Destroying the value of a debt-based fiat currency destroys the value of a lot of other assets as well. From Alasdair Macleod at goldmoney.com:
In recent articles I have argued that the era of a financialised fiat dollar standard is ending. This article takes my hypothesis further and explains that it is not just the emergence of new commodity backed currencies in Asia that will threaten the dominance of Western currencies, but the Fed’s failing monetary policies and those of the other major central banks. An unstoppable rise in interest rates will in large part be responsible for their demise.
Financial markets in thrall to the state underestimate the forces collapsing the financial bubble. Even the existence of the bubble is disputed by those within its envelope. But financial assets represent most of the collateral securing the banking system, and their collapse triggered by higher interest rates will take out businesses, banks, even central banks and make financing of soaring government deficits impossible without accelerated currency debasement.
Will central banks try to preserve financial asset values to stop the West’s financial system from imploding? Keynesian theory demands increased deficit spending to counteract the contraction of bank credit.
Posted in Collapse, Currencies, Debt, Economics, Economy, Energy, Financial markets, Foreign Policy, Geopolitics, Governments, Military, Politics, Propaganda, Trade, War
Tagged central bank policies, Monetary inflation, US dollar
Nobody talks about monetary privilege, which is the ability to exchange a piece of paper for real goods and services from other lands simply because that piece of paper is considered the world’s reserve currency. From Nick Giambruno at internationalman.com:
The US government reaps an unfathomable amount of power from its racket of printing fake money out of thin air and forcing it on the world.
The petrodollar system is a big reason it has gotten away with this scam for so long.
In short, here’s how it works…
Oil is by far the largest and most strategic commodity market. For the last 50 years, virtually anyone who wanted to import oil needed US dollars to pay for it.
Every country needs oil. And if foreign countries need US dollars to buy oil, they have a compelling reason to hold large dollar reserves.
Posted in Business, Economics, Economy, Energy, Foreign Policy, Geopolitics, Governments, Trade, War
Tagged Oil, Petrodollar standard, US dollar
In the long term, sending US dollars to China in return for their goods cannot coexist with a determined effort to depreciate dollars. From Weimin Chen at mises.org:
Despite the record unemployment rate, widespread hardship to businesses, strains on the healthcare system, political turmoil, and general disruption to daily life in 2020, US consumers have managed to ramp up their habit of buying things. Demand for physical goods replaced some of the previous demand for in-person service-related experiences and much of that demand was met with a surge of imports from China as domestic production slowed down due to lockdown measures. Up until recently, global supply chains managed to find their footing and could meet demand, but news has emerged that reveals stresses on the world’s shipping infrastructure and uncovers clues about the economic outlook.
Container Shortage and Chinese Exports
Global logistical networks recently began to suffer from a shortage of shipping containers as demand has suddenly risen. Freight rates from China to the US have jumped by 300%. The container situation has become so extreme that hundreds of thousands of containers have been sent off empty from US ports, mostly to China as exporters demand empty containers with increasing urgency. An estimated 177,938 containers, were rejected from loading US export items at the ports of Los Angeles and New York/New Jersey alone and then sent across the Pacific.
If a country is clearly bent on depreciating its own currency, why hold either the currency or assets denominated in that currency. From Alasdair Macleod at goldmoney.com:
In the wake of the Fed’s promise of 23 March to print money without limit in order to rescue the covid-stricken US economy, China changed its policy of importing industrial materials to a more aggressive stance. In examining the rationale behind this move, this article concludes that while there are sound geopolitical reasons behind it the monetary effect will be to drive down the dollar’s purchasing power, and that this is already happening. More recently, a veiled threat has emerged that China could dump all her US Treasury and agency bonds if the relationship with America deteriorates further. This appears to be a cover for China to reduce her dollar exposure more aggressively. The consequences are a primal threat to the Fed’s policy of escalating monetary policy while maintaining the dollar’s status in the foreign exchanges.
On 3 September, China’s state-owned Global Times, which acts as the government’s mouthpiece, ran a front-page article warning that
“China will gradually decrease its holdings of US debt to about $800billion under normal circumstances. But of course, China might sell all of its US bonds in an extreme case, like a military conflict,” Xi Junyang, a professor at the Shanghai University of Finance and Economics told the Global Times on Thursday”[i].
Do not be misled by the attribution to a seemingly independent Chinese professor: it would not have been the frontpage article unless it was sanctioned by the Chinese government. While China has already taken the top off its US Treasury holdings, the announcement (for that is what it amounts to) that China is prepared to escalate the financial war against America is very serious. The message should be clear: China is prepared to collapse the US Treasury market. In the past, apologists for the US Government have said that China has no one to buy its entire holding. The most recent suggestion is that China’s Treasury holdings will be put in trust for covid victims — a suggestion if enacted would undermine foreign trust in the dollar and could bring its reserve role to a swift conclusion.[ii] For the moment these are peacetime musings. At a time of financial war, if China put her entire holding on the market Treasury yields would be driven up dramatically, unless someone like the Fed steps in to buy the lot.
If that happened China would then have almost a trillion dollars to sell, driving the dollar down against whatever the Chinese buy. And don’t think for a moment that if China was to dump its holding of US Treasuries other foreign holders would stand idly by. This action would probably end the dollar’s role as the world’s reserve currency with serious consequences for the US and global economies.
There is another possibility: China intends to sell all her US Treasuries anyway and is making American monetary policy her cover for doing so. It is this possibility we will now explore.
Posted in Banking, Business, Currencies, Debt, Financial markets, Foreign Policy, Geopolitics, Governments, History, Trade
Tagged China, Federal Reserve, Gold, Inflation, Trade War, US dollar
A lot of Americans, particularly the Baby Boomers, have trouble recognizing the limits imposed by reality. From Jeff Thomas at internationalman.com:
The baby-boomer generation were perhaps the most privileged generation that the US has ever spawned.
Their fathers returned from World War II, eager to get married, buy a house and start a family. The economy was booming, as, during the early years of the war, the US wisely stayed out, but provided tanks, helmets and even toothbrushes to those who were directly involved in the fray.
What’s more, they didn’t accept pound notes or francs; they accepted only gold. So, at the end of the war, when the manufacturing cities of Europe had been destroyed by bombs, the male populations decimated and the governments broke, the US was on a roll. They had most of the world’s gold and had first-rate manufacturing facilities that only had to switch from making jeeps and rifles to making cars and televisions.
That wave of wealth allowed the young married couples to spoil their children with whatever they wanted.
The boomer generation reached their teens in the 1960s, and having grown accustomed to receiving whatever they wanted in life, they were young adults and wanted to party. The phrase, “sex, drugs and rock ‘n’ roll” was coined and it was an apt one. Young Americans opted for plenty of all three.
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After system overload comes chaos, the betting favorite at SLL for a long time. From Alastair Crooke at strategic-culture.org:
Some have queried how it could be that President Putin would co-operate with President Trump to have OPEC+ push oil prices higher – when those higher prices precisely would only help sustain U.S. oil production. In effect, President Putin was being asked to underwrite a subsidy to the U.S. economy – at the expense of Russia’s own oil and gas sales – since U.S. shale production simply is not economic at these prices. In other words, Russia seemed to be shooting itself in the foot.
Well, the calculus for Moscow on whether to cut production (to help Trump) was never simple. There were geo-political and domestic economic considerations – as well as the industry ones – to weigh. But, perhaps one issue trumped all others?
Since 2007, President Putin has been pointing to one overarching threat to global trade: And that problem was simply, the U.S. dollar.
And now, that dollar is in crisis. We are referring, here, not so much to America’s domestic financial crisis (although the monetisation of U.S. debt is connected to threat to the global system), but rather, how the international trading system is poised to blow apart, with grave consequences for everyone.
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Posted in Banking, Business, Collapse, Currencies, Debt, Economy, Geopolitics, Governments, Medicine
Tagged Bankruptcy, Reserve Currency, Systemic risk, US dollar, Vladimir Putin
The rest of the world is chipping away at the US dollar’s status as the reserve currency. From Philip Giraldi at strategic-culture.org:
Over the past two years, the White House has initiated trade disputes, insulted allies and enemies alike, and withdrawn from or refused to ratify multinational treaties and agreements. It has also expanded the reach of its unilaterally imposed rules, forcing other nations to abide by its demands or face economic sanctions. While the stated Trump Administration intention has been to enter into new arrangements more favorable to the United States, the end result has been quite different, creating a broad consensus within the international community that Washington is unstable, not a reliable partner and cannot be trusted. This sentiment has, in turn, resulted in conversations among foreign governments regarding how to circumvent the American banking system, which is the primary offensive weapon apart from dropping bombs that Washington has to force compliance with its dictates.
Consequently, there has been considerable blowback from the Make America Great Again campaign, particularly as the flip side of the coin appears to be that the “greatness” will be obtained by making everyone else less great. The only country in the world that currently regards the United States favorably is Israel, which certainly has good reason to do so given the largesse that has come from the Trump Administration. Everyone else is keen to get out from under the American heel.
Well the worm has finally turned, maybe. Even the feckless Angela Merkel’s Germany now understands that national interests must prevail when the United States is demanding that it do the unspeakable. At the recently concluded G20 meeting in Tokyo Britain, France and Germany announced that the special trade mechanism that they have been working on this year is now up and running. It is called the Instrument in Support of Trade Exchanges (Instex) and it will permit companies in Europe to do business with countries like Iran, avoiding American sanctions by trading outside the SWIFT system, which is dollar denominated and de facto controlled by the US Treasury.
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This is the best article posted tonight. It’s long, but it explains much that is hidden about US foreign policy. From L. Reichard White at lewrockwell.com:
Maybe you’ve noticed the frenzied U.S. Government attempt to replace Venezuela’s duly elected hood-ornament — PresideNT Nicolas Maduro — with Juan Guaido, a nearly unknown U.S. prepped Venezuelan politician?
Why are they trying to do that?
With National. Security Advisor John Bolton suggesting a berth at Gitmo for Mr. Maduro if he doesn’t step down and flee the country — and Sen. Marco Rubio implying Muammar Gadaffi’s last minutes of life being intimate with a bayonett as another future for Mr. Maduro — “our” D.C. reprehensibles are displaying their unsavory colors.
Prominently showcasing this level of thuggery, usually hidden from polite society in smoke-filled back rooms, restricted C.I.A. workshops — and censored and classified “above top secret” for decades — marks a whole new phase in international relations.
With Mr. “Art of the Deal” Trump & Company seriously abusing the standard Games Theory and negotiation baseline — you know, “All options are on the table” — they’ve already (March 3, 2019) played the “suggest a U.S. invasion” card.
And pulling out all the Art of War stops too, Trump & Company — clearly with maximum arm twisting — have wheedled, cajoled, bribed, bullied, and/or threatened about one quarter of the world’s governments into suddenly proclaiming this relatively unknown to be PresideNT of Venezuela. Despite — or maybe because of — Mr. Maduro’s democratic victory last year (May 20, 2018.)
Merely labeling the democratically elected Maduro “dictator” while proclaiming unknown Guaido “PresideNT” — without an invasion or bloody revolution so far or even a vote — though ingenuous is pure Sun Tsu genius. If it works.
But why are they doing that?
For almost a decade, the Federal Reserve’s low interest rate policies have created an incentive to borrow dollars. This creates a demand for dollars, basically the world is short dollars. Contrary to the wishes of Donald Trump, this is now putting a lot of upward pressure on the dollar. From Tom Luongo at tomluongo.me:
Welcome to the Dollar Rally to end all rallies. This week’s action in the U.S. dollar puts paid all of the moves by the Fed and the ECB over the past three months to forestall this from coming.
First it was January’s FOMC meeting where the Fed completely reversed course after a very unpopular December rate hike threw equity markets into a tailspin by Christmas.
Of course our Narcissist-in-Chief thought it was all about him and implored the Fed to stop raising rates. It was interfering with his ability to shake down the world at his sanctions and tariffs party.
But it wasn’t about him at all. It was about the Fed’s need to normalize rates into a coming global slowdown after a central-bank-induced, decade-long recovery of dubious merit.
They’d done their job of recapitalizing the banks, somewhat, and now it was time to start trying to address the massive pension system and municipal bond crisis that was on the horizon.
Or at least that’s what they thought.
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He’s probably right. From Egon von Greyerz at goldswitzerland.com:
This is it! The autumn of 2018 will be momentous in the world economy, markets and politics.
We are now seeing the Last Hurrah for stocks, bonds, the dollar and most asset markets.
The world economy has been living on borrowed time since the 2006-9 crisis. The financial system should have collapsed at that time. But the massive life support that central banks orchestrated managed to keep the dying patient alive for another decade. Lowering interest rates to zero or negative and printing enough money to double global debt seem to have solved the problem. But rather than saving the world from an economic collapse, the growth of debt and asset bubbles has created a system with exponentially higher risk.
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Posted in Business, Collapse, Currencies, Debt, Economy, Financial markets, Governments
Tagged China, Emerging Market Debt, Europe, Gold, Infrastructure, Russia, Silver, US dollar