Friday, July 30, 2021

Indebtedness of Countries

 


State indebtedness rates are given in the table. According to the table, the top five most indebted states are Japan, Greece, Lebanon, Italy and Singapore. Japan, the most indebted country, owes its annual output approximately 2.37 times its GDP. Then Greece follows with 1.77 times, Lebanon 1.51 times, Italy 1.35 times and Singapore 1.26 times. The USA ranks eleventh with 1.07 times. This ratio is 0.33 in Turkey (www.tradingeconomics.com/country-list/). We may wonder how developed countries such as Japan and the USA survive with these indebtedness rates.

One of the important pillars of the smooth running of things in the economy is the continuing trust in the country’s currency and the acceptance of the country’s currency in the international arena. Another reason why the indebtedness is so big is not a problem is undoubtedly the strong industrial production of these countries. In Japan, interest rates are “0”, if it is 1, there will be difficulty in paying the government debt and the risk of the economy collapsing.

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Gold and Silver

 

We entered the first phase of the period that the world will call the “worst financial crisis” last March 2020. The main cause of this crisis is the system itself. We are approaching the end of the global unlimited money experiment we have experienced since 1971, when the dollar as a reserve currency was completely disconnected from gold. In order to better understand the fiat money system (fiat paper money, currency) we are in, we must first understand the system known as the gold standard, in which money is printed based on valuable commodities such as gold and silver. One of the reasons for the global financial crisis we are in and is at the beginning is that we do not know the difference between the exchange tool called fiat money (originally called currency) and money (commodity, money, which is limited and has its own intrinsic value), which we use as cash and is printed unlimitedly. Fiat money has features such as being a medium of exchange, being a unit of value calculation, being portable, divisible, and being the same as its counterparts. In fact, money also has an intrinsic value like gold and silver, apart from the above. Throughout history, whoever owns more gold has made the rules.

About 5,000 years ago, Egyptians began using gold and silver as cash. The gold and silver coins paid to the workers when the Egyptian pyramids were built are still in circulation today. Therefore, gold is the only item that has not been thrown away in history. One of the reasons why it is gold and not another mine is that it can be processed easily. Why gold when there are other easy-to-work metals? Historical documents also mention a side of gold associated with God. Therefore, the answer to this is a subject of long and detailed research that cannot fit here. Around 700 gold coins were converted into coins for the first time before Christ, increasing their availability as currency. Prior to this, gold had to be weighed and checked for purity while processing. B.C. In the 6th and 7th centuries, a lot of gold and silver called “electrum” was used and trace amounts of money produced from a mixture of platinum and copper were used. The earliest known electrum coins, Lydian and East Greek coins were found under the Temple of Artemis in Ephesus and are dated to the last quarter of the 7th century BC (625-600 BC) (Kurke, L. (1999). Gold: The Politics of Meaning in Archaic Greece, Princeton University Press.).

Today, gold and silver continue to be real money. Although the value of real gold is suppressed by marketing paper gold and paper silver issued in derivatives markets, this cannot be continued for a long time. It is inevitable that these precious metals will attain the values ​​they deserve in the near future.

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Cashless Society

 

In the information economy, the digitalization of money as in production systems leads to a gradual decrease in the use of cash in economic transactions. In fact, it is costly in cash production, transportation and storage. In the Figure, the increase rates in non-cash transactions in major countries between 2015 and 2016 are given. The country with the largest decrease in cash usage is Russia with an increase of 36.5%, followed by China with 25.8%. In the USA, this rate increased by 5.7%. In short, although the transition from cashing out varies significantly between countries, it is actually almost global.

In the new economic system where money has entered the digitalization process, the concept of “Cashless Society” has become a frequently discussed concept. The cashless society, in short, is a situation where all kinds of financial transactions are made electronically in the digital environment, not with the usual physical banks and coins (Chakravorti and Mazzotta 2013). For example, the bill submitted to the US Senate in June 2020, the bill, code S3571, briefly passes the following topic: “The bill includes Federal Reserve Banking’s digital transition accounts for residents and citizens and businesses residing in the United States (i.e. Among other things, these accounts are required to provide certain banking services to eligible individuals who choose to deposit funds into these accounts, including access to covid-19 (i.e. 2019 coronavirus disease) and payments. These accounts may not charge fees or it may not have balance requirements and must provide a specific interest rate.

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Virtual Industry

 

With the developing technologies, production forms are also changing. In the current period, this change has gained momentum. The Internet plays a big role in this. With the development of the internet, it started to be used by wider masses, and it started to bring people closer to each other. It is no longer necessary to have large amounts of capital to be able to trade. There is no need for a physical location because everyone can easily establish their own market on the internet. You do not have to employ employees here either. All you need is a little bit of computer use and access to the internet. The rest is up to your creativity. Moreover, you can instantly market your products to the other side of the world. The concept called the internet of things is one of today’s innovations. Now not only people, but also things can be connected to the Internet, and even machines.

We have entered an era in which artificial intelligence has begun to dominate everything from machines to mobile phones, from white goods to the brains of cars. This necessarily requires production systems to evolve. The era of machines that investigate the problem by connecting to the internet on their own when there is a malfunction or find technical support for their own repair begins. Artificial intelligence has begun to infiltrate the financial system. Thus, you will not have to sleep in front of the screen while making instant price follow-up of your investments. An artificial intelligence that you download to your mobile phone will instantly track your investments for you and will be able to buy or sell when necessary. We will be able to produce our own glass using nano-technological inputs with three-dimensional printers the size of a refrigerator that we buy in our homes. Also in the color and pattern we want. Imagine that you are marketing them in the virtual market we have established. The virtual industry is a new industrial revolution in our lives in every aspect.

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Blockchain

 

Technology is always created to serve the mind of its manufacturer. At this point, it is necessary to be careful and use it to our real benefit. While doing this, it should not be overlooked that technology can serve different ideologies and plans in the hands of different minds. For example, splitting the atom into its nuclei is a technological breakthrough, and while there are many useful things that can be done from it, some minds make bombs from it and threaten humanity. Blockchain is also one of the most important inventions of our day. It seems that it will also play an important role in building the future. At this point, what role it will play depends on which minds will be used. Blockchain is an invention that will bring innovation to our lives in many economic and technological aspects. It is necessary to look at its effects not only in economic and technological aspects but also in sociological aspects as an integral part of them.

Blockchain is a common registry. Its lack of central structure makes it think that it is reliable. Blockchain is like a structure that can even change the management style. One of the most important factors that make the bond between the state and the citizen strong is the official money printed by the state. Crypto currencies driven using blockchain will be able to break this link. This, too, is something to be desired. I think that as this technology matures over time, nation states will try to make this technology more controllable by intervening. I have a lot to write about blockchain, wait for the next issues …

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Are Your Crypto Coins Safe Enough?

 

Human beings always dream of effortless earnings. When he sees an opportunity to achieve this, he dives into unfamiliar waters without thinking about it. It recently happened in Turkey as it is evidence of crypto currency market. Thodex’s boss disappeared with investors’ money. This market does not yet have legislation, no control, no credibility and no claim. What the investor had to do was download their digital wallet and request the passwords of the cryptocurrencies they received from the exchange and keep the cryptocurrencies in this wallet. Unfortunately, as I said before, those who try to swim in unfamiliar waters or even dive into these waters without even knowing to swim seem to have left their money to the initiatives of the managers of these exchanges. I told you to download cryptocurrencies to these wallets that should be done here, I think many exchanges will not give these passwords if they are requested, because perhaps most of them do not even have as much crypto money as they claim. That is, it will be for thousands of small investors who invest all their assets in money invested in something that is not there and in earnings never owned.

Block chain constitutes the infrastructure of the future money system. But there is still time for this. Each time a new technology arrives, until the financial market is in place, coyotes descend on the market and fall on their innocent prey. Now that we are entering the biggest financial crisis of the world step by step, the citizens who are trying to protect the value of their money in the face of the unlimited coins and the country currencies that have lost their value, have started to fall into these traps. Gold and silver have always been the strongest value preservation tools. Rowing in volatile markets with speculative effects is not for everyone.

Source: https://arzualvan.com/are-your-crypto-coins-safe-enough/

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Global Corporate Tax

 

Covid-19 fell into our lives like a bomb. It is like a sound bomb that has a profound effect on the economies of the country, our social lives, education and psychology. As a result of the first and second wave effects of the economies, government debt grew even more. In many countries, especially in the USA, while the payments were made to the citizens to provide a minimum livelihood, support came to the companies. IMF’s chief economist, Gita Gopinath (Economic Advisor and Director of Research at the International Monetary Fund (IMF)) made a statement on this issue in early April. He mentioned that countries should develop projects to transition to green sustainable economies and tax restructuring to ensure sustainability in terms of both income and expenditure. In order to support the global tax of at least 28% proposed by the Biden government, he recalled the situation in which Trump lowered the taxes from 35% to 21% in 2017, and mentioned that this did not have a significant effect on investments (https://www.reuters.com/ article / us-imf-world-bank-idUSKBN2BT1NG). The US treasury minister, Janet Yellen, asked countries to support the economic package Biden launched to stimulate the economy by increasing corporate taxes from 21% to at least 28%. In fact, big tech companies like Amazon and Facebook are the target here.

In fact, it seems that trying to prevent companies from operating there by going to countries with lower taxes. Especially if the G-20 cooperates and implements a common and high tax rate, every company stays in place. Of course, they want to apply this application to large-budget multinational companies with a turnover of more than 750 million dollars a year. According to another view, this seems to be one of the steps taken towards increasingly centralized economies. If this is done, what kind of measures companies will take in this regard is also a matter of curiosity. Most likely, these giants will shift their activities to less developed countries where taxes are lower. This may result in an even more globalized result.

On the other hand, if this global minimum corporate tax were to come true, it was as if freedoms would also have shifted from west to east. Thus, concepts such as economic liberties and personal liberties are the arguments of the liberal economy, and in the liberal economy, the decisions are taken mostly in the market. With this taxation cooperation, it would be as if the decisions were further centralized and restrictions were imposed on the freedoms on this issue. Thus it will be as if the east is more liberal and the west is more controlling. Perhaps this is what is desired in the new world order, who knows.

Source: https://arzualvan.com/global-corporate-tax/

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Centralized Money Economy

 

All kinds of centralization slowed down the fast pace of things while reducing productivity over time and made bureaucracy chronic. To give an example of the centralization of the money economy, as stated in the Swiss Federal Institute of Technology 2011 report, approximately eighty percent (80%) of approximately 40 million companies operating in the world are in control of 737 companies. We understand here that these 737 companies actually drive 80% of the world economy (MacKenzie and Coghlan 2011). Another important problem arising from the central structure of the system is the income distribution unfairness. For example, the income of 85 people in the world is equal to the total income of 3 and a half billion poor people (www.oxfam.org).

The other two most important sectors in which centralization has become stronger are the media and banking sectors. For example, while approximately 50 companies were active in the media sector in the USA alone in the 1990s, this number has recently decreased to 6. Likewise, this number decreased to 4 in the banking sector where approximately 40 banks operate. (www.statista.com). It seems that centralization is not an exercise in socialist regimes alone. As can be seen from the examples given above, centralization in the money economy is in the nature of the system. In the socialist system where the central authority is usually the state, economic decisions are naturally taken by the state, since the capital belongs to the state. One of the important indicators of this is the ratio of public expenditures to GDP, which is measured as a yearly total production value. This ratio gives an idea of ​​how much the state controls the economy, and in the world’s developed monetary economies, for example, 49% in Europe (www.ec.europa.eu/Eurostat), 42% in Japan, 40% in the USA, while communist. It is 36% in Russia, one of the pioneers of the system, and 24% in China(Miller, Kim, and Holmes 2014).

Source: https://arzualvan.com/centralized-money-economy/

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Towards a Financial Crisis


 Analysis of economic cycles in the historical process allows us to make predictions about what is coming. We can use various indicators for this analysis. One of these is the cycles of large-volume stock markets in the last 20-30 years. For example DowJones or S & P500 are two of them. If we look at the graph below we will have an idea about the loops. In the chart, we see the values ​​of the S & P500 and DowJones exchanges between 2000-2021. From mid-2003, right after the 2000 Dot.com crisis

In the 5-year period up to the 2008 real estate crisis, it gained an average of 280 units of value each year. After the 2008 crisis, it has increased by an average of 254 units every year from 2009 until March 2020 (13 March 2020, the first wave of the crisis), with an almost parallel increase. Monthly increments are up to 26 units. This suggests that a second wave may come at the end of April or early May. Monetary authorities, especially the FED, who see this situation, are also doing QE for precautionary purposes. This may only delay the process a little longer, but it cannot prevent the inevitable.

Source: https://arzualvan.com/towards-a-financial-crisis/

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Digitalized Knowledge Economy

 

It is possible to see the advanced production systems of that period at every stage of the economic history. To understand the functioning of the economy, it is necessary to examine the most advanced manufacturing practices. Because it is the production systems that fully reveal the forces of humanity. During the industrial revolution, the most advanced production system was mechanized production, which turned into industrial mass production. In our time, it is information economy. Before we produce a definition of the knowledge economy, we can tell what it is not, knowledge economy does not necessarily mean that everything is technology-based. That is, the knowledge economy is not just a structure with a very high-tech private working class.

The first of the most important features of the knowledge economy is that it combines large-scale production with the epic standardization of products and services. Another feature is that it seems to loosen or even reverse the law of diminishing yields, which is one of the cornerstones of the economic system we are in. Thus, in the knowledge economy, there is a potential for continuous innovation. Continuous innovation has the potential to loosen or reverse this most universal constraint in the economic system. Another feature of the knowledge economy is that it brings together the activity of producing and the activity of imagination or discovery.

The best firms become like the best schools and have the potential to radically change the relationship between person and machine. In the current system, economy is the system of allocating scarce resources. In the money-based free market system, production is now largely driven by people’s brains. Whether you are producing something or providing a service, the quality of what is achieved now more than ever depends on the quality of the mental input entering the production stages. Many factories, which are part of the knowledge economy, make us realize that production cannot be sustained with the old methods, it must become smarter and leaner.

Intelligent mindset and technology-oriented solutions are used in the knowledge economy. The deepening and dissemination of the knowledge economy depends primarily on a new kind of education, an analytical and dialectical form of education offered to the whole population. Secondly, it depends on the accumulation of social capital, intensive network of partnerships, and increased ability to cooperate. Another way of spreading and deepening the knowledge economy is the legal and institutional reorganization of the market economy. One of the ways to make every segment of the economy able to produce in technologies that pioneered the knowledge economy in production forms stuck in the old technology is by providing more people with access to productive resources and opportunities. The new system, which emerged as the knowledge economy, should be deepened and widespread in the ways suggested above to increase the productivity of each unit in the economy.

On the other hand, the increasing dependence of production systems on information and technology has started the process of moving the economic system to digital platforms. Digital platforms are, of course, meaningless markets without electricity and internet. Nowadays, we see that many things, from social relations that cover most of our lives to production and sales relations, are now happening on virtual platforms. Part of the economic activity has now begun to move to virtual environments. These are thousands of such as advertisements, customer-oriented production, clothing, grocery, health and cosmetics, technological devices, travel and of course vacation opportunities offered in virtual reality. We will no longer see the developed country, developing country concepts that we are used to in the digital world. Thus, according to the report of the United Nations in 2019, approximately 90% of the digital economy in the world is formed by companies from the USA and China. The remaining 3.6 percent is the share of Europe and 1.3 percent is the share of Africa.

In the same report, we see that these two countries have half of the spending on the internet of things. The digital economy is basically a data-driven economy. The process of creating value in the digital economy includes the stages of data collection, storage, analysis and information transformation. Global internet protocol traffic is a good tool for measuring data flows. This was 100 cigabytes per day in 1992, but more than 45000 cigabytes per second in 2017. In the 2020s, while more and more people are connecting to the internet, we also see that things are starting to connect to the internet with an increasing density. This causes the concept of the internet of things to spread rapidly. In countries that invest in the digital world such as the USA and China, investment in the internet of things is increasing day by day. I will continue to write on the internet of things and digital economy.

Source: https://arzualvan.com/digitalized-knowledge-economy/

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Thursday, July 29, 2021

Bad Money Drives Out Good Money

 



Gold and silver have been real, solid money for nearly 5000 years. Since the mid-1970s, the dollar, which is the reserve currency in circulation, has been torn from gold. The fiat currencies we use today are unlimitedly printed. The fact that the main mechanism of the economic system based on money is being printed unlimitedly is the most important factor that erodes the system itself. The money creation process is essentially a credit creation process. Credits created through banks enter the system together with interest debt and tax. More credits, more fiat money, more interest debt, more taxes, and increasingly bubble markets. In addition to this, in crisis periods, the money donated without return for production also appears as high inflation. These can be seen easily in economic cycles in the historical process. Similar causes lead to similar results in every cycle, without exception.

So what is bad money? Bad money is exactly the money that is not backed by any precious metal like gold and silver. Bad money has always been a major cause of crises in historical cycles. Gold and silver have been good money throughout history. Bad money, which can be printed without limits, excludes good money from circulation. But eventually good money returns to the stage and takes the lead role. Because good money is safe heaven. When the bad money starts to ruin everything, those who can keep the good money survive. In the inevitable end, this is the clearest way to deal with high inflation and rising taxes.

Source: https://arzualvan.com/bad-money-drives-out-good-money/

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Money Turbulence, Covid-19’s Shocking Financial Impacts and Ways of Exit

 


In this article, we will seek an answer to the question of how we can be more resilient individually in the current economic and financial process. Is it possible to get out of the currency turbulence that started with the sudden halt of economies all over the world and trade between countries coming to a halt? It is possible, of course, if you have been able to save your money before with careful financial management. Otherwise, unemployment has reached enormous proportions in the economies that are closed. This leads to the proliferation of segments that have difficulty in finding food and bread, let alone save money. For example, the unemployment figures reached 15 million in mid-2020 in America. Approximately 40 million people feed on food aid provided by the state, and approximately one million people live on the streets.

In this process, we see that the figures in the debt households of the states, which apply aid packages to those who are unemployed and to units that cannot operate, also increase. This seems to result in more fiat money being printed and increased taxes and inflation in the future. In this case, it is appropriate to consume every penny earned with care and, if possible, to save.

Large cost home, car, etc. Postponing such purchases to more stable states where the water is settled is one of the ways to get the least damage from money turbulence.

I would like to emphasize that the bond markets and stock exchange were not safe investment instruments in this period. In times of crisis, the approach to cryptocurrencies such as bitcoin, physical commodities such as gold and coin increaes. Because these assets are limited and sound money. Investors who want to preserve the purchasing power of their money, and even states and central banks, such as large-budget organizations, also shift towards solid money when confidence in the system begins to decline. In individual investments, sudden and high gains should be avoided in the short and medium term, and commodities such as physical gold and silver should be turned to.

Source: https://arzualvan.com/money-turbulence-covid-19s-shocking-financial-impacts-and-ways-of-exit/

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Decentralized Finance DEFi

 


Decentralized Finance  DEFi, The system we are in, which we can also call the money economy, consists of centralized structures to a large extent. We see these central structures as large financial intermediary institutions both in factories with large production capacity in real production and in financial markets. In short, what we call money is a centrally managed exchange tool. This system is about to be left behind now. Thus, in an increasingly digital world, money has also started to be digitalized. Supported by digital infrastructures such as blockchain, crypto coins seem to be candidates for decentralized exchange tools in the system. The best known of these new forms of money is BitcoinBitcoin is a decentralized money that can be transferred from one person to another without the need for intermediary institutions with its decentralization feature. In other words, many financial transactions such as lending, evaluation of savings, insurances, real estate purchases are carried out by intermediary institutions. In this central system managed by a single center or person / s, we witness that incidents such as fraud, mismanagement and corruption occur frequently.

On the other hand, we cannot see such problems in a decentralized system. The transactions listed above can also be performed in a decentralized system. The only difference is that there is no single manager or executive units in this system. In this system, transactions are made transparently in front of everyone and are recorded by everyone. In this way, there is no need for a notary public. Cryptocurrencies traded on decentralized platforms are decentralized. However, the very volatility of these currencies creates doubts about their reliability. Therefore, many cryptocurrencies are valued with the dollar, which is the most valid fiat currency in the system. In this way, they gain stability by being dependent on the dollar. In this case, considering the rapid pace of the system towards crisis, another question is how stable the dollar, which is the reserve currency, can remain. In the central system, the requirements such as opening an account and identity verification for financial transactions supported by infrastructures such as block chain are eliminated. In this way, besides the transparency given by decentralization, unnecessary procedures are eliminated. In decentralized systems, debt demanders and lenders can meet on the same platform without the need for another intermediary. Here, the cryptocurrency owned as collateral for debt is shown and debt dealing can be done in a very practical and autonomous way. Finally, the most important advantages of decentralized systems can be seen as the first steps of the future financial system, as they are open to everyone, flexible, transparent and every transaction is registered and approved by everyone.

Source: https://arzualvan.com/decentralized-finance-defi/


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Is The Money Economy Ending ?


Is The Money Economy Ending ? The world economy is in a great economic and financial transformation. This transformation is from money economy
 to knowledge economy. Besides, this transformation has been accelerated by the great financial and economic crisis we are about to enter. Examining the cyclical processes that the economy has gone through is the first step to understanding and interpreting the current situation. With this crisis we are in, the redefinition of money and its original definition is one of the possible consequences. As a result, the crisis is expected to cause countries to issue their own digital currencies and rapidly move away from the reserve currency dollar. Thus, with the renewed form of money, it is predicted that the knowledge economy will change the economic order. It is possible for the world to evolve from a world where money is unipolar to a multi-polar, independent and national currency world. This can result in a change and restructuring of everything from economy to trade, politics, social life, and even the geographical borders of many countries.

The foundation of the money economy is capital. In this economic model, the central element is industrialization, that is, massively centralized production in factories. This centralization often brought about monopolization. As the capital grows over time (capital accumulation), mass and large-scale production, large-scale consumption, mass transportation, mass communication, collective armament and so on. It also gave birth to such elements within its body. It is understood that the money economy causes centralization in production, from the establishment of large factories to the industrial revolution, from the mass production of distributed and small-scale production in these large factories. This structure of the money economy has caused the social structure and social life to be shaped in the same direction.

 

All kinds of centralization slowed down the speed of work, while reducing productivity over time, made bureaucracy chronic. To give an example of the centralization of the money economy, as stated in the Swiss Federal Institute of Technology 2011 report, approximately eighty percent (80%) of approximately 40 million companies operating in the world are in control of 737 companies. We understand here that these 737 companies actually drive 80% of the world economy (MacKenzie and Coghlan 2011). Another important problem arising from the central structure of the system is the income distribution unfairness. For example, the income of 85 people in the world is equal to the total income of 3 and a half billion poor people (www.oxfam.org). The other two most important sectors in which centralization has become stronger are the media and banking sectors. For example, while approximately 50 companies were active in the media sector in the 1990s in the USA alone, this number has decreased to 6 in the last case. Likewise, this number decreased to 4 in the banking sector where approximately 40 banks operate. (www.statista.com). It seems that centralization is not an exercise in the monopoly of socialist regimes alone. As can be seen from the examples given above, centralization is inherent in the system of money economy. In the socialist system where the central authority is usually the state, economic decisions are naturally taken by the state, since the capital belongs to the state. One of the important indicators of this is the ratio of public expenditures to GDP, which is measured as a yearly total production value. This ratio gives an idea of ​​how much the state controls the economy, and in the world’s developed monetary economies, for example, 49% in Europe (www.ec.europa.eu/Eurostat), 42% in Japan, 40% in the USA, while communist 36% in Russia, which is one of the pioneers of the system, and 24% in China (Miller, Kim, and Holmes 2014).

Source: https://arzualvan.com/is-the-money-economy-ending/


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Wednesday, July 28, 2021

Repo Reverse Repo FED



The Federal Reserve, the Fed, started overnight reverse repo transactions in 2013. The aim of reverse repo transactions is to control the short-term interest rates. Reverse repo (RRP), reverse repurchase agreements, is a transaction that central banks implement when they want to reduce excess cash in the market. In this way, it is aimed to suppress the downward interest rate. The central bank takes money from banks and issues bonds in return. This pressures interest rates below the market level. Repo deals are only with primary dealers, while reverse repo agreements are executed with both primary dealers and extended reverse repo counterparties, which include banks, government-backed businesses, and money market funds (https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/repo-reverse-repo-agreements).

Towards the end of May, the FED made a large-volume reverse repo transaction. This is recorded as the highest level. Approximately $485 billion. We can say that reverse repo transactions have increased since March (https://www.reuters.com/article/usa-fed-reverse-repo-idUSL2N2NE2FH).

As can be seen in the chart, the last volume of transactions close to this huge reverse repo transaction made by the Fed was between January 2016 and January 2017. This reverse repo transaction made by the FED is perceived as withdrawing from the market as a result of the excess money being printed. However, it is useful to interpret it as follows: banks buy short-term bonds, that is, 1-month and 3-month bonds, which increases the interest rates of these bonds.

In fact, we can understand from here that there is a problem in the system. That is, large banks are protected and their balance sheets are audited, but this is not the case for small banks and bank-like institutions (shadow banks). Since they give leveraged loans, they have to guarantee their short-term cash conditions.

In other words, there is no question of the FED printing too much money and flooding the market with money. As can be seen in Figure 2, while bond purchases under 1 month increase the interest rates, long-term bonds have low rates together with the sales. This creates the perception that there is a trust problem in the system.

In addition, considering the expenditures that the FED is making, there is a thought that it will borrow more and interest rates will increase in the long run. If the FED chooses to raise interest rates or collect cash from the market, thinking that there is enough cash in the market from these short-term bond purchases by banks, this time, the repo shocks experienced in 2018 and 2019 may repeat and it may have to print even more money.

Source: https://arzualvan.com/repo-reverse-repo-fed/

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Basel 4 Gold Silver Credits



As I mentioned in my previous articles, Basel 3 is a framework developed by the Basel Committee on Banking Supervision (BCBS) in order to prevent the collapse of the financial system after the 2008 financial crisis, or rather to enable it to float. It regulates the capital and liquidity requirements of banks.

These rules were adopted on 7 December 2017 and are expected to be implemented in 2022. However, due to the pandemic, the launch date for the application has been delayed to 2023.

According to the rules of Basel IV the capital reduction that may result from banks’ use of internal models under the Internal Ratings-Based approach.

“A standardized base so that the capital requirement will always be at least 72.5% of the requirement under the Standardized approach;

Simultaneous reduction in standardized risk weights for low-risk mortgage loans;

A higher leverage ratio for global Systemically Important Banks (G-SIBs) with an increase equal to 50% of the risk-adjusted capital ratio

More detailed disclosure of reserves and other financial statistics.

These reforms will come into effect from January 2023 (except for the production base, which is phased and will only take full effect on January 1, 2027).” (https://en.wikipedia.org/wiki/Basel_IV)

In this case, banks’ capital holding requirements are reduced.

I wrote that the price of gold could increase in Basel 3. I would like to point out that this will also apply as a result of Basel 4 rules.

In the standard capital requirement, major banks around the world are required to hold at least 50 percent capital in their reserves.

In Basel 3 it is emphasized that this should be kept in gold. With Basel 4, Advanced Internal Rating-Based (AIRB) is also standardized. In other words, while determining how much capital the banks will hold according to their own customer portfolios in the standard method, it is desired to bring this A-IRB to a global standard with Basel 4.

More and Source: https://arzualvan.com/basel-4-gold-silver-credits/

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Tuesday, July 27, 2021

Digital Currencies, Bitcoin and its effect on financial and economic market of USA

 

An empirical study, Johansen Co-integration test, stationarity, long term relationship

In this article, we will look at the effects of Bitcoin on the American financial market . In fact, digital money can basically be examined in two categories. The first is produced by financial companies and the other is produced by non-financial companies.

As I mentioned in my previous article, credit cards issued by banks can be an example of digital money of financial institutions. The common markets of financial institutions for this type of digital money also serve under the name of internet banking.

As mentioned at the beginning, the effects of bitcoin on the American financial and economic market are studied in this article. In addition, in the analysis, before and after the crisis were examined separately on the basis of the 2008 crisis.

In the study, in which the Bitcoin price was taken as the dependent variable, the variables thought to be explanatory were the ounce gold price, DXY Dollar index, Mortgage index, 10-Year Treasury Rate, Federal Reserve Index USA and 10-Year Bonds.

The model was simply created as follows:

lnBitcoint= b0 + b1 lnGoldt+ b2 lnDollarindext+b3 InMortgageindex+b4 InTreasury rate+b5 10-Year bonds yield+b4 InFederal Reserve Index + et

Differencet-statistics1%5%Probt-statistics1%5%Prob
Level-0.5589-3.67017-2.506230.8665-2.25148-4.3543-3.50140.4459
LBitcoin          1st Difference-6.7288-3.57782-2.92530.0000-6.9899-4.1653-3.50850.0000
Price
Level-2.1368-3.5744-2.92370.0687-3.1161-4.1611-3.50360.0976
LGold Price1st Difference-3.4762-3.5777-2.92510.0096-3.3994-4.1609-3.50810.0432
LDollarLevel-1.6458-3.5847-2.92810.0908-3.8138-4.1756-3.51630.8769
Index1st Difference-7.6874-3.5885-2.92970.0049-5.2701-4.2118-3.52970.0006
LMortgageLevel-1.9598-3.5744-2.92370.3048-1.9310-4.1678-3.50360.6228
Index1st Difference-3.8325-3.5777-2.92510.0196-6.7676-4.1657-3.58850.0347
LTreasuryLevel-2.9134-3.6104-2.93890.0529-2.9991-4.2118-3.52970.1454
Index1st Difference-4.1656-3.6155-2.94110.0038-6.6736-4.2191-3.53300.0190
LFederalLevel7.62134-3.3442-2.56421.00003.8732-4.2923-3.58341.0000
Reserve1st Difference-0.3265-3.6754-2.54670.9094-1.7634-4.6678-3.77810.0129
LBondLevel-2.1277-3.6793-2.76670.2217-2.5832-4.5853-3.57860.2872
Yields1st Difference-4.0543-3.6895-2.76890.0041-3.9938-4.8723-3.98230.0209

The test results are as seen in the table.

Variables were examined on a daily basis.

 

In the table, it is seen that all of the variables at the level contain unit root. The first differences of the data are stationary with 5% significance level. The Johansen cointegration test is applied to the series which are stationary at the same level as the cointegration test. This study was conducted to find possible cointegration between seven variables, Bitcoin price, Gold price, Dollar index, Mortgage index, Treasury index, Federal reserve index and bond yield, which were found as I(1) and Johansen tests. Thanks to this technique, the dependent variable is Bitcoin price, while the gold price, Dollar index, Mortgage index, Treasury index, Federal reserve index and bond yield are independent variables. According to the results of the test, it was understood that there was cointegration confirming the long-term relationship between the variables.

Finally, we can run a constrained VAR model, which is VECM (vector error correction model), if the variables mean cointegrating, meaning they move together in the long-run association-ship. This model shows the term C (1)>> Error correction…… If C (1) is negative and significant (p value <5%), we can say that there is an Adjustment Speed ​​towards Equilibrium in two issues. There is long-run causality from independent variables to dependent variables.

From Bitcoin price means a long-term relationship with Gold price, Dollar index, Mortgage index, Treasury index, Federal reserve index. Bond yield has a negative relationship with Bitcoin price.

Also read” Digital Currency, Bitcoin (Volume 1)

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