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Innovation

Markets in Turmoil – Can Cryptocurrencies Save the US from the Debt Bomb?

by Alan Yerushalmi
written by Alan Yerushalmi

It is always amusing to hear people dismissively claim that Bitcoin is a ‘bubble’ or that it isn’t backed by anything. What most tend to overlook is that the ‘real bubble’ exists with all fiat currencies, which are all backed by nothing. As of this writing, the total cryptocurrency market cap is approximately $300 billion (down from last month’s high of around $800 billion). When compared to the global money supply and global debt markets, the cryptocurrency space is miniscule. As I’ve said a few months ago, the current system of central banking will end and the only remaining question is what will replace it.

There is no better example of a fiat currency bubble than the US dollar. While the tax cut just signed into law has provided immediate benefits to the US economy, few have attempted to address the enormous national debt burden.




Here are some basic facts on the US fiscal condition:

Historically, the Federal Reserve has raised interest rates to prevent inflation. For example, during the prior ‘tightening cycle’ (2004-2006), the fed funds rate was increased by 400 basis points (~1% – ~5%). Today, the current fed funds rate is 1.5%. A recent CNBC report forecast a 2.24% fed funds rate at the end of 2018, up about a quarter point from the prior survey. The Federal Reserve can in no way deviate from these projected increases. If it did, interest payments on newly issued debt and on maturing debt would skyrocket which would further exacerbate the national debt problem. Massive reductions in government expenditures to reduce the deficit would lead to societal chaos. Discounting some windfall capital recovery (not likely even from this executive order), the only way the US Treasury can realistically continue to pay interest on this massive debt is by keeping rates near historic lows with small yearly increases. Optimistically, low interest rates would enable the US to grow its way out of its debt. Perhaps, that is why the President has maintained such a close relationship with major banks (reversing his campaign promise). In December, the Trump administration waived punishmentfor these banks over prior crimes.

Last Friday, the 10-year Treasury yield surged to 2.845 percent, the highest since January 2014. Yields closed lower on Monday as the historic selloff in stocks sparked demand for low risk debt. Conversely, some have attributed the major drop in the stock market to long term concerns over bond yields. Since 2009, the Federal Reserve has engaged in massive money printing (i.e. QE1, QE2, etc.) to ‘stimulate the economy’. If this were sound monetary policy, Venezuela and Zimbabwe would be beacons of economic success (which they are not). The US is the beneficiary of the US dollar’s role as the world’s reserve currency. Multiple iterations of QE (money printing) have enabled the Federal Reserve to purchase treasuries and effectively keep interest rates low while capital has flowed into assets such as real estate. A future ‘black swan’ event (like the Chinese selling off their US treasury holdings or a bank run) may occur when bond yields rise suddenly. In that case there must be yet another iteration of QE.

So, we have established two points:

  1. The US can only gradually raise the fed funds rate over the next three years.
  2. The US must print money to remain solvent in case of rising bond yields.

Fundamentally, printing money to pay your expenses should be considered a credit event (default). There are times where a devaluation of a nation’s currency is necessary. One of the most egregious examples of this was in 1933 when President Roosevelt signed Executive Order 6102 which required all in the US to exchange their gold for $20.67 per ounce. Over the next year, the president then raised the official gold price to $35 per ounce, effectively cutting 40% off the US dollar. There has been global discussion (primarily from China) of the US dollar’s demise as the world’s reserve currency. In the past, precious metals were the sole alternative to fiat currencies. Now, cryptocurrencies have emerged as a possible alternative. Israeli Prime Minister Netanyahu even stated in December that banks will eventually disappear due to blockchain technology.

Cryptocurrencies have exhibited massive volatility losing 30% of its combined value over the past 24 hours and 60% over the past month. Lately, there has been a slew of negative news in the cryptocurrency space. This past weekend, most major US credit card issuers including Bank of America, JP Morgan and Citigroup banned the use of their cards to buy Bitcoin or other digital currencies. Prepared testimony for Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) chairmen was released yesterday and suggest that the US government could slap further regulations on cryptocurrencies in the near future.




Still, the unprecedented rise in cryptocurrency prices (part of the ongoing global currency reset) has enabled an effective stealth devaluation of the US dollar. There has also been evidence of positive benefits to Japan’s economy from cryptocurrencies. Nomura analysts estimate a wealth effect from unrealized gains on Bitcoin trading by Japanese investors and a potential boost to real GDP growth to Japan’s economy of about .3%.

One of the characteristics required for a cryptocurrency to be defined as money is to act as a medium of exchange. There have been all sorts of rumors that major Internet and traditional retailers will start accepting cryptocurrencies as payment in the US (they already do in Japan). Recently, Starbucks chairman Howard Schultz said he believes digital currency will catch on with consumers, though not necessarily Bitcoin. While there is plenty of speculative and unsupported euphoria, any chief executive of a public retail firm has a fiduciary duty to their shareholders to investigate the acceptance of other types of payment methods. As of a week ago, interest remained strong as over 1 million people joined a waitlist to register for cryptocurrency trading with Robinhood.

For a great perspective on the practical use of cryptocurrencies, I highly recommend watching Mike Maloney’s video on the crypto revolution. Note that there are other amazing technologies like holochain and hashgraph that may compliment or even compete with blockchain platforms. For those concerned about a future ban on cryptocurrencies, please watch this video from Andreas Antonopoulos (well-known speaker on bitcoin). An outright ban on cryptocurrencies in the US is highly unlikely. It would be a mistake to think the US government will accept some kind of market crash just to prevent a rise in cryptocurrency prices.  In addition to any economic ‘wealth effect’, the US economy can benefit from the efficiencies in industries that use blockchain technologies. One of those areas is social media where censorship issues with Facebook can be avoided. Steemit, a social media platform with virtual currency rewards that runs over the Steem blockchain, is an alternative that has garnered attention recently.

Published in News with Chai

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Economy

Bitcoin price crosses $10,000, Central Banker Warns that Banks Could Be ‘Eviscerated’

by Alan Yerushalmi
written by Alan Yerushalmi

The price of Bitcoin continues its ascent (as of this writing, the price is $10,800) as the ongoing global currency reset comes into greater focus. Japan has led the way in recent weeks, as approximately 60% of Bitcoin transactions have been conducted in Japanese yen. Other cryptocurrencies such as Ethereum and Litecoin have also increased in value, led by US dollar and South Korean won trades.

Incredibly, in a recent interview, St. Louis Fed President James Bullard said:

“(We could) wake up one day and most of the big banks have been eviscerated and most of that activity has moved elsewhere,”

This marks a realization that banks will inevitably become irrelevant as our world transitions to a decentralized system of currencies that central banks are powerless to stop. At this time, the FED has no practical options to manage the massive influx of capital into cryptocurrencies. Any attempt to rapidly raise interest rates to strengthen the US dollar would devastate equity and bond markets and thereby plunge the global economy into depression. While US politicians may increase threats of regulations and taxation, there is no feasible way to confiscate cryptocurrencies.




As painful as it will be for bankers to lose their livelihood (may need to sell their second homes in the Hamptons), the greater US population stands to benefit. China is planning to destroy the petrodollar system and remove the US dollar as the world’s reserve currency. The sooner the US (along with Japan and South Korea) can transition to an alternative system, the better prepared its citizens will be for future economic turmoil.

Originally Published on News from Chai.

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Innovation

DNA block chain project boosts research, preserves patient anonymity

by Yisrael David Zimmerman
written by Yisrael David Zimmerman

DNA.Bits will make genetic information fully accessible to the researchers who need it, while using strong private keys to maintain digital DNA-wallet privacy and individual anonymity.

Israeli startup DNA.Bits has announced plans to store genetic and medical record data using block chain technology similar to that which underpins the Bitcoin network.

The novel concept will make the genetic information fully accessible to the researchers who need it, while using strong private keys to maintain digital DNA-wallet privacy and individual anonymity.

Dror Sam Brama, DNA.Bits’ CEO, is a local leader in a global revolution to give medical patients an unprecedented level of privacy, access and control over their personal medical records and genetic data – while simultaneously making the genetic data of the human race accessible to all.

Hospitals will still be able to monetize that patient data, meaning healthcare systems will be better equipped to heal patients, and by receiving access to such data, pharmaceutical companies will be able to produce superior drugs.

Monetizing the data

Patient data would live on a ‘side chain’ and when there would be a need for a monetary transaction, it would move onto the ‘main’ (ie: Bitcoin) block chain.

Possible revenue streams for DNA.Bits would be licensing of the platform to data hosts, or a percentage of the contracts that run on the platform. There could also be market-maker revenues from the connections between holders of medical data, holders of genetic data, health organizations and consumers.

Brama sees the company’s potential customers as the holders of those records and anyone conducting research, whether they be genetics companies, pharmaceutical companies, academic institutions or government public health departments. The global pharmaceutical market is now worth $1T. In the U.S., close to 20% of drugs are bioengineered products and, every year, the specialized genetic medicine market grows by 18%.

Game changer

The pharmaceutical industry, in addition, is enormously hungry for patient genetic and medical-record data. DNA.Bits is building a system to funnel that data to the researchers who need it, but in a way that prevents patient privacy rights from being trampled.

Smadar Horowitz-Cederboim from The Jerusalem Center for Genetics and Society (JCGAS), said:

“The ability to cross reference large sets of dynamic medical and genetic records anonymously is a game changer in the fields of drug discovery, personalized medicine and genetic counseling.”

Saving lives

Dr. Efrat Levy-Lahad from the Shaare Zedek Genetics Institute said that in Israel, approximately 1,000 women die from breast cancer every year, for example. With a nationwide DNA screening and analysis program, experts at Jerusalem’s Department of Medical Genetics at Shaare Zedek Medical Center estimate that up to 200 lives could be saved annually.

What holds true for breast cancer in Israel is also applicable to countless other diseases across the world. The main stumbling block for such programs, though, is the question of privacy.

Patients, of course, have no reason to trust governmental agencies, hospitals, insurance companies, healthcare companies, pharmaceutical firms, or even nonprofits with their private data.

The beauty of block chain technology is that it enables the building of ‘trustless systems’ that remove the need for patients to put their faith in institutions or individuals.

Innovating around Bitcoin’s block chain

Israel was one of the first communities to lead the surge into use of the block chain for non-currency focused activity.

So far, Israel has given the world the mastercoin protocol, the colored coins project, Xennet, Lazooz, along with some academic innovation for online privacy, such as ZeroCash, Ghost, and Snark.

Elsewhere, other companies are also employing block chain tech outside of the world of finance.

CoinDesk recently reported on how Proof of Existence is allowing content providers to publish their work on a block chain to protect their intellectual property rights. Even digital democracy could be revolutionized by using an altcoin called votecoin to hash and verify votes.

This story was co-authored with Jon Southurst.

This post was originally published on CoinDesk.

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PoliticsUnited States

From JFK to Trump – The End of the Deep State and a New Path Forward

by Alan Yerushalmi
written by Alan Yerushalmi


The days of invasion and occupation by the US for the preservation of a flawed, fiat currency based economic system are slowly coming to an end. Things are so out of hand that this week one US Senator couldn’t even keep track of all the wars the US is engaged in. Moving forward, sweeping changes are taking place as the petrodollar system is under attack by China and the global currency reset led by Bitcoin continues. US foreign policy has been thrown into shambles as evident by the recent state visit by the Saudi king to Russia. The Saudis likely purchase of S-400 air defense systems seriously weakens attempts to isolate Russia via sanctions.  These events all contribute to the undermining of the US dollar’s role as the world’s reserve currency.

As the current system of central banking ends (whether it is in 2 weeks, 2 months or 2 years is immaterial), the only thing in question is what will replace it. I have advocated for the use of cryptocurrencies as an effective way to counter the Chinese / Russian push toward a gold standard. Greater use of cryptocurrencies will eventually make central banks (like the FED, ECB, etc.) irrelevant. I generally ignore so-called experts who have claimed the imminent death of Bitcoin. For example, Jamie Dimon’s opinion on Bitcoin is like asking the head of the post office what he thinks of e-mail. 99bitcoins.com even has a running log of over 170 pronouncements. Importantly, the potential for blockchain technology is enormous. Entire industries including (and not limited to) finance, insurance, advertising and health care can experience greater efficiencies as more transparency is introduced for all transactions.

Generally, for a currency to be effective, it should have three qualities – functioning as a unit of account, a medium of exchange and a store of value. For a more technical understanding of the valuation of Bitcoin, I recommend reading NYU Professor Damodaran’s blog post. What I think most people miss is that for any currency to be successful it needs one thing – confidence. For the past 70 years, the US dollar has had the world’s confidence. In the future, whatever replaces it (either gold, silver, Bitcoin, some other cryptocurrency or something totally different) will need that confidence to succeed.

President Kennedy vs The Deep State

With the US is in the throes of seemingly unbridgeable partisan division, the news that President Trump will not block the release of the long-classified CIA and FBI documents regarding the assassination of President John F. Kennedy should come as good news. Unfortunately, any time the JFK assassination is brought up by the talking heads in the media, they simply label those who disagree with the official narrative as ‘conspiracy theorists’. This scurrilous attempt to demonize anyone who engages in critical thinking often trivializes conflicting government information and disturbing facts like the death of numerous key witnesses. Perhaps, those in the media would consider members of the House Select Committee on Assassinations (in 1970s) as conspiracy theorists too for some of their findings.

For those who are skeptical of the official Warren Commission report, it is crucial to understand the motivation for groups who had an interest in President Kennedy’s death. In one of his more controversial speeches before the American Newspaper Publishers Association on April 27, 1961, President Kennedy referenced ‘secret societies’ and a ‘monolithic and ruthless conspiracy’. In my opinion, the context of the speech clearly shows that he was not referring to the Soviet Union but to an internal, subversive force within the US government. This is what some would call the deep state or shadow government. In light of the Bay of Pigs fiasco, President Kennedy stated his desire to ‘splinter the CIA into a thousand pieces and scatter it to the winds’.

We have also gotten hints of the existence of the deep state / shadow government from politicians over the years. President Eisenhower referenced the military–industrial complex right before the end of his 2nd term. Senator Daniel Inouye (United States Senator from Hawaii from 1963 to 2012) spoke about a ‘shadowy Government’ during the Iran-Contra hearings. Congressman Larry McDonald, called ‘the most principled man in Congress’ by Congressman Ron Paul, spoke of a conspiracy to create a one-world government.

I would encourage anyone to do their own research and draw their own conclusions on questionable CIA activities like Operation Gladio, Operation Mockingbird, Operation Paperclip and Project MKUltra in addition to an extensive history of executing regime change. Interestingly, it was confirmed that CIA Director John McCone, brought in by President Kennedy to replace Allen Dulles, was part of the JFK assassination cover-up. Even in recent years, the CIA’s practice has been to lie to its own employees as ‘a means of protecting vital secrets’. Some contend that the release of the JFK assassination files could lead to more revelations of prior incidents (i.e. 9/11/01 attacks, Oklahoma City bombing, etc.).

Mainstream Media Failure

The mainstream media has been a willing accomplice of the deep state for decades by manipulating public opinion. For example, in this video, a young Dan Rather completely misrepresents the details of the Kennedy shooting. I liken actions such as these to The Truman Show, a film about a man who is living in a constructed reality tv show that is televised globally around the clock. Once the character, Truman Burbank (played by actor Jim Carrey), realizes that nothing in his life is real, he starts to rebel and attempts to escape his existence. When the creator of the show is asked in an interview why Truman hadn’t discovered the true nature of his world, he replies ‘We accept the reality of the world with which we’re presented, it’s as simple as that’. This arrogance is apparent in many mainstream media talking heads.

Fortunately, this control of the American people by the mainstream media is crumbling. A recent poll shows that 46% of American voters(including 20% of Democrats) believe that the media make up stories about President Trump. In a panel hosted by CNN two months ago, a group of Trump supporters dispute assertions made by the moderator, telling her that they trust their Facebook feed more than CNN.

President Trump vs The Deep State

With the deterioration of the mainstream media and inflamed partisan divisions, a vacuum in the US exists. While Congressman Ron Paul (especially now since he is out of office) has no problem speaking out on controversial topics, he does not yet have a large enough audience to drive public opinion. President Trump has dropped hints by:

  • Tweeting that ‘Intelligence agencies should never have allowed this fake news to “leak” into the public. One last shot at me. Are we living in Nazi Germany?’ [January 11]
  • Cryptically referring to the CIA as a fifth column in a speech to the CIA, the day after his inauguration [January 21]
  • In an interview with Bill O’Reilly and in response to a question about Russian President Vladimir Putin saying “There are a lot of killers. We’ve got a lot of killers. What do you think? Our country’s so innocent?” [February 4]

These veiled messages are President Trump’s way of providing clues to the American people of a much darker reality. They suggest the existence of a deep state comprised of rogue, nefarious individuals in US intelligence services that do not have the people’s (and certainly not the President’s) best interests in mind.

New Spiritual Awakening

While everyone within this financial-media-military industrial complex is not a bad person, they are part of a corrupt system that needs to be torn down and rebuilt. Many are simply trapped while others feign ignorance.

Optimistically, I think we can achieve some sort of a spiritual awakening in the US that can transcend the partisan divide. We are currently living in an upside-down world of lies. As we witness more revelations of sordid, criminal activity among those in the entertainment industry, more people will question the media and even look at some of the President’s tweets in a more positive way. Perhaps, the glorification of those in film, music, tv, and sports can be replaced with something more meaningful. Who knows, maybe one of President Trump’s most curious predictions that the ‘era of division will be replaced with a future of unity, total unity’ will come true. As the upcoming economic disorder approaches, the alternative scenario is too dire to discuss.

Originally Published in News with Chai.

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PoliticsRegional Analysis

Middle East Realignment Driven by China’s Drive to End Petrodollar Dominance

by Alan Yerushalmi
written by Alan Yerushalmi

China’s goal is to become the leading economic superpower and to move the world away from the US dollar. They have been forming alliances with Middle Eastern countries including Iran, Qatar and Turkey. The petrodollar system is the primary reason the US dollar is still the world’s reserve currency as oil producing countries like Saudi Arabia do not sell their oil in currencies other than US dollars. Without this agreement, the US dollar would eventually lose its role as the global reserve currency. China has been working with countries in the Middle East to sell their oil in yuan and thereby weaken the US. 

The Chinese strategy has been to internationalize their currency via a number of different projects (see list below). A Zerohedge report in April articulates how China and Russia are joining forces to bypass the US dollar in global trade. The Shanghai Cooperation Organization (SCO) described as a ‘Eurasian political, economic, and security organization’ is one of the means of executing that vision. Its members include China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan. Earlier this month, India and Pakistan were admitted as members. These countries are expected to further enhance their economic relations via trade. For China to successfully meet its goals, a larger base of countries must join this block. 

Iran

According to this report, bilateral trade between China and Iran grew to $31.2 billion in 2016. Iran is currently listed as having ‘Observer status’ in SCO. As Russia has long wanted Iran to attain full membership status, China recently signaled its support. Incidentally, Iran announced earlier this year that it would stop using the US dollar in its official statements. Iran and China conducted a naval drill in the Gulf a few weeks back.

Turkey

President Tayyip Erdogan implied last December that Turkey is taking steps to allow commerce with China, Russia and Iran to be conducted in local currencies. A Chinese report confirmed that to ‘increase the trade volume and foreign investments between Turkey and China, and decrease their dependency on the US dollar during financial transactions, China and Turkey have started direct trading with their local currencies’. Current trade volume of $28 billion is expected to increase.

Turkey even dropped hints at shuttering the Incirlik air base to US air operations. With the US support of the Kurds in their fight against ISIS, there may be a stronger motivation to act. In fact, Turkey refused German lawmakers access to the base leading Germany to announce plans to withdraw 280 troops, as well as surveillance planes and refueling jets, from the Incirlik air base. If you are interested in understanding the historical importance of thie Incirlik air base read this and this. Turkey is listed as a ‘Dialogue partner’ in SCO.

Qatar 

Over two years ago, Qatar launched the first Chinese yuan clearing hub in the Middle East. According to Qatar’s central bank governor, Sheikh Abdullah bin Saud al-Thani, it would create ‘the necessary platform to realize the full potential of Qatar and the region’s trade relationship with China’. Since it opened, Industrial and Commercial Bank of China has cleared more than 590 billion yuan ($86 billion) in transactions in Qatar. Zheng Chunyi, General Manager of ICBC Doha, confirmed that ‘Qatar, the United Arab Emirates and Kuwait are the most active Middle East countries using the RMB clearing center for direct payments with Chinese mainland and Hong Kong’. 

Iran-Turkey-Qatar Axis

The newly formed Iran-Turkey-Qatar axis (as evidenced by events such as this, this and this) is tied together by each countries’ burgeoning relationship with China. While Russia has a greater military presence in the Middle East (via Syria) and draws the most attention from Russia-phoebes in the US, China is the key financial player. Together, both Russia and China have emerged as a direct threat to US supremacy in the region. Although Iran has always had better relations with China, Turkey and Qatar have been solidly aligned with the West as each country still maintain US military personal at their bases.  Perhaps, both countries are hedging their bets based on a calculation that will see a rising China and declining US.

The Petrodollar

Since the inauguration, President Trump has not mentioned the 28 page document (known simply as ‘The 28 pages’ and discussed during the campaign) which implicated members of the Saudi Arabian government for their involvement in the 9/11 attacks on the World Trade Center. He in fact visited Saudi Arabia last month, participated in a sword dance and signed off on a $110 billion weapons deal. Why? The answer is the petrodollar. The key part of this agreement is that the US must defend Saudi Arabia as long as they sell their oil in US dollars.

It would appear that China is taking no chances and is working on pushing Saudi Arabia into its sphere of influence. Byron King from the Daily Reckoning speculates that China is looking to modify its terms of its oil trade with Saudi Arabia as follows:  

‘China is currently modifying the terms of its oil trade with Saudi Arabia. Specifically, China is working on a deal to pay for Saudi oil using Chinese yuan. This effort poses a direct threat to the security of the dollar. If this China-Saudi deal happens — yuan for oil — it’s another step closer to the grave for the petrodollar, which has dominated global finance since 1974.’

Whether the speculation is true or not, the threat to the US dollar as the reserve currency is real. The petrodollar system is under an attack directed by China.

From a US perspective, options are limited and further actions like a US invasion of Syria could make the situation worse. Since the US military has decided to back the Kurds to fight ISIS, there is less of a chance to win back Turkey. In my opinion, the best option would be for the US to maintain the current petrodollar system as long as possible until a new one backed by cryptocurrencies is ready. I outlined this in my prior post titled Global Currency Reset Happening Now as Bitcoin Price Explodes. Unfortunately, the US Senate doesn’t have a clue. 

Projects that will Further Internationalize the Chinese Yuan

– China’s yuan inclusion in the International Monetary Fund’s currency basket

– China International Payment System (CIPS) is an alternative payments system to SWIFT

– Asian Infrastructure Investment Bank (AIIB) is an international financial institution that will finance infrastructure projects in the Asia region

– Bilateral Currency Swap Lines completed between China and over thirty counterparties to enable greater overseas trade of the yuan

– Silk Road Gold Fund to facilitate gold purchase for the central banks of member states

– Shanghai Gold Exchange launched to set a new benchmark price for gold bullion

This post originally appeared on News with Chai blog.

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