Rematerializing the Upper Limit of the Debt In Order to Be Renegotiated

From “Dividing by Zero” (Global Knowledge, 2016-2017), Ana Nives Radovic 

American central financial institution Federal Reserve had a goal to stimulate economic growth after the crisis of 2008 by issuing assets ready to be sold on capital market with Quantitative Easing program. Released in three series, QE programs were far from boosting growth, on the contrary, it made economy weaker and more dependable on artificial measures.

That type of a massive financial formation without having real support in the creation of goods and services has proven to be a disaster and instead of learning an important lesson on what the risks of this type of action look like, European Central Bank decided to do the same few years later.

The only institution that has sincerely opposed this type of program was central German financial institution – Bundesbank. The thing is that the ECB was unable to copy the model, while also something that was taught to be the derivative was not applied properly.

Fed was paying off a record dividend to the US Treasury, which was directly linked to the enormous revenues that the Fed received from its acquisitions of assets under its smallest amount of compliant monetary policy followed in 2015 in order to grant liquidity to capital markets and to ponder on long-term interest rates to encourage economic revival.

It might seem unclear whether the influence of the USA comes from its GDP that is still as high as the real economy is in underprivileged shape, so there should be highlighted that most of the wealth produced in that country this way is, in fact, fabricated and comes from financial or banking yields.

Even after completing three series of QE, economic growth in the US continued to be poor, without any visible improvement. One might say that without it American economy would have collapsed, but the thing is that these measures have a result that is in financial sense equal to the amount of resources invested. Contraction the fiscal conditions of the federal authorities, with a quick turn down in the deficit could not, nor in theory, nor in practice, promote growth.

The upper limit of the debt was rematerialized in order to be renegotiated, which caused the increase in real estate price matching with tightening of credit conditions, so consequently the unemployment rate became higher than the situation with this program was supposed to allow. Though, at the very beginning this type rescue was designed to be something that others __ and would therefore be the supreme irony because, as we know, it is the Fed that has been actively working to set aside the financial institutions in the U.S.

The growth rate since last June is lower than projected, which is certainly the major point, since it might mean that there could be a doubt in the efficiency of the Fed policy, because that institution would become a victim of the prominent law of withdrawing.

Sooner or later the operations being discussed become less valuable and apparently create stubborn effects that will be complicated to manage, so the results are finally rather underprivileged in terms of the means arranged through the amount of money added to boost the liquidity.

In this regard, the Fed is paying to the Treasury the total of its earnings, reduced in particular by the operating costs of its headquarters in Washington and the dividends paid to the twelve regional banks constituting the Federal Reserve system. This status is supposed to ensure the sovereignty of its choices in relation to the government. The Federal Reserve does not receive subsidies from the Congress for its operation.

The advantage of the current position is derived from accrued interest on financial securities obtained by the central bank as part of its monetary policy support to the economy, consisting of treasury bills and mortgage-backed securities.

Yet the exit strategy of quantitative rate is lowering down, which would not only stop buying bonds, but also sell them back step by step, could prove disastrous for the Fed if it were to correspond with a strengthening of interest rates.

There is a fear of the explosion of a bubble which never stopped inflating, especially as the number of jobs is falling and that the number of bankruptcies is continuously increasing. Besides that it should be stated that, unlike the ECB, the Fed has the right to buy public debt securities directly on the primary issues market, so it can consequently directly finance part of the budget deficit of the U.S.

ECB Is Hiding Public Debt Instead of Stimulating Growth

From “Dividing by Zero” (Global Knowledge, 2016-2017), Ana Nives Radovic 

The European Central Bank has injected huge amounts of assets into the economy over the past two years in the course of rediscounting public debt of the Eurozone countries, which represents an exceptional monetary measure, referred to as quantitative easing is intended to bring back the rise of the inflation rate, which is itself supposed to neutralize the deflationary and recessionary forces that are affecting development.

euroWhile in the beginning the single European currency was weighed down by the proclamation of these new measures to support the European economy, it has recovered against the dollar once the ECB has suggested that descend in interest rates should not necessarily carry on for the foreseeable outlook.

Since at that moment investors are beginning to distrust the efficiency of the monetary policy of the ECB and are increasingly worried about the collapse of solutions, and since the hope that its leaders have expressed that the rates should not go lower is not something that could restore their confidence. After that the dollar plunged to the lowest level since mid-February against the single European currency.

The whole situation has emerged at the times when recession started to put pressure on interest rates, because the investment requirements were extremely low, so the quantity of money borrowed falls by diminishing the interest rate. After this the ECB announced that it would lower its major interest rate to zero, with the plan of infusing inflation and increasing growth.

These conditions have caused the creation of three big problems – first of all, the situation that even the ECB has lowered rates the growth of the inflation rate did not return; second, the euro that lost its value because there was plenty of ready to use money in the financial sector of the Eurozone; third, the increase of public debt, since it was the tool that served as a security to the money produced.

Besides that, all of the liquidity boosters made the euro more plentiful, which decreased its value, first of all against the dollar, causing it became cheaper in terms of interest rates, while on the other side these financial actions constitute the access of the unsound environment of public debt. Conversely, any downgrading of the green currency makes dollar purchases of gold less expensive for traders with other currencies, which is a trend expected to uphold the price of gold, which as well benefits from its category as a safe haven, boosted by these circumstances.

With no the refinancing of the ECB, this kind of debt would have suppress the economy by collecting the money of individuals and companies, in the course of the balance sheets of banks and insurance companies, so the Eurozone countries have found a disposed creditors for their own refinancing at zero or even negative rates.

However, the two key features of this kind of indebtedness are that the total amount is equal with the aggregate of the sums borrowed by the country and the interest on the debt that the government has agreed to pay. On the first sight one might conclude that it is acceptable to practice financing by debt, though in this case, without bearing the burden of salaries, so in order to repay this debt the Sđstate has only one option and that is to charge a tax by forcing the taxpayers to pay it, which also has its particular cost.

In those cases when the central bank lends the money to the government at zero-rate, the central bank makes pure monetary creation since it does not pay off. This creates the market tension, especially because of the growing complexity of the repayment of the debt reinforcing the distrust of the depositors.

The only subject in the Eurozone that has the privilege of monetary creation is the ECB, although the Treaty of Lisbon bans lending directly to the states, explaining that that might mean rescuing the countries that would be those who receive the money by other members at their own cost, as well as in order not to cause inflation. Consequently those would be the Eurozone members that agreed the massiveness of their public debts, slightly in the form of deposits made with credits where other members act as lenders.

The situation as such would generate an extremely high inflation rate. Besides that there would be seen the strong tensions on interest rates or stimulated outcomes that would further increase it, creating an environment completely insupportable, both for households and companies, strongly affecting the poorest ones, as well as inflicting a heavy blow on middle class whose purchasing power would decrease so rapidly that the income tax would be impossible to collect in the amount planned by the yearly budget.

These were the reasons why monetary creation was presented as required. However it is inadequate to stimulate growth and inflation this way, because its actual purpose is to hide the public debt in the balance sheet of the ECB in the course of insignificant interest rates. Besides that, these are the banks that this possible through very low or zero interest rates, and whose savings will ultimately be cut off by inflation.

European contracts do not allow ECB to buy new debts issued by the Eurozone members, though it could only purchase them on the secondary market, using the existing savings rather than printing new money out of nothing. However, such public debts stay in proper balance sheets only as much as it is required to relocate newly issued money through quantitative easing program, which made these public debts replaced by nonexistent monetary assets.

All of this is a subject of financial authoritarianism, which represents a situation that leads to recession and a struggle against debt repayment. Financial repression is a context characterized by artificially low rates to reduce the burden of the public debt burden.

Medium of Exchange Rather than the Tool for Value Accumulation

From “Dividing by Zero” (Global Knowledge, 2016-2017), Ana Nives Radovic 

Explaining the meaning and the purpose of the digital currency bitcoin has lead to defining its level of soveregnty in comparison with the existing monetary system or the position of leading central banks, where many people think that a country is sovereign and that if it has contracted a debt in a currency, it is free to reimburse it in another country it chooses.

Since bitcoin was not created by banks, it does not depend on any state and it is also not linked to any specific currency, therefore it is not tied to a specific central bank. Bitcoin is interchangeable with dollars, euros or any other major currency. From the economic standpoint, it is a classified currency that is not issued by a bank, and is not linked to a currency agreement.  Beside sthat, it does not have a monetary policy.

If we consider currency such as euro a reward without fundamental value whose procedure is imposed on their users, there is an open question what actually digital currency is and what is it used for.

The easiest way to explain it is to observe euro as a coupon in the monetary sector in which the euro has legal tender. A banknote is a holder’s declare valid in any country where it is in the payment system and it represents a means of payment without inherent value, valid in a large geographical area.

Bitcoin is not a commodity money, nor a fiat currency, since it has no required price. It shares are not being backed by a material asset, since it has value only because economic actors agree to use it in cases where the internet facilitates exchanges between them.

There is no need for great thoughts to look forward to the effects of such guidelines. It is oriented more towards the monetary exchange purpose than to be a tool for accumulating value, even though its deflationary character can theoretically guide to that.

While alternative currency applications are generally distinct by a very strong constructivism or by the necessity of force to enforce a new conception, bitcoin is a merely individual project which aims to rise above private initiatives.

A restricted amount of a valuable supply whose worth cannot be affected by state assessments shows that this is an example of something that can be called digital gold, because the volume of the user base is increasing, which show the way to a price increase.

Besides that, the profile of buyers is widening, too, so it is no longer reserved only for experts in the digital world, assuring users by the rapidity of transfers and the safety of the new currency.

As a result, the bitcoin sustained to grow to the point of declaring itself as the financial asset with the best annual performance in all currencies during 2016. The bitcoin reacts like an asylum since younger generations do not believe in gold as their parents do, and in emerging markets in particular, this cryptocurrency becomes the investment to refer to, whereas it is much easier to use than gold.

This digital currency is resistant to money-laundering, which is the catching disease of growing number of central banks. The reason of its immunity to this it is written in its algorithm of operation (not modifiable) that there will never be more Of 21 million bitcoins in circulation.

Some of them have already earned enormous gains … while we continue to settle for a few percent per year. As one can imagine, such an increase has made some people extremely wealthy, but for once, it was not a handful of bankers. The funds could be generated in order to start new business and helping others in the transition to this new form of savings and banking.

When a Rescue Plan is an Obstacle to Recovery

From “Dividing by Zero” (Global Knowledge, 2016-2017), Ana Nives Radovic 

The central financial institution of the United States, the Federal Reserve, directs global finance, as well as the big part of the global economy, and that is the reason why financial markets worldwide apparently replicate unreservedly qualified prices, since they are entirely under the Fed’s control.

unnamedThe highest position in the system of Fed’s regulations is the way it regulates admission to the American dollar, since currency is no more than the credit, so the money became no more than additional alarming part in the flow. In processes as such it is the ready money that is guaranteed by a government, while the credit is guaranteed by the banks, so the Fed regulates the price of credit by setting the policy rate, though banks, Wall Street and financial markets depend on these proceedings.

The regulations of the Dodd-Frank Act delayed their way of performing, which has resulted with certain very specific changes so far. The Dodd-Frank Act was adopted after the 2008 financial crisis in order to enforce capital inflow and annual stress tests performed on large banks, whose insolvency may create risks to the global financial system, ensuring that they would hold out financial shocks. However, this act is the object of disapproval of the new American administration, which condemned the guidelines of banking business.

President of the U.S. Donald Trump stated that he hopes that his administration will cut down on Dodd-Frank’s law tremendously because “some of his friends with beautiful companies cannot borrow money”, explaining that the reason is that the banks do not want to lend them “because of the rules of the Dodd-Frank law”.

The whole process represents a big challenge, though the current administration does not have a strong point on numerous of these issues, apart from trade and overcoming the Dodd-Frank Act on financial regulation, there is still a chance to achieve a compromise. The Dodd-Frank Act, quite the opposite, offers a complete framework enabling the institution that plays very important role, the securities Exchange Commission and its commodity equivalent, the Commodity Futures Trading Commission, to assume responsibility of these financial instruments.

Since Trump became the president and since he began to talk about deregulation, the shares of the six major banks saw their price rise by more than a third, lead by the Bank of America with a spectacular 48.8% in one quarter. The exceptional debt of US non-financial corporations rose to more than 13 trillion dollars, including around $3 trillion in debt since this act was passed in July 2010, though not all of them come from bank loans.

As the Fed has trimmed down interest rates to zero, the cost of borrowing became extremely low in the capital markets, so that situation encouraged makes use of ready money available. However, even if some of these debts come from the bond market, the guarantee of the debt in itself is often controlled by the biggest banks.

There are several things that occurred this month that lead to wrong conclusions regarding plans of Trump’s administration that does not act like nation-state and that is unwilling to correct their own mistakes, creating an apprehension of huge self-destruction. There is also a fear that, as it is the case in many other developed countries, the middle class will be furthermore downgraded especially because the growth is based on indebtedness, so there are only credit sellers who actually see the benefits of such “potential” where thousands of billions have been unsuccessfully redistributed.

From Fed’s standpoint there is a change in the approach where, instead of using the speed up tools in order to stimulate the economy, they now let it step up, limiting it with the point where it completely holds up the accelerator. This practice still allows a sufficient amount of control, as well as the possibility to exploit market potential in order to strengthen financial sector rather than really stimulating growth. It is yet unclear what at what phase of this process American economy is at the moment, but it unquestionably took one more step towards the ultimate devastation when it started to practice Quantitative Easing programs and everything that was later meant to be the substitute.

The situation after those programs ended was lead with fictive increase of interest rates, which have caused even more confusion since the lower the rate – the more credit is available, while at times of higher rates, the fewer ready money is available, allowing only banks to recover. Those credits were primarily given to institutions significant for Fed’s success, combining the policies of the U.S. government and the leading banks, who then redistribute it to their partners at higher or lower prices, such as multinational corporations with top credit rating, oil producers, other banks and other governments etc.

In a situation where Congress is not in a position to balance the budget or cut spending substantially it is not even possible for Fed to let monetary policy return to standard, since a huge amount of artificial credit facilitated by this monetary system flooded all tools of regulations, making them dysfunctional. Years of development of a financial system as such allowed cheap credit to go first to those with debt capability, such as the richest subjects, big corporations and Wall Street magnates, instead of to those whose wealth stimulates spending, i.e. consumers, since an average worker gives one hour of their limited time, where only 25 dollars could be brought, while a Wall Street insider could get an unlimited credit at the price that is under the actual rate of inflation.

A huge concentration of these credits made them become bad debts which have significant reflection on Fed’s balance sheet, and in order to solve that problem there is a taught that they should be putted back on the market, which created a remarkable concern, since the collection of credit up to that point grew relatively fast. In case of the situation where Fed revisits debt selling, it continues in return for the money and therefore the amount of credit or currency diminishes instead of growing constantly. By doing so, the Fed risks the explosion of the bond bubble, since there will be fewer buyers for bonds so rates will go up.

One of the key arguments that Trump’s administration suggests is to withdrawing all or part of the Dodd-Frank Act, besides the fact that it was created by the administration of Barack Obama is that it reduces bank loans. For the current American administration this represents an obstacle to economic recovery, while, according to Fed, all loans and leases over the last three years granted by US banks increased by 6.9 percent each year, while during seven years before the crisis that rate was 7.9 percent. The central U.S. financial institution still preserves the option to restore a possibility for monetary discourse, indirectly showing that it will never take a chance of disturbing the markets.

There are several implications of such policies on the current financial policies of the U.S. that reflect on other central banks worldwide and the one is that the banks lent the companies about 80 billion dollars every year, where corporations had approximately two billion dollars of ready money that they could use to expand employment or growth, though instead they borrowed huger than ever amounts of money in order to convert their shares or to reimburse dividends. During this process companies supported by banks disfigured the market equity by not allowing it to boost through actual investment or reasonable assessment of their companies.

Conditionally, and if the Fed keeps on with these policies, the equity markets will witness distractions, since there are many cases where trading items have seen an upward march, so while the reforms and major investments are slow to occur, they could take the threats very seriously. There is also a fear about the decline of many debt-dependent economies, having in mind that central banks have established themselves as major consumers of all kinds of bonds, but also as backers of available credit, both for business sector and for governments, so if they give up this position, the whole situation will be very difficult.

Besides that, banks involved in this process are mandatory to maintain an assured quantity of reserve requirements with the Fed, having in mind that the quantity of reserves deposited with the central bank of the U.S. was close to the required reserves, but since the 2008 crisis, the amount of reserves overload deposited has reduced and it now stands at around two billion dollars, which means that it is not the Fed regulations on minimum reserves that bound bank lending, but that those are the banks that are limiting themselves because they fear future defaults.

This means that the Fed no longer performs quantitative easing officially in terms of not printing money to buy Treasury bills, though in reality, when a requirement it holds matures, they are buying another to roll the debt. Therefore, there is a possibility for Fed to reduce its financial statement, since its balance sheet would therefore be subject to an easier regulation and for the current U.S. administration that is not a satisfying outlook, because the Fed was certainly a shock absorber regarding its purchase of Treasury bills at times when the government became dependant on borrowing.

Another thing is that Fed figures demonstrate that business lending action has been stronger than it was supposed to be and that is why it is beginning to weaken. There was an immense credit spreading out cycle with low-priced money created by central banks and ultra-accommodative monetary policies, though the failures to pay and complexities in the credit sector were increasing.

At this moment it is Trump’s administration that could relieve tension by transferring supremacy and money from one section to another, which, of course, would not be sufficient to change the system and neither the Congress nor the Fed could stop the credit cycle at this moment. Unlike actual money, borrowed money is subject to the credit cycle that causes its boosts and falls, and at times when the reduction is acceptable, the whole system is under threat.

Zero Rates – a Symbol of Inefficiency and Nonsense

From “Dividing by Zero” (Global Knowledge, 2016-2017), Ana Nives Radovic 

Last month’s decision of the European Central Bank to keep interest rates in Eurozone under their historical minimum, with the key reference rate at zero, as well as to leave their substantial public and private debts accumulated since 2015 operational was followed by this institution’s decision to leave the marginal lending rate at 0.25 percent, allowing banks to borrow for 24 hours.

nulta stopaThere has been stated that with zero interest rates banks will be capable to fund themselves at no cost from the ECB, and should consequently lower the rates they apply to their customers who owe them. The low down rates of the ECB have an automatic influence on the short-term savings, since a bank cannot have enough money to pay cash at a high level, and thus since it cannot lend at a good price, because it would lower its margin. The ECB disclosed a set of monetary policy procedures, counting a turn down in its central rate to zero for the first time in its history, adding a new oversized long-term loan for banks, where the first part of the plan has continued its realization relatively as intended, considering that, since the ECB took out its financial plan, savings of citizens across the Eurozone have witnessed how the average salaries declined.

This means that if the ECB decreases its interest rate, it wants to promote credit activities and therefore enhance investment. Increasing it in this case means that there is a visible threat of inflation, since too much money is in cash flows, while prices are rising rapidly, so there is a need to be in charge of the situation. In a situation as such, political risk is one of the main challenges for this year and the ECB authorities are fully aware of that, so they are willing do everything they could to prevent market disorder, even though their action might make the situation worsen. There should not be any new proclamations of new decisions related to interest rates, though this is the beginning of monetary contraction that seems untimely if it happens sooner than key elections in several countries, alongside a conditions of increasing populist movements, so the ECB is not willing to witness additional uncertainties.

As ECB invested in very short-term products, it is the capital that is mostly affected by the zero rates, particularly commercial paper issued by corporations. By longstanding stagnation, there should be understood a situation of fragile growth marked for long by near to the ground and even zero interest rates. A recovery of growth and inflation is in progress, since the demand deficit is not unavoidable and since the additional savings are expected to overturn, efficiency is supposed to raise. Therefore the ECB has decided to initiate a wide-ranging asset purchase program, which has drawn together, but also surpassed the previously announced programs. The program of Quantitative Easing, which started in March 2015, consisted of purchases of private and public bond securities on the secondary market for a amount of 60 billion euros every month and has been decided due to the collapse of inflation and the risks of deflation to the Eurozone. Added to this, zero rates and especially the negative rates are a symbol of nonsense, since the zero point in a range of values sends the message that there are no other points.

Overnight deposit rates that were found in the negative area for the first time in June 2014 were maintained at -0.4% and they were strengthened last month, passing from -0.3% to -0.4%. A negative rate is supposed to support banks not to leave this money for the central bank but to loan it to their clients, which means that banks have to pay a fee to the ECB for surplus cash for 24 hours. There are big differences in assets between a rate that goes from one to five percent, measured up to to those that would go from zero to one percent, since zero point  is mainly due to the fact that dividing any number by zero is not possible. In practical translation, a rate of 0% allows an economic agent to borrow in theory an unlimited sum with a zero cost. Zero point suggests the perception of unwarranted action, increasing to a substantial psychological aspect visible in investors’ behavior. The turn down in borrowing rates used by the state has a straight collision with the income from funds on life insurance contracts, which are still mainly composed of government bonds.

At these times, when the outcome is round after a while as insurance companies maintain debt securities acquired several years ago higher than debt issued, the ECB introduced the scheme where the threat becomes zero or unreal and where the time value is zero. However, time has a value, shown through scoring, distance and having lack of it. The depository banks also increase its debt repurchase volume from 20 billion euros per month to 80 billion, extending the possibility of qualified securities for these procedures. There are no visible proofs that the aims of the ECB are really there, whether inflation, targeted at the rate of two percent, or economic growth in the Eurozone, which is an economic oddity that has never been explained in economic theory. At the same time the ECB was strengthening its comprehensive debt exchange program and for two years of its presence it has distributed 1,740 billion euros, so the range of securities entitled for debt repurchase has been comprehensive to consist of bonds issued by corporations in the Eurozone, apart from banks.

There was seen the recent rise in prices that is mainly owed to the rise in oil prices, which were noticeably lower at the beginning of last year, and to a boost in food prices, especially fruits and vegetables, caused by a very harsh winter in southern European countries. Taking unpredictable elements into account, such as inflation generated by wage increases will prevent it to remain too near to the ground to give explanation for any monetary contraction, though as often, the common sense of every decision-making reminds us that when a strategy does not work, it is because the institutions have not done enough. The securities purchased through the QE program may have a maturity of up to thirty years, which will be arranged under a rule of proportionality to the involvement of each government in the ECB scheme. Securities purchasing practice should not provoke governments to budget lack of discipline, since all the procedures announced last month go beyond the potential of the markets, which were only waiting for a boost in the repurchases of debts and a decline of one of the deposit rate. It is comprehensible that in this procedure the liquidity increased by 1000 of cash in order to carry on playing, the banks recovered their positions completely and the ECB recovers the decomposed risk and the risk of default, so clearly this is how billions of euros are being created fictiously. In substitute for the debt in custody by various banks, ECB simply credits its bank account of 1000, just by notional inscription of 1000 more.

This is the situation where no more than these type of investments are supposed to be made, hypothetically, of adjustable monetary policy, so it has generated an incursion of ready money placed in various shares. Somewhat approximating to the fiscal deficits, that are supposed to enhance growth, when there was no visible growth, the shortages were not high as much as necessary, which is similar to the refinancing rate, in the sense that it applies when a bank requires liquidity, though these loans are on a daily basis and have to be repaid for the next day, different from the refinancing rate, which is weekly.

The ECB has managed the purchases of securities within the limits specified by central banks of Eurozone members so that the risk taking was covered 20 percent by the ECB in the structure of a cohesion principle, while the rest was under the responsibility of each central bank. Projected low rates were supposed to encourage investments that were planned to stimulate growth based on positive action of businesses and consequently their stock market appraisal. For the first time in four years, inflation in February reached the targeted rate of two percent, exceeding the ECB’s target of a slightly lower price boost, while at the same time economy of Eurozone has shown certain signs of strengthening. A crossroad in the ECB’s point is not to be anticipated before the meeting expected in June, which is enough time for opponents of current ECB’s policy to come up with different solution that would stimulate lending, investments and growth rather than zero rates that make fictive results.

Understanding Blockchain: The Main Objective and the Initial Challenges

From “Dividing by Zero” (Global Knowledge, 2016-2017), Ana Nives Radovic 

Blockchain and FinTech play a central part in the digital revolution that shakes the world of banks, insurance companies and more financial markets in general, therefore it is the reason why a new arrangement will allow the revision of the positive law in order to empower the issuance and the conduction of certain non-admitted financial securities to the operations of a central securities custodian by using this platform.

fintech perperzonaTo understand the scope of FintTech and blockchain revolution it is necessary to recognize a speeding up of hi-tech innovation which includes the tendency towards better connection with related parameters, such as rules and their fulfillment, changes in banking practice, and increased rivalry with FinTech start-ups that take advantage of their quickness to have a strong impact on the outdated financial sector. If a majority of “minors” agree on the possibility of the transaction, then it is validated, time-stamped and entered in the common register. A new block is then added to the blockchain in chronological order and definitively. This approach, which is at odds with the current model, however, faces certain slowness and a high cost because of the computing power required to verify each transaction, limiting its development.

This practice has been developing since the crisis of 2008, both in the securities and in cash system. The key problem that was visible from the earliest days of blockchain development was that the current banking system that is planned to be improved is that it requires outsized technical resources, as well as huge number of people on each side involved in these parts of transactions, such as the institutions who play roles of the lender and the borrower. The key element of change introduction is openness, fundamentally through the exploit of a blockchain. One of the main principles is that the collateral must be revalued at standard time, such as daily or in every few hours, in the same way as the accumulation of contracts or open positions it is supposed to wrap, associated with the market price of the security on the market.

digital perperzonaHaving in mind that the period without any constructive action has lasted too long, there is a strong decision of bitcoin enthusiasts to overtake the force and to encourage a new version of supplement to the blockcahin world, which competes the very first version and proposes an irreversible adjustment of the rules of the software that governs the bitcoin, in order to boost the control of the network and that it deals more transactions. For the achievable incorporation of additional protocols, the enthusiasts will be focused on bitcoin combination in conjunction with other fiduciary currencies.

This consists of more influential and consensus-based schemes that are related to a assured level of trust between participants. Since the blockchain usage raises less authorities or security concerns, it is not unanticipated that conditionally this technology is implemented to advance obtainable solutions. With the idea to face these fluctuations as well as the potential fractional return of securities, a margin call is considered among the two parties, where each of them is launching their own assessment, putting it side by side it with their counterparts. The usage of blockchain in financial sector could revolutionize the situation fundamentally, by reducing the significant amount of complexity of the reconciliation processes.

binary perperzonaThis platform intends to make this process straightforward by performing only one computation and submitting a harmonized representation to the stakeholders, consequently eliminating dissimilarities in theory. To make this transformation take place, a greater part of mining instruments will fall behind the idea that it should correspond to three-quarters of the computing power of the network for two weeks in order to reveal that it runs the engine correctly and can consequently enforce this new standard reasonably. Experiencing any kind of bugs at this time will lead to solving problems at the earliest stage in order to prevent any risky situation before broader implementation.

All of these shows that the users are hence reliant on its volatility, which is the spot on which bitcoin enthusiasts must not fail to turn down any liability, clearing up that the rate of conversion of the regular money into bitcoin may be dissimilar from what is relevant when we convert bitcoin into regular money. This does not mean that one might require bitcoin address in order to send money, since an e-mail or a phone number is as much as necessary, though the beneficiary does not have a digital wallet in some of major supported currencies they will receive bitcoins which could be exchange on other platforms.

ethereum perperzonaDepending on how successful this overthrow will be in early stage, as well as on how soon bitcoin that we know today and some advanced type of it will differentiate we will see how their registers where the transactions are recorded develop and later in which sense they might confront. We have already seen how that altercation works with ethereum, which at this time benefits indirectly from all those slowdowns of bitcoin. Regarding the relationship between blockchain and ethereum, it consisted in increasing, as an experimental platform which engages certain types of smart contracts that can be defined as self-ruling processor code evolving in equivalent of the database and capable to fulfill the requirements of exchange if assured conditions are met. Over the past several years cryptocurrencies benefited mostly from the keenness, passion and trust among the members of global bitcoin community, which is the reason why many enthusiasts believe that this type of transactions represents the future of money, explaining that it would soon totally replace traditional currencies, which, of course, could not be the case in the short term.

When it comes to regulation, it will depend on how authorities of certain countries would be willing to adapt the regulatory framework to those subjects that will be offering this type of services, but, as it is the case with many payment services, we expect to see restrictions in electronic payments related to gambling etc. and they will have the right to put back or cancel these transactions without warning, as well to adjust the time limits for exchange and withdrawal. This new system would be the support for big cryptocurrency mining companies, and consequently the absorption and centralization of this movement into an oligopoly. More commonly, this divergence illustrates this background’s opposition between mining businesses and the group in charge of the improvement of the bitcoin network, that brings all important resources together.

blockchian perperzonaBlockchain is in particular a technology of immediate synchronization of data, so the realization of transactions is not reduced to bringing together books of accounts, therefore it is necessary to perform a certain amount of tests in order to authenticate particular conditions and finally to make sure that the operation fulfills with the regulations in force, which means it still should involve some brains that the technology itself does not provide. Furthermore, it would be too optimistic and even unreal to expect that this technology could transform the payment industry in the next several years since the current technologic usage is not tailored to the performance of mass payment resources that require short-time responses, as it is the case with payment cards.

The formation of a private blockchain, shared with the smart contract tools, comes out to be the ultimate explanation to optimize the reconciliation procedures between financial institutions at the same time as lasting visible to the supervisory body. In any type of transaction services this is supposed to ease the automatic transmission of verified information, while automating the confirmation procedures and definite supervisory and that is the reason why these segments would take an advantage to a great extent of optimization, effectiveness and protection.

Deflation — Yesterday’s Problem; Inflation — a Problem of Tomorrow

From “Dividing by Zero” (Global Knowledge, 2016-2017), Ana Nives Radovic 

Over the past several years we have witnessed how hard it is for the European Central Bank to fight against the deflation, since fragile countries were unable to focus the borrowed funds to stimulate growth. However, particular governments are still having a bet on inflation. In 2017, if inflation proceeds, so there will be even more unemployed, and purchasing power, which is now much reduced by stagnation and taxation, will further be lowered. 

Screen Shot 2017-04-02 at 22.13.33Since the financial debacle of 2008, caused by the monetary policy of these same central bankers, a real war against savers has begun to lower interest rates and consequently the recompense of savings, followed by the lower refinancing rate almost on zero level and Quantitative Easing programs.

There are many common disparagement with QE programs that need to be analyzed, since they remain significant in the European structure, which will require some additional comments given the particular European economy. First of all, the increase in liquidity caused by Q.E does not wash out the real economy, but is largely directed towards the financial sectors. The EU benefits less from the wealth effect of an increase in stock market assets than in the United States, where pension funds or inducements make income more responsive to market conditions. This is something that could be expected, since this is something to be pleased about by all those subjects who have recently seen inflation as a benefit, which is contradictory in many ways. In fact, the accumulation of public debts has reached such a level that monetary policies will have to transform, and inflation will make its return with its instruct of dislocations, unemployment and various types of injustices.

All these measures combined with tighter regulations and heavier taxation has led to an end of private investment and a deflationary spiral. Some might say that this could represent the beginning of the end of EU, or the end of the Eurozone, which is not untrue. Inflation is a lasting turn down in the value of money, leading to a extensive and persistent boost in the general level of prices, which is reflected in the expectations of economic representatives. Currency is not only an expression of the value of commodities like the indicator for the distance or the kilogram for the weight, but serves as a connection between the present and the future. Price stability, which describes the situation where price fluctuations are very low or do not exist, does not concern the decisions of economic subjects as they are standardized across all economic areas. On the other hand, the behavior of economic subjects, responsive to inflation or deflation, influences the development of inflation. Individuals try to preserve their real cash balances because they are not fooled by the monetary illusion created by inflation and they require the maintenance of their purchasing power in real terms.

In economics, monetary illusion consists in considering the nominal value of money rather than its real value. This illusion has the effect of confounding money and its purchasing power, or confusing money and wealth; It is also believed that money has intrinsic value whereas its real value derives only from its ability to be exchanged for goods (purchasing power) or to be able to pay taxes. The extreme manifestation of this illusion, which has become pathological, leads states to inflation or hyperinflation through the abuse of the “printing press”. By extension, moneymaking subsequently designates any creation of fiduciary money at the discretion of a central agency, such as the central bank, without necessarily using the paper medium, because the mechanism is entirely virtual and computerized. Periphrases are used to hide the arbitrary and inflationary nature of the process.

Central banks are expected to contain inflation by raising interest rates and avoiding deflation by reducing them. This is called a counter-cyclical policy. We try to offset the economic cycle to make it more stable. The economic circumstances have been  horrific for several years, especially in Eurozone. The character of inflation is that it eases the weight of debts and fixed costs, so that it can even decide households to spend more and to restart guidelines. In contrast, price stability would have a depressive consequence, since it would go along with the policies of severity carried out by governments passionate about the balance of public finances.

A measure as is not sustainable over time with no the risk of bank run, or at least the outflow of deposits, which would expose the stability of the financial system. To avoid that governments must therefore first make the conversion to a totally electronic currency, consequently eliminating the possibility of disposing of money in the form of banknotes held outer the banking system. Also, public expenditure is funded by borrowing or tax. A possible assumption is that the establishment creates money directly or indirectly to finance public debt, while this solution is not possible if the money is tied to a standard, to a measure such as gold. In this case, the currency is autonomous of government policy. In the past, the gold standard restricted the power of the monetary authorities.

There are several Eurozone countries, including Germany, Spain and Belgium, where inflation rates were raising for more than eight months, while in Italy, Portugal and Greece they still below the inflation mark. It appears that the QE in EU was just another step in the current policy. The ECB has previously gone a long way in manipulating interest rates without any visible effect. In many of these situations the answer of national central banks is to hope inflation rates between countries will level off and consequently, by setting a rate for the whole of Europe, they do their job well. The main European central bankers consider that differentiated inflation rates within Europe are basically not their problem and for them, the Eurozone is complete.

ECB has played only on the conservative methods so far, that were acceptable by its statutes, so it is clear that the enthusiasm displayed by many national central banks contrasts with the European economic slowness. However, each country individually has very dangerous state of inaction. Some of them, such as it is the case with Spain, stuck in incredibly low interest rates and high inflation. The result of the ECB’s policy is exactly worsening the inflation in countries where inflation is high and strangles those where inflation is low and Spanish authorities are very aware that if they miss this opportunity to react, there will be a fake speculative bubble financed by the debt that will burst subsequently, as it was the case at the beginning of this century.

On the other hand, it seems that the method of spread of monetary policy is not working, or is at least detained. The spread means that the effects of changes in the key rate have a collision on the economy as a whole, down to the rate of inflation. This can be explained by the caution of banks to lend to the private sector as a result of recent stress tests and the rules set during 2010. The negative position for European growth prompts banks to transfer to the private sector, so all that has been discussed is not even done in the situation of a policy of quantitative easing by the ECB and yet some are pressing the ECB to take action, as if what has been done in recent years was of no advantage.

Unnecessary risk-taking must not be unobserved, and the risks of extending such policies must be taken into account, as the US example shows. The risks of deformation of price mechanisms and of return to hazardous situations must rise as a interment specter to avoid the drifts of the past. Besides that, the ECB could move up interest rates to fight inflation in Germany, Spain and Belgium, but Greece could not be in the group of countries who see any benefits of an action as such. This would strangle economic growth, and not to mention the government’s budget, which cannot have enough money for other interest charges, which represents an essential distinction. The truth is that the ECB has no way out, but we know that central bankers favor inflation to become out of control rather than deflation, and that is the narration of all currencies that ever existed, so that the euro is not an exception. Also, this situation offers outstanding investment opportunities, since the countries, including Germany, are experiencing the real estate boom they had missed a decade and a half ago, when interest rates were high, while the situation has changed so far. Many other governments of euro users cannot afford an increase of interest rates, since have too much debt. They are quite satisfied to see inflation biting this debt while the ECB keeps interest rates low.

If we take a closer look at government bond yields we see that the interest rate that the government has to pay to borrow more money and in this situation if the inflation has the actual rate, they are extraordinary.  However, those who buy government bonds lose money, while governments make money on their borrowings accustomed for inflation. As long as this trend maintains, governments will be satisfied to have high inflation and low interest rates, while the bubble enlarges as less than two decades ago. When inflation happens to be out of control in Europe’s flourishing countries, or an increase in interest rates will pose problems for ailing economies, countries will have need of restoring control of their own monetary policy, though it would be such a hard kick that the EU could not stand. It is therefore essential to keep an eye on the next inflation statistics and on the other the interest rates of the ECB. EU countries are heading straight for destroy whatever the pathway it takes.

In a more explicitly EU situation, many raise the inappropriateness of such a arrangement with the economic and financial destruction of all the countries of the Eurozone. As decades of deficit have collected, QE program would be in opposition to any true or fictive efforts to decrease deficits. The idea of an EQ program is a sovereign debt buy-back by the ECB, which gives the ECB more power to lend to the economy. It is also a means of reduce the pressure on some governments currently in difficulty, giving them a bigger boundary for tactic. In this situation the emerging countries blame their central banks for scam, since they are experiencing the biggest losses in this situation.

Besides that, declining rates are apparently an essential condition for the search of this solution. For example, if one repays a loan at 7% by borrowing at 4% then if they pay off the loan at 4% with another contracted at 1,5%, they can make an illusion, since each time one borrows again, they get just another balloon of hope. In the opposite case, when interest rates increase, everyone should understand that the rise crashes fast enough into the wall. Therefore, central bank actions have only one intention and that is to avoid rates from growing to make the growth last. In this situation European countries must reorganize their public finances when years of incentive spending have revealed enormous imbalances in their finances. Austerity budgetary policies, that are essential to correct this situation, would definitely run counteracts to the EQ and in that way cancels its supposed stimulus outcome.

Besides that, another practical concern is that the debts of the Eurozone are spotted among all its countries, and consequently there is a greater complication when the problem arises as to which securities of which countries may be subject to acquisition. This question arises from the political pledges within the Eurozone, especially between those countries whose situation differ drastically. However, even the simple announcement of an EQ could have negative effects, since it is difficult to see how the situation can recover, where this is only an effort to delay the reality.

It is true that many EU countries are facing several problems today and one among the biggest is that its monetary condition remains critical as the money supply growth remains virtually non-existent, despite already very accommodating ECB policy, for example when the rates are close to zero. This means that the spread mechanism of monetary policy is not working, since during the innovative regulations and stress tests, banks have become cautious, when it comes to lending to the private economy. Very slow growth with negative outlooks does not support them to lend more, while they are consequently encouraged to refill their margins in the markets and to provide risk-free to others.

Central banks of emerging countries are required to switch the work of their beneficiary citizens and the goods of those countries against debt denominated in a certain currency (US dollar or euro), while this is acceptable if this debt offers them something, such as upright interest, but this is not even the theoretical case since the rates are extremely low. A more forceful monetary situation could be provided by more opportunities for additional solutions in terms of both monetary and lending practices. In this situation it seems that a new monetary model must emerge less central bank policies and more innovative market solutions to stimulate the economic growth.

This is the reason why, after several years when the deflation has been the main problem, this will be the year when we will see the big return of inflation and all of its negativities, such as the increase of unemployment rate and the reduction of purchasing power, which will lead to the stagnation and tax collection and budget losses. This year will show a serious need to return to monetary strictness and the cutback of the public debt without repeating QE procedures, as well as without borrowing to pay off what has been borrowed in the past.