General World Currency News


How China’s race to reserve currency status will rock markets

By Luca Rossi 23 Jun, 2015
How China’s race to reserve currency status will rock markets

The inclusion of the Chinese renminbi into the basket of IMF’s reserve currencies will radically transform global markets and developing countries’ central banks policies.

That's according to Ashmore’s head of research Jan Dehn, who shared his views during a press roundtable on Tuesday.

Dehn believes China, which underwent a market correction over the past 10 days, is planning to attract long-term institutional investors, including foreign central banks, into its domestic market.

This is why labelling the renminbi a global reserve currency is crucial - it means that central banks, and not just short-term retail investors, will be buying the currency.

‘97% of all global reserve currencies are in Japanese yen, euro, British pound and US dollar. All these four central banks are currently printing money to stimulate their economy. This means that the world will be soon in serious shortage of global reserve currencies,’ he said.

Dehn thinks China is actively and aggressively responding to this major trend initiated by developed markets, which is likely to cause an appreciation of the renminbi.

‘China knows it sits on a time bomb. Developed markets are trying to find their way out the crisis by creating inflation and weakening their currencies rather than implementing structural reforms. This is going to make the renmimbi appreciate to an unsustainable level.’

The Chinese authorities' plan is therefore to make international investors tap into its currency as soon as there is a more pronounced shift away from QE-driven currencies, according to Dehn.

A new sovereign wealth fund

Dehn said China would no longer need its foreign exchange reserves once its reaches global reserve status. He compared it to the US, which currently has hardly any foreign exchange reserves.

‘This means that China's foreign exchange reserves, nearly $4 trillion, will become a sovereign wealth fund, which is not going to be invested in US dollar, but in global infrastructure, private equity and alternatives.’

‘It’s therefore very likely that China, over the next few years, may become a steady seller of US treasuries and buying other assets,’ he added.

‘Going forward, this will be a much larger investment programme involving sovereign wealth fund-type activities all over the emerging world. Other EM central banks such as Mexico’s and India’s will be looking very closely at what China is doing and trying to join the global reserve currency club.’

Financial big bang

Looking at Chinese fixed income, Dehn thinks the municipal bonds market is the most exciting part of the sector at the moment. He highlighted that currently China has 11 trillion RMB ($1.77 trillion) of local government debt, mainly on banks' balance sheets.

This debt has been swapped into tradable bonds in order to transmit monetary policy signals down to local government level and manage the country’s macro economy.

‘Next step is to stimulate consumption - China has a savings rate of 49%, which represents a great room to increase spending. They will have to reduce people's precautionary savings putting bonds into their portfolios as at the moment they can just invest in property and stocks,’ he said.

Increased consumption, Dehn argued, will drive imports and worsens the country’s account surplus. ‘The country is opening its domestic market to foreign investors to offset this trend. The market cap of the equity and bond market in China is $15 trillion, which almost equals US GDP.’

‘This is the biggest big bang in world's economic history - never has a market the scale of the US economy been opened to international investors.’

http://citywire.lu/news/how-china-s-race-to-reserve-currency-status-will-rock-markets/a822406

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Posted on April 17, 2015


Meeting in near-secrecy in Washington – under the radar of the mainstream media – the world’s most powerful financial brokers just discussed the future of global economic order.
secret meeting What did the worlds financial elite just discuss behind closed doors?

From Filip Karinja, for Birch Gold Group

Today the financial heavyweights in the world of finance met behind closed doors to discuss the future of the global economic system.

Held in Washington, the meeting was titled, ‘Gold, renminbi and the multicurrency reserve system’.

Co-hosted by the World Gold Council, the purpose of the meeting was described on the website of the Official Monetary and Financial Institutions Forum (OMFIF) this way:

“OMFIF, in association with the World Gold Council, hosts a select group of central banks and other official sector institutions for a breakfast discussion on gold, the renminbi, and the multicurrency reserve system. Discussions are under Chatham House Rules and take place during the International Monetary Fund and World Bank Group spring meeting in Washington.”

If there’s any indication of how critical this meeting was, the European Central Bank (ECB) actually moved their scheduled meeting on monetary policy from Thursday to Wednesday just so they so they could be in attendance. You’d think that should be enough to get a few mainstream reporters asking questions. Yet the mainstream media completely missed the story.

It’s unlikely we’ll ever hear much about this meeting, as it falls under the secrecy of Chatham House Rules, yet there are some indications of what was covered by some of the world’s most influential central bankers. And since most of the media has been caught napping, we’re here to do our best to read the tea leaves.

Here’s what was likely discussed in regards to each of the three topics listed in the title of the meeting:

Chinese renminbi

It’s no surprise that the Chinese renminbi is a chosen topic to be discussed as the eastern nation’s continued rise in power and influence is out in the open for all to see.

The introduction of the newly created Asian Infrastructure Investment Bank (AIIB) will further shift global power to the east and challenge the presently established western financial institutions, notably the IMF and World Bank.

No doubt the meeting will involve discussing how to incorporate the renminbi into the current systems as a means to limit its growing power.

Multicurrency reserve system

With an increasing number of nations turning away from using the U.S. dollar in international trade, the shift from the world’s reserve currency has pundits asking, “What will come next?”

The most likely options are either the International Monetary Fund’s SDR currency basket, a gold-backed currency, or a combination of the dollar and SDR.

Every five years the IMF takes a look at its Special Drawing Right (SDR) currency basket. Currently the pool consists of the U.S. dollar, euro, British pound and yen, but later this year, it’s up for review. And considering its growing influence in the world, the renminbi is likely to be added.

When addressing whether the Chinese currency may be added to the SDR system, Christine Lagarde, head of the IMF, put it bluntly: “It’s not a question of if, it’s a question of when.”

There’s one other important currency that some have suggested could be added to the SDR. It’s one that could add much needed stability to global fiat currencies, and reinstate confidence in them…

Gold: Could it be added to the SDR?

Lord Meghnad Desai, chairman of the OMFIF, was recently quoted as saying:

“A bit of gold” could help stabilize SDRs. “We could ask that gold be nominated as part of the SDR. That is one thing I think is quite likely to happen.”

There you have it. The Chairman of today’s meeting has openly told us that he would like to see gold added to the SDR.

For now, we can only speculate on the specifics of what was discussed behind the closed and private doors of the meeting. And with almost no one on the outside asking questions about what decisions were made, we might never find out.

But by reading what people who attended the meeting have been saying, and by looking at current trends, we can make some educated and logical guesses as to how this will play out:

  1. It’s quite possible that the U.S. dollar could lose world reserve currency status to the IMF’s SDR currency basket. The U.S. can gracefully cede this power, or market forces may soon dictate it.
  2. The Chinese renminbi will likely be added to the SDR currency basket. It could happen as soon as this year.
  3. Gold, the longest-lasting currency on the world, will likely regain its right role of prominence and prestige as it becomes an essential part of the global monetary system. If it isn’t added to the SDR this year, it may very find its way there within the next decade.

As we see how the global monetary system may play out over the next several years, we encourage you to take a hard look at your savings. If it’s all in the dollar, or dollar-backed assets, we encourage you to take a long and hard look at diversifying outside of the dollar. And when you’re ready to diversify into gold, we’re here to help.


Did you know that we’ve conducted exclusive interviews with some of the world’s most esteemed financial commentators? Watch our interview with Dr. Ron Paul here.

http://www.birchgold.com/geopolitical/central-bankers-secret-meeting?msid=94970&utm_source=Birch+Gold+Group+Market+Update&utm_campaign=3e37b04c93-market_update_email_041815&utm_medium=email&utm_term=0_f225c8b1ba-3e37b04c93-73797649&goal=0_f225c8b1ba-3e37b04c93-73797649

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Indonesia new notes from new issuer reportedly set for 17.08.2014 introduction

Jun 26, 2014 08:04 AM
According to an article on Tempo.co dated 19 June 2014, Indonesia plans to issue new banknotes on 17 August 2014, Independence Day. The new banknotes will have "Negara Kesatuan Republik Indonesia" (Republic of Indonesia) written on them, replacing the name of the current issuer, Bank Indonesia. The new banknotes will still have the same denominations as the current notes, will still have pictures of national figures, and are claimed to be harder to counterfeit.

Indonesia has been tinkering with the idea of changing its notes and revaluing its currency for years, with various plans in the past having failed to come to fruition. As such, it's probably wise not to put too much faith in this latest report.

Courtesy of Claudio Marana.

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Friday, 22 February 2013 10:50

Amid Record Demand in 2012, Central Banks Scramble to Buy Gold

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The global demand for gold hit a new record value level in 2012 and central banks around the world were gobbling up the precious metal at rates not seen in nearly 50 years, according to findings released by the World Gold Council this month. The industry council said that in value terms, gold demand in 2012 was over $235 billion — an all-time high — and fourth-quarter figures of more than $66 billion marked the highest Q4 total ever.

Central bank buying, especially in the developing world, was responsible for about 12 percent of the total demand for gold in 2012, up from 10 percent the previous year. According to the council’s research, even as the price of the precious metal averaged a record $1,669 for the year, central bankers bought more than 534 metric tons — the highest level since 1964 and 17 percent more than in 2011.

The central-bank buying spree was led by monetary authorities in Russia, Brazil, Iraq, and other developing nations. Analysts said the exploding demand was part of a worldwide effort to diversify away from the troubled U.S. dollar and the severely embattled euro as the global economy continues to struggle, with more than a few experts harping on so-called “currency wars” as central bankers race to devalue their fiat currencies through inflation of the currency supply. 

Chief market analyst Ric Spooner at CMC Markets told CNBC that he expected the trend to continue, pointing to a "broad tendency for the U.S. dollar to decline in value with the Federal Reserve's QE (quantitative easing) policies.” Assets like gold, he added, “are a hedge against debasement against foreign exchange reserves."

Marcus Grubb, managing director of investment research at the U.K.-based World Gold Council, noted in a statement that China and India remained the world’s gold “power houses” despite troubled domestic economic conditions. Even in the face of Indian government policies aimed at curbing demand, Grubb said, consumer sentiment toward the precious metal remained strong in India, reaffirming the important role played by gold in that nation with its “underdeveloped” financial system. 

“Notwithstanding the predicted economic slowdown in China, investment demand was up 24 percent in Q4 on the previous quarter and jewelry consumption held steady at 137 tons,” Grubb explained. “Central banks’ move from net sellers of gold, to net buyers that we have seen in recent years, has continued apace. The official sector purchases across the world are now at their highest level for almost half a century.”

Despite what Grubb called “the turbulent macroeconomic climate” throughout 2012 and the regional uncertainties plaguing both India and China — the two largest gold markets in the world — annual demand was 30 percent higher than the average for the past decade. The council, an industry group based in London, also expects monetary authorities to keep buying more of the precious metal in an effort to diversify their reserves. 

“We think that the current rate of net central bank purchasing, driven by emerging countries, is likely to continue to be very strong,” Grubb explained. “This is very much due to a desire to diversify away from over-reliance from the dollar and the euro.” Both currencies have come under serious pressure — especially in recent years amid major economic and financial woes throughout the West.

IMF data compiled by Bloomberg showed that among monetary authorities, Russia’s central bank was in the lead, adding some 570 metric tons over the last decade, 25 percent more than the Communist Chinese regime. Russian government boss Vladimir Putin, like other leaders on the global stage in recent years, has long complained publicly about the U.S. dollar’s status as the world reserve currency and American authorities’ abuse of that monopoly.

Policymakers loyal to Putin seem to believe in the strategy, too. “The more gold a country has, the more sovereignty it will have if there’s a cataclysm with the dollar, the euro, the pound or any other reserve currency,” Russian lawmaker Evgeny Fedorov with the United Russia Party told Bloomberg from Moscow, echoing sentiments expressed by other government leaders around the world.

Meanwhile, the latest data also showed that investors were also expanding their gold holdings last year. According to the World Gold Council, global investment in gold exchange-traded funds (ETFs) was up by more than 50 percent last year over 2011, though that slowed modestly during the fourth quarter.

Despite the seemingly bullish news, in recent days, gold prices have taken a serious beating, dropping down to $1,576 per ounce on February 22 — the lowest levels since mid-2012. Some analysts have tried to claim that an alleged “economic recovery” in the United States is dampening investor appetite for the precious metal as a safe haven against inflation and increased economic turmoil.

Experts and investors with solid track records, however, suspect something else is going on. Indeed, more than a few prominent analysts anticipate that the price of gold in terms of Federal Reserve notes will continue its decade-long meteoric rise over the coming years — especially with the privately owned U.S. central bank still creating gargantuan amounts of new debt-based currency to artificially prop up the economy by buying up everything from Treasury bonds to mortgage-backed securities.      

Euro Pacific Capital chief Peter Schiff, who famously warned about the economic implosion that hit at the end of 2007 long before it happened, said part of the reason for the downward pressure on gold was an upbeat Fed forecast about the economy and an improving stock market. The U.S. central bank, however, has a terrible record, Schiff added, pointing out that the Fed was upbeat about the economy even after the greatest recession since the Great Depression had already started.

“People who are saying there is no reason to buy gold now never understood the reason people were buying it in the first place,” Schiff said during a February 21 talk explaining the recent pullback in prices, adding that the continued currency printing by central banks was highly bullish for gold. "The point is this: Central banks are now aggressively pursuing inflation on purpose.... There are trillions of reasons to buy gold — there's more reason than ever to buy gold."

Other respected experts believe the price of gold is being artificially suppressed by Western central banks and especially the Federal Reserve. Gold Anti-Trust Action (GATA) Committee chief Bill Murphy, for example, told The New American in mid-2010 that even though the Fed was trying to hide its market manipulations, it was clear that there were shadowy influences operating behind the scenes. 

“By suppressing the gold price, they can keep the dollar stronger than it would be and keep interest rates less than they would have been,” Murphy explained, noting that the manipulation played a pivotal role in the recent economic meltdown. “What happens is every time gold prices soar, what do you hear? Too much inflation? Crisis? It’s always bad for the Wall Street crowd and the incumbent politicians.… If the gold price had been allowed to trade freely, interest rates wouldn’t have been kept too low for too long.”

At the same time, as The New American has documented extensively in recent years, there is a concerted global effort to dethrone the U.S. dollar as the world reserve currency — eventually, at least — and replace it with a planetary currency instead. Under that vision, which has found strong support among the highest echelons of power in government and finance, the global monetary system and world currency would be managed by a further-empowered International Monetary Fund (IMF).

Some experts suspect that the recent gold-buying binges by developing-market central banks are part of the long-term effort to eventually kill the fiat U.S. dollar, which is quickly being inflated into oblivion as the Fed conjures trillions into existence to bail out governments and big banks around the world. Analysts, meanwhile, broadly expect the rising price trends in gold and silver to continue over the coming years — at least as long as central bankers around the world, largely working together behind the scenes, keep printing currency like there is no tomorrow.       

Alex Newman is a correspondent for The New American, covering economics, politics, and more. He can be reached at anewman@thenewamerican.com.



Obama Plan To Shatter “Permanent War Economy” Panics Global Elites

Posted by on Jul 22nd, 2012 // 3 Comments

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An astounding report prepared by the Ministry of Finance for President Putin today estimates that up to $35 Trillion in assets owned by what are estimated to be the 10 million individuals classified as “global elites” has been lost to global tax havens over fears that President Barack Obama is about to “shatter” the United States “permanent war economy” that has been in place since 1944.

The amount of this staggering elite money hoard, which dwarfs the entire United States economy (the world’s largest) was confirmed by the Tax Justice Network (TJN) whose spokesman, John Christensen, told London’s Guardian News Service yesterday:

“In total, 10 million individuals around the world hold assets offshore; but almost half of the minimum estimate of $21tn – $9.8tn – is owned by just 92,000 people. And that does not include the non-financial assets – art, yachts, mansions in Kensington – that many of the world’s movers and shakers like to use as homes for their immense riches.”

The CEO of General Electric and vice-chairman of the War Production Board, Charles Edward Wilson (1886-1972) warned at the close of World War II that the US must not return to a civilian economy, but must keep to a “permanent war economy” thus creating the Military-Industrial Complex (MIC) (aka. “The Iron Triangle”) whereby the collusion between militarism and war profiteering became manifest as a permanently subsidized industry.

Between the years of 1944-1961 the power of this Military-Industrial Complex had became so great that President Dwight D. Eisenhower (1890-1961) in his last address to the American people on 17 January 1961 warned:

“In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.

We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.”

Upon taking over the leadership of the United States from Eisenhower in 1961, President John F. Kennedy (1917-1963) waged a relentless battle against the Military-Industrial Complex refusing to invade Cuba during the Bay of Pigs debacle, refusing to start nuclear war during the Cuban Missile Crisis (even though his military advisors were demanding it), stopped atmospheric nuclear testing and had began the process to withdraw troops from Vietnam.

Upon Kennedy’s assassination in 1963 his successor President Lyndon B. Johnson (1908-1973) fully embraced the Military-Industrial Complex guaranteeing the survival of the “permanent war economy”.

Even worse, under Johnson’s Defense Secretary, Robert Strange McNamara (1916-2009) the way the Military-Industrial Complex operated in the “permanent war economy” was changed.

Within the Pentagon that McNamara ruled when Johnson assumed the Presidency, civilian and uniformed officials were in conflict about the procedures for how to determine the costs of weapons to be contracted for manufacturing. On the one side, led by an industrial engineer, the idea was to base costs on the formulation of alternative designs and production methods—a competitive approach that promoted economic growth.

The other side proposed generating costs based on what was previously spent. For the Pentagon, this meant following the “cost-plus” system used during World War II, also known as cost maximizing. In other words, “contractors could take the previous cost of making a product for the Pentagon and simply add on an agreed-upon profit margin.”

McNamara opted for the second option. The result was that by 1980, the cost of producing major weapons systems had grown at an annual rate of 20 percent, meaning, that by 1996, the cost of the B-2 bomber exceeded the value of its weight in gold.

So damaging to the US has their “permanent war economy” become that in March of 2003, New York City put out a request for a proposal to spend between $3 and $4 billion to replace subway cars. Not a single US company bid on the proposal – in part because the nation no longer had the tools it needed to build its own subway trains. It was calculated that if this manufacturing work were done in the United States, it would have generated, directly and indirectly, about 32,000 jobs.

Not being understood by the American people is that the operation of a “permanent war economy” makes President Obama the Chief Executive Officer of the United States Military-Industrial Complex controlling the largest single block of capital resources the world has ever known and that has spent this year alone nearly $1.5 Trillion.

To be noted is that this combination of [economic, political, and military] powers in the same hands has been a feature of statist societies—communist, fascist, and others—where individual rights cannot constrain central rule.

Unlike any US President since Kennedy, however, Obama has been the first American leader since 1963 to take “tentative” steps against the Military-Industrial Complex with this report further stating that upon his reelection he will begin an “all-out assault” to reclaim his economy for civilian use instead of war.

In our previous report, “US Military Reveals Coup Plan To Topple Obama”, we noted how Obama was building up his countries internal police forces to include the militarization of nearly every local police force in the United States, a move, this report suggests, he has undertaken so he, unlike Kennedy, will be prepared when his own military forces turn against him.

To which side the American people will back as this titanic internal struggle intensifies this report doesn’t say. But, and critical to note, as the wealthiest US investors were warned on 9 July to prepare for a “fundamental geopolitical shift”, it would only seem prudent that the masses of other Americans follow their lead.

Source

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European crisis hits many US states hard

Posted by on Jul 30th, 2012 // 5 Comments

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Europe drags the United States of America to the bottom, languishing from the global financial crisis. Tourism, trade and the raw materials industry, which previously supported the economy, are no longer in demand. Close economic relations between the US and the EU have brought the European crisis to the United States.

Mark Vitner, a senior economist at Wells Fargo, conducted a research, which showed that the states, whose economies depend on exports, suffer from the crisis most. Utah, West Virginia and Nevada that used to sell natural resources to Europe, experience hard times nowadays. Until recently, gold and silver was the breadwinner of Utah and Nevada. The two states used to ship the precious metals to wealthy Europeans. Now the situation has changed radically. It is ethical and material needs that matter – aesthetic needs are no longer important. What kind of gold can there be if the King of Spain was forced to cut his own salary by even percent?

Coal became a stone around the neck of West Virginia: the state is the largest exporter of coal. Louisiana suffers too: its economy is based on petroleum and chemical industries. However, in the first half of the year, exports of chemicals from Louisiana to Europe have dropped by 31 percent.

The crisis of the Eurozone has hit the economy of South Carolina, which is focused on the transportation industry. In total, there are more than 250 companies working in the industry in the state. They employ over 32,000 people. Exports in the state have dropped by 1.4 percent of GDP during the recent year. However, the economy of the state is still afloat owing to investments in the companies, such as, for example, a new plant for the construction of Boeing aircraft – the most popular aircraft around the world.

At the same time, the State of Alabama that was prospering owing to the export of vehicles recorded a significant drop in demand for cars and trucks. It is not a catastrophe for the state, though Mercedes-Benz, Honda and Hyundai began to expand production at factories.

Commercial relations between countries involve a lot of people. According to the Office of U.S. Trade Representative, the trade between the EU and the U.S. involves more than 7 million employees. As much as 3.6 billion dollars circulate through their hands every day. It turns out that the slowdown and decline in exports creates the shortage of jobs not only in Europe but also in the States.

However, the EU is not the only pebble on the beach. If Europeans do not need new aircraft, then there are many other countries that need the aviation industry. This is exactly what saves the State of Washington, whose economy is 71 percent dependent on revenues from the aviation industry.

Nevertheless, economist Mark Vitner is concerned that if aviation exports continue to slow in the future, the economy of Washington will begin to suffer from serious financial starvation. Connecticut will find itself in the same position: the state is two-third dependent on the sale of aircraft and related equipment.

The clouds are thickening over the states, whose economies are traditionally based on the tourist industry. The root of the problem lies in the fact that 40 percent of all travelers in the United States are Europeans. Nowadays, this significant sector of tourism has declined noticeably, which affected the budgets of the cities that attract tourists. The crisis in the EU has struck New York, Los Angeles, Miami, San Francisco, Las Vegas, Orlando, Florida and Washington. The financial situation in the euro area affects the economies of the U.S. East Coast worst.

The crisis has also hit the country’s financial centers – New York, Chicago, Philadelphia and Boston. Last month, The Wall Street Journal reported on the reduction of 18,000 employees of six largest U.S. financial companies over the past year. That was 1.6 percent of the total number of jobs.

It turns out that the Americans have good reason to frown at the problems in the European Union. Edwin Truman, a senior specialist at the Peterson Institute for International Economics, admitted in February of this year that the real economic damage, which Europe caused to the global economy, made up one trillion U.S. dollars. In this regard, President Barack Obama speaks to Angela Merkel nearly every week to discuss all possible ways to fight the never-ending problem. However, their meetings bring no results.

At the same time, it seems curious that when Europe asked to increase the financial help through the IMF to create the financial protection system, and when the head of the fund urged other countries to take part in the solution of the problem, it was only China and Japan that responded. The U.S. simply shrugged it off. However, several countries receive help from the US, and one should not require substantial support from America in light of recent events.

Indeed, in early July, the head of the IMF, Christine Lagarde, advised the U.S. should rescue its own economy. According to her, the economic recovery in the U.S. is still lukewarm. It depends on increased risk factors – in light of financial tension in the eurozone and uncertainty with domestic financial and budget plans. At the same time, Lagarde stressed that in case of collapse of the economy the U.S. may not hope for assistance from the IMF, because the fund does not have the resources that would be able to lift the “first economy of the planet” from its knees. This is “sink or swim” type of situation. If the USA does not take urgent efforts, it won’t swim.

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This was a post in the Dinar Vets forum I though worthy to re-publish here because the person puts our fiat currency system into perspective.

I have generally chosen not to post in the past given the disrespect shown to many self-professed gurus, who, although getting it wrong much of the time, have offered truthful insight in a number of ways and on a number of occasions. Much of their commentary is beyond the comprehension of the masses given that the majority of the world's populace is not equipped with the true facts as to how finance, commerce, and the law actually work (I could go further to include the universe here but that's another discussion), given that schools, universities and modern text books all omit huge issues that when known change one's perception of what was previously considered a common truth or accepted fact. The same can be said for the gurus, who, whilst are equipped with more facts than the majority, their version of "the truth" is still not the full pictue either, hence their continued perceived failure to date.

Anyway, I wanted to respond to this thread given this appears to be a common issue of confusion. I apologise now for the length of post, however many basic assumptions must be overturned if one is to understand this investment.

It is a fallacy that fiat currencies are not backed by anything. They are backed by the faith that a country is able to pay off it's "promises to pay" (which is all that your notes are); it doesn't matter how, so this naturally includes assets. Some background is needed to understand how this actually works in practice, and how it is accomplished administratively is nothing short of amazing in one's honest opinion.

The current economic system is actually a world-wide bankruptcy system whereby all countries operate as if they were in bankruptcy as far as law is concerned, the US included (for confirmation regarding the USA, look up comments made by Jim Traficant). This is the only way in law that fiat currencies can be implemented. Accordingly, the economic system is an entity that is wholly owned and controlled (and often manipulated) by those creditors holding the banktruptcy liens; property rights dictate that they can do what they want with their property. People will naturally cry that this is a conspiracy theory here, however if they were to do the research they would find that the facts are out there and fully documented. Hence the current perceived meltdown is a controlled demolition, but from the highest levels, so even those corporations people deem as having been pulling the strings are subject to their creators, and in turn those are subject to the creators of the system. Fortunately, the system's creator is sorting things out and pulling the plug on many of these guys (scapegoating!), hence this is why it appears that at one level there is a battle for control going on; the truth is that there is only going to be one winner and this is predetermined by contractual obligation. That winner is all of us - eventually.

This is why people feel their rights have been stolen. What has actually occurred is that you have given your consent to exchange these natural rights for privileges determined by those in charge.

The larger commerical system of law that the bankruptcy economy sits within is where transactions of actual substance take place, and where gold and other substances are the currency, and this is the system within which creditors play. At this level, statutes of law are irrelevant, since their jurisdiction is limited to the debtors, ie all those people who do not realise the part they play in the world. This is the reason why it so often appears as there being "one law for them and one for us"; it is because that is the case! However all are in the position they are in via their own consent, hence it feels unjust that some are prosecuted for an offence that others will not be, however it is all about jurisdiction and contractual obligation and one's current place in the world; we all have the ability to rise up beyond it, however it is a philosophical journey to some extent that many don't have the will to pursue. In fact, this is largely why this has remained undiscoverd by the masses; people police themselves and the rest of society using ridicule and assertions that something is a conspiracy theory or people are nut-jobs etc. People would do well to remember: condemnation without investigation is the height of ignorance (Einstein).

One must also remember the legal adage of "he who has the gold must pays the bills"; it is the creditors are responsible for a countries well-being, or not. Any person who is not aware that this is the case, is lawfully a debtor to these creditors, no matter how much "money" one thinks they have, since this "money" is actually only a promise to pay the creditor in energy, in the future. In law, all have given their consent for this to be the case, through their tacit acceptance and use of the system, hence their current legal status of being subject to statutes etc whether they deem them unfair or unlawful or not. (There are many films serving as metaphors for this concept: creditors are oftern depicted as vampires... they suck your blood, or rather your life force, ie your energy).

Democracy, has two faces. On one side and at face value, it is allowing the people control of their destiny. On the other, it is a tool to make people believe they have a say when really they do not. It is mob rule where the majority wins, however the majority can be manipulated as you see today with the press and its consolidated ownership by a few. The rule of law, and constitutions etc, were put in place to prevent this manipulation and safe guarding basic rights so one cannot be persecuted as a minortiy via new laws (really just rules you have agreed to)... (there is no protection today - some minorities are protected but others are not). However, these constitutions do not apply to debtors within the system since they have given up that right by their own consent! The next stage is either to remove this layer of illusory control via commerce and go back to the consitution etc, or raise the understanding of all so that full use can be made of the systems that have been invented for the benefit of all. This choice is not clear in the public eye therefore a return to constitutional rule is the common solution put forth due to people being ignorant that there are other solutions, however this will result in a situation of scarcity, and an uprising of people who are going without. All of it is only possible because neither side of the argument understands the facts of the matter.

So, back to the point,. the faith in being able to repay, is a reflection of the assets that a country has, which whilst in many cases will include substances such as gold and oil etc which have themselves been monetised within the bankruptcy system through the creation of legal title against an entity (person) who themselves are assets of the country, the majority of a currency's value is backed by the assets known as... the people, and their propensity to work (to labour and create motion) and pay taxes. The people, via the process of birth registration (check your birth certificate, it is bank note paper) are technically the assets or chattels of the country (again, techincally this is on a temporary basis however because people don't realise or choose not to reject this it is effectively permanent), and therefore a country can secure loans etc against their collateral, ie people (hence there is no political will to reduce immigration - more people equals more collateral). Currencies work the same way, and assuming everyone realised this is what backs fiat currencies, said currencies would always have value as long as there are people prepared to work and can do, since currencies are a reflection of energy, and are a tool to control and direct the flow of energy (and largely here I mean labour), or even save it for a later date.

This is why security, infrastructure and industry are so important and such a big focus before the revaluing of the Iraqi currency, since during the war years there has been no ability for people to effectively work and therefore be taxed (and consequently the currency had little or no value). The revaluing will effectively correspond to the monetisation of the people by creating conditions to allow them to operate in the same manner as other countries, thereby backing the currency by their energy for the most par. People themselves have a value to a country, and these values are calculated based on all manner of criteria including birth-weight, gender etc using an internationally agreed (or rather centrally set) algorithm within admiralty laws ; this enables countries to quantify the energy that it's populace can contribute to the economy for use in determining currency values etc.One must remember that oil is valuable because it is energy; but the people are also a form of energy, given that without them corporations would be worthless since nothing can happen without a pair of hands to do it, and in fact people have a greater value given that said energy is largely unlimited. This, coupled with their vast natural resources, is why Iraq's currency could be very strong. Largely their population is very young which is another bonus, as therefore they have considerable energy, many years of work ahead of them, and the older population that would rely on consuming the energy of others, is largely irrelevant due to their low numbers following the wars.

Extra.

All those who feel corporations should be taxed more fail to understand that corporations cannot be taxed since it is only the workers that put anything in; accordingly it is the workers who are actually being taxed. The word corporation is derived from cooperation. The idea of a corporation was to pool energy for the collective benefit, however they system has been perverted for the benefit of the handul at the top, and today we take this as standard despite it not being how things were meant to be. Some will say this was a necessity due to the lack of understanding by the majority, however I would argue that a better approach would have been to raise people's understanding instead so all work together for the benefit of all.

The truth is, there is no need for tax at all. What it occurring is the division and conquering of the people so that you will submit to the forthcoming solution of a centralised top down led dictatorship; one side wants benefits etc for everyone and high tax on high earners, the other sees this as unfair that they are working hard and paying for others and therefore they want reduced taxes and less benefits. The truth is that we can have the best of both worlds.... and a centralised system would offer great advantages, but only if achieved with the masses having full understanding and consciously consenting. There is no need to give up sovereignty, boundaries or any of these other illusory things, provided everyone has full awareness - something the interent is helping to deliver. If a country authorises a centralised power to act on its behalf, it can withdraw that consent and authorisation at any time, provided it is represented by persons of honesty, integrity, and full awareness to the facts. The same holds true on an individual level - it is simply a case of understanding the correct administrative methods to adjust one's legal status. If you don't like something, step out of the jurisdiction - and this does not mean you actually have to move!

The invention of double entry bookkeeping, together with the system of birth registration and therefore value quantifying of individuals could be used to provide all services we currently have without the need for taxation to pay for it. The money is already there, just held in trust because the people are unaware so they will not take it back. Far better would be for people to know, but still leave it there for the benefit of all - services could then be paid for using these trusts and money never needs to be repaid to anyone because it is only yourself that you would owe. Currently banks seemingly create money - what is actually occurring is that they are monetising a loan application, where people are promising to pay back $x via their labour (energy). This can work the same for benefits - money can be created for someone's unemployment cheque by the authorising the access of their personal trust (based on your birth certificate) and creation of money against their name, however as above, there is no need to repay yourself!

The current push by many parties to return to substance backed currencies, ie precious metals etc, is a deception. It may however occur for a short while, effectively between banktruptcy terms. This is the end of the 70 years banktruptcy term within which countries find themselves, and therefore this is a major opportunity. Understandably many parties who have discovered they are being used as collateral are unhappy with this and are trying to break free, ie the conspiracy theory movement. What they fail to understand is that fiat currencies are an invention, an idea, to be used for the benefit of mankind. They have taken us a long way in developing the world, and although leverage is a dirty word, the progress that has been made would not have been without fiat currencies and leverage etc. The problem has been that the trustees of the national bankruptcy states have colluded to benefit themselves at the expense of the people (from one perspective - although from their own they are doing it for your benefit, to teach you). The current time is a time where these trustees can be changed due to the end of the term, and the system can be used for the benefit of all rather than just a few, if only everyone had full awareness of the issues. So the major piece still required to finish this puzzle, is for people to actually realise all this. The debts do not need to be repaid. Yes the debts have acted as a yoke round people's necks, however in the language of law, this has been via our own consent. Now is the time to wake up! There is never anyone to blame but one's self. All debts can be paid off instantly via the correct administrative process by a person with the correct status in law, and this is all going to occur anyway despite people not realising what the problem actually is (and therefore it being impossible for them to see a solution).

Many people believe that they need to be freed from the current system. It should be considered that freedom comes in many forms. I would argue that people would be freer if thay understood and could use the system correctly and therefore remain in this effective bankruptcy situation but via choice and awareness rather than deception, as opposed to withdrawing from the system altogether and therefore not receiving any of the great benefits as a substance backed system would deliver. Because said substances are finite, this type of system creates a scenario of scarcity and fear (of not having enough!) and therefore hoarding, self-centred focus, and consequently war (often this feels out of duty to protect one's neighbour, however it is an illusion!). Fiat systems allow abundance due to the energy being unlimited and help reduce said fear, provided there is conscious consent and awareness of the true system mechanism. Freedom is having choice. Currently people think they have choice, but they largely do not - they are forced either via peer pressure, "laws" of society, and most importantly deceptive tactics of subliminial conditioning to make them think that a thought is there own, when it has simply been suggested to them.

To touch on the universal level, it is fear that maintains the world's problems. Remove it, and the world would be a much happier place. All this can only be achieved via education as to the true mechanisms of the current systems. A good start would be the removal of tax! (Taxes go to the creditors, not on benefits for the debtors - these benefits are paid for using the exact method I suggest ie double entry book-keeping and trust accounts via your application for said benefits, however the deception is that you are told that your taxes pay for these benefits hence dividing you from your neighbour who is receiving the benefits of what you perceive to be your labour but in reality it is his own money, you're just both being conned).


This may not make any sense to most, but I hope for some, it may strike a chord. I wrote this out quickly in one go so if it reads as disjointed I apologise... just offering a perspective. I happily accept criticism and abuse given I have chosen to post this with my eyes open. It is a difficult subject to write about given there are just so many angles and so many assumptions that must be broked and replaced with new ones.


WORLD FORECAST

Global Growth Hits Soft Patch, Expected to Rebound

The global economy, hit by slowdowns in Japan and the United States, is expected to reaccelerate in the second half of the year, but growth remains unbalanced and concerted policy action by major economies is needed to avoid lurking dangers, the IMF says in its latest forecast.

Although the IMF kept its forecast for global growth broadly unchanged at 4.3 percent for this year, rising to 4.5 percent in 2012, the 187-member institution said the mild slowdown in the second quarter of 2011 “is not reassuring.”

While growth in most emerging and developing economies continues to be strong, slowdowns caused by the devastating earthquake and tsunami in Japan, weaker than expected activity in the United States, and shocks to oil supply weighed on the global expansion in the second quarter of the year, the IMF said in an update to its World Economic Outlook (WEO), released in São Paulo, Brazil.

The IMF also released updates to the Global Financial Stability Report (GFSR), which assesses trends in capital markets and the global financial system, and the Fiscal Monitor, which tracks changes in public finance and debt.

“A bump in the road”

Growth in the euro area, powered by more upbeat investment in Germany and France, has been better than expected, but concerns about the depth of fiscal challenges in some European countries have triggered renewed financial volatility.

Speaking about the U.S. slowdown, Olivier Blanchard, the Fund’s Economic Counsellor, said he saw it more as “a bump in the road rather than something more worrisome,” although the U.S. recovery remained weak.

The IMF identified the following regional trends (see table):

• Asia: Growth in emerging Asia will decelerate only slightly from the very high levels of last year. Disruptions to regional production networks due to supply constraints from Japan appear contained, although some sectors, especially automobiles and electronics, could experience strains through the summer.

• Latin America will be bolstered by commodity exports and domestic demand, but the pace of growth will ease in some economies where policies have been tightening more aggressively to reduce risks of overheating.

• Europe: Growth in Europe’s emerging economies is now projected to be higher than previously expected in 2011, followed by a softening in 2012, driven in part by a sharp domestic demand cycle in Turkey.

• Sub-Saharan Africa: Activity is projected to continue strengthening, with domestic demand remaining robust, and commodity exporters benefiting from elevated prices.

• Middle East and North Africa: economic prospects remain clouded by political and social unrest, although the outlook has improved for some oil and mineral exporters.

Risks from overheating

In a number of emerging and developing economies that are already operating at or above pre-crisis levels of output, the IMF said the priority was to expeditiously tighten macroeconomic policies, and use exchange rate flexibility and macro-prudential tools—possibly including capital controls—to help contain risks of boom-bust cycles.

For economies with excessive current account surpluses, particularly in Asia, demand re-balancing—through exchange rate appreciation and structural reforms—remains a top priority for securing balanced growth and employment gains in the medium term.

Financial sector risks rising

In its GFSR Update, the IMF said financial risks have increased since April for three reasons: first, mounting concern about the strength of the global economic recovery; second, worries about political support for adjustment in Europe’s periphery as well as political risks in addressing fiscal adjustment in some advanced economies; and third, spurred by a sustained period of low interest rates in advanced economies, a growing investor search for yield that risks building up future financial imbalances, especially in emerging market countries.

“Policymakers continue to face the possibility of potentially large future shocks to the financial system, with the recent increase in financial risks adding to existing concerns,” said José Viñals, the IMF’s Financial Counsellor and head of the Monetary and Capital Markets Department.

The IMF said that given recent financial market concerns, policymakers need to intensify and accelerate their efforts to tackle the longstanding financial challenges of budget deficits, banking system vulnerabilities and financial sector reform.

There has been some work done to repair bank balance sheets, but progress has been slow. Some banks are still weighed down by lower quality assets, and important funding challenges remain. The results from the new round of European stress tests will mark an important watershed and banks will need to pick up the pace to rebuild their capital.

Tackling fiscal challenges

The United States and Japan are slow to come up with specific plans to bring down their high debt levels, while debt problems in some European countries mean financial markets are charging high rates to lend them money. The IMF said that given recent financial markets’ concerns, policymakers need to speed up efforts to tackle the longstanding financial challenges of government risk, banking system vulnerabilities, and the unintended consequences of low interest rates.

In its latest Fiscal Monitor, the IMF said the United States deficit will be lower in 2011 than forecast in April. This is due to revenue increases, in part because of sizable capital gains in 2010, coupled with lower expenditures. As a result, the planned cutbacks for 2012 will not need to be as steep to meet the targets set by the government.

“What remains missing in the United States, however, is a political consensus on a comprehensive and balanced set of specific measures to underpin a credible medium-term adjustment plan with objectives endorsed by Congress,” said Carlo Cottarelli, head of the IMF’s Fiscal Affairs Department, which produced the report. “Without such a plan, yield on U.S. government paper would start reflecting a risk premium, which would not be good for the U.S. and the world economy.”

Reducing government debts and deficits is proceeding in many advanced economies—notably in most of Europe and in Canada—helped by bright spots of economic activity and growing government revenues.

The key fiscal priority for major advanced economies—especially the United States and Japan—is to implement credible and well-paced consolidation programs focused on bolstering medium-term debt sustainability. For the United States, it is critical to address the debt ceiling and launch a deficit reduction plan that includes entitlement reform and revenue-raising tax reform, the IMF said. In Japan, tax reform should be the centerpiece of a detailed medium-term deficit reduction package.

In emerging and low-income economies, fiscal deficits and debts are being reduced gradually. In several of these economies—including commodity producers benefiting from high export prices—the economic recovery has been faster, and the task is to avoid overheating, including by tightening fiscal policy faster than currently envisaged.

http://www.imf.org/external/pubs/ft/survey/so/2011/NEW061711A.htm



GLOBAL ECONOMY

Lagarde Calls For Urgent Action So 2012 Can Be ‘Year of Healing’


Christine Lagarde attending a panel discussion in Davos (photo: World Economic Forum)


IMF Managing Director Christine Lagarde today called on the international community to take urgent collective action to save the world economy from a downward spiral.

“The longer we wait, the worse it will get. The only solution is to move forward together. Our collective economic future depends on it,” Lagarde said in a speech at the German Council of Foreign Affairs in Berlin. “Looking at it from this perspective, 2012 must be a year of healing.”

She laid out the main elements of a policy path forward. Europe, which is at the center of global concerns, needs stronger growth, larger firewalls, and deeper integration, she said, but added that other economies also have an important role to play to restore balanced global growth. As for the multilateral component, Lagarde said that the IMF was ready to help and was seeking to increase its lending resources by up to $500 billion.

We must all understand that this is a defining moment. It is not about saving any one country or region. It is about saving the world from a downward economic spiral, she said.

The IMF estimates that in coming years, additional global financing of potentially $1 trillion could be needed, which the Fund can help meet with additional lending resources. “A cooperative path means that all countries must work together with a common diagnosis toward a common solution,” Lagarde said, adding that the Fund can push for such a cooperative outcome through its analysis and policy advice, but also help by providing financing when needed.

“I am convinced that we must step up the Fund’s lending capacity,” she said. The goal here is to supplement the resources Europe will be putting on the table, but also to meet the needs of other countries, anywhere in the world, affected by the repercussions of the crisis, she added. Eurozone countries have already pledged to provide up to $200 billion in new financing for the IMF.

Addressing the crisis in the Eurozone

The leaders of the 17 Eurozone countries have already taken a number of important steps to stem the sovereign debt crisis that has undermined confidence in the world’s financial markets, Lagarde said.

Major achievements include the establishment of the European Financial Stability Facility (EFSF)/European Stability Mechanism (ESM), agreement on a harmonized approach to recapitalize banks and the establishment of a systemic risk board, governance reforms to enforce stronger and more effective fiscal discipline, and the European Central Bank’s decision to make long-term liquidity available to banks.

“These major steps must be recognized. Yet I would not be the first to argue that these moves form pieces, but pieces only, of a comprehensive solution,” she said.

Three imperatives are needed to fully restore confidence: stronger growth, larger firewalls, and deeper integration.

Stronger growth

With the euro area economy slowing sharply, inflation is already declining. This creates a sizable risk that it will fall well below target next year, raising debt burdens and further hurting growth. For this reason, additional and timely monetary easing will be important to reduce such risks, Lagarde said.

“Stronger growth also means preventing banks from going into reverse gear, contracting credit in the face of market pressure. Solutions should focus on raising capital levels—rather than cutting back lending—as the way to boost capital ratios,” she said.

With respect to fiscal policy, several countries have no choice but to tighten their finances sharply and quickly. But this is not true everywhere, Lagarde said. “There is a large core where fiscal adjustment can be more gradual.”

Also of paramount importance are structural reforms to lay the groundwork for boosting competitiveness and long-term growth.

Larger firewalls

Lagarde also called on European policymakers to create a larger firewall. Without it, countries like Italy and Spain, that are fundamentally able to repay their debts, could potentially be forced into a solvency crisis by abnormal funding costs―a development she warned would have disastrous consequences for systemic stability. “Adding substantial real resources to what is currently available by folding the EFSF into the ESM, increasing the size of the ESM, and identifying a clear and credible timetable for making it operational would help greatly,” she said.

Action by the ECB to provide the necessary liquidity support to stabilize bank funding and sovereign debt markets would also be essential.

“We must also break the vicious cycle of banks hurting sovereigns and sovereigns hurting banks,” she said. “This works both ways. Making banks stronger, including by restoring adequate capital levels, stops banks from hurting sovereigns through higher debt or contingent liabilities. And restoring confidence in sovereign debt helps banks, which are important holders of such debt and typically benefit from explicit or implicit guarantees from sovereigns.”

Deeper integration

Lagarde also called for more risk sharing across borders in the banking system to break the feedback loop between sovereigns and banks. “In the near term, a pan-euro area facility that has the capacity to take direct stakes in banks will help break this link,” she said. Further financial integration in the form of unified supervision, a single bank resolution authority, and a single deposit insurance fund is also necessary.

“The euro area also needs greater fiscal integration—it is not tenable for seventeen completely independent fiscal policies to sit alongside one monetary policy,” she added. The “fiscal compact” that was agreed at the summit of European Leaders in early December 2011 needs to be complemented by some form of fiscal risk-sharing. A number of financing options are available to support such risk sharing, including the creation of euro area bonds or bills or, as proposed by the German Council of Economic Advisors, a debt redemption fund, she said.

The rest of the world must do its share

While Europe is at the epicenter of the current crisis, other economies also have an important a role to play in helping secure a better outcome.

The United States, as the world’s largest economy and the center of the global financial system, has a special responsibility, Lagarde said. She called on U.S. policymakers to relieve the burden of household debt through programs to make mortgage debt sustainable and to act decisively to bring down tomorrow’s deficits without bringing down today’s economy.

As the world’s third largest economy, Japan must also play its part by putting in place a credible plan to bring down public debt and reforms to raise long-term growth.

Lagarde also called on both emerging and advanced countries with large current account surpluses to encourage more domestic demand as a way to support global growth. China, which has the world’s largest foreign currency reserves and runs a large current account surplus, is a case in point. “China can help itself and the global economy by continuing to shift growth away from exports and investment, toward consumption,” she said.

Lagarde concluded that while the economic outlook remains deeply worrisome, there is a way out. “Now the world must find the political will to do what it knows must be done.”


Geithner urges more currency flexibility


U.S. Treasury Secretary Timothy Geithner (L) speaks next to Japan's Finance Minister Jun Azumi during their joint news conference at the Finance Ministry in Tokyo January 12, 2012.   REUTERS/Toru Hanai

U.S. Treasury Secretary Timothy Geithner (L) speaks next to Japan's Finance Minister Jun Azumi during their joint news conference at the Finance Ministry in Tokyo January 12, 2012.

Credit: Reuters/Toru Hanai

Thu Jan 12, 2012 11:38am EST

(Reuters) - Treasury Secretary Timothy Geithner said on Thursday that key emerging-market nations must let their currencies rise in value in order permit more stable global growth.

In an interview in Tokyo with Japanese broadcaster NHK, Geithner appeared to refer to China when he spoke about the role of emerging market countries in creating a more stable monetary system.

"You want to see those currencies continue to reflect the substantial upward pressure you're seeing in fundamental economic forces that are going to push them gradually to appreciate and strengthen against the dollar, the yen and the euro," he said.

"It's going to have to continue on a sustained basis."

Geithner was wrapping up a quick visit to Beijing and Tokyo that was principally aimed at soliciting cooperation in tightening sanctions against Iran to curb its disputed nuclear program.

Geithner was asked whether the International Monetary Fund should play a larger role in helping the Euro zone countries deal with their debt crisis. He said the IMF was already helping and Europe needs to get a grip on its own problems.

"We have a very good record of moving very, very quickly to make it possible for the IMF to do what it needs to do to help its member states but we have to make sure that Europe moves first and gives the world something that the world can support," Geithner said.

(Reporting By Glenn Somerville; Editing by Andrew Hay)




China, Japan Agree to Reduce Reliance on U.S. Dollar    
Written by Alex Newman   
Thursday, 29 December 2011 09:10

The government of Japan and the communist dictatorship ruling mainland China announced a landmark agreement this week to facilitate trade between the two powers without using the U.S. dollar, relying instead on the Japanese yen and the Chinese yuan.

According to the terms of the deal, the two governments agreed to encourage trade directly in yen and yuan without having to use American dollars as an intermediary — the current practice. Companies in Japan and China will soon be able to convert the currencies directly. And the Japanese government also agreed to hold Chinese yuan in its foreign-reserves portfolio.

It remains unclear exactly how and when the agreement will be implemented. But according to news reports, both governments have already set up a working group to iron out the details. Officials said the move was aimed at reducing risk and transaction costs.

The new currency deal comes as the communist Chinese dictatorship has been taking increasingly bold steps to expand the international role of the yuan. The regime’s officials have also become ever-more vocal in attacking the dollar’s global reserve status, calling instead for a more international system managed by a world entity such as the International Monetary Fund (IMF).  

Of course, China and Japan are the second and third largest economies on Earth. And their governments are the two largest foreign holders of U.S. government debt. So the deal has huge implications — at least in the long term.

“The run on the dollar that could sink its value and bring surprise hyperinflation to the U.S. has just become a lot more likely,” observed Alfidi Capital CEO Anthony Alfidi, who said the bilateral move would eventually mean higher U.S. interest rates.

“The change does signal to other nations that America’s main trading partners will favor the illiquidity risk of less-traded currencies over the valuation risk of holding dollars tied to unsustainable spending,” Alfidi added, pointing out that demand for dollars would take a hit. “The U.S. financial elite should take a breather from its construction of swap lines for the eurozone to pay attention to this news.”

Other commentators implied that the deal should be seen as a signal aimed at American authorities. “The larger message this pact sends is economic and it is directed at America: ‘We have no faith in your leadership,’” wrote Michael Moran in Slate, saying the two Asian giants had taken another “baby step” toward dethroning the U.S. dollar. He also suggested that, despite official denials, Japan was starting to increase its diversification out of American assets and currency.

Still, many analysts downplayed the significance of the deal, claiming it was just one tiny step on what will be a long road to ending the dominance of the U.S. dollar. As the reigning world reserve currency for decades, they say, it will take many years for the dollar to finally lose its valuable status.

“While there’s a wider story there of whether it changes the role of the dollar as a reserve currency, that’s much more questionable,” Deutsche Bank currency strategist Alan Ruskin was quoted as saying by CNBC. “It would be a very, very small step in that direction.”

But examined together with other recent announcements and current trends, the process is likely well underway, say experts. And with countless prominent world leaders and global institutions calling for an end to the dollar’s privileged position, the end might come sooner than most mainstream analysts expect.

In August, the communist Chinese dictatorship blasted U.S. policymakers. The regime called for global supervision of the dollar and eventually the creation of a global currency. In April, leaders of the so-called “BRICS” — Brazil, Russia, India, China, and South Africa — also demanded a new international monetary system.   

Meanwhile, European Union officials took the opportunity offered by this week’s Japan-China currency deal to tout the imploding euro. "These are developments that show it's good that we have a unified Europe. United, Europe is the strongest economic area in the world,” claimed German Finance Minister Wolfgang Schaeuble after the announcement. “We have good chances to pursue our interests and then the opportunity to implement them in the world."

The value of the Chinese yuan is still highly controlled by authorities. Among other problems, it is not readily convertible, diminishing any potential role it may be able to assume in the global economy — at least for now. However, if the regime in Beijing were to loosen its grip over foreign exchanges, that could change quickly.

The effect of such a move would immediately reverberate across Asian markets and the world. And the U.S. dollar, along with the entire American economy, would almost certainly be the primary victims.  

Related articles:

BRICS Leaders Attack U.S. Dollar


China Calls for Global “Supervision” of Dollar, New World Currency


Waking up to a World Currency

The Emerging Global Fed


Gadhafi’s Gold-money Plan Would Have Devastated Dollar


Aware of Price Manipulation, China Fighting Dollar With Gold

UN Steps Up Attack On Dollar, Calls for World Currency

Dumping the Dollar for Global Currency


World Leaders Attack U.S. Dollar


Virginia Considers Dollar Collapse, Gold Currency

G-8 Summit Reveals Growing Anti-Dollar Global Alliance


George Soros Touts China as Leader of New World Order



The End Of The Euro And The End Of The Investor
The Automatic Earth | Dec. 29, 2011, 11:20 AM

Oh, sure, don't get me wrong, there may still be a Euro a year from now. And there’ll certainly be some investors left.

But the Euro, if it manages to survive, will have to do so in what can only be characterized as a radically different form and shape. At the same time, small mom and pop stock investors will be few and far between; there's no money in the "traditional" stock markets, as they've found out - once more - in 2011. Many will also need what money they still have in stocks to pay down various kinds of other obligations.

As for the stock markets, I found it greatly ironic that on December 23, the S&P 500 was up for the year. Yesterdays markets plunge did away with that irony, but given the psychological importance, I wouldn't be surprised if, in the slim trading volume between Christmas and New Year's, one party or another will make sure the number comes in positive anyway.

What strikes me in all this is the disparity between the S&P and financial stocks. It’s unreal. If mom and pop hold bank stocks, they're not very likely to have turned a profit. If pension funds are anything to go by (they lost big time this year), mom and pop had lean turkey at their holiday family parties.

Here's a little overview of the year-to-date performance of some of the major global banking stocks on December 29, 2011, before the opening bell:

These are just some of the Too Big To Fail institutions. And while your governments have enough faith in them - or so they want you to believe - to prop them up with trillions of dollars of your money, investors are fleeing them, even if they can expect them to be propped up further.

That doesn't just say something about confidence in the individual banks, it shouts loud and clear from the rooftops on confidence in the banking system as a whole, and indeed on governments' ability to continue bailing them out. In other words: bailouts don’t build confidence, they are taken as a sign that trouble's on the way.

Mom and pop will finally clue in to this in 2012, and get -their money- out of harm's way. Well, either that or lose it. Their money, that is. Perhaps their minds too. And their homes. Their jobs.

Of the banks above, the European ones are in even deeper doodoo than their U.S. counterparts. Gordon T. Long, in a report called Collateral Contagion, lifts a hitherto little known part of the veil:

There are approximately $55 trillion of banking assets in the EU. This compares to only $13 trillion in the US. Bank assets in the EU are 4 times as large as in the US.

In the US, debt held by the bank is smaller because retail deposits are a primary source of funds. EU banks use wholesale lending and, as a consequence, the debt held by banks is close to 80% versus less than 20% by US banks.

Wholesale bank lending in the EU approximates $30 trillion versus only $3 trillion in the US, a 10 X differential.

Wholesale lending is fundamentally borrowing from money market funds and other very short term, unsecured instruments. The banks borrow short and lend long. It all works until short term money gets scarce or expensive.

Both have occurred in the EU and this recently placed Dexia into bankruptcy, forcing it to be taken over by the Belgian and French governments. The unsecured bond market fundamentally closed in the EU in Q3 2011, as fears mounted that an EU solution was not forthcoming.

Assuming $30 trillion of loans is spread over three years, EU banks have a requirement for $800 billion a month of rollover financing for wholesale lending outstanding.

Ilargi: If those numbers don't render you speechless, please read them again. $800 billion a month of rollover financing, every single month for three years.

The ECB recently passed out €489 in three-year loans at 1%. Nobody was impressed for more than a few hours. Gordon T. Long's report reveals at least a part of the reason why. Moreover, the ECB is now accepting the proverbial toilet paper as collateral for the loans, but guess what, banks are running out of toilet paper! David Enrich and Sara Schaefer Muñoz touch on the same topic for the Wall Street Journal:

Europe's Banks Face Pressure on Collateral

Even after the European Central Bank doled out nearly half a trillion euros of loans to cash-strapped banks last week, fears about potential financial problems are still stalking the sector. One big reason: concerns about collateral.

The only way European banks can now convince anyone—institutional investors, fellow banks or the ECB—to lend them money is if they pledge high-quality assets as collateral.

Now some regulators and bankers are becoming nervous that some lenders' supplies of such assets, which include European government bonds and investment-grade non-government debt, are running low.

If banks exhaust their stockpiles of assets that are eligible to serve as collateral, they could encounter liquidity problems. That is what happened this past fall to Franco-Belgian lender Dexia SA, which ran out of money and required a government bailout.

"Over time it is certainly a risk," said Graham Neilson, chief investment strategist for Cairn Capital Ltd. in London. "If banks don't have assets good enough to pledge as collateral, they will not be able to tap as much liquidity...and this could be the end-game path for a weaker bank."

Ilargi: The market for unsecured bonds issued by banks is dead. And they no longer have any collateral left to issue secured bonds. So what will they do?

Saw this Guardian headline yesterday: "Liquidity crunch fears stalk markets." I’d say that should have read "Solvency crunch fears stalk markets." The ECB has taken care of short term liquidity. But to no avail.

Collateral equals solvency. The ECB loans equal liquidity. And liquidity means nothing if you're insolvent. Inevitably, banks will start to fall by the wayside. Even some of the Too-Big-To-Fail ones.

As will countries. There is no chance - well, I’ll give you 1% or 2% - that Greece will still be part of an unchanged Eurozone a year from now. Chances for Portugal, Ireland, Italy and Spain may be a bit higher, but certainly not by much. France will face huge market pressure. And presidential elections.

The road going forward has become completely unpredictable. For you and me, and also for our "leaders." They don’t like that, even less than we do. That's why we saw this report from Philip Aldrick in the Telegraph a few days ago:

UK treasury plans for euro failure

The Government is considering plans to restrict the flow of money in and out of Britain to protect the economy in the event of a full-blown euro break-up.[..]

Officials fear that if one member state left the euro, investors in both that country and other vulnerable eurozone nations would transfer their funds to safe havens abroad. [..]

Under European Union rules, capital controls can only be used in an emergency to impose "quantitative restrictions" on inflows, [..]

Capital controls form just one part of a broader response to a euro break-up, however. Borders are expected to be closed and the Foreign Office is preparing to evacuate thousands of British expatriates and holidaymakers from stricken countries.

The Ministry of Defence has been consulted about organising a mass evacuation if Britons are trapped in countries which close their borders, prevent bank withdrawals and ground flights.

Every government, in Europe and in the U.S., is busy working on contagion plans, just like this one, over the holidays. Bank holidays are considered, capital controls, travel restrictions.

In order to keep the basics of their economies going in case of financial disaster, governments will need to make sure they have the means to cover basic necessities. In a world where most of the energy and food is imported, that is a herculean task.

Who's going to issue the letters of credit that make imports possible? And what will they be covered with? Will Saudi Arabia, Russia, China and the U.S. still accept euros when the defection of Greece and/or others makes the future of the Eurozone and the entire EU highly uncertain? No, they will probably want guarantees in U.S. dollars.

As we speak, the euro is getting hammered, as is sterling, as is gold. Or are they? Or is it perhaps that the USD is rocking, in anticipation of near-future demand?

The risks for Europe come from all sides now, and at some point, which I think could be very close, one of these risks will not be -fully- covered. Because of the close interconnectedness between EU countries, as well as that between European and global financial institutions, one single domino may set in play a chain of events that will be beyond governments' control.

And, as I said, they don't like that. They may opt to pre-empt any such possible events. In the Eurozone alone, we're looking at 17 different governments who may decide to do so, in whatever way. Leave the Eurozone, leave the EU, stall decision making, refuse to pay debt. 17 different governments, many of whom will change during the course of the year, have multiple options that would derail the entire EU project as it was intended to be.

While sovereign and private debt is certain to keep on rising, and willingness to lend in order to stave off defaults is disappearing.

No, I don't know what the euro will look like next Christmas, but it won't be what it looks like today. It could be the return of the drachma and lira, or the return of the mark and guilder, or all of the above. But not a 17-country Eurozone.

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