Wildlife as Property Owners Webinar

On Monday afternoon, I will be moderating a webinar on Wildlife as Property Owners: A New Conception of Animal Rights by ASU law professor Karen Bradshaw. The webinar will focus on Prof. Bradshaw’s book of that title and feature commentary by Professor Holly Doremus of the University of California at Berkeley.  The webinar is sponsored by the Coleman P. Burke Center for Environmental Law at the Case Western Reserve University School of Law.

Here’s a description of the event:

Humankind coexists with every other living thing. People drink the same  water, breathe the same air, and share the same land as other animals.  Yet, property law reflects a general assumption that only people can own  land. The effects of this presumption are disastrous for wildlife and  humans alike.  The alarm  bells ringing about biodiversity loss are growing louder, and the  possibility of mass extinction is real. Anthropocentric property is a  key driver of biodiversity loss, a silent killer of species worldwide.  But as law and sustainability scholar Karen Bradshaw shows, if excluding  animals from a legal right to own land is causing their destruction,  extending the legal right to own property to wildlife may prove its  salvation. Wildlife as Property Owners advocates for folding  animals into our existing system of property law, giving them the  opportunity to own land just as humans do—to the betterment of all.

Registration and CLE information is here.

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FBI Flips To ‘Bear Spray’ Narrative As Individual Singled Out In Capitol Officer’s Death

FBI Flips To ‘Bear Spray’ Narrative As Individual Singled Out In Capitol Officer’s Death

After initial false reports that a Capitol Police officer was struck in the head with a fire extinguisher prior to his death, the FBI is now operating on the theory that the officer may have been exposed to bear spray or similar nonlethal irritant, before he later died in a hospital.

Capitol Police Officer Brian Sicknick who died the day after the Jan 6. Capitol riot.

Officer Brian Sicknick, whose mother believes he suffered a stroke, texted his brother Ken after he was injured.

“He texted me last night and said, ‘I got pepper-sprayed twice,’ and he was in good shape,” Ken told ProPublica. “Apparently he collapsed in the Capitol and they resuscitated him using CPR.”

Sicknick was later placed on a ventilator, passing away on Jan. 7 before his family could make it to the hospital to say their goodbyes. He was given the rare distinction of lying in honor in the Capitol Rotunda.

On January 8, The New York Times reported that a rioter hit Sicknick in the head with a fire extinguisher before he died. Three days later, the Times issued a correction, asserting: “Investigators have found little evidence to back up the attack with the fire extinguisher as the cause of death,” and “increasingly suspect that a factor was Officer Sicknick being sprayed in the face by some sort of irritant, like mace or bear spray, the law enforcement official said.”

Now, according to the Times, the FBI has “pinpointed an assailant” seen on video who attacked several officers with bear spray, and discussed attacking officers with bear spray beforehand, according to an anonymous official.

Given the evidence available to investigators, prosecutors could be more likely to bring charges of assaulting an officer, rather than murder, in the case. But the death of Officer Sicknick, a 42-year-old Air National Guard veteran who served in Saudi Arabia and Kyrgyzstan, could increase the penalties that prosecutors could seek if they took such a case to court.

Irritants like bear spray, pepper spray and mace are considered to be nonlethal crowd control deterrents, but they can cause physical reactions that could create risks for people with underlying health conditions and disorientation that could lead to injury. –NYT

Two other officers who were working the day of the Capitol riot committed suicide, while 138 officers suffered various injuries ranging from bruises to fractures to concussions the Times adds, citing local police.

On Friday, six members of the Proud Boys – whose leader, Enrique Tarrio, was outed in January as a ‘prolific’ FBI snitch – were indicted by the Justice Department with “conspiracy to obstruct the certification of President Biden’s electoral victory and to attack law enforcement,” according to the report. The suspects were also accused of threatening a federal officer and entering the Capitol while armed with a deadly or dangerous weapon, including a wooden ax handle.

Federal prosecutors said that Louis Enrique Colon of Missouri, Felicia Konold and Cory Konold of Arizona, and William Chrestman, Christopher Kuehne and Ryan Ashlock of Kansas were part of a group of Proud Boys who traveled to Washington in order to “stop, delay, and hinder the congressional proceeding” on Jan. 6.

They did so after Enrique Tarrio, the self-described national chairman of the Proud Boys, identified in the indictment as Person One, said on social media that members should “turn out in record numbers” and “spread across downtown DC in smaller teams.” NYT

Why didn’t the Times mention that Tarrio was a ‘prolific FBI snitch’ according to court documents?

Enrique Tarrio (left)

According to prosecutors, the Proud Boys coordinated their travel to DC and stayed together at an Airbnb rental near the Capitol. They are accused of working together to force their way through barriers and around the Capitol building, where they gained entry to the complex and traveled as a group, according to the indictment.

Tarrio, meanwhile, was barred by a judge from entering DC the day of the riot due to a prior arrest on vandalism and weapons charges, after a federal prosecutor requested that he be prohibited from attending.

Tyler Durden
Sun, 02/28/2021 – 10:55

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Rising Rates And/Or Inflation Are Not A Friend Of Tech Stocks

Rising Rates And/Or Inflation Are Not A Friend Of Tech Stocks

Authored by Bryce Coward via Knowledge Leaders Capital blog,

The title of this post seems rather obvious in light of this week’s events, but it’s something we have been talking about for months now. Rising interest rates are not kind to tech stocks. Rising rate volatility is not kind for tech stocks. And, rising inflation is not kind to tech stocks. Application of Occam’s razor would have us tuning into the duration aspect of tech shares as being the most likely culprit. Indeed, the longer the duration of an asset, the higher sensitivity of that asset to interest rates (and by extension, inflation). Tech shares sport the longest duration among all equities since so much of the cash flows are realized only far into the future. Stocks with no current earnings this year, or next year, or the year after, are therefore particularly sensitive to changes in interest rates. So it’s no surprise that new IPOs (many of which are tech related) are on average down a cool 15% from just a few days ago.

Anyhow, it’s fair to say that valuations for technology stocks are heavily predicated on long-term interest rates remaining low. In the below chart we plot the forward PE ratio for the Nasdaq 100 on the left axis in red and overlay the 30 year Treasury yield in blue on the right, inverted axis. Since rates troughed last summer, tech valuations have moved from 34x earnings to 28x earnings.

Volatility of interest rates is also a factor that plays into the valuation of duration sensitive assets, like technology stocks. Indeed, a more volatile longer term interest rate means rates will trade in a wider band, with higher rates increasing in probability. Interest rate volatility as measured by the MOVE index (in red) climbed from an average of 45 from November to February and then shot up to 74 over the course of a few days. Since rate volatility started to increase, tech shares (in blue) have sold off by 7%, leading market declines.

Finally, let’s look at the relationship between inflation and tech valuations. For this we’ll use input prices from the Markit PMI report as our measure of inflation (in blue on the right, inverted axis). There was a bull market in tech valuations from March of last year through the summer as measures of inflation cratered. But now, measures of inflation are accelerating. This has coincided with the contraction of Nasdaq PEs from 34x to 28x.

The relationship between rates, inflation and tech valuations are of specific concern to markets since the expanded tech sector now accounts for roughly 40% of the S&P 500.

In other words, if tech needs lower rates/rate vol/inflation to sustain valuations, then the equity market as a whole needs lower rates/rate vol/inflation to support valuations…and prices of major benchmark indexes. This week was not a good showing in that regard. However, Fed Chair Powell will have an opportunity to throw his hat into the ring next Thursday. We will be focused on whether he reiterates, or not, the Fed’s commitment to low rates far into the future.

Tyler Durden
Sun, 02/28/2021 – 10:30

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US ‘Mysteriously’ Sees Lowest Flu Season On Record During COVID Pandemic

US ‘Mysteriously’ Sees Lowest Flu Season On Record During COVID Pandemic

Despite all those warnings from Dr. Anthony Fauci about COVID-19 and the flu joining forces in 2020 and 2021 to create some kind of super-deadly double-whammy viral pandemic, it’s no longer a secret at this point that worries about a super-charged flu season simply never came to pass. We’ve reported on the phenomenon of falling flu cases before,

February is usually the peak of flu season, when doctors’ offices and hospitals are packed with patients. But that’s not the case this year. Instead, the flu has virtually disappeared from the US, with reports coming in at far lower levels than the world has seen in decades. Some areas, like San Diego, have seen such low numbers, health authorities have demanded audits of COVID-positive patients to see whether some might have been misdiagnosed.

According to the CDC, the cumulative positive influenza test rate from late September into the week of December 19th was just 0.2%, compared to 8.7% from a year before.

Hospitals say the expected army of flu-sickened patients never materialized, and that nationally “this is the lowest flu season we’ve had on record,” according to a surveillance system that is about 25 years old.

One source from Maine Medical Center in Portland, the state’s largest hospital, said “I have seen zero documented flu cases this winter,” said Dr. Nate Mick, the head of the emergency department.

Ditto in Oregon’s capital city, where the outpatient respiratory clinics affiliated with Salem Hospital have not seen any confirmed flu cases.

Dr. Michelle Rasmussen, the head of the hospital, said “It’s beautiful.” Especially considering the flu’s longstanding status as the country’s biggest virus threat, the outcome is remarkable.

“Many parents will tell you that this year their kids have been as healthy as they’ve ever been, because they’re not swimming in the germ pool at school or day care the same way they were in prior years,” Mick said.

Some have suggested it’s a miracle of tyrannical COVID restrictions. Phyllis Kanki, an infectious disease professor at Harvard University’s T.H. Chan School of Public Health, told Just the News:

“I think COVID mitigation measures are likely to lower levels. Some of these mitigation measures may have been particularly effective for high-risk groups for flu, like the elderly and immunosuppressed.”

Also, because the nation is panicked over this virus, unlike during the 2018 flu season, the threshold for people going to the hospital is likely much lower than in past flu seasons. While there are definitely some people who are gravely ill with this virus, we have decided to treat this virus in the hospital much more liberally than any other virus. Hospitals receive higher reimbursement rates for treating COVID-19 patients. However, many of the cases are not necessarily clinical level.

Professor Christina Pagel suggested that some of the measures brought in to fight coronavirus could be kept in place to combat flu infections.

Asserting that “we can reduce flu deaths to pretty much zero,” Pagel said it is “worth encouraging people to wear masks” on public transport and in other busy environments every winter.

But, looking at a chart of US flu cases vs. COVID cases should raise more than one eyebrow…

The phenomenon isn’t unique to the US.

In the UK, data released this week show that the number of active flu cases in the country has fallen to zero.

However, as we previously highlighted, other health experts have suggested that flu cases are so dramatically low because influenza cases are being falsely counted as COVID cases.

Last month, top epidemiologist Knut Wittkowski asserted that, “Influenza has been renamed COVID-19 in large part.”

According to Wittkowski, former Head of Biostatistics, Epidemiology and Research Design at Rockefeller University, this was because many flu infections are being incorrectly labeled as coronavirus cases.

“There may be quite a number of influenza cases included in the ‘presumed COVID-19’ category of people who have COVID-19 symptoms (which Influenza symptoms can be mistaken for), but are not tested for SARS RNA,” Wittkowski told Just the News.

While the great 2020 disappearing flu passes largely under the mass media’s radar, media-proliferated mass deception and power of repetition get most people to believe that what’s harmful to health and well-being is beneficial.

Tyler Durden
Sun, 02/28/2021 – 09:55

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The Dangers Lurking Behind A Digital Euro

The Dangers Lurking Behind A Digital Euro

Authored by Thorsten Polleit via The Mises Institute,

Neosocialist China does it, Sweden does it, and many other states want to do it, too: to issue digitized central bank money for everyone. The European Central Bank (ECB) is also working on such a scheme. It wants to launch “digital euro central bank money” as soon as possible. Many economists praise the project as an “innovation,” as an important and indispensable step in an increasingly digitized world.

The ECB is also keen to make its intentions known, declaring that a digital euro will be accessible for everyone, robust, secure, efficient, and compliant with applicable law. However, it should be clear that the path to becoming a surveillance state regime will accelerate considerably if and when a digital euro is issued. But let’s not get ahead of ourselves.

A digital euro is not “better money” than the euro that is already in circulation today. The planned digital euro is fiat money, just as much as euro cash and euro bank balances represent fiat money: they are all created “out of nothing” by the ECB, which has the monopoly of euro production. Just as is the case with the existing euro, the quantity of digital euros can be increased at any time, it is backed by nothing, and the digital euro carries a 100 percent risk of devaluation. As noted earlier, a digital euro would be a fiat euro.

The digital euro can either be “account based”—you keep it in an account held with the ECB—or it can be “token based”—money users receive a “token” that can be transferred from smartphone to smartphone via an app. Hoping for “anonymity” in payment transactions would be futile in both cases, one has to fear.

A look at China probably shows where the journey is headed: the Chinese digital central bank money is supposed to have a “controlled anonymity.” In other words, “only” the People’s Bank of China—that is, the Chinese Communist Party—should have access to the payment transaction data.

The ECB says the digital euro is a “complement” to cash and bank balances. But that’s not convincing. Because those who pay in cash obviously find it convenient and want to ensure their anonymity. Otherwise, they would pay electronically, i.e., transfer balances through PayPal, Apple Pay, or debit or credit cards.

In this context, it should be noted that people don’t just hold cash for payment purposes. They also demand it to protect themselves against bank failures, for example, or they also hold cash to be liquid even in the event of power outages, to be independent of online banking.

That said, the suspicion that the ECB is more interested in taking cash out of circulation cannot be refuted easily. But if only electronic payments are possible, what little remains of “financial privacy” will be gone. The citizen becomes completely transparent, much to the liking of the state and its beneficiaries.

As soon as cash has been pushed back or stripped away entirely, monetary policymakers can implement an uninhibited negative interest rate policy to devalue debt. Customers can no longer get out of the “bank balance sheet”; the final escape door is then locked. 

It is unlikely that a digital euro will prevail naturally against cash. Rather, the ECB will have to make the use of cash unattractive: by raising the costs of cash by increasing fees at ATMs or through upper limits for cash payments, or through social stigmatization of cash (keywords: money laundering, terrorist financing, etc.).

The digital euro does not compete with crypto units such as bitcoin. After all, a digital euro is—as already mentioned—fiat money issued by the state, which is exactly what all those who are looking for better money do not want to hold.

Rather, the target group for the digital euro includes those who are basically content with the euro as it currently is and those who are worried about a potential banking crash. This group probably represents a fairly large number of people who come into question as a potential target clientele for the digital euro.

The plan is to allow for a 1:1 exchange of euro cash and commercial bank balances with digital euros. Economically speaking, this means that the ECB de facto insures the liabilities of the euro banks: the ECB transfers its creditworthiness, which is beyond any doubt stellar, to euro commercial banks.

With a 1:1 exchange option nobody has to worry about losing their money balances held at euro commercial banks, as the ECB has the monopoly of euro production. The ECB cannot go bankrupt; it can create euros at any time to settle its payment obligations, regardless of the amount.

That said, no one needs to worry that their balances held at a commercial bank could be lost if the bank goes bankrupt and the deposit protection fund fails. If a digital euro is publicly accepted, the scenario of euro commercial banks collapsing becomes unlikely; the euro money and credit system would be supported more than ever by the omnipotence of the ECB.

As is well known, in their Communist Manifesto (1848) Karl Marx and Friedrich Engels named ten “measures” the implementation of which would lead to communism. The fifth measure reads as follows: “Centralisation of credit in the hands of the state by a national bank with state capital and exclusive monopoly.” The issuance of a digital euro and the resulting consequences are undoubtedly another crucial step in bringing the Marxists’ vision of their desired revolution to fruition.

Tyler Durden
Sun, 02/28/2021 – 09:20

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Italy Just Forced Uber Eats, Three Other Companies, To Hire 60,000 Workers

Italy Just Forced Uber Eats, Three Other Companies, To Hire 60,000 Workers

Could it be deja vu all over again?

The same ride sharing services that are constantly doing battle in the U.S. about whether or not they should be hiring their workers – a move that would cripple their cost structure and any hopes of future profitability for their respective businesses – are now fighting the same battles about their food delivery workers.

This time, the venue isn’t California; it’s Milan, where prosecutors said last week that four major food delivery companies had to officially hire more than 60,000 workers and pay 733 million euros in fines after investigations showed that working conditions for the delivery-people were inadequate, according to Reuters

The investigation had been ongoing since July of 2019 after there were a “number of road accidents” involving delivery drivers. The investigation looked specifically at Spanish food delivery app Foodinho-Glovo and the Italian divisions of Uber Eats, Just Eat and Deliveroo.

Deputy Prosecutor Tiziana Siciliano said this week: “The vast majority of these riders are employed with occasional self-employment contracts … but it emerged without a shadow of a doubt that … they are fully included in the organization of the company.”

Prosecutors also found that workers were being managed by an IT platform that was rating them on their performance. Siciliano commented: “This system actually forces the rider to accept all orders in order not to be demoted in the ranking and then have less work. This is the reason why it is impossible to take holidays or sick leave.”

The companies are being asked to pay the riders overdue contributions and to provide their riders with adequate equipment, like bicycles and clothing. Uber Eats, Foodinho-Glovo and Deliveroo said they did not agree with the findings of the prosecutors, while Just Eat said they would launch an internal investigation. 

“The online food delivery is an industry that operates in full compliance with the rules and is able to guarantee an essential service,” the companies said in a joint statement. 

Tyler Durden
Sun, 02/28/2021 – 08:45

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Monetary Inflation: The Next Step…

Monetary Inflation: The Next Step…

Authored by Alasdair Macleod via GoldMoney.com,

Earlier this month the US Treasury released its plan to flood the financial system with cash by reducing its balance on its general account at the Fed by $1.229 trillion by not renewing an equivalent amount of T-Bills

Separately, the Fed will continue with its QE at the rate of $120bn every month, which combined with the Treasury’s plans means an inflation of the money supply totalling $1.829 trillion [(120×5 months)+929+300] is in progress from the beginning of this month until end-June. This does not include the planned stimulus of $1.9 trillion

The banks do not have the balance sheet capacity to take this expansion on board, and if they are forced to turn new depositors away it will almost certainly be by charging for deposits (imposing negative interest rates). That being the case, not only will the US economy be flooded with unprecedented levels of inflated money, but commercial banks will implement negative rates without the Fed having to do so

To prevent this outcome, the Fed will have to extend the temporary exemption from the supplementary leverage ratio due to end in March and remove the $30bn reverse repo limit on money funds, allowing them all to access the Fed’s reverse repo facility and avoid “breaking the buck”. At this late stage there is no sign of the SLR being extended, and a policy with respect to money funds may or might not be forthcoming

But with the Bank of England signalling that it will introduce negative rates later this year, leaving the dollar as the only major western currency at the zero bound, it appears that the solution is indeed to flood the markets with dollars and force the US’s commercial banks to adopt NIRP on the Fed’s behalf

And with dollar term rates already rising, not only is it likely to be too late for the Fed to succeed with an operation twist, but the bubbles in financial markets risk being undermined by rising bond yields, taking the dollar down with it in the style of a John Law combined bubble and currency collapse.

Gold does not discount this outcome and can be expected to drive its fiat price substantially higher.

Introduction

It is extraordinary that anyone who pretends to know something about economics thinks that inflation is something that happens only to prices, loosely connected to changes in the money quantity. And for xenophobes, it is an unfortunate condition which only afflicts minor, foreign currencies.

When so-called economists deny a firm connection between reckless monetary expansion and rising prices, you would have thought that the empirical evidence would act as a check-stop. But no, in support of statist planning economists rely on supressed evidence and economic models which are programmed to assume every extra dollar benefits economic activity without contrary effects, and that every fall in interest rates is an encouragement for the expansion of economic activity.

The parameters which guide policy decisions have become wholly artificial. The CPI is now so tamed that the consequences of monetary inflation for rising prices are barely visible. And GDP, no more than an inflated money total, substitutes for the genuine economic condition. Now that the true consequences of money-printing are suppressed, the mantra has become to inflate or die.

Inflating the quantity of money in circulation has become the most important objective for monetary policy. The other stuff about interest rates, quantitative easing and yield curve control is little more than supporting flimflam, even diverting attention from the inflation objective which reeks of confirmation bias. Confirmation bias is reinforced by the increasing dependency of the state on this form of financing. The fact it is apparently free money, justified by its alleged stimulative qualities, makes monetary inflation highly addictive.  An understanding of the damage it causes is casually dismissed and along with it the painful alternative of cutting government spending to escape a downward spiral into the financial gutter. As an inflation addict, the US Government is edging closer to that gutter, now with the addition of an intensified socialistic modern monetary theory adopted by the Biden administration.

MMT is just another form of confirmation bias for inflationary financing of government spending, and there is nothing modern about it. Since time immemorial governments and their epigones have sought to escape the limitations of unpopular taxation and justify access to a free money tree. Only the language has evolved. The accumulating evidence is that the US Government, claiming a renewed democratic mandate, has become so addicted to money-printing that its escape from the consequences of debasement has become well-nigh impossible. It is this that led me recently to accuse America of already being in a state of hyperinflation: my definition is that of a state which has embarked upon a course of inflationary financing which accounts for most of its income and becomes practically impossible to reverse. Since last March, both these conditions have been fulfilled.

Unless you are blinded by economic models and neo-Keynesian macroeconomics, you will see that it is now just a matter of recognising the waymarks illuminating the route to monetary and economic ruin. We passed the first, where inflation stimulates the economy – utter nonsense when the hidden consequences are taken into account. We passed the second, where the supposed stimulation has become continual, only succeeding in transferring wealth from the productive economy and savers to the unproductive state. Then there was the third, where the state became dependent for the majority of its finances on money printing — the hyperinflationary condition that happened under the cover of covid. And now we have embarked on the fourth, the final destruction of money and the descent into monetary hell and economic ruin. Virgil’s Facilis decensus averni, indeed. But we can now surmise that the combined ambitions for the Treasury and the Fed to print money are about to exceed the capacity of the banking system to accommodate it.

The Yellen Treasury and negative interest rates

The Biden administration, and in particular its Treasury secretary, Ms Yellen, appears bent on a course of accelerating MMT policies in a desire to rapidly inflate the economy. That comes as no surprise. Follow the dogma, and you understand the next step is negative interest rates as the policy designed to stimulate the US economy out of its post-covid slump. The dollar and sterling are the only two major Western currencies whose central banks are yet to embrace this policy, yet the Fed remains reluctant. This appears to be the immediate objective behind a policy of overdosing the US economy with so much money, that the banks without the balance sheet capacity to absorb it will have little option but to discourage further deposits by charging depositors for the privilege, by moving their rates into negative territory.

We can’t know what private conversations have taken place between the US Treasury and the Fed, but this new twist to monetary policy bears the hallmarks of a combined operation that permits the Fed to duck the tricky decision to impose negative rates on bank reserves. If there is a plan, then negative rates will be achieved instead by the US Treasury flooding money markets by transferring its accumulated balance on its general account with the Fed into the financial system. Figure 1 below is extracted from the US Treasury’s Sources and Uses Reconciliation Table published earlier this month and illustrates the starting point whereby negative deposit rates can be achieved.

On 1 February the cash balance on the government’s general account at the Fed was $1.729 trillion, and by 31 March the Treasury planned to reduce it to $800bn, implying that $929bn will be injected into the financial system in the first quarter. At the time of writing, the most recent balance available is for 17 February at $1.567 trillion, which tells us that by the end of March $767bn was still to be added into the economy from that date, with a further $300bn in the quarter following.

There are two ways in which the balance on the US Treasury general account at the Fed can be reduced; either by spending it or by reducing outstanding Treasury bills by not renewing them as they mature. Given the very short timeframe between the administration assuming office in late-January these plans are almost certainly a policy of paying down T-bills ahead of the new $1.9bn stimulus, which is likely to be directed entirely at supporting consumers and businesses in the economy.

Our immediate consideration is the monetary effect on the financial system. With $929bn of T-bills not being rolled into new ones between 1 February and the quarter-end, the same amount of cash is liberated to be placed elsewhere by a combination of foreign central banks, money market funds and commercial banks acting for both domestic and foreign accounts. As Zoltan Pozsar in a note for Credit Suisse points out, a foreign central bank can swap T-bills for deposits at the Fed’s New York branch, or it can use the foreign repo facility. No problem there, then. For money market funds there is little alternative to a reverse repo with the Fed, but these are limited to $30bn for each counterparty and not all money market funds have access to this facility. Furthermore, the rejection of large deposits by the banks lacking balance sheet capacity will encourage inflows into money market funds, which cannot invest in negative-yielding instruments and have the same problem as the funds they attract.

The reduction of holdings of T-bills by central banks and money market funds might push term rates down to the zero bound out along the curve for a year or so, and commercial banks will end up with larger balances in their reserve accounts at the Fed. But it seems likely that a significant portion of this liberated cash will increase customer deposits at the commercial banks anyway. These will include the proceeds of T-bills held by pension and insurance funds. Additionally, we must consider the position of foreign private sector holders of T-bills, reflected in foreign banks holding $1,132bn in UST-bills and certificates, according to figures from the Treasury’s TIC latest available data in December.

There are, therefore, significant balances currently invested in T-bills that cannot access the Fed’s facilities and will end up looking to be deposited in the banking system instead. This will inflate the money supply even further than is already shown in Figure 1. But with all the stimulus money in 2020 plus bank lending to private sector corporations, plus the fact that the repo market blow-up in September 2019 showed a lack of balance sheet capacity even before the covid crisis, the banking system may be unable to absorb further deposits on the scale demanded, particularly if foreigners unable to reinvest into T-bills attempt to shift dollar money into bank deposits.

In that case, it is likely that in the attempt to duck them, commercial banks will be forced to impose negative interest rates on new deposits. In this case, reverse repo rates between commercial banks will also go negative. This will not be something of the Fed’s doing, but a consequence of the US Treasury’s decision to run down the balance on its general account. A further consequence is that the pressure on foreign holders of a trillion in T-bills will encourage them to sell the dollar for another currency, driven by the convergence between short-term dollar rates and those of the yen and euro. But then a weaker dollar is likely to be another ambition of the US Treasury’s desire to stimulate economic activity.

The Fed’s QE continues…

Meanwhile, there is no indication that the Fed will alter its quantitative easing programme of $120bn every month, $90bn of which is earmarked for Treasury bonds. That continues, with the Fed thereby suppressing yields along the curve below where they would otherwise be. This QE is primarily targeted at supplying insurance and pension funds with cash in return for bonds, which they are encouraged to reinvest in higher risk assets, such as corporate debt and equities. The payment flows from the Fed accumulate in the reserve accounts of the funds’ bankers at the Fed. The bond bubble and all assets referenced to it will continue to be inflated.

The commercial banks were granted a temporary suspension from the supplementary leverage ratio (SLR) last March to allow them to add and maintain both government debt and excess reserves on their balance sheets without penalty. That this was necessary was an indication that ratios were already looking stretched a year ago, which should be no surprise, given the repo market blow-up the previous September. The commercial banks, whose expansion of reserves is a consequence of QE targeted at their insurance and pension fund customers, have swollen balance sheets for which the relief from SLR is important. With that facility due to come to an end next month, the banks will face the reimposition of the SLR, requiring them to hold at least 3% base equity relative to their leverage exposure and an extra 2% for the G-SIBs (global systemically important banks). These buffers are supplemental to other regulations and were introduced in the wake of the last banking crisis in 2008.

But with QE continuing at the current $120bn monthly rate and the Treasury set to inject a further $767bn by not refinancing T-bills to that amount by end-March, something will have to give. As things stand, it will result in banks trying to shrink their balance sheets relative to equity capital, unless there is a further extension to the SLR, and even that may not be enough.

This is additional evidence that deposits resulting from the Treasury’s actions will be unwanted and costly to the banks. Another way of looking at the problem is that the scale of intended stimulus is simply too great for the banking system with its current equity base. It is an aspect of inflationary financing that is rarely considered.

The consequences of negative interest rates

Negative interest rates must have been the hottest topic under discussion at the regular bimonthly meetings of central bankers at the Bank for International Settlements in Basel in recent years. Trial balloons have been floated in the UK for months, the latest being by Gertjan Vlieghe, a member of the Bank of England’s Monetary Policy Committee in a speech at Durham University where he said, “It is therefore an important and welcome development that the MPC will be adding negative interest rates to its toolkit from August once banks have made the necessary operational adjustments.” There can hardly be a clearer statement of intent from one of the only two major central banks in the west not to have breached the zero bound.

Given that interest rate policy is a central bankers’ obsession, the introduction of negative interest rates for the two major western currencies yet to do so is surely now no more than a matter of time. But the evidence from those that have imposed negative interest rates is that have not encouraged increased lending activity. A negative rate is a tax on a bank’s deposits at the central bank which cannot easily be passed on to its own depositors. Even with the BoE’s base rate at 0.1%, the turn on paying deposit interest is compressed to the extent that British banks are charging usurious rates of interest on arranged personal overdrafts to compensate: NatWest’s rate is 39.49% APR and the TSB’s is 39.9%.

Admittedly, a determination to reduce lending commitments in these risky times might be partly responsible for overdraft charges. But given that central banks want to stimulate consumption, by cutting rates to zero or even less, commercial banks with limited space on their balance sheets end up discouraging it. And to the extent they try to recoup a negative interest rate tax from their lending to commercial borrowers, they also deter businesses from drawing down credit. Negative rates simply seize up the banking system, and the only beneficiaries are zombie corporations in bare survival mode who hope to see their funding costs fall in the junk bond market. Current zero rate policies in the US and the UK are not therefore achieving the desired effect at the zero bound, let alone with a prospective move to negative rates.

The destruction of savings, which perversely is the policy intention, is a consequence of interest rate policies pursued to their Keynesian endpoint with social implications too important to overlook. Because they are not on any central bank’s radar, the misery of the loss of income for small savers is ignored along with the damage to private sector pensions and the higher insurance premiums compensating for lower investment returns. The whole thing is a deepening morass, but it seems central bankers are determined to continue with these policies nonetheless.

Presumably, the reluctance of the Fed to reduce its funds rate to below zero relates to the dollar’s role as the international currency in which commodities and energy are priced. The imposition of negative dollar rates immediately puts them all in backwardation, an artificial condition that values commodities today more than the money alternative. The way to understand the phenomenon is to look at it from the money side. Negative interest rates mean that the possession of money on deposit today is a cost, while that of tomorrow does not, because you don’t yet own it. This is reflected in a higher value for not owning money and getting rid of it for something else. In commodity markets it is echoed in a higher value for cash settlement than for deferred settlement.

It could be argued that the bull market in commodity prices illustrated in Figure 2, which commenced when the Fed reduced its funds rate to zero last March, is a function of not just the infinite extension of zero rates, but the anticipation that negative rates will be introduced at some time.

If so, we can understand why the Fed is reluctant to embark on a negative rate policy, but Ms Yellen as a card-carrying inflationist can achieve it from her position at the US Treasury.

The consequence for the dollar’s purchasing power

In almost all currency debasements, they start on the foreign exchanges. Foreigners whose primary interest is to maintain an operational liquidity in currencies other than their own accounting medium are super-sensitive to avoiding exchange related losses. Because they use them for international business and the purchases of raw materials, their dollar balances are the largest foreign exchange exposure they have. They will continue to maintain dollar balances, but with $5.29 trillion in bank deposits, T-bills and other short-term instruments, there is significant room for reducing dollar liquidity. To this balance we can add longer term maturities and portfolio investment of $6.134 trillion held by private sector foreigners.

The scope for foreign selling of dollars is therefore substantial, and if these holders get wind of negative rates the run on the exchange rate will be significant. Higher prices for industrial raw materials and imported goods then rapidly follow, exacerbating a lack of domestic production to soak up inflationary demand. It will not go unnoticed by resident Americans, a significant minority of which will have accumulated unaccustomed levels of cash liquidity during lockdowns. There will be a shift from inflation of financial assets to worldly goods, which is already evident in residential property markets and will be accelerated by the initial stages of rising bond yields.

Despite the flooding of QE money into pension and insurance funds and the positive effect of their reinvestment into replacement financial assets, a fall in the dollar’s exchange rate will lead to higher yields for US bonds with longer maturities. A new Operation Twist from the Fed, strongly rumoured today, would simply drive the dollar lower, so the Fed’s ability to suppress long-term rates becomes limited. Consequently, and despite the tendency for a move to negative short-term rates, the valuation basis for all financial assets risks being undermined by a greater time preference factor for dollars, reflected in longer bond maturities.

The US will then face John Law’s dilemma. Having issued money to inflate a perpetual asset bubble, its bursting by higher bond yields undermines the currency and must be prevented. The hardest part is retaining the currency’s purchasing power. The only cure, which arguably is already embarked upon, is to increase the pace of monetary inflation to keep the bubble inflated. For the dollar it is a trap worthy of Thucydides: the more QE is used to inflate, the more it has to be increased to keep the inflation going. The more the quantity of money is expanded, the more it has to be expanded. Stopping it brings on a crisis. Not stopping it temporarily defers an even larger crisis. Today, this outcome is not expected, but tomorrow it will be.

Implications for gold

The consequences of negative dollar rates for the gold price will be to drive it higher, probably substantially so. There are several aspects to consider: the effect on the dollar, the backwardation issue, the technical position in the market and the fact that as an asset class it is underrepresented in portfolios.

There can be no question that negative rates, either imposed by the Fed or the commercial banks, will result in a lower dollar. As a currency it is over-owned by foreigners, and the move below the zero bound into similar interest rate territory as the euro and the yen will reverse conditions in the fx swap market with predictable consequences. On Comex, hedge funds in the Managed Money category, whose pair trade is to sell dollar/buy gold or the opposite, hold 67,956 net long contracts (16 February) compared with an average long-term net long position of 110,000, leaving them underexposed to a falling dollar and rising gold price. The slightest indication that overnight rates are heading below the zero bound would rapidly reverse this position, potentially driving them to be record long. And for the pure traders among them a developing slump for the dollar on the foreign exchanges would be enough.

The counterargument concerns rising term rates, the steepening of the yield curve. But the error here is that other than as cash to be unaware that gold has its own interest rate, and the relationship with fiat rates must incorporate shifts in their relative purchasing powers. The only way to take the steam out of the gold price is to raise fiat interest rates to a level that discounts the differential, which is what Paul Volker did in 1980, by raising the Fed’s fund rate to nearly 20%. Today, fiat rates are being forced unnaturally the other way, including the suppression of bond yields by QE. The argument that marginal changes in rate differentials matter is short-term and does not alter the underlying condition.

This leads us to consider the backwardation issue, which in the absence of balance sheet capacity in the banking system is unlikely to result in long gold positions being financed by domestic bank credit. But gold becomes more attractive relatively to foreigners swapping dollars for gold, and importantly for minor central banks as well, which are already net buyers on other grounds. Furthermore, negative dollar rates would almost certainly impel commodity and energy prices higher through a combination of backwardation and weakening dollar issues, tending to take the gold price with them.

But the most important consideration today concerns the relationship between physical and paper markets. Paper markets have led gold prices lower since the price peaked in early August. Driving it has been a concerted attempt by the bullion banks (Swaps) to reduce or eliminate their short positions at a time of accelerating monetary inflation. They were badly caught out by the Fed’s interest rate reduction to zero on 20 March 2020, and the Fed’s statement that QE would be increased to $120bn on the following Monday. Premiums of up to $90 over spot materialised on Comex futures contracts, and the bullion banks’ short positions led to emergency actions by both the LBMA and Comex acting together to contain the fallout. Less obviously, the central banks increased their leasing to supply physical. We know this because the Bank of England ended up as a sub-custodian to the GLD ETF last August.

This time, the dumping of general account balances on money markets could develop into a similar crisis for bullion bank traders, facing a combination of demand for paper gold from hedge funds and an escalation of physical deliveries. And physical silver supplies are already severely constrained.

Lastly, gold ownership in portfolios is almost entirely through physical ETFs, which total 3,765.3 tonnes valued at $225.8bn (source: WGC —end January). With global investment portfolios estimated at about $100 trillion, this leaves a average exposure to gold of only 0.23%, ignoring the lack of clear title to the underlying bullion.

Tyler Durden
Sun, 02/28/2021 – 08:10

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First Robo-AI Painter To Debut At London Museum  

First Robo-AI Painter To Debut At London Museum  

A robotic artist called Ai-Da, developed by the University of Oxford and engineers at the University of Leeds, will make its grand debut at the London’s Design Museum this summer.

The life-size humanoid artist draws, paints, and makes sculptures. Algorithms process optical sensors embedded within the robot’s eyes into a set of coordinates, guiding the robot’s drawing hands. Whatever the humanoid sees, it can paint… 

According to Inceptive Mind, Ai-Da is expected to perform her first public painting at the museum in London between May and June, subject to COVID-19 restrictions. The exhibition will feature several “self-portraits,” which the humanoid will create by looking at itself in front of a mirror. 

Ai-Da’s co-inventor, Aiden Meller, was quoted by The Next Web, describing the humanoid’s painting style as “shattered.” 

“We didn’t want tight representational, photographic images, even though we could have programmed it to do that. We went against that because we realized that people would just think it was some kind of expensive photocopier. But more than that, we wanted to show the expressiveness of the creativity in the algorithm,” Meller said. 

Some have argued artificial intelligence isn’t capable of real creativity.

Though Meller disagrees, he said Ai-Da’s algorithms were designed for creativity. 

“In actual fact, it’s turned out better than we anticipated because when Ada looks at you with cameras in her eyes, to do a drawing or a painting, she does a different one each time,” said Meller. “Even if she’s faced with the same image or same person, it would be a completely different outcome.”

Ai-Da is part of a growing number of artificial intelligence systems producing art. It’s only a matter of time before this technology becomes more widespread and starts displacing human artists. 

Perhaps, it would take a couple of Sotheby’s or Christie’s auctions of artificial intelligence art to set a precedence in the art community. 

No matter what, artificial intelligence in the art world should frighten artists as this disturbing trend is happening across nearly every industry – artificial intelligence and automation are displacing jobs, resulting in rising technological unemployment levels. 

Tyler Durden
Sun, 02/28/2021 – 07:35

via ZeroHedge News https://ift.tt/2NMRqaP Tyler Durden