoin is set to benefit, according to Credit Suisse.

Zoltan Pozsar, global head of short-term interest rate strategy at the giant investment bank, wrote in a Monday report that Western sanctions on Russia are likely to cause a paradigm shift in the way the world organizes money and reserves, a “Bretton Woods III” kind of scenario.

“From the Bretton Woods era backed by gold bullion, to Bretton Woods II backed by inside money, to Bretton Woods III backed by outside money,” the strategist wrote.

Pozsar argues that the fall of Bretton Woods II ensued last week as G7 countries decided to seize Russia’s foreign exchange (FX) reserves, leading to a rise of outside money – reserves kept as commodities – over inside money – reserves kept as liabilities of global financial institutions.

“We are witnessing the birth of Bretton Woods III – a new world (monetary) order centered around commodity-based currencies in the East that will likely weaken the Eurodollar system and also contribute to inflationary forces in the West,” the report states.

Russia, a surplus agent in the financial system, can now no longer make use of the hefty FX reserves it accumulated through its commodity exports over the decades to defend its falling ruble or aid its local economy. Moreover, Russia’s ability to export its commodities has been severely hurt due to the “buyer’s strike” in the West.

“What we are seeing at the 50-year anniversary of the 1973 OPEC supply shock is something similar but substantially worse – the 2022 Russia supply shock, which isn’t driven by the supplier but the consumer,” the strategist wrote. “The aggressor in the geopolitical arena is being punished by sanctions, and sanctions-driven commodity price moves threaten financial stability in the West.”

Pozsar argues that while Western central banks cannot close spreads between Russian and non-Russian commodity prices as sanctions lead them in opposite directions, the People’s Bank of China can “as it banks for a sovereign who can dance to its own tune.”

“If you believe that the West can craft sanctions that maximize pain for Russia while minimizing financial stability risks and price stability risks in the West, you could also believe in unicorns,” Pozsar wrote.

As outside money keeps trumping inside money, this crisis will likely emerge and end differently than all others ever since Nixon broke off the gold standard in 1971 – which marked the end of the era of commodity-based money.

Meanwhile, US Treasury Secretary Janet Yellen said the U.S. dollar is in no danger of losing its status as the world’s dominant reserve currency as a result of sanctions imposed against Russia over its invasion of Ukraine.

“I don’t think the dollar has any serious competition, and is not likely to for a long time,” Yellen told reporters in response to questions following a speech in Denver on Friday.

Some commentators, including Credit Suisse Group AG interest-rate strategist Zoltan Pozsar, have warned sanctions that blocked Russia’s access to its foreign currency reserves could drive other countries away from the dollar.

Well, what Zoltan says may be true, but not so far. Bitcoin has been plunging since November 2021 as inflation keeps rising.

Zoltan: “..and Bitcoin (if it still exists then) will probably benefit from all this.” The US Treasury yield curve is listing towards inversion, a signal of impending recession.