Central bank digital currencies may not replace crypto, BIS says

Policymakers worry that growth of cryptocurrencies could lead to central banks losing control

Eva Szalay and Philip Stafford in London 

The headquarters of the Bank for International Settlements © Bloomberg


Central banks are jostling with private-sector operators of stablecoins to dominate digital money and protect consumers, the global body for policymakers has said.

Private digital assets could coexist with potential digital currencies operated by central banks, the Bank for International Settlements said in a report on Thursday. 

Central bank versions would rely on banks and other financial institutions to act as intermediaries to create credit and help safeguard financial stability, it added.

The paper reflects growing anxiety among policymakers that the rapid growth of cryptocurrencies and private sector initiatives around payments could lead to central banks losing control of their money.

The study is the second report from the BIS on central bank-backed digital currencies, which are in part an effort from national authorities to combat the threat to their role. 

The report is an update on the foundational principles of central bank digital currencies set out by a group of seven central banks in October last year. 

The latest findings come from the same group, which includes the central banks of the US, EU, UK and Japan.

“The central banks contributing to this report have already identified that a CBDC could be an important instrument for ensuring that they can continue delivering their public policy objectives even as the financial system evolves,” the study said.

Stablecoins are crypto tokens native to blockchain technology that typically claim to be backed one-for-one by traditional assets such as dollar debt. 

They offer a relatively easy way for cryptocurrency traders to hop in and out of coins such as bitcoin and ethereum, and are often touted as a potential crypto-based alternative to traditional currencies such as the dollar as a means of payment.

Fast-growing stablecoins — the biggest of which are Tether and USD Coin — are worth nearly $130bn, according to CoinGecko, a specialist website. In a global context, that is a small part of the financial system.

Nevertheless, rating agency Fitch warned in July that stablecoin operators could trigger contagion in credit markets if they were forced for any reason to unwind their reserves. 

International regulators are expected to release minimum standards for private stablecoins in the coming weeks.

The BIS report found that significant stablecoin adoption could lead to fragmentation and “excessive market power”.

The paper acknowledged that there were also risks associated with central bank-backed alternatives, but said that private initiatives would have “lower public benefits” because they would not be interchangeable with other forms of money and because they lacked the protections that came with national currencies.

“Central banks have a responsibility to ensure that citizens have access to the safest form of money — central bank money — in the digital age,” said ECB president Christine Lagarde, chair of the group of central bank governors responsible for the reports.

Global central banks’ efforts to create digital currencies are uneven. 

While China, Sweden and the Bahamas are at an advanced stage, major policymakers in Europe and the US have committed only to exploring the possibility of launching their own. 

The latest study from the BIS draws together the principles and design ideas that the seven central banks consider to be desirable.

The study suggests policymakers are hoping their version of digital money will trump private offerings because of their reach and ability to fit into existing systems and financial infrastructures.

The latest recommendations advocate that central bank digital currencies rely on commercial banks to create credit for consumers. 

Any credit created by a central bank would be recycled into the payments system, the report suggested.

Separately Isda, the trade body for the derivatives industry, said on Thursday it was setting up a working group to develop legal documentation for trading derivatives of digital assets. 

The body’s master agreements underpin trillions of dollars worth of derivatives contracts around the world.

What Happens if the U.S. Defaults on Its Debt?

By Andrea Riquier, MarketWatch

The Treasury Building. ALASTAIR PIKE/AFP/Getty Images


Even as Washington managed to avoid an imminent government shutdown Thursday, here’s why the status of the nation’s debt ceiling may ignite more worry in financial markets.

Sept. 30 marks the end of the federal government’s fiscal year, and the deadline for Congress to pass a funding measure. 

Thursday’s stop-gap measure keeps the government funded until early December.

The debt ceiling, which is the amount of money lawmakers authorize the Treasury Department to borrow to pay for spending already authorized, must be suspended or raised by Oct. 18, according to Treasury Secretary Janet Yellen, or the U.S. likely will default on its debt.

It’s important to note that no one knows precisely when the U.S. Treasury will run out of money to pay its bills, including bondholders, let alone what would happen next. 

U.S. sovereign debt generally has been considered the safest and most liquid to own in the world, and all kinds of financial market products and processes have been pegged to the orderly functioning of the nearly $21 trillion Treasury market.

Still, after a couple of topsy-turvy years in which the previously unthinkable became real, some Washington and Wall Street professionals have been girding for a worst-case scenario.

“I see it as an exceedingly slim chance, although with all the theatrics, the possibility has been ramped up,” said Ben Koltun, director of research for D.C.-based Beacon Policy Advisors. “If it does happen, it turns a manufactured political crisis into an economic crisis. The full faith and credit of the U.S. would no longer be full.”

The stalemate on Capitol Hill right now is over a $3.5 trillion spending package.

Will the U.S. run out of money?

In a research note published Sept. 22, Barclays analyst Joseph Abate noted there’s additional uncertainty over the debt ceiling now because it coincides with a funding package Congress needs to pass. 

What’s more, changes brought by the pandemic have made it far more difficult to assess the state of the Treasury Department’s expected payouts and inflows.

While most analysts expected a mid-October “X date,” when Treasury will run out of money to pay bills, Yellen on Tuesday told Congressional leaders that it would be Oct. 18. “At that point, we expect Treasury would be left with very limited resources that would be depleted quickly,” she wrote in an update.

Beacon’s Koltun, among others, thinks markets will start to get antsy even earlier than that.

The very idea of a U.S. default remains so incongruous that the reaction in financial markets isn’t the only unknown. 

The current showdown in Washington also has raised big questions about the financial-systems infrastructure. 

It’s a bit like Y2K—no one knows how the computers will respond.

 “We do not believe and the market does not believe it’s a likely scenario,” said Rob Toomey, SIFMA managing director, capital markets and associate general counsel.  

“But it would be a real problem scenario for the system generally and operations and settlement specifically.”

Plumbing problems

SIFMA, the Securities Industry and Financial Markets Association, is the industry association that deals with the mechanics of how securities like sovereign bonds trade and settle. 

The group has worked with financial infrastructure providers including Fedwire and FICC to try to devise some sort of playbook. 

For now, there are two possible scenarios:

If the Treasury Department knows that it will miss a payment, it would ideally announce that at least a day in advance. 

That would allow the maturity dates of the bonds in question to be changed: a Monday maturity date would be changed to Tuesday, a Tuesday maturity would be changed to Wednesday, and so on. 

These revisions would happen day by day.

While that sounds relatively orderly, it still leaves many unknowns. 

For one thing, it could bifurcate the market for Treasury bonds and bills into those that are clearing normally and those whose maturity dates are being massaged, SIFMA told MarketWatch. 

That means a great deal of uncertainty around pricing and what it means for all the downstream securities pegged to Treasury rates.

In a second scenario, which SIFMA said would be very remote, Treasury cannot, or does not, give any advance warning of a failure to make a payment, and it just happens. 

That would be far more chaotic, “a real problem scenario,” as SIFMA says.

Strangely, the securities in question would probably simply disappear from the system. 

That’s because if a bond is supposed to mature—and be paid—on a particular day, the system assumes it has been. 

“It just illustrates the fact that the system wasn’t designed for this,” SIFMA notes.

If that happens, there would be a holder of record for the debt on the day before the maturity was scheduled, who would be entitled to get paid. 

However, it’s also likely that Treasury might pay some additional interest to make the bondholder whole.

Many analysts, including Moody’s Analytics Chief Economist Mark Zandi, think it’s highly likely that a financial market freak-out—think of the day in 2008 when Congress initially failed to pass the Troubled Asset Relief Program legislation meant to address the financial crisis—would stop any of the scenarios SIFMA envisions before they happen, or a few minutes after midnight on the day they will.

What Koltun calls a “game of chicken” also may already be denting the economy. 

The last two times Congress came close to not raising the debt limit, in 2011 and 2013, Moody’s Analytics found, “heightened uncertainty at the time reduced business investment and hiring and weighed heavily on GDP growth. 

If not for this uncertainty, by mid-2015, real GDP would have been $180 billion, or more than 1%, higher; there would have been 1.2 million more jobs; and the unemployment rate would have been 0.7 percentage point lower.”

Uncertainty rippling through the Treasury market in 2013 cost taxpayers anywhere from $40 million to $70 million, Barclay’s reckons.

The Strange Death of Conservative America

American conservatives once sought to ride the waves of markets and innovation toward ever-greater wealth and prosperity, but now they cower in fear. And, as the trajectory of today's Republican Party shows, that makes them a threat to democracy.

J. Bradford DeLong


BERKELEY – If you are concerned about the well-being of the United States and interested in what the country could do to help itself, stop what you are doing and read historian Geoffrey Kabaservice’s superb 2012 book, Rule and Ruin: The Downfall of Moderation and the Destruction of the Republican Party, from Eisenhower to the Tea Party. 

To understand why, allow me a brief historical interlude.

Until roughly the start of the seventeenth century, people generally had to look back in time to find evidence of human greatness. 

Humanity had reached its peak in long lost golden ages of demigods, great thinkers, and massive construction projects. 

When people did look to the future for promise of a better world, it was a religious vision they conjured – a city of God, not of man. 

When they looked to their own society, they saw that it was mostly the same as in the past, with Henry VIII and his retinue holding court in much the same fashion as Agamemnon, or Tiberius Caesar, or Arthur.

But then, around 1600, people in Western Europe noticed that history was moving largely in one particular direction, owing to the expansion of humankind’s technological capabilities. 

In response to seventeenth-century Europeans’ new doctrine of progress, conservative forces have represented one widely subscribed view of how societies should respond to the political implications of technological and social change. 

In doing so, they have generally gathered themselves into four different kinds of political parties.

The first comprises reactionaries: those who simply want to stand “athwart history, yelling ‘STOP,’” as William F. Buckley, Jr. famously put it. 

Reactionaries consider themselves to be at war with a dystopian “armed doctrine” with which compromise is neither possible nor desirable. 

In the fight against this foe, no alliance should be rejected, even if it is with factions that would otherwise be judged evil or contemptible.

The second kind of party favors “Whig measures and Tory men.” 

These conservatives can see that technological and social change might be turned to human advantage, provided that the changes are guided by leaders with a keen appreciation of the value of our historical patrimony and of the dangers of destroying existing institutions before building new ones. 

As Tancredi explains to his uncle, the Prince of Salina, in Giuseppe Tomasi di Lampedusa’s The Leopard, “If we want things to stay the same, things will have to change.”

The third type of conservative party is found primarily (but not exclusively) in America. 

It emerges as an adaptation to a society that sees itself as overwhelmingly new and liberal. 

It is not a party of tradition and inherited status, but rather of wealth and business. 

In its ranks are conservatives who want to remove government-imposed hurdles to technological innovation, entrepreneurship, and enterprise. 

Confident that the free market holds the key to generating wealth and prosperity, they breathlessly tout the merits of surfing its waves of Schumpeterian creative destruction.

Lastly, there is the home of the fearful and the grifters who exploit them. 

This constituency includes all those who believe it is they who will be creatively destroyed by the processes of historical change. 

They feel (or are led to believe) that they are beset on all sides by internal and external enemies who are more powerful than they are and eager to “replace” or “cancel” them.

What I have learned from Harvard University political scientists Steven Levitsky and Daniel Ziblatt’s 2018 bestseller, How Democracies Die, is that democratic countries can be governed well only if their conservative parties fall into the second or third of the four categories above. 

When conservatives coalesce around reaction or fear, democratic institutions come under threat.

Levitsky and Ziblatt offer many examples to demonstrate this, but let me add one more. 

A little over a century ago, Great Britain experienced an astonishingly rapid decline from its position as the world’s political and economic hyper-power. 

This process was accelerated significantly by the transformation of its Tory Party into a party combining types one and four. 

This was the party of Mafeking Night (Boer War) celebrations and armed resistance to Irish constitutional reform. 

In the 1910-14 period, George Dangerfield later recalled, the world witnessed the “strange death of liberal England.”

That brings us back to Kabaservice’s book, which tells the story of how the US Republican Party put itself on an analogous course. 

When I look out at the current political scene, I see very few elements of categories two and three in the Republican Party. 

And any that are left are fast disappearing.

Republican politicians today are desperate to pick up the mantle of Donald Trump, undoubtedly one of the worst presidents in American history. 

Obviously, this dangerous and embarrassing trend needs to be reversed as rapidly and as completely as possible. 

But I, for one, am at a loss to see how that might be done.


J. Bradford DeLong is Professor of Economics at the University of California, Berkeley and a research associate at the National Bureau of Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

Stagflation fears intensify in signs of slowing growth

Economists have played down comparisons with the 1970s oil shock

Tommy Stubbington and Delphine Strauss in London 

The UK is at the sharp end of stagflationary concerns, with driver shortages compounding a surge in energy prices © Peter Nicholls/Reuters


Supply chain disruptions sweeping major economies have reawakened an old nemesis for investors: stagflation.

Anxiety over rising inflation has been ever-present in markets this year. 

But with oil topping $80 a barrel, global food prices a third more expensive than they were a year ago and other commodities at decade highs, investors say a longer-than-expected inflationary surge is coinciding with a slowdown in growth — and making it worse.

Economists and investors play down comparisons with the aftermath of the 1970s oil shock, which gave rise to the term “stagflation”. 

Then, inflation and interest rates ran into double digits, unemployment soared and GDP recovered only slowly from repeated setbacks.

But with energy bills now rocketing, many worry about a growth slowdown at a time when central banks are edging towards lifting interest rates in a bid to keep a lid on longer-term inflation.

“The conversation around inflation has definitely shifted,” said Seema Shah, chief strategist at Principal Global Investors. 

“There’s still a broad agreement that a lot of it is transitory, but we still think it will last well into 2022 and really start to hit consumer spending.”

“It’s not the 1970s, but this is modern-day stagflation.”



Signals from the Federal Reserve and Bank of England last week that they could soon begin lifting rates have fuelled a big bond sell-off over the past week and a half. 

But in contrast to the “reflation” trade at the start of this year, stocks have been unable to draw comfort from the prospect that tighter monetary policy will be accompanied by accelerating growth.

Ample evidence suggests that the supply shock reverberating around the world, combined with outbreaks of the Delta variant of coronavirus, is tempering the recovery in growth.

Data released this week pointed to a sharp slowdown in Chinese manufacturing, as regulatory pressures and high energy prices shut down some production. 

Business surveys from the US, UK and eurozone suggest that activity has slowed as delivery times lengthened and backlogs built up.



Selling activity spilled over into equity markets this week after data showed that US consumer confidence had dropped to a six-month low in August.

The UK has found itself at the sharp end of stagflationary concerns, with a surge in energy prices compounded by driver shortages that left petrol pumps running dry.

While revised data show activity bounced back faster than thought over the summer, the recovery now appears to be faltering. The Bank of England’s governor Andrew Bailey acknowledged this week that supply bottlenecks and labour shortages were worsening, and could hold down growth and fuel inflation for some months to come.

“The recovery has slowed and the economy has been buffeted by additional shocks,” he said in a speech to the Society for Professional Economists.

Concerns over growth are one reason the pound has not benefited from a sharp rise in UK government bond yields, as they typically do, after Bailey signalled that a rate rise could come as soon as this year. 

Instead, sterling has slumped to its lowest level of 2021 against the dollar, as some investors fear that early rate increases could choke off a fragile recovery.

“If it is stagflation, central banks are in a bind,” said Jim Leaviss, head of public fixed income at M&G Investments. 

“Hiking will reduce demand a little bit and strengthen the currency. 

But it will have no impact on supply chain issues [ . . .] it won’t bring back lorry drivers.”

That dilemma — shared by other big central banks — could threaten buoyant equity markets, according to Mohamed El-Erian, chief economic adviser at Allianz.

“Central banks will be torn between reacting to the ‘stag’ and the ‘flation’,” he said. “That’s a world where investors’ confidence in policymakers is shaken, and the backstop they’ve had over the past decade isn’t there any more.”

Vicky Redwood, senior economic adviser at consultancy Capital Economics, said the UK’s “stagflation lite” was visible in many countries — with the surge in inflation coming earlier in the US, but growth now slowing there too as a result of the spread of the Delta coronavirus variant.

But inflation should start to ease in 2022 and the situation was still “a long way off anything like the 1970s,” she said, adding: “we won’t see inflation get into the system like we did then.”

Others warn, however, that there is no sign yet of the strains on supply chains easing, and that the world could be heading for a more sustained period of tepid growth and higher inflation than policymakers have been predicting.

“It’s a global problem,” said Kallum Pickering, economist at Berenberg, arguing that companies had little visibility over “very complicated supply chains” and disruption could last much longer than thought.

If supply chain problems continued for a further six to 12 months, while consumers still had job security and were willing to pay for the goods they wanted, he said: “the whiff of stagflation might be more of a stench”.


Additional reporting by Federica Cocco  

Can Chile’s constitutional convention defuse people’s discontent?

The reasons for massive protests in 2019 have not entirely gone away


The presidential election due in November will be like no other in Chile since the restoration of democracy in 1989. 

That is partly because the leading candidates are fairly new faces, and the Concertación, the centre-left alliance that dominated most of that period, is no more. 

But it is mainly because the winner will at first cohabit with a convention which is writing a new constitution and which could decide to curtail the normal four-year presidential term. 

All this is because Chile is still picking up the pieces after an explosion of massive and sometimes violent protests in late 2019 that shook what had been one of Latin America’s most stable and seemingly successful countries.

At the heart of the protests was anger over narrowing opportunities and inadequate and unequal access to health care, pensions and education. 

The convention was offered by a discredited political class in November 2019 to provide a peaceful path out of a dangerous conflict. 

It seems certain to move Chile to the left. 

The question is how far.

The initial answer seemed to be a long way. 

At an election for the convention in May, in which only 43% of the electorate voted, the far left won 55 of the 155 seats (of which 17 were reserved for representatives of indigenous peoples). 

The election was a defeat for both the former Concertación (25 seats) and the right (37). 

Many of the representatives are, nominally at least, independents in an election where to be new, young and untested by politics-as-usual was a winning formula.

Now that the convention has sat for almost three of its allotted maximum of 15 months, and has accomplished little beyond approving its own rules this week, it is starting to moderate. 

One far-left group has imploded, its credibility destroyed when one of its leaders admitted that his claim to be a cancer-sufferer denied proper health care was false. 

Another has split: the Broad Front (fa, for its initials in Spanish) has fallen out with the Communist Party. 

One poll shows approval of the convention falling to 30%.

But its serious work is only just starting. 

“We’re discussing issues that affect deeply rooted interests and power centres,” says Patricia Politzer, a centrist independent representative. 

“It was never going to be easy.” 

She is part of a broad dealmaking nucleus that is starting to emerge. 

They are likely to become increasingly influential as the convention grapples with the big issues. 

First, it is certain to define as constitutional rights a long list of expensive things, such as pensions and housing. 

The issue is whether these will be enforceable in the courts, or left to secondary laws. 

The second question is whether Chile will move to a semi-parliamentary system, as part of an effort to diffuse power. 

Third, the new document seems certain to impose stricter environmental standards. 

Much will depend on whether the final text embodies a sense of fiscal realism and a recognition of the need for a vigorous market economy to generate prosperity and finance better public services.

The presidential election may give a clearer sense of Chile’s change of course. 

The front-runner is Gabriel Boric, a 35-year-old fa leader. 

He defeated a Communist in a primary. 

His economic programme is radical. 

But it seeks to turn Chile into something more like Germany than Venezuela, with European levels of tax and green investment, state companies and industrial policy. 

Whether this could work quickly in Chile is doubtful.

Mr Boric may face Sebastián Sichel of the centre-right in the inevitable run-off, in December. 

But alternatively this might feature José Antonio Kast of the hard right. 

Mr Kast appeals to the large silent minority who were scared by the violence of the protests and fear instability. 

Were he to win he would surely clash with the convention.

The election will show whether the convention represents a snapshot of a moment of rage in 2019 that is starting to fade (partly because of the pandemic), or whether it is part of a continuing demand for radical change. 

There is evidence for both possibilities. 

A recent poll by the Centre for Public Studies, a think-tank, showed an improving view of Chilean democracy and crime displacing pensions as the top public concern. 

Only 39% now say they wholeheartedly supported the protests, compared with 55% in the same poll in December 2019. 

But discontent remains. “People are not on the streets now because they place their hopes in the convention,” says Ms Politzer. 

The presidential contest will thus be a battle between hope and fear.

Productivity growth is almost everything in the post-Covid recovery

Being more productive will help keep prices stable even in the face of higher wages

Megan Greene

Workers make pods for the e-cigarette company Myst Labs on the production line at First Union, one of China’s leading manufacturers of vaping products © Kevin Frayer/Getty


The great inflation debate — is it sustained or transitory? — is missing a piece: productivity growth. 

The ability to produce more with the same or fewer inputs “isn’t everything”, Nobel Prize-winning economist Paul Krugman says, “but in the long-run it is almost everything”. 

It is likely that productivity growth has accelerated during the pandemic, which should take upward pressure off prices. 

It could also raise the long-run neutral interest rate for the world’s largest economies, giving their central banks more room to manoeuvre than we appreciate.

Most economists will tell you it is virtually impossible to have sustained price increases without spiralling wage growth. 

As Pantheon Macroeconomics highlighted in a recent client note, the single best indicator of consumer price inflation is unit labour costs. 

They have two inputs: wages and productivity. 

Because productivity growth tends to be stable, most economists look at wages as a rough measure of unit labour cost growth.

Wage growth has clearly accelerated during the pandemic, though this data has been distorted by compositional effects (as lower-wage hourly service workers lost jobs, aggregate wages rose). 

Nevertheless, with job openings surging and unemployment still higher than before the pandemic, firms are offering higher wages to fill roles. 

Production and non-supervisory workers in the US saw average hourly earnings almost 5 per cent year-on-year in July and August.

If productivity also accelerates, however, unit labour costs should remain stable and so should prices. 

After averaging around 1 per cent annual growth from 2013-18 in the US, eurozone and UK, labour productivity growth in those regions has roughly doubled in recent years. 

In the US, it grew an average of 3 per cent in the first half of 2021. 

Unit labour costs fell 0.8 per cent during the same period.

While a productivity bump is a standard feature of early stage recoveries, there are signs this one will last. 

A McKinsey Global Economic Conditions survey of executives at the end of 2020 showed just over half of respondents in North America and Europe said they had increased investment in new technologies over the year and about 75 per cent said they expected investment in new technologies to accelerate in 2020-24. 

Companies digitised activities 20-25 times faster than they had previous thought possible.

New orders for US-manufactured durable goods, a forward-looking gauge of investment, have risen in 15 of the past 16 months. 

There are many reasons to believe firms will continue to invest: they are sitting on a mound of cash as a result of stimulus programmes and cheap credit, earnings growth has soared, labour is no longer such a cheap substitute for capital expenditure and firms have to catch up after weak investment in the previous cycle.

The shift to working from home during the pandemic also may have yielded efficiency gains. 

According to a forthcoming survey of over 375 firms and $21tn in market capitalisation, by World50, 65 per cent of respondents felt remote working had been good for productivity. 

The jury is still out on this: bosses may see higher output without appreciating the expanded number of hours employees are putting in at home.

Higher productivity growth allows the economy to maintain stable prices even in the face of higher wages. 

Reopening the global economy has created supply shortages that have lifted inflation. 

As output rises, with productivity higher, those costs should fall. 

Companies will be able to afford higher wages without compressing margins.

Governments are embracing the concept that productivity growth is a good thing. 

The Biden administration is trying to pass $3.5tn in spending on infrastructure and investment in human capital. 

Deployed over the next decade, this would underpin continued US productivity growth over the long term. 

The eurozone’s €806bn Next Generation EU Fund requires a significant percentage to be spent on digitisation, research and innovation.

That should boost potential growth, and therefore the long-run interest rate that maximises growth without triggering inflation will be higher. 

The Federal Reserve’s latest projections estimate this rate to be 2.5 per cent. 

If productivity continues to rise, this rate will as well. 

Markets may balk at higher potential rates, but the central bank will have more flexibility to continue its efforts to drive unemployment lower. 

To boost growth, minimise inflation and maximise welfare, productivity is indeed almost everything.


The writer is a senior fellow at Harvard Kennedy School. 

US Federal Reserve bans officials from trading shares in wake of scandal

New rules come after two regional bank presidents resigned following questionable dealings

James Politi in Washington 

Jay Powell, chair of the US central bank, said the rules would underpin the ‘single-minded focus on the public mission of the Federal Reserve’ © Financial Times


The Federal Reserve has adopted new rules banning its policymakers and senior staff from buying individual shares and a string of other investments, as the US central bank tries to stamp out a growing furore over trading by top officials.

In a statement on Thursday, the Fed said that as a result of the new policies, its senior officials would be limited to “purchasing diversified investment vehicles, like mutual funds”.

As well as banning the acquisition of individual stocks, they would not be allowed to hold “investments in individual bonds, holding investments in agency securities (directly or indirectly), or entering into derivatives”, the Fed said.

The new rules are being introduced after questionable financial trades last year — which came to light in recent disclosures — led to the resignations in September of Eric Rosengren, the president of the Federal Reserve Bank of Boston, and Robert Kaplan, the president of Dallas Fed.

The furore over those trades caused Powell to call for a review of the rules around investments by the Fed’s top officials, which led to the tightening of the restrictions and disclosures announced on Thursday.

“These tough new rules raise the bar high in order to assure the public we serve that all of our senior officials maintain a single-minded focus on the public mission of the Federal Reserve,” said Jay Powell, the central bank’s chair.

Karine Jean-Pierre, principal deputy White House press secretary, told reporters on Thursday that the Biden administration respected the Fed’s independence. 

She wouldn’t comment on the central bank’s new trading rules, but added: “President Biden believes that all government agencies and officials, including independent agencies, should be held to the highest ethical standards, including the avoidance of any suggestions of conflicts of interest.”

The Fed said policymakers and senior staff would have to provide 45 days’ notice for any purchases or sales of securities, obtain approval for those transactions, and hold any investments for at least a year.

“Further, no purchases or sales will be allowed during periods of heightened financial market stress,” it said. 

Fed officials said that a trading blackout period would be declared during such times of turmoil which would work similarly to the trading blackout that already exists in the days surrounding meetings of the FOMC, the Fed’s policy-setting committee.

The trading scandal has come at an especially challenging time for the Fed, as it moves to shift monetary policy to slow its support for the recovery amid uncertainty over its leadership.

Powell’s term as chair of the central bank ends in February, and President Joe Biden has not said whether he would reappoint him to the post. 

The White House said on Thursday that the Biden continued to have “confidence” in Powell, however.

Fed officials said on Thursday that the new rules would lead to some divestitures by senior officials to comply with the tighter restrictions, which they would have some time to complete. 

They also include a requirement to disclose any transactions within 30 days.

Despite the urgency of Powell’s review, the new rules are not taking effect immediately: they will only be implemented once they are formally written and adopted by the US central bank, and when the Fed’s electronic systems are updated to process the disclosures and transactions.

viernes, octubre 22, 2021

JUST HOW DICKENSIAN IS CHINA? / THE ECONOMIST

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Free exchange

Just how Dickensian is China?

Inequality is better than it was. But it doesn’t feel that way


With its fast trains, super-apps, digital payments and techno-surveillance, China can seem like a vision of the future. 

But for some scholars, such as Yuen Yuen Ang of the University of Michigan, it is also reminiscent of the past. 

Its buccaneering accumulation of wealth and elaborate choreography of corruption recall America’s Gilded Age at the end of the 19th century, an era that takes its name from a novel by Mark Twain and Charles Warner.

China, including Hong Kong and Macau, now has 698 billionaires, according to Forbes, almost as many as America (724). 

The habits of the new rich could fill a novel in the spirit of Twain. 

Even the non-fiction accounts are outlandish. 

One billionaire, according to the book “Red Roulette” by Desmond Shum, offered the author’s well-connected wife a $1m ring as a gift. 

When she refused, he bought two anyway. 

One businessman remarked to Ms Ang that his neighbour’s dog will only drink Evian. 

Meanwhile, over 28% of China’s 286m migrant workers lack a toilet of their own. 

And in parts of rural China, 16-27% of pupils suffer from anaemia, according to a 2016 study, because they lack vitamins and iron.

None of this makes Xi Jinping, China’s ruler, happy. 

According to a leaked account by a professor who grew up with him, he is “repulsed by the all-encompassing commercialisation of Chinese society, with its attendant nouveau riche”. 

Mr Xi has begun to talk more frequently about “common prosperity”. 

In January, he declared that “we cannot allow the gap between the rich and the poor to continue growing…We cannot permit the wealth gap to become an unbridgeable gulf.”


Measuring China’s gaps and gulfs is tricky. 

The most common gauge of income inequality is the Gini coefficient, which has become popular despite being hard to interpret. 

One way to make sense of it is with a thought experiment. 

Suppose two people in a country are to meet at random. 

What will be the expected income gap between the two? 

If you know the income of everyone in the country, you can guess by calculating the average gap from every possible pairing. 

That expected gap can be expressed as a percentage of the society’s average income. 

Cut that percentage in half (to get to a number between 0 and 100) and you have the Gini coefficient. 

China’s official Gini is 46.5%, meaning that the expected gap will be 93% (ie, twice the Gini) of China’s average disposable income. 

Since average disposable income was 30,733 yuan ($4,449) in 2019, the expected gap would be about $4,138.

China’s official Gini is higher than that of many advanced countries, including America and Britain. 

An alternative calculated by the World Bank looks better (38.5% in 2016), because it takes account of cheaper prices in rural areas. 

Another source, the World Inequality Database overseen by Thomas Piketty and his colleagues, reports higher figures, because they look at pre-tax income and because they take extra pains to ferret out the unreported income of the rich. 

But, as Martin Ravallion of Georgetown University points out, the poor may also have unreported resources, which may be large relative to their paltry reported incomes.

Although the level of inequality differs between these measures, they all agree on one striking point. 

Inequality in China today is not as bad as it was about a decade ago. 

Indeed, some scholars have remarked on the “great Chinese inequality turnaround”.

Why then has concern about inequality turned up, even as inequality itself has turned around? 

Twain may offer one answer. One of the protagonists of “The Gilded Age” comforts himself with the thought that although he and his wife have to “eat crusts in toil and poverty”, his children will “live like the princes of the Earth.” 

Similarly, many Chinese may tolerate life on the lower rungs of society, if they think they or their children can climb up the ladder.

But that kind of social mobility seems to be slowing. Yi Fan and Junjian Yi of the National University of Singapore and Junsen Zhang of Zhejiang University have tried to calculate the persistence of income from one generation to the next. 

Chinese born in the 1970s inherited about 39% of any economic advantage enjoyed by their parents. 

Those born in the 1980s inherited over 44%. 

That is, if you knew one set of parents was 1% richer than an otherwise similar set of parents, you would expect their children to earn 0.44% more in their own careers than the other parents’ kids.

Inequality may also be more conspicuous than it was. 

As Mr Ravallion and Shaohua Chen of Xiamen University have pointed out, the decline in Chinese inequality since 2008 does not reflect softer divisions within cities. 

It results instead from a narrower gap between urban and rural China. 

People tend to be more conscious of social fault-lines within a city than they are of disparities between one far-flung place and another.

The guilted age

Mr Ravallion suggests another reason why China’s great inequality turnaround has gone unnoticed: people do not think in Ginis or percentages but in yuan and fen, dollars and cents. 

The expected income gap between two random Chinese may have declined from 98% of average income at inequality’s peak in 2008 to 93% now. 

But because average income has risen in that time, the expected gap in yuan terms is still far larger. 

The income per person of the top fifth of households was 10.7 times that of the bottom fifth in 2014. 

That ratio has since fallen a bit. 

But the gap in yuan has increased from 46,221 yuan in 2014 to 69,021 yuan in 2019.

The professor who grew up with Mr Xi speculated that if he became leader Mr Xi would “aggressively” tackle China’s gilded decadence, even “at the expense of the new monied class”. 

Mr Xi has already browbeaten some billionaires into public acts of philanthropy. 

The gestures will do little to shift the Gini coefficient. 

But they will make redistribution more conspicuous. 

Deng Xiaoping, one of Mr Xi’s predecessors, famously said that he did not care if cats were white or black as long as they caught mice. 

Mr Xi’s main opinion about cats is that he does not like them fat.

A Coup Attempt at the IMF

Kristalina Georgieva, the IMF's Managing Director since 2019, has been a bold leader in confronting the economic fallout of the pandemic, as well as in positioning the Fund as a global pioneer on climate change. The efforts now underway to remove her are not only unjust, but could hamstring the Fund's management for years to come.

Joseph E. Stiglitz


NEW YORK – Moves are afoot to replace or at least greatly weaken Kristalina Georgieva, the International Monetary Fund’s managing director since 2019. 

This is the same Georgieva whose excellent response to the pandemic quickly provided funds to keep countries afloat and to address the health crisis, and who successfully advocated for a $650 billion issuance of IMF “money” (special drawing rights, or SDRs), so essential for low- and middle-income countries’ recovery. 

Moreover, she has positioned the Fund to take a global leadership role in responding to the existential crisis of climate change.

For all of these actions, Georgieva should be applauded. 

So, what is the problem? 

And who is behind the effort to discredit and oust her?

The problem is a report that the World Bank commissioned from the law firm WilmerHale concerning the Bank’s annual Doing Business index, which ranks countries according to the ease of opening and operating commercial firms. 

The report contains allegations – or more accurately “hints” – of improprieties involving China, Saudi Arabia, and Azerbaijan in the 2018 and 2020 indexes.

Georgieva has come under attack for the 2018 index, in which China was ranked 78th, the same position as the previous year. 

But there is an insinuation that it should have been lower and was left as part of a deal to secure Chinese support for the capital increase that the Bank was then seeking. 

Georgieva was the World Bank’s chief executive officer at the time.

The one positive outcome of the episode may be the termination of the index. 

A quarter-century ago, when I was chief economist of the World Bank and Doing Business was published by a separate division, the International Finance Corporation, I thought it was a terrible product. 

Countries received good ratings for low corporate taxes and weak labor regulations. 

The numbers were always squishy, with small changes in the data having potentially large effects on the rankings. 

Countries were inevitably upset when seemingly arbitrary decisions caused them to slide in the rankings.

Having read the WilmerHale report, having talked directly to key people involved, and knowing the whole process, the investigation appears to me to be a hatchet job. 

Throughout, Georgieva acted in an entirely professional way, doing exactly what I would have done (and occasionally had to do when I was chief economist): urge those working for me to be sure their numbers were right, or as accurate as possible, given the inherent limitations on data.

Shanta Devarajan, the head of the unit overseeing Doing Business who reported directly to Georgieva in 2018, insists that he never was pressured to change the data or results. 

The Bank’s staff did exactly as Georgieva instructed and rechecked the numbers, making miniscule changes that led to a slight upward revision.

The WilmerHale report itself is curious in many ways. 

It leaves the impression that there was a quid pro quo: the Bank was attempting to raise capital and offered improved rankings to help get it. 

But China was the most enthusiastic backer of the capital increase; it was the United States under President Donald Trump that was dragging its feet. 

If the objective had been to ensure the capital increase, the best way of doing so would have been to lower China’s ranking.

The report also fails to explain why it doesn’t include the full testimony of the one person – Devarajan – with firsthand knowledge of what Georgieva said. 

“I spent hours telling my side of the story to the World Bank’s lawyers, who included only half of what I told them,” Devarajan has said. 

Instead, the report proceeds largely on the basis of innuendo.

The real scandal is the WilmerHale report itself, including how David Malpass, the World Bank president, escapes unscathed. The report notes another episode – an attempt to upgrade Saudi Arabia in the 2020 Doing Business index – but concludes that the Bank’s leadership had nothing to do with what happened. 

Malpass would go to Saudi Arabia touting its reforms on the basis of Doing Business just a year after Saudi security officials murdered and dismembered the journalist Jamal Khashoggi.

He who pays the piper, it seems, calls the tune. 

Fortunately, investigative journalism has uncovered far worse behavior, including an unvarnished attempt by Malpass to change the methodology of Doing Business to move China down in the rankings.

If the WilmerHale report is best characterized as a hatchet job, what’s the motive?

There are, not surprisingly, some who are unhappy at the direction the IMF has taken under Georgieva’s leadership. 

Some think it should stick to its knitting and not concern itself with climate change. 

Some dislike the progressive shift, with less emphasis on austerity, more on poverty and development, and greater awareness of the limits of markets.

Many financial market players are unhappy that the IMF seems not to be acting as forcefully as a credit collector – a central part of my critique of the Fund in my book Globalization and Its Discontents. 

In the Argentine debt restructuring that began in 2020, the Fund showed clearly the limits on what the country could pay, that is, how much debt was sustainable. 

Because many private creditors wanted the country to pay more than was sustainable, this simple act changed the bargaining framework.

Then, too, there are longstanding institutional rivalries between the IMF and the World Bank, heightened now by the debate about who should manage a proposed new fund for “recycling” the newly issued SDRs from the advanced economies to poorer countries.

One can add to this mix the isolationist strand of American politics – embodied by Malpass, a Trump appointee – combined with a desire to undermine President Joe Biden by creating one more problem for an administration facing so many other challenges. 

And then there are the normal personality conflicts.

But political intrigue and bureaucratic rivalry are the last things the world needs at a time when the pandemic and its economic fallout have left many countries facing debt crises. Now more than ever, the world needs Georgieva’s steady hand at the IMF.


Joseph E. Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, is a former chief economist of the World Bank (1997-2000), chair of the US President’s Council of Economic Advisers, and co-chair of the High-Level Commission on Carbon Prices. He is a member of the Independent Commission for the Reform of International Corporate Taxation and was lead author of the 1995 IPCC Climate Assessment.

Capitalism—A New Idea

by Jeff Thomas 

dollarearth.png


Capitalism, whether praised or derided, is an economic system and ideology based on private ownership of the means of production and operation for profit.

Classical economics recognises capitalism as the most effective means by which an economy can thrive. 

Certainly, in 1776, Adam Smith made one of the best cases for capitalism in his book, An Inquiry Into the Nature and Causes of the Wealth of Nations (known more commonly as The Wealth of Nations). 

But the term "capitalism" actually was first used to deride the ideology, by Karl Marx and Friedrich Engels, in The Communist Manifesto, in 1848.

Of course, whether Mister Marx was correct in his criticisms or not, he lived in an age when capitalism and a free market were essentially one and the same. 

Today, this is not the case. 

The capitalist system has been under attack for roughly 100 years, particularly in North America and the EU.

A tenet of capitalism is that, if it’s left alone, it will sort itself out and will serve virtually everyone well. 

Conversely, every effort to make the free market less free diminishes the very existence of capitalism, making it less able to function.

Today, we’re continually reminded that we live under a capitalist system and that it hasn’t worked. 

The middle class is disappearing, and the cost of goods has become too high to be affordable. 

There are far more losers than winners, and the greed of big business is destroying the economy.

This is what we repeatedly hear from left-leaning people and, in fact, they are correct. 

They then go on to label these troubles as byproducts of capitalism and use this assumption to argue that capitalism should give way to socialism.

In this, however, they are decidedly wrong. 

These are the byproducts of an increasing level of collectivism and fascism in the economy. 

In actual fact, few, if any, of these people have ever lived in a capitalist (free-market) society, as it has been legislated out of existence in the former "free" world over the last century.

So, let’s have a look at those primary sore spots that are raised by suggesting that collectivism will correct the "evils" of capitalism.

Prices Are Driven From the Top Down

This is unquestionably the case in the aforementioned countries, however, it is not so under capitalism. 

Under capitalism, each producer tries to get as much as he can for his product, but, as others are also creating the same product, those with the lowest price are the ones who will succeed. 

Therefore, the consumers effectively set the prices, based upon what they’re willing to pay.

But in any country where cronyism exists between big business and government, regulations can squeeze out the competition, allowing a monopoly for a given product. 

The definition of this marriage between business and government is "fascism." 

The government makes it increasingly difficult, through regulation, for the small producer to compete with the larger producer (who gives kickbacks to the government).

Capitalism Only Benefits Those at the Top

Capitalism benefits those who produce the most, but it also benefits all others, as they have a free choice to purchase whatever products they wish, at a price they’re prepared to pay. 

If the producer demands too high a price, consumers instead buy his competitor’s product, putting him out of business. 

The consumer is therefore in charge of the price of goods. 

A producer only rises to the top if he produces the most affordable product (as did Henry Ford, 100 years ago, with his Model T. Through the free market, he lowered his price repeatedly and, in so doing, put America on wheels).

Capitalism Impoverishes the Masses

The free market offers more goods to more people at lower prices, which enriches the lives of all consumers, no matter how rich or poor. 

In so doing, it raises up the masses over time, providing them with more and better goods, education, health care, etc., enabling them to rise out of poverty. 

By contrast, overregulation and entitlements enslave those same people to poverty.

The whole idea of the free market is that it’s free from interference by others—most importantly, governments. 

If left alone, the free market will produce the goods the public are most willing to pay for, which results in an ever-self-levelling of products and prices. 

As soon as regulation enters the picture, the free market is compromised. What exists today is not a free market, as Adam Smith would have recognised it, but a bloated, dysfunctional socialist/fascist/capitalist mongrel of a system. 

Of course it doesn’t work.


Fascism is capitalism in decay.

—Vladimir Lenin


Quite so. 

Regulation is a cancer that slowly eats capitalism until it morphs into fascism.


Do not their leaders deprive the rich of their estates and distribute them among the people; at the same time taking care to preserve the larger part for themselves?

 —Socrates to Adeimantus


What was true ca. 400 BC in Athens is true today. Fascism (or corporatist cronyism) results in 99% of the population coming under the diktat of the 1%, which is made up of government leaders and corporate leaders, working in concert, to the exclusion of all others. This is, in fact, the opposite of a free market.

The creation of new wealth is the only functional weapon against poverty.

—Doug Casey


New wealth comes from the bottom up—it’s as simple as someone building a better mousetrap, or building the old one more cheaply. 

In such a market, both the producer and the consumer benefit.

In a fascist system, the wealth gravitates to the top, eventually choking out the middle class and expanding the poorer class, and that’s just what we’re witnessing today. 

The solution is not to go further in this direction, but rather to try something new… or at least new to anyone living under the fascist system. 

Although it still retains some capitalist overtones, it is unquestionably not capitalism.

A last word—capitalism does exist today, but it lives in select countries that have not yet given in to overregulation. 

In those countries, the average person thrives and has opportunities far beyond what’s allowed in the former "free" world. 

Should the reader conclude that his present country is unlikely to go in the direction of capitalism, he may choose to vote with his feet in order to prosper the way his ancestors did 100 years ago.

SHORTAGES & HYPERINFLATION LEAD TO TOTAL MISERY



At the end of major economic cycles, shortages develop in all areas of the economy. 

And this is what the world is experiencing today on a global basis. 

There is a general lack of labour, whether it is restaurant staff, truck drivers or medical personnel.

There are also shortages of raw materials, lithium (electric car batteries), semi-conductors, food,  a great deal of consumer products, cardboard boxes, energy and etc, etc. The list is endless.

SHORTAGES EVERYWHERE

Everything is of course blamed on Covid but most of these shortages are due to structural problems. 

We have today a global system which cannot cope with the tiniest imbalances in the supply chain.

Just one small component missing could change history as the nursery rhyme below explains:

For want of a nail, the shoe was lost.
For want of a shoe, the horse was lost.
For want of a horse, the rider was lost.
For want of a rider, the battle was lost.
For want of a battle, the kingdom was lost.
And all for the want of a 
horseshoe nail
.

Cavalry battles are lost if there is a shortage of horseshoe nails.

The world is not just vulnerable to shortages of goods and services.

BOMBSHELLS

Bombshells could appear from anywhere. 

Let’s just list a few like:

  • Dollar collapse (and other currencies)
  • Stock market crash
  • Debt defaults, bond collapse (e.g. Evergrande)
  • Liquidity crisis  (if  money printing stops or has no effect)
  • Inflation leading to hyperinflation

There is a high likelihood that not just one of the above will happen in the next few years but all of them.

Because this is how empires and economic bubbles end.

The Roman Empire needed 500,000 troops to control its vast empire.

Map of the Roman Empire.

Emperor Septimius Severus (200 AD) advised his sons to “Enrich the troops with gold but no one else”.

As costs and taxes soared,  Rome resorted to the same trick that every single government resorts to when they overextend and money runs out – Currency Debasement.

So between 180 and 280 AD the Roman coin, the Denarius, went form 100% silver content to ZERO.

And in those days, the soldiers were shrewd and demanded payment in gold coins and not debased silver coins.

Although the US is not officially in military conflict with any country, there are still 173,000 US troops in 159 countries with 750 bases in 80 countries. 

The US spends 11% of the budget or $730 billion on military costs.

US military presence

Since the start of the US involvement in Afghanistan, Pentagon has spent a total of $14 trillion, 35-50% of which going to defence contractors.

Throughout history, wars have mostly started out as profitable ventures, “stealing” natural resources (like gold or grains) and other goods–often due to shortages. 

But the Afghan war can hardly be regarded as economically successful and the US would have needed a more profitable venture than the Afghan war to balance its budget.

US HOPELESSLY BANKRUPT  – NEEDS TO BORROW 46% OF BUDGET

The US annual Federal Spending is $7 trillion and the revenues are $3.8 trillion.

So the US spends $3.2 trillion more every year than it earns in tax revenues. 

Thus, in order to “balance” the budget, the declining US empire must borrow or print 46% of its total spending.

Not even the Roman Empire, with its military might, would have got away with borrowing or printing half of its expenditure.

TOTAL MISERY AS MR MICAWBER SAID:

As Mr Micawber in Charles Dickens’ David Copperfield said:

‘Annual income 20 pounds, annual expenditure 19 [pounds] 19 [shillings] and six [pence], result happiness. Annual income 20 pounds, annual expenditure 20 pounds ought and six, result misery.’

And when, like in the case of the US, you spend almost twice as much as you earn that is TOTAL MISERY.

Neither an individual, nor a country can spend 100% more than their earnings without serious consequences. 

I have written many articles about these consequences and how to survive the Everything Bubble

INFLATION IS HERE

The most obvious course of events is continuous shortages combined with prices of goods and services going up rapidly. 

I remember it well in the 1970s how for example oil prices trebled between 1974 and 1975 from $3 to $10 and by 1980 had gone up 10x to $40.

The same is happening now all over the world.

That puts Central banks between a Rock and a Hard place as inflation is coming from all parts of the economy and is NOT TRANSITORY!

Real inflation is today 13.5% as the chart below shows, based on how inflation was calculated in the 1980s

Consumer inflation is much higher than reported.

IMPLOSION OR EXPLOSION

The central bankers can either squash the chronic inflation by tapering and at the same time create a liquidity squeeze that will totally kill an economy in constant need of stimulus. 

Or they can continue to print unlimited amounts of worthless fiat money whether it is paper or digital dollars.

If central banks starve the economy of liquidity or flood it, the result will be disastrous. 

Whether the financial system dies from an implosion or an explosion is really irrelevant. 

Both will lead to total misery.

Their choice is obvious since they would never dare to starve an economy craving for poisonous potions of stimulus.

History tells us that central banks will do the only thing they know in these circumstances which is to push the inflation accelerator pedal to the bottom.

Based of the Austrian economics definition, we have had chronic inflation for years as increases in money supply is what creates inflation. 

Still, it has not been the normal consumer inflation but asset inflation which has benefitted a small elite greatly and starved the masses of an increase standard of living.

As the elite amassed incredible wealth, the masses just had more debts.

So what we are now seeing is the beginning of a chronic consumer inflation that most of the world hasn’t experienced  for decades.

THE INEVITABLE CONSEQUENCES OF CURRENCY DESTRUCTION

This is the inevitable consequence of the destruction of money through unlimited printing until it reaches its the intrinsic value of Zero. 

Since the dollar has already lost 98% of its purchasing power since 1971, there is a mere 2% fall before it reaches zero. 

But we must remember that the fall will be 100% from the current level.

As the value of money is likely to be destroyed in the next 5-10 years, wealth preservation is critical.  

For individuals who want to protect themselves from total loss as fiat money dies, one or several gold coins are needed.

So back to the nursery rhyme:

For want of a nail gold coin, the shoe was lost.
For want of a shoe, the horse was lost.
For want of a horse, the rider was lost.
For want of a rider, the battle was lost.
For want of a battle, the kingdom was lost.
And all for the want of a horseshoe nail gold coin.

Gold is not the only solution to the coming problems in the world economy. 

Still, it will protect you from the coming economic crisis like it has done every time in history

And remember that if you don’t hold properly stored gold you don’t understand:

  • What happens when bubbles burst
  • You are living in a fake world with fake money and fake valuations
  • Your fake money will be revalued to its intrinsic value of ZERO
  • Assets that were bought with this fake money will lose over 90% of their value
  • Stocks will go down by over 90% in real terms
  • Bonds will go down by 90% to 100% as borrowers default
  • You lack regard for your stakeholders whether they are family or investors
  • You don’t understand history
  • You don’t understand risk

The 1980  gold price high of $850 would today be $21,900,  adjusted for real inflation

Gold has not yet adjusted to real inflation. Shortages of gold will soon come.

So gold at $1,800 today is grossly undervalued and unloved and likely to soon reflect the true value of the dollar.