Weekly Digest: Fed Split on Inflation, Tether Mystery

Newsdesk

10 minutes read

Oct 14, 2021

gold tether stable coins stacked up

14/10/21: Gold price is going up, some Fed officials are getting impatient with the “transitory inflation” mantra, a wild search for Tether's billions continues. And more.

Investment

The new U.S. inflation data has sent the gold price towards $1,800, with the latest move taking the precious metal nearly $40 higher on a day. Silver, meanwhile, has broken the psychological barrier of $23 per ounce.

September's inflation numbers showed price pressures accelerating to 5.4% on an annual basis, slightly more than the market was initially expecting.

"Gold is entering a period where risks now outweigh the reopening trade, and we'll see more safe-haven flows into gold. This is a major reversal of trends and very positive for gold,” OANDA senior market analyst Edward Moya told Kitco News.

⭐ Poland’s new move on gold: the National Bank of Poland (NBP) has confirmed its plans to buy another 100 tons of gold in 2022, after purchasing 100 tones of gold bars back in 2019.

Why is Poland buying more gold? Central Bank president Adam Glapinski explains: “Because gold will retain its value even when someone cuts off the power to the global financial system, destroying traditional assets based on electronic accounting records […] Gold is free from credit risk and cannot be devalued by any country’s economic policy. Besides, it is extremely durable, virtually indestructible.”

“Due to the above factors, gold is treated as the so-called a safe-haven asset, which means that its price usually increases in conditions of increased risk, financial and political crises, or other turmoil in the global markets,” he added.

The U.S. House of Representatives on Tuesday approved a bill to raise the U.S. debt limit to avert a first-ever national default. The legislation, which will lift the debt ceiling by $480 billion will allow the Treasury Department to pay the country’s bills until early December. (CNBC)

The current U.S. national debt is $28.4 trillion and would be allowed to rise to about $28.8 trillion. Joe Biden’s top economic advisor has told CNBC she would “fully expect” a U.S. recession if the government failed to pay off its bills and triggered a default.

“Transitory is a dirty word”: Federal Reserve Bank of Atlanta President Raphael Bostic said this year’s surge in inflation is lasting longer than expected, which makes it inappropriate to refer to such price increases as “transitory.” (Bloomberg)

“It is becoming increasingly clear that the feature of this episode that has animated price pressures — mainly the intense and widespread supply-chain disruptions — will not be brief. By this definition, then, the forces are not transitory,” Bostic said in a virtual speech to the Peterson Institute for International Economics.

However, Treasury Secretary Janet Yellen stuck with her assessment that U.S. inflation will prove “transitory,” while acknowledging it might not go away soon.

China’s Evergrande could be formally declared in default Oct. 18-19 after missing its third round of bond payments in recent weeks amid mounting fears of a wider crisis. (Reuters)

Evergrande shareholders still haven't received roughly $150 million worth of coupon payments that had been due on Monday.

"It is pretty serious now and it looks like it is going to be a long and drawn-out process," said London-based Trium Capital fund manager Peter Kisler about Evergrande and the possibility that the situation could spill into a wider crisis.

The SEC is about to make a move that would raise the spirits among crypto advocates: by the end of this month, the U.S. Securities and Exchange Commission might approve a set of applications for futures ETFs based on Bitcoin. (Bloomberg)

“We are pretty bullish on approval here. We just can’t see Gensler and the SEC going out of their way to state positive comments about a 1940-act Bitcoin futures ETF at the end of September and then denying all of them less than a month later,” said James Seyffart, an ETF analyst with Bloomberg Intelligence.

SEC Chair Gary Gensler has said earlier an ETF that complies with the SEC’s strict rules for mutual funds could provide investors with necessary protections.

Opinion

It seems that the current supply chain problems have “no parallel in recent economic history”. Due to a weird mix of Covid and bad luck, transportation, energy, and high-quality semiconductor chips are now in trouble. In the U.K., natural gas prices have increased 700% over the past year, while Europe risks not having enough energy supplies for the coming winter. (Bloomberg Opinion)

“These problems with the supply chain will eventually straighten themselves out, even if no one can say exactly when. In the meantime, suppliers and distributors — as well as consumers — can perhaps take some small consolation that they are navigating, and hopefully persevering, through a complex mess that has no close parallel in recent history.”

Tether’s $69 Billion Mystery: there are now 69 billion Tethers in circulation, which means that Tether Holdings supposedly holds a corresponding $69 billion in real money to back the coins — an amount that could make the company one of the 50 largest banks in the U.S. But has anyone seen Tether’s money? (Bloomberg Opinion)

“For years a persistent group of critics has argued that, despite the company’s assurances, Tether Holdings doesn’t have enough assets to maintain the 1-to-1 exchange rate, meaning its coin is essentially a fraud. But in the crypto world, where joke coins with pictures of dogs can be worth billions of dollars and scammers periodically make fortunes with preposterous-sounding schemes, Tether seemed like just another curiosity.”

What else is happening

A record 4.3 million U.S. workers left their jobs in August, with bar and restaurant employees, as well as retail staff, being affected the most. (CNBC)

“There is an enormous labor shortage in the country right now and it is not just because people are quitting or have child care problems, or can’t get to work due to the Delta variant,” said Chris Rupkey, chief economist at Fwdbonds.

Credit Suisse waives fees for clients affected by Greensil funds collapse, a person familiar with the situation said, calling it a “gesture of goodwill.” (Reuters)

Switzerland's second-biggest bank has faced several challenges this year including the collapse of Greensill Capital – a financial services company, with which the bank has several ties including $10 billion worth of funds.

G7 advisors said in a report the governance of the world economy needs to be overhauled to make sure it can resist future health and economic shocks, as well as challenges posed by climate change. (Reuters)

The report will form the basis of discussions at a Group of 20 leaders' summit in Rome that will take place later this month and at the COP26 Climate Change Conference in Glasgow in November.

And finally…

🚕🚀 Flying taxis? This could be our reality in the mid-2020s. At least that's the plan of Stephen Fitzpatrick, founder, and CEO of British aerospace manufacturer Vertical Aerospace. (Reuters)

The VA-X4 aircraft is still in construction and is supposed to start test flights early next year.

"The process of certifying the aircraft is known. The technologies are new, but the steps we need to go through are relatively similar to other aircraft," said Fitzpatrick.

See you next week!


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