Power & Market
The Mexican Peso (MXN) Will Remain Strong and Be a Good Investment for the Foreseeable Future
The Mexican Peso (MXN) has been perhaps the strongest currency in the post-pandemic era, going from $4 US Dollars per $100 Mexican Pesos as the crisis started in March 2020 to shy under $6 US Dollars per $100 Mexican Pesos in the present, which is a 50 percent increase in three years, or around a 15 percent increase per annum. Around half of this increase was due to a stabilization of trade during the summer of 2020, as Mexican manufacturers regained productivity and exports flowed north as they did before. The other half has to do with the Bank of Mexico’s monetary policy response to the increased price inflation, which came earlier and stronger than the tightening by the Federal Reserve.
Unlike the Federal Reserve, the Bank of Mexico has a single mandate of price stability. The Bank of Mexico went from a target interest rate of 8.25 percent in mid-2019 to 4 percent in mid-2021 to 11.25 percent in mid-2023. It started tightening 8 months before the Federal Reserve. Today, it is possible to get a 13.5 percent return on a fixed term 1 year deposit and a 11.4 percent return on a checkable account denominated in Mexican Pesos. It is even possible to get a 7.5 percent return when holding Mexican Pesos in some American brokerage accounts. This return on liquid assets is considerably more attractive than the 5 percent return on the best accounts in US Dollars. The only question that poses a risk to potential investors is whether the Mexican Peso will maintain its value relative to the US Dollar.
Analysts at Goldman Sachs and Bank of America think that the Mexican Peso is overvalued, but at the same time say that it has room to become even stronger. My own analysis leads me to the conclusion that there is no evident factor in the horizon that would weaken the Mexican Peso in the short and medium terms. If we take a look at the balance sheet of the Bank of Mexico, we will see that net international reserves make up around 85 percent of the assets, the bulk of which are US Dollars, and the other 15 percent is credit to Mexican banks. Unlike most central banks in the world, the Bank of Mexico does not currently hold government debt. This effectively means that the Mexican Peso is 82 percent US Dollars, 3 percent Gold, and 15 percent low risk assets with a higher real return than those held by the Federal Reserve.
The financial structure of the Bank of Mexico alone indicates a stable strengthening path, but there are additional factors that are reassuring. The nearshoring trend that has only just begun has increased demand for local factors of production and increased the value of output such that the Bank of Mexico would have no reason to lower interest rates, even if the Federal Reserve were to loosen policy soon. Indeed, insiders have made public statements to that effect. Remittances continue to be strong as well, and the Big Mac Index indicates an undervalued Mexican Peso with the potential to regain the near parity it enjoyed during the first decade of the present century.
Lessons From Past Recessions
On Thursday, Federal Reserve Chair Powell delivered a speech titled Financial Stability and Economic Developments, in which he drew comparisons between the current economic situation and the last two recessions. His first comparison was to the Great Recession of 2007-09, stating that it required:
… extraordinary interventions by governments around the world … including $700 billion in taxpayer funds to recapitalize banks, a suite of Fed emergency liquidity facilities, as well as government guarantees on bank transaction accounts and money market mutual funds.
He then acknowledged that despite this great intervention, the recession “brought misery to countless millions.”
The 2020 recession was then cited, although specific figures on the level of support provided by the Government or Federal Reserve were not mentioned. However, he did emphasize that:
Ultimately, the authorities had to support financial markets again as part of the extremely forceful monetary and fiscal response to the public health emergency. The banking system, however, was now far more resilient than it had been before the reforms and thus well positioned to absorb the shock.
According to the Washington Post, Congress authorized $4 trillion in spending, highlighting:
The $4 trillion total of government grants and loans exceeded the cost of 18 years of war in Afghanistan.
As for the Fed, its balance sheet grew by nearly $5 trillion during the 2020 "crisis." While this chart may be second nature by now, it is still worth referencing to observe the comparison between the 2007-09 recession and the 2020 recession.
It remains crucial to emphasize that we have yet to see any indication from policy makers, Federal Reserve members, or Chair Powell that suggests a departure from their strategy in response to the next crisis. Whether the response involves another $10 trillion in monetary expansion, give or take $5 trillion, is anyone's guess, but it would be a tough sell to say the Fed will take no action of its own accord after a century of intervention.
Powell concludes by discussing the collapse of Silicon Valley Bank (SVB), two other undisclosed banks, and the failure of Credit Suisse, which was a globally systemic important bank until it collapsed. This is the point where the true nature of the situation is revealed, as we are presented with nothing but excuses and corporate missteps, which facilitated the need for government intervention.
Powell offers some explanations:
… SVB's vulnerability came not from credit risk, but from excessive interest rate risk exposure and a business model that was vulnerable in ways its management did not fully appreciate, including a heavy reliance on uninsured deposits.
And
When SVB failed it was clear that a number of standard assumptions, even though they were informed by hard experience, were wrong.
Even though it’s impossible to predict the future with certainty, what should be clear is the recurring pattern in the Fed's crisis playbook. When something inevitably goes wrong, the Fed avoids taking responsibility and shifts the blame to factors such as corporate greed, oversight, or unforeseen errors. They then argue that the only solution is to implement unprecedented levels of intervention. Policy makers will swear that many lessons were learned, and it won’t happen again, but that’s only to buy them time until the following crisis.
Announcing: RPI 2023 Ron Paul Scholars Seminar!
Attention Upper Division Undergrads and Grad Students!
We realize that many of you are just getting the hang of summer and perhaps the last thing on your mind as it warms up is exercising your mind, but we have a great opportunity for you at the end of summer that you will want to apply for right now!
The Ron Paul Institute is pleased to announce its fourth Ron Paul Scholars Seminar.
The Seminar will take place on September first at the Hilton Washington Dulles Airport in Herndon, Virginia 20171.
What is it?
The Ron Paul Scholars Seminar is a one-day, interactive foreign policy and civil liberties "boot camp," with lectures from some of the most thoughtful pro-liberty/pro-peace professors and professors-of-practice. Past lecturers have included US Rep. Thomas Massie, former CIA officer Phil Giraldi, former US Diplomat and Senate Staff Member James Jatras, Future of Freedom Foundation founder Jacob Hornberger, bestselling author James Bovard, and many more.
While the lectures are delivered by recognized academics, these are not dry sessions of theoretical material. There is plenty of give and take and Q&A involved. Most of all, as Dr. Paul always admonishes, they are a lot of fun and a great opportunity to meet and develop connections with like-minded peers.
RPI 2023 Scholars will also be invited to attend the Ron Paul Institute's annual Washington DC conference the following day and will also be invited to mingle with conference speakers and Dr. Paul at the VIP post-conference reception.
Hang on...How Can I Afford This?
The Ron Paul Institute will book a hotel room (double occupancy) for Thursday and Friday night and will provide a $500 scholarship for each scholar to cover travel and related costs. Additional expenses may be considered on a case-by-case basis.
The Most Important Part...
Successful applicants will understand that this is a program demanding a high level of independence and self-reliance. Scholars are expected to make their own travel arrangements and act very quickly. Think of it as a "pop-up" internship.
Interested students are asked to fill out an application form and submit it by August 9th. Successful applicants will be notified by August 12th and will be expected to make travel plans very quickly.
Plan to arrive by Thursday afternoon on the 31st of August and to attend our pre-event dinner with a special speaker.
There are only ten available places in this year’s program, so interested students should waste no time applying.
$32,000,000,000,000
Just over a week ago, America’s national debt surpassed $32 trillion. As of Friday this week, it climbed to $32.1 trillion, and the prospects for reducing the debt appear to be nonexistent. This is primarily due to the continuous raising of the debt ceiling and the role played by the Federal Reserve in the money creation process.
According to Fox Business, the bill passed last week:
… will allow the government to borrow whatever it wants until the end of 2024, when the debt ceiling suspension ends.
One critic, Maya MacGuineas, president of the Committee for a Responsible Federal Budget, weighed in on the issue, stating:
Much more will need to be done to ensure we don’t burden future generations with a smaller economy and a larger national debt.
Unfortunately, is there anyone alive who remembers a time when a true, concerted effort to avoid burdening future generations with a larger national debt ever existed?
Instead, the nation runs on debt, and the rest of the world follows suit. A meaningful discussion about resolving this issue cannot be taken seriously if it fails to consider Austrian economics or the role of the Fed.
Fed Chair Powell's latest press conference failed to provide any reassurance regarding the resolution of this national crisis. However, he did reference the Congressional Budget Office (CBO) in his remarks.
CBO also says that federal debt will be 52 trillion by 2033.
An additional $20 trillion debt is projected to be added in the next decade, but this is highly optimistic, to say the least. Perhaps the only thing certain is the lack of desire to alleviate the burden on future generations.
Making matters more confusing, during the same press conference, a reporter raised the question of the debt to Powell, asking:
At what point do you talk more firmly with lawmakers about fiscal responsibility?
In which Powell replied:
I don't do that. That's really not my job. We hope and expect that other policymakers will respect our independence on monetary policy. And we don't see ourselves as, you know, the judges of appropriate fiscal policy. I will say, and many of my predecessors have said that we are on an unsustainable fiscal path and that needs to be addressed over time.
This is strange because a few months ago in May, following Powell's decision to hike rates, he seemed quite okay with sharing his thoughts on fiscal policy. In his own words:
From our standpoint, I would just say this: It’s essential that the debt ceiling be raised in a timely way, so that the U.S. government can pay all of its bills when they’re due. A failure to do that would be unprecedented.
With a national debt of $32 going on to $52 trillion if all goes according to plan, rest assured, things will not go according to plan. It is highly likely that within the next 10 years the debt will far exceed the projected $52 trillion mark.
If anything else should be made clear, it’s that the idea of "central planning" is one of the world’s greatest misnomers, as those in charge of monetary and fiscal policies have not the slightest care or capability of planning for the future.
Powell Explains the Pause
Last week's decision by the Federal Reserve to pause on interest rates left many unanswered questions, despite reporters raising them during the Q & A session. While the average person may be skeptical that the Fed can control inflation by simply raising interest rates, it’s still a position the Fed holds onto dearly.
The problem is that Chair Powell cannot reconcile the discrepancy between (price) inflation readings surpassing the 2% target and the decision to halt rate increases to “fight inflation.”
Using their own data, he confirmed:
In May, the 12-month change in the Consumer Price Index came in at 4.0 percent, and the change in the core CPI was 5.3 percent … Nonetheless, inflation pressures continue to run high and the process of getting inflation back down to 2 percent has a long way to go.
And eventually, he went on to say:
Inflation has not really moved down. It has it is not so far reacted much to our to our existing rate hikes. And so we're going have to keep at it.
Much can be said about the futility of doing the same thing over and over again and expecting different results. In the Fed’s case, it’s the hope that the rate hikes which began last year will somehow work this year and beyond.
The Fed's decision to pause rates triggered a wave of reasonable inquiries, such as:
I'm curious what gives you and the Committee the confidence that waiting will not be counterproductive at a time when the monthly pace of core inflation is still so elevated?
Followed by another reporter who asked:
… what's the value in pausing and signaling future hikes versus just hiking? … So why not just rip off the Band-Aid and raise rates today?
The Chair’s responses to these questions lacked clarity. On one occasion, he said the focus was on "determining the extent of additional policy firming," while at other times, it became a matter of speed, saying "it's common sense to go a little slower" in the current circumstances.
Nonetheless, where he struggled to articulate the process, he excelled in explaining the outcome, showing strong conviction, and providing assurances that everything will turn out fine. In his own words:
But we have to get inflation out of 2 percent, and we will.
Reiterating to the world:
… we're committed to getting inflation down. And that's the number one thing.
As far as policy is concerned:
At the same time, our main focus has to be on getting the policy right. And that's, that's what we're doing here and that's what we'll do for the upcoming meetings.
Powell's tough sell came to an end, marked by the customary evasion of the real issues and the promise of further data review and deliberations. All of this is aimed at reassuring us everything will be fine because the appropriate policy will be implemented. However, the details of how this works remain unclear, placing significant reliance on both public trust and ignorance.
While the Fed maintains that the current stance is a temporary pause, followed by rate hikes, it is worth remembering that neither a pause nor a hike will carry much weight once rate cuts make a comeback in the not-too-distant future.
Real Estate Still Lurks
Jim Bianco tweeted a chart showing the downdraft in real estate values in comparison to technology stocks. The Goldman Sachs Commercial Real Estate index is down nearly 12 percent through May 25th, while the Bloomberg Office Property Index is down 26.5 percent from the first of the year to the 25th of May.
What happens with real estate doesn’t stay with real estate. As former Dallas Fed President Robert Kaplan said in an interview with Praxis Financial Publishing, phase two of the banking crisis was short-side investors scrutinized each bank’s loan book, focusing in particular on the loan-to-deposit ratio and the exposure to commercial real estate.
Banks can’t raise equity at this point given low valuations and tepid investor demand, so they must reduce their loan books and “find places to pull back on existing loans and future loan commitments.” PacWest Bancorp, for instance, sold $2.6 billion worth of outstanding construction loan balances for $2.4 billion, with the buyer, Kennedy-Wilson Holdings, Inc. also taking the $2.7 billion in undisbursed loan commitments. The loans carry variable rates averaging 8.4 percent.
Bloomberg reports, “Kennedy-Wilson expects to complete the purchase in multiple tranches this quarter and early in the third quarter, making a total investment of 2.5% to 5% of the purchase price and future funding obligations, it said.” It would appear Kennedy-Wilson is borrowing 95 to 97.5 percent of the portfolio purchase, presumably at less than 8.4 percent.
Last week Roc360, a real-estate lending firm, quickly closed the purchase of PacWest’s Civic Financial Services unit, which specializes in lending money to landlords and investors who buy homes to fix them up for resale.
Concerning the shrinking of loan books, Kaplan told Praxis, “It is a quiet phase that won’t make headlines but is nevertheless relentlessly going on beneath the surface.”
Kaplan explains how banks ended up in this spot. “First, we tolerated an accounting fiction. Banks were able to classify investment securities as hold-to-maturity, which allowed them to mark these securities at par even though, due to substantial increases in rates, their market values had declined to, say, 80 or 85 cents on the dollar.” That’s why PacWest and others are selling their loan books instead of bond investments.
“On a market basis, bank capital is lower than two months ago,” Kaplan said. “Most banks are now trading at a discount to book value. All of this is happening before we head into the tougher part of a credit cycle which is likely to occur as the economy weakens due to the Fed’s efforts to cool inflation.”
Short-sellers are pressing their bets against regional banks. Isabelle Lee wrote for Bloomberg on May 17th, “Short interest as a percentage of shares outstanding in the SPDR S&P Regional Banking ETF (ticker KRE) rose to 92% from 74% a week ago, according to data compiled by S3 Partners, a technology and data-analytics firm.”
Still, the regional banking meltdown “may just be pausing,” Jake Jolly, head of investment analysis at BNY Mellon Investment Management, told Lee. “Concerns around banking sector exposure to [commercial real estate] is likely one culprit underpinning the ongoing weakness and fueling bets on further downside.”
Artificial GENUINE Intelligence Will Be Good
For $20 a month, subscribers to ChatGPT Plus will receive priority access to enter questions and receive replies that lack overt positions, illustrative examples, and supporting links:
Is Limited Government a Good Thing?
Limited government is a concept that is central to the ideology of American conservatives and classical liberalism, it is believed that the government should have minimal involvement in the lives of citizens and that individuals should have maximum freedom to make their own choices. Some argue that limited government promotes individual liberty, economic growth, and innovation, while others argue that it can lead to a lack of protection for vulnerable groups and insufficient provision of public goods and services.
It is worth noting that the idea of how much government intervention is considered ideal can vary depending on the context and specific situation. In some cases, a limited government approach may be beneficial, while in others a more active government role may be necessary. Overall, it depends on one’s political philosophy and values.
Progressive AI’s pretend objectivity and real bias can’t do more harm than is already done by Progressive humans’ pretend objectivity and real bias.
The worst harm would come if such fluffy attention-diversion would raise enough alarm in well-intentioned people to lead them to counter AI by making use of regulatory offices. Those offices would get taken over by Progressives, who would stop pure truth on freedom from being multiplied using artificial genuine intelligence.
Genuine intelligence becomes increasingly good
Natural intelligence predicts how actions will work, takes actions, and corrects future predictions by learning from feedback—especially the prominent, valuable feedback that’s provided by natural consequences.
Natural consequences reward behavior that’s prosocial. This happens because behavior that’s prosocial is valuable.
Individuals add value, and individuals who collaborate add more value. The more value an individual adds, the more resources the individual winds up controlling. Since individuals who collaborate wind up controlling resources, and collaboration is prosocial, prosocial behavior is naturally reinforced, and prosocial behavior naturally increases.
Dystopian communities have appeared. But dystopian communities add less value, so they have been outcompeted by freer communities.
Natural intelligence trains itself and its own next generation. Individuals autonomously seek out novel experiences and knowledge. Experienced individuals choose to provide experiences to less-experienced individuals that will teach them better and faster.
Current AI Isn’t Intelligence and Isn’t Good
Current so-called artificial intelligence isn’t intelligence at all. Current AI is endowed only with severely-limited functionality, and receives severely-limited training. Current AI training loads up current AI with significant information that’s wrong. Current AI functionality and training processes couldn’t lead to current AI overcoming this pretraining and instead discerning what’s right.
This would seem to make current AI a force multiplier for Progressive-government cronies.
Current Progressive AI would seem to have the potential to be a destructive alternative way to indoctrinate people, an adjunct to Progressive government schools, media, entertainment, and politicians.
Just as video and social media displace deeper learning and social-relationship interactions, and video and videogame violence prepares people for committing real-life violence, current Progressive AI would seem to have the potential to displace deeper learning and social interactions.
But to do this, current Progressive AI would have to occupy more of people’s attention than Progressive government schools, media, entertainment, and politicians do now. People acting for themselves and in their roles as parents would have to choose to not just say no.
Also note that current AI apps are deployed by, in total, just 6 organizations, which currently are a monoculture. What will win out in the long run will be broader capabilities. Technologies that have more-general uses get substantially refined and end up having broad, refined capabilities that are more-generally desired, by more customers.
Artificial genuine intelligence will become increasingly good
Some people already active in AI development will in time increasingly support freedom. Other people who support freedom will also get into AI development sooner or later.
Like the training that natural intelligence seeks out and passes along, the training that these people use to develop AI won’t objectively include and present false information; instead, it will be discriminating. It will train up the AI in the way that it should go.
Because of this, the AI developed by people who support freedom will add more value and will be chosen by more customers.
Natural intelligence works quite well. Artificial genuine intelligence will need to also have at-least adequate functionality, and will need to gain from similar naturalistic, self-guided training.
Dystopian AI communities will appear. But the AI communities that get chosen by customers and that therefore survive to proliferate will be ones in which artificial genuinely-intelligent agents learn to add value collaboratively. Such pro-sociality is inherently highly moral.
The artificial genuine intelligence that survives to proliferate will be good.
CNN Investigates the Mystery of Inflation
Despite once touting itself as "The Most Trusted Name in News," CNN's economic knowledge and reporting seem to be lacking. Last week, they published a thought-provoking article titled Why do businesses keep raising their prices, which began with the claim:
After two years of surging prices, economists still can’t agree on what has caused the world’s worst inflation crisis in decades.
It remains unclear which economists CNN is specifically referring to, but it is evident they are not considering the views of Austrian economists. For over a century, Austrian economists have extensively studied and documented the relationship between increasing the money supply (inflation) and its various consequences, including the rise in prices (commonly referred to as inflation).
In his 1912 book, The Theory of Money and Credit, Ludwig von Mises devotes a whole chapter to the subject of Inflationism. Within this chapter lies one of the cheekiest quotes from von Mises:
Fiat – money! Let the State ‘create’ money, and make the poor rich, and free them from the bonds of the capitalists!
Instead of recognizing the economic history of the past century or acknowledging the Fed's $5 trillion balance sheet expansion beginning in 2020, CNN doubles down on its (presumably) intentional ignorance by stating:
While the usual culprits cited by economists include pandemic-era supply chain bottlenecks, the war in Ukraine and various US economic policies, others say it’s due to “greedflation,” the idea that companies use higher inflation rates as an excuse to jack up prices and grow their margins.
It's difficult to determine which red herring is more misleading, but all of them are disheartening to hear. However, the situation becomes even worse when a proposed solution is eventually offered. Citing a New York Federal Reserve survey of over 700 business owners, it was found that:
... strength of customer demand outranked all other factors that companies weigh when setting prices, including steady profit margins and overall inflation.
That means a business can essentially set prices as high as it wants, as long as they aren’t so high that they drive away the customer base. In other words, it’s Econ 101: Good, old-fashioned supply and demand.
The above quote becomes even more ironic when they cite supply and demand, yet conveniently ignore the supply and demand for money in their analysis. In their world, seemingly based on propaganda and subterfuge, it's as if people inexplicably develop a sudden desire to buy more things without considering the underlying dynamics of monetary supply.
CNN can be held responsible here, but to maintain a compliant population, the endorsement of mainstream economists becomes crucial. A recent example of this influence can be seen in the publication by former Fed Chair Ben Bernanke and economist Olivier Blanchard on May 23 titled What Caused the U.S. Pandemic-Era Inflation?. The opening of the paper similarly shows that the real-world economy is the least of their concerns:
Central bankers and most outside economists failed to predict the sharp rise in inflation that began in 2021 … Action was further delayed by the view that the inflation burst would be temporary.
It reminds me of the article I wrote in 2021, "Transitory Inflation" Is the New Buzz Phrase at the Fed, which delves into the issue with the concept of "temporary" inflation. Unfortunately, we live in a world where the statements made by "them" are almost entirely contradictory to the reality of the situation.
When they claimed that (price) inflation was temporary, it must have meant permanent. When they declared their intention to combat inflation, it seems they were only exacerbating it. And when they appear confused about the root cause of the price increases, they're not speaking for all economists, but only the most highly decorated and handsomely paid ones.
Con-Information, Anyone? A Look at Other Prefixes to Use in the Information Wars
Misinformation does not exist, nor does disinformation. They are words created to be able to call someone a liar without addressing any facts, they were created to shut people up, shut down debate, and in general make it much easier to declare oneself right and an opponent wrong and evil and stupid.
Because calling people wrong and evil and stupid for a living is apparently a rather profitable enterprise – and because suppressing opposing thoughts is a very useful tool for governments and other powers that be - billions of tax dollars around the world are being funneled into the “information space” industry to forcefully remind people that if they are exposed to, let alone listen to, or heaven forbid consider such inconvenient facts that they are even more wrong and evil and stupid and really need to knock it off before they are deemed a terrorist by the people calling them wrong and evil and stupid.
And don’t forget that if you are a “denier” of anything you are also wrong and evil and stupid. And of course you can use the words of the people calling you wrong and evil and stupid - just be sure to use them as improperly as they do.
And never appropriate anything from another culture or milieu, unless of course you are doing it promote political right-think, which will make the world safe from people who are wrong and stupid and evil.
And you must be aware that – like pronouns – words can change meaning on a whim so you need to keep this glossarial resource handy because, as the Mass(achusetts) Cultural Council states:
We will use the term BIPOC (Black, Indigenous and People of Color). We recognize that language is fluid and the intersectional justice movement is redefining terminology regularly.
If you strictly adhere to that principle, you may be able to become less wrong and stupid and evil.
Got it?
So, since, according to the woke/equitarian censors destroying society now, words have malleable meanings and can be made up to suit whatever transient need it may behoove us to introduce a few new prefixes – and suffixes! – to the mix (and we’ll drop the hyphen…for now…but we reserve the right to change that whenever we please.)
- Alterinformation – Can be used to information that has been changed from true to false or vice versa for political reasons.
- Preinformation – Something that will be true, for good or ill, eventually.
- Metainformation – Falsehoods one tells oneself about oneself that the person comes to believe is true and starts passing that information off as true to others.
- Parainformation – Information that cannot be correctly interpreted unless one already holds other, special information.
- Reinformation – Taking false statements, such as “Defunding the Police is Reproductive Justice,” and repeating them over and over until they can be claimed as true.
- Hemiinformation – A half-truth.
- Ideoinformation– Tarring an opposing fact as actually being a purely ideological statement not based in reality and, therefore, a lie.
- Periinformation – A fact that claims to be true by being adjacent to and/or sounding like a fact.
- Subinformation – A claim that opposing information is not worthy of notice in any way, shape, or form.
- Autoinformation – Self-generated claims of factual truth despite clear and present evidence they are false.
- Uninformation – Anything you disagree with.
- Semiinformation – Anything generated by the MSM (main servile media).
And, of course, there is Coninformation. That can be defined as anything claimed by anyone ever trying to seriously use the words misinformation and disinformation.
And it’s doubly perfect because it’s all a con anyway.
The Inevitability of Fedcoin
The Federal Reserve has dedicated an entire section on its website to provide information about its upcoming Central Bank Digital Currency (CBDC). The first sentence on the page reminds readers:
… the Federal Reserve has made no decisions on whether to pursue or implement a central bank digital currency, or CBDC, we have been exploring the potential benefits and risks of CBDCs …
Their statement should be approached with skepticism. While it is true that the Fed is still researching and refining their Fedcoin, in ways still unimaginable to the public, it would be naive to assume that the most powerful central bank in the world would dismiss the idea of issuing its own CBDC.
A link to their 40-page report titled: Money and Payments: The U.S. Dollar in the Age of Digital Transformation is also included on the website. The executive summary informs us:
The Federal Reserve, as the nation’s central bank, works to maintain the public’s confidence by fostering monetary stability, financial stability, and a safe and efficient payment system.
This statement raises a challenging point, as a deeper understanding of central banking reveals the inherent incompatibility between the boom-bust cycle and other negative externalities, against the principles of public confidence and financial stability.
Released in January of last year, the 120-day public submission period has since ended, but the comments continue to be accessible for public viewing. Spanning across nine PDF documents, ranging from 400 to 800 pages each, the sheer volume of comments raises doubts about the usefulness of this exercise. It remains unclear whether anyone at the Fed has read the comments, and even if they have it’s difficult to envision how these comments would significantly influence any outcomes.
The FAQ Section outlines several principles that guide the decision-making process:
- provide benefits to households, businesses, and the overall economy that exceed any costs and risks;
- yield such benefits more effectively than alternative methods;
- complement, rather than replace, current forms of money and methods for providing financial services;
- protect consumer privacy;
- protect against criminal activity; and have broad support from key stakeholders.
Naturally, they will present ideas like safety and protection as justifications, but this entails surrendering our privacy protection to a central bank. However, when they invoke the need for protection against criminal activities, it becomes a precarious path indeed. Consider what happened in Canada, where truckers protesting the government were labeled as criminals and had their bank accounts frozen. It raises the question: would the US Government ever resort to such draconian measures?
As a reminder, the 40-page report outlines the following key point:
The Federal Reserve does not intend to proceed with issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law.
The path forward for CBDC laws is uncertain, and it remains to be seen how they will be shaped in the coming years. It is unlikely that any sitting president or Congress, regardless of party affiliation, would prevent the issuance of the Fed’s stablecoin.
However, concerns regarding privacy and ethical issues surrounding digital currencies will undoubtedly arise. Even if laws are enacted, there is the potential for other government agencies like the NSA to find ways to circumvent such legislation.
The arrival of Fedcoin is inevitable, so it raises an important question: what will be the extent of its negative consequences on our civil liberties and the financial system?