Malt Liquidity 47
Wake up, Mr. West
Central Bank is King
While I originally wrote this in the context of the Bank of Japan, it remains true for all central banks in the ZIRP era:
When the wealth creation mechanism becomes the source of wealth itself, it rests on the faith that the currency has some innate, tangible value that cannot be replaced with a denomination of any other kind.
I can’t even use a cabinet phrase of mine - “particularly egregious” - regarding Japanese asset purchases due to the fact that, well, every central bank is just playing along with the Fed. People are reaching the end of their tether, however. It is no secret that while the real economy suffers from what is called “inflation” by the twitterati, markets are in a massive asset inflation regime. Asset inflation regimes naturally reward the people who control most of the assets. You can claim to tax the rich as much as you want, but the fact of the matter is if you keep providing liquidity endlessly, these very people’s net worth and share of wealth will simply continue to increase. Thus you get the perverse effect where the highest net worth individuals - theoretically the most illiquid individuals - are exponentiating their net worth at a much higher rate than the ordinary person. It doesn’t take a genius to notice that this causes a lot of resentment:
Germany’s long-simmering anger with the European Central Bank is again coming to the boil. It is hard to justify perennial bond purchases and negative rates when German inflation is near 4pc and rising, the highest since the Reunification boom in the early 1990s…
Wait, didn’t I just say that inflation wasn’t an issue? Well, this is because Germans habitually tend to not participate in the wealth creation perpetuation mechanism that rewards asset holders.
Mr Merz said the ECB had reached “the limits of its mandate” and was playing down evidence of surging prices in everything from the daily shopping basket, to rent, home prices, and filling up the petrol tank.
Inflation is particularly corrosive in Germany, not because of Weimar mythology but because just half the population owns property or equities. The other half rents for life and mostly keeps savings in bank deposit accounts
Perhaps “a home of your own” would have better consequences as a policy for Germany.
Everyone knows rates must rise. The problem with a central bank liquidity-driven market, however, is that they’ve invoked a catch-22: their policy is ineffective if people do not believe that central banks have the power to control inflation, yet if they raise rates and kill speculative bubbles and hit ordinary people’s net worth, they won’t be trusted to control inflation. Thus you get this waiting game - theta decay, shall we call it? - of letting resentment build while hoping that speculative mania naturally pops (as it’s mathematically assured to once a critical mass of people become game for a little wager) so they are deemed lagging, but not responsible. Yet this simply fuels more mania, as there is simply no reason to ever sell as long as central bank liquidity is guaranteed. One wonders how much longer these options have until expiry. Certainly this is an American option, not a European, right?
The US Securities and Exchange Commission has warned that it will sue Coinbase if it launches a new digital asset lending product, and also issued subpoenas to the cryptocurrency trading platform to provide it with more information, according to executives.
While I haven’t looked into what yields Coinbase is offering, it seems obvious that a US-based company catering to US clients and reporting to the US IRS is going to be highly scrutinized whenever they offer an obviously derivative securitization of an asset class.
Lend is designed to allow users to earn interest on certain digital assets on the platform. Grewal said the SEC had told Coinbase earlier this year that it considered the Lend product a security “but wouldn’t say why or how they’d reached that conclusion”.
The core issue here, in my opinion, is that it simply isn’t clear why lending Coin X for Coin Y or whatever should pay interest in the first place. It’s not clear what “interest” is being generated other than Coinbase arbitrarily setting a lending rate. Lending rates need an incentive to speculate to make sure that they remain convergent to, you know, what they’re actually supposed to pay. The rates for dollars, of course, are set by the Fed, and speculation on where they will go is pretty much the underpinning of the entire market system. It’s hard to really see Coinbase as doing anything other than playing central bank or just paying people off to use their platform when there’s no real reason to use it given that it crashes at the slightest bit of actual trading volatility in its asset classes.
Brian Armstrong, Coinbase’s chief executive, took to Twitter to attack the SEC, arguing that its actions constituted “sketchy behaviour”. “They are refusing to offer any opinion in writing to the industry on what should be allowed and why, and instead are engaging in intimidation tactics behind closed doors,” he wrote. “Whatever their theory is here, it feels like a reach/land grab vs other regulators.”
Ah yes, I love when company executives take to twitter to play the song and dance of “I’m not the puppet, you’re the puppet.”
I’m sorry, this is too funny
The president of El Salvador live-tweeting tossing his country’s Treasury into Bitcoin is an absurdity I never thought possible. Reality has been post-satire for so long that I’m not even sure what satire is at this point.
On that note…
