The Great Jobs Reset 

By John Mauldin

We are almost through February and (knocking on wood) the US COVID-19 situation is improving daily. The B117 and other variants haven’t yet made a big impact. 

Possibly they will, but as time passes more people are getting at least partial protection through vaccines. The “race” I’ve described seems to be going the way we hoped.

In the US, hospitalizations for those age 85 and older dropped 81% from January to February, according to Bloomberg. 

This chart below summarizes data from 10 states.

Source: Bloomberg

Another case surge, variant-driven or otherwise, shouldn’t be as deadly since so many vulnerable and older people have been vaccinated. The vaccines appear extremely effective at minimizing severity even when they don’t stop infection. And the fact that every age group—including those who haven’t yet been offered vaccines—is seeing lower hospitalizations is very encouraging.

If this continues, and we all hope it does, it means we can start looking ahead to the other side of all this. By no means have we reached the other side. It is not yet time to relax. Nevertheless, it looks like we can, as President Biden has said, “approach normalcy” by year-end.

But that raises a question: What normalcy will it be? I don’t expect to simply go back to the way things were. The economy as it was structured in December 2019 is gone forever. The world is different now. The economy will be different, too.

We’ll see this in myriad ways but in this letter I’ll focus on just one: jobs. That is the key way in which most people participate in the economy. How they do it matters. And, as you’ll see, many will do it in new and different forms.

Interest Rates, Federal Reserve, and Unemployment

The Federal Reserve is primarily focused on unemployment and not inflation, according to numerous officials and Jerome Powell. They are willing to let the economy “run hot.” That means tolerating higher inflation for some period while they try to reach what they consider “full employment.”

However, as is so often the case in government, the left hand is not working with the right hand. The bond market has not been happy the past few weeks. Last week’s Treasury auctions were ugly. The “yield to cover” was the worst in history.

Below is the seven-year yield (courtesy of Peter Boockvar)…

Source: Peter Boockvar

Yes, yields are up significantly since the summer lows but are roughly where they were a year ago. The recession and pandemic pushed yields down and the market is beginning to suggest recovery. Yet the Fed says yields should stay low.

This “battle” is important. From 1966 to 1997 inflation was the primary driver of the markets. In general, the bond market and the stock market moved in opposite directions. Starting in 1997–8 up until (maybe) this week, they mostly moved in tandem. If we see what The Bank Credit Analyst calls a regime change, where once again bond yields and stocks diverge, that means that as rates go up, the stock market will fall.

There is a marked difference between how the stock market performs in periods of disinflation versus inflation. This chart from Charles Gave at Gavekal shows how basically all stock market returns for the last 140 years came in disinflationary periods. Quoting Charles:

All—and we mean all—of the excess returns from owning US equities in the last 142 years came in disinflationary periods, while no excess returns were achieved during the inflationary times.

Source: Gavekal

I have written about this in the past. The “regime change” is exactly what the Federal Reserve does not want to happen. A few days doesn’t make a trend. But if this goes on for weeks? Will we see the “bond vigilantes” rise from the dead?

The single biggest danger to the stock market is that the Federal Reserve in particular and central banks in general, “lose the narrative.” When the market stops believing the Fed can control interest rates and influence markets, we enter a scary new world, and likely a bear market for stocks.

This is something the Fed can’t allow. A few more weeks of rising interest rates in the face of $120 billion per month of Federal Reserve purchases will force Fed officials (at least in the opinion of your humble analyst) to take action. The last thing they want is actual Yield Curve Control (YCC). That is akin to getting on the back of an angry tiger. While they may be able to ride it for a time, the dismount would make the taper tantrum look like a Sunday school picnic.

More likely, they will do YCC through the back door. They have several options. Right now they’re buying $40 billion per month of “agencies,” basically mortgage bonds. They can reduce the amount of agencies and increase their Treasury debt purchases, thus influencing the bond market. They can increase the amount of actual QE, which given the deficits that the government is running, may actually be necessary to control interest rates. And, I would rate it better than 50–50 odds they move out the yield curve to the 10-year bond. All of this will influence yields without actually invoking YCC.

The effect on unemployment? If rising rates spark a stock bear market (as happened in 2000), a recession could follow. That is by definition deflationary and would increase unemployment. Not what the Fed wants.

I did a webinar yesterday with Lacy Hunt, and we both basically took the deflation side of the future. But in summary, we acknowledged we could see inflation in the short term (i.e., starting soon and lasting until perhaps the end of the year).

Part of that “rise” in places is going to be easy year-over-year comparisons. Inflation dropped significantly with the onset of the pandemic, so year-over-year comparisons for March, April, and May will likely show annualized CPI inflation over 2% for the first time in almost 10 years. I think it will be transitory as the overall trend of the decade is going to be disinflationary/deflationary.

If you look back over two years, the inflation will not be apparent. But the markets focus on annual changes, which is why rates are rising And that matters for the 17 million people who are currently on some type of unemployment assistance.

Tough Job Market

As we know, the pandemic and its many ramifications drove US unemployment to Great-Depression levels in a hurry. We have seen some improvement but it is still quite high—likely higher than the official data indicates.

Unfortunately, all our jobs data sources have limitations. Many look at weekly jobless benefit claims, which have the advantage of being high-frequency, but they also depend on state-level data collection, which varies (let’s just say that Texas and some southern states had an excuse last week, which showed up as lower initial claims).

Meanwhile, the “headline” unemployment rate only measures people who say they are looking for work. In this situation, many are not, for various reasons. Another confounding factor is the “birth/death rate” (of businesses, not people) the Labor Department uses to adjust its survey data. Millions have turned to freelancing not because of entrepreneurial dreams but for lack of better options. Other businesses closed, sometimes permanently and sometimes not. Sorting out all this in an economy as large as the US has always been difficult. It is impossible now. The methodology is simply broken as it is based on past trends which have no bearing on our current reality.

On top of all that are the usual problems with survey data. The unemployment rate comes from a Census Bureau collection program called the Current Population Survey. Its process is necessarily rigorous in order to be consistent over time. But these are not normal times. Researchers working with the Dallas Fed recently constructed an alternative Real-Time Population Survey (RPS) specifically to measure labor market trends. In the RPS methodology, January’s headline unemployment rate would have been 11.4% instead of the official 6.9%. It also peaked considerably higher and a month later in 2020 (17.2% in May vs. 14.3% in April).

Source: Dallas Fed

Of course, we should be wary about picking the data that “feels” right. But really, this seems a lot closer to reality when you look at unemployment claims and other similar surveys. It’s a tough, tough job market that doesn’t seem to be improving.

Nonetheless, it should improve once we get COVID-19 off our backs. But it won’t improve for everyone.

Skill Mismatch

When we talk about returning to normalcy, many imply a simple return to pre-pandemic conditions. This seems unlikely to me. Many of the specific 10 million+ jobs that have been lost are not going to come back. But as an optimist, I believe other jobs will replace them and those 10 million people will find different employment. The problem is in the transition from here to there.

First, people will gain confidence at different rates. It will be a gradual process, not a sudden “reopening” like Black Friday used to be.

Second, many people will return with new attitudes. I would not assume mass events—concerts, sports, conventions—will regain their previous popularity in the short or medium term.

Third, probably most important, the pandemic brought innovations that affect how we work, and therefore the type and number of jobs the economy will support.

I’ll use myself as an example. I was one of the planet’s most frequent flyers, at least as measured by American Airlines. My business (at least I thought) required it and I actually enjoy it. I’m eager to fly again—but I won’t do it anywhere near as often. In the last year I learned how to hold online video meetings, accomplishing in a few hours things that would have once required two full days just for travel time, costing thousands of dollars in airfare, hotels, and restaurant meals.

Sometimes that’s what it takes, but as I learned, not as much as I thought. And I’m not the only one who learned this. The economy will need fewer flight attendants, hotel housekeepers, chefs, and so on These occupations also account for a large part of the currently unemployed. Many, and perhaps most, will not be resuming that same kind of work.

By the way, business travel is different from pleasure ourist travel. At some point, people are once again going to want to take vacations and weekend getaways. I think conventions will come back as they are efficient ways to see a lot of people in a short time. But not this year.

At the same time, demand is growing in some occupations. According to a recent WSJ report, jobs site is seeing above-average growth in postings for driving, warehousing, construction, and manufacturing jobs. These stem from two trends that predated the pandemic and were accelerated by it: a housing boom and e-commerce.

Our housing needs are changing, both in type and location, which creates new construction work. Concurrently, we are shopping online and having products delivered. This generates new warehouse and transportation jobs, even as it eliminates in-store salespeople.

The challenge is a mismatch between the kind of jobs that are available and the skills of those who need work. That’s not new; it has always been the case as economies grow and change. Now it happens faster. Someone who was a barista in 2019 might be a good framing carpenter, but will need retraining. This takes time and the transition period is often difficult.

These are relatively short-term problems, though. The Decade of Disruption is just getting started, and we haven’t fully grasped how the pandemic changed it.

Permanent Changes

I started with good news about virus fears receding this year. If that happens—and it’s not guaranteed—it doesn’t necessarily mean our economic challenges will recede at the same pace.

Back when all this started, George Friedman said the recession would turn into depression if it went on too long. The difference, in his view, is that a depression doesn’t just suppress growth for a while; it permanently changes everyday life.

Has that happened yet? Maybe not, but we aren’t yet through this. Even in the relatively optimistic scenario I now foresee, many small businesses are still months away from customers gaining enough confidence to return in significant numbers, even if the various health restrictions are lifted.

And beyond that, we just don’t know what kind of permanent lifestyle changes will come out of this. I mentioned travel, and that’s an obvious one. But I suspect other, less obvious changes are brewing. They will affect the employment picture.

The Bureau of Labor Statistics—the same agency that reports the unemployment rate—periodically does a 10-year jobs forecast. Of course it requires many assumptions. Their last one was based on pre-pandemic data but they recently updated it, considering “moderate” and “strong” pandemic impact scenarios.

Here’s a chart that cuts to the chase. The gray bars are the percentage employment change BLS expected from 2019–2029 in some selected job categories. The others are a new projection based on moderate pandemic impact (blue) and strong impact (red).

Source: BLS

Note that in these four “service” occupations, BLS already expected either little growth or outright losses even before the pandemic, often due to automation. And in all cases, it thinks the pandemic will make it even worse. Ditto for restaurant and bar jobs.

But BLS foresees the opposite in many technology and healthcare occupations. They think the pandemic will actually create long-term jobs in those categories.

Source: BLS

These kind of tech jobs, already expected to show solid growth, should grow even more in the post-pandemic era, thinks BLS.

Unfortunately, these growing occupations generally require more education than the shrinking ones. And in terms of raw numbers, there just aren’t as many of them. That leaves a big problem: What will happen to workers in these disappearing occupations?

How many of us work at the same kind of jobs we studied for in school? How often have we changed careers? Twisted career paths are nothing new. If the path doesn’t lead where you want, maybe it’s time to blaze a new one. Millions will be doing so in the coming decade.

The Incentives of Unemployment

I served for several years on the board of a public company (Ashford, Inc.) which managed hotel REITs with 125 hotels, including the Ritz-Carlton in the Virgin Islands. Shane and I were married there and my fellow board members gave us a week as a wedding gift. A few years later (after hurricane Maria) I wanted to take Shane back. I learned the hotel was still closed. It having been some time, I asked why. I was told the company was making more on business interruption insurance that it would by actually operating the hotel. Magically, hotels all over the Caribbean generally opened up about the time the insurance ran out.

In December, Congress and President Trump agreed on an $800 billion pandemic relief bill. We are now contemplating another $1.9 trillion in “relief.” Much of that money will be spent after this year and as late as 2029, but a good bit of it will hit in the second quarter. Some of it may actually incentivize unemployment.

As noted above, there are jobs available, but if you can get paid unemployment that is more or less equivalent (plus cash, plus child tax credits, and other benefits) your incentive to seek one of those jobs is lower.

I would not for one second begrudge any jobless person the safety net of unemployment insurance. It is necessary. But it was meant as transition assistance while trying to find a new job, not a substitute.

In summary, the economy is recovering. Government transfer payments boosted personal income 10% in January, with spending up 2.4%. GDP is likely to be very strong for the first two quarters at least. The already-passed and soon-to-be-passed relief spending could be inflationary in a growing economy. (As an aside, surveys show that 37% of the $600 stimulus checks will end up in the stock market.)

Yet, millions of people are unemployed and many of them will have to make career changes. Transitions are never easy or swift. The Federal Reserve is committed to low rates and easy monetary policy at least until 2023, even with a growing economy. The markets want higher rates, but the Fed doesn’t. This is the type of fight where both sides will lose, even if one appears to win. Jerome Powell’s term as chair ends in February 2022. You can expect a more dovish chair (likely Lael Brainard) will replace him.

Unemployment is going to be “stickier” than we would like to see, especially in a recovering economy for the reasons stated above. All of this is going to produce more market volatility.

There are lots of places to employ your investment capital. I am bullish about some and bearish about others. I don’t have to risk my capital in the midst of an economic bar fight. I can choose to go to another, more tranquil establishment.

You need to seek out absolute returns over passive relative returns. Fixed income ETFs and mutual funds offer very low yields and capital loss in times of rising interest rates. When we don’t know what’s going to happen, maybe find an alternative? There are many.

Puerto Rico

It has been basically muy tranquilo here in Dorado Beach. The “winter” here brings temperatures into the low 70s and sometimes even in the 60s in the evening. The humidity is not that much. That being said, there are lots of friends and opportunities for more friends and local investment.

I find I am doing more and more Zoom calls. It turns out that people really do want to see one another, and a telephone call simply doesn’t scratch that itch. I am enjoying the lifestyle here far more than I thought I would. I couldn’t blow Shane out of here with dynamite.

With that short note I will hit the send button. Be sure you follow me on Twitter. You have a great week.

Your ready to get on a plane analyst,

John Mauldin
Co-Founder, Mauldin Economics

Virtual control: the agenda behind China’s new digital currency

The planned ‘e-yuan’ could boost Beijing’s surveillance state and create competition for private fintech groups

James Kynge in Hong Kong and Sun Yu in Beijing

Celebrations in China to mark the lunar new year of the Ox, which began on February 12, have been somewhat muted because of the coronavirus pandemic. 

The numbers of people travelling to visit relatives this year are down sharply, depriving family gatherings of a measure of joy.

But it is not all gloom. Authorities in several cities have given away tens of millions of renminbi as new year “red packets” that can be downloaded on to a smartphone. 

Beijing and Suzhou alone have doled out 200,000 red packets worth Rmb200 ($31) each in a public lottery.

Such philanthropy conceals a harder-hitting agenda. By handing out the traditional red packets in the form of “digital renminbi”, China’s authorities are conducting trials for a crucial new technology that could lead the world’s adoption of digital currencies and set global technical standards.

Although no official launch date has been announced, China is intent on becoming the first large economy to introduce a digital currency, showcasing its position as the global leader in payments technology to the world at next year’s Winter Olympics. Cambodia launched a digital currency, the Bakong, late last year. 

“Chinese policymakers are by far the most advanced in their thinking about a digital currency,” says the head of Asia business at a leading Wall Street bank, who declined to be named. “They are thinking about things that the rest of the world is nowhere near thinking about yet.”

“The digital renminbi will put every transaction on to the radar of the People’s Bank of China [central bank],” the banker adds.

A customer shows an ‘e-yuan’ on her smartphone in Beijing. The digital currency is issued and regulated by China’s central bank and is guaranteed by the state © Getty Images

China’s digital plan dovetails with broader ambitions for its currency as Beijing hopes the technology will help promote the renminbi internationally and weaken the US dollar’s supremacy. 

While bankers say the focus initially will be on using the digital currency in the domestic economy, it will probably be used for trade settlement in a number of years, several Chinese analysts said.

But the other objectives behind China’s virtual currency present a sharp contrast with public discussion about the issue in many other parts of the world. While in the US cryptocurrencies are steeped in the language of libertarianism, in China the digital currency project is tied up in the Communist party’s drive to maintain control over society and the economy. The technology is partly designed to reinforce its surveillance state.

China’s digital renminbi is a “central bank digital currency”, making it in some ways the opposite of cryptocurrencies such as bitcoin. Cryptocurrencies are often decentralised; they are not issued or backed by governments. 

The “e-yuan”, by contrast, is part of China’s top-down design. It is issued and regulated by the central bank and its status as legal tender is guaranteed by the Chinese state.

Its digital format enables the central bank to track all transactions at the individual level in real time. 

Beijing aims to use this feature to combat money laundering, corruption and the financing of “terrorism” at home by strengthening the already formidable surveillance powers of the ruling Communist party.

Beijing also hopes, analysts say, to use the digital renminbi as a means to reassert state control over its fintech industry and a vast e-payments market that is dominated by two huge private companies, Ant Group and Tencent. 

The technology could in effect become a rival to their cashless payments platforms.

China’s government is already engaged in a multipronged effort to rein in the power of the new payments firms, which led to Ant cancelling a planned $37bn initial public offering at the end of last year.

Samantha Hoffman, senior analyst at the Australian Strategic Policy Institute, says social control is a priority for Beijing. “The [digital renminbi] is heavily about the party’s ability to exercise control,” she says.

Fintech takeover

China’s strategy is to popularise the digital currency by running city-level trials this year and next, having it ready for use by the time it hosts the Winter Olympic Games in late 2022, officials have said. This timetable puts Beijing far ahead of a long tail of national governments that are starting to experiment with the idea.

Some 60 per cent of more than 60 central banks surveyed by the Bank for International Settlements last year said they were “conducting experiments or proof-of-concept” studies on digital currencies, up from 42 per cent in 2019. Among these, 14 per cent are moving towards pilot programmes, the survey found.

In China, as elsewhere, the ramifications of adopting a digital currency are huge. It is not just that the digital renminbi stands to replace cash. It also presages the construction of a new payments system that threatens to undermine the market position of Alipay and WeChat Pay, the two most popular and privately owned platforms run by Ant Group and Tencent.

A Chinese shopper uses the WeChat Pay app in Beijing. While merchants can refuse to accept Alipay and WeChat Pay, they cannot decline to use the digital renminbi © Kevin Frayer/Getty Images

The main reason for this is that the digital renminbi is distributed directly to the e-wallets of users by state-owned banks, thus setting up payments channels that circumvent Alipay and WeChat Pay.

In trials so far, users have been able to withdraw e-yuan via ATM machines on to their smartphones’ e-wallets. Then they pay for items by holding their smartphone app close to an e-yuan point-of-sale device. 

Such a system represents a clear alternative to Alipay and WeChat Pay, which are estimated to have a combined worldwide active user base of around 1.9bn.

“The wide use of the digital renminbi will affect the market position and profit model of third-party payment platforms like Alipay and WeChat pay,” says Wang Yongli, a former vice-president of Bank of China, one of China’s largest state-owned banks.

This is no small matter. Alipay and WeChat Pay not only form the backbone of China’s payments system in an economy that is already largely cashless. Their business also supports the share prices of Tencent, which is one of the world’s 10 largest companies with a capitalisation of more than $920bn, and Alibaba, which owns a stake in Ant Group.

A sense that the popularisation of the digital renminbi could come at the expense of Alipay and WeChat Pay is reinforced by Beijing’s messaging through state media coverage. In a dispatch from the streets of Beijing during Chinese new year, a reporter from CCTV, the official television station, said using the e-yuan was “more convenient” than other payments systems.

“The digital currency will deal a blow to Alipay and WeChat as it could replace them,” says a director at a large state-owned bank. “It is likely that the government will use administrative power to promote the use of digital renminbi to undermine the monopoly on consumer data held by the technology firms.”

In fact, such administrative powers are inherent to the e-yuan itself. Because the digital renminbi is legal tender, no merchant can refuse to accept it and will, therefore, be obliged to install e-yuan terminals and payments systems after the currency is formally launched. The same is not the case for Alipay and WeChat Pay, which merchants are at liberty to refuse.

State media reports also trumpet a function of the e-yuan which they say makes it just as versatile as cash: the capacity for offline payments. If there is no internet connection, users can still transfer money between two offline devices by using what the state media calls “dual offline technology”.

This feature uses a type of near-field communications technology similar to Bluetooth, analysts say. It is not yet clear how reliable such systems — or the digital renminbi more generally — would turn out to be but Mu Changchun, head of the central bank’s Digital Currency Research Institute, has said the “dual offline” technology has been “comparatively successful”.

China regards its centralised banking system as a crucial instrument of the party-state's economic power. Whenever its control is threatened, as it was by the flowering of a freewheeling peer-to-peer lending sector as recently as 2016, the authorities move decisively to reassert their influence. Only some 29 of as many as 6,000 peer-to-peer lenders now remain following Beijing's clean-up campaign. Similarly, the extraordinary success of Ant Group, before its share offering was axed, was seen as a threat by a powerful lobby of Chinese state-owned banks. 

The National Stadium in Beijing, which will host some events at next year’s Winter Olympics. China intends to run trials of its digital currency this year and have it ready for use during the games © Mark Schiefelbein/AP

While it is clear that the digital renminbi payments ecosystem has been designed to run independently of Alipay and WeChat Pay, it is likely that the two private payments platforms will nevertheless also be used for e-yuan transactions, analysts say. Thus, for a while at least, the private platforms will be enlisted to promote the e-yuan’s rise.

“The increase of digital renminbi’s market share will come at the expense of WeChat Pay and Alipay,” says Zou Chuanwei, a specialist in digital currency at Wanxiang Blockchain, a research institute in Shanghai. 

“The government is tightening regulatory control over fintech groups and the digital currency’s replacement of Alipay and WeChat Pay will hurt their consumer lending business,” he adds.

Tool of control

Fifteen centuries after China invented banknotes, the nature of money is set to fundamentally change. Back then, in the Tang dynasty (618 to 907) paper money was little more than an IOU and became known as “flying cash” because, unlike metal money, it had a tendency to blow away.

But the digital renminbi presents a step change. It is far more than just a medium for exchange. Beijing sees it both as a bulwark against the potential encroachment of foreign digital currencies, such as Facebook’s Diem, and as a tool to facilitate mass surveillance over the Chinese population.

In mid-2020, Mu at the Digital Currency Research Institute argued that the digital renminbi would prevent Facebook’s Libra — the original name for Diem — from encroaching on China’s monetary system. Such thinking followed similar soundings from 2018 when central bank researchers warned that the advent of digital tokens — called stablecoins — linked to the US dollar could damage Beijing’s efforts to internationalise the renminbi.

But aside from acting as a bulwark against unwanted foreign cryptocurrencies, Beijing’s ambitions for the digital renminbi derive from a deep-seated impulse towards social control, analysts say.

Police patrol in front of the People’s Bank of China in Beijing. ASPI’s Samantha Hoffman says ‘the [digital renminbi] is heavily about the party’s ability to exercise control’ © Greg Baker/Getty Images

“The digital renminbi is likely to be a boon for CCP surveillance in the economy and for government interference in the lives of Chinese citizens,” wrote Yaya Fanusie and Emily Jin in a report last month for the Centre for a New American Security, a Washington-based think-tank.

They say that deploying the e-yuan will set the central bank up to mine a huge trove of data on its citizens’ economic activity. This dovetails with a government fintech plan issued in late 2019 that foresaw a fusion of financial data to promote the construction of a “nationwide integrated big data centre”.

“If the central bank can successfully roll out the digital renminbi, it indeed would be a crucial tool for domestic control,” says Jin. “People could still try to circumvent the monitoring capability of [the currency], but I’d imagine that would be incredibly difficult given that the system would allow the central bank to track real-time transactions.”

If such capabilities do materialise, the PBoC could take on enhanced powers of discipline enforcement and would have the ability to take punitive action by blocking transactions if the situation called for it.

Hoffman at the ASPI, which published one of the first in-depth reports on the digital renminbi last year, says the e-yuan will significantly expand the party’s surveillance capabilities.

“Through the [virtual currency] the party-state would have visibility over all financial transactions,” she says. “The transactions are fully traceable, and there will be no such thing as true anonymity for users.”

Mu Changchun of the Digital Currency Research Institute says the digital renminbi would prevent Facebook’s digital currency from encroaching on China’s monetary system © Getty Images

Exemptions from scrutiny?

The level of anonymity that will be accorded Chinese citizens who use the digital currency remains an officially grey area. Mu, speaking at a conference in Singapore last year, said a system of “controllable anonymity” would be rolled out. 

“We know the demand from the general public is to keep anonymity by using paper money and coins . . . we will give those people who demand it anonymity in their transactions,” Mu told the conference. 

“But at the same time, we will keep the balance between the ‘controllable anonymity’ and anti-money laundering, CTF [counter-terrorist financing], and also tax issues, online gambling and any electronic criminal activities,” he added.

Hoffman says such ambiguity raises concerns. “Requirements like anti-terrorist financing or anti-money laundering are normal for central banks, but what is different in China is who is scrutinised,” she says. “The definition of a terrorist includes the party’s political opponents.” 

Such concerns could hamper Beijing’s longstanding aspirations to promote the use of its currency internationally as part of China’s long-range ambition to free itself from having to settle most of its trade transactions in the US dollar.

“If the Communist party will get insight into every trade we do through the digital renminbi, then I think a lot of people outside China will prefer not to use it,” says one businessperson in Hong Kong, who declined to be named.

Nevertheless, China is pressing on with its internationalising verve. It agreed last month to form a joint venture with Swift, the Belgium-based global system for cross-border payments, in a move that observers say is aimed at promoting use of the digital renminbi.

The new entity, called Finance Gateway Information Services Co, is charged with integrating information systems to facilitate the rollout of the digital currency, according to people familiar with the venture. Other shareholders in the venture include China’s Cross-Border Interbank Payment System (Cips), a competitor of Swift that handles trade settlement in renminbi. Swift said the venture was not related to the digital renminbi but was “compliance focused”.

However, even bankers within China’s own state-dominated system say that optimism about the international uptake of the digital renminbi must be tempered by reality. “A bigger goal of ours is to challenge the dominance of the US dollar in international trade settlement,” says the director at a large state-owned bank. “But progress towards this will only be gradual.”

The reasons behind such expectations of slow progress derive from an old-fashioned, analogue problem. Foreigners have little incentive to hold renminbi as long as access to China’s financial markets remains complex and opaque to all but specialist investors.

“[A digital renminbi] would not banish many of the problems holding the renminbi back from more use globally,” said Maximilian Kärnfelt, an expert at Merics, a Berlin-based think-tank on China. “Much of China’s financial market is still not open to foreigners and property rights remain fragile. ”

Additional reporting by Hudson Lockett in Hong Kong


Chris Vermeulen

Gold continues to wallow near its recent low price level, near $1765.  

Silver has continued to trend moderately higher – but still has not broken out to the upside.  

Many analysts have continued to estimate when and how metals will begin the next wave higher.  My research team and I believe we’ve found some answers to these questions and want to share our research.


The first thing we want to highlight is that Silver tends to rally excessively in the later stages of any precious metals rally.  

For example, in mid-2010, Silver began an incredible upside price rally after Gold rallied from $720 (October 2008) to $1265 (June 2010).  This suggests that the price relationship between Gold and Silver “dislocated” in the early stage breakdown of the financial markets near the peak of the 2008-09 Housing Crisis Peak.  

Then, in late 2010, Silver began to move dramatically higher while Gold continued to push an additional 80%+ higher.

The Silver rally in 2010~11 is clearly evident on this Silver/Gold Weekly chart, below.  The lack of any Silver price advance compared to Gold prior to the 2010 rally is also evident.  One interesting fact relating to how Silver reacted to the 2008~09 Housing Crisis is the deep collapse we see on the left edge of this chart.  A similar collapse happened just recently as COVID-19 shocked the global markets in 2020. 

One key aspect we found very interesting is how Silver recovered moderately slowly in 2009~10 before launching into an incredible breakout rally in late 2010 – nearly 15 months after the bottom.  

Currently, after the COVID-19 bottom, Silver has rallied a bit more aggressively and quickly.  

While Gold has languished below $1800 recently, Silver has continued to gain value compared to Gold.  

This new dynamic may suggest the current setup in Precious Metals is transitioning into the late-stage excess rally much quicker than in 2009-10.


How do Treasury Yields relate to price action in Silver?  The first thing we need to understand is that Silver can rally while Yields are rising or falling.  

What happens when Yields rise over long periods of time is that Silver will tend to attempt to find support while trending moderately higher.  

Eventually, if fear subsides in the global markets, Silver may fall in price in the later stages of rising Yields.

As you can see on the Treasury Yield to Silver chart below, Yields collapse in 2008 & 2009, as the Housing Crisis unloaded on the global markets.  

Yields also collapsed in 2020 as COVID-19 shocked the global markets.  

In 2009-10, interest rates collapsed and Yields collapsed until late 2013.  

Silver continued to form a base in 2015~16 as Yields rose and peaked.  Near the peak in Yields in 2018, Silver continued to attempt to establish a bottom.

What we find interesting related to this chart is the steep collapse in Yields after the 2018 peak and the recent rally in both Yields and Silver.  

We believe Yields may stall and begin to move lower – resulting in another rally attempt in Silver and Gold.  

We believe the recent rally in Yields is a reaction to the deep lows related to COVID-19 and that Silver is representing a price pattern similar to 2008-09 – a deep low, followed by a moderately strong price recovery.  

Yields could stay low for much longer than many people expect if our research are correct.

If Yields continue to stay near or below current levels, the lowest ever experienced in recent history, then Silver should begin another rally attempt very quickly – possibly within just a few weeks.  

The question becomes, what would prompt Yields to fall quickly from current levels?  Could some type of global credit or financial crisis be brewing again?


Last but not least, we want to highlight the correlation between commodities and Silver/metals.  When commodities prices rise, in general, Silver rises as well.  

The Monthly Commodity & Silver chart, below, highlights the rally in Commodities in 2010~2011 as well as the incredible rally in Silver that took place at the same time.  

Now, focus on the hard right edge of this chart and pay attention to the rally in Commodities and Silver that has taken place over the past 12+ months.  

What is brewing is that Commodities are rallying from a deep bottom that has taken over 9 years to complete.  

The continued decline in commodities since 2011 has prompted a very strong price recovery attempt after the COVID-19 deep lows.  

Silver has reacted to this rally in Commodities, like it usually does, to prompt a fairly strong upside price trend.

Recently, though, Silver has stalled while Commodities prices have rallied.  

This suggests that Silver is congesting in a new momentum base and should begin an explosive upside price rally – comparable to the rally we are seeing in Commodities.  

Commodities have rallied near 20% over the past 12 weeks while Silver has nearly the same amount over the same span of time.  

From the COVID-19 lows, the Commodity Index rallied nearly 22% while Silver rallied more than 127%.  

If Silver were to maintain this ratio, the 20% rally in Commodities should prompt a 110% rally attempt in Silver.

Given our research related to how Silver has moved compared to Gold, Treasuries, and Commodities, we believe Silver is basing and building momentum for a big breakout rally.  

We believe the upside move in Yields has put pressure on Silver and Gold recently to stall/consolidate.  

We believe Commodities are building strong upside price momentum which should push Gold and Silver higher.  

As the Commodity rally continues while Gold and Silver stall, an incredible amount of upside price momentum builds up over time.  

When it breaks, it could be very explosive.

A change of direction in Yields could prompt Silver and Gold to resume a strong upside price trend. 

Either way, as long as Commodities continue to rally and Yields begin to stall or more sideways, Gold and Silver are poised to attempt another advancing leg higher.

Our research team believes Gold and Silver are poised to make another big price advance.  

We wish we could tell you exactly when it will happen – but we can’t.  Our estimate is that within the next 2 to 4 weeks, continued pressures will likely push both Gold and Silver into an upside breakout price trend.  

We believe the amount of rally pressure that is building in Gold and Silver is immense.  

Time will tell if we are correct or not.

Stay safe and warm!


By Egon von Greyerz

Akhlys, the Greek goddess of Misery and Poison, is exerting a major influence on the world currently. And sadly the dosage of misery and poison will increase in coming months and years.

What is now crystal clear is that this excess dose of fake assets and fake liabilities will totally poison the financial system and the world economy.

As Paracelsus, the renowned 16th century Swiss physician said; “all things are poison, it is the dosage that makes it either a poison or a remedy.”

When a world already in trouble was hit by a severe financial crisis in September 2019, the dose of debt was already excessive. But as the Fed and the ECB opened the money spigots fully, they filled the world with poisoned or fake money. The BY team (Biden & Yellen) will now be certain to finish this process with their profligate spending plans.


The financial system has been poisoned for decades by governments’ excess spending and central banks’ prodigal printing of toxic and worthless money.

And now, with Covid, they have the perfect excuse to senselessly create trillions of dollars, euros, yuan or yen. The world doesn’t realise that this money, fabricated by pressing a button, is no different from the Monopoly board game money.

Just look at the balance sheet of the four major central banks – the Fed, ECB, Bank of Japan and the People’s Bank of China.

As the graph above shows, these central banks’ balance sheets have exploded almost 6x since 2006. In 2008-9, their total balance sheet were $9 trillion and now they are $29t.


Business assets are defined as items of value. So how are these “assets of value” created in the financial system?

Firstly the central bank creates toxic money out of thin air. By definition, money that has been fabricated without real labour or production of goods or services must have ZERO value.

Secondly, the central bank purchases “poisoned” assets in the form of debt that cannot and will not ever be repaid. These debts are issued by bankrupt governments and other insolvent debtors who can only repay their debts by issuing more debt.

So this whole corrupt and circular system should be defined as “Poison in – Poison out”.

The poison in is the fabricated fake money which has ZERO value. The poison out are the assets/debts bought with fake money which will all expire worthless.

And it is on this construction of toxic assets and liabilities that the whole financial system rests.

It is totally absurd to swallow that such a system can survive.



We were told that the crisis was over in 2009 and still the balance sheets of these central banks are up more than 3x. Hmmm……

The reason is simple, the Great Financial Crisis in 2006-9 was never solved, the can was just kicked down the road. But this time the can is too big.


And now 12 years later the whole world is drowning in $280 trillion debt – up 3x this century.

The illustration above shows global debt reaching $360 trillion by 2030.

This assumes a simple extrapolation of current trends. In my view, there is a major risk of a hyperinflationary debt explosion in the next 4-9 years to $2 quadrillion or more. Probably it will take a lot less than 9 years.


So how is this massive increase of debt to $2 quadrillion possible? There are at least $1.5 quadrillion of derivatives outstanding today. Derivatives are an incredible gravy train for banks in rising and liquid markets.

But with crashing stock markets and massive pressures in debt markets, there will be little liquidity in derivatives. This will likely lead to central banks printing enough money to buy most of the derivatives of ailing banks. This is what would create $2 quadrillion or more in global debt.


So what is happening to all this debt based money created. Well almost none of it reaches the real economy but instead it stays with the banks and is used by private and institutional investors to buy assets like stocks, bonds and property.

So while there is very little that reaches the ordinary man, the wealthy can take advantage of this massive liquidity to further expand the already epic bubble in asset markets.

The graphs below, showing total US M1 money supply and its velocity, illustrate this perfectly.

As Money Supply surges 5x from $1.3t in 2005 to $6.8t in 2021, the Velocity of Money crashes from 10 to 3. This means that the money printed does not reach the real economy but instead is just used to inflate asset prices.

Since all this money is created out of thin air and is just toxic or worthless, it would have little effect in simulating the real economy.

But investors are under the illusion that this toxic liquidity is actually creating wealth!

No wonder they are under that illusion since global equities have increased in value by $24 trillion since March 2020. That is a staggering 30% of global GDP.

Why should anyone work when by printing money and investing, the world can create 30% of GDP in just 10 months by buying stocks?

Sadly, investors neither see nor worry about that stocks are going up just because they are going up rather than due to rising profits or improving fundamentals.


What they don’t realise it that a global crash is right ahead – a crash that will destroy 90-95% of their illusory wealth.

Since the latest phase of the stock market rise started in the early 1980s, investors have forgotten to take profits. Even though there have been some nasty corrections, investors have been saved by central banks every time. Therefore why should they take profit?

“The market always goes up! So it is always right to be in the market.”

They have forgotten that in 1929-32, the Dow fell by 90% and that it took 25 years to recover. And this time the bubbles of debt and assets are far greater.

So now we have toxic valuations created by toxic money.


The rich are also getting substantially richer which is what creates revolutions. 

Just take the average chief executive of an S&P 500 company.

He now earns 357x as much as the average worker. Back in the 1960s he earned 20x! 

And in the mid 1980s it was still only 28x.

The graph below illustrates this phenomenon very clearly.

At the beginning of the 1900s, the top 10% received between 40% and 50% of total income. Then came the Wall Street crash and the 1930s depression, followed by WWII.

The consequences were that between 1940 and 1985, the top 10% went from as high as 50% of total income down to just over 30%.


But then things improved for the top earners again in the mid 1980s. First stock markets started booming. Then, once Greenspan became chairman of the Fed, that was like manna from heaven for investors.

The programme of producing manna money has just got better with every new Fed chief. Tens of trillions of dollars of debt has been created to boost the stock market. But once the 2000s got going, manufacturing money wasn’t sufficient. No, the money had to be free also or even better, you got paid for borrowing money. Well at least banks and central banks do.


Debt bubbles can only end in one way. With imploding debt and crashing asset markets.

But before that there will be a final overdose of poison in the form of massive money printing. This in a last and desperate attempt to solve a debt problem with more debt.

Sadly central bankers never studied Paracelsus theorem that all things are poison if the dose is too high.

They will soon find out……..

As the last overdose of debt hits the world, most currencies will finish their journey to ZERO, leading to hyperinflation.


Many economists and commentators are certain that the world will not see inflation or higher interest rates for years. They can’t see a demand led inflation.

Let’s go back to history again. History helps us to predict the future but very few so called experts understand the significance of history.

Virtually every major debt bubble in history has ended in a currency collapse and hyperinflation. Few understand that hyperinflation is a currency driven event and not demand driven.

With most currencies down 97-99% since Nixon’s fatal decision in 1971 to close the gold window, the world will soon experience the final move to ZERO.

But remember that this move involves a 100% fall of the currencies from today. This is what will lead to hyperinflation. Just study history.

Hyperinflation normally only lasts a short period like 1-3 years. Thereafter the world will experience a deflationary implosion of debt and asset prices. The banking system is unlikely to survive such a collapse.


This scenario is obviously based on assumptions and probabilities. It is also based on history.

No forecast can ever be certain until afterwards. But at that time it will be too late to protect yourself.

What we know today is that risk is at a maximum. We also know that to protect against this uber-risk is not just wise but absolutely critical.

History tells us that in every major economic crisis, physical gold and silver has been the ultimate protection.


In Quest for Herd Immunity, Giant Vaccination Sites Proliferate

A day at one mass site in Connecticut shows both the promise and the shortcomings of the approach, which is at the center of President Biden’s plan to bring the pandemic to an end.

By Abby GoodnoughPhotographs by Christoper Capozziello

EAST HARTFORD, Conn. — With the nation’s coronavirus vaccine supply expected to swell over the next few months, states and cities are rushing to open mass vaccination sites capable of injecting thousands of shots a day into the arms of Americans, an approach the Biden administration has seized on as crucial for reaching herd immunity in a nation of 330 million.

The Federal Emergency Management Agency has joined in too: It recently helped open seven mega-sites in California, New York and Texas, relying on active-duty troops to staff them and planning many more. Some mass sites, including at Dodger Stadium in Los Angeles and State Farm Stadium in suburban Phoenix, aim to inject at least 12,000 people a day once supply ramps up; the one in Phoenix already operates around the clock.

The sites are one sign of growing momentum toward vaccinating every willing American adult. Johnson & Johnson’s single-dose vaccine won emergency authorization from the Food and Drug Administration on Saturday, and both Moderna and Pfizer have promised much larger weekly shipments of vaccines by early spring. 

In addition to using mass sites, President Biden wants pharmacies, community clinics that serve the poor and mobile vaccination units to play major roles in increasing the vaccination rate.

With only about 9 percent of adults fully vaccinated to date, the kind of scale mass sites provide may be essential as more and more people become eligible for the vaccines and as more infectious variants of the virus proliferate in the United States.

But while the sites are accelerating vaccination to help meet the current overwhelming demand, there are clear signs they won’t be able to address a different challenge lying ahead: the many Americans who are more difficult to reach and who may be reluctant to get the shots.

The drive-through mass vaccination site on a defunct airstrip here in East Hartford, outside Connecticut’s capital, shows the promise and the drawbacks of the approach.

Run by a nonprofit health clinic, the site has become one of the state’s largest distributors of shots since it opened six weeks ago, and its efficiency has helped Connecticut become a success story. Only Alaska, New Mexico, West Virginia and the Dakotas have administered more doses per 100,000 residents.

The site, on a defunct runway owned by Pratt & Whitney, has become one of the Connecticut’s largest distributors of shots since it opened six weeks ago.

Staff members and National Guard troops arrived for a day of giving vaccinations and performing other jobs at the site.

Most of the people running mass sites are learning on the fly. Finding enough vaccinators, already challenging for some sites, could become a broader problem as they multiply. 

Local health care providers or faith-based groups rooted in communities will likely be far more effective at reaching people who are wary of the shots. And many of the huge sites don’t work for people who lack cars or easy access to public transportation.

“Highly motivated people that have a vehicle — it works great for them,” said Dr. Rodney Hornbake, who serves as both a vaccinator and the East Hartford site’s medic, on call for adverse reactions. “You can’t get here on a city bus.”

Before dawn on a recent raw morning, Susan Bissonnette, the nurse in charge, prepared enough vials of the Pfizer vaccine and diluent for the first few hundred shots of the day. At 7:45 a.m., her team surrounded her in a semicircle, stamping the snow off their boots and warming their fingers for the hours of injections that lay ahead.

“We’re going to start with 40 vials, eight per trailer,” Ms. Bissonnette shouted to the group of 19 nurses, a doctor and an underemployed dentist who had volunteered to help. “OK, so remember it’s Pfizer, right? Point three milliliters, right?”

The site vaccinates about 1,700 people on a good day, partly because Connecticut is small and gets fewer doses than many other states. 

It is a well-oiled machine, with a few dozen National Guard troops directing cars into 10 lanes, checking in people, who have to make appointments in advance, and making sure they have filled out a medical questionnaire before moving down the runway to their shots.

Troops also supervise the area at the end of the runway where people wait after their shots for 15 minutes — or 30, if they have a history of allergies — in case of serious reactions.

In between are the vaccinators, two per car lane, trading on and off between jabbing arms. When they need to warm up, they retreat inside heated trailers to draw up doses and fill out vaccination cards.

“If you simply open up with 10 lanes, it will be chaos unless you have teams all along the way at checkpoints, executing on the plan you’ve laid out,” said Mark Masselli, the president and chief executive of Community Health Center, which opened the East Hartford site on Jan. 18 and has since opened two smaller versions, in Stamford and Middletown. 

“You’ve got to marry some groups together — folks with health care delivery sense and folks with logistics sense.”

Monica Torrenegra, 53, left, a health care worker, and her mother, Mariela Medina, 75, both of Waterbury, in a waiting area after receiving their vaccines.

A dose ready for delivery. Most sites say their main challenge is not having enough supply to meet demand, a problem experts say will fade as more vaccines become available.

The site came together in six days, as Mr. Masselli’s staff worked frenetically with the state to install trailers, generators, lights, a wireless network, portable bathrooms, traffic signs and thousands of orange cones to mark the lanes. 

Every worker has two all-important pieces of equipment: a walkie-talkie to communicate with all the stations and supervisors, and an iPad to verify appointments or enter information about each patient into a database.

The vaccine they use is Pfizer’s, which adds complexity because it has to be stored at minus 70 degrees Fahrenheit. 

The supply is kept in an ultracold freezer that Community Health Center installed at the adjacent University of Connecticut football stadium. Ms. Bissonnette and other supervisors speed there in bumpy golf carts several times a day to grab more vials, which last for only two hours at room temperature.

The first cars roll in at 8:30, often driven by the adult children or grandchildren of those getting shots.

Drive-through clinics can be better for infection control, some experts say — people roll down their car windows only for the injection — and more comfortable than standing in line. But a month into the Connecticut site’s existence, its weaknesses are also clear.

Traffic can get snarled on the busy road leading to the site, and bad weather can shut it down, requiring hundreds of appointments to be rescheduled on short notice. Spotty vaccine supply, which forced sites in California to close for a few days recently, can also wreak havoc.

More significantly, you need a car, gas money and, for some elderly people, a driver to get to and from the site. 

At this point, white people comprise 82 percent of those seeking shots at the East Hartford site, down from 90 percent in early February; their overrepresentation is partly because the older population now eligible is less diverse than the state overall.

Dr. Rodney Hornbake took the blood pressure of Katherine Delventhal, 85, of West Hartford after she received the vaccine. 

Marilyn Coppola, 82, of Madison got the shot. Officials have been taking pains to keep the crowds moving and happy. “If it’s really a pain in the neck, why would you go wait in line again a few weeks later?” said one expert.

To address problems of access and equity, FEMA is opening many of its new mass sites in low-income, heavily Black and Latino neighborhoods where fear of the vaccine is higher, vaccination rates have been lower and many people lack cars. 

In addition to its mass sites, Community Health Center, which serves large numbers of poor and uninsured people in clinics around the state, is also planning to send small mobile teams into neighborhoods to extend its vaccination reach.

The East Hartford site has hired several dozen temporary nurses and trained its dentists and dental hygienists to help with the shots. Still, staffing the site with 22 vaccinators daily remains a challenge, one that will grow nationally as more people become eligible for the shots.

Dr. Marcus Plescia, the chief medical officer for the Association of State and Territorial Health Officials, said the need for mass vaccination sites might wane as more and more of the low-hanging fruit — Americans who are highly motivated to get vaccinated as soon as possible — is picked.

“I think they have worked well in the current setting of demand substantially exceeding supply, drawing on many people who are eager to be vaccinated,” Dr. Plescia said. “As supply increases, and we have vaccinated the eager, we may find that lower-volume settings are preferable.”

Mobile vaccination clinics will reach some of the vaccine hesitant. But Dr. Plescia said people who are uncertain and fearful would be best served by doctors’ offices or community health centers where they can talk it through with health care providers they know.

“They’re not there to counsel you,” he said of mass sites. “You go to get the shot, end of story.”

Dr. Nicole Lurie, who was the assistant health secretary for preparedness and response under President Barack Obama, said that instead of just asking FEMA for help, state and local governments should seek input from private companies used to keeping large crowds moving — while keeping them safe and happy.

In one such example, the company running Boston’s mass vaccination sites contracted with the event management firm that runs the Boston Marathon to handle day-to-day logistics. Several companies that ran large coronavirus testing operations are also involved in mass vaccination.

“These sites need to be motivated to make this a good experience for the customer, especially since they’re working with a two-dose vaccine,” Dr. Lurie said. “If it’s really a pain in the neck, why would you go wait in line again a few weeks later?”

Most sites say their main challenge is not having enough supply to meet demand. But with 315 million more Pfizer and Moderna doses promised by the end of May, and Johnson & Johnson pledging to provide the United States with 100 million doses of its newly authorized vaccine by the end of June, that complaint may fade before long.

The biggest headache for the East Hartford site has been the system for booking appointments, a clunky online registry known as VAMS that is being used in about 10 states. Many people 65 and older have had such a hard time navigating it that most end up calling 211, the phone number for health and social services assistance, to make appointments instead.

As the hours pass, the eternally smiling vaccinators in East Hartford get tired — and sometimes bone cold. But sometimes there are unexpected boosts, such as when John Rudy, 65, pulled up with his mother, Antoinette, in the back seat.

The site usually closes at 4 p.m., but there was a problem: There were more no-shows than usual that day, in the middle of a snowy week, and there were 30 unused doses. Word went out from nurses at the site, including to people working at a nearby big-box store, who were not all eligible but could qualify for a vaccine if the alternative was throwing it away.

“It’s just a precision game toward the end of the day,” Ms. Bissonnette said.

At 5:15, Greg Gaudet, 63, drove up, teary with excitement. He had learned from one of the nurses, a former high school classmate, that a shot was available.

“I have a luckily dormant cancer, but my immunity is low,” said Mr. Gaudet, an architect whose form of leukemia was diagnosed six years ago. “I’m so grateful.”

How much the site will cost over time remains “a question that we are eager to work through,” Mr. Masselli said. Community Health Center spent about $500,000 to set it up and is spending roughly $50,000 a week on labor and other costs. It receives a fee for each shot it can bill insurance for — the Medicare rate is $16.94 for the first dose and $28.39 for the second — but is also counting on reimbursement from the state and FEMA for start-up and other costs.

Still, the expense has not stopped Mr. Masselli from imagining an expansion.

“There’s another runway over there,” he said, gesturing behind him. “Between the two, with two shifts, we could do 10,000 a day. March 14 is Daylight Saving Time; we’re going to pick up warmer weather, more light. The timing is right.”