Category: zerohedge

Speculation has been mounting for weeks that former Paul Manafort lieutenant (and now indicted co-conspirator) Rick Gates might be preparing to cooperate with Special Counsel Robert Mueller.

Now, the New York Times is reporting that Mueller could announce a Gates guilty plea as soon as Friday afternoon, less than a day after Gates fired his lawyers following the unsealing of a superseding indictment that also slapped Manafort and Gates with bank and tax fraud charges.

Gates, a longtime political consultant who met Manafort when he interned at one of Manafort’s companies, is expected to strike a plea deal, which could be a significant development in the investigation  as Gates presumably can offer a significant amount of incriminating information about Manafort and his activities relating to former Ukrainian President Viktor Yanukovich.

Gates’ primary concern has been protecting his family, both emotionally and financially, since wealthy Republican donors who were supposed to foot the bill for his defense have reportedly welched on the funding. He’s also hoping to spare his family the embarrassment of a drawn-out trial. Gates rolling over would also increase pressure on Manafort to roll over – presumably providing ‘damning’ evidence against President Trump.

Mueller’s team has traced more than $75 million that passed through offshore accounts, and has accused Manafort of laundering more than $30 million to pay for real estate and luxury goods in the US.

Gates transferred more than $3 million from the offshore accounts to his own accounts. Gates took over Eastern Europe duties at Manafort’s old lobbying firm, Manafort & Davis, back in 2008.

Mueller has already secured guilty pleas from former National Security Adviser Mike Flynn and former adviser George Papadopoulos.

via Zero Hedge http://ift.tt/2CDCpwy Tyler Durden

Authored by MN Gordon via EconomicPrism.com,

Jerome Powell, the new Chairman of the Federal Reserve, just completed his third week on the job.  He’s hardly had enough time to learn how to operate the office coffee maker, let alone the all-in-one printer.  He still doesn’t know what roach coach menu items induce a heinous gut bomb.

Yet across the planet, folks high and low are already telling him exactly how he should do his job.  What’s more, they’re passing advanced judgement on things that may or may not happen.  For example, the South China Morning Post recently offered the following opinion:

“President Donald Trump may have done Janet Yellen a favour by not giving her a second term as Chairwoman of the Federal Reserve.  Her successor, Jerome Powell, may have inherited a poisoned chalice.  The Fed will have to up the pace of U.S. rate hikes or risk accusations of being behind the curve as markets react to signs of rising inflation.”

When Powell showed up to work on February 5, for his first day on the job, the general consensus was that the Fed would raise the federal funds rate three times this year, at 25 basis points – or 0.25 percent – per increase.  But now that consumer prices are rising at an annual rate of 2.1 percent, average hourly earnings are increasing at an annual rate of 2.9 percent, and Congress has passed a massive two year budget deal, twitchy economists are questioning if three rate hikes will be enough to keep inflation in check.

Over the last two weeks their chants for four rate hikes in 2018 have grown louder.  Goldman Sachs has even floated the five rate hike scenario.

Alas, this is the sort of ridiculous minutia that policy makers and analysts must navel-gaze over in a planned economy.  The truth is, Powell can’t win regardless of what he does. 

Whether he raises rates three times or four times – or ten times – he’ll get it wrong.  Here’s why…

Chronic Shortages

The economy is a complex living organism that’s continuously evolving and always subject to change.  One relationship at one moment can be completely different at another moment.  Supply and demand are incessantly adjusting and readjusting to meet the conditions of the market.

These continuous interactions provide a natural and efficient response to supply shortages and gluts.  Even in a moderately free market economy, bakeries do not run out of bread when there’s a wheat crop shortage due to a late season frost.  The shelves never go empty.  Rather, the price of bread rises and consumers adjust their spending accordingly.

Centrally planned economies, on the other hand, are inclined to frequent, intensive and chronic shortages.  Bureaucrats, armed with spiral bound planning reports and pie graphs, are incapable of fixing the proper prices for gumballs and gasoline by diktat.  There’s simply too much going on and too many moving parts for them to consider.

With the best of intentions, the noble planner makes their best guess of the appropriate price control.  Then things invariably go haywire.

In practice, the supply of certain goods or commodities may be more than adequate.  But when a price administrator enforces an artificially low price, consumers are prone to wasteful behavior.  They’re compelled to demand a greater amount than is supplied.  Hence, the store shelves remain perpetually empty.

Certainly, uniform standards work well for units and measurements.  They’re critical to building consistency and standardization of hardware and parts.  They’re even necessary to effective communication and computer programming.  For certain things, however, uniform standards come up short…

Haunted by Ghosts of the Old Eastern Bloc

When it comes to the pricing of goods, commodities and services, commanding fixed prices by a central authority is an utter failure.  This was effectively proven by the experiences of the centrally planned economies of the old communist Eastern Bloc countries during the second half of the 20th century.

Regrettably, price controls don’t stop with just goods, commodities, and services.  The United States, Europe, and Japan have been doing their darnedest during the early years of the 21st century to show that these ghosts of the old Eastern Bloc also haunt credit.

Remember, credit, like a commodity or good, has a price attached to it.  The price of credit is the rate of interest a lender charges to a borrower.  Like fixing the price of a commodity or good by a central planning authority, fixing the price of credit by a central bank – such as the Federal Reserve, European Central Bank, or Bank of Japan – is presently being shown to also be an utter failure.

Someone with even a dim perception of the world around them can peer out and discern many strange and grotesque occurrences: Housing prices that far outpace incomes.  Total household debt at $13.5 trillion.  And an entire generation of Millennials that went $1.4 trillion in student loan debt for college degrees that have been debased in stature to what a high school diploma represented for prior generations.

These represent gross misallocations of capital.  What’s more, they would’ve never come into existence or ballooned out to this magnitude without the Fed’s credit market price controls.

Fed Chairman Powell doesn’t stand a chance.  Bernanke and Yellen before him oversupplied the economy with cheap credit.  Now Powell must mop it up with higher interest rates.  Yet because the U.S. economy’s been pushed to the brink with record debt levels it simply can’t afford higher interest rates.

Without question, Powell will find the break point.  Moreover, when the next great liquidity crisis hits it won’t be a failing of free market capitalism.  It’ll be the failing of the central planners and the system they wrought.

via Zero Hedge http://ift.tt/2FpRtAB Tyler Durden

Two people have been shot dead outside a branch of the UBS bank in the otherwise boring and peaceful Swiss city of Zurich, the local police said according to BBC.

Images in the Swiss media showed two bodies lying motionless, close together on a pavement, with eyewitnesses reporting four or five shots being fired.

The media images showed what appeared to be a pistol close to the hand of one of the bodies on the pavement.

There is a large police presence at the scene in the Europaallee area. Zurich police said the situation was now under control and that there was no danger to the public.

Authorities told local media they were responding to an incident in downtown Zurich, near the Swiss financial hub’s main train station.

The reasons behind the shooting remain unclear.

Developing…

via Zero Hedge http://ift.tt/2omsEP1 Tyler Durden

During his second appearance at the annual CPAC conference – an event that has been widely credited with launching Trump into politics – President Trump is preparing to announce new sanctions against North Korea during his speech, according to the Washington Examiner.

The new sanctions will be targeted at the company’s seafaring vessels – and were presumably inspired by US satellites that captured illegal ship-to-ship transfers of oil to North Korean ships.

Ahead of the speech, Trump slammed a Florida cop who failed to stop the mass high school shooting in Parkland, Fla., saying the officer lacked “courage” and “didn’t react properly.”

Trump is scheduled to begin his speech at 10 am. Watch it live below:

Some excerpts from the speech have already leaked out, providing a few hints about the speech’s contents.

Trump presumably begins by declaring Americans should proudly stand for the pledge…

We salute our great American flag, we put our hands on our hearts for the pledge of Allegiance, and we all PROUDLY STAND for the National Anthem.

Rev. Billy Graham, who died earlier this week, also receives a brief presidential eulogy…

We will never forget the historic crowds, the voice, the energy, and the profound faith of a preacher named Billy Graham.

Of course, Trump addresses his meetings with survivors of the shooting at Marjory Stoneman Douglas High School…

On Wednesday, I had the honor of meeting with students from Marjory Stoneman Douglas High School, with families who have lost their children in prior shootings, and with members of the local community in Washington, D.C. Our whole nation was moved by their strength and courage.

He also once again pushes for arming teachers…

When we declare our schools to be gun-free zones it just puts our students in more danger well-trained gun-adept teachers and coaches should be able to carry concealed firearms. We should do what works. This includes commonsense measures that will protect the rights of law-abiding Americans while helping to keep guns out of the hands of those who pose a danger to themselves and to others.

And exhorts Congress to include funding for his border wall in an immigration bill that has effectively stalled…

To secure our country, we are calling on Congress to build a border wall to stop dangerous drugs and criminals. But Nancy Pelosi has a different plan. In a recent interview, Pelosi suggested mowing the grass so people can’t be smuggled through the grass.

The sanctions against North Korea are, according to Trump, the largest ever…

Today I am announcing that we are launching the LARGEST-EVER set of new sanctions on the North Korean regime. The Treasury Department will soon be taking new action to further cut off sources of revenue and fuel that the regime uses to fund its nuclear program and sustain its military by targeting 56 vessels, shipping companies, and trade businesses that are assisting North Korea in evading sanctions.

* * *

As CNN reminds us, Trump’s speech last year was a “dark and blistering diatribe” that “cemented the notion that Trump would not adhere to presidential norms. Trump famously used last year’s speech to attack his many perceived enemies – from the press, to Democrats to the establishment more broadly – for trying to derail his administration.

CNN also notes that Trump is riding high as he prepares for the CPAC address: For example, the historic tax cuts that he recently signed into law are extremely popular among Republicans…

via Zero Hedge http://ift.tt/2EPbLCP Tyler Durden

Amid escalating tensions between Cyprus and Turkey in the Mediterranean Sea, the two countries appear headed towards an inevitable resource war.

Just two weeks since we first reported on Turkey’s aggression in Cypriot waters, KeepTalkingGreece.com reports that a serious incident took place at 10 a.m. on Friday morning, when five Turkish warships threatened to sink the drillship  SAIPEM 12000 commissioned by the Italian energy company ENI.

The drillship had set out to reach block 3 of Cyprus’ Exclusive Economic Zone (EEZ) in a new effort to reach Soupia target. SAIPEM could not reach its target due to Turkish threats.

According to Cypriot and Turkish media, the captain of one of the Turkish warships contacted the SAIPEM and threatened to sink the drill ship if it should not change its route. The drill ship changed the route and making maneuvers through the Turkish warships turned to the West and left the area.

screenshots form marinetraffic.com via newsit.cyprus

Deputy Government Spokesman Victoras Papadopoulos told the Cyprus News Agency, that after consultations between Italian company ENI and SAIPEM 12000, the captain of the drillship tried once again to drive the ship towards the Soupia  (Cuttlefish) target to conduct its drilling operations.

“During its course towards block 3 and the Soupia target the drillship was halted by five Turkish warships and after threats of violence launched (by the Turks) and the threat of a collision with the drillship, despite the courageous and commendable efforts made by the captain,” CNA notes.

The SAIPEM sailed to the port of Lemessos, is expected to sail to Morocco over the weekend.

Nikos Christodoulidis told media that the drilling is postponed but the energy program continues.

During the informal EU Summit in Brussels, Cyprus, Italy and Greece hope to find a solution to the problem with the aid of top European Union officials.

via Zero Hedge http://ift.tt/2CEdHvU Tyler Durden

Looking at last week’s “risk on” capital flows, BofA’s Michael Hartnett writes that according to EPFR data, there was a $13.2BN inflow into equities (split $7.5BN into ETFs and $5.7BN into mutual funds), $5.2BN in bonds, and $0.4BN in gold. This was a notable shift, because as the BofA CIO highlights, this was the 1st time since the Great Rotation of 2013, that equity inflows have outpaced bond inflows past 18 months.

Another surprising observation: the bulk of the flows have been deflationary, as a “higher growth/higher rates backdrop not reflected in other flows” as inflows continue to deflationary winners of tech (Chart 2), IG bonds, EM bonds/equities.

Going back to the original indicator which prompted BofA to – correctly – predict an imminent correction at the end of January, Hartnett writes that the bank’s proprietary Bull & Bear indicator remains stuck at 8.2.

In other words, just like Goldman’s pointed out earlier this week, this suggests that excess optimism continues on risk assets, thus the “pain trade for stocks & credit still to downside”; note however the coast is getting clearer for Emerging Markets, where the flow trading rule “sell signal” triggered on Feb 1st, now subsides back to neutral territory.

And speaking of BofA’s warnings, which last month was absolutely spot on in terms of both size and timing, here comes another.

First, Hartnett notes that in the battle between stagflation hawks vs. Goldilocks doves, if “as we suspect data is stagflationary/ policy hawkish” then “another risk-off bout coming.”

That was the first warning. The second: picking up where we left off in our discussion of shifting market correlations, Hartnett calculates that the recent 5 months of lower US dollar & higher US bond yields is an extremely rare event (<10% of past 50-year history, Table 1, though v common in Emerging Markets).

Traditionally, this has coincided with bouts of inflation and/or market volatility: on average inflation rose 2ppt, equities fell 9% and volatility rose 22ppt;

higher wages remains the obvious risk to investors; higher wages & peak profits/ growth much less anticipated.

Which bring us to the third, and final warning: brace yourselves for a burst in volatility, to wit:

Here comes vol: lots of volatility events in coming weeks: Feb 28th Powell @ Humphrey-Hawkins, March 1st US ISM, March 4th Italian elections/Merkel coalition vote, March 8th ECB, March 9th BoJ & US payroll/wages, March 21st FOMC.

How to position for the second round of the vol surge? Here are BofA’s preferred risk off trades.

Risk-off trades: best trades to play further risk unwind in Q1; long US dollar, long volatility, short credit, short tech, short EM, i.e. further unwind of big 2018 consensus positions

If BofA’s recent track record is indicative, it’s about to get very stormy out there.

But the most exciting thing about BofA doubling down on its gloomy forecast is that it now squarely pits two of the most popular/followed analysts against each other: one on hand, BofA’s Michael Hartnett who see pain, and on the other JPM’s Marko Kolanovic, who as we reported yesterday, sees only blue skies ahead.  One of the two is about suffer a painful hit to their reputation.

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via Zero Hedge http://ift.tt/2CEx5sH Tyler Durden

Despite rebounds in US (and less so European) equities and drops in both regions’ ‘VIX’ measures, the last few days have seen an ominous reawakening in credit markets that is far more systemically concerning than a volatility ETN…

 

 

And US HY spreads are pushing back towards last week’s wides…

 

And it’s not just HY credit, US investment grade credit spreads are starting to crack wider…

 

Fund outflows in HY and IG resumed their 2018 trend yesterday…

 

And credit remains notably decoupled from stocks…

via Zero Hedge http://ift.tt/2BLFHkq Tyler Durden

The latest embarrassing blow to CNN’s (already tattered) credibility emerged last night when Colton Haab, the student who first exposed CNN for pushing him to ask a scripted question during Wednesday night’s town hall appeared on Tucker Carlson Tonight to offer even more shocking details about CNN’s conduct.

Yesterday, we noted that Haab, a Marjory Stoneman Douglas High School student and shooting survivor, had come forward to say he decided not to attend Wednesday night’s CNN town hall after CNN producers gave him a pre-scripted question for him to ask.

But Haab told Carlson that the producers didn’t just want him to ask one scripted question: They essentially rewrote a list of questions and political points that he wanted to make at the town hall, prompting him to back away from the town hall. Haab told Carlson he shared with CNN what he wanted to say, but a producer named Carrie Stevenson ultimately rejected it, and instead after several conversations “scripted” a question for him.

“CNN had originally asked me to write a speech and questions and it ended up being all scripted,” Haab said to a local news outlet Wednesday night, according to RealClearPolitics.

Haab told Carlson he wanted to go “speak [his] part” and “open eyes” to a few things he thought could make the situation better. Haab said the network was dishonest and that is why he decided not to attend. He also said he was directed to “stick to the script.”

“She had actually said that over the phone that I needed to stick to the script,” Haab said of the CNN producer.

he was approached by CNN to ask a question at Wednesday night’s town hall, but declined after the network gave him a “scripted question” instead of allowing him to ask his own question.

More shockingly, Haab said he believed all the questions asked at the town hall were scripted. Haab explained in detail what happened between him and the cable news network and what he thought of the town hall.

“So what had happened was four days ago I had gotten contacted by a lady named [State of the Union executive producer] Carrie Stevenson from CNN. She had asked me originally to just write a speech. It was going to be at the town hall at the BB&T Center [in Sunrise, Florida]. So I agreed. I felt like it would be the right thing to do. Be able to go speak my part as well as open eyes to a few things that I thought that can make this situation a little better. From there, three days ago, so the next day after that I had gotten an email back from her and she asked for more of questions rather than a speech. Which I was totally fine with so I wrote a little less of a speech and more of questions that I wanted to ask at the town hall. The day after that it was more of just questions. She asked for just questions that I would like to ask.”

“So, I gave her my questions and then yesterday, at about 5:15, I made contact with her. And she had asked if I had just asked her one question. So what they had actually done was wrote out a question for me because in my interview with CNN, I had talked about arming the teachers, if they were willing to arm themselves in the school to carry on campus. And they had — she had taken that of what I had briefed on and actually wrote that question out for me. So I have that question here if you would like me to ask it for you.”

Haab said he turned off the town hall because he could tell that the questions being asked were scripted.

CNN, of course, has denied Haab’s claims.

There is absolutely no truth to this. CNN did not provide or script questions for anyone in last night’s town hall, nor have we ever. After seeing an interview with Colton Haab, we invited him to participate in our town hall along with other students and administrators from Marjory Stoneman Douglas High School. Colton’s father withdrew his name from participation before the forum began, which we regretted but respected. We welcome Colton to join us on CNN today to discuss his views on school safety.

But, of course, they can’t both be telling the truth.

So who’re you going to believe?

via Zero Hedge http://ift.tt/2ELMsp8 Tyler Durden

• China seizes control of Anbang Insurance as chairman prosecuted (Reuters)
• How Deal-Hungry Anbang Went From Waldorf to Woe (BBG)
• Anbang and the Financialization of China’s Economy (WSJ)
• Trump’s Stance on Gun Laws Raises Pressure on Congress (WSJ)
• Chance of halting Brexit now close to 50:50, says leading campaigner (Reuters)
• May’s Cabinet Backs the Brexit Plan the EU Is Poised to Reject (BBG)
• VIX Funds Face Fresh Scrutiny From U.S. Regulators (BBG)
• ‘There was a mistake made’: No. 2 FBI official addresses criticism over fumbled tip on Nikolas Cruz (WaPo)
• How Tesla and Google Jets Could Enrich a Money-Losing Gold Miner (BBG)
• Trump to announce new sanctions against North Korea as South prepares for talks (Reuters)
• Walmart’s Big Bet on Home Delivery Hasn’t Paid Off Yet (BBG)
• Wall Street May Be Rethinking Its Relationship With Guns (BBG)
• Numbers starting to add up for Tesla trucks (Reuters)
• When ‘Married, Filing Separately’ Lowers Your Tax Bill (WSJ)
• Turkish forces shell convoy headed to Syria’s Afrin region (Reuters)
• Watch Wall Street Analysts Lose Their Mind Over Free Candy (BBG)
• Global watchdog to put Pakistan back on terrorist financing watchlist (Reuters)
• Trump calls meeting on biofuels policy after refiner bankruptcy (Reuters)
• General Mills to buy pet food maker Blue Buffalo for $8 billion (BBG)
• Figure skating: Zagitova gives OAR first Pyeongchang gold (Reuters)

Overnight Media Digest

WSJ

– China’s insurance regulatory agency Friday took control of hard-charging, acquisitive Anbang Insurance Group, saying the action is needed to avoid a collapse of the firm following suspected illegal activity and the downfall of its once-highflying chairman. on.wsj.com/2GESTaa

– Securities regulators plan to pare back Obama-era requirements that would require mutual funds to tell shareholders about large holdings of hard-to-sell assets, in what would be a significant concession to the industry. on.wsj.com/2GF3Gkj

– Dina Powell, who until recently served as a top national-security adviser in the White House, is talking to Goldman Sachs Group Inc about returning to the firm. on.wsj.com/2GEdmf7

– President Donald Trump’s calls for changes to gun laws in the wake of last week’s Florida school shooting push Congress toward a new politically fraught debate just months before the midterm elections. on.wsj.com/2GD2m1w

– Airbnb Inc looking to solidify sales ahead of an initial public offering expected as soon as next year, is adding more hotels to its site, along with a loyalty program and new tiers of listings that include luxury and more budget-friendly offerings. on.wsj.com/2GF4oOv

 

FT

Members of parliament were critical of senior partners at KPMG and Deloitte in a hearing on Thursday for their work for collapsed outsourcing firm Carillion Plc.

British Prime Minister Theresa May’s Brexit inner cabinet broke up following talks that lasted for eight hours on Thursday with claims from Brexiters that Britain was on track to make a clean break with the European Union.

Channel 4 has been given a March 12 deadline to present a plan to move out of London, in the absence of which the government will intervene, according to people familiar with the talks.

 

NYT

– After a barrage of customer complaints this week, the First National Bank of Omaha said on Thursday that it would withdraw its National Rifle Association-branded Visa credit card. “Customer feedback has caused us to review our relationship with the N.R.A.,” Kevin C. Langin, a bank spokesman, said in a statement. nyti.ms/2BNIIAW

– President Donald Trump on Thursday enthusiastically embraced a National Rifle Association position to arm highly trained teachers to fortify schools against mass shootings like the one last week. Trump, who said the armed teachers should receive extra pay as an incentive, promoted his idea as demands for stronger gun control intensified across the country. nyti.ms/2Gz61NR

– The Chinese government said on Friday it had seized control of Anbang Insurance Group, the troubled Chinese company that owns the Waldorf Astoria hotel and other marquee properties around the world, and it had charged the company’s former chairman with economic crimes. nyti.ms/2CDoWEL

– Returns for college and university endowments in the United States for the 2017 fiscal year are in, and while they averaged a respectable 12.2 percent for the year, over the last decade they have underperformed funds offering a simple 60-40 or 70-30 stock-fixed income allocation. nyti.ms/2CDUH0H

 

Canada

THE GLOBE AND MAIL
** Ontario’s real estate regulatory body, the Real Estate Council of Ontario (RECO), is raising serious concerns about whether brokerages should be allowed to facilitate transactions in cryptocurrencies such as bitcoin. tgam.ca/2HBTH0A

** New housing taxes in the B.C. NDP’s provincial budget have left municipal officials in the Okanagan confused and worried about the impact on their region, which has some cities – but not others – designated for both levies. tgam.ca/2HEZ8Mo

** Export Development Canada says it is facing “enormous” risk of “serious and potentially irremediable harm” because the controversial Gupta family is refusing to return a Bombardier Inc luxury jet that could be used in criminal activity. tgam.ca/2ok9QQl

NATIONAL POST
** Defence department bureaucrats rejected a plan to outfit the navy’s new supply ship with high-tech guns needed for its protection because they wanted to save money, officials with a Quebec shipyard say. bit.ly/2EXKW2n

 

Britain

The Times

– EU citizens who arrive in Britain during the post-Brexit transition period will be allowed to stay permanently under a U-turn planned by Prime Minister Theresa May. bit.ly/2HEyanV

– Euro-zone rate setters have accused Washington of trying to talk down the dollar and start a currency war, in a rare attack from the European Central Bank that comes after the U.S. Treasury secretary, Steven Mnuchin, said that a weak dollar was good for the U.S. economy. bit.ly/2HGpVb1

The Guardian

– Carillion Plc’s former finance director considered putting cash into the firm’s pension deficit a “waste of money”, according to the minutes of a meeting written by the pension scheme trustees.

– Men working for Barclays Plc’s international division got paid bonuses that were more than double those of their female colleagues last year, with far fewer women occupying senior roles, the bank’s 2017 gender pay gap report shows. bit.ly/2HDmlyo

The Telegraph

– Tech giants could face sweeping new taxes in the UK as the Treasury is considering taking a share of their revenues, with politicians claiming the current level of payments to the Exchequer is not fair. bit.ly/2HDTNER

– Southern Rail operator Go-Ahead Group Plc will bid to run the contract again after its chief executive said his company had achieved everything asked of it by the government. bit.ly/2HFQTQi

Sky News

– British Gas owner Centrica Plc said it will shed 4,000 jobs by 2020 following a big fall in operating profits. bit.ly/2HGtjmf

– The chairman of Standard Life Aberdeen Plc is to step down within two years of helping to create one of Britain’s biggest fund managers in an 11 billion pound ($15.35 billion)merger. bit.ly/2HDG1lP

The Independent

Millions of Sky TV and broadband customers are set to pay more from April as the telecoms giant introduces a hike in prices, but can avoid doing so if they leave outside of the minimum term of their contracts – penalty free. ind.pn/2HEBn6X

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Authored by Charles Hugh Smith via OfTwoMinds blog,

If a currency can’t be converted on demand into the underlying commodity, it’s not “backed by oil,” it’s just another form of control fraud.

image courtesy of CoinTelegraph

The broke and broken country of Venezuela appears to be the first nation-state to issue a cryptocurrency token (the petro) as a means of escaping the financial black hole that’s consuming its economy: Maduro Launches Oil-Backed Crypto “For The Welfare Of Venezuela”.

For context, here is a chart of the black market (i.e. real-world) value of the Venezuela’s fiat currency, the bolivar: a 100,000 bolivar note is worth somewhere around 40 cents USD (US dollar), i.e. near zero. (Venezuela maintains a fantasy-official USD/bolivar exchange rate that has no relation to the actual purchasing-power value of Venezuela’s fiat currency.)

The gee-whiz component of the petro is that it is supposedly “backed by oil.”In other words, unlike other cryptocurrencies/ tokens, the petro has intrinsic value because it’s backed by oil.

But what does backed by oil actually mean?

The only way any currency, fiat or crypto, is “backed” by any real-world commodity is if the currency is convertible into the commodity on demand, that is, the currency can be exchanged for the commodity at a transparent published conversion rate.

If Venezuela’s petro cannot be converted directly into deliverable-upon-demand oil contracts, it’s not backed by anything. It’s important to understand that any currency that claims to be “backed” by gold, oil, rice, bat guano, etc. must be convertible to the underlying commodity at a transparent conversion rate.

If a currency can’t be converted on demand into the underlying commodity, it’s not “backed by oil,” it’s just another form of control fraud, which I define as those holding power in centralized institutions enrich themselves at the expense of the citizenry by modifying what’s legally permissible.

Conventional fraud is against the law; control fraud is legal because it benefits those who make the rules. If there is no transparent mechanism for converting petros into oil that can be sold and delivered in the global marketplace, then the petro is nothing but a central-state control fraud: those foolish enough to believe the con that the petro is “backed by oil” will end up with a worthless token.

A bit of history will clarify “backed by something real” conversion. In the 1960s, the US dollar was famously “backed by gold,” which meant that other nations (via their central banks) could convert $35 USD into an ounce of gold upon demand.

As U.S. trade and federal budget deficits soared in the late 1960s, nations such as France began converting their excess dollars into physical gold. If this conversion had been allowed to continue, foreign entities would have drained all of America’s gold as they converted their dollars (exported via trade deficits to other nations) into gold. As a result, the U.S. had no choice but to end the conversion of dollars to gold.

The notion that China or Russia will issue a gold-backed currency attracts considerable attention, but a currency is only “backed by gold” if a foreign financial institution can convert their yuan or rubles into gold upon demand. If there is no transparent, easy mechanism for foreign holders of the currency to convert their currency into gold upon demand, then the currency isn’t actually backed by anything: it’s simply a form of control fraud.

It doesn’t matter if the currency is digital, paper or crypto: if it can’t be directly converted into the underlying commodity at a transparent published conversion rate, it’s not backed by anything.

Until a foreign financial institution successfully converts its Venezuelan petros into actual barrels of oil, or oil contracts that can be sold immediately on the global market, then the petro isn’t backed by anything. Until that conversion process is functioning transparently, the petro is nothing but a giant control fraud perpetrated to benefit the few clinging to power in Venezuela at the expense of the many.

*  *  *

My new book Money and Work Unchained is $9.95 for the Kindle ebook and $20 for the print edition.Read the first section for free in PDF format. If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

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