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Category: Soap Box

Soapbox: The Debt Ceiling Charade

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It’s that time again – ‘squabbling over the US debt ceiling’ time. If it slipped our notice then Janet Yellen, the US Treasury Secretary, is there to remind us. On 19 January, the US will surpass its current borrowing limit of $31.4 trillion according to Yellen. The US debt ceiling is the legislative limit on the amount of national debt that the US Treasury can run up. The debt ceiling was created in 1917 to help finance spending on the First World War. It’s a way in which the government can borrow money to cover the fiscal gap – the gap between the amount the government takes in tax revenues and what it spends. Today, raising the debt limit has become an excuse for a brawl between the Democrat and Republican parties in Congress. A reprieve can be gained but this year it’s likely to last no longer than the end of May. Between now and then we can expect a Democrat vs Republican squabble over what to fight for and what can be sacrificed. If the ceiling looks like being breached the US government grinds to a halt and global financial stability will be threatened.

$31.5 trillion and rising

Wow! $31.5 trillion! That’s the current size of the US federal debt. Putting it another way, it’s more than $94,000 per US citizen. Or, another way, it’s the same as the combined economies of China, Germany, Japan and the UK, according to the US Peterson Foundation. The foundation helpfully adds that if every US household paid $1,000 a month it would take more than 19 years to eliminate the debt. Interest payments on this debt cost more than $1 billion a day.

America is running on fumes – the only significant question is how long before the engine stutters and packs up. Certainly, not all debt is bad, either individually or nationally. Taking on debt to buy a home, to get education, to grow a business, can all be sensible decisions and can help grow the national economy. But borrowing to buy assets that lose value over time, such as a car, is not such a great idea, unless you can get a no or very low interest rate.

Getting over the debt ceiling crisis has become a regular feature of US politics in recent years. Usually some kind of deal is cooked up but this year may be different, now that the Republican Party has a narrow majority in the House of Representatives. Eric Winograd, chief US economist at the asset management company AllianceBernstein told Reuters on 11 January that in his view “this is going to be the most contentious debt ceiling debate in memory”. Last time Congress sailed close to the wind over raising the debt ceiling was in 2011; Standard & Poor’s downgraded the US credit rating for the first time, and financial markets started to panic. So this year may be no charade after all.

Murky manoeuvres

US politics being what it is – very murky – will the Republican Party be able to maintain its current stiff stance about debt ceiling negotiations this year? The House Speaker, the Republican Party member Kevin McCarthy, has reportedly told President Biden that the price for a deal is the imposition of a spending cap on the government. But according to his press spokespeople Biden “will not be doing any negotiation over the debt ceiling… there’s going to be no negotiation over it”. A small number of die-hard conservative Republicans opposed McCarthy’s attempt to become Speaker; notoriously it took the largest number of voting rounds since 1856 to squeeze him in. The New Yorker says the “good news for Democrats is that the Republican leadership is this weak – except that weak Republican leadership is what paved the way for [Donald] Trump in the first place”. It’s in everyone’s interest – in America’s interest – that the debt ceiling debate should be settled, and fast. In 2011 it wasn’t only the financial markets that took a beating from the debt ceiling fiasco – consumer confidence also dropped as did confidence in all US politicians. No negotiations, says the President. He may have to eat those words.

Different this time?

The world has changed as a result of Russia’s war in Ukraine. It’s not simply that the US in 2022 directed a vast sum to support Ukraine, more than $52 billion according to the Kiel Institute for the World Economy. The war is nearly a year old and shows no signs of ending; worryingly Ukraine’s defence minister, Oleksii Reznikov, claimed recently that Ukraine is now a de facto member of the NATO alliance, a red rag to President Putin. This kind of stealthily obtaining something that has been denied is not an attractive feature, even if (with the delivery of tanks from the UK, a NATO member) it may be true.

The war has also hastened the almost imperceptible creep of countries to reduce their exposure to Dollar-denominated debt. China’s holdings of US Treasury bonds fell by $100 billion, almost 10%, in the first half of 2022. China’s decision to lower the amount of US debt it owns is probably related to the US decision to weaponize its currency, by freezing the Dollar assets of Russia’s central bank.

Russia can’t use the Dollar; China doesn’t want to rely on the Dollar; both stepped up their purchases of gold last year. So the US may indeed carry on issuing ever-greater amounts of debt; but will it have as many eager buyers as in the past?

Soapbox: The slow death of the petrodollar

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An action always has consequences – and the stranger the action the greater the chance of the consequences being unintended.

The ultimate death of the Dollar as the international reserve currency was sealed when the first Russian shell landed in Ukraine almost a year ago. This is a slow-speed revolution, but a revolution it is. Since at least 2014 there has been serious talk of the demise of the petrodollar and its replacement by the petroyuan, but the war in Ukraine has given fresh impetus to the Dollar’s declining status and the rise of China’s currency. The Dollar/Yuan tussle – President Xi Jinping would never emulate the crassness of President Putin and openly declare a war on the West – will be the defining event for fiat money over the next few years, perhaps even more significant than the evolution of Central Bank Digital Currencies (CBDCs).

Weaponising the Dollar via the lengthy list of sanctions imposed on Russia means that countries not directly involved in the conflict have become warier about Dollar-based trade and holding Dollar reserves. That’s not just China; it’s also Saudi Arabia, the country with the second-biggest oil reserves and an increasingly shaky ally of the US. Joe Biden during his campaign to win the Presidency pledged to treat Saudi Arabia as a “pariah” thanks to state involvement with the murder of Jamal Khashoggi and an intelligence report that seemed to implicate the state of Saudi Arabia in the 9/11 attack on the World Trade Centre. Nevertheless he visited Saudi Arabia in July 2022, shook hands with ‘MBS’ (Mohammed bin Salman, the de facto leader of Saudi Arabia), but failed to achieve his aim of getting a boost in Saudi oil production.

The Saudi-US relationship for the past four decades has been rooted in the petrodollar. There’s nothing mysterious about the term petrodollar; it’s simply the term for what has become the global practice of paying for oil in US Dollars. As the US started to worry about its diminishing oil production capacity, President F.D. Roosevelt met the then Saudi king, Abdul Aziz, in 1943, and declared that Saudi oil was vital to US security. In exchange, the US agreed to build military bases and supply the Saudi army with training and equipment.

In 1974, following an oil embargo by the Arab state members of OPEC (the Organisation of Petroleum Exporting Countries) the petrodollar system was consolidated by a deal between the US and Saudi Arabia which formally agreed to price and trade oil in US Dollars, and to recycle the Dollars by buying US government debt – Treasury bonds.

This symbiotic relationship is now on its last legs – the Dollar’s dominance of the global oil trade is dying, and in turn the status of the Dollar as the international reserve currency is increasingly in doubt. This will have as serious repercussions for the world’s future stability as Russia’s invasion of Ukraine. Could petroyuans replace petrodollars?

Recycling drying up

Pricing crude oil in Dollars meant that many oil producers started to earn more money from crude oil exports than they could efficiently invest in their own economies. The Dollar became the currency of international trade and finance; petrodollars were recycled into many different investments, including US Treasury bonds, as well as European trophy investments such as soccer clubs, glitzy London property, art works and so on. By 1977 Saudi Arabia had accumulated around 20% of all US Treasuries held abroad, and the US was importing a third of its oil demand. High energy prices in 2022 (a by-product of Russia’s invasion) meant that OPEC countries last year probably earned in excess of $900 billion, almost twice the annual average since 2000. While some of these unexpected profits followed the traditional path and were recycled into US assets (Saudi Arabia’s sovereign wealth fund, the Public Investment Fund or PIF, picked up shares in Alphabet, Zoom and Microsoft among others) the need to protect themselves against Washington’s ire (and possible sanctions one day) means that their energy profits are increasingly finding homes other than US government debt.

China’s ambition

President Xi increased the pressure on the petrodollar late last year, when he addressed a meeting of Arab Gulf state leaders – significantly hosted by Crown Prince Mohammed bin Salman of Saudi Arabia in Saudi Arabia – and told them China would “make full use of the Shanghai Petroleum and National Gas Exchange as a platform to carry out Yuan settlement of oil and gas trade”. Yet the Chinese request to pay for its energy imports from Arab states in its own currency appears to have been given the thumbs-down, for now at least.

President Xi’s baptism of the petroyuan, which some scholars have called “the most significant challenge yet to the indefinite prolongation of dollar dominance in international oil and gas transactions – and thus, by extension, to the dollar’s global primacy” was thus only partially successful. Yet, as one commentator has pointed out, although China doesn’t have the same level of global trust, rule of law or reserve currency liquidity of the US, “the Chinese have offered up something of a financial safety-net by making the renminbi [yuan] convertible to gold on the Shanghai and Hong Kong gold exchanges… If the petroyuan takes off, it would feed the fire of de-dollarisation”. A gold-backed petroyuan would allow China simultaneously to retain control of its capital account and boost the currency’s internationalisation, as well as enabling China to bypass the Dollar-dominated SWIFT (Society for Worldwide Interbank Financial Telecommunication) global payments system, which (as shown by Russia’s ejection from SWIFT) is unreliable if a country invokes Washington’s anger. China has its own version of SWIFT, the CIPS (Cross-Border Interbank Payment System) and Russia has joined it to trade its crude oil.

Hedging bets

Before last year’s Winter Olympics, Russia and China declared a “no limits” friendship. While China has been careful to keep its distance from Russia’s war on Ukraine, the two share the ambition of humbling the Dollar. Russia’s energy giant signed an agreement with China late last year to settle payments for its gas exports in Yuan and Roubles instead of US Dollars. China wants the same kind of commitment from Saudi Arabia but is as yet frustrated by Saudi Arabia’s reluctance to ditch its relations with the US.

Twenty years ago the share of international reserve assets taken by the Dollar was 71%; today it’s 59%. By contrast, around a third of central banks said in mid-2021 they planned to increase their allocations to China’s Yuan over the following 12-24 months; 70% said they intended to do so over the “long term”. Saudi Arabia is flirting with the petroyuan but is reluctant to overtly abandon the US and the petrodollar; for now it is hedging its bets in the greatest gamble of the 21st century.

Soapbox: One Certainty For 2023

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Watch out for the ‘R’ word this year – R for Recession.

Kristalina Georgieva, managing director of the International Monetary Fund (IMF) reckons a third of the global economy will be in recession this year and that 2023 will be tougher than last year. There’s no escape – China, the European Union and the US are all slowing simultaneously.

Who is to blame? Leading candidate is China’s President Xi Jinping. Poor President Xi – he can’t get it right. China’s zero-Covid policy, promoted by President Xi from very early in the pandemic, meant that lockdowns sprang up countrywide during 2020-22, disrupting global supply chains and exacerbating inflation everywhere; it could hardly be otherwise given that China is responsible for almost 20% of global gross domestic product (GDP). As workers were forced to stay at home, supply of goods fell – and their prices rose.

And now, after that zero-Covid policy was hastily abandoned towards the end of last year , the Covid virus and variants thereof are ripping through China and disrupting supply chains as companies experience labour shortages.

According to Georgieva “for the next couple of months, it would be tough for China, and the impact on Chinese growth would be negative, the impact on the region will be negative, the impact on global growth will be negative,” she said. Rather than pushing global growth, China is likely to be a drag on it. “This has never happened before”, said Georgieva.


That was last year’s word of the year, according to the Collins English dictionary. 2022 was exhausting, almost from the word go. Yet despite widespread predictions of a US recession thanks to higher interest rates, the much-predicted 2022 recession has been pushed back into this year – if indeed it happens; not everyone agrees with the IMF’s boss.

The relentless raising of US interest rates may not have caused a recession (conventionally defined as two consecutive quarters of decline in economic activity) but for investors in stocks, bonds, and cryptocurrencies 2022 the higher rates was highly damaging.

Last year long-term US government bonds suffered their biggest drop since 1788. For bonds and equities, it was the worst performance since 1932. At its lowest point in 2022, the S&P 500 index had shed $11 trillion in market capitalisation: similar to the entire annual economic output of Germany, Japan and Canada combined. Tech stocks alone lost an amount equivalent to the output of France or the UK.

For cryptocurrencies, 2022 ended on an especially sour note. Research published in late December by the prestigious National Bureau of Economic Research (NBER) in the US found that the ‘wash trading’ on each unregulated crypto exchange “averaged over 70% of the reported volume”.

Wash trading is a form of market manipulation, in which a trader or traders buy and sell the same security simultaneously, giving a misleading impression of activity. It’s illegal and certainly immoral. The NBER paper found that “trillions of dollars annually” are washed. This may just confirm suspicions but in any case, is unlikely to deter crypto evangelists. It may also help stimulate a ‘non-prediction’ for 2023 by TS Lombard, the forecasting consultancy, which “humbled by the silliness of real life” suggests that a new cryptocurrency called LOLcoin “will emerge and quickly gain popularity, prompting many people to invest their life savings in it.”

Where to turn?

2022 was an awful year for investors in most assets, including property. In the US new mortgage applications in Q3 of 2022 were down 47% year-on-year ; in the UK house prices fell by 2.3% month-on-month last November, the biggest drop since 2008. In Sweden home values have drop by 15% from their peak early in 2022 ; German house prices were forecast by Deutsche Bank at the start of December to drop by up to 25%

So where could you have turned to, to protect your wealth?

Perhaps look to central banks, which accumulated more gold than at any time in the past 55 years. It’s almost as if central banks were laying in stores for an expected coming storm. Some analysts see the bigger central bank gold-buying as delivering a pointed message – they don’t want to be too exposed to the US Dollar. Russia’s central bank had more than $150 billion of US Treasuries in 2012; today it’s around $2 billion, while its gold holdings have risen to more than 1,350 tonnes.

And while most other asset classes nose-dived last year, gold held onto, and even managed to increase, gains achieved in earlier years. In US Dollar terms the gold price in early January 2022 was $1,795.19 an ounce; on 1 January this year it was $1,823.70, a modest gain of almost 1.6%. In Pound Sterling terms the gain over the same period was even more marked, at 14.5%. This was a remarkable achievement, given that the US Federal Reserve pushed interest rates to their highest level for 15 years, to a range of 4.25%-4.5%, strengthening the Dollar. A stronger Dollar usually tends to depress gold prices; so the question is, what might the gold price have been if the Dollar had not been so strong? That counter-factual is obviously impossible to answer.

When might the Fed end its rate hikes? Not this year if it’s true to its word from last December; it will continue to raise rates to around 5%-5.25%. The earliest we can currently expect rates to fall is in 2024.

Inflation still plagues the sleep of those in charge of economic policy in the US, even though the consumer price index (CPI) has now dropped to 7.1%, compared to 10.7% in the UK. It’s still a very long way from the ‘target’ of 2%, however – and policymakers are determined to stamp inflation out, which is why they will continue to push up interest rates until a recession threatens.

Inflation is blamed on different things; Covid, supply chain disruptions, the Russian invasion of Ukraine are regularly trotted out but the underlying reason – the massive increase in the money supply in the worst days of Covid – is as equally regularly forgotten. Between 2018 and the start of 2022 the M2 measure of money supply (which includes fiat currency, savings deposits and shares in retail mutual funds) rose from almost $14 trillion to above $21 trillion, where it remains today. The last recession, February to April 2020, saw US unemployment exceed 14%; more than 24 million Americans lost their jobs. It’s different now – the US jobs market remains very strong with average hourly earnings up by around 5% year-on-year. The US economy is still running very warm if not hot; the risk for 2023 is that the Fed will continue to tighten money supply beyond what’s necessary and put the country’s economy into recession – when it will start to lower interest rates and might even feel the need to provide more ‘stimulus’ money to voters in what will be a Presidential election year. In the UK the signs of recession are gathering fast; shop closures hit their highest in five years in 2022, around 47 a day.

It’s going to be another bumpy year.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

Soapbox: Farewell 2022

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Will anyone look back on 2022 with fondness?

The past 12 months have seen inflation get its teeth into many countries, from Argentina’s annualized 90% to almost 270% in Zimbabwe. Those of us living in the US, the Eurozone or the UK should think ourselves lucky we are only battling 7.1%, 10.1%, or 10.7% respectively. Hurrah! My cash is ‘only’ going to be worth 10% less next year – it might have been wiped out altogether!

Central bankers last year were wedded to inflation being ‘transitory’ even though it was obvious that flooding their economies with cash during COVID would inevitably lead to inflation. This year, they have belatedly started to push up interest rates, to try to drain as much of this extra cash out of the economy as possible – which has led to higher mortgage costs for people everywhere and is producing further distortions in the market.

2022 didn’t start well and proceeded to get worse. Russia attacked neighbouring Ukraine on 24 February but its hopes of quick victory were thwarted. In Ukraine, inflation is now 26.5% and the International Monetary Fund (IMF) expects the country’s economy to shrink by around a third this year. It has been a human disaster and economic catastrophe not just for Russia and Ukraine but for the world. This war, which shows no sign of ending, pushed up international prices for grains, gas and crude oil and has provided central bankers with a handy prop to divert our attention from their vast Quantitative Easing post 2008 and the immense volume of monetary stimulus during COVID – ‘it’s all the fault of Russia’s invasion of Ukraine’ has become the inflation-mantra, which of course isn’t correct. As the year limps out we have more COVID worries. China’s removal of its zero-COVID policy might next year result in an explosion of cases and, sadly, deaths. If the first casualty of war is truth, then the worst wounds are inflicted on trust.

Edelman Trust Barometer 2022

In January this year, we quoted the 19th century philosopher Friedrich Nietzsche who once said: “I’m not upset that you lied to me, I’m upset that from now on I can’t believe you”. Distrust in governments, in media, in money, in the future, has grown this year. Not a gift that anyone longs for.

Year of the Dollar

2022 has been the Dollar’s year.

The Dollar price of gold ended January around $1,798/ounce. It started climbing once more in February and towards the end of that month was above $1,906, before reaching the year’s peak of more than $2,043 on 7 March. People turned to gold as a defensive asset as we headed into the unknown – would Russia deploy nuclear weapons in Ukraine? The gold price calmed somewhat by the end of March, to just above $1,925/ounce.

As indications that inflation in the US was getting a grip and that the Federal Reserve would be forced reluctantly to raise interest rates, by the end of April the gold price shifted lower, to around$1,897/ounce. This coincided with increasingly hawkish comments by the Fed and the start of its rate rise policy – the Fed had held the federal funds rate at around zero in the first quarter of 2022 and was buying billions of Dollars of bonds every month, all despite 40-year highs of inflation. On 17 March, it raised the fed funds rate by 0.25% and signalled that more was to come. It was the start of a tremendous bull run for the US Dollar; investors everywhere sniffed that Jerome Powell, chairman of the Federal Reserve, had pivoted from regarding inflation as a passing problem to seeing it as a threat. From around zero at the start of this year interest rates in the US are now 4.25%-4.50%; the Dollar strengthened, and reached a 20-year peak against other major currencies, to the detriment of the Dollar gold price. Overall in 2022 the Dollar price of gold by the start of December had fallen by more than 3% – but had risen by more than 8% against the Pound Sterling, by almost 6% against the Euro, and by more than 16% against the Japanese Yen.

Cryptocurrencies have also suffered from the decision of the Fed to tighten monetary policy; first the stablecoin (pegged to the Dollar) Luna collapsed in May, scams and fraud continued to plague crypto (investors lost $3.5 billion this year according to one source ) and the bankruptcy of the FTX exchange soured many investors; Bitcoin has dropped by more than 60% this year. The Dollar became the “king of the castle” said one commentator.

What does ‘normal’ look like?

As this year has proceeded it’s become clearer that a return to a pre-Covid world isn’t going to happen – too many previous certainties have been smashed. We have a war raging; inflation is easing but only very slowly and it’s now being openly talked of that the previous 2% annual ‘target’ of many developed country central banks might be loosened to 4%, say; the US remains a deeply divided country; China’s intentions are as difficult as ever to comprehend; people are reluctant to return to a conventional working pattern; it’s uncertain that Europe’s unity on sanctions against Russia can last through the winter; in the UK, strikes are hitting daily life across many sectors; emerging market countries are struggling with massive overseas debts; defending Ukraine against Russia will cost (unfunded) trillions, adding to debt piles that rival Everest… the list goes on – no wonder the word ‘polycrisis’ has been dusted down. One of the Covid pandemic’s buzz phrases was ‘the new normal’ – currently life is very abnormal.

2022 has been a year of disorder, of expectations up-ended; 2023 doesn’t look much more promising. If we consider economics alone, perhaps the best can that can said is that advanced economies borrowing in their own currency can use this unexpected inflation to reduce the real value of some nominal long-term fixed-rate debt.

Yet as the economist Nouriel Roubini says, “you cannot fool all of the people all of the time. Once the inflation genie gets out of the bottle – which is what will happen when central banks abandon the fight in the face of the looming economic and financial crash – nominal and real borrowing costs will surge. The mother of all stagflationary debt crises can be postponed, not avoided”. One can only hope that Roubini – and I – are wrong, and that Powell and his fellow central bankers can conjure a unicorn from the gloom – i.e. bring about a ‘soft landing’ and don’t create stagflation next year.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

Soapbox: Fooling the public

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The British government has just perpetrated one of its biggest confidence tricks ever – it has reversed one of the important improvements made after the Great Financial Crash of 2008, and managed to persuade most mainstream media to categorise this as a ‘reform’. It’s an astonishing move, chucking aside the precautionary principle which was so often invoked during the Covid-19 panic. The risk of public harm was not tolerated during Covid – but it can be it seems when it comes to finances.

On 9 December, Jeremy Hunt, the UK’s finance minister, unveiled a package of changes to the rules governing Britain’s financial sector in Edinburgh, Scotland’s capital city – hence this package has been dubbed the “Edinburgh Reforms”.

British government spin-doctors went into overdrive, describing Hunt’s plans as involving “over 30 regulatory reforms to unlock investment and turbocharge growth in towns and cities across the UK” and describing the ‘reforms’ as “agile and proportionate”, repealing “burdensome pieces of retained EU [European Union] law”.

Part of these “reforms” is a decision to end so-called ‘ring-fencing’, described by the Bank of England (BoE) as a key part of the Government’s package of banking reforms designed to increase the stability of the UK financial system and prevent the costs of failing banks falling on taxpayers”.

After 2008’s financial disaster, British banks with a three-year average of more than £25 billion of deposits were eventually required (this legislation was not implemented until 1 January 2019) to separate their retail activities from their riskier investment and international banking business.

The 2008 Crash happened for a number of interrelated reasons, but the biggest underlying cause arguably was that governments and banks ignored barely hidden risks. The immediate cause was the collapse of the sub-prime mortgage derivatives market in the US, but thanks to international banks sniffing easy profits from dealing in collateralized debt obligations (CDOs), derivatives based on these mortgages that were re-packaged and sold and most global banks were exposed to the risk of defaults on these mortgages.

When holders of these sub-prime mortgages started to default, banks everywhere were exposed to unexpected vast debts. On 9 August 2007, the French bank BNP Paribas closed three investment vehicles that put money into US sub-prime mortgage assets using short-term borrowed money. In September 2007, the British bank Northern Rock wobbled and was forced to seek support from the Bank of England. The UK’s first bank run – depositors seeking to withdraw their cash as soon as possible for fear the money would run out – in more than 100 years started.

Taxpayer-funded bank bailouts in the US and Europe cost hundreds of billions of Dollars; some estimates suggest that the Federal Reserve provided around $15 trillion in loan guarantees to US and foreign banks; economies shrank, governments fell, and an era of low interest rates and easy money started. The ripples from 2008 are still with us. The vast sums of fiat cash summoned up by governments to bail-out banks, a vast increase in money supply, laid the ground for the current inflation.

Risk re-enters

Sir John Vickers, who as chairman of the UK’s Independent Commission on Banking recommended the ring-fencing in order to prevent banks taking big risks that might once again drag retail customers down with them, said in June 2018 that UK banks were not resilient enough to withstand a fresh crisis.

By ending ring-fencing the government will permit banks to use money deposited by retail clients – you or I in other words – to fund whatever they like, to gamble – to indulge in what bankers like to call ‘innovation’. It’s not that derivatives of sub-prime mortgages will again turn sour and threaten global financial stability – the next crisis will emerge as if from nowhere. As Vickers said, the “very fact you can’t predict the direction, size, anything about the next shock is why you’ve got to make sure you don’t have a fragile system when it does hit”. We have no idea where the next crisis will come from; all we know is that there will be a next crisis.

British Banks don’t like ring-fencing because complying with the rules puts them at a disadvantage relative to their peers who aren’t subject to them; foreign banks don’t like ring-fencing because it discourages them from expanding into the UK. The financial sector has by and large put out the flags and cheered Hunt’s ‘reforms’. It’s ‘back to the races’.


One possible big risk to consumers’ finances has flagged itself for months now – cryptocurrencies. Recent events have shown that they can be quicksand. The bankruptcy of the FTX exchange, in which as many as one million creditors have lost their money thanks to alleged fraud, symbolises the dangers that can be involved in cryptocurrencies. But FTX wasn’t the sole cryptocurrency problem in 2022. The collapse of the ‘stablecoin’ Luna, the collapse of hedge funds, brokers and venture capital funds associated with digital currencies, have all highlighted the risk of cryptocurrencies this year.

The leading digital token, Bitcoin, peaked at more than $68,000 a year ago and now is around $17,000. The crypto market was once valued at $3 trillion but now its market capitalisation is less than $900 billion, a drop of more than 60% in the past year.

Cryptocurrencies transcend national jurisdictions – that’s one of their advantages; you can be anywhere and buy or sell one or more of the 9,314 active tokens, and about 300 million people do so. That makes regulation of them extremely difficult. Very few countries accept them as legal tender, El Salvador being one of them; it has lost some $65 million from Bitcoin’s collapsed value.

Understandably there are growing calls for tighter regulatory control over cryptocurrencies. In the US, the former head of the Federal Deposit Insurance Corporation (FDIC), Sheila Bair, has called for regulators “to get on with it because more and more people are getting hurt”. New laws are not required she said; just combine forces and use the “authorities” the various agencies already have. The boss of the Commodity Futures Trading Commission (CFTC) has called for the US Congress to hurry up with new regulations for crypto;

Janet Yellen, the US Treasury Secretary, has added her voice to the ‘regulate cryptocurrency’ attitude. In the UK, the Treasury is preparing new legislation to cover cryptocurrency; the Financial Conduct Authority’s (FCA) head has said that 85% of the crypto companies that applied to join the regulator’s crypto register did not pass the FCA’s anti-money laundering tests. Mairead McGuinness, financial services commissioner for the European Union, has said that some “who were involved in crypto, from the very outset, were doing it because they didn’t want to be part of the regulated, managed system”. That’s precisely correct – the whole cryptocurrency movement started with the explicit ambition of eluding control by any government. Trying to regulate it not only threatens that libertarian aspiration – it is also likely to be impossible, or may drive cryptocurrency trading into places where oversight is impossible, or possible only by drastic measures.

Some commentators suggest that regulators should “let crypto burn”; “these poorly understood tokens should not be legitimated by financial regulators”.

‘Buyer beware’ is a sensible piece of advice but maybe insufficient for crypto investors. The calls for tighter regulation will no doubt result in tougher trading conditions, but those might not be enough to prevent the gullible from getting burned. UK policymakers are pulling in two opposing directions – relaxing safeguards over risky banking while edging towards tougher conditions for supposedly risky investments. The crypto revolution is no doubt flawed, and all too often in the hands of flawed individuals. But banking is little different. One reason why the 2008 crash was so damaging was that contagion spread like bird flu – banks everywhere were up to their elbows in profitable sub-prime mortgage derivatives that suddenly were money-losers. With banks now increasingly offering cryptocurrency services, the risk of a similar contagion is increasing.

There is actually one good way of protecting yourself against the next crisis to hit banks, and also to retain the kind of freedom promised by cryptocurrency. It’s called gold, and more specifically allocated gold with Glint, which is much easier to use as everyday money than any cryptocurrency.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

Soapbox: The Devil and the Deep Blue Sea

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The Confederation of British Industry (CBI) came out with a grim forecast this week. A year-long recession will hit the UK in 2023, said its director-general, with gross domestic product (GDP) dropping by 0.4%; the CBI’s previous forecast, in June this year, said the country’s GDP next year would grow by 1%. In the Eurozone a recession is still widely predicted for 2023 but it now appears to be less dire.

As for the US, opinion as to the possibility of a recession is divided. The chief economist of Moody’s Analytics argues that the US will narrowly escape a recession, but S&P Global Ratings expect a “mild” recession, with a GDP decline of less than 1%. A recession, to remind us, is technically defined as two successive quarters of economic decline.

As for so-called ’emerging markets’, they are truly strung out between the devil and the deep blue sea. Bloomberg puts their dilemma thus: “As long as the [US] Federal Reserve keeps raising rates and China is hobbled by Covid, policy makers in poorer nations remain at the mercy of factors beyond their control”. Maybe China is starting to emerge from Covid. But economic growth has hit a wall in many countries, now facing currency collapses, partly as a consequence of higher US interest rates, and cost-of-living crises. The chance of policy errors – putting interest rates up too high and thus inciting a recession or leaving them too low and thus letting inflation run rampant – is heightened for emerging markets, says Bloomberg.

The devil – inflation

The Eurozone saw inflation reach almost 11% in October when averaged across the 19 countries belonging to the bloc. In the Baltic states – Estonia, Latvia and Lithuania, also members of the Eurozone – inflation was above 20%. While attention for much of this year has been on the rising cost of energy prices as a result of the Russia-Ukraine war, food prices have been on a dash too – up by an annualized 12.4% in November in the UK according to the British Retail Consortium, which follows a 16.2% jump in October. In the European Union as a whole the cost of food in October rose by an annualized 17.26%. In the US food price inflation slowed a bit in October, down from an annualized 11.2% in September to 10.9%.

Across Europe, food bank usage is “soaring” as high inflation eats away at disposable incomes; in Germany the Tafel food bank says demand for its aid has risen more than 50% this year.

This burst of inflation, the worst in almost five decades, is starting to make consumers in Europe tighten their belts. Retail sales in the Eurozone dropped by 1.8% in October compared to the previous month. The European Commission said its consumer confidence index rose to minus 23.9, from 27.5 in October. But that’s still well below the long-term average of minus 11. In the US, retail sales in October rose by 1.3% month-on-month, suggesting that “the economy got off to a good start in the fourth quarter”. American consumers carried on spending, taking advantage of discounts from retailers who have inventory gluts and are trying to shift shelf stocks. They have a government-funded cash cushion. US consumers earlier this year were estimated to have $4.7 trillion in cash, up from $1 trillion towards the end of 2019. The cushion is less plump in the European Union or the UK, hence the growing divergence between US central bank policy and those on the other side of the Atlantic.

The deep blue sea

Central banks have the ambition to get inflation down. But they don’t really know what is causing inflation. They point to Russia’s war with Ukraine and argue that has pushed up prices but this is putting the cart before the horse, rather as happened with Covid.

The assertion that Covid caused global economic damage is false; it was the global response to Covid, i.e. a worldwide lockdown that stopped people from going to work, making and delivering things that caused the damage. With Russia and Ukraine it’s not the war itself which has pushed up energy and food prices, it’s the response of the West to the war – the imposition of sanctions, the weaponization of the Dollar – which has driven up energy prices. This is not to take either a pro or anti attitude towards the Covid lockdowns, or the sanctions on Russia; it’s simply to straighten out our thinking.

But we are where we are. Central bankers only know one tool to fight inflation – make consumption more difficult, make credit more expensive, put up interest rates. The fact that higher base rates set by banks pushes up the cost of mortgages and credit card use, and therefore inevitably worsens the cost-of-living ‘crisis’, is an uncomfortable paradox that central bankers tolerate.

So, rates in the US this year have risen from 0.25%-0.50% to 3.75%-4.0%. The rate is likely to rise again mid-December, by at least 0.50%. In the UK, the base interest rate of 3% will likely be pushed higher, even though one of the Bank of England’s (BoE) rate-setters, Swati Dhingra, has said that a higher rate will deepen the expected recession. The European Central Bank (ECB) has increased its deposit rate from minus 0.5% to 1.5% in the past four months and is expected to announce another rise to at least 2% at its next meeting in December.

Yet everywhere central banks shy away from putting rates up above – or even close to – inflation. Perhaps they are preparing the ground for accepting a higher rate of inflation than their 2% ‘target’. The former chief economist of the International Monetary Fund (IMF), Olivier Blanchard, floated the suggestion of doubling that to 4%. Why 4%? Because, he said, a Google search for ‘inflation’ shows that if it is around 3-4% “people simply did not pay attention. Above 3-4%, they did”. Setting an inflation target may be silly, but setting it according to a Google search seems quirky beyond belief.

Not waving but drowning

Amid all the noisy conflict over rampant inflation versus higher rates plus recession it has been forgotten that we have been here before. Interest rates at very low levels – as we have had recently – “fuel speculative manias, drive savers to make risky investments, encourage bad lending and weaken the financial system” says Edward Chancellor in his excellent new book, The Price of Time. Memories of central bankers are distressingly short, and they are often subject to ‘regulatory capture’, a form of corruption that happens when a regulator is co-opted to serve the interests of a particular constituency. Thus the UK is about to reverse a crucial move which was designed to prevent the kind of domino bank collapse of 2008.

Following the 2008 Great Financial Crash UK banks were required to ‘ring-fence’ themselves – separate their retail banking from investment and international banking services. That strict regime was introduced to prevent banks from recklessly gambling with their retail depositors’ money; but it’s now going to be relaxed. “Ring-fencing doesn’t work”, according to Tim Adams, CEO of the Institute of International Finance, (IIF). “It makes a more brittle system, it precludes institutions’ capacity to move capital around to their best uses”. As the boss of one of the world’s most influential bankers’ clubs, Adams is hardly neutral on this issue. The memories of 2007-08 have disappeared like a bad dream. We can all go back to trusting banks to take the greatest of care with our money – not. Surely once bitten, twice shy?

Some thinkers seem rather more attuned to what is going on in the economy than Blanchard or Adams. Nouriel Roubini said recently that there are “three solutions to the problems of inflation, debasement of currency, political and geopolitical risk and environmental risk”. Among his pieces of advice is to “go into gold and precious metal”. He says that “if central banks are going to blink and wimp out” (start to ease off interest rate rises) “gold is going to rise in value. Gold is going to rise in value also because the enemies of the US are subject to sanctions. China right now is worried they have a trillion dollars of reserves in dollars that they have to move to other things. If it’s euro, yen, it can be seized. The only thing that cannot be seized is gold”. We would also add – thanks to your Glint App and Debit Mastercard®, gold can now be used as everyday money.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

Soapbox: Black Friday’s mixed signals

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This year’s Black Friday and Cyber Monday – conventionally the days when consumers chase supposed bargains and spend, spend, spend – has sent some mixed signals this year. Those signals have added to the dilemma facing the Federal Open Market Committee (FOMC) when it next meets on 13-14 December; the FOMC sets US interest rates and it will need to decide if it has pushed rates up high enough, or more is needed to slow spending and help ease inflation of more than 8%. The meeting will be of especial interest as it is also due to give an outlook for the economy.

Forecasts before Black Friday differed. The US National Retail Federation (NRF) predicted that retail ‘holiday spending’ across November and December would grow by 6%-8%. Deloitte, the big accountancy firm, did a survey of 1,200 US consumers and anticipated a 12% rise in spending on the day itself over 2021. The marketing software company Emarsys, also basing its results on a survey of spenders, thought the day’s year-on-year rise would be even higher, at 16%. Given that the past 10 years have averaged an annual increase in spending of 4.9%, and that this year consumers have become spooked by rises in the cost of living, interest rate rises, and low levels of confidence, then anything above that 10-year average ought to be taken as another indication that the Federal Reserve needs to keep putting up interest rates in order to cool the economy. As for Cyber Monday, early reports suggest that spending hit a record $11.2 billion.

As it turned out, spending on Black Friday rose by just 2.3% over last year, setting a fresh record of $9.12 billion from on-line shoppers. In-person shopping rose by 2.9% year-on-year.

Doves & Hawks

As always statistics are open to divergent interpretations. Covid-19 vaccines have reduced the mortality fear this year, but the cost-of-living crisis has hit many households. Poorer households spend a proportionately higher amount, around 82%, of their income on basic needs, against high income households which spend two-thirds of their budget on basic needs. And incomes are failing to keep up with the rising cost of living. The Federal Bank of Dallas says that between mid-2021 and mid-2022 American workers faced the biggest decline in real (i.e. adjusted for inflation) wages in about 25 years. Yet in broad brush terms – which is all that economists have to go on – Americans still feel able to spend.

For the Federal Reserve this is a puzzle. Yet it shouldn’t be. Thanks to President Joe Biden’s astonishing largesse during Covid-19’s worst days, American household wealth surged by $20 trillion since the end of 2019, according to ING bank. Even though Americans are famous spenders, that sort of money takes a long time to get used.

The Federal funds rate in the US – which acts as a benchmark for everything else including business loans, credit card and mortgage rates – is currently 3.75%-4% after spending a year at 0% during the Covid-19 pandemic. The Federal Reserve has raised interest rates by 0.75% on four successive occasions; its chairman, Jerome Powell, has dropped plenty of hints that at December’s meeting it will raise rates again, this time by 0.50%. James Bullard, president of the Federal Reserve Bank of St Louis and a member of the FOMC, gave a very hawkish speech recently, in which he said the rate may have to rise to 5%-7% in order to stifle inflation. Loretta Mester, president of the Cleveland Federal Bank, has echoed Bullard; according to her the Fed is “just beginning to move into restrictive territory”.

There are doves (who don’t favour higher interest rates) on the FOMC, including Esther George, president of the Kansas City Federal Bank. She has said “I have not in my 40 years with the Fed seen a time of this kind of tightening that you didn’t get some painful outcomes”. The Federal Reserve is still walking a tightrope – raise interest rates too far and job losses will result and probably assets such as houses and stocks will drop in value; don’t raise them high enough and perhaps inflation will become ’embedded’.

Stagflation and China

It may seems a remote possibility at the moment, but stagflation still seems to us to be the biggest economic threat, and not just for the US.

Germany’s ministry for economic affairs and climate protection is certainly convinced that Europe’s biggest economy is headed for stagflation, a combination of sluggish economic growth and rising prices.

Rabobank in June this year dubbed the UK ‘stagflation nation’ thanks to what it called “many ‘American’ characteristics: rising inactivity, unemployment falling to as low as 3.8%, a high vacancy rate, recruitment difficulties and elevated pay pressures”. Catching the mood, the Swiss bank UBS joined in, saying in June that the Eurozone was headed towards stagflation.

And the world is not out of the woods as far as Covid-19 is concerned. A report by UNCTAD, the United Nations Conference on Trade and Development, reckons that global trade fell by some $2.5 trillion in 2020, 9% lower than 2019. While much of the world has adjusted to living with Covid-19, thanks to the roll-out of effective vaccines, China still has a policy of zero-Covid, shutting down cities, towns, factories on a single incident of a Covid-19 infection, even if the person is asymptomatic. Lockdowns keep springing up; Foxconn Technology Group, the Taiwanese company that operates Apple’s manufacturing hub at Zhengzhou in China, has lost thousands of workers who are fed up with lockdowns and quarantines, and has offered bonuses of some $1,800/month for workers staying at their job through December and January. The plant is likely to lose 20% of its expected sales in this quarter. Street protests in Beijing and other big cities have now started to call for an end to lockdowns and also for democracy. This will not be tolerated by President Xi Jinping, but such is the extreme level of surveillance in today’s China that the security services will be able to round up protesters at their home, rather than confront them on the streets.

China’s zero-Covid policy has disrupted the global economy. China is the world’s global manufacturer; according to the United Nations Statistics Division China accounted for more than 28% of the world’s manufacturing output in 2019.

Yet its zero-Covid attitude is in one sense understandable. China has 1.4 billion people, about 32 million of which are aged 80 and over. Of that group, only 40% have been given a (reputedly unreliable) Covid vaccine; millions of Chinese are, in other words, vulnerable to a potentially lethal virus.

The longer that China maintains its zero-Covid policy, the longer it will take for the global economy to rediscover its pre-Covid self, and the trickier it will be for the Federal Reserve to make up its mind about the direction of inflation. For although there have been signs that inflation may be easing, it may get a second wind if protests and work stoppages spread in China, upsetting supply chains once more.

On a precautionary basis, let’s suppose forecasts of stagflation (there are plenty of them around) are correct. The chart above suggests that gold is the best-performing asset in stagflationary periods. Between 1973 and 1975, gross domestic product (GDP) in the US declined in real terms, while inflation grew from 7.4% to 10.3%. Simultaneously, gold enjoyed a price growth of 73%, before doubling in value during another stagflationary period in 1979, when inflation peaked at 10.75%. Is inflation in the US dying, or will it persist at a high level into 2023 – when Americans may have finally exhausted their Covid-19 stimulus payments and the economy thus be poised for stagflation. Perhaps we will learn more when the FOMC next meets on 13-14 December.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

Soapbox: Gold and the Seven Deadly Sins

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This week our CEO, Jason Cozens, spoke to the DC Finance’s Family Office & High Net Worth Conference in London. What he had to say is relevant to everyone today, no matter how much or how little wealth they have. Jason said he is “fearful of the state of the world and the global economy” because “it’s not one economic problem that we’re facing, but many. All seeming to occur at the same time, all from different fields… it’s a perfect storm”. A polycrisis – summed up as “seven deadly sins”. Any one of these sins is alarming; putting them together makes an overwhelming case for taking steps to protect one’s wealth, which for us means using gold as money.

1. Pandemics & antibiotic apocalypse

One of the lessons of the Covid-19 pandemic is that our preparedness for a novel, highly infectious global disease is poor. Compared to the 1918-20 Spanish Flu, which infected around 500 million people and caused up to 50 million deaths, Covid-19 was clinically relatively mild. But the reaction of governments everywhere to this unanticipated threat was to close society and throw supply chains of everything from palm oil to microchips out of kilter. Governments decided it was politically necessary to give financial support to individuals and businesses to help them to weather the storm. It has taken years for the global economy to start to rebalance.

Whether leaked from laboratory or transmitted by animal, further deadly pandemics are highly likely, and medical research is already struggling to keep up. Furthermore there is growing evidence that antimicrobial resistance is becoming a serious problem. Such an antibiotic apocalypse could plunge medicine back into the Dark Ages. Staying on top of the world’s health be become a mammoth task.

2. Inflation: Bubbles & Recession

Another sickness; inflation is the insidious stealth tax that eats away at the purchasing power of our wealth. We can thank President Richard Nixon for ‘temporarily’ coming off the Gold Standard in 1971 and giving birth to the ‘magic money tree’ and the ability for money to be created out of nothing. Since then, governments have been able to satisfy the demands of the electorate but only at the expense of fiat currencies such as the Dollar or the Pound losing around 90% of their purchasing power since then. Meanwhile financial and property markets have bubbled and inequality is close to the highest since the French Revolution. The rising swell of ‘free’ money has turned into a tsunami, with trillions of Dollars of helicopter money has been printed to fund Covid-19 stimulus cheques. Inflation is now at a 40 year high and we find ourselves up recession creek without a paddle, as central banks struggle to fight inflation by raising interest rates, which directly contradicts the need for a looser monetary policy if we are to avoid/not exacerbate a recession.

3. War and conflict

Russia’s war with Ukraine has already caused enormous economic – never mind human – costs. Ukraine’s economy is wrecked (and Russia’s badly hit) and estimates in September by the World Bank said it would cost almost $350 billion to rebuild the country, costs that daily are accumulating. That is almost twice Ukraine’s gross domestic product (GDP) in 2021. Ukraine needs an estimated $3 billion a month in 2023, which could rise to $5 billion, according to Kristalina Georgieva, managing director of the International Monetary Fund (IMF). According to the Organisation for Economic Cooperation and Development (OECD) the war will cost the global economy $2.8 trillion (and counting) in loss of output.

There is no sign of the war coming to an end; the rhetoric on both sides seems intransigent. It’s no longer even clear what would signify ‘victory’ for either side.
Europe has not experienced such a bitter war of attrition since 1940-45; that war cost the US $4 trillion (adjusted for inflation). To help pay for that war the US government increased taxes; in 1939 less than eight million Americans filed tax returns while by 1945 almost 50 million filed a return.

4. Debt

The world is awash with paper, with interest bearing bonds – in other words with debt, most of it issued by governments anxious to raise money to spend to placate voters. The Institute of International Finance (IIF) in Washington D.C. said that in 2021 global debt reached a record $303 trillion. The US alone has a $32 trillion debt, which costs around $1 trillion to service annually. Rising debt levels relative to GDP, large structural deficits year after year, and with flat-or-rising interest rates on those rising debts, will contribute to an inflationary fiscal spiral. Eventually at some point the world will run out of lenders, or the costs of borrowing will reach astronomic levels. Then what? While there may not be a risk of default (when a country has the ability to print its own currency with no cost, and when its liabilities are denominated in its own currency, which is the case for most modern developed market economies), there is a strong risk of currency debauchment.

5. Population

We have just reached eight billion people globally. Very soon there will be 10 billion. We have some a long way from the fear of the 18th century economist Robert Malthus, that population growth would exceed the ability of the world to feed itself, but the population growth poses a different kind of problem.


The UN says that “population ageing is poised to become one of the most significant social transformations of the twenty-first century, with implications for nearly all sectors of society, including labour and financial markets, the demand for goods and services, such as housing, transportation and social protection, as well as family structures and intergenerational ties… By 2050, one in four persons living in Europe and Northern America could be aged 65 or over… The number of persons aged 80 years or over is projected to triple, from 143 million in 2019 to 426 million in 2050”.

This means there is a declining workforce, so fewer people will be paying taxes to support state pensions; rising healthcare costs will be an additional burden for governments; and capital may flow away from rapidly aging countries to younger countries, shifting the global distribution of economic power.

We can see this looming crunch on the welfare state right now in the UK. There are many demands for the public sector to expand its offerings, yet tax revenues are insufficient to meet all demands. This will become a problem for many countries – higher taxes will be politically difficult, while welfare demands will increase.

6. Climate change

Global warming is happening now. There is inescapable evidence to show all kinds of problems arising from this. We can see from the recently concluded COP27 meeting both how difficult it is to achieve global agreement on how to tackle warming, and the potential costs of a “loss and damage” scheme for small islands and other vulnerable nations. A deal was struck to establish a “fund” to help poor countries being battered by climate disasters. Even though the details of such a fund were threadbare – it’s to be years before the fund exists, and it’s unclear who will oversee the fund, and how the money would be dispersed, and to whom – the fact is that such a fund will impose a further burden on taxpayers, will suck capital up, and may not make much difference to the places it is intended to help.

7. Politics

The final sin. Uncertainty and economic hardship is fuelling deep divides across, within, and between many nations, often leading to policy stalemate or ping-pong between successive administrations. As the polycrisis worsens we run the risk of more extreme measures being demanded by restless publics and promised by politicians. Sustained and balanced progress will require both strength and delicacy on the part of our political leaders. The question is – is the current generation of leaders up to the job or will political polarization lead to rising radicalization or even dictatorship.

The result

We are witnessing the fragmentation of what people regard as bearing and preserving ‘value’. Fiat money has been challenged by cryptocurrencies but they have not lived up to their promises and, after the collapse of FTX, they will find it difficult to attract new investors. Yet the desire for a reliable alternative to fiat currency is undimmed.

Glint is the solution to the future of money. Not unallocated gold that can be lent out and which might not be there in a crisis, not a share in an ETF but allocated gold held in a Brink’s vault in Switzerland. Glint has made gold relevant again, digitized for the 21st century.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

Soapbox: Losing your shirt

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At the start of this year FTX was acclaimed as the fastest-growing cryptocurrency exchange, enlarging by around 600% last year. Trading volumes on the exchange in 2021 increased 2,400% year-on-year, with more than five million active users. In 2021, FTX raised more than $1.4 billion from major investors; it had a valuation of $32 billion heading into 2022. It became the second-largest cryptocurrency exchange. Was this explosive rise since the exchange was founded, in 2019, too good to be true?


FTX filed for chapter 11 bankruptcy on 11 November, along with some 130 affiliate organisations and Alameda Research, a hedge fund founded and owned by Sam Bankman-Fried (aka ‘king of crypto’), the founder of FTX, who has now stepped down as CEO of FTX. Chapter 11 proceedings permit a debtor 120 days to file a plan of reorganization with a court. In the filing FTX estimated it had between $10 billion and $50 billion in assets and liabilities and more than 100,000 creditors. A breakdown of the balance sheet of FTX shows that it had nearly $9 billion in liabilities and $900 million in liquid assets, $5.5 billion in “less liquid” assets, and $3.2 billion in “illiquid” assets. Most of the biggest holdings, including lower-profile cryptocurrencies such as Serum, Solana and FTT, have since plunged in value.

The collapse of FTX has evoked plenty of schadenfreude. While that’s predictable and even understandable it’s not helpful. Cryptocurrency generally is a laudable attempt to break government monopolies over money – its creation, issuance, distribution and systemic devaluation (thanks to targeting even low rates of inflation) that reduces purchasing power.

When damage is done to a part of cryptocurrency, the whole project suffers, and lack of confidence in forms of money beyond government control can spread.

Warnings about FTX, which has been based in the Bahamas, have been in the air (in the UK at least) since September. The UK’s financial regulator, the Financial Conduct Authority, then said the exchange appeared to be offering products and services in the UK without its authorisation. It said the “firm is not authorised by us and is targeting people in the UK” and that people would be “unlikely to get [their] money back if things go wrong”.


All this is a consequence of many things – personal greed, no regulation, a kind of Wild West buccaneer spirit, a ‘move fast and break things’ attitude that has developed in recent times, but above all a kind of bezzle-fever that has infused our society.

What’s a bezzle?

The term was created by the great economist J. K. Galbraith in his book The Great Crash, 1929, first published in 1955. He derived it from embezzlement, which he called “the most interesting of crimes”. A bezzle is an inventory of undiscovered embezzlement. He wrote: “In good times, people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances, the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression, all this is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks”. During boom times, which we have just lived through, this temporary discrepancy between perceived asset values and their real longer-term value can widen considerably.

Moreover, a bezzle doesn’t require actual fraud to exist; all it takes is great PR, easy money and a period where the lack of profitability seems of no concern. One could add that carelessness about lack of regulatory oversight adds to the chances of a bezzle emerging.

Since 2008 until now we have lived through perfect bezzle breeding conditions – interest rates declining to zero, massive amounts of fiat money have been either given away by states or pumped into the financial system by Quantitative Easing. Irrational growth funded by irrational lending – lending without apparent care about a return – has been behind the last decade’s expansion of all kinds of businesses. All it takes is some mishandling for the likes of FTX to come tumbling down when money is no longer “plentiful”.

Gold is security

“The public has burned its fingers in the flame of wild speculation and has learned to fear the fire. While it still fears the fire is the time for us to act”. These words were said by F.D. Roosevelt during the Great Depression, shortly before he became US President. He steered through Congress the Securities Act but it wasn’t until the 1950s that cheating in finance had dropped dramatically. It’s time for those engaged in ‘wild speculation’ to re-learn fear of the fire; what’s happened to FTX may help them.

The days are numbered for the lax regulatory environment in which cryptocurrency has thrived. The bankruptcy and collapse of the Bitcoin exchange Mount Gox in 2014, with losses of hundreds of millions of Dollars, sent warning signals (largely ignored by policymakers for whatever reason) about the need for tighter regulation. Calls for tougher regulation after the FTX debacle will be difficult to resist, even by those most sympathetic to the cryptocurrency revolution. What some are calling cryptocurrency’s ‘Lehman moment’, in reference to the 2008 collapse of that investment bank, which triggered a global financial crisis, is bound to evoke a backlash.

Yet the initial impetus behind cryptocurrency – to create a new form of money that would be impervious to government interference and central bank control – should not be jettisoned. We have seen since 2008, with private banking bad debts being socialized, with rock bottomed interest rates and injections of multi-billion sums into economies creating inflation rather than growth, just how badly managed our economies are managed. And this bad management is costing individuals dearly.

The crypto world has become less attractive thanks to people such as Bankman-Fried. Thankfully there is an alternative form of money – gold – which is not a Ponzi scheme, which is not managed and controlled by an individual, which cannot be created on the whim of a computer wizard. Gold is not regulated by the UK’s Financial Conduct Authority (FCA); but Glint is regulated by the FCA. And thanks to Glint, you can use gold as money safely. Gold cannot be hacked – although Glint enables its use within electronic payments, hackers haven’t yet worked out a way to dematerialize it and steal it across the wire. We are confident they never will.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

Soapbox: Loss & Damage

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This is a momentous week for all of us, on several fronts. The US is clearly deeply divided, if the mid-term elections are any guide. Inflation was on most voters’ minds; we discover what the US inflation rate was in October later this week. In Egypt, the North/South divide is being starkly demonstrated, as countries in the latter camp agitate for the former camp’s countries to shell out for damaging greenhouse gas emissions. In Ukraine, the nine-month war that Russia started shows no signs of ending but the West is perhaps tiring of bearing the costs.

Pew Research conducted a survey on voters’ intentions mid-October. It found that almost 80% of those questioned said the economy was “very important” in their voting decision; 82% said economic conditions “are poor”. Discussion of the possibility of a new civil war is no longer restricted to wackos or dodgy Twitterers. The polarization of American society, with Donald Trump hovering in the background, is a serious worry. US inflation is probably cooling, but at a glacial pace. The consumer price index (CPI) in September was 8.2%; the consensus for October is that the CPI will be 7.9%. Any higher will send shivers through stock markets and alarm the Federal Reserve, the US central bank. Unofficial (and vigorously debated) sources put the inflation rate at twice the official rate. Though the Fed is raising interest rates (now in the range of 3.75% to 4%) some critics say this is insufficient to stifle inflation at twice that level; yet the Fed itself in its latest financial stability report warned of damage to “the debt service capacity of households and businesses and lead to an increase in delinquencies, bankruptcies, and other forms of financial distress”.

Loss & damage grows on all fronts, and the demand for government payouts gets bigger.

Hot air is damaging

The US mid-term elections released a lot of hot air – probably they contributed to global warming. That topic is subject of the ‘Conference of the Parties’ or COP, in Egypt, the 27th – the previous 26 having disappointed many. This one is likely to disappoint too, despite some powerful rhetoric by the Secretary-General of the UN, Antonio Guterres. He kicked off the meeting by telling delegates that the world is on a “highway to climate hell with our foot on the accelerator”.

The phrase dominating the 12 days of cocktail receptions at Sharm el-Sheikh, the home of COP27, is “loss and damage”. Developing countries have been lobbying for reparations by industrialized nations for alleged losses and damage caused to them since COP meetings started. The cost of such reparations would run to billions, and quite possibly trillions of Dollars. Given that developed countries committed to raising $100 billion in climate finance a year by 2020 but failed, the chance of industrialized countries agreeing to the reparations is slim.

In a remarkable and unusual display of frankness, the former UK Prime Minister Boris Johnson, who inexplicably has joined the hordes at Sharm el-Sheikh, has already said that the UK simply does not “have the financial resources” to pay such reparations. Johnson may have read the interview with the current Prime Minister, Rishi Sunak, in The Times newspaper on 5 November. Sunak warned readers that “no government can fix every problem. Life is not that simple”. What Sunak meant was that the government does not have enough tax income to solve every social problem. Given the relatively low importance that climate change had for US voters in the mid-term elections, it must be thought that at the moment American voters won’t back climate reparations either.

No blank check

The Republican Party in the US were united in opposing President Joe Biden’s $1.9 trillion pandemic-relief plan and his $437 billion climate-focused package. They are hardly likely to favour handing over multi-billions of Dollars for any ‘loss & damage’ assertions made in Egypt, especially during a time when recession threatens a reduction in tax revenues. The US fiscal deficit in 2022 is 50% lower year-on-year – but it’s still $1.375 trillion. And in 2023, the US federal debt limit – that perennial sore – will once again set Washington D.C. alight. The White House will certainly push for the ceiling on the debt limit – currently slightly below $31.4 trillion – to be raised. The US debt is now fast approaching $31.3 trillion.

Funding priorities for governments will become particularly difficult in 2023. Inflation may be slowing but it is likely to remain above the long-term average of 3.8%/year in the US and 5.1% in the UK. A recession in the UK is now forecast by the Bank of England while Bloomberg economists say there is a 100% chance that the US economy will also hit a downturn next year. At the same time demands for spending are going to remain intense. The Russo-Ukraine war will continue in 2023: Russia appears to have the capacity to shrug off sanctions and US politicians are starting to ask questions about how much appetite America has to continue its proxy war with Russia, which for the past year has cost it an estimated $110 million per day in arms and other aid deliveries. Kevin McCarthy, minority leader in the House of Representatives, has said that more aid for Ukraine may not be passed by Congress if the Republicans gain control of the lower chamber. He said: “I think people are going to be sitting in a recession and they’re not going to write a blank cheque to Ukraine”. Especially if they increasingly realise that seizing sanctioned Russian oligarch’s superyachts is costing US taxpayers money; absurdly enough maintaining one such yacht, the Amadea, impounded in June, costs them $10 million a year. The fragile unity among Western nations against Russia could be weakening; reports in US media say the administration has privately suggested to Ukraine that it should consider opening negotiations with Russia.

Climate threat

There certainly is a threat from the climate, and it’s not just about changed weather. It is also a threat to the stability of the world’s financial system. While it is no longer questioned that the world’s climate is warming, payment to countries for supposed ‘loss & damage’ will take trillions of Dollars, estimated to be between $1 and $1.8 trillion by 2050; where will the money come from?

It is tempting to think that the extra cash needed can just be printed. After all, we have become accustomed to thinking that governments can turn on the money spigot at will. Japan has just done it again, with a package equivalent to $490 billion with the aim of stimulating the economy and help households with rising costs – including handouts of Yen 100,000 ($682) to help with costs associated with pregnancy and raising children.

But increasing the money supply – which will tempt governments and lobbyists to think they can spend their way out of the central problem raised in Egypt – will lead inexorably to more inflation, more depreciation of fiat currencies, and more erosion of fiat money’s purchasing power. The lesson of how we deal with Covid-19 – that creating more paper money and giving it out creates as many problems as it solves – has already been forgotten.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.