New US Banking Rules Might Push People to Cryptocurrencies, Weiss Ratings Says

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Following the Federal Reserve’s meeting to rewrite some of the Volcker rules for banks, Weiss Ratings considers that Americans may be inclined to purchase cryptocurrencies to ride out any potential resulting financial crisis.

On May 30, the Federal Reserve will meet to discuss the modification of the Volcker rule, which stops banks from trading in volatile markets for profit using funds that are protected by deposit insurance.

Weiss Ratings is raising the alarm on this particular meeting, saying that “US banking regulators are getting ready to water down the Volcker rule,” and that this might provoke more Americans to invest in cryptocurrencies as savings instruments.

“They want to make it easier for megabanks to take big risks with other people’s money—our money. They want to give banks the green light to trade more of the same kinds of assets that helped cause the 2008 debt crisis.”

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Both Martin Weiss and Juan Villaverde—Weiss Ratings’ crypto guru—believe that this could lead to instability in American financial markets like that in 2008 when banks attempted to profit from subprime loans due to incentives that came under the guise of “affordable housing for everyone” that were passed in the 90s.

After the housing bubble burst and prices started crashing, the banks made major losses and the Federal Reserve had its hands tied. It had to either bail them out or let a large part of the global financial system collapse.

“There was, and still is, an over-reliance on megabanks—not only as depository institutions and custodians, but also as a major source of liquidity for global capital markets,” Weiss and Villaverde added.

The solution to this, according to them, is a movement towards cryptocurrencies as a means for savings.

“Cryptocurrencies do such a fundamentally better job as a safe depository, it’s difficult to envision a world in which this technology does not become a game-changer for money and banking,” they said.

This is much in line with the opinion of a majority of American millennials, 65% of which consider Bitcoin a safer investment than personal savings accounts offered by banks.

Despite all of the red flag waving, however, banks have historically found the Volcker rule to be confusing. The Fed’s meeting on May 30 could simply result in a rewrite of some of the restrictions that results in clarification.

A complete or even partial repeal of the rules isn’t likely, as the 2008 global crisis is still fresh in the minds of regulators, many of whom were present when Lehman Brothers floundered.


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Author Miguel Gomez
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NAFTA deal close, Pence tells reporters

A deal on the North American Free Trade Agreement (NAFTA) could be reached within the next several weeks, Vice President Mike Pence told reporters while in Lima, Peru, for the Summit of the Americas.

Pence said he was “very hopeful” that Mexico, Canada and the U.S. were close to an agreement on the negotiated trade pact.

The decades-old trilateral trade agreement has been a frequent target of President Trump, who has criticized large trade deficits the U.S. has with Mexico and Canada, as well as the relocation of American jobs and companies.

U.S. goods and services trade with Mexico totaled an estimated $616.6 billion 2017, with a trade deficit of $64.1 billion.

Talks on how to revamp the 1994 treaty began almost immediately after Trump took office a year ago. He warned that if it could not be overhauled to better protect U.S. interests, Washington would pull out of the pact. Both Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto have argued against scrapping the $1.2 trillion deal.

U.S.-Mexican trade has grown rapidly since NAFTA, with the U.S. as Mexico’s leading partner in merchandise trade, and Mexico as the third-largest trade partner of the U.S. If Trump were to scrap the deal, experts say that it could cost Mexico more than 950,000 low-skilled jobs and lower its GDP growth by 0.9 percent.


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Author; Megan Henney 
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Fed Minutes Signal Greater Confidence in Reaching 2% Inflation

Central bankers at last month’s policy meeting believed the economy would run hot for the next few years

Federal Reserve officials at their meeting last month expressed greater confidence inflation would rise to their 2% target over the coming year, a development that could affect how much they raise interest rates in coming years.

They also debated the costs and benefits of allowing the economy to run hot and discussed how they might need to later raise rates to a level that would deliberately slow growth, according to minutes of their March 20-21 meeting, which were released Wednesday.

The minutes highlight just how much Fed officials’ outlook has changed since last fall, when surprisingly slow inflation raised questions about the need for continued rate increases.

Fed officials last month believed the economy would run hot, or grow faster than its sustainable rate, for the next few years, the minutes said.

In March, “all participants agreed that the outlook for the economy beyond the current quarter had strengthened in recent months,” the minutes said. In addition, “all participants expected inflation on a 12-month basis to move up in coming months.”

The outlook has shifted since late last year because Congress and the White House approved tax cuts and a boost in federal government spending for this year and next. The economy hasn’t often had such fiscal stimulus when unemployment is so low.

Last year, falling unemployment supported the case for rate increases. The jobless rate has held at 4.1% since last October, near an 18-year low.

But inflation pressures softened last year, bolstering arguments in favor of slowing the pace of rate rises. At the time, top Fed officials said they expected the slowdown would prove transitory, and inflation pressures have firmed up in recent months.

Officials noted the potential benefits of letting the economy run hot, such as drawing more Americans into the workforce from the sidelines and speeding inflation’s return toward the central bank’s 2% goal. The policy makers also noted potential costs: “An overheated economy could result in significant inflation pressure or lead to financial instability,” the minutes said.

The Fed seeks to keep inflation at 2% because it views that level as consistent with an economy with healthy demand for goods and services.

At the same time, some officials warned they eventually could need to lift rates to a level that would deliberately restrict growth.

Some officials said they might need to acknowledge in future postmeeting policy statements that interest rates eventually would rise from a low level that spurs growth “to being a neutral or restraining factor for economic activity,” the minutes said.

After holding its benchmark federal-funds rate near zero for seven years, the Fed has raised it six times since late 2015, most recently last month to a range between 1.5% and 1.75%. Officials also penciled in two more quarter-percentage-point rate increases in 2018 and three such moves in 2019.

The Fed isn’t likely to raise rates at its next meeting, May 1-2, but investors largely expect another quarter-percentage-point increase at the following meeting in June. Investors have focused more attention on whether the Fed will feel pressure to add a fourth rate increase this year. The answer largely turns on inflation.

Of the 15 Fed officials at March’s meeting, 12 penciled in either three or four rate increases for 2018, and they were equally divided between those two paths. Most officials also penciled in at least three rate increases for 2019.

If Fed officials grow more confident that inflation is rising toward their 2% target over time, they could stick to their tentative plan for three rate increases this year. But if it looks like new federal spending, tax cuts, a weaker dollar and lower unemployment will lead to an acceleration in price pressures, policy makers could act more aggressively.

Consumer prices excluding volatile food and energy items rose 2.1% in March from a year earlier, according to the so-called core consumer-price index, released by the Labor Department Wednesday. That was the strongest reading since February 2017.

Economists at JPMorgan Chase estimate the Fed’s preferred inflation gauge, produced by the Commerce Department, will show annual core inflation of 1.9% in March when it is released later this month. In February, it was 1.6%.

Annual inflation is expected to rise in coming months because the weak monthly readings of last March and April will no longer be included in year-over-year comparisons, the minutes said.

This upturn is “widely expected and, by itself, would not justify a change in the projected path for the federal-funds rate,” the minutes said.

While the minutes show Fed officials are optimistic about economic growth, the prospect of trade fights loomed as one significant concern.

“A strong majority” of Fed officials saw the prospect of retaliatory trade actions by other countries as a risk for the U.S. economy, the minutes said. Officials’ contacts in the agriculture industry reported “feeling particularly vulnerable to retaliation.”

 


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A rising dollar is among the ‘biggest threats’ to the global economy, strategist says

A trade showdown between the U.S. and China is widely expected to be detrimental to global economic growth, while elevated tensions over the standoff between the world’s biggest economies has also dulled the dollar’s appeal.

There was a trade war … It took place last year and America won it because it effectively imposed 10 percent tariffs on China and 12 percent on the rest of the world and 15 percent on Europe by depreciating the dollar,” Paul Gambles, managing partner at Thailand-based advisory firm MBMG Group, told CNBC’s “Squawk Box Europe” on Thursday.

The dollar Index, the greenback versus a basket of currencies, is up over 1 percent since the end of January with most of its slide happening before that date.

Global economic growth could soon be derailed by a bounce in the U.S. dollar, a strategist told CNBC Thursday.

A trade showdown between the U.S. and China is widely expected to be detrimental to global economic growth, while elevated tensions over the standoff between the world’s biggest economies has also dulled the dollar’s appeal. The U.S. currency has recorded five consecutive quarters of losses, which includes the last quarter ending March 31.

President Donald Trump’s top economic advisor Larry Kudlow has since sought to ease concerns by saying the U.S. administration is in “negotiation” with China — and not engaged in a trade war. This helped stir a dramatic comeback in U.S. equities and prompted the dollar to rebound.

“There was a trade war … It took place last year and America won it because it effectively imposed 10 percent tariffs on China and 12 percent on the rest of the world and 15 percent on Europe by depreciating the dollar,” Paul Gambles, managing partner at Thailand-based advisory firm MBMG Group, told CNBC’s “Squawk Box Europe” on Thursday.

However, he argued the dollar has since showed signs of “forming a bottom.” The dollar Index, the greenback versus a basket of currencies, is up over 1 percent since the end of January with most of its slide happening before that date.

“I think the key point is the American economy and actually the global economy was predicated on the dollar continuing to fall … So actually even a 1 or 2 percent appreciation is quite dangerous,” he said, before adding that continued dollar strength is “probably one of the biggest threats” to worldwide economic growth.

Sound and stable

Last month, Kudlow said he believed a good economy policy included a “sound (and) stable dollar.” His comments were largely in keeping with previous U.S. administrations, who have traditionally been proponents of a strong greenback.

Nonetheless, at the start of the year, Treasury Secretary Steven Munchin had suggested dollar weakness was “not a concern of mine” only to backtrack a day later and reiterate that a strong “long-term dollar” is in the country’s best interest. Trump hinted before his inauguration that he preferred a weaker dollar.

Trade showdown

Meanwhile, an ongoing trade dispute between Washington and Beijing has fueled market fears of a full-blown trade war. This, in turn, could threaten to derail global economic growth.

Trump had unveiled a list of Chinese imports he aimed to target on Tuesday, as part of a crackdown on the Asian giant’s trade practice. Beijing responded with additional charges on 106 U.S. products less than 24 hours later, stoking concerns of a tit-for-tat trade war.
The White House has since sought to push back on the notion a trade war could soon breakout, aiding dramatic recovery for U.S. stocks in the previous session.


 

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Author Sam Meredith

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