An Empire of Money and Privilege in Decline: Portrait of a Tragic Policy Error

“Everybody, sooner or later, sits down to a banquet of consequences.” Robert Louis Stevenson

“They don’t have intelligence. They have what I call thintelligence. They see the immediate situation. They think narrowly and they call it ‘being focused.’ They don’t see the surroundings. They don’t see the consequences.” Michael Crichton

The Fed is faced with a problem that is best represented by the first two charts below.

Velocity of money is a simple ratio measure of money supply and GNP. It intends to represent the number of times a unit of money is exchanged in a transaction over a period of time.

As you can see, the velocity of the two broad money supply measures is dropping to historic lows.

Is this because the great mass of people are ‘hoarding money,’ which implies that one should lower real interest on savings, even taking them more deeply into the negative through monetary inflation in order to encourage spending through fear of de facto confiscation?

The third chart gives some insight into the true nature of the economic problem. Most of the income gains this century and for the past two or three decades of the past have been flowing to the top few percent of US households. The median household, the middle if you will, has been steadily losing ground in large part to Fed and political policy decisions driven by a mistaken ideology and a top down or trickle down approach to prosperity.

If the Fed pursues monetary inflation, without taking strong steps, even through the use of its bully pulpit and actions as regulator, to correct the severe policy imbalances that lopsidedly favor the wealthy financiers, it will drive the US middle class over an economic cliff and destroy the very system which it is attempting to save.

That is the basis of the tragic policy error of the Fed and the ruling class. Jeffrey Sachs has noted it in a recent talk to the Philly Fed shown below, and Bill Black has some particularly scathing words today for the ‘Hyper-meritocracy Led by Criminal Morons.’ I might have said self-delusional narcissists or even sociopaths rather than morons. The majority of those who enable the abuse of power are merely careerists.

One can make the strong case that the primary responsibility for this is in the political leadership. But one cannot also deny that as policy influencer and regulator the Fed has favored, quite actively, the growth of imbalances and social and economic injustice by pursuing a blind allegiance to a mistaken theory of deregulation and oligopoly of banking capital.

An audacious oligarchy needs someone to rescue them from themselves. And this will not be an easy task because the system is corrupted and the powerful have been blinded by greed. The current political deadlock in Washington is a symptom of the problem. There is always an element that believes in a long range plan consisting of repression as required, disinformation, and plundering the weak.

The monied class do not ‘create jobs.’ Genuine organic and systemic demand for good and services creates jobs, and those who have the means respond to that demand. It is a virtuous cycle that begins with consumer demand, and the willingness and the ability to pay for it. Yes there may be a role for inorganic demand such as stimulus to ‘kick start’ an economy caught in a policy error trap, but it is the reforms that allow for organic growth that make it sustainable.

Moving offshore to find new demand for markets while abandoning one’s domestic base to decline and failure, in the true colonial fashion of past economic empires, is a form of neurotic failure. It often lights a fire in men’s minds, and becomes a sort of self-fulfilling cultural suicide. And perhaps this is embodied in the latest corporatist deal which is the infamously secretive Trans-Pacific Partnership.

How fitting that, having overturned most of the financial reforms of the past century, we stand here now on the brink, on the 75th anniversary of the New Deal, with essentially the same set of problems facing us that brought the world down so low in The Great Depression, and opened the door to the madness that followed.

“I believe we have a crisis of values that is extremely deep, because the regulations and the legal structures need reform. But I meet a lot of these people on Wall Street on a regular basis right now. I’m going to put it very bluntly. I regard the moral environment as pathological…

If you look at the campaign contributions, which I happened to do yesterday for another purpose, the financial markets are the number one campaign contributors in the U.S. system now. We have a corrupt politics to the core, I’m afraid to say, and no party is – I mean there’s – if not both parties are up to their necks in this. This has nothing to do with Democrats or Republicans. It really doesn’t have anything to do with right wing or left wing, by the way. The corruption is, as far as I can see, everywhere.

But what it’s led to is this sense of impunity that is really stunning and you feel it on the individual level right now. And it’s very very unhealthy, I have waited for four years, five years now to see one figure on Wall Street speak in a moral language.

And I’ve have not seen it once. And that is shocking to me. And if they won’t, I’ve waited for a judge, for our president, for somebody, and it hasn’t happened. And by the way it’s not going to happen any time soon, it seems…

The final point, of course, is separating the politicians from the crooks, but maybe that’s so close together that they can’t actually be separated. Maybe it’s just the same community.”

Jeffrey Sachs, Fixing the Banking System For Good, Philadelphia Fed, April 17th, 2013

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Bitcoin and other cryptocurrencies flash-crashed Saturday night, one day after the US Commodity Future Trading Commission (CFTC) sent subpoenas four cryptocurrency exchanges in an ongoing probe into bitcoin manipulation that began in late July - following the launch of bitcoin futures on the CME, according to the Wall Street Journal
CME’s bitcoin futures derive their final value from prices at four bitcoin exchangesBitstamp, Coinbase, itBit and KrakenManipulative trading in those markets could skew the price of bitcoin futures that the government directly regulates.
In delay reaction, Bitcoin fell as much as $433 or 5.6% in Saturday night trading, with some noting that the flash crash happened shortly after a 90th ranked crypto exchange, Coinrail, had suffered a "cyber intrusion", and was likely the more relevant catalyst for the crypto price drop.
While major Cryptocurrencies were down from 4.5 - 5.5%, Bitcoin Cash dropped over 8.4%. 
The CTFC subpoenas were issued after several of the exchanges refused to voluntarily share trading data with the CME after being asked last December. Of note, the CFTC regulates the CTC. 
According to the WSJ, the CME, which launched bitcoin futures in December, asked the four exchanges to share reams of trading data after its first contract settled in January, people familiar with the matter said. But several of the exchanges declined to comply, arguing the request was intrusive. The exchanges ultimately provided some data, but only after CME limited its request to a few hours of activity, instead of a full day, and restricted to a few market participants, the people added.
What is curious, is that if there was indeed manipulation since the launch of bitcoin futures, it was to the downside, as the price of cryptos peaked around the time the crypto futures were launched, and are down well over 50% in the 6 months since.
Coinbase in particular has been under the watch government regulators. On February 23, Coinbase sent an official notice to around 13,000 customers to notify them they were legally required to turn over their information to the IRS
The IRS had initially asked Coinbase in July 2017 to hand over even more detailed information on every one of its then over 500,000 users in an attempt catch those cheating on their taxes. However, another court order in Nov. 2017 reduced this number to around 14,000 “high-transacting” users, which the platform now reports as 13,000, in what Coinbase calls a “partial, but still significant, victory for Coinbase and its customers.”
Coinbase told the around 13,000 affected customers that the company would be providing their taxpayer ID, name, birth date, address, and historical transaction records from 2013-2015 to the IRS within 21 days. Coinbase’s letter to these customers encourages them “to seek legal advice from an attorney promptly” if they have any questions. Their website also states that concerns may also be addressed on Coinbase’s Taxes FAQ. The ongoing legal battle between Coinbase and the US government dates back to November, 2016, when the IRS filed a “John Doe summons” in the United States District Court for the Northern District of California.
On Feb. 13, personal finance service Credit Karma released data showing that only 0.04 percent of their customers had reported cryptocurrencies on their federal tax returns. 
And in April, former New York Attorney General, Eric "we could rarely have sex without him beating me" Schneiderman, launched a probe of 13 major cryptocurrency exchanges according to the Wall Street Journal - claiming that investors dealing in the fast-growing markets often don’t have the basic facts needed to protect themselves.
Former AG Schneiderman’s office said the program, called Virtual Markets Integrity Initiative,  is part of its responsibility to protect consumers and ensure the integrity of financial markets, and its goal is to ensure that investors can have a better understanding of the risks and protections afforded them on these sites.
CFTC Commissioner: Crypto is a "modern miracle"
While the CFTC, IRS and New York Attorney General's office are all cracking down on cryptocurrency exchanges, it seems to all be part of the government's embrace of virtual currencies.  Last week CFTC Commissioner Rostin Benham called cryptocurrencies a "modern miracleat the Blockchain For Impact Summit held at the UN in New York last week. 
But virtual currencies may – will – become part of the economic practices of any country, anywhere.  Let me repeat that:  these currencies are not going away and they will proliferate to every economy and every part of the planet.  Some places, small economies, may become dependent on virtual assets for survival.  And, these currencies will be outside traditional monetary intermediaries, like government, banks, investors, ministries, or international organizations.
We are witnessing a technological revolution.  Perhaps we are witnessing a modern miracle. -Rostin Benham
Rostin hinted at the upcoming legal action against the exchanges during his speech:
Under the CEA and Commission regulations and related guidance, exchanges have the responsibility to ensure that their Bitcoin futures products and their cash-settlement process are not readily susceptible to manipulation and the entity has sufficient capital to protect itself.  The CFTC has the authority to ensure compliance. In addition, the CFTC has legal authority over virtual currency derivatives in support of anti-fraud and manipulation including enforcement authority in the underlying markets.

Meanwhile, the official Bitcoin website removed references to Coinbase, Blockchain.com and Bitpay, according to Crypto News - only one of which, Coinbase, was subpoenaed. 
http://Bitcoin.org  just removed/censored the 2 largest US Bitcoin companies (@BitPay Payment processing and @coinbase Bitcoin Exchange). It’s a good move: Bitcoin Core is obviously no longer Bitcoin, and should ideally be removed from both @BitPay and @coinbase too.

The CFTC officially recognized bitcoin as a commodity in September of 2015 when it went after Coinflip for operating a platform for trading bitcoin options without the proper authorization. Since the agency effectively asserted its dominance over the bitcoin market with that decision, this is the first time it has given its blessing to an bitcoin options trading platform. Expect a burst of institutional trading activity to follow - especially since they approved institutional options trading in July
This post sponsored by Total Cryptos @ www.totalcryptos.com  

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