Digest: Why the U.S. Secret Service Loves Crypto

Plus, America’s Housing Market Is Getting Crushed.

Welcome to the digest… my breakdown of the things we’re thinking about and talking about in the Global Intelligence world.

First up this week… the U.S. Secret Service debunks one of the big myths about crypto.

The mainstream media loves to write stories about how criminals love cryptocurrencies. That’s ill-informed nonsense.

You know who really loves crypto? Law enforcement.

But don’t take my word for it, take the word of the U.S. Secret Service.

In a recent AMA, or ask me anything, session on the social media platform Reddit, agents from the Secret Service San Francisco Field Office and the Bay Area Regional Enforcement Allied Computer Team (REACT) explained to users that blockchain is perfect for tracking financial crimes.

Blockchain is the technology behind bitcoin and all other cryptocurrencies. It’s a permanent, unhackable ledger of all digital transactions involving a crypto project. Which means if you know who owns a particular wallet on a blockchain, it’s possible to track all the transactions they made through that wallet.

As the REACT team noted, “The blockchain provides us with an amazing opportunity to track the flow of money.”

As a measure of how much it loves crypto, the Secret Service has even released an NFT collection on the Ethereum blockchain. (NFTs, or non-fungible tokens, are one-off, one-of-a-kind cryptos often represented by cartoonish digital images.)

All that’s not to say that criminals don’t use crypto. They clearly do.

But as the Secret Service agents pointed out on Reddit, cash is a far better way of hiding money from Uncle Sam. They added that, according to a 2022 Treasury Department report, more money laundering occurs in dollars than crypto.

The “criminals love crypto” narrative is just another thing the mainstream media gets wrong about the cryptoconomy.

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Next up… the housing market is getting crushed.

Last month, sales of previously owned homes in the U.S. fell by 23.2% from April 2022… the largest annual decline since January 2012.

According to the data from the National Association of Realtors, the median price of previously owned homes also dropped 1.7% in April from a year earlier.

Existing home sales have now fallen in 14 of the past 15 months.

As I’ve previously written here, this assault on the housing market is the deliberate policy of the U.S. Federal Reserve.

By raising interest rates at a historically fast pace, the Fed has vastly increased the cost of mortgages, thereby making homes unaffordable for many prospective buyers.

Moreover, with the average rate for a 30-year fixed mortgage sitting above 6%, existing homeowners are staying put… unwilling to swap their locked-in lower rates for a new mortgage at these high levels.

Instead, many homeowners are looking to buy property overseas, rather than upsizing in the U.S.

Rates are often lower in foreign markets, and property prices continue to move upward in sought-after overseas destinations like Cabo and Playa del Carmen, Mexico, and the Algarve in Portugal.

All of this means money is leaving the U.S. housing market. And now, this situation could be about to get even worse…

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Early this month, the Fed raised interest rates by 0.25 percentage points. This was its tenth consecutive rate hike.

In little over a year, the Fed has moved rates from 0.25% to 5.25%… the fastest pace of increases in proportional terms in the history of the U.S.

When the Fed announced its latest hike in early May, there were clear indications that it planned to pause at this level, since Fed Chair Jerome Powell did not refer to the need for further increases, as he did after the prior meeting in March.

But now, there are signs the Fed may be revisiting that position…

On Thursday, two senior Fed officials expressed concerns that inflation isn’t cooling as fast as they would like.

In separate interviews, Federal Reserve Bank of Dallas President Lorie Logan and Federal Reserve Bank of St. Louis President James Bullard both said that they hadn’t seen evidence that inflation was on track to return to the Fed’s 2% target range.

Of course, they are right. Inflation has been stuck at around 5% for the past several months, according to official data. And core inflation, which does not include volatile food and energy prices, is even higher.

For this reason, Logan and Bullard seemed to indicate that a further 0.25% interest rate hike could be necessary.

About that…

As I constantly point out, there’s little the Fed can do to fix the sticky inflation in the U.S. right now.

We live in a globalized economy. The causes of U.S. inflation do not exist solely inside the U.S.

The Fed has no control over the droughts in India and China that have caused a global rice shortage, which is pushing up the prices of all kinds of other foodstuffs around the world. It has no control over the war in Ukraine, which has led to a realignment of the global energy market. It has no control over supply shortages due to China’s stuttering economic recovery from its strict COVID lockdowns.

The only sensible path forward is to let the existing rate hikes filter through the system.

Another 0.25% increase would have little to no impact on inflation. But it would serve to further crush the housing market and American businesses and consumers, who are increasingly relying on debt to get by.

Hopefully, the Fed will see the light of day before its next meeting in mid-June. But then, the Fed has never been one to choose the sensible path…

That brings us to the end of this week’s digest. Many thanks for being a subscriber. And if you have any feedback or questions, reach out through the contact form on the Global Intelligence website.

Enjoy the rest of your Sunday.