Everything's a fine

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Everything’s a fine

I assumed they were dead. Somehow though, the corpse of Credit Suisse managed to get fined by both the Bank of England (£87m) and the Federal Reserve ($269m) for their dealings with defunct hedge fund Archegos. Credit Suisse lost $5.1bn (£4bn) when the hedge fund defaulted in March 2021. It ultimately led to their demise, which seems insufficient for our central bankers. So to put the boot in they want to punish the new owners, the Union Bank of Switzerland.

UBS (which is really the Swiss government these days) will have to pay. The Swiss Regulator also found fault, but recognising the ridiculousness of fines, declined to impose any.

The continuing decline of Swiss Banking is just rather sad. I found an article from the New York Times in 1986, back in the era when the Swiss banks bestrode the world. Wistful references to the “bankers inhabiting the legendary Bahnhofstrasse”. It was legendary. They will likely enter banking folklore with the Medicis.

You can tell just how different things were back then. The Americans were on the warpath about secrecy, the Swiss at the time had just voted to maintain their banking secrecy laws but they broke ranks over Ferdinand Marcos of the Philippines, whose account was frozen. Naturally, despite his massive theft, his son BongBong is now the president again and his highly controversial shoe-loving mother, Imedla (94), was on the front of Time Magazine last week. It is an incredible revival story for the Marcos family, I hope they have their account back.

Here is Credit Suisse. On the corner of Bahnhofstrasse and Barengassa, in Zurich. They’re right above Bulgari, across the road from Louis Vuitton, and a mere 800 metres from lunch at the Kronenhalle. “Leave your gold here Mrs Marcos, and let me buy you lunch.” I bet it was fantastic fun.

Eventually though, the Americans got the Swiss to agree to FATCA in 2014. It required disclosure of Americans with Swiss Bank accounts and it broke the back of Swiss banking and the steady inflow of funds they had enjoyed. An unforgiving summary is provided here on the Swiss Banking website. It does not hold back, accurately describing FATCA as a “a unilateral US tax law aimed at enforcing the country’s right to tax its citizens anywhere in the world”.

Still, it remains a crime in Switzerland today to reveal details about someone’s bank account. Even for a journalist, or when the person is a war criminal in another country. The rules themselves were created to protect people from aggressive states which sought to plunder an individual’s assets. These days though, if a request for information arrives under FATCA … the secrecy is gone, and with it the legend of Swiss banking.

It’s rather like encryption and the arguments we hear today about back doors for the government. You either protect everybody or you protect nobody and with the US incursion the veil was lifted. Swiss accounts these days are in the protect nobody zone.

Still, there is a genuine need for assets impervious to this kind of pressure and interference. They exist and as the months and years tick by and government’s get more and more in debt, their popularity will increase.

It will be obvious, it will seem obvious and since you're reading this I assume you will do something to take advantage of that. Right? Those of you that do are invited to lunch at the Kronenhalle on 13th May 2027. We will be celebrating block 1,000,000. Credit Suisse won’t be there but the bitcoiners will be.

Niger

I can give you a lot of examples of the weaponization of currency, all recent:

• America seizing Russian US dollars in international bank accounts. This sounds sensible and fair given the position the Russians have put themselves in, but it simply isn’t done and massively undermined the dollar's value long term.

• Iran’s exclusion from SWIFT. Pretty simple; can’t send payments to or from Iran, America controls swift.

• UK politician Nigel Farage has his bank account closed in the UK because the bank he uses doesn’t like his views and he’s a bit weird.

• In Australia FinTech’s are often denied bank accounts because they are competing with the incumbent bank who confect reasons not to give an account; which the law permits them to do.

Less well known examples though are perhaps far more meaningful. Across Africa, in the former French colonies, six (commodity rich) countries still use a currency known as the Central African Franc (CFA). The direct translation is Colonies françaises d'Afrique ("French colonies of Africa"). The French have since changed the acronym to something less obviously colonialistic.

The currency itself is tied to the Euro these days and as a consequence, 55 million people in the region live with the decisions made by the European Central Bank. A bank they did not vote for and will never see or hear from. It also gives France effective economic control over the region.

Enter democratically elected President of Niger, Mohamed Bazoum, he has spent the last few years lobbying against the CFA and proposing, with other African leaders, something else. He was on the BBC a few weeks ago.

“We shall do everything possible to cut off all our ties that are remaining with France and be independent. We are going to redesign our own currency and cut every single tie with France. We shall also build bilateral relationships with some ECOWAS countries that are not working with the CFA Franc”.

Unfortunately for Mr Bazoum, he has said the quiet part a little bit too loud and there has been a coup in Niger last week attempting to remove him. Other African leaders are threatening to send troops to help out.

For its part, France is also threatening to send troops but they would likely fight other African troops to protect “French interests”.

‘France would not tolerate any attack on its interests in Niger, and would respond in an "immediate and intractable manner", President Emmanuel Macron's office said in a statement.’

Pretty simple story in the end. Niger no longer wants the French or their currency but militarily they are not strong enough to resist. The Foreign Legion will shortly arrive, as if they aren’t there already, under the pretence of saving democracy. Order will be restored, the President will be reinstated and reminded of who saved him and the people of Niger will live under the Central African Franc for a while longer.

Yet another chapter in the weaponization of political currencies. I wonder why it is tolerated and I’m almost certain it won’t make the news here.

Digital Dollars

A great deal of what we will read about Central Bank Digital Currencies will ultimately turn out to be a fraud. The Fin Review was trumpeting this transaction last week where Westpac and CBA paid for certificates of deposit using a “blockchain-based trading system”.

The particular fraud in this case is here: “blockchain-based trading systems, which run on decentralised ledgers”.

The purpose of a national currency is that you are the issuer and you control the ledger. There could never be an Australian Dollar on a decentralised ledger. It would not be Australian because the government would not control it. In the same way, banks will never settle on systems that are decentralised, not least because the technology requirements of their banking licence would never allow it.

The Australian Stock Exchange has just learned a very expensive lesson about the promises of blockchains. The promise is this: They are very slow and very expensive to run and it’s almost certainly true that you should use an Oracle database. Fast, brilliant and cheap.

Decentralised means: we don’t need you! You do not exist in a decentralised infrastructure. Nor in fact does your business or your ego or your server or your particular department of government.

I expect this nonsense to ramp up over the next few years as the ‘excitement’ over CBDCs grows.

Japan Yields

For an illustration of how quickly debt can get away from you, look no further than Japan. From 60% debt/GDP in 1993 to 260% 30 years later. You might say 30 years is not quick, but the approximate doubling period was 10 years. 120% by 2003, 240% by 2013, then it slowed. Why?

Around that time the Japanese introduced yield curve control which forced interest rates to near zero and kept a lid on debt. On Friday, for the first time in a decade, inflation caused them to loosen the reins on that policy.

The Bank of Japan holds more than 50% of all outstanding bonds issued. Arguably, their bond market is a total confection and it needs to be. Currently Japan runs a budget deficit of 5% per annum and they are struggling to get it down. Let’s run some probably wrong numbers on this.

First assumption is that Japan grows inline with its population growth of -0.5% per annum. The first table assumes their deficit continues at 5% per annum, while the second table on the right adds 2% to the interest rate to account for the end of yield curve control and thus additional interest rate costs.

Fast forward a decade. It’s either 400% of GDP or 500% of GDP. Whichever it is, it is most certainly an unmanageable debt spiral. Sounds a bit over the top, but I don’t think we need an IMF economist or even a dodgy spreadsheet to tell us the situation is unsustainable.

To Japan’s credit they are different from most countries in that they owe the money in Yen and most of the paper is held by the Japanese themselves. They can print Yen to pay (and have) in a weird cycle of borrowing money and printing more of it to pay ourselves back then continuing to do it.

The path here is the Yen losing about 75% of its value against the USD over the next 20 years, which I believe it will. Happy to be wrong though. Good cars, dense culture and great food. What a shame.

Euro-Trash

They are indeed, strongly rooted.

With her latest increase in interest rates explained; Laggers is off on a multi-week break. With history as our guide we won’t hear much from her now until September, so enjoy it while you can. The ECB publishes the diaries of its executive members, here is Christine’s from August last year everything pre-recorded or by phone so I’m guessing it’s "La Banque est fermée, mais la plage est ouverte!"

That won't stop the army of academics at the ECB filling the void though and they stepped up this week with a gem.

Artificial intelligence is good for jobs. That’s right, despite bending over backwards to kill off AI in Europe, their researchers have found that if you let people use it, they become more productive and employers want more productive people. As with every technology wave ever; the theme of ‘all jobs will go and we will die’ is always wrong. Never happens. Lots of jobs do go and new ones are created that are vastly more productive and hopefully more interesting for people (Excellent article here on this).

The very sensible report has gained enormous traction too, spawning two likes and two retweets since it was released. It’s a shame because it's ages since these over-educated imbeciles produced anything approaching a sensible opinion and now, because they have spouted so much garbage for years, nobody listens to them.

Further information

Read our bitcoin news wrap-up on Livewire: Laying the foundations for increased flows into digital assets.

Our July 2023 report to investors can be found here.

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