This is an excellent article and well worth reading in its entirety. From John Butler at The Amphora Report, via zerohedge.com:
THE ECONOMIST RINGS OUT COGNITIVE DOLLAR DISSONANCE
Two years ago, prior to travelling to Sydney to present at the Annual Precious Metals Symposium, I prepared an article for the Gold Standard Institute Journal titled Cognitive Dollar Dissonance: Why a Global De-Leveraging Requires the De-Rating of the Dollar and the Remonetisation of Gold (see here). This article highlighted the growing inconsistency between those arguing on the one hand that the dollar’s role in international trade and finance was clearly diminishing; yet denying that it was in any danger of losing the near-exclusive monetary reserve status it has enjoyed since the 1940s.
This apparently contradictory yet mainstream thinking about the future of the international monetary system continues to the present day. Indeed, earlier this month the Economist magazine ran a special feature on fading US economic power replete with dollar dissonance. The experts cited note the accelerating trend towards bilateral trade settlement, say between Russia and China, who plan to finance their multiple ‘Silk Road’ infrastructure projects using their own currencies and their own development bank (The Asian Infrastructure Investment Bank or AIIB: See http://www.aiib.org/). They also observe that Russia, China and the other BRICS are no longer accumulating dollar reserves (although curiously overlook that they continue to accumulate gold). They acknowledge that not only the BRICS but many other countries have repeatedly expressed their desire that the current set of global monetary arrangements should be restructured in some way, although they are not always clear as to their specific preferences.
Note the sharp contrast in these two paragraphs, both on the very same page of the Economist feature:
“This special report will argue that the present trajectory is bound to cause a host of problems. The world’s monetary system will become more prone to crises, and America will not be able to isolate itself from their potential costs. Other countries, led by China, will create their own defences, balkanising the rules of technology, trade and finance. The challenge is to create an architecture that can cope with America’s status as a sticky superpower.”
“Today’s world relies on a vastly bigger edifice of trade and financial contracts that require continuity. Trade levels and the stock of foreign assets and liabilities are five to ten times higher than they were in the 1970s and far larger than at their previous peak just before the first world war… China and America are not allies. The greater complexity and risk involved in remaking the global order today create a powerful incentive for current incumbents to keep things as they are.”
Does anyone else hear the clear dissonance, confusion even? On the one hand we have a complex system prone to debt and currency crises, a growing lack of cooperation between the two largest players and a need for a ‘new architecture’. Yet on the other we are supposed to accept that there is sufficient common incentive to cooperate in monetary matters? Really?
To continue reading; The Death Of Cognitive Dollar Dissonance