John Butler's Contributions

Created in 2008 by the mysterious ‘Satoshi Nakamoto’, in the past few months bitcoin has gone from a fringe financial technology topic to a mainstream media phenomenon. The debate is now raging as to whether bitcoin is, or is not, a sound form of alternative money.

For those rich in assets, 2013 was a good year. Equity markets, especially in the US, rose substantially. Property markets continued their recovery. Even bonds, which lose value when interest rates rise, did well overall due to spread compression and the generous ‘roll-yield’ associated with steep yield curves.

A quick look at history demonstrates that new Federal Reserve chairmen are invariably confronted with a financial crisis within months of taking up the single most powerful economic policy role in the world. A coincidence perhaps?

In a recent opinion piece published on Reuters, Professor Charles Postel twists himself into extreme pretzel logic attempting to explain that elastic, manipulated paper money favours the ‘have nots’ whereas inelastic, gold-backed money favours the ‘haves’.

The Brazilian Highlands comprise potentially the most productive agricultural region on earth. Rich in soil, sunshine and water, in theory their produce could feed most of the world. The present reality, however, is far different.

Since 1981, every August the great and the good from US and international monetary circles travel to the small but well-known Rocky Mountain resort of Jackson Hole to enlighten one another as to how best to manage or micromanage their respective economies.

The Fed recently triggered a spike in Treasury bond yields with a gentle hint that it might begin to scale back its purchases later this year. Markets appear to have taken the Fed at its word, in so doing providing clear evidence that quantitative easing (QE) has created a large bond bubble.

Back in 2002 Warren Buffet famously proclaimed that derivatives were ‘financial weapons of mass destruction’ (FWMDs). Time has proven this view to be correct. It is difficult to imagine that the US housing and general global credit bubble of 2004-07 could have formed without the widespread use of collateralized debt obligations (CDOs) and various other products of early 21st century financial engineering.

In this report, I consider the goals and methods of foreign exchange intervention and place today’s policies in their historical context. Also, I examine the evidence of where covert intervention—quite common historically—might possibly be taking place: Perhaps where you would least expect it.

Back in mid-March I made the latest of my somewhat rare specific, near-term market predictions, in this case that a US stock market correction or even a crash was imminent. Now some six weeks and a further 5% rally later, I revisit this view.

David Stockman’s The Great Deformation is a tour de force work of historical revisionism that demolishes the conventional economic and political wisdom prevailing both prior to and in the aftermath of the 2008 global financial crisis.

The Cyprus banking kerfuffle has ignited a blogosphere storm debating the likelihood that depositors elsewhere, perhaps even ‘guaranteed’ ones, may find themselves on the hook for recapitalising their domestic banks. Largely lost in this discussion however is the unpleasant reality that a substantial portion of the international financial sector has been undercapitalised or even insolvent since at least 2008, if not before.

On rare occasions I make specific, near-term market predictions, most recently in Q3 last year, when I called for a modest equity market correction. As it happened, only a tiny correction occurred, followed by a large subsequent rally taking the S&P500 index to 1,550 this week.

The evidence of a major breakdown in global economic and monetary cooperation continues to mount. Just yesterday, the G7 released a statement regarding foreign exchange policies, only to be followed by a corrective statement that the market reaction was undesirable.

On multiple fronts there appears to have been a resumption of hostilities in the global currency wars. A subtle indication of this is the recently released report, Gold, the Renminbi and the Multi-Currency Reserve System , which I believe is highly significant for two reasons

In a report published today, the Official Monetary and Financial Institutions Forum (OMFIF), a global organization of central banks and sovereign wealth funds, recommends that gold be remonetized for use as international money, alongside major currencies.

John Llewellyn is one of the most highly regarded economists in Europe, having worked in the private sector, academia, and national and supranational policy institutions. He now runs his own consultancy, advising governments, multinational corporations, and institutional and private investors.