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Posts by: Gary Mead

Glint’s Helpful Hints: Stagflation

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At Glint we like to stay abreast of what’s going on in the wider economy and often have quite in-depth conversations with the whole team to ensure that we are all fully cognisant of current events in the money world. Recently, and perhaps inevitably, the words ‘inflation’, ‘deflation’ and ‘stagflation’ cropped up. Some colleagues were a little shaky about what these terms mean. We thought some of you too could do with a pithy summary, so here goes:

Inflation – is when prices as a whole go up. Wages might go up too, and that means we might all feel richer, but actually we won’t be if prices go up higher and/or faster than our earnings.

Deflation – opposite to inflation. So prices as a whole tend to be falling. Governments hate deflation more than inflation, because people put off spending in the expectation of further price falls; and the economy as a whole slows down.

Stagflation – a combination of a stagnant economy, which is not growing and may actually be shrinking, plus inflation. A truly disastrous situation, in which people see prices going up while their incomes and jobs are at greater risk, because the economy isn’t growing.

Soapbox: Inflation’s here – how bad will it get?

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Are you chill about inflation, now that the US consumer price index (CPI) jumped to 5.4% in June, a 13 year high, and following a 5% rise the previous month? The word ‘inflation’ was mentioned on 87% of the earnings conference calls tracked by Bloomberg in July, compared with 33% a year ago. Clearly inflation is on investors’ minds.

Maybe it’s not the CPI we should be worried about, but wholesale prices – the producer price index in the US went up by 7.3% last month, the biggest annualised gain since 2010. That suggests prices in the shops are going higher in the coming months.

In the UK, The Guardian newspaper ran a provocative – or maybe rhetorical – headline on 18 July, directly addressing the Bank of England governor, Andrew Bailey: “Inflation isn’t out of control yet, governor, but can you reassure us it won’t be?” The UK’s official figure for consumer price inflation (CPI) in June was 2.5%. The Guardian added that “forecasters agree 3% is a nailed-on certainty this year, with a few saying 4% will be seen”.

The UK’s CPI doesn’t take account of the rise in house prices, which went up by 10.7% in May compared to the same month last year. In the US, the S&P Case-Shiller national home price index rose by 14.6% in April, year-on-year, after it went up by 13.3% in March.


Jamie Dimon, CEO of JP Morgan Chase bank, told a conference call in July that inflation may be worse than the Fed anticipates but “it won’t make any difference” if jobs are plentiful and growth remains strong. Maybe Dimon is tossing his hat into the ring as a candidate for the position of chairman of the US Federal Reserve in 2022, when Jerome Powell’s tenure expires. Powell looks like a shoo-in for re-nomination in charge of the Fed. A survey in April of 34 fund strategists and economists showed 74% of them thought that President Joe Biden would re-select Powell. In any case, Dimon has a comfortable $1.8 billion cushion against rising prices.

As for the Eurozone, the “harmonised index of consumer prices” was at an annual rate of just 1.9% in June, down from 2% in May. The European Central Bank (ECB) is due to meet on Thursday this week. The expectation is that it will continue staying ultra-dovish; 2% inflation remains its target. Average annual inflation in the Eurozone has been just 0.9% since 2013, compared with 1.9% in the US. The Eurozone contracted by almost 7% in 2020. It will recover much of that lost ground this year – but real growth still eludes it, despite all the European Central Bank’s efforts.

Keep an eye on it

Jerome Powell’s job hangs on how he steers the US economy through the troubled waters of the next 12 months. He seems pretty relaxed about inflation. He said recently: “if people believe that prices will be pretty stable, then they will be — because they won’t ask for very high wage increases and people who sell things won’t be asking for high price increases… Once that psychology sets in, it tends to perpetuate itself”. That’s either a thunderbolt of profundity or breathtakingly naïve. The US Treasury Secretary, Janet Yellen, is singing the same song. She said last week “we will have several more months of rapid inflation… I think over the medium term, we’ll see inflation decline back toward normal levels. But, of course, we have to keep a careful eye on it”.

Yellen is almost 75; Powell is 68. Both of them therefore can clearly remember the 1970s, when the US was in the grip of double-digit inflation. Americans then took to wearing badges reading ‘whip inflation now’. It might be time to get those old badges down from the attic.

That inflation was broken only by very painful, recession-causing action by a former chairman of the Federal Reserve, Paul Volcker. Volcker pushed interest rates to 20% to kill inflation. “At some point this dam is going to break and the psychology is going to change”, said Volcker. Almost four million jobs were lost in the recessions that followed as people learned some Volcker-psychology.

Today, no-one knows which direction inflation is headed, nor even what its real level is. Official CPI stats, based on a basket of goods which has changed over time, are questioned by some people. John Williams, founder of ShadowStats in the US argues that, if the methodology once used by the US government, with an unchanged basket of goods was applied today, then inflation would be revealed as much higher, around 13.5%. It “will get quite a bit worse” in his words.

There are as many learned economists telling us to relax, nothing to see here, move along quietly, as there are equally expert pundits telling us we are going to hell in a handcart. The former chief economist of the IMF (International Monetary Fund) and now Professor of economics at Harvard, Kenneth Rogoff, said last week “mildly elevated inflation more likely signals that things are going well than that we are doomed. There is no reason for the Fed to squash it too quickly… US inflation today is much more like good news than bad”.

On the other hand, another esteemed academic, Professor Steve Hanke, who teaches applied economics at Johns Hopkins University, warned in May that: “more – perhaps much more – inflation will enter the system”. Who should we believe?

Psychology – what people expect will happen and how much that influences what they do – is only half of it. It’s also a matter of how much money is sloshing around. It’s unfashionable to link inflation to increased money supply – modern monetary theory, which de facto seems to have taken hold of central bank thinking, asserts that running deficits and creating more fiat currency doesn’t matter, so long as an economy keeps growing. So central banks create more fiat money: almost one in five Dollars in existence was created in 2020.

All these extra trillions of Dollars, Pounds and other fiat currencies have been injected into the system. Not all will be stashed under the mattress. Some of it has been or will be spent – on cars, holidays, houses, whatever. According to the New York Federal Reserve bank roughly a third of all stimulus payments received by Americans has been used to pay down debt, while 25% has been spent on consumption. As Steve Hanke said in May this year, “money growth will lead in the first nine months to asset‐​price inflation”. We’ve seen that, in houses and equity valuations. “Then, a second stage will set in. Over the 18 months after a monetary injection, economic activity will pick up”. That’s what central bankers are hoping. “Ultimately, the prices of goods and services will increase. That usually takes between one and two years after the injection”.

We may be in for a nasty surprise – not inflation but stagflation: stagnant economic growth combined with inflation. The Eurozone has been trying to get its economy to return to growth, with little success, for years. We have had a demand shock – strong demand for just about everything from basic agricommodities to semiconductors – as economies re-open. The stimulus from the Fed (and the central banks of other countries) has been fuelled by running up ever greater debts. The official figure for US national debt is close to $29 trillion, but another source, taking into account unfunded Social Security and Medicare pledges, puts it at more than $133 trillion.

A Minsky moment

Hyman Minsky, who died in 1996, lived a fairly obscure life as an American academic economist. His name became familiar during the 2008 financial disaster. Minsky posited that economies are inherently unstable. During periods of bullish speculation they shift from financial stability to fragility and then into crisis, thanks to speculative bubbles in asset prices. 2008 was a classic Minsky ‘moment’.

At the moment everything in the garden looks rosy. But maybe we are headed for a fresh Minsky ‘moment’? The euphoria following the pandemic, and the continuing loose monetary policies to prevent outright collapse are building bubbles on several fronts. Economies are rebounding, admittedly at different speeds, and we are in danger of being carried away by headlines that shout about strong growth. But maybe this is a house of cards? Is real underlying productivity rising so strongly?

In this febrile moment, poised as the world is between signs of economic recovery from COVID-19 and alarms about fresh variants, the Fed is between a rock and a hard place – push up interest rates to choke off inflation and risk stifling economic recovery and killing off many ‘zombie’ companies, or leave interest rates at their rock-bottom level and watch inflation steadily climb higher. As Nouriel Roubini, another eminent economist brain, wrote at the end of June: “years of ultra-loose fiscal and monetary policies have put the global economy on track for a slow-motion train wreck in the coming years. When the crash comes, the stagflation of the 1970s will be combined with the spiralling debt crises of the post-2008 era, leaving major central banks in an impossible position… this slow-motion train wreck looks unavoidable”.

Roubini envisages our future to be stagflation – low or no economic growth, combined with rising prices. What to do to protect oneself in such turbulent times? The purchasing power of fiat money continues to slide; asset bubbles are everywhere. While gold has had its ups and downs, when down can obviously have a negative effect on purchasing power, the overall trajectory for the past 50 years at least has been up, while fiat currencies have relentlessly been down. Our mantra is that gold is security and Glint its key; but Boy Scouts have an equally sound motto: “Be prepared”.

Soapbox: Bitcoin and the boa constrictor

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The boa constrictor wraps itself around its prey, and squeezes until the life has gone; they cut off the blood supply. Governments are going to be cryptocurrencies’ boa constrictor.

South Korea provides the perfect illustration of how this reptilian embrace will work. Cryptocurrency operators in South Korea will have to shut down if they do not file a report with the government by 24 September. They are required by then to make three sweeping (and expensive changes): they must have an information security management system; they must confirm that the exchange has opened an account where deposits and withdrawals can be verified using real names; and they must ensure there are no legal or regulatory violations by company executives. Upbit, the country’s biggest exchange, closed trading in 24 out of its 25 tokens on 18 June.

Kim Hyoung-joong, head of the Cryptocurrency Research Center at Korea University, said “regulation could nip this new industry in the bud before it has a chance to grow. Bad investments are a personal responsibility. The government should sit back and watch”.

This snake has no intention of sitting back and watching its prey survive.

A poll by UBS of 30 central banks’ reserve managers concluded that 85% don’t see cryptocurrencies replacing gold in their foreign currency reserves. On the other hand 60% of them expect at least one G7 central bank to make digital currencies directly available to consumers within the next half decade. More than 80% per cent expect “wholesale” central bank coins, which would be made available to large financial institutions in the next five years.

So these reptiles don’t like cryptocurrencies; but they rather like the technology that gives cryptocurrencies their edge.

This is how it will be – all the libertarians devoted to advancing their own particular prized version of a cryptocurrency will gradually be squeezed into ever-tighter corners as central banks and governments slowly re-assert control over their most important form of authority – money.

Cryptocurrencies may become legal tender in tiny, unimportant jurisdictions – no offence intended, El Salvador – but it’s unlikely that they will ever make it to the stage of being internationally recognised legal tender.

The cobra’s venom

India’s cobras are also at work.

Indians have become rapidly fascinated by cryptocurrencies. By May this year Indian citizens had put the equivalent of almost $6.6 billion into cryptocurrencies, against around $923 million up to April 2020. Chainanalysis, a blockchain data platform, identifies why India has got the crypto bug: it’s because (as in Venezuela) people are trying to find an alternative to “when a country’s native fiat currency is losing value to inflation”; people turn to cryptocurrencies “to preserve savings they may otherwise lose”. They have been ploughing into cryptocurrencies even though the country’s central bank, the Reserve Bank of India (RBI) issued a directive – struck down by the Supreme Court in March 2020 – that banks should have no dealings with virtual currencies. India’s government is due to consider this month the ‘Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’; this would ban all private cryptocurrencies in India and provide for the creation of an official digital currency – a Central Bank Digital Currency or CBDC.

Reverse China Syndrome

The 1979 movie The China Syndrome took for its main plot the rather fanciful idea that if a nuclear meltdown happened in the US it would tunnel its way to the other side of the planet.

What should we call a meltdown that started in China and ended up in Wyoming?

That’s what’s happening in the world of cryptocurrencies. A lot of the more than 5,000 cryptocurrencies listed as ‘assets’ on Coinbase, which operates a cryptocurrency exchange platform, were once ‘mined’ using advanced computers in China. It’s estimated that as much as 75% of the world’s Bitcoin mining happened in China. Note the past tense; in May, China’s central bank, the People’s Bank of China, began an on-going attack on cryptocurrencies; cryptocurrency miners in China closed shop en masse. Cryptocurrency prices plunged.

Maybe some of the dislocated cryptocurrency miners will find a home in the US state of Wyoming, famed for rodeos. Wyoming might now become famous for rodeos where riders straddle Bitcoins instead of steers. Kraken Bank, based in Wyoming, has become the first digital currency business to receive a US state banking charter. It hopes to launch in the second half of 2021.

Legal tender and state power

Leaving aside the question of whether cryptocurrencies are currencies or assets, the major issue facing their developers is how far central banks are willing and able to coordinate policy regarding them.

The Bank for International Settlements – the central banker’s bank – has already signalled that it favours central bank digital currencies (CBDCs), because they could create a ‘virtuous circle’ of great financial access, lower costs and better services. “Central bank digital currencies… offer in digital form the unique advantages of central bank money: settlement finality, liquidity and integrity. They are an advanced representation of money for the digital economy [and should be] designed with the public interest in mind”, it said. The International Monetary Fund (IMF) published a paper last October, gazing into the future. It said: “A single global stablecoin (GSC) becomes commonly adopted in many countries and replaces the local currency as store of value, means of payment, and unit of account; and is also widely used for international transactions. This scenario may arise if a big tech platform of global scale decides to launch a GSC to its large customer base which spans across the globe…the GSC could be adopted globally at a rapid pace… As the GSC gains popularity, network effects would take over: agents would start invoicing contracts in the GSC and financial intermediaries would start collecting deposits and lend through GSC-denominated contracts. At some stage, once adoption reaches some critical mass, the peg to existing reserve currencies may no longer be needed to generate trust in the value of the GSC, and the GSC could become a fiat currency”. The more recent BiS document disparaged ‘stablecoins’ – but the policymakers’ drift is clear: digital currencies controlled by the state are on their way.

China wants to launch its own digital e-yuan, which has been trialled in various of its cities, for universal use in time for the Beijing Winter Olympics in February 2022. For China a CBDC is as much about ensuring state control over the most fundamental aspect of a citizen’s life – how and on what do they spend their money? One doesn’t need to be conspiracy-minded to see its crackdown on private cryptocurrencies as a step in this direction. Technology and politics are driving this money revolution; just as the telephone landline business is dying thanks to mobile phones, so too is cash ebbing away thanks to mobiles.

Covid’s unforeseen consequences

It might seem a big step from Covid to CBDCs.

But the pandemic has created an atmosphere of inter-generational mistrust. It’s contributed to widening wealth gaps. It’s not surprising that people, especially the younger, feel that they either have been or are being ‘left behind’ by governments who seem able to lavish spending yet unwilling to recognise rising inflation. As we have said so often, the purchasing power of your money is endangered. The astonishing rise of cryptocurrencies is in part a demonstration of the hunt by many for lasting value in whatever is used as a currency.

At Glint, we share the same goal as cryptocurrency fans. As fiat currencies lose purchasing power, and governments struggle with the plethora of problems Covid has brought into sharp focus, it’s no wonder that people can be attracted to cryptocurrencies. They seem to hold out the chance to preserve wealth, by stepping outside the regime of government-controlled legal tender.

But if I am right – and governments either jointly or alone – do a ‘boa constrictor’ on virtual currencies – then these currencies will be strangled and, apart from die-hard fans, will lose influence and support. Those holding Bitcoin or the thousands of other virtual currencies may find themselves swallowed whole by the state, chewed up and excreted. There is an alternative, and it’s gold-as-money, as exemplified by Glint. Should you want to take your money out of crypto, but still want an alternative to government currencies: it’s here, has been used as money for centuries. Off-ramp from crypto into gold. Gold with Glint.


Soapbox: Are you really richer?

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2020 was a great year. That sounds a little counter-intuitive, mad even. How can a plague year – that’s how The New Yorker referred to 2020, which saw an estimated 1.7 million deaths worldwide attributed to coronavirus – be in any way great?

Well, despite Covid-19, total global wealth grew by 7.4% and wealth per adult rose by 6% in 2020, reaching “another record high” of almost $80,000, according to Credit Suisse. The Swiss bank also says, incredibly, that overall “the countries most affected by the pandemic have not fared worse in terms of wealth creation”. It defines wealth as the value of financial assets plus real assets, minus debts.

The initial impact on global household wealth from the pandemic and its associated lockdowns was diabolical. Credit Suisse calculates that $17.5 trillion in global wealth “was lost” between January and March 2020. Per adult it “declined by 4.7%”. More than 20 million Americans lost their jobs in April 2020 alone and US unemployment rose to 14.7%, the highest since 1945.

So how come we ended that horrendous year by being richer? Did we suddenly get loads of extra loot in our bank accounts?

Not quite.

The wealth increase has almost all been due to an increase in asset values. The MSCI all-country world index of global shares ended 2020 13% higher than at the start and two-thirds up from its low in March 2020.

There are many different reasons for this surge. One underlying factor is a recovery of confidence, partly because of the surprising speed of the vaccine development. Equities fell by 34% in early 2020 but bounced back on new-found optimism.

We all know by now what has happened to the value of what for most of us is the biggest asset investment we make – our home. In the US house prices have been going up in ‘value’ at the fastest rate in 30 years. In the UK the price rise rate has been much less; ‘only’ the fastest for about 17 years.

That surge in confidence was supported by governments and central banks vastly inflating their borrowing through a combination of monetary and fiscal measures. They shovelled trillions of Dollars into the global financial system. The Institute of International Finance (IIF) said that global debt in 2020 reached a new record of $281 trillion. In the US, the government has borrowed and sent out to all eligible adults $3,200 and every eligible child $2,500 in three rounds of stimulus money; this will cost the government an estimated $867 billion.

Keeping track of what this cash is being spent on is difficult. While many of the extreme poor have used the money to buy food and/or pay rent, the less financially-pressed have used the money to buy shares and other assets. According to a recent Deutsche Bank survey (of an admittedly small sample, just 430) who use online broker platforms half of respondents between 25 and 34 plan to spend 50% of their stimulus payments on stocks. The survey found that more than half of all respondents raised their investments in stocks over the past year, with just under half (45%) investing for the very first time. “Behind the recent surge in retail investing is a younger, often new-to-investing, and aggressive cohort not afraid to employ leverage”, according to the bank.

An impure ‘Cantillon effect’

While many Americans have been kept afloat by government emergency relief, the suspicion is that the mechanism for getting central-government money directly into the hands of those who need most it is flawed.

Enter Richard Cantillon. He was an Irish-French economist, murdered by a disgruntled employee in 1734. Cantillon’s most famous contribution to economic theory was his Essay on the Nature of Trade in General.

The ‘Cantillon Effect’ holds that relative prices change depending on how newly created money is distributed and spent. Perhaps Cantillon’s most relevant insight today is his assertion that recipients of ‘new’ money benefit more according to the position they already occupy vis-à-vis the social hierarchy. Cantillon argued that when governments create money, some people will end up with more purchasing power than others, because the “pipes” along which the money flows do not distribute it evenly across society; nor is it spent uniformly.

In the 18th century, the closer you were to the king and the wealthy, the more you benefitted. The further away you were, the less.

Today’s state largesse has benefitted more those in the fortunate position of not having to use ‘new’ money to buy essential goods and services.

The kinds of ‘stimulus’ programmes introduced by governments around the world have added to the money supply but the distribution and use of this ‘new’ money is uneven. Today we are experiencing what might be called an ‘impure’ Cantillon Effect. The US broad money supply (M2, which comprises currency, bank deposits and retail money market funds) has increased in the past 12 months by around $4 trillion, by far the largest expansion in US history. Central banks have created a lot of new money, but since that money is being used to directly replace the lost income of workers, their incomes have not increased. One group has benefitted tremendously – the already rich. Wealth inequality is nothing new in the US and elsewhere. Covid and its consequences have only widened a divide that started to become very obvious about 40 years ago. Between March 2020 and April 2021 the collective wealth of American billionaires went up by 55% to $4.56 trillion.

The coronavirus has thrown into stark relief the different ways different social groups spend the money they have. At the start of the pandemic there was a dramatic and worldwide collapse in spending. These spending reductions were not evenly spread across the economy. For large numbers of people, especially the poorest, most or even all of their spending is on essentials. Outgoings such as rent or mortgage payments or food take up a very large chunk of disposable income for most people. For these people, their spending barely dropped.

The huge falls in spending have come from richer people, for whom a much greater proportion of their spending is discretionary, non-essential items. Much of the normal spending of the wealthy and middle class, who have either been able to work from home (and thus protect their income) or who are able to live off investments, has been impossible during lockdowns, which have banned travel, dining out, or visiting stores and doing face-to-face shopping, and other ‘luxuries’. The work-from-home trend has enormously benefitted the share valuations of the likes of Amazon, Microsoft and Facebook.

Ruchir Sharma, the chief global strategist at Morgan Stanley Investment Management, follows the super-wealthy. He asserted in May this year that the Covid-19 pandemic has reinforced the trend towards inequality. In his words, “as the virus spread, central banks injected $9 trillion into economies worldwide, aiming to keep the world economy afloat. Much of that stimulus has gone into financial markets, and from there into the net worth of the ultra-rich. The total wealth of billionaires worldwide rose by $5 trillion to $13 trillion in 12 months… wealth inequality is likely to continue widening until the monetary spigots are turned off”.

With consumer price inflation now rising ahead of the targets set by many central banks around the world, we may be seeing the Cantillon Effect come to pass in its fullest sense – that all the “new” money now in circulation may create higher prices. Those with a cushion of wealth may turn out to be the unintended beneficiaries from higher asset prices across the board.

One consequence of the injection of trillions of Dollars into the world’s economy is that many of us may feel – and indeed actually be, in paper terms – more wealthy than we were.

But what will happen to the purchasing power behind that wealth? Even if the US Federal Reserve and the world’s other central banks start ending their loose monetary policies, there has been an irreversible inflation in the quantity of paper money. Unless governments drastically soak up all this newly created and/or borrowed money (through tax rises, maybe) it will further lose its value, its purchasing power.

The final chart gives a very clear picture of two compelling things: the first (the gray block) is the steady – relentless one might say – decline in the US Dollar’s purchasing power; the second (the yellow block) is the (erratic) rise in the gold price. What has happened of course is no guide to what will happen. But it could take a miracle to reverse the flood of fiat currency now at large.

Source: St Louis Federal Reserve and the Market Oracle

Soapbox: What price home?

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In Richard III William Shakespeare has the almost-defeated Richard declaim “A horse, a horse! My kingdom for a horse!” If the play were written today Richard might well cry “My kingdom for a house!”

House prices more or less everywhere have rocketed under the pandemic. The suggestion that annualised inflation is currently running at less than 5% in the US and will only hit 3% (only!) in the UK this year seems considerably mistaken, at least for anyone trying to buy a home. The US National Association of Realtors said last week that the median price for sales of existing homes was up almost 24% year-on-year, reaching $350,000 for the first time. In the UK, house prices are rising by more than 13% a year.


Fifty years ago, according to US Federal Reserve Economic Data, it would have cost you about $24,000 to buy a mid-point house in America. The price of gold that year was $35 an ounce, so you would have needed around 686 ounces to buy that house. By the first quarter of 2021 that same house fetched $347,500, and with the gold price hovering around $1,780 an ounce you would need about 195 ounces to buy it. So that same house has gone up in price more than 14 times, while gold has risen by more than 50 times.

Meanwhile since 1970, the purchasing power of the US Dollar has continued to drop, thanks to an inflation rate averaging 3.87% a year, meaning a cumulative price increase of almost 600% compared to 50 years ago. To buy that $24,000 house in today’s Dollars you would need around $168,000; today’s Dollar buys you just 14.41% of what it would have done in 1970.

In hindsight – and who has that? – it clearly would have made sense to have stashed away gold in 1970 to buy a house, for your offspring if not for yourself, today. No-one can tell if the next 50 years will see a similar rise in the gold price. And the housing market boom may in any case have a bust. Much of the exuberance in the housing market is due to the Federal Reserve spending $40 billion a month on buying agency mortgage-backed securities. There’s been plenty of talk about how this needs to be ‘tapered off’; but taking away that support from the market could well trigger a bust, the impacts of which would ripple through the economy.

The previous boom in house prices ended very badly in 2008, when the over-leveraged sub-prime mortgage market hit the buffers; US homes lost an average of almost $100,000 at the peak of the 2007-09 recession, and slower economic growth cost the US economy around $650 billion.

Generational divide

In 2020, the national house price-to-income ratio in the US hit 4.4, the highest level since 2006. In the UK, the least affordable place to live is Westminster, where the house price/earnings ratio is a staggering 25.5 ; the average is 13.38. In Moscow it’s more than 21. Across the planet it’s become very expensive for new buyers to step onto the housing ladder.

The global Covid pandemic has wrought many changes to all our lives. One of the more easily-overlooked is how it has introduced a new social divide – between those who own their own home and those who can only dream of that. Far from being Covid being a “great leveller” some think that “it seems likely that institutional responses to this crisis, [Covid] including fiscal ones, will be shaped in such a way that inequalities may be further sharpened, as was the case after the 2008 crisis”.

“I’m not happy about house price increases because real estate is the surest indicator, the most compelling leading indicator for… a crash”, said Adam Posen, president of the Peterson Institute for International Economics.

History threatens to repeat

Essentially the 2008 financial collapse, which started in the US, was caused by too many people taking on loans they couldn’t afford, and mortgage lenders relaxing their credit checks. Money was cheap – the then chairman of the Federal Reserve, Alan Greenspan, had cut interest rates in 2001 to 1% in order to buoy-up the economy following the explosion of the dotcom bubble.

But the problem started years before that – in the late 1990s, the Federal National Mortgage Association, or Fannie Mae, started to make home loans accessible to borrowers with a lower credit score. Fannie Mae wanted everyone to attain the American dream of home ownership, regardless of credit.

Borrowing costs are again cheap today. Governments have piled on debt and eased credit costs. Their collective debt has surpassed $277 trillion, which is 365% of global gross domestic product. The World Bank says that every percentage point beyond government debt above 77% of GDP cuts 0.017 percentage points from annual growth. That translates into about 5% lower global growth than might have been expected had debt been restrained to a maximum 77% of GDP.

Speculative investors have once again returned to the US housing market. Robert Kaplan, president of the Dallas branch of the Federal Reserve, said last week: “What we’re seeing is more often than not these days, the winning bidder in many of these house auctions sometimes is not a family. It’s a post office box in Delaware, which is an investor who’s never seen the house, wants the house furnished and is going to buy it for investment purposes and rent it”. Big corporate investors have cottoned onto the fact that Americans want homes; that renting is the only option for many who can’t amass the necessary deposit; and that real estate is one of the few sectors to benefit from the pandemic’s unusual repercussions, such is the desire for more space and good working-from-home facilities.

One must hope that Jerome Powell, the chairman of the US Federal Reserve, knows more than we do. He put on the record last week that it is “very, very unlikely” that we will see a return to 1970s-style inflation. “I don’t expect anything like that to happen”, he added. In saying that the recent inflation spike is ‘transitory’ he joins the heads of some of the world’s other leading central bank. Christine Lagarde, president of the European Central Bank (ECB) said last week that there were “no strong signs of a credit-fuelled housing bubble” in the euro area as a whole. She’s not looking at the data we see, obviously.

The pace of house price rises – they went up more than 9% in Germany in the first three months of 2021, year-on-year, the biggest jump since 2000 – are a sure sign of an asset bubble. Powell, Lagarde and the rest may be relaxed about it, but the rest of us can’t afford to be so. When it pops open like an over-ripe tomato will Powell do a Greenspan, and lamely say “I really didn’t get it until very late”? If a house price bubble burst happens and ripples through the wider economy, will central banks yet again borrow trillions to try to prevent yet another downturn? And who will carry on lending to a US government which already owes more than $28 trillion?

Tricky times indeed. Everything is starting to feel a little precarious. That’s why we advocate holding some real, physical gold; a speculative investment, true, which can and does go up and down in value, but with Glint you can at least use gold as money. And unlike the Dollar, it’s purchasing power has only improved in the last 50 years.



Soapbox: The Slow Death of Cash

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Prepare for government-issued digital currencies. Unless you are Chinese, when you’ll already know what it’s like to live with Central Bank Digital Currencies (CBDCs). National CBDCs are set to replace banknotes and coins everywhere. Your country is going to impose it on you over the next couple of years.

Jerome Powell, chairman of the US Federal Reserve, said in May that America’s central bank will publish a “research paper” this summer on a US CBDC. A digital Dollar would be backed and guaranteed by the Federal Reserve, and stored on a digital ‘wallet’. The Digital Dollar Project is launching five pilot programs over the next 12 months, funded by the consultant Accenture, to test the US CBDC.

According to Christopher Giancarlo, former chairman of the Commodity Futures Trading Commission (CFTC) and co-founder of the Digital Dollar Foundation, “it’s vital that the US asserts leadership [in CBDCs] as it has in previous technological innovations”. His concern – Powell’s concern, President Biden’s concern – is that the US is losing this technological race to China, and that China’s ambition to replace the Dollar with the Renmimbi as the global reserve currency will get a terrific boost as a result.

Why is this happening, and why now?

It’s not really about money, but about the power to define what money is, and is not; it’s also a fight for who ‘owns’ the international reserve currency. And it’s happening now because China has ‘first-mover’ advantage over the US. The French investment bank Natixsis says “there is no secret behind China’s eagerness to internationalise its currency… China is trying [to foster] the cross-border acceptance of its digital currency, profiting from a first mover advantage. This is not only important in the long run but also immediately as it can help China bypass the use of the dollar when and if needed… The fact that the Renmimbi only captures a tiny share of global payments, roughly 2%, adds to the urgency”.

Playing into this CBDC development is that cash everywhere is dying, even in the US. According to Worldpay, the payment processing company, the use of cash for in-store purchases fell to 13% in the UK last year; in Australia, Canada and Sweden the figure was under 10%. Cash is everywhere in decline, even as the amount of cash in circulation on a global scale has increased vastly. In the US, the M2 money supply – which measures cash, deposit accounts and money market securities – last year grew to $18.3 trillion, 23% higher than in 2019. Banks don’t want cash; it costs them more to handle it than it generates revenue; central banks don’t want cash, creating banknotes is expensive; governments don’t want cash because it’s anonymous and makes detection of fraud and criminal activity very difficult. Individuals increasingly don’t want cash because plastic cards and Apps are so much more convenient.

Re-defining money

Money is power – and power (enforced if need be by the law) is something the world’s political elite won’t give up without a serious fight. Control over legal tender is intrinsic to government power and authority. Maybe we should be pleased. After all, we want our governments to protect us, and stave off the threat of anarchy, defending individual and property rights. We give them our allegiance – and in return they give us protection. That’s always been the state/citizen deal.

The deal is being undermined however, as central banks and governments rack up huge national debts, which are actually a mortgage against our future. The protective ‘cover’ is getting thinner, as governments have prioritised spending during the pandemic. In the UK, for example, for every £3 the government spent in 2020, it took in £2 in tax revenues. The UK’s debt pile reached £2.17tn at the end of April 2021 or about 98.5% of GDP, the highest ratio since the 99.5% recorded in March 1962.

Under the global pandemic people have switched, with sublime ease, to living more of their lives on-line. This revolution is as profound as the move from the horse to the internal combustion engine. Instead of flying across oceans for meetings, we have discovered Zoom (and other video communication services) – why pay expensive air fares? 5 days a week in the office is for the birds. What we drive (electric is our future, mandated by government policies); what we eat (the irresistible rise of vegetable protein); the recycling movement (waste not, want not, as my parents would say) is growing; the very idea of consumerism is increasingly questioned.

Part of this post-pandemic revolution is an evolving definition of money and how we use it. Money is no longer just banknotes and coins; it is morphing into the digital transfer of ‘value’ between people. The rise of cryptocurrencies is a key element of this revolution, as are CBDCs. Glint too is participating in this revolution, helping to accelerate the redundancy of banknotes, which by 2050 will be like Egypt’s pyramids, colourful tombstones.

So we are in a struggle, between governments that want to retain control over money, and private sector developers of cryptocurrencies who want to displace fiat money. Glint is in the happy position of observing this struggle from a distance; for us, gold is the authentic form of money. Rather than be forced to choose between two unpalatables – a CBDC that will have all manner of privacy issues, and a cryptocurrency that isn’t really a currency – Glint clients know that their gold is truly their own and secure, and spending that gold is easy-peasy.


% of cash used in total transactions


There are many Davids – as of May 2021 there were more than 10,000 cryptocurrencies, all based on blockchain technology. There are thousands of blockchains; no one knows precisely how many. This splintered nature is part of the reason why cryptocurrencies will continue to struggle to be widely accepted as ‘money’. There are many other reasons, of course.

There are fewer Goliaths (central banks, governments), and unlike the Davids, all squabbling for dominance, the Goliaths will club together; they have more to lose.

The first Goliath out of the blocks is China. Bitcoin mining is energy-intensive and has a large carbon ‘footprint’. It’s thought that as much as 65% of global bitcoin mining was until recently done in China. China’s anti-Bitcoin drive is all about who has the right to control; it’s unlikely to be about climate anxiety.

Chinese officials fired a warning shot in May this year against Bitcoin mining. Beijing has now ordered that Bitcoin mining should be halted. About 90% of the country’s Bitcoin mining capacity has now closed down. That’s about a third of Bitcoin’s global network processing power. The People’s Bank of China (PBoC), China’s central bank, has told banks they must “investigate and identify” bank accounts that facilitate cryptocurrency trading and block all such transactions. The US Dollar value of Bitcoin and other cryptocurrencies fell on Monday by around 10%. A paradox of cryptocurrencies is that while they seek to displace fiat currencies their valuations are always quoted in fiat currencies. Indonesia too has banned the use of cryptocurrencies in payments. One has to feel sorry for El Salvador; the Central American country has just said Bitcoin is now legal tender (alongside the US Dollar). Someone should try to keep El Salvador’s President Nayib Bukele in the loop; CBDCs are the future, not cryptocurrencies.

By coincidence (presumably) Fabio Panetta, an executive board member of the European Central Bank (ECB) and the ECB’s chairman of a task force on a digital Euro, told the Financial Times last weekend that the introduction of a digital Euro would combat the spread of digital coins created by other nations and private companies. According to Panetta a digital euro (a Euro CBDC) would lead to “a fundamental change in the way in which payments, the financial system and society at large will function’.

The biggest club for central bankers is the Bank for International Settlements (BiS). The BiS said in January this year that “central banks collectively representing a fifth of the world’s population are likely to issue a general purpose CBDC in the next three years” and that 86% of more than 60 central banks it surveyed in late 2020 “are now exploring the benefits and drawbacks of CBDCs”.

Where China goes, others have no choice but to follow. China wants to stifle cryptocurrencies because they lie outside the control of the state, and threaten China’s state-controlled CBDC. China’s CBDC will be a further extension of the state’s knowledge of its citizens; one has to hope that the same will not be true of our own future CBDC. Or if you want to elude the risk of Big Brother CBDC scrutiny you could always use gold – whose value of course goes up and down, but with less volatility than Bitcoin – with Glint.

Glint’s Helpful Hints: What is ‘Tapering’?

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You may hear a lot about ‘tapering’ in the coming months. The obvious meaning of tapering is that something is becoming thinner or narrower.

By extension, ‘tapering’ is used in a financial sense and means the winding down of an existing monetary stimulus programme. As a result of COVID, governments around the world have injected money into the system to help fend off an economic downturn.

Following the 2008 financial crash, central banks embarked on what they called ‘Quantitative Easing’ (QE). QE involves a central bank doing large-scale buying of assets such as government and private sector bonds, mortgage-backed securities, even stocks. The Bank of Japan has been using QE for around 20 years. The US Federal Reserve had three rounds of QE between 2009-14 buying $4 trillion of ‘assets’ such as US Treasury bonds, stocks. The European Central Bank (ECB) is currently buying €21.1 billion of private and public sector bonds and other assets. The UK’s Bank of England has a similar policy.

The US Federal Reserve currently buys $120 billion of bonds each month. Governments and central banks hope that such massive injections of liquidity into the system will prevent deflation, economic collapse, and will encourage the business world to invest more for future growth. However, QE is still at the experimental stage – no-one knows for sure that it works, nor how much it stokes inflation. As Stephen Williamson, former economist at the Federal Reserve Bank of St. Louis, has written: “QE is controversial, the theory is muddy and the empirical evidence is open to interpretation, in part because there is little data to work with”.

And now, with inflation levels rising, the US Fed is starting to re-think its current $120 billion a month purchases. It has started talking about ‘tapering’, i.e. reducing its level of bond buying, and possibly raising interest rates. Wider investment markets have been buoyed in the past few years by the very lax monetary policies of governments. A reduction in asset purchases by central banks – a ‘tapering’ – will signal the start of higher interest rates, and a tightening in money supply; credit will become more expensive, and the prices of assets (such as houses) are likely to stop rising so fast.

Governments believe that QE has kept their economies from suffering worse than they have under Covid. They worry that if they start ‘tapering’ – or even begin to talk about it – then confidence might be damaged. We are in a period of deep uncertainty; when will the current round of QE start to taper off? The ‘punchbowl’ is going to be taken away; you have been warned.

Soapbox: Inflation is back

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The shade of Paul Volcker – the former chairman of the US Federal Reserve who died in December 2019 – is getting restless.

Volcker pushed up the US Federal Funds rate to an astonishing 20% in March 1980 and kept it above 16% until May 1981. The Federal Funds rate is the interest rate banks pay for overnight borrowing; the rate which affects the Dollar’s value and other business assets; and the rate that sets the mark for interest rates around the world.

The so-called ‘Volcker Shock’ was delivered to combat inflation which in the US had risen to an annual 10%. Volcker stifled inflation – but helped create the 1981 recession, and triggered the Latin American debt crisis. That came to a head in 1982, when Mexico said it was no longer able to service its debt. Prior to Volcker, US policymakers thought that higher inflation would help lower unemployment. They preferred to let the economy ‘run hot’ and ignored the threat of inflation getting out of control – which it did. Are their successors making the same mistake today?

The headline US inflation rate is now an annualised 5%, up from 4.2% last month. This is close to its last peak of 5.6% in 2008, when crude oil prices rose above $140/barrel and US nationwide gasoline averaged more than $4/gallon. The consumer price index (CPI) – the underlying measure of inflation which excludes volatile items such as food and energy – rose by an annualised 3.8% in May, the most since 1992, after a 3% rise in April. The cost of transporting a forty-foot cargo container from Shanghai to the US is now 547% higher than the seasonal average over the last five years. Wholesale price inflation in the world’s workshop, China, jumped by 9% in May, the fastest pace in more than 12 years. It stretches credibility that these rises will not feed through to the average consumer.

Yet Jerome Powell, current chairman of the US Federal Reserve and the US Treasury Secretary, Janet Yellen, are taking a relaxed ‘wait and see’ attitude to rising inflation. They are understandably anxious not to snuff out the nascent post-COVID economic recovery, which could happen if they pushed interest rates higher. Let’s not forget the Fed’s dual mandate – maximum sustainable employment and price stability. They take comfort from the fact that about half of the rise in the latest consumer price index came from components associated with the re-opening of the economy, such as used cars, lodging, airfares and dining out. They do not regard the inflation spike as ‘sticky’ but transitory.

Some components of the CPI rose significantly – single family existing home prices showed a year-on-year increase of 18%. This may well be due to yield-hungry institutional investors bidding up home prices and accumulating property portfolios. According to JD Power, the global data company that tracks the US vehicle market, the average new car price in May was 12% higher year-on-year; retail prices for used cars have gone up by 20% since the start of the year.

Once they have gone up, prices – for everything – tend not to come down. So even if inflation is not overall ‘sticky’, and its rate comes down over the next few months as more workers return and productivity improves, individual prices may prove very ‘sticky’ indeed.

The economic recovery from the pandemic is among “the strongest recoveries from recession since 1945”. But it is an odd recovery. Developed economies are doing well, thanks to loose money splashed by governments who have taken on more debt; the additional money supply amounts to an average of 15% of gross domestic product in high income countries but just 3% in emerging and developing countries.

The tiger never dies

Andy Haldane, the chief economist at the Bank of England (BoE) has said the UK risks a wage-price spiral similar to that of the 1970s and 1980s. “The inflation tiger is never dead” he said. Britain’s consumer price index more than doubled to 1.5% in the 12 months to April and the BoE expects it will overtake its 2% target later this year. “The risks at the moment for me are that we might overshoot that number for a bit longer than we’ve currently planned”, added Haldane.

The BoE governor, Andrew Bailey, on the other hand, evidently shares the relaxed Powell/Yellen view. UK and US central bank officials regard the inflation spikes as ‘transitory’.

Americans are not the only ones facing a sudden spike in prices. Russia’s consumer price inflation went up by 6% on an annualised basis last month. Not for Elvira Nabiullina, governor of Russia’s central bank, the ‘wait and see’ stance of Powell and Yellen. The Russian central bank has a target of 4% inflation. Nabiullina and her board pushed up the reference interest rate by 50 basis points, to 5.5%. President Putin is more alarmed than his US counterpart by soaring prices for basic foodstuffs; the UN Food and Agriculture Organization said at the start of June that its index of food prices was 40% higher year-on-year in May. In Lebanon, Syria and Sudan food price inflation is more than 200%, according to UN World Food Programme. Nestlé and Coca-Cola have said they would pass on any increases in basic commodities to retail customers.

The end of deflation

We have become adjusted to things getting progressively cheaper, particularly in tech goods and services. This benign period, known by some as ‘The Great Moderation’, a ‘goldilocks’ period of a multi-decade period of low inflation combined with positive economic growth, which lasted roughly from the mid-1980s to 2007, is ending.

What might this mean for gold? Since President Nixon finally cut the cord linking the US Dollar to gold on 15 August 1971 the average annual growth rate of the gold price in US Dollars has been 10.16%, while the annualised economic growth rate has been 7.91%. The past is no certain guide to the future – but it may contain signposts. According to one of the most thorough analyses of the monetary landscape published this year, “we are likely moving into a period of inflation caused by strongly rising money supply growth… the conservative baseline scenario has resulted in a price target of $4,800 for gold at the end of the decade”.

We are just a short step away from a repetition of the pre-Volcker period, in which a crushing level of international indebtedness – which reached $289 trillion US Dollars in the first quarter of 2021 according to the Institute of International Finance, 12% higher than the end of 2019 and a global debt-to GDP ratio of more than 355% – threatens to de-stabilise the global financial system. Powell and Yellen may say they are content to wait until 2023 to start raising interest rates; but meanwhile the tiger is flexing its claws.

Glint’s Helpful Hints: Inflation and deflation

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Inflation is back in the news on both sides of the Atlantic. In the US in 1974, President Gerald Ford called inflation ‘Public Enemy No. 1′. But what actually is it? And what is its opposite, deflation?

The International Monetary Fund (IMF) defines inflation as being how much more expensive goods (e.g. a car or a house) and services (the plumber or electrician for example) become over a certain period, usually one year. Measuring inflation – how much prices have gone up – can of course be done in various ways and over various time-periods.

Governments tend to measure inflation month-by-month, using a basket of goods and services, and then extrapolate that to an annualised rate. What that basket contains – the Consumer Price Index (CPI) in the US – is tweaked from time to time, to try to reflect changes in consumer spending.

So for example, UK inflation as measured by the Office for National Statistics rose 2.1% this year in May, up from 1.5% in April and the highest level since July 2019. The figure for the US CPI in May was 5% year-on-year, the fastest rise in almost 13 years. Prices in general are thus this year running about 2.1% higher in the UK and 5% higher in the US than last year.

Even small rates of annualised inflation can have a large impact on consumers’ purchasing power. For example if inflation is running at 0.25% month-on-month, about 3% on an annualised basis, that compounds to a 14% loss in purchasing power – what your fiat currency can buy you – over five years.

Some companies – particularly in the fast-moving consumer goods (FMCG) sector respond to price inflation by making smaller packages of a product yet charge the old price: this is called ‘shrinkflation’. That way they can surreptitiously cut their costs while hoping consumers don’t notice they are getting less for the same money.

Deflation is a decrease in the general price level of goods and services over time. This means that you could tomorrow (or next month or year) buy more of the same with the same amount of money. A consumer might think that deflation is a good thing – what better than falling prices?

Bu that’s not how central bankers, policymakers and governments think. They agonise over trying to get just a little inflation – the US and the UK both ‘target’ inflation to be around 2% a year – in the system, and trying to keep deflation out. The reason they loathe deflation is because falling prices means that consumers put off spending, in the hope that prices will fall even further. Companies respond to falling prices by slowing production, leading to unemployment, lower wages, greater demands for state income support, and so on.

So governments are happy to sacrifice your purchasing power – which gets reduced over time thanks to inflation – in order to keep the wider economy stable. They want inflation – just a little bit – and don’t want deflation.

Yet inflation really is a good candidate for Public Enemy No. 1. Inflation steadily, stealthily, reduces your wealth. What you could buy for $1 in 1971, 50 years ago, would require $6.56 today; that 1971 Dollar today buys you just 15.04% of what you got 50 years ago. A similar story holds true for the UK; inflation averaging 5.6% a year since 1971 means you would need £14.46 today what you could have got for £1 fifty years ago.

Inflation is caused by many things and impacts on many sectors of an economy. The question for policymakers today is – is the current inflation spike controllable?

Soapbox: Shifting tectonic plates

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The steadily moving global financial tectonic plates have accelerated in recent months, spurred on by the global pandemic and technological advances. At the epicentre of their drift is the US Dollar, the world’s reserve currency. Like melting glaciers, this process is not going into reverse.

The latest blow to the dominance of the US Dollar as the global reserve currency comes from Russia.

On 3rd June, the Russian sovereign wealth fund, its “National Wealth Fund” (NWF), said it would ditch all its US Dollar assets and increase its holdings in Euros, Chinese Yuan, and – for the first time – gold. Some analysts have said this implies ridding itself of $40 billion in favour of Euros, Yuan and gold. The allocation to gold would be 20%, said the NWF.

As of June 2020, the Russian central bank’s international reserves held 23% in gold. For the first time in recorded history, gold then nudged above the bank’s US Dollar assets (which stood at 22%). Russia has spent more than $40 billion building its gold reserves over the past five years, making it the world’s biggest buyer. The central bank said it stopped buying gold in the first half of 2020 to encourage miners and banks to export more and bring in foreign currency into Russia after oil prices – on which the Russian economy depends – crashed.

As of 1 May, the NWF had the equivalent of $185.9 billion in assets; it forms part of Russia’s gold and foreign exchange reserves, which stand at the equivalent of some $600 billion.

If the NWF needs to spend $40 billion on its ‘new’ assets and would allocate 20% of that to gold, that could mean it would need to acquire almost 150 tonnes of gold, at current prices. According to the head of the Ministry of Natural Resources, Alexander Kozlov, Russia’s gold production in 2020 amounted to 445 tonnes, almost twice that of a decade ago. Whether the new allocation to gold will be subsumed within the central bank’s current gold store, or if it might mean buying gold domestically or on the world market, are open questions.

According to the Kremlin’s spokesman, Dmitri Peskov, “this process of de-dollarisation is taking place not only in our country, but in many countries around the world that have started to have concerns about the reliability of the world’s reserve currency”. Like climate change, the death of the Dollar as the international reserve currency will upset many apple-carts.

Not that Russia sees the Rouble as the next global reserve currency; merely that it is taking steps to ensure that it is less exposed to the demise of the US Dollar. Rather it’s preparing for the apparently inexorable rise of China’s Renminbi as the Dollar’s replacement.

The use of the US Dollar in Russian/Chinese trade has shrunk from more than 80% to just over 20% in just seven years. The share of Russian exports to Brazil, India, China and South Africa invoiced in US Dollars plunged from 85% in the second quarter of 2018 to 33% in the first quarter of 2020.


With the US national debt now more than $28 trillion and set to reach 202% of the country’s gross domestic product (GDP) by 2051 according to the US Congressional Budget Office (CBO), there is less confidence that the US Dollar provides the kind of “safe haven” currency it has done previously.

It’s becoming increasingly likely that, as professor Avinash Persaud warned in 2004, “a couple generations of unpaid cheques are [going to be] presented to be paid” and that these ‘due’ checks “will push the US into a series of economic and political crises in the middle of the 21st century”. Persaud said that “within my life time, the dollar will start to lose its reserve currency status, not to the euro, but to the [Chinese] renminbi”. Not that the Renminbi is a dead-cert to become all-powerful. Persaud added: “the fate of the average Chinese today is to grow old before they grow rich, the fate of the average American is more uncertain than most imagine”.

What might replace the $?

The fate of the average American is today not only closely tied to the policies of President Joe Biden and his injection of even more debt into American society, but also to moves in such things as cryptocurrencies and Central Bank Digital Currencies.

While the former is an archetypal “meme” stock – a phenomenon that largely owes its success to social media hyperbole – the latter are advancing rapidly across the globe, as governments try to wrest control over money creation away from private cryptos and back into their own hands. Right now, the speed of technological advance and the bureaucratic pace of policymakers (outside China, anyway) seems to give the private cryptocurrency developers the upper hand.

Yet some governments want to use Bitcoin – the leading cryptocurrency – as legal tender. El Salvador’s President, Nayib Bukele, has said his country will become the first to make Bitcoin legal tender, if he can get the measure through the country’s Congress. That shouldn’t be difficult.

A small Central American country

El Salvador’s national currency was the colón until 2001, when it made the US Dollar legal tender too, joining Panama and Ecuador. Making Bitcoin legal tender means every El Salvadoran will need/want to use it, not just rich people. In an economy that is heavily skewed towards cash (about 70% of its citizens don’t have bank accounts or credit cards) but which has a very high penetration rate of mobile phones (about 1.5 per capita in a country of 6.2million) a digital wallet system might just work. It will also make life easier for the two million citizens who live and work outside the country and who annually send some $4 billion home each year.

There is one big obstacle to President Bukele’s ambition for Bitcoin to become the way to buy one’s daily lunch; transaction times with Bitcoin are currently painfully slow. A few per second, against tens of thousands by for example Visa. But if there’s one blockage that technology has proved it can overcome, it’s the speed at which things can be done; Bitcoin’s transaction rate will speed up.

Does this portend that cryptocurrencies will displace the US Dollar as the global reserve currency? It’s unlikely.

For one thing there are simply too many – several thousand, each of them struggling for dominance. And they are too narrowly held, too illiquid, too unwieldy to challenge the Dollar.

For another there is the considerable volatility in cryptocurrency valuations. Bitcoin has dropped by 37% in the past month and is 46% lower than its mid-April peak; Ethereum is down 22.5% in the last month and 37% lower than its peak in May; others (such as Dogecoin, Chainlink and Litecoin) have lost more than 30% in the last month. President Bukele’s popularity might slump if the citizens of San Salvador find their daily sandwich fluctuates hugely in price.

The US benefits greatly from what Valery Giscard d’Estaing (then the French finance minister, in the 1960’s) called its “exorbitant privilege” of having the world’s reserve currency – by which he meant that it could always simply print more Dollars. “Foreign lenders are likely to demand concessions on the terms for such massive external financing”, according to Stephen Roach, a former chair of Morgan Stanley’s Asia section. Forecasting a 35% fall in the Dollar by the end of 2021, he said “the dollar is now (October 2020) far more vulnerable to a sharp correction. A crash is looming”. That view has been hotly disputed – and we are already half-way through 2021.

Nevertheless it’s true that the low borrowing costs that have resulted from the Dollar’s dominance – everyone has wanted Dollars – has facilitated the accumulation of debt. Voluminous amounts of academic literature exposing the threat to economic growth posed by excessive national debt have been published. In 2010, a European Central Bank (ECB) research paper said “above a 90-100% of GDP threshold, public debt is, on average, harmful for growth”. President Biden wants the US to have greater economic growth – as no doubt does the “average American” – but US federal debt is likely to approach 109% of GDP in the fiscal year of 2021, and 130% by 2023. This presents a long-term threat to US economic growth, the Dollar – and the fortunes of all US political parties.

It’s impossible to see how the gradual shift away from the Dollar will play out. It’s going to be a bumpy few years. In this context, all one can sensibly do is try to preserve the value of one’s money. For us that means gold: widely seen as a store of value in difficult times but also, thanks to Glint, now a currency that is as liquid as fiat money. Gold may have fallen 7.5% from its August 2020 peak of more than $2,000 per troy ounce but is up 11% since its March slump, and 9% higher in the last year. That doesn’t mean that gold will continue to rise, but it might prove to hold its value against paper money in the long-term – and is certainly less volatile than cryptocurrencies.