October 12, 2015

Feeling the heat in the Caribbean

Posted in Sunday Business Post · 72 comments ·
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Honduras is about as far from Ireland as you can get. It is extremely dangerous, very poor and over the past few years this little Central American country has become the fulcrum of the drug trafficking wars as vicious drug gangs battle it out for supremacy.

Arriving in San Pedro Sula on my way to film the extraordinary Mayan ruins of Copan is totally disorientating, not least because we arrived in a terrifying Caribbean storm to be assigned a bodyguard each. The film crew was instructed not to travel together and most certainly not to go anywhere on our own. The motorway from the airport quickly disintegrates into a potholed narrow track. Along that road, all around me was exotic, different and bewildering, except for one thing: a massive billboard poster of a munificent, smiling Bertie Ahern!

Yes, you read right: Bertie was on the circuit talking about the Irish miracle in Honduras!

Bertie’s lecture was hosted by Digicel, the company owned by Denis O’Brien. As I saw the next day, Digicel events and sponsoring were everywhere. And the locals loved it. As one Honduran mobile user put it to me, with Digicel “we get first-world telecoms in a third-world country”.

The same goes for Trinidad, Barbados and, of course, Jamaica. Digicel burst onto the scene in the Caribbean, challenging the local telecoms providers and offering the locals a totally different product. It rode the massive boom in technology and communications to become the dominant player in many countries.

As well as being an extremely good telecoms company, it is a brilliant marketing machine. I noticed this last year on a trip to the region. Digicel’s branding machine is phenomenal.

When Usain Bolt breaks world records, he is sponsored by Digicel. When the West Indies play cricket, the Windies are sponsored by Digicel. When local football tournaments are held, they are sponsored by Digicel. The company has played this role of being the people’s company brilliantly – and, in truth, it has been on the side of consumers, who were used to poor state-run telecoms until Digicel arrived.

Initially, the mobile market boomed in the Caribbean as the market for telecoms exploded worldwide. However, maybe the market is maturing now and possibly the growth of Digicel in the Caribbean will be more related to the economic growth of the region itself. With that in mind, let’s examine the economy of the region.

The first thing to appreciate is that the Caribbean is a low growth area, characterised by tourism, remittances from emigrants in the US and agriculture. It’s a bit like Ireland in the sun before we had multinationals. There are one or two commodity producers with oil and gas such as Tobago, Guyana and Surinam – those bits of the Caribbean closest to Latin America – but in general it’s all about sun, sand and tax shelters.

The climate matters hugely, not just because of tourism but because the climate is so extreme. Parts of most of the islands are devastated by hurricanes on an annual basis – this is costly and increases risk. The extreme heat also affects the economy because it is difficult to work in soaring temperatures. These are not problems that economists typically cite when making comparisons between countries, but they are enormously material.

Because of the limited sources of economic activity, many of these small countries experience periodic budget and current account crises and can be highly dependent on a few factors, like energy prices and the strength of the dollar. And, of course, there is always politics. The Caribbean has always been an exotic jewel fought over by the big powers. You feel these historical echoes of big 17th-century power struggles everywhere.

For example, when you walk around Nassau, the capital of the Bahamas, there are echoes of Dublin everywhere. Not Dublin as we know it, but colonial 17th century Dublin, evident in architecture, public buildings and churches. You realise that our struggles were part of a much greater canvas. In Nassau’s old Anglican graveyard, it is noticeable just how many early settlers were born in Ireland and how many Irish Anglicans with typical Catholic surnames are buried in the early Protestant churches.

Even the name, Nassau, is the same Nassau of Nassau Street in Dublin. The Nassau family were German royalty who allied with the Protestant Williamite House of Orange. As the Caribbean became the theatre for the great colonial wars between England, Spain and France, it is not surprising that prized territories like the Bahamas would be named after victorious British royalty.

Today, the Spanish, French and even British aren’t so important. The geopolitical struggle is between Venezuela and the US. In fact, the rapid implosion of the Venezuelan economy is the biggest external threat to Caribbean stability and is behind the Americans’ sudden overture to Cuba.

For years, much of the Caribbean has been subsidised by cheap oil from Venezuela. The arrangement is called Petro-Caribe and countries such as Jamaica, the Dominican Republic and Haiti have benefited hugely from cheap oil. However, as the oil price falls, Venezuela is collapsing. It is no longer able to afford to send cheaper oil to its neighbours. Over the past few years, Venezuela has mortgaged itself to China. Venezuela has also been bankrolling Cuba, the ultimate prize of the region.

The collapse of Venezuela is behind America’s sudden openness to Cuba because Washington fears that China, Venezuela’s banker, will come to Cuba’s rescue and America will face increased Chinese influence only 90 miles off the cost of Florida. Therefore, as the power vacuum in the region opens, America is keen to be the boss. Having ceded Cuba to Russia a generation or two ago, Washington isn’t going to make the same error again by letting Beijing get a foothold in the Caribbean.

However, as the Venezuelan oil subsidy ends, and the fall in commodity prices impacts Caribbean farming exports like sugar, the countries are facing financing problems. So the currencies of many Caribbean countries are falling as the economies try to adjust.

These currency movements are most pronounced in Haiti and Jamaica – Digicel’s two biggest markets. And as the company has to report its earnings in US dollars, the fall in the local Caribbean currencies must be having an adverse impact on the company’s bottom line.

As the US Federal Reserve moves to raise rates, this upward move in the dollar is exacerbated and this also negatively impacts highly-leveraged equity markets, squeezing the appetite for any company’s flotation.

As it was in the 17th century, the Caribbean is once again the epicentre of a giant geopolitical struggle. As in all struggles, there will be collateral damage, and sometimes the fallout is felt in the most unlikely quarters.


  1. DiarmaidM

    They’ll be grand now that Bertie is going there.

    • Antaine

      Indeed and they will. Sure wasn’t everything going fine here in Ireland whilst Bertie was at the Helm. Can someone start up a Bring Back Bertie campaign? :-)

  2. Mike Lucey

    Thanks David for casting light on the situation in the region. I was wondering why the US was cozying up to Cuba at this particular time, now I know.

    There are a lot of pieces moving on the chessboard at the moment particularly Russia. It will be interesting to see how the game unfolds, hopefully we will see a balanced stalemate.

  3. Grzegorz Kolodziej

    “As the US Federal Reserve moves to raise rates”

    Oh Lord, not that again.
    Why limit ourselves to writing?
    Let’s have a lottery – whoever comes up with the best predictions, he or she wins free tickets to Kilkenomics Festival (pity I cannot make it this year :-( ).

    Should you be interested in a more serious analysis of FED and interest rates, read this article:

    http://www.zerohedge.com/news/2015-10-05/window-has-closed-fed

    By the way, I wrote on this blog some time ago how FED organised a fake protest under the umbrella of the FED-up movement – the only anti-FED protesters let in to the building, in which Mrs. Yellen chaired FED’s meeting – whereby the protesters, mainly unionised teachers flown in even from remote states – demanded that FED does not raise rates.

    What kind of a schmuck one has to – I am talking about those Americans who believe in FED’s explanations – to believe that spiel that “we wanted to raise the rates, but we were stopped by da people”.

    Anyway, the latest worry of FED is that the cost of living is too low and this prevents them from raising rates. With such statements, do I have to attack Keynesism any more?

    I wish QE4 brings the bubble to burst at the very moment of the election week and Hillary-For-Prison-2016 popularity dives in (if it’s Hillary and not Sanders; surely not that imbecile Joe Biden who let it slip the biggest US secret at at the diplomatic party – the location of their best anti-nuclear shelter).

    I said I would probably vote for Dr. Ben Carson, I was not serious about his chances, but he is surprisingly robust in the polls. He is a bit like Republican Obama without Obama’s stupidity and hubris.

    On a different note, Mr. John Bellew from Dunleer, Co Louth (I remember we could not find that place driving around in 2008 – there was no signs and a true borderland feeling, a bit like from Robin Hood tales) wrote a letter to the Irish Independent, in which he says:

    “Whether it is through xenophobia or genuine fears, some commentators have cited the ‘Dublin Regulation’ as a reason for not getting involved in accommodating asylum seekers.

    This regulation states that those people seeking asylum must apply for refugee status at their point of entry to the EU; how convenient this is for some EU members.”

    I do not know what convenient it can be to be forced (and threatened with force by a fascist Martin Schulz) to take 7pc of the European refugees by a country who had caused that wave in the first place, inviting them to Germany, a country which only uses the EU law when it suits its interest, which was the first to break the Maastricht budget deficit rules, which penalised other countries for shipyard subsidies, whereupon it started subsidising their own shipyards – having eliminated the Eastern European shipyard competition – from my and yours money.

    It’s like saying that I contracted a flue virus and now I want you to have a flue virus – and you say: “I’ll contribute some money for fighting your virus, but I do not want to contract your virus”, and you would say “how convenient for you”

    Since when adhering to the law is an opportunism?

    Anyway, my former Professor of political philosophy has responded to John (please note furious Mr. Merkel and jargogled Mr. Schulz):

    https://www.youtube.com/watch?v=qPFQzkIF7_I

    When will we have a political party in Ireland whose MEP’s would say such inconvenient truths in Mrs. Merkel’s face?

    • michaelcoughlan

      “As the US Federal Reserve moves to raise rates”

      Oh Lord, not that again.

      My sentiments exactly.

      • US dollar index topped out at 100 and in the last 6 months is rolling over and now at 95

        http://www.marketwatch.com/investing/index/dxy/charts

        Here is a synopsis of the declining US influence and power and the declining US economy. It will be a cold day in hell when the FED raises interest rates. Jawboning is all that is left for the FED and the jawboning sycophantic press.

        Fantasy Or Reality… Which Is It?
        Posted October 11th, 2015 at 10:45 PM (CST) by Bill Holter & filed under Bill Holter.

        http://www.jsmineset.com/2015/10/11/fantasy-or-reality-which-is-it/

        • Forgot to click the follow up box

        • michaelcoughlan

          From the link;

          “Has THE major peg supporting the U.S. dollar been a world fearful (Washington would call it “respectful”) of the U.S. military? ”

          I have been saying this all along. Remember David the two most important points you have been making are Spain shooting it’s way out of it’s trouble after the gold credit collapse and tghe bull trap graph of a year or so ago.

        • This morning the US dollar index is 94.1.

          The case for honest money.

          Is the US dollar declining or are the other currencies in the basket collectively improving? There is no way of knowing at a glance as each is measured against the other. There is no real basis for measurement. If there were then it would be seen that all currencies are declining against the value of goods bought with those currencies.

          Of course, the real problem is that these currencies are not really money, just a facade. They are a mirage, a promise of money, that when examined closely gives way to nothing.

          Real money is not like that. Real money is always a store of wealth as well as a medium of exchange. Paper money, the currency , lacks this aspect. It is not a store of wealth, it is a depreciating asset if it can even be called an asset. This is because it represents nothing of substance. That is why it is a mirage.

          The magician behind the curtain waves his wand and we are mesmerized by the paper money. Not only is this money worthless but it charges a fee for its existence. It is called interest. Whose interest is this? In whose interest is it to charge the fee?
          It is only of value to the banker who issues it. They charge the fee and collect it.

          But money is supposed to be a public utility owned by nobody in particular. If it is not owned there can be no fee charged. Public utility money carries no interest as it is not issued as a debt like the banker owned money.

          People can create their own money if they wish but your money may not be acceptable to others. Governments have been persuaded to give the bankers the monopoly on the issuance of a nation state’s money. This monopoly is called a national currency. If it is a national currency then it is owned by the people collectively. It should be a public utility and issued for use free of charge. Why do we give a privilege to the banker that we have no need to? Government can issue a currency from treasury free of charge. There will be: No interest: No national debt: A balanced budget: Lower taxes.

          Why do we not claim these benefits for ourselves? Why do we insist on paying bankers for the privilege of using a public utility.

          Just as your currency is not acceptable, necessarily, to your neighbour, neither is your national currency acceptable to another country for its use. So we need a universally acceptable currency. This can not be a national currency as that confers an unfair advantage to that country (currently the US and it’s dollar).

          Therefore we need a universal currency owned by no-one in particular but acceptable by all. Will a special drawing rights currency based on a basket of currencies of a few nations be the correct solution. I do not think so as those nations will have an unfair advantage.

          Will this currency be something like Bitcoin, or will it be a reversion to something that worked well in the past like gold and silver. Calling Gold useless is a personal opinion but not based as far as I can see on objective analysis.

          Neither of these solutions will be allowed by the bankers cabal if they are allowed to have their way. While the bankers control the money system we are all economic serfs turned into slaves working to slice of a share of our productivity and other activities in the payment of the fee to use money. The interest payment is sliced off the productive process like the tithe of old making the recipient of the interest tithe wealthier all the time at the expense of the donor. We are as worker bees providing Royal Jelly to the queen bee.

          It is obvious that we must remove bankers from the ability to create money and revert to using our own that is freely created as a public utility.

          International settlement must be in a universally acceptable money that is freely available to all peoples without a fee charged for its use.

          The freedom of all peoples, in my opinion rests on the resumption of the use of gold and silver as the international medium of exchange that it has been for thousands of years previously. The bankers cabal for the production of money must be destroyed and the equally insidious use of fractional reserve banking be outlawed at the same time.

    • Deco

      Schulz is an ogre.

      He was a mayor of a small town at one stage. He inherited the mayor’s office. And he stumble along. Next thing he is number 1 in the EP.

  4. Incident

    Hi David,

    Saw the title of your latest article and was convinced that this has got to be a truthful synopsis of the disaster that was Digicel’s (aka Denis O’Brien) failed IPO last week.

    Alas, quite the opposite. A glowing essay on Dobser!
    All print, online, Radio and TV media outlets last week gave little or no coverage to an enormous disaster for the “Golden Boy”!
    One reason for this is because they are scared. Dobser has the country by the short and curlies and he is and has been bordering on untouchable. Fear of litigation is the root cause. For those not up to speed Dobser is currently suing the Irish State, The Oireachtas, The Seanad, the Attorney General and a host of high profile commentators who are now muzzled. This is all while he continues to grow his media empire and we call ourselves a democracy!

    And you have glorified the Digicel culture!

    The true beauty of last week is that we now know an amazing amount of info regarding Dobser and his operation which the proposed IPO forced out of him. He is USD6.5 billion in debt for starters! The world is rapidy ceasing to make chargeable phone calls by availing of other technologies such as Skype and Whatsapp. Dobser’s glorious plan is unravelling as he is knee deep in providing a service which even the emerging 3rd world nations no longer require,and therefore coupled with a stagnant global economy he pulled the plug on his IPO.

    This was the 2nd largest IPO this year in the USA and he is allegedly the richest Irish man on the planet and his failure to go to market got vitually zero commentary. Our national broadcaster who is not currently shackled by Dobsers legal eagles should be ashamed of itself.
    A total failure to report the entire debacle and the reasons behind it.

    As I started to read your article, I was convinced you were going to grasp the nettle and compare the buffoon Bertie to Dobser! But that failed to materialise also.

    Very very disappointed.

    • michaelcoughlan

      Excellent analysis.

      You could also add all the rape of Irish taxpayers when acquiring assets and loans in Ireland for cents on the euro backstopped by the Irish taxpayer.

      Back bankrolling the most failed developer of all too.

    • Great post. I think it’s very telling that the only obtuse reference David makes to the aborted Digicel flotation is very carefully worded:

      “this also negatively impacts highly-leveraged equity markets, squeezing the appetite for any company’s flotation.”

    • coldblow

      I never knew this had happened. I read the Indo, Sindo and Irish Mail and didn’t notice it. Nor did I hear anything on OrTE.

  5. Never knew he was $6.5 billion in debt – what’s he going to do about that?

    • That is what the IPO is /was for. Sell out to the dumb investor . Create paper value with the shares and with the cash received bank a bundle for him self and leave the debt with the corporation. All the IPO investors will find they are worth 40 cents on the dollar after a year except those who took the profits in the first 6 months euphoria.

      • michaelcoughlan

        Exactly. Except the more savvy institutional smelt his pile high of shit from a mile away.

      • What a scam. Let’s hope he gets found out. I could write a bit about Digicel here in Antigua, and also in Dominica as I was commuting between those two islands in the early noughties when Digicel entered the market. Bit busy at the moment though, will see if I can get to it today or tomorrow.

  6. michaelcoughlan

    https://www.facebook.com/events/1701475410083573/

    Just curious David where was the photo with you and the gold taken?

    Michael.

  7. Posted at lemetropolecafe.com
    Pressure was intense to raise rates but still the US cannot handle higher rates? OR is it actually the rest of the world that would collapse. Von Mises looks to be correct. Talk is cheap. Actions speak louder than words. “By their actions you shall know them.”

    07:04 Central banks urge Fed to begin liftoff
    Both the WSJ and NY Times report that central bankers gathered at the IMF’s annual meeting in Peru urged the Fed to proceed with raising rates as the uncertainty continues to roil emerging markets.
    The WSJ notes many EM central bankers say they have done everything they can to prepare for a US rate hike. The NY Times points out the Institute of International Finance expects net outflows from EMs to be around $800B for this year and next.
    However, other participants in the meetings disagreed with the notion that lifting rates right now was the right choice. Goldman Sachs President Gary Cohn said we are facing a global economic growth problem. Also, the IMF has said the world economy is still too weak to withstand a rate hike this year.
    A number of Fed officials have said over the past few weeks that they expect to begin hiking rates at some point later this year.

  8. So, what is the next move by the Federal Reserve? Williams says, “I think the Fed has lost control of the financial system. I don’t know quite what they are going to do, but they are not able to do what they want to do. They want to raise interest rates. They had an opportunity back in June . . . they announced rather formally . . . that they were going to raise rates in September . . . and that didn’t happen. The markets began to move around, and said they said the economy is too weak and were (the Fed) not going to do it.”

    http://usawatchdog.com/were-in-a-new-recession-john-williams/

    • After the Interview:

      Williams also warns that people should have some stored food and water in case of emergencies. A sudden economic meltdown could cause supply disruptions. There are some free updated statistics and information on the home page of ShadowStats.com. Williams also sells a subscription. It’s the same detailed reports he sells to fortune 500 companies and hedge funds clients. Click here to subscribe.

  9. “Crazy? Not at all: since the status quo will be fighting for its life, this step is all too likely if it means perpetuating a broken system, and an economic orders based on textbook after textbook of lies. In fact, we would go further and say war (of the global variety) is also inevitable, as the global “1%” loses control. It won’t go quietly.”

    http://www.zerohedge.com/news/2015-10-12/why-gold-surging-bofa-says-expect-massive-policy-shift-2016

  10. An unreal world

    “So we live in an unreal world with unreal prices based on unreal (fake) money. And this is why it will all come to a very abrupt end. That time could start now at any time. Fundamentally it must happen. Every single major government is running deficits and increasing debts exponentially. The US hasn’t had a budget surplus for over 50 years and has no intention of repaying the debt. Similar with many nations. I cannot for the life of me understand how any investor can buy government bonds at zero percent yield that will not and cannot ever be repaid with real money. The only way to repay the debt is to print more money but that will make the debt larger and not smaller and also make the money worthless.”

    https://goldswitzerland.com/a-stock-market-collapse-and-surge-in-gold-is-imminent/

  11. DB4545

    David I understand that your business is offering your explanation of the business activities of groups and individuals but I’m at a loss to understand why you’re being so circumspect regarding the activities of Digicel. Surely your unique selling point and your track record points to calling a spade a f**king shovel. Digicel went to market(almost)and the feedback was we ain’t buying a pig. New York looked at it and couldn’t see a buck in it. The end.

    $6.5 billion of debt and in return for handing over $2 billion dollars cash punters would have got what exactly? $6.5 billion of debt and a business trying to sell expensive subscription services to a customer base who pay by way of monthly top ups? People won’t pay for internet content in the first world how the hell can you possibly expect poor people to pay for content in the third world? If you can’t make money from content why then compound your problems by threatening to block advertising revenue streams from data giants such as google weeks before a proposed IPO?

    If the New York analysts wanted to price the real cost base of the telecoms industry in a third world market(with the sleaze factor of cosy cartels and regulators removed) all they had to do is take a look at Somalia. It has one of the most efficient customer focused and modern telecoms infrastructure on the planet. Amazing what a ruthless and competitive private sector can deliver and the price they can deliver it at when it doesn’t have to factor in brown envelopes.

    Instead of focusing on the modern day Pirates of the Caribbean and their bought and paid for sales reps why not look a bit closer to home at another little Island? It might be more useful for us to learn from the original Pirates of the Atlantic the Icelanders. The Icelanders have recently paid off their debt ahead of schedule to the IMF and other parties. You get the right to run your own affairs when you know how to deal with Pirates. Takes one to know one.

  12. Deco

    I am reminded of the Statue of a Tsar in St. Petersburg, where the artist was commissioned to provide a portrait of the Tsar.

    So the Tsar was strong, heavy and determined.

    The horse showed signs of being weighed down by the Tsar.

    It is all in the details.

    Bertie is a cowboy. DOB is no better in my assessment. All that was missing was Lowry.

    There is a problem in Ireland with oligopolies. They weigh themselves on the entire system.

  13. michaelcoughlan

    The best analysis from an ordinary guy on gold land the economy etc I have heard.

    https://www.youtube.com/watch?v=ydgMnQYtF6U

    • Deco

      A horse at a donkey derby.

      The worst donkey of the lot thinks it is her turn. Democracy is over. Bought snd sold.

      Looking at the Libyan and Syrian mess Trump would be an improvement.

      American exceptionalism is an excuse to interfere in the running of every country in the planet.

    • A person has to look after themselves before being able to be of use to others. Same for a country. how does a society expect to survive using a consumer economy as the basis for existence.

      Productivity is key. First priority is food. Second is manufacturing and especially that related to food production. Often forgotten is the Agrarian revolution that occurred at the same time as the industrial revolution. They are symbiotic. Each helps the other. One cannot be accomplished without the other. It is balanced.

      A consumer society is just that, consuming. A person can only save excess earnings that are not required for survival. Same for a country. A consumer society literally eats its saving until nothing is left and then if continued will be in debt.

      We should note that only the productive countries are those with savings. (Leaving aside the central bank fiat money system, for the moment: That it is the least productive part of our economy and incapable of being a storage of wealth).

      Most people inherently understand this and we have been lead astray. If someone like Trump can get into power and will serve the domestic interest first. If he will say that the US must look after itself first and be self sufficient as it can be. It has after all one of the best pieces of real estate in the world with climate , land and natural resources. If it returns to a policy of non intervention but strong defensive position. If it produces all it needs for itself and only exports the surpluses it will soon, within a generation, be wealthy again. If the people return to thrifty habits in living and look after body and soul they will be wealthy. They will no longer have a national deficit as they have for the last 45 years.

      Then they again will be a shining example to the world.

      This will not be able to be accomplished without removing the central bankers from power and returning the money to the people to whom it belongs. The ultimate power resides with the bankers. He who controls the money controls the country.

      Can Donald trump the banking system? If not, it matters not who is the president. Until the money system is is repaired nothing else can be.

      • “Then they again will be a shining example to the world.”

        Yes and if they start to become a shining example, other countries will want to emulate that, internal pressure builds in repressive regimes and the world gets better for everyone

        Right now they are doing everything arseways. Bombing and killing people NEVER works.

        You are indeed right about getting rid of the central bankers too Tony, there’ll be no need for hoarding useless gold if that can be achieved.

        My own approach is to bypass the banking system using Bitcoin.

  14. Talk of the FED raising interest rates is just that, talk.

    In the meantime there are negative implications to economic output that are caused by negative interest rates.

    So the FED and all central banks are damned if they raise rates and damned if they lower interest rates. They are painted into their own corner. The result of a managed economy turning to trash.

    “Can anyone show a clear, connect-the-dots example where negative interest rates have stimulated an economy? Can anyone clearly explain how charging an institution or business to hold deposits is in any way stimulative – not “net stimulative,” but stimulative at all?

    No one can… because it defies all common sense.”

    http://moneymorning.com/2015/10/13/the-mindless-stupidity-of-negative-interest-rates/

    • McCawber

      I can’t answer your question but if you think of the financial system as a control system then there can be many outcomes.
      Outcomes often depend on the initial conditions.
      The answer to your question now appears to be a very definite no.
      So, can the initial conditions be changed such that a better outcome is achieved.
      Consider changing to the gold standard as an intial condition.
      It would resolve the problem but it’s likely to cause mayhem for everyone.
      The result of reintroducing a gold standard would result in an immediate huge drop in the stock markets and all the knock on affects that go with that. A very hard landing.
      The landing is going to be no matter what “real” solution is used.
      The real question is can the degree of hardness be minimised in any way.
      Are there other initial conditions that can influence the outcome.
      The financial system badly needs to be reformed whether or not the gold standard is reintroduced.
      Therefore I would suggest that the reformation begin starting with the elimination of all those gambling instruments.
      In fact that’s where you start with the gold standard.
      Spread betting transaction would only be allowed if they are back by gold (I don’t know if that’s even possible but I’m sure some consultant could figure it out).
      As each element of the financial industry is reformed it should also be removed from the gambit of the CBs.
      CBs would gradually be restored to their former glory.
      Not well written but hoepfully some food for thought.

  15. DB4545

    Tony Brogan

    I don’t always agree with some of your comments Tony but I came across this recently while reading The Wealth of Nations by Adam Smith.

    “For in every Country of the world I believe, the avarice and injustice of princes and sovereign States, abusing the confidence of their subjects,have by degrees diminished the real quantity of (gold)metal, which had originally been contained in their coins…By means of those operations the princes and sovereign States which performed them were enabled IN APPEARANCE to pay their debts”….”It was indeed in APPEARANCE only;for their creditors were really defrauded of a part that was due to them….”Princes and sovereign States have always fancied that they had a temporary interest to diminish the quantity of pure(gold)metal contained in their coins; BUT they seldom have fancied that they had any(reason)to AUGMENT it. The quantity of metal contained in the coins, I believe of all nations, has, accordingly, been almost continually diminishing, and hardly ever AUGMENTING. Such variations, therefore,tend almost always to diminish the value of a money rent.

    That was first published in 1776 Tony and it still holds true today. Technology changes, methods change, the avarice of men (and women) doesn’t.

    • The same problem destroys all empires.

    • michaelcoughlan

      Avarice yes but not so much for money more for power I feel.

    • The quantity of metal contained in the coins

      Insert “precious” !!

      The quantity of precious metal contained in the coins.

      On nthe other hand the bullion coins issued as currency contain ever better purity of precious metal. For example the Maple Leaf silver dollar and Gold dollar each contain .9999 fine or even .99999 fine of pure metal.
      Both are issued as money but it is the amount of the fiat stamped into the coin that is the legal tender amount. For silver it is $5 and gold $50. Naturally the PM coins cost more on the open market (today it is $16.17 and $1186.10 ) so naturally they do not circulate as money but are hoarded. On the other hand the paper $5 and $50 notes are actually worth less than a dollar and so are not hoarded but rid of for real goods asap to avoid the effects of inflation.

      If the PM coins were allowed (currently forbidden by edict) to circulate at their actual value, as legal tender then the coins would no longer be hoarded but return to circulation.

      The answer for a non disruptive transition is to produce the same coins without the stamped value and repeal the legal tender laws thereby allowing the coins to circulate as settlement of all debt and payment. This would put them in direct competition with the fiat currency and allow people to pick what they feel best for them.

      One other step is ideal and that is to have a designated value announced by government that always is more than the spot value by a small percentage. This percentage would be the spot price plus cost of minting plus a seigniorage for profit to the mint. Should the spot declin there would be NO change in the designated coins trade value. If the spot rose then the designated value of the trade value of the coin would also rise. to avoid unnecessary volatility the move up could be in increment of $5 and only at close of business Saturday night and announced on Sunday , effective the Monday. Thus the incentive to hoard is removed but the propensity to save would be in PM coin as the Trade vale could only go up but never down. Thus the saver is protected against inflation with the PM coins but not with the fiat paper.

      There is a little more to it but that is basically how it works. No country would need a stash of PMs to start with as the metals are bought on the open market and the program is self funding and profit oriented. Ireland could start tomorrow except for the fact that the IMF forbids PM coins to be used as money!!

      Of course the IMF is a tool of the Central bankers as is the BIS, Bank of international settlement. As an aside, have you ever wondered how the IMF got their gold or the BIS for that matter. I think it was donated by Central bankers giving away your national wealth that they are supposed to be the custodian of. where else could it come from.

  16. michaelcoughlan

    Like I said david the market will raise the rates for yellen;

    http://www.wsj.com/articles/once-the-biggest-buyer-china-starts-dumping-u-s-government-debt-1444196065

    No wonder she staggered at her recent speech;

    http://www.zerohedge.com/news/2015-09-24/janet-yellen-falters-during-speech-receives-medical-attention-all-clear-given

    The only thing missing was the urine running down the inside of her leg from the fear of knowing the havoc about to be unleashed.

    I predict Deutsche bank will be bailed out or fail. I predict farmland prices will skyrocket.

  17. “Yes, indeed, a scandal is brewing. And it looks like several rats are folding their hands and running for the exits…”

    http://investmentresearchdynamics.com/is-a-scandal-in-paper-goldsilver-brewing/

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