Could Central Banks Dump Gold in Favor of Bitcoin?

Could Central Banks Dump Gold in Favor of Bitcoin?

Exhibit One: here’s your typical central bank, creating trillions of units of currency every year, backed by nothing but trust in the authority of the government, created at the whim of a handful of people in a room and distributed to their cronies, or at the behest of their cronies.

And this is a “trustworthy” currency?

Exhibit Two: central banks can’t become insolvent, we’re told, because they can create as much currency as they want, whenever they want. And this is a “trustworthy” currency?

Exhibit three: and here’s what happens when trust in the currency is lost due to excessive currency issuance: the currency goes from 10 to the US dollar to 5,000 to $1 and then to 95,000 to $1, on its way to 2,000,000 to $1:

Yes, this was once a “trustworthy” currency.

While many people expect China to issue a gold-backed currency some day, they overlook the inconvenient reality that China is creating far more fiat currency than it is adding in gold reserves. They also overlook that gold-backed means nothing if the currency isn’t convertible into gold.

If it isn’t convertible, it isn’t gold-backed. Claiming there’s gold somewhere in a vault doesn’t make a currency gold-backed, as the central bank can devalue the currency it issues at will. Gold-backed means the currency is pegged at X units of currency to 1 unit of gold, and X units of currency can be exchanged for 1 unit of gold.

All of which brings us to the “crazy” idea of backing fiat currencies with cryptocurrencies, an idea I first floated back in 2013, long before the current crypto-craze emerged: Could Bitcoin (or equivalent) Become a Global Reserve Currency?(November 7, 2013)

Since there is no real-world commodity backing the digital currency, its value must be based on scarcity and its ubiquity as money. The two ideas are self-reinforcing: there must be demand for the digital money to create scarcity, and the source of demand is the digital currency’s acceptance as money that can be used to buy commodities, goods, services and (the ultimate test) gold.

Speaking of gold, correspondent Liberty Philosopher recently posed a scenario that was new to me: if gold continues losing value, could central banks dump their gold in favor of cryptocurrencies?

Yes, I realize this is anathema to those who anticipate a gold-backed currency becoming the dominant form of centrally issued currency, but the idea of governments that have debauched their currencies building reserves of decentralized and limited-in-issuance cryptocurrencies may not be as farfetched as you might imagine.

Here is Liberty Philosopher’s commentary:

My understanding is that gold is kind of a reserve asset held by governments that provides the ultimate assurance that they are able to pay their debts. If the value of the assets they hold, which are a guarantee of their ability to pay, begins to erode, and the erosion in value is not a temporary or passing phenomenon, but a continuous and long-term trend, this would imply that the ability of governments to ultimately pay their debts would be eroding. If the value of gold begins to decline, governments who have gold reserves, but whose ability to pay their debts may be somewhat in question, would come under pressure to fortify their reserves as proof that they remained able to pay their debts.

If the price of gold were to continue to decline, my thought is that governments would be under pressure to sell the reserve asset that was declining in value, because the continuing decline in value would call into question their ability to repay their debts. They couldn’t just sit there and allow their reserves to decline in value year after year. They would have to act. If the need for having some kind of “hard” currency reserve remains (creditors may not want to accept newly printed bank notes in lieu of “hard” reserves), and they are forced to begin selling their gold reserves, what other hard reserve asset could they obtain or purchase? I think they could become purchasers of the most valuable cryptocurrencies as a replacement for their gold reserves.

The ideal reserve gains in purchasing power over time. If Venezuela had purchased bitcoin in size when it was $100, or even $1,000 in January 2017, its own currency wouldn’t be heading to near-zero quite so quickly.

In my book A Radically Beneficial World, I proposed that nations which had debauched their centrally issued fiat currency could acquire the labor-backed currency I propose as reserves.

The acquisition of decentralized cryptocurrencies as reserves may sound crazy now, but as central banks destroy the purchasing power of their fiat currencies, all sorts of ideas that seem crazy now will start looking practical once the death spiral of the current unstable monetary regime begins. 

I’m offering my new book Money and Work Unchained at a 10% discount ($8.95 for the Kindle ebook and $18 for the print edition) through December, after which the price goes up to retail ($9.95 and $20).

Read the first section for free in PDF format. 

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via

BLS: Job Openings "Little changed" in October

BLS: Job Openings "Little changed" in October

by Bill McBride on 12/11/2017 10:06:00 AM

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings was little changed at 6.0 million on the last business day of October, the
U.S. Bureau of Labor Statistics reported today. Over the month, hires increased to 5.6 million and
separations were little changed at 5.2 million. Within separations, the quits rate and the layoffs and
discharges rate were little changed at 2.2 percent and 1.1 percent, respectively. …

The number of quits was unchanged at 3.2 million in October. The quits rate was 2.2 percent. The
number of quits was little changed for total private, for government, and in all industries. In the regions,
the number of quits increased in the South and decreased in the Midwest.
emphasis added

The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This series started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for October, the most recent employment report was for November.

Job Openings and Labor Turnover Survey Click on graph for larger image.

Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs – when it is below the columns, the economy is losing jobs.

Jobs openings decreased in October to 5.996 million from 6.177 in September.

The number of job openings (yellow) are up 7.3% year-over-year.

Quits are up 3.3% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for “quits”).

Job openings are mostly moving sideways at a high level, and quits are increasing year-over-year.  This is a solid report.

Strong U.S., Japanese, Chinese, French and Canadian Data Reported and Brexit Talks Take a Step Forward

Strong U.S., Japanese, Chinese, French and Canadian Data Reported and Brexit Talks Take a Step Forward

Strong U.S., Japanese, Chinese, French and Canadian Data Reported and Brexit Talks Take a Step Forward

December 8, 2017

There have been some impressive stock market advances overnight in Asia (Japan 1.4%, Hong Kong 1.7%, Singapore 1.1%, and India 0.9) and Europe (Italy 1.3%, Germany 0.9%, Spain 0.8% and the U.K. 0.7%). The S&P is 0.4% firmer in early U.S. trading.

The dollar is closing out the week on a high note, having risen today 0.5% relative to sterling, 0.3% versus the yen and 0.2% against the euro.

The ten-year British gilt yield climbed 4 basis points, and its German and U.S. counterparts are a basis point firmer.

West Texas Intermediate crude oil climbed 0.9% to $57.22 per barrel. Comex gold at $1,252.20 per ounce is little changed.

British negotiators worked out a deal with the EU to begin talks on the nature of post-Brexit economic arrangements. This constitutes rare good news for Prime Minister Theresa May.

U.S. non-farm payroll jobs increased more than 200K for a second straight month in November, rising by a greater-than-forecast 228K after a 244K increase in October. The jobless rate stayed at 4.1%. Weekly hours worked ticked up to 34.5 hours. Average hourly earnings rose 0.2% on month and were 2.5% above the year-earlier level.

Japanese quarterly real GDP growth in 3Q got revised upward by 0.9 percentage points to 2.5% annualized. Non-residential investment grew 4.3% instead of 1.0% as estimated initially, and government spending exerted a smaller drag than first thought. Real GDP was 2.1% greater than  in the third quarter of 2016, but the GDP price deflator posted only a 0.1% on-year uptick.

Japan’s economy watchers index went up another 2.9 points to a reading of 55.2 in November, the best in well over a year. Bankruptcies in November were 2.3% fewer than a year earlier in contrast to increases in both September and October.

China’s trade surplus climbed to a 3-month high of $40.21 billion in November on the first double-digit on-year advance of exports since June.

French industrial production in October had been projected to stagnated but instead jumped 1.9% on top of a 0.8% monthly rise in September. This left output in the latest three reported months 1.1% greater than in the prior three months and showing a solid 3.2% on-year increase.

Canadian housing starts swelled to a 67-month peak of 252.2K in November, and capacity utilization in the third quarter of 85.0% was the most in a decade.

The German seasonally adjusted trade surplus of EUR 19.8 billion in October was only a tad less than the January-September average of EUR 20.4 billion per months and last year’s mean of EUR 20.7 billion. Exports fell 0.4% on month but rose by a decent 6.8% on year. The unadjusted current account surplus of EUR 18.1 billion in October compares to a surplus of EUR 18.4 billion a year earlier.German labor cost pressure remained benign last quarter in posting an on-year increase of just 2.2%.

British data reported today were mixed. Industrial production in October was unchanged from September, and construction output registered an unexpected and large monthly slide of 1.7%. However, trade deficits in October of GBP 10.781 billion on merchandise and GBP 1.405 billion on goods and services combined were smaller than assumed.

In the year to November, consumer prices rose 2.8% in Brazil, 2.5% in Hungary, and 1.1% in Greece.

Spain’s indices of leading and coincident economic indicators rose 0.3% and 0.1%, respectively, in October.

Icelandic GDP posted a quarterly 2.2% advance in 3Q that yielded a 3.1% increase from a year earlier.

Turkish retail sales and industrial production recorded October-over-October advances of 2.4% and 7.3%.

The University of Michigan/Reuters index of U.S. consumer sentiment dropped to a 3-month low of 96.8 in December from 98.5 in November and 100.7 in September, reflecting in part the middle class misgivings about the tax cut legislation and Republican intentions to reduce entitlement programs next year. President Trump’s voter approval rating has dropped to a new low of 32%.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: foreign exchange, German and British trade, Japanese GDP, U.S. labor force survey


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Market events to watch for the week of Dec. 12

Market events to watch for the week of Dec. 12

Market events to watch this week:

Tuesday, December 12
4:30 am GBP CPI y/y
8:30 am USD PPI m/m

Wednesday, December 13
4:30 am GBP Average Earnings Index 3m/y 
8:30 am USD CPI m/m
8:30 am USD Core CPI m/m
10:30 am USD Crude Oil Inventories

2:00 pm USD FOMC Economic Projections
2:00 pm USD FOMC Statement
2:00 pm USD Federal Funds Rate
2:30 pm USD FOMC Press Conference
7:30 pm AUD Employment Change
7:30 pm AUD Unemployment Rate
9:00 pm CNY Industrial Production y/y

Thursday, December 14 
3:30 am CHF Libor Rate
3:30 am CHF SNB Monetary Policy Assessment
4:00 am CHF SNB Press Conference
4:30 am GBP Retail Sales m/m
7:00 am GBP MPC Official Bank Rate Votes

7:00 am GBP Monetary Policy Summary
7:00 am GBP Official Bank Rate
7:45 am EUR Minimum Bid Rate

8:30 am EUR ECB Press Conference
8:30 am USD Core Retail Sales m/m
8:30 am USD Retail Sales m/m
8:30 am USD Unemployment Claims

*All times EDT

About the Author

Alfonso Esparza, senior currency analyst at OANDA, specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, he established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends.

A Stock Picker’s Guide to Playing Bitcoin

A Stock Picker’s Guide to Playing Bitcoin

By now you’ve heard of bitcoin. You understand that skeptics say bitcoin’s mind-melting price gains might be the biggest speculative frenzy ever. You also know that backers believe digital currencies will disintermediate the global banking system and that blockchain has internet-like potential to revolutionize business. But suppose, like many of investors, you’re most comfortable viewing […]

Next Week

Next Week

Next Week

December 8, 2017

Central Banks: The Fed, ECB and Bank of England lead a long list of central banks holding their final monetary policy reviews of 2017. Other countries on the list are Switzerland, Russia, Norway, Iceland, Indonesia, Ukraine, Mexico, Peru, Chile, Turkey and Colombia. Yellen of the Fed, Kuroda of the Bank of Japan, Draghi of the ECB, Poloz of the Bank of Canada, Lowe of the Reserve Bank of Australia, and Carney and Haldane of the Bank of England speak  publicly.

Holiday and Special Event: On Tuesday Mexico observes Virgin of Guadalupe holiday, and Alabama holds a senatorial election to fill Attorney General Sessions’ vacancy.

Scheduled U.S. Statistical Releases: CPI, PPI, retail sales, industrial production, capacity usage, import prices, small business sentiment, Empire State manufacturing index, JOLTS index of labor market hires, openings and separations, FAHA house price index, index of leading economic indicators, National Association of Home Builders housing market index, federal monthly budget, Treasury-compiled capital flows, and weekly chain store sales, jobless insurance claims, mortgage applications, consumer comfort and energy inventories.

Japanese and Chinese Data: Bank of Japan quarterly Tankan survey of corporate conditions and expectations will be published Friday. Other data in the week include Japanese machinery orders, machine tool orders, tertiary index, corporate goods prices, revised industrial production, capacity use, business sentiment, preliminary manufacturing purchasing manufacturers index, and money growth. China releases monthly CPI, PPI, retail sales, industrial production, fixed asset investment, money growth and bank lending.

Selected Other Asia Releases: Filipino and Indonesian trade balances. Malaysian and Hong Kong industrial output. Indian and Filipino unemployment. Indian WPI, Filipino current account, Indian CPI, Singaporean retail sales, and South Korea’s index of leading economic indicators.

Euroland Data: Industrial production, preliminary PMI, trade surplus, employment, ZEW index of investor expectations, and car sales.

Members of the Euro Area: German, French, Spanish, Italian, Irish, and Portuguese consumer prices. German and French preliminary purchasing manager survey results. Italian and Dutch retail sales. Irish, Belgian, Dutch, Cypriot and Austrian trade balances. German ZEW index, wholesale prices and index of leading economic indicators. French business sentiment and Italian industrial production. Portuguese and Finnish current accounts.

U.K. and Switzerland: British CPI, RPI, PPI, DCLG house price index, wages, unemployment, employment, retail sales, RICs house price index, and industrial trends survey of the CBI. Swiss producer prices and unemployment.

Nordic Europe: Norwegian, Swedish and Danish consumer prices. Norwegian and Danish PPI and trade data. Swedish unemployment.

Eastern Europe: Czech, Romanian and Polish consumer prices. Hungarian and Romanian industrial output. Czech trade and current account.

Australia and New Zealand: Australian employment, unemployment, business confidence and conditions, consumer confidence, and new home sales. New Zealand manufacturing PMI and food prices.

Turkey and South Africa: Turkish and South African GDP and current accounts. South African PPI, wholesale turnover, CPI and industrial production. Turkish unemployment.

Canada, Mexico, and Brazil: Canada’s monthly survey of manufacturing sales, orders and inventories. Canadian new home prices and existing home sales. Brazil and Mexican indices of leading economic indicators. Mexican industrial output and trade balance. Brazilian retail sales.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


Tags: Economic Data Calendar


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Bitcoin Reluctantly Approaching Previous $11,800.01 All-Time High

Bitcoin Reluctantly Approaching Previous $11,800.01 All-Time High

After blasting toward the former $11,395 BitStamp all-time high on November 29, bitcoin rather abruptly and violently retracted to the $9,252.96 November 29 daily low. The markets have consolidated since then, and the price has managed to quickly recover above the previous $10,000 psychological resistance level, which is now serving as a key support. Additionally, a new all-time high was secured yesterday at $11,800.01, and we may even break ahead of that valuation, but only if the current uptrend continues with matching hourly trading volume.

Bcash was until recently, also trading within a steep descending channel, losing out to both ethereum (bch/eth) and bitcoin (bch/btc) respectively. The situation has changed quite a bit these past couple of days, with bitcoin cash slowing creeping ever closer to previous price zones. However, volume is marginally lagging so caution is advised. Bitcoin gold on the other hand has gradually climbed higher, although there have been several apparent pullbacks along the way. Likewise, the same is true for a select few alternative crypto currencies, which were hit even harder by bitcoins first eye-catching fallback. The chaos that followed the rally resulted in sudden price corrections of more than 50% in some cases.

Despite the havoc raging across the wider markets, bitcoin supports are plentiful. This is again understandable, especially when we reevaluate how far the largest crypto currency has surged in just this last week alone. Primary supports stand out at yesterday’s $10,517.38 daily low, the $9,000 weekly low, and at the $5,555.55 monthly low. Secondary supports are discernible at $11,204.35, $10,737.86, $10,619.85, $9,369.20, $9,252.96, $8,348.06, $7,998.12, $7,886.40, $7,590.09, $7,570.17, $7,499.82, $7,353.51, $6,991.37, $6,956.42, $6,776.88, $6,314.14, $6,025.93, $5,872.75, $5,754.5, $5,645.18, and at $5,591.17.

The $11,800.01 all-time high is our primary resistance level. Fibonacci extensions for the current trading range are at: $12,460.81 (fib 1.236), $12,869.61 (fib 1.382), $13,200.01 (fib 1.5), $13,530.41 (fib 1.618), $14,600.02 (fib 2.0), $15,669.62 (fib 2.382), $16,330.42 (fib 2.618), $17,400.03 (fib 3.0), and at $19,130.43 (fib 3.618). Overlaps have almost occurred with Fibonacci retracements as well, this is most noticeable with the $11,204.35 (the 0.786 fib is at $11,194.31) and $10,737.86 supports (the 0.618 fib is at $10,722.5).

Bollinger bands on the daily have considerably widened, signaling further price volatility. Nonetheless, the upper bands have been breached several times, which is often a sign of inherent bullishness. The 4-hour appears less chaotic, portraying a more stable divide between the outer bands, with price remaining close to the median line. Hourly bands are depicting a similar situation, even though the price has dipped below the median line.

The 30-day MA, 180-day MA, and 365-day MA are almost all in a perfectly parallel ascending order, with the same angle of ascent. Bearish crossovers have not occurred with either of the three, in any combination or sequence. The VWMA is rising, in line and in warm proximity to the 30-day MA. The EMA is acting accordingly, firmly following short-term price movement and momentum.

RSI is neither overbought nor oversold, although it may be setting the stage for future oversold conditions. %R Williams is in a similar situation, inconclusive for now. The MACD has been establishing bullish and bearish crossovers in a consecutive interchanging order (marked appropriately with green and red vertical bars below). Simultaneously, OBV is on a steady rise in the face of dwindling volume.

Bitcoin began trading from the $5,555.55 monthly low on November 12 (GMT 04:00), and after more than 2 weeks elapsed, we witnessed a new $11,392.31 all-time high on November 29 (GMT 14:00). The actual event resulted in a pullback to the $9,252.96 November 29 daily low (GMT 19:00), which was followed by a bounce back in price to the $10,624.60 November 30 daily high (GMT 4:00), and a consequent second reversal to $9,000 weekly low on November 30 (GMT 13:00). The subsequent 3 days were chiefly characterized by a strong bullish bias that concluded with yet another new all-time high, this time at $11,800.01 on December 3 (GMT 15:00). The price has since then oscillated between the $11,800.01 all-time high and yesterday’s $10,517.38 fundamental support.

If you have any questions and comments on bitcoin today, use the form below to reply.