Yes, the US Dollar is FIAT currency (not backed by a precious commodity like gold, silver or even iron pyrite).
Bitcoin, the largest crypto-currency, has more than recoverd from the “correction” last week. It has resumed its all-time high price This is happening as the US Dollar weakens.
Here is Bitcoin relative to Gold. Check out their relative performance since September.
Is it digital gold? Well, Bitcoin is an alternative to FIAT currency like the US greenback, the Euro and the Yen. The massive expansion of Central Bank balance sheets has certainly concerned investors.
It is doubtful that we will learn much from today’s Open Market Committee (FOMC). Hopefully we will get additional clarity on the Fed Balance Sheet unwind schedule (it was supposed to start in October and it is now November).
Ahead of the meeting, both the 10Y-2Y and 30Y-5Y Treasury slopes fell to near 10 year lows.
And the 10 year Treasury Note volatility index, TYVIX, remains near historical lows.
And just a reminder, core PCE prices YoY (“inflation”) is at 1.33%, well below the 2% Fed target rate for inflation.
Well, apparently Janet Yellen and The FOMC aren’t following the Taylor Rule (or ANY rule that I can detect).
I am sure that Janet Yellen would like to lock up John Taylor (in gold) and throw away the key.
Check it out. Home prices are seemingly unstoppable and the S&P500 index is relentless. The unstoppable asset price bubbles started in the mid-1990s when M2 Money Velocity peaked. The housing bubble burst then rallied back it bubble levels again, but the stock market has outpaced its former glory.
Of course, the M2 Money stock is over 3 times greater than in 1995 (that’s a lot of printing!) and interest rates have been depresssed since December 2008.
Now, The Federal Reserve is tapping the brakes by ever-so-slowly raising The Fed Funds Target Rate while at the same time slowing M2 Money Supply YoY (we are now at the slowest YoY growth rate of money since early 2011. Next up? Today’s FOMC meeting.
While some are preoccupied (like me) with how the next Federal Reserve Chair is going return to monetary normality (and unwinded the $4.4 trillion balance sheet), others (like me) worry about the unsustainability of US Federal spending. Particulalry how much politicians have promised Americans in terms of entitlements.
Here is a chart showing Government total expenditures (red line) along with their source of taxes (personal in green and corporate in purple). The total Federal current tax receipts is in blue. As of Q2 2017, total expenditures exceed current tax receipts (personal and corporate) by 3 times (or 3x).
With M2 Money Velocity at a historic low, printing more money isn’t doing the trick.
(Bloomberg) — As traders prepare to underwrite $5 billion of inflation-linked Treasuries on Thursday, they’re as confident as ever that the Federal Reserve’s predicted inflation rebound won’t materialize at any point in the next 30 years.
Low inflation, which Fed Chair Janet Yellen last weekend called “the biggest surprise in the U.S. economy this year,” has been a fact of life for years in the $1.29 trillion market for Treasury Inflation Protected Securities. The market-implied inflation expectation signaled by five-year TIPS has rarely been above the 2 percent mark since 2013.
There’s an even stronger signal that traders see little pickup in consumer prices for a generation to come, especially with the Fed intent on tightening monetary policy. The anticipated inflation rate implied by 30-year TIPS yields, at 1.91 percent, is a mere 18 basis points above that on five-year TIPS, among the narrowest gaps seen in the past two decades.
The bond market’s view shows the Fed has some convincing to do that the economy will reach and sustain officials’ inflation goal of 2 percent, expressed in terms of the deflator for personal consumption expenditures. TIPS reflect expectations for the consumer price index, which historically has exceeded the PCE deflator by about 40 basis points on average. So if the Fed were expected to meet its goal, the TIPS breakeven rate should be at least 2.40 percent.
The TIPS breakeven rate is only 1.76%. And has mostly been below 2% since early 2013.
And with the US Treasury 10 year Note yielding 0.64% in real terms, …
With almost 100 million people NOT in the labor force, that might have something to do with the puzzling lack of inflation.