January 4, 2013 Leave a comment
November 17, 2012 Leave a comment
The spot price of the Chinese yuan hit a record high of 6.2262 on Tuesday against the U.S dollar, marking an increase in buying power as economies in Europe and the USA continue to be clouded in uncertainty.
The yuan has been pegged to a basket of currencies since exchange rate reforms seven years ago on July 21, 2005. However, the yuan is still controlled by the Chinese government. It is allowed to rise or fall by 1% from the central parity rate each trading day.
As a result of the gradual movement, the US dollar has lost nearly 25% of its value against the yuan since the 2005 reforms.
The People’s Bank of China, the country’s central bank, set the central parity rate of the yuan against the U.S. dollar at 6.2891 on Tuesday, the highest since May 9, which allowed the currency to hit the new record.
November 14, 2012 Leave a comment
How interesting is this? The prime minister of Turkey, (described during the election campaign by the Obama administration as “sort of our ally”) has called for the IMF to fund loans using Gold rather than Dollars. First off, it should be understood that the world now see’s the IMF as a lending institution which does not really have the borrower’s “best interests” in mind. But more importantly, this is a call to abandon the Dollar. As you already know, many trade deals have been contracted over the last year where the local currencies of trading partners are used instead of Dollars.
This statement by Mr. Erdogan goes a step further, this is more or less sticking his finger in the face of the U.S.. The IMF was created at the Bretton Woods agreement by the West and the U.S. has a 17% vote which equates to veto power. Without doing a long history on the IMF (which has done “some” good things), suffice it to say that countries have come to understand that when they hear “We are from the IMF, we’re here to help you,” it is not necessarily a good thing. Many loans have been structured where the borrower pledged real and valuable raw materials for a loan in Dollars which had harsh terms, when these loans defaulted the “collateral” was lost. In many instances this was just a slight “twist” on the never pay model of the Dollar. Create Dollars, lend them out against real collateral, foreclose and scoop up the collateral.
In any case, the Prime Minister of Turkey is the first to call out the IMF (the U.S.) and suggests funding loans with Gold rather than freely created Dollars. He did this I presume because he knows that the IMF doesn’t have that much Gold in its coffers. Yes, they have (supposedly) over 2,000 tons but this amounts to something just over $100 billion. In today’s world, $100 billion unfortunately is chump change. The IMF, if it had to fund loans from their Gold (at today’s “sky high” prices), couldn’t even get Europe’s heart to flutter a beat were they to fall and hit the ground. To remain any sort of factor today, the IMF must have the ability to fund loans out of thin air or they become irrelevant.
November 5, 2012 Leave a comment
Once again we are seeing articles and research papers stating the Chinese renminbi (yuan) is about to replace the dollar as the global reserve currency.
Here is a working paper by Arvind Subramanian and Martin Kessler at the Peterson Institute of International Economics stating The Renminbi Bloc is Here: Asia Down, Rest of the World to Go?.
A country’s rise to economic dominance tends to be accompanied by its currency becoming a reference point, with other currencies tracking it implicitly or xplicitly. For a sample comprising emerging market economies, we show that in the last two years, the renminbi (RMB) has increasingly become a reference currency which we define as one which exhibits a high degree of co-movement (CMC) with other currencies. In East Asia, there is already a RMB bloc, because the RMB has become the dominant reference currency, eclipsing the dollar, which is a historic development.
The same authors present a case in the Financial Times article China’s currency rises in the US backyard.
East Asia is now a renminbi bloc because the currencies of seven out of 10 countries in the region – including South Korea, Indonesia, Taiwan, Malaysia, Singapore and Thailand – track the renminbi more closely than the US dollar. For example, since the middle of 2010, the Korean won and the renminbi have appreciated by similar amounts against the dollar. Only three economies in the group – Hong Kong, Vietnam and Mongolia – still have currencies following the dollar more closely than the renminbi.
October 30, 2012 Leave a comment
The Chinese currency has taken center stage in some of the economic policy debates leading up to the election. That is because of the perception that China is the source of all our jobs woes as their economy continues to grow at a rate four times as fast as ours. The theory is that by keeping their currency artificially “cheap” against the dollar, it encourages America to import more goods from China — while encouraging job growth there to make all those products.
But this discussion of the Chinese currency leads to some interesting revelations of our general ignorance about Chinese currency, and our trading relationship. For instance, what is the proper name of the Chinese currency?
You’ll hear two terms — and both are correct, technically. The renminbi is the name of the currency system, literally meaning “the people’s currency.” The yuan is the main unit of currency within the renminbi. There are also the jiao (1/10th of a yuan), and the fen (1/10th of a jiao).
This is similar to the British currency system, which is known as “Sterling,” while the unit of currency is called the British pound. In America, we refer to our currency system and the individual currency using the word “dollar.”
You will often see the renmimbi written as RMB — which is pronounced basically the same as the spelled out word. Since both renminbi and yuan can be used interchangeably, RMB is the easiest way to talk about the Chinese currency.
Where Americans get in trouble is with the pronunciation of the yuan. It is not pronounced like the “won” in won-ton soup!
Because of the tonal quality of the Chinese language, I am told that few Americans will ever pronounce it correctly. The easiest written explanation I have seen is this: “It sounds like the abbreviation for the United Nations. Saying “U.N.” without taking a pause between the “U” and the “N” sounds very similar to one way a native Mandarin speaker would say the name of the Chinese currency.”
October 9, 2012 Leave a comment
Understanding the euro’s failure and Triffin’s Paradox helps us understand why the dollar will rise significantly in the years ahead.
September 18, 2012 Leave a comment
Quantitative easing is really another word for currency wars. A weak U.S. currency puts continued pressure on the Japanese Yen, the Chinese Yuan, the South Korean Won, the Australian dollar and other currencies.
Cheap money also fuels speculation and this money quickly drifts into commodity markets and the ETFs that help propel commodity market speculation. This is inflationary for food prices.
The lower the U.S. dollar the greater the intensity of currency wars. The break below the key uptrend line on the Dollar Index chart was an early warning of the third round of quantitative easing (QE3). The most important question now is to use the chart to examine the potential downside limits of a QE3 weakened U.S. dollar.
August 27, 2012 Leave a comment
A head-and-shoulders pattern in the US dollar chart has broken down and it looks like a big fall is coming for the greenback (see chart below). The warning indicator is rising gold and silver prices, up three and nine per cent respectively last week, a trend that is likely to continue with some volatility.
In his latest commentary chartist Clive Maund said: ‘As we can see on the 8-month chart for the dollar index its drop last week has brought it down to a clearly defined important support level, with this sharp move towards a rising 200-day moving average creating a considerable degree of ‘compression’ that coupled with the support at the current level is likely to trigger a rebound. It looks like a head-and-shoulders top is forming in the dollar.
August 22, 2012 Leave a comment
By Scott Pluschau
The Dollar Index failed to hold the rising trendline support of the triangle on the near term 30 minute chart, see left hand side below. This trendline was identified early in this past weekend’s update on the Dollar Index.
The dominant pattern is still the bullish “Cup with a handle” on the weekly chart. The Bulls are struggling with the extended neckline support and failed patterns are very strong signals.
July 31, 2012 Leave a comment
Good day…and welcome to another Monday morning. It was quite a wild ride last week that took us from one extreme to the other in the span of a few short days. I was sitting here trying to think of something that I could draw into comparison, and for some reason the old tv show The Incredible Hulk popped into my head. I was picturing the mild mannered man going about his everyday life and then something triggers the transformation into this green monster that nobody understands or likes. Fear then jumps into the picture along with overreaction and then as quickly as the Hulk wreaked havoc, he disappears and then we see that same mild mannered man walking down the street with his back pack until the next eruption.
I know that’s it’s too easy to let yourself get sucked into the latest episode, but in these times, looking at the big picture will probably be associated with prudence. We went from the European problems almost boiling over, at least from a headline perspective, to an improvement in the outlook that things might end up being alright by the time we packed it up for the weekend. I’ll be sitting at master controls until tomorrow and then Chris takes us through the weekend as Chuck stays off the grid while he takes his summer vacation. If we take a look at the currency returns from last week, it actually turned out to be a decent week as most currencies appreciated by about 1%. I’ll hit on the currencies later, but first, let’s take a look to see what happened on Friday.
As Chris reported, things got started as European policy makers said they would do everything necessary to protect and preserve the euro. Those words alone were enough to move the markets and provided the security blanket they were so desperately seeking. Who knows how long this will last, but it’s a what have you done for me lately kind of world that we live in, so we could be singing a different tune by the end of the day. A big part of the issues we saw early last week stemmed from the perception that the ECB wasn’t taking enough steps but this broad statement did the trick. The question now becomes what does everything exactly mean.
It’s looking more likely that another round of bond buying or quantitative easing will soon be on the horizon. ECB president Mario Draghi is supposed to meet with the Bundesbank in an effort to come up with a plan. Its reported that Europe’s rescue fund will buy government bonds on the primary market while the ECB purchases on the secondary market in order to reduce borrowing costs for Spain and Italy. Additional rate cuts and loans to banks are also on the table but the fact that Germany appears to be on board is not only a must, but also adds instant credibility. Officials said that giving a banking license to the European rescue fund isn’t a part of the immediate plan, but would provide assistance down the road.
July 31, 2012 Leave a comment
If The Central Bankers Disappoint Things Could Get very Dicey.
There are four key markets that are setting up for big moves. And when you put the charts together, the only logical conclusion that may be reached is that the market is betting on such a large move from global central banks that the world will literally be swimmingin paper money.
Last week, U.S. stocks and to some degree European stocks took off after European Central Bank (ECB) president Mario Draghi promised that the bank would do something dramatic. Now, every red blooded trader in his or her right mind would have to have a huge amount of doubt with regard to Mr. Draghi’s ability to actually do something substantial. But, if you put Mr. Draghi’s likely course of action, assuming he actually delivers, with the action that the central banks in Brazil and China have already begun, and if you factor in that the Federal Reserve has also been hinting at some kind of move, you may have something to consider.
Yes, the global economy is in deep trouble. Growth rates everywhere have been slumping. The U.S. GDP was reported to have fallen to 1.5% last week. And China’s own growth rate, whether you believe it or not (we don’t) has been trending lower, recently clocking in below 8%. Brazil’s own growth rates of late have been more akin to those of a developed country. And India, another growth economy has been in a slump. That means that the global economy is now synchronized. And that the global economy is heading lower, together.
The global central banks have printed trillions of dollars since the 2008 subprime mortgage crash. But much of it is either sitting in bank vaults, propping up decrepit balance sheets that resulted from bad subprime bets and the subsequent crash, or has been used by companies to boost their own balance sheets. That means that for all intents and purposes, the Fiat money from global central banks has been mostly dead money.
But what if, and this is a big if, those bank vaults are topped off. And what if the next round of cash from the printing presses doesn’t actually go into propping up balance sheets? Now, you’ve got a twofold situation. The bank vaults can’t hold any more money. And the frightened global central banks, fearing that the global economy is about to implode, may be ready to put such an overwhelming amount of money in circulation, that it has to do something?
11 International Agreements That Are Nails In The Coffin Of The Petrodollar [theeconomiccollapseblog]
July 19, 2012 Leave a comment
Is the petrodollar dead? Well, not yet, but the nails are being hammered into the coffin even as you read this. For decades, most of the nations of the world have used the U.S. dollar to buy oil and to trade with each other. In essence, the U.S. dollar has been acting as a true global currency. Virtually every country on the face of the earth has needed big piles of U.S. dollars for international trade. This has ensured a huge demand for U.S. dollars and U.S. government debt. This demand for dollars has kept prices and interest rates low, and it has given the U.S. government an incredible amount of power and leverage around the globe. Right now, U.S. dollars make up more than 60 percent of all foreign currency reserves in the world. But times are changing. Over the past couple of years there has been a whole bunch of international agreements that have made the U.S. dollar less important in international trade. The mainstream media in the United States has been strangely quiet about all of these agreements, but the truth is that they are setting the stage for a fundamental shift in the way that trade is conducted around the globe. When the petrodollar dies, it is going to have an absolutely devastating impact on the U.S. economy. Sadly, most Americans are totally clueless regarding what is about to happen to the dollar.
One of the reasons the Federal Reserve has been able to get away with flooding the financial system with U.S. dollars is because the rest of the world has been soaking a lot of those dollars up. The rest of the world has needed giant piles of dollars to trade with, but what is going to happen when they don’t need dollars anymore?
Could we see a tsunami of inflation as demand for the dollar plummets like a rock?
The power of the U.S. dollar has been one of the few things holding up our economy. Once that leg gets kicked out from under us we are going to be in a whole lot of trouble.
The following are 11 international agreements that are nails in the coffin of the petrodollar….
#1 China And Russia
China and Russia have decided to start using their own currencies when trading with each other. The following is from aChina Daily article about this important agreement….
China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.
Chinese experts said the move reflected closer relations between Beijing and Moscow and is not aimed at challenging the dollar, but to protect their domestic economies.
“About trade settlement, we have decided to use our own currencies,” Putin said at a joint news conference with Wen in St. Petersburg.
The two countries were accustomed to using other currencies, especially the dollar, for bilateral trade. Since the financial crisis, however, high-ranking officials on both sides began to explore other possibilities.
After Creating Dollar Exclusion Zones In Asia And South America, China Set To Corner Africa Next [Zerohedge]
July 16, 2012 Leave a comment
By now it really, really should be obvious. While the insolvent “developed world” is furiously fighting over who gets to pay the bill for 30 years of unsustainable debt accumulation and how to pretend that the modern ‘crony capitalist for some and communist for others‘ system isn’t one flap of a butterfly’s wings away from full on collapse mode, China is slowly taking over the world’s real assets. As a reminder: here is a smattering of our headlines on the topic from the last year: ““World’s Second (China) And Third Largest (Japan) Economies To Bypass Dollar, Engage In Direct Currency Trade“, “China, Russia Drop Dollar In Bilateral Trade“, “China And Iran To Bypass Dollar, Plan Oil Barter System“, “India and Japan sign new $15bn currency swap agreement“, “Iran, Russia Replace Dollar With Rial, Ruble in Trade, Fars Says“, “India Joins Asian Dollar Exclusion Zone, Will Transact With Iran In Rupees“, ‘The USD Trap Is Closing: Dollar Exclusion Zone Crosses The Pacific As Brazil Signs China Currency Swap“, and finally, “Chile Is Latest Country To Launch Renminbi Swaps And Settlement“, we now get the inevitable: “Central bank pledges financial push in Africa.” To summarize: first Asia, next Latin America, and now Africa.
Yep: the Yuan may not be the reserve currency by default, but at this rate China will have bilateral, read USD-bypassing relations, with all countries in Asia, South America and shortly Africa (where none other than Goldman Sachs has been pushing harder than anyone). Once the entire world is trading in CNY, it will be merely a matter of flipping the switch and all those fancy three-letter economic theories that explain why the uber-welfare state works just becayse the US can print an infinity+1 in debt, will all suddenly find themselves completely and totally bidless.
From China Daily:
China is to promote the yuan’s use in settling trade and investment with Africa, and encourage the more active development of Chinese financial institutions across the continent, a senior central bank official said on Friday.
Li Dongrong, assistant governor of the People’s Bank of China, said Africa has the capability of becoming a new hub of international capital flow, and the yuan’s use there should be further improved in accordance with rising demand for the currency there.
“We will continue to encourage domestic financial institutions to increase their presence and business across the continent,” Li told delegates at the Forum on China-Africa Financial Cooperation in Beijing, adding that the cooperation potential between the two sides is huge, as Africa’s economy continues to take off.
According to Li, yuan-denominated settlement between China and some African countries has already started, with 4.3 billion yuan ($156.5 million) worth of settlement made with South Africa and 2.3 trillion yuan with Mauritius, for example.
The popularity of using the yuan has been increasing in Africa, and more central banks are considering including the currency in their reserve portfolios, reported various governors of African central banks at the forum.
July 15, 2012 Leave a comment
I’d like to do a short-technical piece today to discuss the euro and the dollar. Before I go into the technical picture, let’s first summarize the fundamental backdrop. Now, the U.S. equity markets rose heading into the EU summit and launched soon after the details were given on the Friday morning of June 29th, which were:
- Single Pan-European bank regulator by year-end ‘12
- Once the supervisory mechanism was in place, the ESM could capitalize banks directly
- Ireland to get better bailout terms
- Spain to get aid from the EFSF until the ESM is up and running, without gaining seniority status on the debt
- ECB to act as agent for the bailout funds
- €120B growth pact
Since then, concerns have shifted to a weak Eurozone and the effect it will have on U.S. multinational companies. We had more negative preannouncements heading into this quarter than in the last earnings season and that has investors on edge. At the same time, we know that central banks are leaning hard in the accommodation direction. ISI Research counted 65 policy eases in the month of June, globally; in addition, we started July off with a quarter point cut in the ECB’s rate to 0.75%, England restarted QE with a £50B injection, and the People’s Bank of China cut rates a second time in the last month. As a bear, it’s a lot riskier shorting the market while central banks are easing. Central bank surprises are to the upside. Our own Federal Reserve Bank has extended Operation Twist, but that’s it. Investors are wondering what kind of jobs number or manufacturing number is it going to take to trigger QE 3. We’re already near similar price statistics the Fed used to initiate QE 2 in 2010. Look where oil is, look where the CPI is, and look where the CRB commodity index is as I mentioned last week.
July 6, 2012 Leave a comment
Australia will step up its campaign to boost economic ties with its largest trading partner China when Treasurer Wayne Swan heads to Beijing next week hoping to secure a deal to make the Australian dollar the third currency to be directly convertible with the yuan.
Mr. Swan will lead a forum in Hong Kong on Wednesday on the internationalization of the yuan — a strategy pursued by China to ease away from dependence on the U.S. dollar as a reserve currency — before heading to Beijing for more direct discussions with officials.
“Internationalization of the yuan is clearly in the interests of Australian businesses and the broader Australian economy, which is why we’ve been taking action to promote and deepen the market in yuan/Australian dollar transactions,” Mr. Swan said.
Last month China surprised markets by making the Japanese yen the second directly convertible currency behind the U.S. dollar. Direct conversion would slash costs for importers and exporters dealing with China by avoiding the added burden of converting through an intermediary currency.
China has been moving in a steady trajectory to liberalize the yuan as it has grown to become the world’s second-largest economy after the U.S.
Beijing aims to have 30% of foreign trade settled in yuan by 2015, a threefold increase from current levels, and has been working to establish international trading hubs beyond Hong Kong to increase global liquidity in its currency.
The Reserve Bank of Australia and the People’s Bank of China signed a 30-billion Australian dollar (US$30.1 billion) currency swap line in March in a bid to support liquidity in Australian dollar/yuan trades — the only Western economy along with New Zealand to have done so — but until now Australia has lagged behind London and Singapore in the race to become an international yuan trading center.
June 29, 2012 Leave a comment
June 29, 2012 Tel Aviv, Israel
This week may very well go down as ‘connect the dots’ week. Things have been moving so quickly, so let’s step back briefly and review the big picture from the week’s events:
1) After weeks… months… even years of posturing and denial, Spain and Cyprus became the fourth and fifth countries to formally request aid from Europe’s bailout funds on Monday.
In doing so, these governments have officially confessed to their own insolvency and the insolvency of their respective banking systems.
Meanwhile, Slovenia’s prime minister said that his country may soon ask for a bailout. (Humorously, Slovenia’s Finance Minister denied any such plans.)
Spain’s 10-year bond yield jumped to over 7% again in response, and many Spanish banks were downgraded to junk status by Moodys.
2) Over in the US, the city of Stockton, California filed for bankruptcy this week… the largest so far, but certainly a mere drop in the proverbial bucket.
3) JP Morgan, considered to be among the few ‘good’ banks remaining in the US, conceded that the $2 billion loss they announced several weeks ago might actually be more like $9 billion.
4) The Federal Reserve reported yesterday that foreigners are reducing their holdings of US Treasuries.
5) Countries from Ukraine to Kazakstan to Turkey announced that they have purchased gold in recent months to bolster their growing reserves.
6) Chile has joined a growing list of countries that has agreed to bypass the US dollar and settle all of its trade with China in renminbi.
7) China has further announced plans to create a special zone in Shenzhen, one of its wealthiest cities, to allow full exchange and convertibility of the renminbi.
8) World banking regulators from the Bank of International Settlements to the FDIC are proposing that gold bullion be treated as a risk-free cash equivalent by commercial banks.
June 11, 2012 Leave a comment
By Jorge Otaola
BUENOS AIRES, June 8 (Reuters) – Argentine banks have seen a third of their U.S. dollar deposits withdrawn since November as savers chase greenbacks in response to stiffening foreign exchange restrictions, local banking sources said on Friday.
Depositors withdrew a total of about $100 million per day over the last month in a safe-haven bid fueled by uncertainty over policies that might be adopted as pressure grows to keep U.S. currency in the country.
The chase for dollars is motivated by fear that the government may further toughen its clamp down on access to the U.S. currency as high inflation and lack of faith in government policy erode the local peso.
“Deposits keep going down,” said one foreign exchange broker who asked not to be named. “There is a disparity among banks, but in total it’s about $80 million to $120 million per day.”
U.S. dollar deposits of Argentine banks fell 11.2 percent in the preceding three weeks to $11.5 billion, according to central bank data released on Friday. The run on the greenback has waxed and waned since November, after President Cristina Fernandez won a second term on promises of deepening the state’s role in the economy.
From May 11 until Friday, data compiled by Reuters from private banks showed $1.9 billion in U.S. currency had been withdrawn, or about 15 percent of all greenbacks deposited in the country.
Feisty populist leader Fernandez was re-elected in October vowing to “deepen the model” of the interventionist policies associated with her predecessor, Nestor Kirchner, who is also her late husband.
Since then she has limited imports, imposed capital controls and seized a majority stake in top energy company YPF.
A spokesman for the central bank said on Friday that the rate of dollar withdrawal from Argentina’s financial system shows signs of slowing.
“We have seen a tendency toward fewer withdrawals, to about $90 million (per day) over the last week from $120 million the week before,” the spokesman said a day after the bank lifted daily reserve requirements on dollar deposits to help banks respond to steady drum beat of withdrawals.
May 29, 2012 Leave a comment
Bahmani said on Saturday the new system, which has already been activated, would replace Worldwide Interbank Financial Telecommunication (SWIFT)
On March 15, SWIFT CEO Lazaro Campos said in a statement that the society has decided to discontinue offering services to Iranian banks which are subject to financial sanctions imposed by the European Union.
On January 23, the EU foreign ministers approved new sanctions on Iran’s financial and oil sectors, which prevent member countries from importing Iranian crude or dealing with its central bank.
Experts believe that SWIFT’s new action is meant to fully enforce EU sanctions, as global financial transactions are impossible without using SWIFT.
Bahmani rejected reports about a Japanese bank freezing transactions with Iranian banks.
On May 17, the Reuters reported that Bank of Tokyo-Mitsubishi UFJ has frozen USD 2.6 billion of assets of Iranian banks under an order by the New York District Court earlier this month.
May 29, 2012 Leave a comment
A new rule published Monday says anyone wanting to buy dollars for travel must first prove their money was obtained legally, and provide the tax agency with trip details including why, when and where they are traveling.
Many Argentines only declare part of their wealth and income to evade taxes, and use black-market currency exchanges to convert their inflationary pesos into dollars. Travel agencies are the latest target since they manage multiple currencies and offer customers black-market rates for their money.
President Cristina Fernandez is cracking down to keep hard currency from flowing out of Argentina, which needs the dollars to maintain its central bank reserves and pay debts.
May 9, 2012 Leave a comment
Pimco’s Bill Gross, manager of the world’s largest mutual fund, has called for the US authorities to intervene in currency markets to bolster the US economic recovery.
Gross, (pictured), who runs the $258bn Pimco Total Return Bond fund, criticised the US government for exhausting traditional fiscal and monetary policy methods to boost growth and said it would have to start looking for alternative options.
The veteran investor urged Washington to consider changes to trade and currency policies much like Brazil, China and Europe have done, Bloomberg reports. This could include depreciating the dollar to increase the competitiveness of US manufacturing abroad, he said.
The latest employment figures reflect “the inability of the US economy to provide jobs”, he told Bloomberg, following disappointing figures from the US Bureau of Labour Statistics on Friday.
May 3, 2012 Leave a comment
By Eric Fry
“On the threshold of a crisis,” we observed in our essay “Investing Ahead of the Curve” in the July 19, 2011 edition of The Daily Reckoning, “a fertile imagination can be an investor’s most valuable asset.”
“During normal times,” we continued, “investors can focus only on buying quality stocks one by one from the bottom up, without also trying to envision what tragedies might befall them from the top down… But it may be time to begin imagining the unimaginable.
“It may be time, in other words, to begin considering that the next phase of the global monetary system might not include the US dollar as its reserve currency…or that the next two decades of life in America might not look anything like the last two decades.”
Here in the US of A, life is still pretty good, even if the economy isn’t perfect. A true crisis seems unimaginable. After all, even the 2008 crisis wasn’t that bad. Today, the Apple store in the mall is always packed, most of the restaurants in town are full…and the dollar is still strong enough to buy a nice vacation almost anywhere in the world.
A currency crisis that triggers an economic crisis — or vice versa — just feels like a bunch of wacky doom-and-gloom stuff. And it may well be. In the context of America’s legendary resilience and economic might, a catastrophic currency crisis seems almost unimaginable… But the time has arrived to begin imagining it…not because it is certain, but because it has become less unimaginable.
The best way to defend against a currency crisis is as obvious as it is emotionally difficult: Don’t hold the currency that is hurtling toward a crisis.
There is nothing mechanically difficult about this remedy, but it can be very difficult emotionally…and tactically. An individual who trades dollars for some sort of “safer” currency, for example, risks looking like a fool for a long period of time. Not even gold is a sure bet over short-to-medium-term timeframes. This safe-haven asset tumbled about 40% against the dollar during the 2008 crisis.
In short, being “safe” can sometimes feel very dangerous…and foolish. And no one wants to look as foolish as Noah building his Ark…unless, of course, it starts raining.
When the rain started falling on Brazil in 1990…or Thailand in 1997…or Russia in 1998, investors who had traded their local currencies for US dollars or gold were able to sail through the crises relatively unscathed. As their economies tumbled into deep recessions and asset values collapsed, the folks who had parked their wealth in dollars or gold were able to preserve their wealth…and also to take advantage of the resulting bargains.
April 29, 2012 Leave a comment
Via Michael Krieger of ‘A Lightning War For Liberty’ blog,
Justice in the hands of the powerful is merely a governing system like any other. Why call it justice? Let us rather call it injustice, but of a sly effective order, based entirely on cruel knowledge of the resistance of the weak, their capacity for pain, humiliation and misery.
– Georges Bernanos
Outwardly we have a Constitutional government. We have operating within our government and political system, another body representing another form of government, a bureaucratic elite which believes our Constitution is outmoded.
– Senator William Jenner
(1908-1985) U.S. Senator (IN-R)
The Final Act of the Uruguay Round, marking the conclusion of the most ambitious trade negotiation of our century, will give birth – in Morocco – to the World Trade Organization, the third pillar of the New World Order, along with the United Nations and the International Monetary Fund.
– Government of Morocco
April, 1994 Source: New York Times, full page ad by the government of Morocco
The Rebirth of Barter
One of the most important articles I have read this week comes from Forbes contributor Gordon Chang. In it he states that China is preparing to avoid U.S. sanctions on Iran by paying for oil with gold. Not only that but he also mentions that China has already been bartering with Iran to get a hold of petroleum. He states:
So how can Beijing keep both Iran’s ayatollahs and President Obama happy at the same time? Simple, the Chinese can avoid the U.S. sanctions through barter. China has already been trading its produce for Iran’s petroleum, but there is only so much gai lan and bok choy the Iranians can eat. That’s why Iran is also accepting, among other goods, Chinese washing machines, refrigerators, toys, clothes, cosmetics, and toiletries.
The barter trade works, but Iran needs cash too. As it is being cut off from the global financial system, the next best thing is gold. So we should not be surprised that in late February the Iranian central bank said it would accept that metal as payment for oil. Last year, China imported $21.7 billion in Iranian oil and exported $14.8 billion in goods and services. As the NDAA goes into effect, look for Beijing to ship gold to Iran to make up the difference.
Thus, the leadership in America in its infinite stupidity has actually accelerated the demise of the U.S. dollar as the world’s reserve currency. After its “kinetic action” in Libya succeeded in toppling the regime there, Washington’s geopolitical hubris grew and it has attempted to muscle Iran into a corner. Instead, all it has done is alienated our “allies” that need Iranian oil to survive and in the process quickened a move away from the dollar to settle certain transactions. Read Gordon’s article here.
In a similar move on a more micro level, the government of Spain in a similar desperation has banned the use of cash transactions above 2,500 euros (read this great article here on it). How do you think citizens are going to respond to this? People are already in the streets.
April 26, 2012 Leave a comment
By: Marin Katusa
There’s a major shift under way, one the US mainstream media has left largely untouched even though it will send the United States into an economic maelstrom and dramatically reduce the country’s importance in the world: the demise of the US dollar as the world’s reserve currency.
For decades the US dollar has been absolutely dominant in international trade, especially in the oil markets. This role has created immense demand for US dollars, and that international demand constitutes a huge part of the dollar’s valuation. Not only did the global-currency role add massive value to the dollar, it also created an almost endless pool of demand for US Treasuries as countries around the world sought to maintain stores of petrodollars. The availability of all this credit, denominated in a dollar supported by nothing less than the entirety of global trade, enabled the American federal government to borrow without limit and spend with abandon.
The dominance of the dollar gave the United States incredible power and influence around the world… but the times they are a-changing. As the world’s emerging economies gain ever more prominence, the US is losing hold of its position as the world’s superpower. Many on the long list of nations that dislike America are pondering ways to reduce American influence in their affairs. Ditching the dollar is a very good start.
In fact, they are doing more than pondering. Over the past few years China and other emerging powers such as Russia have been quietly making agreements to move away from the US dollar in international trade. Several major oil-producing nations have begun selling oil in currencies other than the dollar, and both the United Nations and the International Monetary Fund (IMF) have issued reports arguing for the need to create a new global reserve currency independent of the dollar.
The supremacy of the dollar is not nearly as solid as most Americans believe it to be. More generally, the United States is not the global superpower it once was. These trends are very much connected, as demonstrated by the world’s response to US sanctions against Iran.
US allies, including much of Europe and parts of Asia, fell into line quickly, reducing imports of Iranian oil. But a good number of Iran’s clients do not feel the need to toe America’s party line, and Iran certainly doesn’t feel any need to take orders from the US. Some countries have objected to America’s sanctions on Iran vocally, adamantly refusing to be ordered around. Others are being more discreet, choosing instead to simply trade with Iran through avenues that get around the sanctions.
It’s ironic. The United States fashioned its Iranian sanctions assuming that oil trades occur in US dollars. That assumption – an echo of the more general assumption that the US dollar will continue to dominate international trade – has given countries unfriendly to the US a great reason to continue their moves away from the dollar: if they don’t trade in dollars, America’s dollar-centric policies carry no weight! It’s a classic backfire: sanctions intended in part to illustrate the US’s continued world supremacy are in fact encouraging countries disillusioned with that very notion to continue their moves away from the US currency, a slow but steady trend that will eat away at its economic power until there is little left.
Let’s delve into both situations – the demise of the dollar’s dominance and the Iranian sanction shortcuts – in more detail.
Signs the Dollar Is Going the Way of the Dodo
The biggest oil-trading partners in the world, China and Saudi Arabia, are still using the petrodollar in their transactions. How long this will persist is a very important question.