Month: July 2017

While we've carefully documented the dynamics in play behind Trump's decision to end the CIA's covert Syria program, as well as the corresponding fury this immediately unleashed among the usual hawkish DC policy wonks, new information on what specifically impacted the president's thinking has emerged.

Thomas Joscelyn, a Middle East analyst for the Foundation for Defense of Democracies, explains in the August edition of The Weekly Standard:

Earlier this year, President Donald Trump was shown a disturbing video of Syrian rebels beheading a child near the city of Aleppo. It had caused a minor stir in the press as the fighters belonged to the Nour al-Din al-Zenki Movement, a group that had been supported by the CIA as part of its rebel aid program.

 

The footage is haunting. Five bearded men smirk as they surround a boy in the back of a pickup truck. One of them holds the boy’s head with a tight grip on his hair while another mockingly slaps his face. Then, one of them uses a knife to saw the child’s head off and holds it up in the air like a trophy. It is a scene reminiscent of the Islamic State’s snuff videos, except this wasn’t the work of Abu Bakr al-Baghdadi’s men. The murderers were supposed to be the good guys: our allies.

Trump pressed his most senior intelligence advisers, asking the basic question of how the CIA could have a relationship with a group that beheads a child and then uploads the video to the internet. He wasn't satisfied with any of the responses:

Trump wanted to know why the United States had backed Zenki if its members are extremists. The issue was discussed at length with senior intelligence officials, and no good answers were forthcoming, according to people familiar with the conversations. After learning more worrisome details about the CIA’s ghost war in Syria—including that U.S.-backed rebels had often fought alongside extremists, among them al Qaeda’s arm in the country—the president decided to end the program altogether.

Screenshot of the horrific video of a CIA-backed Syrian group beheading a boy named Abdullah Issa.

At the time the beheading video surfaced (July 2016), many in the American public naturally wanted answers, but the story never really picked up much momentum in the media. As Joscelyn describes, it caused nothing more than "a minor stir in the press." The State Department seemed merely satisfied that the group responsible, Harakat Nour al-Din al-Zenki, claimed to have arrested the men that committed the gruesome crime, though nothing more was known. Absurdly, a US government spokesperson expressed hope that the child-beheading group would "comply with obligations under the law of armed conflict."

The only press agencies that publicly and consistently challenged the State Department at the time were RT News and the Associated Press, yet even these attempts didn't get picked up beyond the confines of the State Department's daily briefing. When the AP's Matt Lee initially questioned spokesman Mark Toner as to whether Zenki would continue to receive any level of US assistance, Toner casually replied "it would give us pause" – which left Lee taken aback.

Meanwhile, it wasn't just the US government which had aided Zenki, but as fighting in Aleppo raged it became a favored group among both the mainstream media and prominent think tank pundits. One of the UK's major broadcasters (Channel 4) even went so far as to attempt to delete and hide its prior online content which sought to normalize the beheaders as "moderate" and heroic once news of the video got out.

Controversial, but @AbuJamajem is largely right:

– “In #Syria, U.S. Can Keep Its Hands Clean or Get Things Done”https://t.co/vYzwH0mWXB

— Charles Lister (@Charles_Lister) August 22, 2016

Among think tankers, Zenki's most prominent public supporter, frequently presenting the terror group as actually representative of Syria's "secular" and supposedly democracy-promoting armed opposition (even after the beheading video emerged), was Charles Lister. Lister was finally confronted not by mainstream media, but by AlterNet's Max Blumenthal at a DC event held by the (largely Gulf funded) Atlantic Council.

Only by the time of this January 2017 public forum, and after being persistently questioned, did Lister awkwardly back off his previous enthusiastic promotion of Zenki:

We can imagine that Trump saw other things beyond the shocking Zenki beheading video which made him fully realize the utter criminality of the CIA program (Thomas Joscelyn further emphasizes that Trump came to understand the full scope of CIA cooperation with al-Qaeda in Syria).

The only question that remains is who in the CIA or Obama-era State Department should be prosecuted first?

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Content originally published at iBankCoin.com

The rapidly unfolding case against Debbie Wasserman Schultz’s apparent Pakistani IT spy ring already had huge implications for National Security. We now learn that the investigation into the the Awan family encompasses more than just the Democrats they were working directly for.

Judge Andrew Napolitano appeared on Fox Business Network on Monday where he dropped a new bombshell: not only did the Awans had access to the emails of every member of the House of Representatives, Imran Awan reportedly sold information to still unknown parties, which the FBI is currently investigating.

Napolitano: He was arrested for some financial crime – that’s the tip of the iceberg. The real allegation against him is that he had access to the emails of every member of congress and he sold what he found in there. What did he sell, and to whom did he sell it? That’s what the FBI wants to know. This may be a very, very serious national security situation.

 

Varney: Wait a second, he was the IT worker along with his two Pakistani brothers, for DWS, and other Democrats in the House – and the theory is that he got access to all of their secrets or whatever, and sold some?

 

Napolitano: Yes, and this was at the time that Congresswoman Schultz was also the chair of the Democratic National Committee. So at this point I don’t believe they know what he sold, and to whom he sold it – but they do know what he had access to, which is virtually everything in the House of representatives, which would include classified material in the House intelligence committee.

Watch:

And as The Gateway Pundit reported Thursday – the Awans were sending sensitive information to the Muslim Brotherhood.

Per Josh Caplan @ GWP:

The explosive claim is backed up by a report in Frontpage Magazine linking the Awan brothers to the Muslim Brotherhood. The Pakistani IT staffers worked for Democrat Congressmen Andre Carson as well.

Frontpage reported:

The office of Andre Carson, the second Muslim in Congress, had employed Imran Awan. As did the offices of Jackie Speier and Debbie Wasserman Schultz; to whom the letter had been addressed.

 

Carson is the second Muslim in Congress and the first Muslim on the House Permanent Select Committee on Intelligence and, more critically, is the ranking member on its Emerging Threats Subcommittee. He is also a member of the Department of Defense Intelligence and Overhead Architecture Subcommittee.

The Emerging Threats Subcommittee, of which Carson is a ranking member, is responsible for much of counterterrorism oversight. It is the worst possible place for a man with Carson’s credentials.

 

Carson had inherited his grandmother’s seat and exploited it to promote a radical Islamist agenda. He has interfaced with a laundry list of Islamist groups from CAIR to ISNA to ICNA to MPAC. Islamists have funded Carson’s career to the tune of tens of thousands of dollars. The Center for Security Policy has put together a dossier of Carson’s connections to the Muslim Brotherhood. The Brotherhood is the parent organization of many key Islamic terror groups posing a threat to our national security including Al Qaeda and Hamas.

 

Andre Carson shared the stage at a CAIR banquet with Sirraj Wahaj: an unindicted co-conspirator in the World Trade Center bombing who had once declared,” You don’t get involved in politics because it’s the American thing to do. You get involved in politics because politics are a weapon to use in the cause of Islam.” CAIR itself had been named an unindicted co-conspirator in terror finance.

It’s ironic the Awan brothers cry Islamophobia, when in all actuality, the religion they practice deserves all the scrutiny it receives. Simply put, the Awan brothers are of the Muslim faith sending sensitive information to Islamic fundamentalist group, Muslim Brotherhood.

Watch:

I wonder what’s on that laptop Debbie Wasserman Schultz threatened the chief of DC Capitol Police over?

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Authored by Charles Hugh Smith via OfTwoMinds blog,

The decision to launch nuclear weapons is political, not military.

As North Korean supreme leader Kim Jong Un declares that "The Entire US Territory Is Now Within Our ICBM Range", somewhere in the Pentagon, operational plans to neutralize North Korean nuclear and long-range missile capabilities are being refined.

There are undoubtedly two sets of operational plans: one deploying conventional weapons, and the second for deployment of nuclear weapons.

Nothing personal, Mr. Kim Jong Un, it's just business. A core duty of planners in the Pentagon is to ask "What if" and draw up a range of scenarios and operational plans to carry out the civilian leadership's policies and decisions.

One such scenario is "what if North Korea launches a ballistic missile that is tracking to strike U.S. territory?"

One response option in this scenario would be to wait and see if the North Korean missile hits the U.S. and if it is armed with a nuclear weapon, and if so, if the warhead detonates.

Another option is to respond immediately with a nuclear strike that neutralizes North Korea's ability to launch any more nuclear-armed missiles.

The U.S. Armed Forces does not declare war or make the decision to launch a nuclear strike–that is the perogative and responsibility of the nation's civilian elected leadership. The duty of the U.S. Armed Forces is to be prepared to execute the decisions and policies of the elected civilian leadership.

The ethical considerations of such a decision are not the Pentagon's purview–those considerations rest with the elected civilian leadership. If North Korea is poised to kill 2 million Americans, South Koreans, Japanese, etc., then isn't erasing North Korea's capability to kill millions at the cost of 50,000 North Korean lives in a limited nuclear strike the more ethical choice?

Those considerations are not part of operational plans. The purpose of operational plans is to get the assigned job done. Limiting civilian casualties might well be part of the assigned mission. But it's not the Pentagon planners' job to make those mission decisions.

There are no small nuclear explosions, but there are smaller explosions and variations that have profoundly different consequences. Ground-burst detonations carve out craters and send shock waves through the earth that crumple tunnels, bunkers, elevator shafts, etc. Ground-burst detonations generate vast quantities of radioactive particles. Since it's well known that North Korea has buried its most precious nuclear resources deep underground, ground-burst detonations would be the only way to disrupt the access routes to bunkers deep underground.

Air-burst nuclear detonations generate field effects, i.e. electromagnetic pulses across the spectrum. These can be "tuned" to some degree. Thus a neutron-type weapon is designed to sicken and kill enemy soldiers while leaving buildings and equipment intact. This might be the weapon of choice to neutralize any attempt by the North Korean Army to launch a devastating artillery attack on South Korea in retaliation for the destruction of North Korea's missile and nuclear capabilities.

Air-burst field effects often include massive disruption of electronic equipment. This might limit the operational plans for air-burst nuclear detonations near ther DMZ, as technologically advanced South Korea might well suffer significant economic losses from an air burst near the border with North Korea.

By the same token, an air-burst nuclear detonation over North Korean military communications headquarters might be considered essential to distrupt the North Koreans' command and control capabilities.

My point here is that operational plans to decapitate North Korean nuclear and ICBM capabilities exist and are constantly being revised and refined in light of new intelligence. It's not the planners' job to make the geopolitical or ethical calculations that inform such a drastic decision. It's the planners' job to make sure a strike ordered by the elected civilian leadership of the nation achieves its goal, i.e. eliminates North Korea's nuclear and missile delivery capabilities completely.

It's easy to say nuclear weapons should never be used, but what if conventional weapons can't do the job, or create greater risks? Would you consider it a good ethical trade-off to wait for millions to die before killing thousands? That's a political choice, and one that will always be second-guessed or disputed. But making such decisions is the purpose of elected civilian government.

The planners job is much more direct. If the elected civilian government orders the neutralization of North Korea's ability to kill millions of civilians in South Korea, Japan or the U.S., then the job boils down to aligning existing resources and reckoning how many resources will be needed to get the job done in the most effective way available.

A conventional-weapons strike would likely require hundreds (and possibly thousands) of aircraft sorties, and all that such a monumental effort entails. It would also requires a significant amount of time to execute. A nuclear strike requires far fewer resources but has consequences far beyond those of conventional weapons.

There have been no nuclear weapons detonated with the express intention of destroying civilians since 1945. The stakes are high, and nobody wants to launch a nuclear attack unless it is in retaliation for a nuclear attack. But by then it's too late to save the millions killed by the initial attack.

We all hope deterrence works. But deterrence very nearly failed a number of times in the Cold War between the USSR and the US. Given the possibility that deterrence might fail–over-ridden by a commander with launch authority, or a dozen other possibilities of miscalculation or impulse– plans must be made for a first-strike designed to neutralize a nuclear missile capability.

The decision to launch nuclear weapons is political, not military – but achieving the goal is the duty of the military.

It's nothing personal, folks–it's just a peculiar business.

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It was a bad day for Anthony Scaramucci: first the Mooch was fired just ten days after he was first hired, in the brief process getting served with divorce papers and missing the birth of his baby while unleashing a bizarre rant for the ages, and then shortly after, his now former boss, the president of the US, the same one who earlier said there was no chaos at the White House, tweeted that it was “A great day at the White House”

In this case, one of the responses to the Trump tweet was substantially more informative than the original:

In 10 days you destroyed @Scaramucci’s hedge fund, his career, his marriage, and made him miss the birth of his child.
 
Then you fired him.

— Jules Suzdaltsev (@jules_su) July 31, 2017

And then, adding insult to pink slip, CBS reported that Harvard Law School apologized for erroneously listing Anthony Scaramucci as dead in its new alumni directory.

No, really: a directory mailed to alumni this week included an asterisk by the name of Scaramucci, a 1989 graduate of the Cambridge, Massachusetts, university, indicating he had died.

A statement from the law school apologizes for the error and says it will be corrected in future editions. It doesn’t provide an explanation for the error. The directory is published every five years and is available only to alumni of the Ivy League law school.

If there was any consolation for Scaramucci, it came from People Magazine, which reported that the lawyer representing the estranged wife of ousted White House communications director denied the NY Post report that the couple ended their marriage because of President Trump.

“I don’t know where that came from, but it is not accurate. It is a false fact,” divorce lawyer Jill Stone, who represents Deidre Ball, told People magazine on Monday.

So at least that wasn’t Trump’s fault. And now that he is once again out of the public eye, Scaramucci may finally get what he requested just 48 hours ago: a plea to leave his family out of it.

Leave civilians out of this. I can take the hits, but I would ask that you would put my family in your thoughts and prayers & nothing more.

— Anthony Scaramucci (@Scaramucci) July 28, 2017

To top off an emotional day for all, here is some humor from The Onion:

Following his abrupt dismissal just 10 days after being named White House communications director, Anthony Scaramucci reportedly received an outpouring of sympathetic texts Monday from friends and family expressing that they were “so fuckin’ sorry to hear about this shit.”

 

“My deepest motherfuckin’ condolences, Tony, it’s terrible to hear you got shit-canned by these ass-munching cocks in D.C.,” read a text message in part, just one of dozens sent by old buddies at Goldman Sachs, current business partners at SkyBridge Capital, and extended family in New Jersey in response to his “goddamn bullshit” dismissal.

 

“Sorry to hear those bitches gave you the fucking ax, Mooch. That jackass [John] Kelly got no fucking clue what a good fuckin’ dude you are. Just know your mother and I always got your fucking back.” At press time, Scaramucci’s New York office was reportedly filled with flower arrangements and handwritten cards lamenting that this was “absolute fucking trash.”

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Tom Steyer, a California hedge fund billionaire, had the dubious honor of being the largest donor to the Democratic party – spending a whopping $87 million on Democratic candidates and causes in 2016 and endorsed Clinton after the primaries. With Schumer and the Democrats pushing their 'new better deal' and admitting the Russians didn't do it (and being anti-Trump is not enough), Steyer is supporting his party's perspective and dumping Hillary's 'but but but it was the Russians… and Comey' narrative'.

Steyer recently spoke to Mic.com's Jake Horowitz to discuss the state of play for Democrats in the Trump era – the good, bad and yes, the ugly…

“Democrats have to move from resistance to offense,” Steyer said.

 

"Being not-Trump is not nearly enough. We have to put forward our positive vision for the future. If we can’t do that, then I don’t understand the point.”

Today however, Steyer is now an unabashed supporter of Sanders’ progressive vision…

“When people say Bernie is crazy, no. Bernie is talking about inequality. That is the burning issue in the United States.”

 

“There is an absolute, unspoken war between corporate interests and the American people,” he said. “That’s the underlying subtext for all of the public discussions within the Democratic party.”

 

“We’re seeing a deliberate attempt to take away [working families’] future by really rich people. Until we address that, I don’t think we’re dealing with the reality Americans are facing today,” he continued.

But Democrats, Steyer said, have yet to develop a compelling and positive message to channel the energy Sanders generated on the campaign and help the party win back working class voters in the Rust Belt who flipped for Trump – let alone turn their own base out at the polls on Election Day. For Steyer, that message must start with inequality, not jobs.

“Before you freak out on the jobs question, which everyone loves to do, understand that we [only] have 4.3% unemployment,” Steyer said.

 

“But what we do have is a whole bunch of people who have jobs they can’t live on,” he added, a reference to the thinking behind the Fight for $15 and other progressive campaigns to raise working class wages.

Steyer, who said he considers himself a Democrat but “not part of the party apparatus in any shape or form,” was the largest individual funder of the 2016 election. The results were obviously quite disappointing. Of the seven candidates for national office that Steyer supported through NextGen’s Action Committee, four lost — including, of course, Clinton.

Coming off those bruising defeats, Steyer has only redoubled his efforts.

He recently announced on Mic the launch of NextGen Rising, a new voter registration campaign to mobilize young voters in eight key states ahead of the 2018 midterm elections.

“One of the absolute necessities for Democrats in 2018 is going to be to recruit credible and good candidates that line up well with their districts,” Steyer said.

Still, aside from Sanders, it’s not immediately obvious who would be the best candidate to advance the economic message Steyer is championing, between the dozen or so names that are frequently mentioned as 2020 contenders — from Cory Booker and Elizabeth Warren, to outsiders like Howard Schultz. But one thing is clear: Steyer has his eyes on 2018 and 2020, and he’s in favor of the party adopting a solidly progressive agenda, rather than just running on an anti-Trump platform or trying to fight for the center.

Well it can't get much worse?

We suspect,. however, that no matter what Steyer and Schumer say, Maxine Waters and her ilk will be unable to change their narrative… like this little beauty over the weekend…

Mike Pence is somewhere planning an inauguration. Priebus and Spicer will lead the transition.

— Maxine Waters (@MaxineWaters) July 30, 2017

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After the Senate failed to repeal Obamacare on Thursday, when a critical “Nay” vote by John McCain crushed Trump’s biggest campaign promise shortly after midnight, on Saturday the President threatened to end key payments to Obamacare insurance companies if a repeal and replace bill is not passed. “After seven years of ‘talking’ Repeal & Replace, the people of our great country are still being forced to live with imploding ObamaCare!” Trump tweeted, followed by: “If a new HealthCare Bill is not approved quickly, BAILOUTS for Insurance Companies and BAILOUTS for Members of Congress will end very soon!.”

Now, in previewing what may be Trump’s next potential step to keep the fight against Obamacare alive, Reuters reports that Senator Rand Paul told reporters that Trump is “considering taking some form of executive action” to address problems with the healthcare system.

Paul said he spoke to President Donald Trump by phone about healthcare reform on Monday and told the president he thought Trump had the authority to create associations that would allow organizations to offer group health insurance plans.

Allowing groups like AARP, which represents retirees, to form health associations could enable individuals and small businesses to form larger groups to negotiate with health insurance companies for lower rates.

Such a move would also allow Trump to implement his threat of “ending bailouts for insurance companies.”

Saturday was not the first time Trump had made a similar threat: the president previously threatened to withhold Cost Sharing Reduction payments, or CSR, which lower the amount individuals have to pay for deductibles, co-payments and insurance. While the White House announced earlier this month that key ObamaCare subsidies to insurers would be paid this month, the administration did not make a commitment beyond July.

As Bloomberg explained over the weekend, there are two key ways the President of the U.S. could undermine the law: asking his agencies not to enforce the individual mandate created under Obamacare; and stopping funds for subsidies that help insurers offset health-care costs for low-income Americans. Both moves could further disrupt the Affordable Care Act’s individual markets and eventually lead to higher premiums, or rather even higher premiums that Obamacare itself has led to.

Which means that even without an executive order, one of the first steps the president could take should he wish to pursue his crusade against Obamacare, would be to stop the monthly CSRs. The administration last made a payment about a week ago for the previous 30 days, but hasn’t made a long-term commitment. Trump has called the subsidies a “bailout” for insurance companies in the past, and he just did it again on Saturday.

“We are still considering our options,” Ninio Fetalvo, a spokesman for Trump, said in an e-mail. Meanwhile, America’s Health Insurance Plans, a lobby group for the industry, said premiums would rise by about 20 percent if the payments aren’t made. Many insurers have already dropped out of Obamacare markets in the face of mounting losses and blamed the uncertainty over the future of the cost-sharing subsidies and the individual mandate as one of the reasons behind this year’s hikes in premium.

Another way Trump could hamper the ACA is to instruct Price’s department to direct little or no support to open enrollment when people sign up for Obamacare plans near the end of the year. It could include ignoring website upkeep, not advertising the enrollment period and offering little help for people who have difficulty signing up.

Finally, the Trump administration could simply choose not to enforce the penalties surrounding the individual mandate of Obamacare for uninsured people or broaden exemptions to the law. The Internal Revenue Service, which enforces the penalty, said in January it would no longer reject filings if taxpayers didn’t indicate whether they had insurance. Unless the IRS follows up with each silent filing, this could let some uninsured people dodge the penalty.

All the moves would only have a gradual impact over time. For now, only one thing is certain: nothing is certain. As Larry Levitt, senior vice president of the Kaiser Family Foundation, put in a series of tweets:“The big question in health care now is what will happen with the individual insurance market,” Levitt said. “Insurers will be reading all the tea leaves for what the administration will do with cost-sharing payments and the individual mandate.”

Finally there is the question of how state Attorneys General would respond: an Executive Order by Trump would likely by immediately challenged in court, delaying the process indefinitely, and potentially pushing it all the way to the Supreme Court. In other words, without Congress, any real repeal of Obamacare will take many months, if not years.

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John Mauldin has often written about the Fed's abysmal track record in managing the economy. Here Lacy Hunt and Van Hoisington of Hoisington Investment Management explain the reasons for the Fed's consistently poor track record.

They start by considering the Fed’s “dual mandate,” which sets “the goals of maximum employment, stable prices and moderate long-term interest rates.” (And yes, that is actually three goals, not two.)

 

But a problem arises, the authors note, “because considerable time elapses between the implementation of the monetary actions designed to follow the mandate and when the impact of those actions take effect on broader business conditions.”

 

The time lag can easily be three years or longer, with the result that policy changes often end up being pro-rather than countercyclical.

 

To make matters even worse, “the economic risks from adherence to this dual mandate are now much greater than historically due to the economy’s extreme over-indebtedness, poor demographics and a fragile global economy.”

Hoisington Quarterly Review and Outlook, Second Quarter 2017

By Dr. Lacy Hunt and Van Hoisington

The Fed’s Dual Mandate

“Dual mandate” is one of the most commonly used phrases in U.S. central banking. The current Chair of the Federal Reserve often mentions it in both speeches and testimony to Congress. Not surprisingly, this is an extremely hot topic in monetary economics, and execution of this mandate has profound significance.

The mandate originated in The Federal Reserve Reform Act of 1977. This legislation identified “the goals of maximum employment, stable prices and moderate long-term interest rates.” Ironically, these goals have come to be known as the Fed’s “dual mandate”, even though there are actually three goals. The manner in which the Fed operates in following these goals has had and will have dramatic effects on economic activity. In this report we consider:

1. What is the causal link between the mandate and the Fed’s capacity to act in a counter-cyclical fashion?
2. How has the dual mandate morphed into the Phillips Curve?
3. What are the arguments for and against a Phillips Curve based approach for conducting monetary policy?
4. What does empirical research reveal?

In view of the extreme over-indebtedness and other adverse initial conditions, what are the immediate consequences of using a Phillips Curve based dual mandate for the economy, the Fed and fixed income investors?

Causality

To achieve the goals of this mandate (maximum employment, stable prices and moderate long-term rates), the Fed will inevitably tighten for too long and by too much. This occurs because considerable time elapses between the implementation of the monetary actions designed to follow the mandate and when the impact of those actions take effect on broader business conditions. By waiting to recognize a definitive change in inflation and unemployment, monetary policy changes will be pro-, not counter-cyclical. The time difference between leading or causative measures like the money and reserve aggregates, on the one hand, and the economically lagging series of the unemployment rate and inflation, on the other hand, can easily be three years or longer.

This difference between the actions of the Fed and the reactions within the economy explains why the Fed historically has not begun easing cycles until the economy was either in, or on the cusp of, a recession. When the Fed takes action, relief is painfully slow in arriving. Importantly, the economic risks from adherence to this dual mandate are now much greater than historically due to the economy’s extreme over-indebtedness, poor demographics and a fragile global economy.

To demonstrate, suppose that in the fourth quarter of this year, unemployment turns significantly higher while the inflation rate decelerates from its already subdued pace. The downturn that the Fed would be witnessing in the fourth quarter could be reflecting policy actions all the way back to the fourth quarter of 2015 when they initiated the current tightening cycle. This cumulative evidence is reflected in the monetary and credit aggregates (Charts 1 and 2). This change in economic fortunes might cause the Fed to accelerate the rate of growth in the monetary base and lower the policy rate in order to stimulate money and credit growth. However, the monetary and credit aggregates might not respond to these first steps until 2019 or even 2020, thus putting the Fed three years or more out of sync with the needs of the economy, suggesting a prolonged period of severe underperformance.

Being out of step with the goals of a counter-cyclical monetary policy will arise as long as the Fed keys its decision-making on unemployment and inflation, rather than on maintaining financial stability, which focuses on the reserve, monetary and credit aggregates. Achieving such stability, however, is now much more difficult for the Fed than in the past. Until the economy became so heavily indebted, M2 was a consistent leading economic variable. Now M2 only leads recessions. Until the debt overhang is corrected (which does not appear to be in the immediate future), the velocity of money is likely to continue declining. Thus, when the Fed eases in the future, the strong leading relationship between M2 and the economy will no longer prevail.

There have always been lags between the time of a policy shift and evidence of that shift in the broader economy. However, in a heavily indebted economy, with the velocity of money likely falling further, and policy rates close to the zero bound, the Fed’s current capabilities are decidedly asymmetric. Any easing actions taken now would be far less powerful than the steps taken in the prior tightening cycle. Thus, by keying off the dual mandate in an economy with a severe debt overhang, the Fed would be more disadvantaged than normal in trying to come to the quick aid of a faltering economy.

From the Dual Mandate to the Phillips Curve

The Federal Reserve Reform Act of 1977 does not spell out the nature of the trade-off between the unemployment rate and the inflation rate, nor does it say how the Fed should act if the mandates are at odds in terms of the policy approach.

The potential problems that arise from this lack of clarity are clearly illustrated by the current situation. The Fed has extended the current tightening cycle twice this year, with the latest move on June 14. At the time of the latest decision, headline and core CPI had year-to-date price increases of 1% and 1.3%, respectively, substantially below their 2% target. Additionally, the latest twelve-month increases in both of these inflation gauges were below the 2% target. Only the unemployment rate warranted more restraint. This means that inflation and unemployment are at odds, thus the dual mandate is dead. It now boils down to the Fed’s interpretation of the Phillips Curve.

The most definitive study of the Fed’s operations is widely considered to be the multi-volume series, A History of the Federal Reserve written by the late Carnegie Mellon economist Alan Meltzer (1928-2017). Volume I examines the span from the creation of the Fed in 1913 until the accord with the Treasury in 1951. Volume II, Book 1 covers the years from the accord in 1951 until 1969, while Volume II, Book 2 discusses the period from 1970 until the end of the great inflation period in the mid-1980s. In this scholarly historical examination, Meltzer, on the basis of price and financial stability, gave the Fed high marks in only one-fourth of its years of operation. Meltzer made many seminal contributions to economics, including identifying the algebraic determinants of the money multiplier and outlining the transmission of monetary policy actions to the real economy.

In his 2014 paper, “Recent Major Fed Errors and Better Alternatives,” Meltzer summarized the root cause of the Fed’s policy errors and long record of failed forecasts as follows: “The Fed’s error was to rely on less reliable models like the Phillips Curve … that ignore or severely limit the role of money, credit, and relative prices.” By focusing on the Phillips Curve, Meltzer contends that the Federal Open Market Committee (FOMC) overemphasizes information in monthly and quarterly data periods while giving insufficient attention to persistent trends in money and credit, which are the very aggregates that the Fed supplies. To paraphrase Meltzer, by relying on the Phillips Curve, the FOMC avoids developing a strategic view of their role and the complex world in which they operate. As the massive credit buildup leading up to 2007 illustrates, the Phillips Curve mandate also diverts the Fed’s attention from important regulatory matters that can have extremely consequential and long lasting macro implications.

The key passage that Meltzer writes to describe the inadequacies of the Phillips Curve/ dual mandate within the Fed is as follows:

No less an authority than Paul Volcker explained publicly and to the staff that the Phillips Curve was unreliable and not useful. As Chair, he gave many talks about what I have called the anti-Phillips Curve. Volcker claimed repeatedly that the best way to reduce unemployment was to reduce expected inflation. He did not use Phillips Curve forecasts. He ran a very successful policy. Alan Greenspan was less outspoken, but he also rejected Phillips Curve forecasts as unreliable. Instead of finding a better model, the staff resumed use of Phillips Curve forecasts. They were again unreliable as should be evident from the repeated prediction errors … Year after year, growth and employment are below forecast. One might hope that repeated forecast errors all in the same direction would raise doubts about the usefulness of the model or models and initiate search for a better model. This does not appear to have happened.

In the three years since this prophetic passage, the string of unbroken economic forecasts continued unabated.

The Phillips Curve

The Phillips Curve represents the relationship between the rate of wage inflation and the unemployment rate. In a 1958 study, New Zealand economist A. W. H. (Bill) Phillips (1914-1975) found an inverse relationship between wage inflation and the unemployment rate in the United Kingdom from 1861 to 1957. A high unemployment rate correlated with slowly increasing wages, while a lower unemployment rate correlated with rapidly rising wages.

According to Phillips, the reasoning for this finding was that the lower the unemployment rate, the tighter the labor market, thus firms would raise wages to attract scarce workers. Conversely, at higher rates of unemployment the pressure on wages abated. Thus, this curve attempts to capture a cyclical process that can be used for evaluating the business cycle. This curve presumes the average relationship between wage demands and the unemployment rate is stable, thus there is a rate of wage inflation that results if a particular level of unemployment persists over time. As time has passed, Phillips Curve proponents have also asserted that a stable relationship exists between the unemployment rate and the overall rate of inflation, not just that for wages. The original Phillips Curve shows a downward sloping line on a graph, with wage inflation on the vertical axis and the unemployment rate on the horizontal axis.

In a 1967 peer-reviewed paper, Edmund Phelps challenged the theoretical structure of the Philips Curve. Independently of Phelps, Milton Friedman (1912-2006) in his Presidential address to the American Economic Association in 1967 (published in 1968) came to similar conclusions. They reasoned that well-informed rational employers and workers would pay attention only to real wages (i.e. the inflation adjusted level of wages). In the view of Friedman and Phelps, real wages would adjust to make the supply of labor equal to the demand for labor, and the unemployment rate would then stand at a level uniquely associated with the real wage rate. In time this uniquely associated real wage rate has come to be called the “natural rate of unemployment.”

Friedman and Phelps argued that the government could not permanently trade higher inflation for lower unemployment. When the natural rate of unemployment prevails, the real wage is constant. Workers who expect a given rate of inflation insist that wages increase at the same rate to prevent the erosion of their purchasing power.

Consistent with Friedman and Phelps, consider the effects of a monetary policy designed to expand economic activity in an attempt to lower the unemployment rate below its natural rate. The resulting increase in demand (pricing power) encourages firms to raise prices faster than workers anticipate. With higher revenues, firms are willing to employ more workers at the old wage rates and in some cases are willing to somewhat boost them. With rising wages, workers willingly supply more labor, which leads to a drop in the unemployment rate. Initially, they do not realize that their purchasing power has eroded since prices have advanced more rapidly than expected. In this initial period workers suffer from what is known as a “money illusion” – the rise in nominal wages is not equal to the rise in real wages. As workers come to anticipate higher rates of price inflation over time, they see through the money illusion, and less labor is supplied and demanded. The real wage is restored to its old level, and the unemployment rate returns to its natural rate. Today, the opposite case is present. Monetary restraint is limiting demand and eroding pricing power, causing employers to restrain wages. Once workers realize this restraint is not a cut in real wages, they will continue to supply the same amount of labor. The Phillips Curve trade-off does not exist in either of the two alternative situations.

Phelps and Friedman also distinguish between these effects over the “short run” and the “long run”. Phillips Curves only prevail so long as the average rate of wage inflation remains fairly constant. Only in such a limited time frame will wage inflation and unemployment be significantly inversely related. Once the higher inflation is fully incorporated into expectations, unemployment returns to the natural rate, with the result that the natural rate of unemployment is compatible with any rate of inflation. These long and short run relationships can be combined in an “expectations augmented” Phillips Curve. The quicker workers adjust price expectations to changes in the actual rate of inflation, the quicker the unemployment rate will return to the natural rate and the less successful the government will be in reducing unemployment through monetary and fiscal policies. The expectations augmented Phillips Curve approach is used in and appears to play a major role in the Federal Reserve’s large-scale econometric model.

Empirical Evidence

We examined the relationship between percent changes in real average hourly earnings and the unemployment rate from 1965 through 2016 – the entire historical record for wages. This sample is comprised of over 600 monthly observations (Chart 3). The trendline fitted through the observations does have a slightly negative tilt, but the line is not statistically different from a straight horizontal line, which signifies a total lack of responsiveness of real wage changes to the unemployment rate. The adjusted R2 is 0.04, which is not statistically significant. Thus, our empirical findings are consistent with the causality outlined – that the Phillips Curve assumption is not valid. Cherry picking through the data points can identify limited time periods when a greater inverse relationship exists between wage increases and the unemployment rate. As many researchers have pointed out this was true of the 1960s. From the first half to the second half of the 1960s, nonfarm business sector compensation per hour (a widely followed measure of labor compensation) increased from 3.6% per annum to 5.9% as the unemployment rate fell from 5.7% to 3.8%. The critical point is that these individual episodes of an apparent Phillips Curve trade-off are too weak and too infrequent to establish an enduring relationship over time.

The adherents to the Phillips Curve do not accept these various empirical criticisms. For many decades, they insist that the poor results are due to the fact that the basic relationship has not been properly quantified. They point to the problems capturing leads and lags between the unemployment rate and wage changes as well as difficulties that arise from measuring expectations and working with aggregate data. For followers of the Phillips Curve, it is just a matter of time before these issues of statistical quantification are resolved.

These arguments are not compelling, yet they have been used repeatedly for at least a half a century. As the years have passed, the constantly restated Phillips Curve formulations have regularly missed major business cycle developments, a pattern which has been evident in the Fed’s record. The Fed presided over the worst U.S. peacetime inflation from 1977 to 1981, and tightened before all of the recessions after 1977. The Fed did contain the Panic of 2008 with excellent lender of last resort tools, but a far better result might have been achieved if the Fed had learned the lesson of the 1920s and prevented the massive buildup of debt prior to 2008 that the regulatory powers of the Fed were designed to prevent.

For most of the past eight years, the frequently restated Phillips Curve models have pointed to a sustained acceleration in wage and price inflation that has failed to materialize. These failures not only impair monetary policy but also portfolio decisions based on the presumed efficacy of the Phillips Curve and the reliability of the dual mandate. Based on the slowdown in the monetary and credit aggregates, and the continuing fall in the velocity of money, the rate of inflation is more likely to moderate rather than accelerate, even as the unemployment rate in May 2017 stood at a sixteen year low. Thus, inflation, on average, moved lower during this current expansion, contradicting the forecasts for higher inflation based on the Phillips Curve concept. the velocity of money, the rate of inflation is more likely to moderate rather than accelerate, even as the unemployment rate in May 2017 stood at a sixteen year low. Thus, inflation, on average, moved lower during this current expansion, contradicting the forecasts for higher inflation based on the Phillips Curve concept.

Implications

For the Fed, the more advisable approach would be to pull the Phillips Curve relationships from their model and their policy decisions. Instead, they should rely on capturing the strategic role of the monetary transmission mechanism and its potentiality for moving through the reserve, monetary and credit aggregates in a highly leveraged economy. If the Phillips Curve proponents are right, and the quantification efforts are eventually proved to be valid, then at that point they can be inserted into the Fed’s model as well as into their subjective decision-making process.

This is relevant to investors as well. If adherence to the dual mandate induces financial insatiability, then investor performance, like overall economic activity, will be directly influenced. If the Fed’s mandate consistently leads them in the wrong direction, then long-term investors may often be forced to construct portfolios that are contradictory to the error-prone words, forecasts and policy actions of the FOMC. Moreover, investors should expect that the Fed’s actions will create substantially more volatility in the financial markets and particularly so over the short-term. Operating with strategic views and multi-year trends, rather than trying to focus on the Fed-generated noise in many monthly and quarterly indicators, may be a preferred method of generating investor returns.

Our economic view for 2017 is unchanged and continues to suggest that long-term Treasury bond yields will work irregularly lower. The latest trends in the reserve, monetary and credit aggregates along with the velocity of money point to 2% nominal GDP growth for the full year, down from 3% in 2016. This would be the third consecutive year of decelerating nominal GDP growth and the lowest since the Great Recession. This suggests that the secular low in bond yields remains well in the future.

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During his January 2014 State of the Union address Obama announced the creation of a new financial product that would allow American workers, those without access to retirement accounts anyway, to directly participate in the U.S. Treasury’s debt ponzi on a tax-deferred basis.  The accounts were cleverly named MyRA and were intended to be a substitute for people who didn’t have access to an employee-sponsored 401k…with one little catch…money deposited in the accounts could only be invested in U.S. government bonds.  Here’s an excerpt from Obama’s speech at the time:

Let’s do more to help Americans save for retirement. Today, most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401ks. That’s why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It’s a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in. And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little to nothing for middle-class Americans. Offer every American access to an automatic IRA on the job, so they can save at work just like everyone in this chamber can…

To summarize, a MyRA was, more or less, an IRA without the investing flexibility as you could only invest in a massive government-sponsored ponzi scheme.

Shockingly, as the New York Times points out today, the accounts turned out to be a massive disaster costing taxpayers $70 million, or roughly 2x the amount of money that was invested in the 20,000 accounts that were actually opened and funded. 

President Barack Obama ordered the creation of the so-called starter accounts three years ago, and they became available at the end of 2015. Since then, about 20,000 accounts have been opened, with participants contributing a total of $34 million, according to the Treasury; the median account balance was $500. An additional 10,000 accounts whose owners have not contributed to them have been opened.

 

Jovita Carranza, the United States treasurer, said in a statement that demand for the accounts was not high enough to justify the expense. The program has cost $70 million since 2014, according to the Treasury, and would cost $10 million a year in the future.

 

Unfortunately, or fortunately depending on your perspective, this is yet another component of the ‘Obama legacy’ that taxpayers will no longer have to pour millions of their hard-earned cash into propping up as the Trump administration has just announced that the program was axed last Friday.

An Obama-era program that created savings accounts to help more people put away money for retirement is being shut down by the Treasury Department, which deemed the program too expensive.

 

The 30,000 participants in the program, known as myRA and intended for people who did not have access to workplace savings plans, were sent an email on Friday morning alerting them of the closing. Participants were informed that they could roll the money into a Roth individual retirement account, the Treasury Department said.

Really surprising that people didn’t want to open a really restrictive IRA substitute where proceeds could only be invested in a ponzi scheme…

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By Chris at http://ift.tt/12YmHT5

Regular readers know I’m a big fan of discrimination.

As such, I choose my friends wisely.

I chat regularly with a select group of friends and colleagues whose particular areas of expertise and intellect I value deeply. Sometimes we agree… and sometimes we don’t but always the thought process is extremely valuable. It is where we disagree that often the most value can be found.

One of those fine gentlemen is Brent Johnson. Brent runs the Santiago Capital gold fund and he recently published a video presenting his ideas – topics I’ve discussed at length with him in the past.

I’ve been asked often why I’m not heavily invested in gold.

The answer is in part because I’m very focused on what moves any market – global liquidity flows and an intricate web of moving pieces. Brent does an excellent job of bringing many of these moving pieces together and how this affects the price of gold in this presentation.

He is one of the only gold fund managers I know of who manages to look at the world rationally – as it is, rather than as he would wish it to be. He’s one of the only ones who seems to understand that it’s liquidity flows that moves markets.

I think it’s really worth watching and ingesting:

 

Enjoy!

– Chris

“O Gold! I still prefer thee unto paper, which makes bank credit like a bark of vapour.” — Lord Byron, Don Juan

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Liked this article? Then you’ll probably like my other missives on

this topic as well. Go here to access them (free, of course).

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By Valentin Schmid of The Epoch Times

After a spectacular run up to $3,000, Bitcoin prices have been choppy, falling as low as $1,830. However, they reversed and rallied more than $1.000 in just a few days after a software upgrade called Segregated Witness (SegWit) was confirmed, which will allow Bitcoin to perform more transactions and develop different functionalities.

Epoch Times spoke to Bitcoin expert Trace Mayer about SegWit, the problem with the Bitcoin miners, other crypto coins, and expectations of price movement going forward.

Epoch Times: It looks like Bitcoin is getting a major upgrade with Segregated Witness. Can you explain?

Trace Mayer: It lays the platform for Bitcoin to scale and it also lays a big platform for extensibility. We’re going to be able to do all types of things because it is also a fix for something called transaction malleability. By fixing a lot of these things with Segregated Witness, Bitcoin is just going to be so much more. It’s a really, really big upgrade.

There are some vested interests, whether in the Bitcoin community or outside of the Bitcoin community, that have not wanted to see Segregated Witness activated. So, it’s been a long, protracted fight. But it looks like it’s going to get activated and Bitcoin will be on its way.

Epoch Times: Why did it take so long?

Mr. Mayer: It’s been two years in the making. If we had something like a Facebook, or a Google, and let’s say that that you only needed five percent of the voting shares in order to completely stop any future growth or development of the company, well, guess what?

So in the board rooms, you fight all the time. But with proxy voting you can have control of some of these very large corporations and get stuff done with inactive votes or people abstaining. But with Bitcoin, when you want to change something, you have to actively get a very large chunk of votes.

You have to gets votes from users who are using the wallet software, that performs network consensus. You have to get votes from the miners who are processing transactions in blocks. You have to have a super majority from everybody in order to maintain distributive consensus, or you’ll have what’s called “a fork” or a split of the blockchain. So anybody with even a very small percentage can exercise a veto. So Bitcoin has a whole different type of governance than a normal company.

And so, if you want to move upgrades forward, you have to have super majority consensus from millions of people and that’s a hard thing to achieve. So with Segregated Witness finally looking like it’s going to activate, Bitcoin’s rising up to a whole new level, because it’s being upgraded in terms of scale and extensibility.

And I think that’s being reflected in the price, because it’s going to have so many more use cases in the future. So investors who are buying and holding it today are looking at this saying: “The uncertainty about the path of Bitcoin going forward is getting cleared up, therefore we’ll buy and hold it because it’ll be so much more useful in the future.”

Veteran Bitcoin expert Trace Mayer has been involved in Bitcoin since
2011 and is also a major investor in many related start ups

Epoch Times: But you say this is not a done deal yet.

Mr. Mayer: Right. We’re not out of the woods yet. We’ve only locked in what’s called BIP 91. We have another, couple hundred Bitcoin blocks before we start enforcing BIP 91, and miners will be the ones enforcing that.

And then even after that gets enforced, we need two weeks in order for BIP 141 to be activated. And then we have another two weeks before we actually start enforcing that. So the earliest time SegWit could be active and functioning on the network is mid-August.

Miners could be liars. They’ve proven that in the past when they have signaled falsely. So you get all types of Machiavellian games. But it does appear that we’ve gotten consensus.

People are starting to signal they are going for SegWit and people are relying on that. It’s really not in the miners’ best interest to disrupt this process any more than they already have. They stand to lose the most amount of money because they’re the only ones who have to actively choose which fork to follow, and that has the economic consequences.

Everybody else can just sit and hold and see how it plays out but doesn’t have to make an economic choice.

Epoch Times: Aren’t the miners just service providers for the users?

Mr. Mayer: The work they do has value because individuals and users of Bitcoin place value on that work. If miners do work that users do not value, then miners will lose a lot of money in the process. And then they won’t be miners anymore because they’ll go bankrupt.

Miners can’t fire anybody. The people who hire and fire are the people who hold Bitcoin and who use Bitcoin. The way they determine who they’re going to hire or fire is based on what software they run. And 99.1 percent of the people who interact with the Bitcoin network are using the Bitcoin core software because it’s the safest, the most reliable, the most secure.

But these miners think they can top-down authoritarian control Bitcoin because the work they do provides value either way. What they’ve found is that the more they try to squeeze their grip on the Bitcoin community, the more they’re just grasping at air.

Users and consumers should presume as a fundamental premise that miners are hostile and malicious to Bitcoin users and consumers. They’re not to be trusted. They’re a rattlesnake to be on your highest guard against.

Bitcoin’s been very much an open source community project where there’s been a lot of good will. People have presumed that other people are acting with good intentions, that they have Bitcoin’s best interest at heart. It’s been very collegial.

But this two-year-long debate around SegWit revealed that these miners are not to be trusted. This sets up a whole different type of game theory in the way that you interact with other people in the ecosystem. The Miners burned their bridges with a lot of people in the Bitcoin community.

At the end of the day, it has been very good because it helps Bitcoin become even stronger and more censorship resistant. You can think of it like the body getting a nasty cold or flu. It’s not any fun while you have it but if it doesn’t kill you, it makes you stronger because you increase your immune system and your ability to respond.

Epoch Times: What’s your opinion on some of the other coins in the space?

Mr. Mayer: None of them really have like a good, decentralized, peer-to-peer, censorship resistance, scalable, liquid, secure, way of protecting and storing value. And that’s why Bitcoin is king of the mountain.

That’s not to say that there isn’t a lot of fun going on and that you can’t make a lot of money with these altcoins. We have a lot of really cool projects going on and a lot of fun tech, but don’t pretend that you’ve got the security, the liquidity, and the scalability that Bitcoin has. Nobody is even close.

Epoch Times: What do you think the price is going to do in the near future?

Mr. Mayer: I think if we’re going to continue having turbulence. I think between now and probably the end of the year, after the November decision on 2x the issues get definitively resolved.

Then I think the price is going to be significantly higher. You never know, of course Bitcoin’s always wild and crazy, but the thing is, it just might actually turn into something, so perhaps, you should acquire a little bit of it.

And that’s really what people have to do, they have to develop their own human capital to learn how to buy Bitcoin, sell Bitcoin, secure Bitcoin. And even if you’re doing this with just a $50 or $100 bucks, you’re getting the technical literacy.

So if you wanted to move larger amounts in, you could confidently do it without losing your money. And so all of that takes time and diligence and hard work for people to do, which is why we see these waves of adoption and usage happening. Which means that there’s going to be lots of upside potential with Bitcoin for many, many years to come.

* * *

Finally, here courtesy of CoinDesk, is a quick timeline of BitCoin Cash following its imminent August 1 launch:

We’re less than 24 hours away from the launch of Bitcoin Cash.

Whether you’re worried, interested or excited, you can’t deny that the event – which will likely see a new cryptocurrency created from the existing bitcoin blockchain – will have ramifications on the larger ecosystem.

In this article, I’m going to go over the different things you can expect in the next few days.

July 31

As you may have seen on social media, exchanges and merchants are currently scrambling to prepare for the fork.

At a minimum, these custodians of customer bitcoins will want to record customer balances right before the hard fork so they can untangle who’s entitled to what later. (Or risk facing accounting challenges).

More adventurous exchanges are preparing to list Bitcoin Cash as a separate asset, though this presents its own problems.

For one, listing a cryptocurrency that hasn’t launched could prove difficult. Also, once markets are live, trading is likely to be choppy. (Part of what caused crazy volatility during the Zcash launch was that so few exchanges supported it during the first few days.)

This probably won’t be the case as many exchanges have already committed to supporting the trade of Bitcoin Cash, but it bears watching.

We can expect many exchanges to freeze withdrawals in preparation of the above.

August 1, 00:00 UTC

This is the expected time of the BIP 148 UASF launch.

Because the bitcoin network is already enforcing BIP 91, this should be a non-event. That is, BIP 148 won’t split the network and bitcoin will continue as a single chain.

August 1, 12:20 UTC

Bitcoin Cash will launch.

At this point, miners that are mining Bitcoin Cash will create a transaction block greater than 1 MB in size and fork the bitcoin network.

There are a few scenarios here that depend on the percentage of hash power that the new blockchain attracts:

• If less than 16% of bitcoin’s current hash power transitions to Bitcoin Cash, the first block will likely take over an hour. This won’t affect the bitcoin blockchain that much, though on average, blocks should take a little longer than 10 minutes.
• If 17-50% of hash power moves to mining Bitcoin Cash, the first block will likely take between 20 minutes to an hour. This will slow down the bitcoin blockchain somewhat. Blocks on bitcoin will take between 12-20 minutes.
• If more than 50% of hash power is mining Bitcoin Cash, the first block will likely take less than 20 minutes. This will slow down the bitcoin blockchain significantly. Blocks on bitcoin will take longer than 20 minutes on average.

During this time, users will likely begin sending Bitcoin Cash to exchanges that both list the cryptocurrency and that have vowed to continue operations through the fork.

We can expect that the exchanges that accept Bitcoin Cash deposits first will have a lot of activity, and that initial trading will likely cause some significant price volatility due to reduced liquidity.

As for transaction approvals, even with low hashing power, we can expect the Bitcoin Cash mempool to be relatively empty since the network’s blocks will be relatively big.

At 12.5% hash power, the mempool on Bitcoin Cash will clear at about the same rate as bitcoin. That said, confirmations will be much slower for the coin with less hash power until difficulty adjusts.

August 3–7

If Bitcoin Cash has relatively low hashing power, we can expect some difficulty adjustments at this time. Most scenarios result in something close to 10-minute block times provided the hash power stays constant.

This is probably not a safe assumption as miners will likely be switching between Bitcoin and Bitcoin Cash depending on which one is more profitable.

Bitcoin Cash will be much easier to mine after the difficulty adjustments, and we may get some relatively fast blocks (2.5 minutes or less) until we hit block 479,808.

August 8–14

SegWit should lock in on bitcoin around this time.

Depending on how much mining power moves over to Bitcoin Cash, and how much new mining power shows up, lock-in on block 479,808 on bitcoin may take longer than expected.

Once lock in is achieved, the code will be activated later this month, effectively upgrading the main bitcoin blockchain to support larger-capacity transactions.

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