Category: zerohedge

Authored by Michael Gartz via The American Institute for Economic Research,

The year 2020 generated several visible changes to the structure of our society. In the US, citizens migrated to different parts of the country, workers changed or lost jobs, and education became virtual. 

One thing, however, has not changed: despite expectations of a baby boom from idle couples locked down together, birth rates continue to fall. Birth rates were already trending downwards in Western countries as more women focused on their education and careers, thus delaying plans for marriage or starting a family. The shrinking wage gap between men and women also incentivized many women to postpone childbearing to remain in the workforce longer. 

This pattern is reflected in the US, where birth rates hit a 35-year low in 2019: The CDC notes birth rates declined for nearly all age groups of women under 35, remained stagnant for those 35-39 and rose for women in their early 40s.

But when state governments initiated lockdowns in March of 2020, commentators optimistically predicted an approaching Covid baby boom set to arrive around the start of 2021 as couples sheltered-in-place together. So far though, the boom hasn’t arrived. 

CBS News reports that provisional data from 29 state health departments shows that births declined by approximately 7.3% in December 2020 — the biggest decrease since the baby boom ended in 1964. In fact, 2020 saw 50,000 fewer births across Arizona, California, Florida, Hawaii and Ohio than the previous year. Hawaii experienced the most significant decline, with birth rates decreasing 30.4% leading Bloomberg to conclude that the “Pandemic Baby Boom Turned Out to Be Bust Despite Lockdown.”

So Why the Baby Bust?

1. First Comes Love

You know the old children’s rhyme about sitting in a tree, K-I-S-S-I-N-G? First comes love. Then comes marriage. Then comes a baby in a golden carriage.

Well, 2020 probably didn’t have much kissing as lips hid behind masks and dating morphed from movie dates, candlelit dinners and romantic walks along the beach to lonely nights on the sofa watching apocalyptic films (or chick flicks), screen-lit virtual dinners, and socially-distanced outdoor picnics. 

Adding to restrictions on available date-night activities, 7 in 10 people believe dating is expensive: in 2019 RealSimple said “a single person spends about $168 per month on dating.” USA Today reported a study which found that 21% of millennials believe they need to reach a certain income level before pursuing a relationship, and 22% of singles said they were deterred from pursuing a relationship based on the potential partner’s financial situation. 

In 2020, increased financial pressures forced many millennials — adults between the ages of 24 and 39 — to move back home with their parents. Pew Research notes that financial pressures or job loss accounted for 18% of pandemic-induced moves, while 23% of young adults moved due to college campus closures. Overall, there was a 6-percentage point increase in 18-29 year olds living with parents between January and July 2020, a 5-percentage point increase from July of the previous year. Last year, the percentage of young adults living at home had surpassed Great Depression-era levels with 52% living at home by July. 

Source: Pew Research

Financial pressures and alternative living situations could serve as one explanation for why there was a drop in birth rates for women in this age group.

2. Then Marriage?

If love comes before marriage, then we should expect a domino effect resulting in fewer upcoming nuptials. Weddings can take an average of 13-18 months to plan. 

Under Covid, event venue cancellations, restrictions on large gatherings and inability for friends and family to travel across state and national boundaries left couples all over the world scrambling as their weddings were cancelled once, twice, three times as restrictions were implemented and later reintroduced. 

As unromantic as it is to talk about, the fact remains that marriage provides added legal and financial stability to having children. Reuters notes that in Italy, marriages fell over 50% in the first 10 months of 2020. By December, 9 months after initiating lockdowns, there was a bambino bust: births had dropped 21.6%. A decrease in the number of weddings is correlated with lower demand for baby carriages. British imports of baby carriages plunged “to the lowest level since records began in 2000.”

3. And Babies!

The 2020 restrictions on “non-urgent” and “elective” procedures served a devastating blow to the one in seven couples that have difficulty conceiving. In 2018, over 74,000 American babies were conceived through IVF, or in-vitro fertilization — a treatment which requires carefully scheduled medications and regular appointments, treats a range of infertility issues caused by problems with sperm, ovulation, endometriosis or egg quality. 

The BBC reported that, last April, the UK banned all new fertility treatments. This means some couples have or will miss their last chance to conceive. “If you’re 25,” says Dr Barry Witt, a fertility centre medical director in Connecticut, “you can wait a year. If you’re 40 that’s a different story.” 

The “time crunch” has led to bouts of depression, anxiety, anger and desperation amidst patients waiting to resume treatments, “because they can’t wait for a year or two because chances of success could diminish dramatically.” Dr Marco Gaudoin says that, “Statistically from the age of 34 onwards, for every month that passes your chances drop by around 0.3%. So after six months it’s [dropped] about 2%.”

4. A Lonely Road to Labor

Few people would willingly take on additional stressors during lockdowns, uncertainty and financial stress during Covid. Depriving expectant mothers of significant milestones, such as baby showers and gender reveal parties isolates them from supportive networks of friends and family essential to reducing stress and improving mood. 

Stress undoubtedly increased following hospital guidance which would allow the mother to have only one visitor by her side during labor, delivery, and postpartum — in some instances visitors were banned altogether.

During a 4-day ban, one expectant mother was told that her husband would not even be allowed to enter the hospital to fill out paperwork or carry her heavy hospital bag. She reported that “[the hospital] wanted labours to move along as efficiently as possible. Instead of 48 hours, we’d only get to stay in the hospital for 24.” 

Fear and stress can negatively impact the well-being of infants and development of the fetus. A 2004 study found that mothers living within 2 miles of the World Trade Center and whose infants were in utero during 9/11 had reduced birth weights, gestation periods and head circumferences (indicative of brain development) — an effect that was even more pronounced for mothers in their first trimester.

5. A Healthy Baby?

Adding to pregnancy concerns were questions about how Covid could affect embryos and developing fetuses. One New York Times article asking “Why Women May Face a Greater Risk of Catching Coronavirus” noted a CDC statement “that it has observed miscarriage and stillbirth in pregnant women infected with other coronaviruses like SARS and MERS.” 

Some professionals were so cautious they told their patients to “just stay home” as IVF provider Dr. Aimee Eyvazzadeh did. She advised expectant mothers to:

avoid anything that looks like a human… sounds like a human… walk[s] like a human… or breathes like a human. Wrap yourself in bubble wrap.

During Covid, expectant mothers’ fears have only been exacerbated by headlines warning, “Pregnant Women are at Higher Risk For Severe Covid-19 And Death.” According to the article, 

After adjusting for age, race, ethnicity, and underlying conditions such as diabetes, cardiovascular disease, and chronic lung disease, pregnant women were three times more likely to be admitted to the intensive care unit (ICU), and 2.9 times more likely to receive mechanical ventilation compared to nonpregnant women in the same age group.

But Forbes noted that this could also be due to the physiological changes associated with pregnancy — including increased heart rate and oxygen consumption, decreased lung capacity, and decreased function of the immune system.

6. Unemployment and Loss of Health Care

Because of increased unemployment after the 2008 Global Financial Crisis, the number of women with employer-sponsored health coverage fell for the first time. A Brookings analysis found that this “led to a large decline in birth rates, after a period of relative stability”:

In 2007, the birth rate was 69.1 births per 1,000 women ages 15 to 44; in 2012, the rate was 63.0 births per 1,000 women. That nine percent drop meant roughly 400,000 fewer births.

A study analyzing 40 million US birth records from 1975 to 2010 noted a similar pattern: “a one percentage point increase in the unemployment rate experienced at 20 to 24 is associated with an overall loss of 14.2 conceptions [per 1,000 women].” 

And this pattern has continued during Covid. Under growing economic and social insecurity 40% of women reported in a Guttmacher Reproductive Health Survey that they have “changed their plans about when to have children or how many children to have.” 

According to KFF, 61% of American women aged 19 to 64 (i.e. 59 million females) had employer-sponsored health insurance coverage in 2019. But, as my colleague Amelia Janaskie wrote, women have been disproportionately affected by the 2020 lockdowns because they make up a greater portion of in-person service industries for which teleworking is less feasible. 

Uninsured women often have inadequate access to care, get a lower standard of care when they are in the health system, and have poorer health outcomes. Healthcare coverage is essential to help cover medical costs of pregnancy, such as ultrasounds, prenatal tests and care — costs that can quickly add up. 

7. The Baby’s Drinking Alcohol

Babies remain expensive until adulthood. In 2019 the average cost in most US states for a vaginal birth was $5,000–$11,000 and $7,500–$14,500 for a cesarean (assuming there are no complications during birth). 

Depending on location and household income, new parents can expect to spend $20,000 to $50,000 during the first year of their newborn’s life. And New York Life wrote in 2015 that middle-income households could expect to spend between $12,350 and $13,900 on their children annually up to age 17. With job insecurity being high in 2020, the added cost of childbirth could be infeasible to many women.

*  *  *

Covid has only exacerbated a downward trend in birthrates; Brookings expects to see between 300,000 and 500,000 fewer births in 2021. The social impacts of such a significant demographic shift will be enormous.

Chicago is a dangerous liberal-run city with recent crime statistics that show gun violence is out of control. One unlikely source of gun violence is three enlisted soldiers at Fort Campbell, Kentucky, who operated a gun smuggling operation into the metro area. 

Demarcus Adams, 21; Jarius Brunson, 22; and Brandon Miller, 22, were arrested Tuesday by Bureau of Alcohol, Tobacco, Firearms and Explosives and U.S. Army Criminal Investigation Command agents for pedaling dozens of firearms onto the streets of Chicago, including pistols recovered at a mass shooting, according to NBC Chicago. 

The enlisted soldiers were charged with making false statements while purchasing dozens of firearms, transferring firearms to an out-of-state resident, wire fraud, money laundering, conspiracy, and selling guns without a license. 

Agents said the three purchased 91 firearms from multiple dealers around Fort Campbell and supplied them to associates in Chicago. There was no word on who exactly were these “associates.” 

NBC said the three soldiers were expected to appear before a U.S. judge in Nashville Tuesday. If they’re convicted, each could face up to two decades in federal prison. 

“I can confirm that the Soldiers involved in the case are assigned to Fort Campbell,” 101st Airborne Division spokesperson Lt. Col. Kari McEwen told Army Times. “We will continue to cooperate fully with law enforcement authorities in this investigation.”

Two years since Chicago mayor Lori Lightfoot won that runoff election, her multi-year plan to combat violent crime across the city is in shambles. Most recent crime statistics show that murders jumped 56% from April 26 to May 2 compared with the same period last year. The number of shooting incidents also spiked 40% during the same time year-over-year.

Chicago police data show year-to-date (May 2) murders were at 195 and shootings were 865, up from 160 murders and 650 shootings reported by the same time in 2020.

Who would’ve ever thought enlisted soldiers were funneling serialized guns that they bought onto Chicago streets. Idiots. 

President Biden is finally wising up after stoking a crisis at the southern U.S. border, which started after the 2020 election. Fox News reports the U.S. Army Corps of Engineers will restart border wall construction in Rio Grande Valley. 

Fox News’ Bill Melugin tweeted, “Fox News has confirmed via the U.S. Army Corps of Engineers that construction on a 13.4 mile stretch of border wall in the Rio Grande Valley will *RESUME* after pressure from local residents & politicians.”

BREAKING: .@FoxNews has confirmed via the U.S. Army Corps of Engineers that construction on a 13.4 mile stretch of border wall in the Rio Grande Valley will *RESUME* after pressure from local residents & politicians.
The Biden admin previously halted all wall construction in Jan.

— Bill Melugin (@BillFOXLA) May 12, 2021

For months, the Biden team downplayed the massive increase in refugees at the border – even going radio silent about the disaster. By April, the president finally admitted the federal government was facing a “crisis” at the border with the massive influx of migrant children. 

The same Trump wall that Biden and his team criticized repeatedly appears to be restarting construction. Perhaps, former President Trump was right about the border and the need for a wall. This proves Biden and his team are clueless. 

Trump was right, “build that wall.” 

 

Real Vision managing editor Ed Harrison and senior editor Ash Bennington discuss the huge inflationary print that is roiling equity markets.

SoftBank just capped off a series of robust quarterly earnings reports by delivering the biggest-ever quarterly profit for a Japanese firm: On Wednesday, the Japanese telecom firm with a VC arm reported net income of $17.7 billion – or ¥1.93 trillion – during the three months ended on March 31. This brought SoftBank’s annual net profit of ¥4.99 trillion (or $45.9 billion) for the 12 months period ended in March, marking a record not just for SoftBank, but for any Japanese company.

But investors found reason to doubt, as SoftBank shares slumped more than 3% after the earnings report was released. It’s important to note that unlike other companies that earn cash income by extracting oil (like Exxon) or selling digital advertising (like Facebook), practically all of SoftBank’s profits were attributed to investment gains in the vast portfolio of public and private companies owned by the firm. In Q1, these gains were largely driven by the newly public Coupang, a South Korean e-commerce giant struggling to emulate Amazon, which was responsible for nearly all of the firm’s profits.

As the FT’s Lex columnist pointed out, Of the 125 portfolio companies in SoftBank’s two Vision funds, gross returns depend on just a handful. Coupang, DoorDash and Uber make up 80% of the first fund’s gross return.

SoftBank founder and CEO Masayoshi Son argued during a presentation following the earnings report that investors aren’t giving him enough credit for all the value he has created at SoftBank. But with the WeWork fiasco still fresh in investors’ memories, we don’t blame them for still being skittish given the extreme volatility the firm has experienced in its investment returns.

As its earnings numbers showed, SoftBank’s ‘Vision Fund’ arm went from being the source of the company’s biggest losses ever just one year ago to the main driver of the firm’s profits. Vision Fund’s take amounted to ¥2.3 trillion in the quarter ended in March.

But while Masa tried to couch these volatile returns as part of a “new normal” at SoftBank, investors clearly still have some concerns.

“Our profit and revenue are both measured in trillions of yen, but just a year ago we had a record loss,” Son said during a post-earnings briefing with analysts and reporters. “For SoftBank, profits and losses in trillions of yen are the new normal.”

Their biggest concern is whether SoftBank will look to lock in more of its tech-heavy gains by buying back more of its stock. A massive share buyback program announced last year has already run out, though not before helping send SoftBank shares close to record highs, and reversing some of the firm’s post-WeWork losses.

On the subject of more buybacks, Masa sounded noncommital, which analysts said helped trigger a selloff in SoftBank shares.

“Yes, we will consider buying back our own shares,” Masa said. But he stressed that there are a lot of factors that go into these decisions, and that buybacks can’t simply be deployed to prop up the share price (even though ‘returning capital to shareholders’ is literally their only purpose).

Here’s a breakdown of the company’s Q1 profits: Coupang contributed $24.5 billion to Vision Fund’s Q4 profit. Auto1 Group, a German wholesale platform for used cars which went public in February, contributed $1.8 billion of the gains, while Uber was responsible for a $200M loss. SoftBank doesn’t need to sell shares to book income, so most of its profits are unrealized in the form of equity gains.

Kirk Boodry, an analyst at Redex Research in Tokyo, told Bloomberg that while he understand’s Masa’s rhetoric, he understands why investors are uncomfortable with the intense uncertainty baked into the company’s outlook.

“I get his points, but the last two years have shown there can be extreme volatility in returns and little agreement on future prospects.”

A senior analyst at Jeffries put it another way:

“The problem facing SoftBank is that the good news is already out,” said Atul Goyal, senior analyst at Jefferies. “What is less visible are the potential losses on blue-chip public stock investments and derivatives. The negatives are pretty opaque and that’s where investors will be looking at during earnings.”

SoftBank has a portfolio of 224 companies across three different funds as of the end of March, and Son says the company could see between 10 and 20 portfolio companies opt for public listings every year for the foreseeable future.

But replicating last year’s success will require SoftBank to duplicate the blockbuster returns in its investment portfolio. With a rout in US tech stocks already spreading to Asia, investors have reason to be skittish about SoftBank. After all, this is still the firm that once valued WeWork at $47 billion.

After announcing plans to accept payment for Tesla’s cars in bitcoin back in February, Tesla CEO Elon Musk has just announced via tweet that the company will suspend bitcoin payments over concerns about the environment.

As perhaps the biggest booster of bitcoin in corporate America, Tesla announced during its Q1 earnings report released last month that it made a $272 million profit selling some of the bitcoin it had purchased on the company’s balance sheet. Earlier this week, Musk joked about the possibility that the firm might accept Doge for payment.

In a note published on Twitter, Musk wrote that while he is still personally a believer in the crypto currency, Tesla has become concerned about the role of fossil fuels in bitcoin mining, a common criticism made by environmentalists against bitcoin. “Cryptocurrency is a great idea on many levels and has a promising future but this cannot come at a great cost to the environmet,” Musk wrote. He added that the company “will not be selling any bitcoin and we intend to use it for transactions as soonas mining transitions to a more sustainable energy.”

Tesla & Bitcoin pic.twitter.com/YSswJmVZhP

— Elon Musk (@elonmusk) May 12, 2021

The note comes after Musk joked earlier this week about the prospect of the company accepting payment in Dogecoin as well.

The price of bitcoin kneejerked lower on Musk’s tweet, according to Coin Market Cap, extending its 24-hour decline to 6%.

While the initial reaction in crypto was anything but bullish, analysts quickly noted that this could be good news for ethereum, as Musk noted in his tweet that Tesla will be looking at alternatives in the crypto space that use “<1%" of bitcoin's energy consumption.

As JPM recently pointed out in a note to clients, ESG factors are one reason ethereum’s explosive move higher, which has made it a standout crypto performer in recent weeks, will likely continue. The greater focus by investors on ESG has shifted attention away from the energy intensive bitcoin blockchain to the ethereum blockchain, which in anticipation of Ethereum 2.0 is expected to become a lot more energy efficient by the end of 2022. Ethereum 2.0 involves a shift from an energy intensive Proof-of-Work validation mechanism to a much less intensive Proof-of-Stake validation mechanism. As a result, less computational power and energy consumption would be needed to maintain the ethereum network.

In other words, this is one area where ethereum can out-compete bitcoin in the long run.

But when it comes to fossil fuel consumption, the traditional banking system has crypto beat.

By John Gallagher of Freight Waves

The U.S. Department of Transportation (DOT) is assessing whether American tankers can meet emergency fuel demands caused by the Colonial Pipeline shutdown or if foreign ships will be needed to help fill the gap.

“The Biden-Harris administration is continually assessing the impact of the ongoing Colonial Pipeline incident on fuel supplies for the East Coast and is monitoring reported shortages in parts of the Southeast,” DOT stated Tuesday. “This ongoing effort includes evaluating resources the federal government can mobilize to mitigate potential impacts.”

One of those resources is the U.S. domestic tanker fleet, of which there are 57, according to the latest data from the U.S. Maritime Administration (MarAd). If MarAd determines that there is not enough capacity available to move the needed fuel supplies, the administration will consider waiving the Jones Act, allowing foreign ships to step in.

The Jones Act requires vessels moving between U.S. ports be built, flagged and crewed in the United States.

After MarAd conducts a survey of Jones Act-qualified ships, the Department of Homeland Security, through Customs and Border Protection, has the authority to receive and approve waivers.

Vortexa, an energy analyst group, pointed out that Jones Act waivers can be provided to foreign tankers originally destined for international destinations that could then be rerouted to U.S. ports.

“We count about 10 tankers that have recently left the U.S. Gulf Coast for southern destinations that could in theory be rerouted,” the company stated in a research note on Monday. “In general, the U.S. oil industry tends to support these waiver requests during oil market disruptions, while the U.S. shipping industry has usually opposed them.”

The American Maritime Partnership (AMP), which lobbies on behalf of preserving the Jones Act, took issue with allowing waivers. US domestic shipping “has capacity available and the experience to transport refined products to help alleviate the distribution issues along the Colonial Pipeline, and is working with key energy stakeholders and policymakers to be part of the solution,” commented AMP President Mike Roberts.

DOT also revealed that the Federal Motor Carrier Safety Administration (FMCSA), which issued an emergency work-rule waiver on Sunday to allow trucks to help move emergency supplies over the highways, is working with the Federal Highway Administration (FHWA) to assess the addition of weight waivers in Georgia and North Carolina.

“Other states are considering similar action,” DOT stated. “FMCSA and FHWA are working with the full list of potentially affected states to share information and best practices and try to harmonize and align their efforts.”

The Federal Railroad Administration is also conducting a capacity assessment, DOT confirmed. “FRA is canvassing rail operators to determine their capacity to help transport fuel from ports inland and if there are additional steps FRA could do to help them increase capacity to do this. They are also engaging industry to identify trends indicating capacity pressures.”

It was supposed to be the biggest threat to the reserve status of the dollar (China’s denial that it has no desire to replace the USD with the digital yuan only confirms it) since the failed experiment that is the “whatever it takes” euro, but instead it is turning out to be one giant yawn.

While many pundits have argued that China’s digital yuan would be a “potentially fatal challenge” to American hegemony according to historian Niall Ferguson, Templeton’s Hasenstab saying it could undermine the dollar’s role as a reserve currency and even Biden’s White House studying the potential threats to the US currency, those who’ve actually used the digital yuan in China offer a vastly different response: big shrugs of indifference.

According to Bloomberg which interviewed users of China’s digital currency, they showed little interest in switching from mobile payment systems run by Ant Group and Tencent that have already replaced cash in much of the country, with some openly balking the digital yuan – which recall is programmable and comes with an ad hoc expiration date – and which gives authorities access to real-time data on their financial lives.

“I’m not at all excited,” said Patricia Chen, a 36-year-old who works in the telecom industry and was one of the more than 500,000 people in Shenzhen eligible to take part in the trial.

The lukewarm responses of the seven participants in China’s great monetary experiment underscores the challenge facing President Xi’s government as it lays the groundwork for adoption at home and abroad. And, as Bloomberg notes, even if authorities ultimately convince – or rather force – citizens to embrace the digital yuan, it’s unclear how they can do the same with international consumers and businesses already wary of China’s capital controls, Communist Party-dominated legal system and state surveillance apparatus.

It’s also why with the Yuan’s share of global payments seemingly capped at around 3% in recent years – in no small part due to China’s closed capital account and great monetary firewall – a digital version of the currency is unlikely to boost its share by much more than 1 percentage point, according to Zennon Kapron, managing director of Singapore-based consulting firm Kapronasia.

“The global impact will be very small” barring structural changes to China’s economy and financial system, said Kapron, author of “Chomping at the Bitcoin: The Past, Present and Future of Bitcoin in China.”

Those familiar with China’s grand ambitions suspect that Xi has high hopes for international use of the digital yuan as he tries to lessen his country’s reliance on the U.S.-led global financial system. But so far at least, Chinese policy makers have given mixed signals about their ambitions in public.

As Bloomberg reports, Zhu Jun, head of the central bank’s international department said in an article last month that China faces an “important window” to promote global use of yuan as U.S.-China decoupling threatens to spread to finance from trade, technology and investment. She said China “should take advantage of the early progress” in the digital yuan’s development to explore potential areas for internationalization.

There is just one problem: nobody can figure out why they need to use a digital currency which allows authorities to snoop on their every activity, when existing alternatives offer everything the digital yuan can do.

As we have noted previously, China’s digital currency project was started in 2014 by then-PBOC chief Zhou Xiaochuan, a longtime proponent of creating a new international reserve currency as an alternate to the dollar.

Zhou saw the e-CNY as one way to fend off potential threats from digital currencies like Bitcoin or Facebook’s Diem (formerly called Libra). Chinese regulators, who banned cryptocurrency exchanges in 2017, have also said the digital yuan will help combat money laundering and increase financial inclusion. And maybe it will – in some universe where they can convince over 1 billion Chinese to use it.

But it’s what China really hopes to accomplish with its CBDC that is preventing adoption: the reams of data produced by digital yuan transactions could give China’s central bank valuable real-time insights into the world’s second-largest economy; they might also be used by security services to monitor political dissidents or international businesses that compete with state-owned Chinese enterprises. It could also target any user and any “bill”, effectively getting real-time control over any person’s digital wealth.

There is another reason why Beijing is rushing to rollout the digital currency: as we reported last month, the “programmable” digital yuan comes with an adjustable expiration date which could – at the flip of a switch – encourage spending during economic downturns, or enable regulators to instantly turn off the e-wallet of anyone who runs afoul of Beijing.

In short, it is the BFF of the world’s most draconian surveillance state.

Meanwhile, global adoption of e-CNY would not only make cross-border payments cheaper and faster, it would also help the Communist Party weaken the impact of international sanctions. The PBOC has so far offered few details about how the e-CNY might be used overseas, other than to say it’s conducting cross-border tests with Hong Kong’s de-facto central bank.

Luckily, all these ambitions appear to be falling flat on their face.

Using the digital yuan was easy enough for Vera Lin, a 25-year-old who works at a financial company in Shenzhen. At the same time, she said, incentives for making a permanent shift to e-CNY are lacking given China’s existing digital payment options are reliable and work seamlessly with other app-based services from social media to e-commerce platforms. Well, Vera, when it comes to incentives, China is well-equipped – literally – with just the right amount of firepower to convince anyone which currency “is the right one”… and it won’t be shy to use it.

Failing that, however, it will be virtually impossible to get widespread adoption: even discounts of as much as 10% from merchants participating in the digital yuan trial weren’t enough to win Lin over. Platforms operated by companies like Ant routinely offer discounts on everything from ride-hailing services to grocery delivery.

Meanwhile, as Bloomberg notes, it was concerns about privacy – or lack thereof – that were among the biggest turnoffs for Jan Chen, a 33-year-old civil servant. It’s “a little scary” that authorities might be able to trace every payment, she said. In a country where compliance with tax laws is often patchy, some merchants may also be wary of their transactions flowing directly into a government database.

The PBOC has tried to quell those concerns by making the digital yuan free to use for merchants –- which currently pay service fees of around 0.6% for transactions on Alipay and WePay — and by pledging that most payments will remain anonymous. Not that anyone actually believes that.

So what happens next?

If, or rather when, the digital yuan fails to gain traction over the long term, China’s government will turn to coercion, according to Kapron. It has already started taking steps to assert more control over the data gathered by financial and tech companies including Ant and Tencent. “At the end of the day, I think it’s going to have to be the government saying: ‘You have to use this,’” Kapron said.

In any case, Francis Chan, a senior analyst with Bloomberg Intelligence and fellow BI analyst Sharnie Wong predict the digital yuan will be in use nationwide before the Beijing Olympics in 2022 and comprise 9% of China’s domestic digital payments by 2025. That’s no small change, but still a long way from challenging the dominance of Alipay and WePay, which are estimated to have a combined market share of more than 90%.

But persuading the world to embrace the digital yuan will be even harder. “The e-CNY addresses just one layer of it, the payment infrastructure part,” said Michael Ho, principal of financial services at Oliver Wyman. “But just tacking on this one layer will not solve the entire puzzle.”

Having been hammered in recent weeks for no bigger sin than sporting anti-Midas Cathie Wood (and her ARKK) as one of its bigger prominent investors, Silvergate Capital – a small ($2 billion market cap) “provider of infrastructure solutions and services for the growing digital currency industry”, i.e., crypto fintech player – soared over 20% in after hours trading following an 8K announcing that it will become the exclusive issuer of DiemUSD, the stablecoin formerly known as Libra, and which is backed by Facebook.

The Diem Association, a group of Facebook and 25 other companies and nonprofit groups once known as Libra, is moving its main operations to the U.S. and partnering with Silvergate to issue its cryptocurrency backed by U.S. dollars. Silvergate, a prominent but small (its capitalization of just $2BN is smaller than the market cap of most memecoins) player in the cryptocurrency industry, which will issue the coin and manage Diem’s reserve of U.S. dollars, the association said Wednesday in a statement.

According to the partnership press release, Silvergate will issue a U.S. dollar backed stablecoin, known as DiemUSD, the first asset ever issued on the Diem payment system, which will enable the conversion of fiat USD to and from the stablecoin through a process known as “minting” and “burning.” The stablecoins can then be used by virtual asset service providers (“VASPs”) for a variety of use cases, which includes commerce between consumers and merchants, as well as cross-border payments.

In a primer published today, Bank of America writes that Diem aims to occupy the middle ground between unregulated cryptocurrencies and the status quo: “It is a distributed ledger-based system which looks to combine crypto’s resilience and openness with the requirements of global regulators and mainstream finance. It is, we think, a hugely ambitious project, and one which could potentially launch before any of the European central banks’ digital currencies. It aims to address the remittance market, and to introduce more diversity into the payments ecosystem.”

While Diem is still building out a global payments network, with the idea that it could serve its own stablecoin or even central bank digital currencies if world governments decide to issue them, for now it will be Silvergate that serves as gatekeeper to Facebook’s initial foray into digital currencies.

“It’s critical for the U.S. to foster innovation in this space. The U.S. can’t really afford to fall behind here,” said Diem Chief Executive Officer Stuart Levey. Levey said Diem’s payments network will be able to lower the cost of sending money around the world, whether it’s through a Diem-issued coin or the central-bank digital currencies that many countries are considering.

As Bloomberg notes, while more straightforward to achieve, the new plans are a big comedown from the vision unveiled by the Libra Association in 2019. That June, Facebook and 27 partners announced the project to great fanfare with large ambitions. The Libra Association, as the Diem Association was then known, said it planned to launch a global stablecoin backed by a basket of currencies, including the U.S. dollar, euro and others.

However, the blowback from world governments was fierce and even though Facebook executives said they were just one of equal partners in the association, U.S. lawmakers said its involvement gave them concerns about protecting user data or giving the already powerful company a toehold in financial services. Some lawmakers even posited that libra could be a threat to the U.S. dollar as the world’s reserve currency.

Luckily for Facebook, that bogeyman is now China which is rushing ahead with its own digital cryptocurrency whether the US likes it or not, and as such Facebook’s digital currency ambitions have turned from liability to an asset.

Amid the criticism, the Libra Association lost some of the members most equipped to address financial regulators, including Visa Inc., Mastercard Inc., and PayPal Holdings Inc. Eventually, the Libra Association decided to delay the launch of a multi-currency coin in favor of separate cryptocurrencies linked to individual countries’ money. The association also rebranded as Diem, but never received a necessary license from the financial regulator in its headquarters country of Switzerland.

Now, Diem’s ambitions are tightening once again. The association’s members currently include Facebook, crypto-focused companies like Coinbase and others such as ride-hailing company Uber and commerce platform Shopify. Diem said while it expected eventual approval in Switzerland, it’s withdrawing the application for its license and moving most operations to the U.S.

Diem’s U.S. subsidiary plans to register as a money-services business with a division of the U.S. Treasury Department.

And while Diem’s path forward might be easier that Libra’s, Bloomberg frets that the association could struggle to explain how the project differs from myriad dollar-backed stablecoins that already exist, such as USD Coin. We don’t: if anything the recent resurgence in private cryptos has shown just how lax the US will be despite frequently threatening to regulate cryptos out of existence. After all, a wipe out of the crypto currency space whose market cap is now over $2 trillion would be a crushing, deleveraging blow to the financial system where approximately 20% of all Americans now hold some crypto in their digital wallets.

Sensing that the wind has shifted and the big digital currency bogeyman is now China, Facebook has decided to give its stablecoin a second try. In an interview, Levey said the association believes that the way it’s implementing the coin, with built-in consumer protections and anti-crime provisions, will be appealing to regulators and companies that want to use the network.

Many central banks, including those of the U.S., Europe and China, are in the process of researching or building their own digital currencies. If those come to pass, Levey said, Diem can adjust its network to accommodate them.

Finally, for those considering dipping their toe into the publicly-traded Silvergate, whose market cap today was a tiny $2 billion, an amount Facebook can easily spend 5x over to purchase the company if and Diem project takes off, a quick observation: as a result of having Cathie Wood among its shareholders, the stock has been shorted into oblivion in recent weeks, as a result its short interest is now the highest on record. How much of move higher would be sufficient for the shorts to panic and send the highly illiquid stock (it trades just 1.2mm shares per day) soaring?

For professional subs curious to learn more about Diem, we have provided a comprehensive primer in the usual place.

In a story that captures the impact that cryptocurrencies – created by Satoshi Nakamoto to “disrupt” the practice of central banking – have had on the world of finance, a managing director at Goldman Sachs has reportedly quit the bank after making a fortune off Dogecoin.

The Guardian and the website efinancialcareers reported that Aziz McMahon, a former managing director and head of emerging market sales at Goldman Sachs, resigned from the investment bank – and gave up one of the most prestigious jobs in the world of finance – after earning the windfall of a lifetime off a cryptocurrency created as a joke back in 2013, and which has seen a massive runup so far this year. The exact size of McMahon’s alleged crypto-fortune wasn’t disclosed, other than the fact that he made “millions of dollars”. The cryptocurrency is up more than 1,00% in 2021, though it has fallen more than 30% since the start of the week, and was recently trading at 47 cents.

The Irish Times later identified McMahon as a native of Ireland and a Trinity College Dublin graduate. The banker is in his 40s, and worked at Goldman for the last 14 years. It’s believed McMahon traded crypto solely for his own account, and wasn’t involved in the business at the firm, which recently revived plans to launch a crypto trading desk.

Though it’s not clear when McMahon first invested in Doge, or what he plans to do with his winnings, though efinancialcareers reported that he was possibly considering starting a hedge fund.

Here’s more from them:

Neither Goldman Sachs nor McMahon immediately responded to a request to comment on his exit, but colleagues confirmed his departure. It’s thought that he may be starting a hedge fund. His move comes after Elon Musk said he plans a Dogecoin-funded space mission next year, and while banks are slowly getting their crypto credentials on the table. Goldman Sachs executed its first bitcoin derivative trades last week and UBS is reportedly in the early stages of making digital currency investments available to clients.

McMahon isn’t alone in heeding the call of crypto. Luyi Zhang, a former senior quantitative analyst at Bank of America in New York has just joined Coinbase as a senior software engineer. Jesse Bornstein, who launched Nomura’s trade finance business in New York recently quit to become VP of institutional sales at Stakehound, a company that issues tokens allowing owners access to decentralized finance.

Coinciding with the worst selloff in doge since the start of its remarkable runup this year, news of the executive’s decision to resign with his “f**k you” crypto money quickly captivated the attention of social media users, while many seized the opportunity to try and pump. Doge is down more than 30% so far this week.

Goldman has long been admired for its ability to do two things: remain one step ahead of the market, while distributing much of the wealth it generates inside to employees. Here’s an example of one employee doing both.