When the Levee breaks
In order to be able to think originally, you have to risk being offensive, I am rather sure of that.
And this is an important thing for me, because I bounce my ideas off people hoping for their feedback, risking me being imposing and offending, but if you can take me as I come, we’ll have a meaningful exchange. I am good, have a dinner with me, you will not regret it – it will make both our minds richer.
The opposite of original thinking is political correctness, which is the elevation of sensitivity over truth - it’s when something irrational is forced to become normal. The good part is – it never lasts long. Bad part - it tends to happen every day.
Sad thing all this, but part of life.
I was reading Bloomberg news in the Le Café du Marché when the waitress dropped a bottle of water and I caught it in mid air. She looked at me and said: “you should relax”.
“No, I don’t. I feel better tense.”
And they had absolutely nothing interesting to say about the world, the Bloomberg staff. A bunch of people with no sense of harmony and no sense of time.
I was sitting there eating my Fish and Chips and thinking what Benjamin Franklin once said: there are three kinds of people in the world. The immovable, they are stuck in their ways. The movable, who can be excited by ideas and they follow, and then there are the ones who make things move. Take your choice who you are, its not an easy one.
Now to the current world, and how the levee is breaking.
Repo rates have gone through the roof hitting 10% last week forcing the Fed to intervene. As a note, overnight financing (REPO rate) is a basic function, which holds the economy together.
Now, what does that mean? REPO stands for repurchasing rate and this is how it works – say you hold a $100K in government bonds, and now you’re willing to let it go for $90K, just to get back the cold hard cash.
This simply means the shortage of money, lack of trust in the government paper too.
Interest rate shows the demand for credit, the repo rate shows the demand for cash.
The intervention of the Federal Reserve into the REPO market is the result of a global dollar shortage on a monumental scale. We have a liquidity crisis unfolding because of massive uncertainty.
About 70% of physical paper dollars are now circulating outside the USA. There are more $100 bills in circulations than $1.
And most of Swiss 1000 franc bills are held at homes (highest value paper currency there is in the world).
If you pay attention, you should see a pattern.
There is a shortage of understanding what money really is, but only in the media - people on the street seem to get it right away. When money was gold based, you had in your hand a weight of metal with defined value, no matter where you went in the world.
With the introduction of paper (fiat) money, which is really just computer strokes, two risk factors were introduced.
First is the confidence in governments backing it up, second is the confidence in banks not failing.
Both weak arguments, so people hoard cash in times of uncertainty.
The coming boss of the European Central Bank, Christine Lagarde thinks that the solution to Europe’s problem is a cashless society – everything will be electronic, visible and taxable.
Good luck with this idea, lady.
What will happen when the levee breaks?
I believe in a brave new world, which I am actually looking forward to.
For all the world improvers out there, hear me out - sometimes you meet your destiny on a road you chose to avoid.
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Tom Kubiak is the author of The Traveler