Tag: Economics

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Forex Market

The Inflation That Will Never Really Come

The sole objective of the entire Keynesian economy is to generate inflation. That is what the Keynesian shamans call economic growth, inflation. People often don’t understand what inflation means or why it exists and that makes them fall for the generally false belief that inflation makes debts evaporate.

The sole objective of the entire Keynesian economy is to generate inflation. That is what the Keynesian shamans call economic growth, inflation. People often don’t understand what inflation means or why it exists and that makes them fall for the generally false belief that inflation makes debts evaporate.

The sole objective of the entire Keynesian economy is to generate inflation. That is what the Keynesian shamans call economic growth, inflation. People often don’t understand what inflation means or why it exists and that makes them fall for the generally false belief that inflation makes debts evaporate.

This is a crucial point where your incorrect analysis leads to a completely erroneous vision and predictions. I will try to clarify this fundamental error because although it is a rather abstruse and technical matter, it is essential to understand it because on this depends everything that is happening and everything that is going to happen.

The fundamental error comes from blind faith in the power of shamans: the shaman, in the fanciful world of Keynesians, can cause rain whenever he wishes and, therefore, whether it is raining or not, or whether it will rain tomorrow depends only on a certain correlation of political forces between a certain group of pro-rain shamans and another group of anti-rain shamans. If it doesn’t rain, it is because for now, the anti-rain shamans are resisting the pressures they are subjected to by those who want it to rain.

The fact that the yen’s monetary economy has been crushed for 20 years by powerful deflationary forces, incapable of generating any inflation, should, according to the Keynesians, in the face of the group of pro-inflationary shamans, supporters of pressing the red button labeled “INFLATION” There would be certain very powerful groups that have been opposing the push of that button. The problem with this explanation between mythology and gibberish is that these “powerful groups opposed to an inflationary monetary policy in Japan” do not exist.

The explanation is another: if there is no inflation it is because the laws of the economy do not allow it to exist. This button, which allows the Central Bank to trigger inflation “when it is convenient” (when it is convenient for the State), works until it ceases to function and it is precisely this “which stops the inflation button” that marks, as a symptom, the death of a Keynesian economy.

The Keynesian growth model that we have experienced for the past 40 years is an economic farce that simulates creating wealth when what it actually does is consuming (destroying) capital (“capital” in the economic sense). This suicidal escape, analogous to the scene of “more wood, that is war,” in which Marx scrapped the train to feed its wood to the boiler of the locomotive, ends when there is no longer capital that can be consumed. This is what you have to understand, to understand what is happening.

The fact that consumers, businesses, and states appear severely over-indebted is not important, it is only a symptom. The fact that nominal interest rates are capped at their decline with the “zero limits” preventing the big clown from generating negative real rates, is not important, it is just a symptom. The fact that the financial system is deliriously leveraged and severely broken is also only a symptom. The fact that rich countries roll out insane trade deficits with poor countries and rich economies depend on loans from poor countries, that national pension systems are bankrupt and unable to pay pensions, are also symptoms.

All these are just symptoms that the capital that had been progressively consumed has already disappeared. It must be understood that the golden age of wine and roses was not a time of genuine economic prosperity, based on the ability of society to create economic wealth, but was a mirage in which we seemed to be rich because, in an insane orgy of consumption, We were destroying the capital that previous generations took 200 years to accumulate.

It must be understood that large monetary bubbles do not appear by chance, as an accident, or as a social pathology consisting of an epidemic of speculative greed. Monetary bubbles are just an exaggerated version of what a Keynesian economy always does, and in the midst of panic, is to consume capital while generating inflation, money, and unpayable debt. A process based on consuming capital is inherently unsustainable and the more advanced the Keynesian pathology, the less real capital remains in the world and the more gigantic the states have become and their appetite to consume capital (The sole purpose of the Keynesian toy is to satisfy the insatiable appetite of the State and to guarantee its unlimited growth). 

The succession of large-scale monetary bubbles, which condemn large sections of the population to be crushed by debt, always marks the agonizing end of the Keynesian experiments. They are a last flight forward and are characterized by the glamour and splendor of consumer orgies in which the last real savings available are destroyed. (See the “Happy 20s” that preceded the Great Depression)

Bubbles, and in a particular house or land bubbles, are just a terminal episode of a much broader disease called Keynesianism. When, for example, the leverage of Japanese banks soared, it was perfectly foreseeable that they would suffer a housing bubble and when the housing bubble materialized, it was perfectly foreseeable that their economy would collapse amid desperate and futile attempts to “beat the deflation.” The cliché “inflation ends up wiping out debts” is only true in the early stages of Keynesian disease, when “inflation” can take the form of a “wage-price spiral.”

Debtors, whether States, consumers or corporations, have a fixed-rate debt, which means that both the value of that debt and the value of the debt service are fixed in nominal terms. Also, the savings of savers is fixed nominally. A price-wage spiral is a change in the scale of the nominal value of the currency. As the value of the currency shrinks, debts and savings shrink to the same extent. Debtors see their debts evaporate because savers see their savings evaporate. It is a transfer of income from savers to debtors and is part of the general scheme of making the economy present some joy by consuming existing capital. (The real savings are transferred by the State to the debtors who consume it. Then the debts are erased and a new lot of savings can be transferred for consumption)

In the current situation, where wages are falling, and variable mortgage rates and prices are rising, it is obvious that “inflation” will not evaporate any debt. The one who made 1,000, paid a mortgage of 600 and bought a shopping basket for 400. If the mortgage rises to 700, the shopping basket to 450, and the salary is lowered to 900, this wage earner will not have the slightest feeling that “inflation” is helping him pay off his debts.

That these debtors have loans at variable and not fixed rates, that the installments of these mortgages are 60% of wages even when the rates are at 1.25% and that these loans have been granted by banks with leverage of x60, that they obtain a gross margin of 0.4% of those loans that they finance with the saving of some investors in fixed income willing to lend their saving for the 1.25% minus a differential of 0.35%, is not a set of misfortunes that have coincided accidentally. They are all features of the same phenomenon and express the terminal phase of a Keynesian economy based on capital consumption. The various “Band-Aids” that try to alleviate some of these superficial symptoms will not cure the disease because the cause is deeper: it is an explosive growing state that literally devours its subjects.

 

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Forex Fundamental Analysis

USD/JPY Global Macro Analysis – Part 3

USD/JPY Exogenous Analysis

USD/JPY Exogenous Analysis

USD/JPY Exogenous Analysis

In the exogenous analysis, we will analyze economic indicators that exhaustively compare the performance of the US and the Japanese economies. These factors impact the dynamic of the USD/JPY pair in the forex market. They include:

  • US and Japan interest rate differential
  • The difference in the GDP growth in the US and Japan
  • Balance of trade

US and Japan interest rate differential

The interest rate differential is the difference between the interest rate in the US and that of Japan. Investors would prefer to invest their funds in a country that offers higher returns. Furthermore, carry traders are often bullish on the currency with a higher interest, which ensures that they earn higher yields.

The Bank of Japan has kept the interest rates at -0.1% since 2016. The current federal funds rate in the US is 0.25%. Thus, the interest rate differential for the USD/JPY is 0.35%. Since there are no foreseeable changes in the interest rates in either country, we assign it an inflationary score of 2.

Balance of trade

Balance of trade determines whether a country has a trade surplus or deficit in international trade. A trade surplus results from a country’s exports being of higher value than that of its imports. A deficit occurs when the imports are of higher value than exports. Japan mostly exports machinery and electronics, which puts it at a significant advantage due to the value of these goods. On the other hand, the US is a net importer.

In October 2020, japan has a trade surplus of ¥872.9 billion, which has been steadily increasing since June. The US has a trade deficit of $63.9 billion, which has been growing throughout the year.

The balance of trade differential between the US and Japan has been widening in favor of Japan. Based on our correlation analysis with the USD/JPY, we assign it a score of -6. It means that if this trend persists, we expect the USD/JPY to be bullish in the near term.

The difference in the GDP growth in the US and Japan

Although the US has a higher GDP than Japan, we can compare the two economies based on their growth rates.

The US economy had a GDP growth rate of 33.1% in Q3 2020, while Japan’s economy expanded by only 5%. The US economy is seen to be expanding at a faster pace than that of Japan. Based on the correlation with the price of the USD/JPY pair, we assign an inflationary score of 2. This means that we should expect a bullish trend on the USD/JPY pair if the US economy keeps expanding faster than that of Japan.

Conclusion

The total score from the exogenous analysis of the USD/JPY pair is -2. This implies that in the near term, we should expect a bearish trend in the pair.

Technical analysis of the USD/JPY pair shows that the weekly chart is still trading way below the 200-period MA. Furthermore, the pair has failed to successfully breach the middle Bollinger band, which has served as its resistance level. All the best!

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Forex Fundamental Analysis

What Should You Know About ‘Asylum Applications’ Fundamental Indicator

Introduction

Introduction

Introduction

People from war-ravaged countries seek refuge in neighboring countries for their protection and survival. There are countries where military conflicts, wars, and political tensions were so adverse that people had to leave their homeland to go to an entirely different country to protect their life and survive barely. An understanding of the refugee movements, the price neighboring countries pay, and the corresponding economic impacts for the host countries is worth knowing.

What are Asylum Applications?

It is essential that we first clarify the fundamental differences between the terms refugee, migrant, asylum seeker before we understand asylum applications.

Refugee: They are the people fleeing from their home country to neighboring countries due to armed conflict, political wars, and persecution. Their conditions are so adverse that the only way to save their life is to seek shelter in neighboring countries. The prospect of a career, financial independence are out of the question, and it is just a matter of survival for these people.

Migrants: These are the people who move out of their country of origin in pursuit of a better standard of living and to improve life quality. The reasons can include better education, finding work, or reuniting with families. Unlike refugees, migrants can return to their native safely. Migrants are subject to the immigration laws of the recipient countries.

Asylum seekers: Asylum seekers are people who have claimed to be a refugee, but their status has not been yet evaluated. This individual would have applied for asylum (place to stay) because he/she will be persecuted if returned to their homeland. Not all applicants will qualify as a refugee but will have to go through the due process to become one. Asylum applications refer to the number of people who have come from other countries to seek asylum in the host country.

How can the Asylum Applications numbers be used for analysis?

War-ravaged countries primarily produce refugees in such large numbers that the neighboring countries would need to provide aid by providing protection, shelter, food, clothing, and water. The provisions for these asylum applicants would have to be provided by the local and central Government. Based on the available resources that can be dispensed to provide aid, countries may choose to close their gates and refuse entry too.

It is difficult to give accurate estimates of the effect of asylum applications on the economy due to lack of before and after data estimates. Some researches have shown poorer host countries have had a negative impact while developed nations have had zero or some positive impact. It has also been found that the applicants have actively sought work to improve their living conditions in the host country.

It is worth noting that the countries from which people flee are often surrounded by countries of similar economic strength, meaning the host countries are also underdeveloped nations. For such countries hosting a large influx of asylum seekers would also be burdensome and negatively impact their economic conditions. Only in a few cases, there are scenarios that people have sought asylum in a developed nation. Most of the time, people move to a developed nation as migrants to seek better work and not as a refugee.

Some researches have also shown that the funds received through the relief providing organizations and programs like the World Food Program (WFP), which provide in cash or directly food, add to the income of the host country, thus boosting the economy. Adding people into the host country also increases consumer demand, as well as revenue generated through the refugees who have found work also boosts the economy.

The influx of the refugee is generally small and lies on the border sides of the country. The overall impact on the economy is many a time negligible and is significant only when the host country is a small economy in itself and is underdeveloped. The way the host country’s Government manages refugee situations also determines whether they lose or benefit out of it.

Only when the influx of asylum seekers increases suddenly due to an overnight development of some critical situations is the effect felt on the host country. Under such circumstances, the host country may need to allocate resources to provide aid, which would impact the Government spending budget. The more the funds allocated for such rescue programs, the lesser the funds available for the Government to spend on economy-boosting activities.

Large scale influx of asylum seekers can also add to unemployment in either the refugee camps or the jobs taken away from host country citizens by the refugees. Refugees are desperate for work and would offer their labor at a very minimum rate compared to the citizens of the host country. All these effects come into play during extreme war-like situations in neighboring countries; otherwise, the economy comes to a natural equilibrium in due time with negligible impact.

Impact on Currency

The impact of Asylum applications on economy and currency is not always clear due to lack of sufficient before and after scenario data. Asylum application data comes into use during critical times when we are trying to trade currencies of the host or the crisis countries. Any volatility in the market created would be through the general market sentiment reacting to the news and not from the statistics.

Hence, asylum applications are a low-impact indicator that is only useful in critical times for data gathering and analysis. Therefore, the currency markets overlook it as they would have priced in any economic shocks presented through media ahead of the statistics.

Economic Reports

The United Nations Refugee Agency (UNHCR) publishes monthly reports on asylum application count as and when they receive reports from the Government authorities of different countries. The consolidated data of the same reports are also available on Trading Economics.

Sources of Asylum Applications

We can find refugee briefs on UNHCR official website for reference and latest updates on refugee migration. Asylum Applications for available countries are consolidated and available on Trading Economics.

That’s about Asylum Applications and their importance. We hope you find this article informative and useful. Let us know if you have any questions in the comments below. Cheers!

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Forex Fundamental Analysis

Do You Know That ‘IP Addresses’ of A Nation Is Also Considered A Macro Economic Indicator?

Introduction

Introduction

Introduction

The advent of the Internet and the rapid growth of technology over the years has dramatically changed the way we define development and living standards. The number of literate people nowadays do own an electronic gadget with access to the Internet. It was not the case long before, but now access to the Internet is seen as a growth measure for countries. Understanding the IP addresses count as a means to assess how developed a nation is fascinating to acknowledge and look back on how the Internet changed the world.

What is an IP Address?

Each electronic gadget with internet access has a unique identifier called its IP address. An analogy would be like the “from” address in a post letter. Successful transfer of to-and-fro of data from mailer to recipient is possible when “from” and “to” addresses are clear. The unique address of your computer machine is used to relay data across a network in either direction.

The majority of the networks today use TCP/IP (Transmission Control Protocol/Internet Protocol) as a means to communicate with other machines over a network. The unique identifier for a computer is known as its IP address.

There are two standards for IP address: IPv4 and IPv6 (v stands for version). All computers have the IPv4 address, and it is the prior version consisting of (24 =32 bit binary digits). At the same time, it will soon exhaust all possible combinations as more people start accessing the Internet. A sample IP address would look like “138.23.45.23” this. The IPv6 (26 = 128-bit binary digits) is the later implementation that came into the picture when we realized the limitation of IPv4 as the Internet was not an immediate trendsetter during its initial launch. The IPv6 will have six numbers as part of the address and would look something like “12.158.23.61.3.23” this.

How can the IP Addresses numbers be used for analysis?

Ten-twenty years ago, this article would be invalid as the Internet’s popularity grew exponentially until today to become an indispensable part of most economies. The Internet is now the primary source of information and communication. In today’s world countries, where the majority of people do not have access to the Internet are seen as third-world countries. It is a meaningful inference, though. Countries that have high literacy rates are bound to be aware of the Internet, computers, and similar electronic gadgets. People are rapidly incorporating technology all across the world and, through the Internet, are more connected than ever before.

Even if we look at the statistics and see the countries with one of the highest number of IP addresses are generally the most developed nations. Likewise, countries with the least number of IP addresses are generally underdeveloped nations. As more people are educated, have enough money to own a computer or electronic gadget, and have access to the Internet are likely to have a better living standard than those who do not.

One likely drawback of this type of inference would be that the IP address count is also a function of the population. Countries like India or China that have a large population count would easily surpass those who have a relatively small area of land and population. In that case, a percentage of the total population could be used to compare how many people have access to the Internet. In this digital age, the Internet is a powerful tool to incorporate new technologies, take advantage of access to external resources, and rapidly grow.

Businesses that do not have a “.com” are typically seen as not an established brand themselves. A digital presence of a business is almost mandatory as it has become one of the primary sources through which people know about the company. People, businesses, corporations, and governments are all accessible to us via the Internet. Hence, IP addresses count can give us more insight into how developed a country is than we think.

For instance, Bangalore, a city in India, is nowadays referred to as the Indian Silicon Valley due to a massive number of IT and Software companies operating as a primary business center there. With India incorporating electronic gadgets and the Internet (3G, 4G, and now 5G soon) boosted the economy, providing rapid growth and for consecutive years had one of the highest GDP growth rates globally. In this sense, the IP address count trend can be used to forecast growth trends in other developing countries.

Internet is a gold mine, companies like Facebook, Google have a net worth in billions, and the traditional definitions of large businesses do not apply to internet giants. Making proper use of the Internet and the available resources can potentially help in earning huge revenues. Even currency or stock trading are all done online for which we need internet access. Even this very article you are reading requires an internet connection and a computer (or a mobile) to begin-with.

Impact on Currency

The IP address count of countries serves as a general measure of prosperity. The relative growth of countries by the count and percentage share can be used to understand how open and adaptive countries are to the latest technologies. The countries with increasing IP addresses are likely to undergo a transformation and achieve high economic growth. We can forecast long-term trends through these statistics due to which it is a low-impact leading economic indicator as currency markets focus on current economic trends.

Economic Reports

The global count of IP addresses across countries is available through an internet company known as Akamai. However, the quarterly consolidated and graph plots of these statistics of most countries are available on Trading Economics.

That’s everything about IP Address Forex fundamental driver. It is obvious that there won’t be any impact on the price charts after the news release of this economic indicator. Cheers!

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Crypto Guides

Understanding The Concept Of Tokenomics

Introduction

Introduction

Introduction

In our previous articles, we have seen a lot about tokens, utility tokens versus security tokens, and how the tokenization has generated different blockchain, business models. As a quick recap, the token represents something in the crypto universe in its designated environment. A token has many roles, features, and purposes of fulfilling in its intended space.

What is Tokenomics?

Tokenomics is formed with two words, token and economics. Tokenomics is the quality of the coin, which influences the people to buy them and thereby shape up the platform accordingly. Any factor which affects the token’s value can be considered to be part of tokenomics. Let us see some of the most important ones below:

🔰 Team

The team behind the project is the first and foremost factor that affects the token in every way possible. It is quite natural for any sensible investor to check the team behind the concept. For any ICO to be successful, the teams play an essential role in the concept of the token and what the token tends to achieve.

🔰 Token Allocation

Token allocation post the ICO is an essential factor as well. Allocation amongst the team members and advisors is essential. The percentage of total coins that the leadership team has retained, how they will be spending those tokens for the project, and the duration they will lock the tokens. People who believe in their project tend to lock the coins for the long term showing their belief in the project.

🔰 Publicity and Branding

The project and token should have appropriate publicity. People should have an idea about what it is, and the closer it is to solving a real-world problem amongst other factors, the interest grows. Hence, the business model is essential too. The community, i.e., people who are already invested, shouldn’t be ignored; as they try to nurture the project in their way, they should be rewarded appropriately. Hence, they act as the brand ambassadors of the project.

🔰 Legal Structure

There have been many scams involved in the ICO’s of the 2017-18 period; they have come under the radar of intense scrutiny. Thus, the project should be under the local government’s rules and regulations wherever it is being developed.

🔰 Types of Tokens

There are different types of tokens to consider apart from security vs. utility tokens we have seen so far. The other necessary type is Layer1 vs. Layer2.

Layer1 generally refers to the platform on which the token is built upon. For example, if you are developing a DAPP in the Ethereum platform, Ethereum is the layer1 platform Ehter works as Layer1 token. The token that you intend to develop and the platform that you develop over the foundation platform is Layer2 and Layer2, accordingly. Though there are widespread attempts to make the two layers independent of each other, no matter how independent they are, they will be affected in case of any hacks on Layer1.

🔰 Token Flow

Token flow is another essential factor that determines the token’s value. Token flow in the Layer1 is determined by how the coins are generated and how the users are incentivized to maintain the platform. Secondly, the developments in the platform to strengthen the network itself. How the tokens are coming and going from the platform, is the environment sustainable or not, are some of the factors involving the token flow.

What makes up a token value?

The coin’s intrinsic value. Well, we consider its intrinsic value to the current value all the time while investing in something. If the intrinsic value is less than the current value, it is mostly advisable to invest. It’s the same with tokens as well. The intrinsic value depends on its credibility and utility of the project.

The second one is obvious, which is nothing, but speculation of the potential investors based on its history. Supply and demand, of course, plays a role as the number of tokens is always capped. Hence if the demand increases than the supply, the value tends to increase naturally.

Tokenomics is pretty vast, and we have covered significant parts involved. This concept is gaining momentum and space slowly; thus, knowing the above concepts before you take a plunge in the crypto investments is very useful in the long run.

Categories
Crypto Guides

What Should You Know About Cryptoeconomics?

Introduction

Introduction

Introduction

Cryptoeconomics is a gentle combination of both cryptography and economics, i.e. incentives, as the name suggests. Cryptoeconomics ensures the decentralized peer to peer (P2P) network is viable and dependable for the proposed transactions on a P2P network. A general misconception when people come across the word Cryptoeconomics is that it is a field in economics, but it isn’t true. The use of cryptography and economic incentives to run a decentralized network without malicious attacks as it isn’t governed by anyone is Cryptoeconomics.

Why Cryptoeconomics?

The P2P networks are not new with the invention of blockchain and cryptocurrencies in our lives. Torrents sites have been using decentralized P2P networks for decades to share files. The general principle is that whenever you download a file from torrents, you are supposed to seed a file which can be useful for anyone else to download. In general, that is how we are creating content in the torrents for others to download.

This is not hard and fast rule but depends on the honor code. Human Beings are, in general, not honorary; hence most of the people don’t even know that a file should be seeded in return for a download, and hence the system has been a big failure. Hence incentives have been introduced in the cryptocurrency platforms, including cryptographic has functions for security purposes.

How does it work?

Let us see how Cryptoeconomics work using the example of Bitcoin. In 2008 bitcoin white paper was released, showing a first-ever way to use Cryptoeconomics with a practical and live example by minting a bitcoin by January 2009. Not only does the incentive concept evolved, but Bitcoin successfully overcomes the concept of the Byzantine Generals problem to create a perfect consensus mechanism called Proof of Work. Let us see in detail how cryptography and economics play a role in the bitcoin platform.

Properties of Bitcoin that have come due to cryptographic hash functions

₿ Bitcoin works on blockchain technology, which is a continuous chain of blocks linked together with cryptographic hash functions.

₿ Each block contains a predefined number of transactions with a hash of all the transactions combined.

₿ The platform is immutable, i.e., already added, and sealed blocks are not subject to any change, but new blocks can be added.

₿ Only valid transactions are allowed and added to a block using a consensus mechanism; in the case of bitcoin, it is PoW.

₿ The blockchain is accessible by anyone in the world, as this is a permissionless system.

₿ If a high transaction fee is paid, the transaction can be verified and committed to the blockchain quickly. We had seen many examples in 2017 when the bitcoin price zoomed to be highest ever.

₿ It should be easy to retrieve information on any transaction confirmed in the blockchain. This is possible using the concept of the Merkle tree.

Some of the main functions which run the bitcoin blockchain platform are

  • Hashing
  • Digital Signatures
  • Mining
  • Proof of Work

Economics

As we discussed before, the fundamental difference between blockchain P2P networks and other P2P networks is the incentive model. For getting any work done, the work should be rewarded using appropriate incentives as motivation. At the same time, the tone should be punished if the work is not adequately done or done in a malicious way to create a loss in the network.

How are the participants rewarded in the network?

  • The participants are paid in native cryptocurrency of the network for actively participating in running the network and confirming the transactions as required.
  • The most recent winner of the block is incentivized with local cryptocurrency. Some privileges like what transactions should be added in the block and charge transaction fees to add the transaction in the block kind of decision-making rights are also given.
  • Simultaneously, wrong participants are fined, or their decision-making rights are snatched away as required.

Now a question might be raised like how does cryptocurrency have a value? The answer is simple: how a fiat currency or gold has value, supply, and demand. A whole lot of other factors like the network integrity, number of coins in circulation, is the network affected by a hack recently, history and purpose of the coin in the first place, and a lot of stuff. To determine all these parameters and how the miners maintain their integrity without being malicious is based on the concept of Game Theory and Nash Equilibrium, which we will be delving into in our further articles.