by Gary Littlejohn for The Saker Blog
Implications of Recent Changes in US Monetary Policy
Ramzin Mazaheri’s excellent article of 16th April attracted some very interesting comments:
This supportive response aims to provide recent relevant evidence that many of the likely changes Mazaheri describes are already happening very quickly. Over the past few months since December, it has become clear that the US Federal Reserve (the Fed, which has actually been privately owned since 1913 but is allowed unconstitutionally to act as the US Government’s central bank) has been grappling with serious problems of liquidity in various US financial markets. This included the ‘repo’ market which handles overnight lending between financial institutions, especially commercial banks, but also other very large financial markets, many of which did not have the funds to pay off debts that were due at the ‘year end’ of their contracts. Depending on the contract, the 2019 ‘year end’ could be at any time between 14 December 2019 and 16 January 2020, but it turned out that the problems did not end in mid-January. All of these problems have been made worse by the COVID-19 pandemic.
This link below times the start of the acute liquidity crisis to September 2019, before I had personally noticed it, and argues that the COVID-19 pandemic only triggered the current crisis, rather than caused it:
The author concludes that monetary policy as we know it is as dead as a doornail and that the Fed is, in effect, a lawless economic government unto itself. This deep crisis has recently led to the development of a new strategy to strengthen the US Dollar by new means that have effectively eliminated any safeguarding constraints on US monetary policy. These new measures are reported to have the implicit backing of the Bank of International Settlements [BIS]. This backing by the BIS is said to include backing for the new Fed policy of buying corporate bonds, which effectively means that the Fed controls which companies survive and which do not, and could probably do this internationally. If this BIS backing is true, then that confirms Ramin Mazaheri’s view that the USA would not be acting alone to retain the global dominance of the US Dollar. I think that time will also confirm Mazaheri’s view that such subaltern countries as the UK and the EU Member States will not oppose these new measures, even though they break the already stretched/broken conventions on monetary policy.
The recent outcome of this has been that a version of Quantitative Easing [QE, or electronic ‘printing’ of money] has been being run by the Fed without the usual requirement to buy US Treasury debts to avoid all that money going straight into the everyday economy and fuelling inflation. Very recently, the Fed started to break its own rules and buy corporate bonds, which are private companies’ debt. This effectively means that the Fed is taking a stake in large private companies. Something very similar has happened with the European Central Bank (ECB, based in Frankfurt) but in the EU the Competition Commissioner has very recently changed the competition rules to allow but also to regulate this crisis-driven behaviour (see The Guardian newspaper recently). That has had the intention (if not the guaranteed effect) of trying to avoid one EU Member State supporting its own companies at the expense of other Member States.
Yet what seems to be happening in the USA is that Steve Mnuchin (US Secretary of the Treasury) has formed an alliance with head of the Fed Jerome Powell to permit the Fed to issue unlimited quantities of money but with no safeguards in corporate bond buying. (Remember that corporate bond buying is itself against the Fed’s own rules.) This seems to allow the development of a possible strategy that discriminates against foreign-owned companies (such as Chinese-owned Huawei) to be starved of Fed funds. Indeed it may well become a lot easier to sanction both companies and countries that the US Government sees as a threat or merely a strong competitor. This approach seems to have influenced what looks like a recent change of attitude towards the IMF by Steve Mnuchin, and he has recently appointed a close ally as the No. 2 in the IMF. IMF policy is now especially important because the present crisis has meant that over half of the world’s countries have asked for IMF support.
This seems to give the USA enormous leverage in placing any company it dislikes in a difficult position, at a time when US Dollars [USD] remain the means of payment for at least 80 per cent of all international trade. I will later refer to a link that shows how much USD is being held by various countries, compared to an estimate of how much they need to carry on trading as normal. The largest EU economies such as France and Germany have only a few per cent of USD in their foreign exchange [FX] reserves, and the same applies to the UK. So Mnuchin is now apparently in a position to inform Trump that he could cause very serious damage to the EU, China and Iran such that the USA could come out of this incipient global depression ahead of its main economic competitors. They may also think the same about Russia but in my view that would be more difficult, because Russia’s economy is inherently more resilient these days. And as indicated above, the USA could also target individual companies. [Incidentally, there is a lot of lobbying going on in Congress right now to gain access to the Fed’s largesse and other emergency funding, and so such preferential treatment could be applied within the USA in a Presidential election year.]
Before providing links to show this situation as it has emerged very recently, it is important to show that the non-financial sectors of the US economy have been in real and accelerating trouble, despite Trump’s claims to the contrary. These illustrative indicators make it clear that the problem is not only financial and so any recovery will probably be very slow because the ‘real’ US economy was heading for a deep recession anyway. Doubtless an awareness of this underlying situation has helped drive the desperate financial measures that we now witness, measures attempting to prop up the US Dollar and ensure that it fully recovers its global dominance.
The following indicators of the contraction of the US economy illustrate a process which started months before the COVID-19 pandemic. There were other earlier indicators – this list is just to give a flavour of the developing trends. The first shows that the Fed has been fully aware of all this:
Now for the evidence of the apparent policy changes described above:
[19 Mar 2020.]
[10 Apr 2020.] Mnuchin says IMF and World Bank are important partners in addressing global issues. So this is before the public change of heart.
Here is a crucial quote from the above link:
“In the U.S., Treasury Secretary Steven Mnuchin has forged a crisis partnership with Federal Reserve Chairman Jerome Powell, giving the central bank a bigger role in fiscal policy.”
Now for the public change of position on the IMF:
Also on the 16th April various reports covered the reasons that Mnuchin gave for not supporting the IMF issuance of Special Drawing Rights [SDRs] to support a whole series of countries: he basically suggested the use of much more limited IMF funds for developing countries on the grounds that 70 per cent of the IMF SDRs would go mostly to stronger economies, and developing countries would only get 3 per cent. But some commentators think that the real reason for this change of approach to the IMF is that SDRs would give China and Iran funding without any strings.
The Latent Demand for US Dollars at a Time of Serious Economic Contraction
The link below by Michael Every of Rabobank estimates the impact of the sudden global economic contraction on the demand by various countries for US Dollars:
It treats the global market for Dollars under a single label, namely Eurodollars, but if one adopts that approach then it tends to downplay the historical significance of the rise of the petrodollar after Nixon took the Dollar off its fixed exchange rate to gold in 1971. Following that major policy change, Saudi Arabia was quietly given permission to raise the price of oil in 1973 in exchange for US guarantees of its military security. What the US got out of this deal was a guaranteed demand for Dollars because Saudi Arabia agreed to insist that oil had to be traded internationally in Dollars. There was a repeat oil price shock in 1979, further strengthening the dominance of the US Dollar.
The article linked above in part uses The Matrix movie to make some of its points, but the argument is still understandable if you have not seen that movie. The BIS is often described as the central bankers’ central bank, but in my view there is a power hierarchy there. The article claims that the origins of the EuroDollar market are mysterious but in fact it was mainly the US Dollars that arrived in Western Europe as funding for the Marshall Plan for post-war reconstruction of Western Europe that created the market. One part of the argument slightly overstates its case, although it is historically true:
“However, there is a cost involved for the US. Running a persistent current-account deficit implies a net outflow of industry, manufacturing and related jobs. The US has obviously experienced this for a generation, and it has led to both structural inequality and, more recently, a backlash of political populism wanting to Make America Great Again.”
Yet while running a persistent current account deficit implies such a net outflow, it does not entail it. A more judicious policy promoting industrial investment and innovation could have fostered a greater resilience of US industry. Despite its reputation for innovation, in fact most post-war US innovation has either come from the military-industrial complex (increasingly feeble at creating new products owing to the political gravy train that reduced incentives to innovate) or was actually imported, mainly from Nazi Germany or the UK.
The important point now is that few countries can manage to trade without access to US Dollars [USD]. China has reduced its USD holdings for over $2 trillion a few years ago to less than $1.8 trillion now, judging by Table 1 in the link above. That Table highlights in red those countries that are most vulnerable to a US Dollar shortage. Yet it seems that China will need about double its current US Dollar reserves to avoid serious trading difficulties, according to the above article. China has been buying US Dollars and US Treasury Bills [T-bills] again recently, as Mazaheri would expect in the present circumstances:
No other country has anything like the absolute amount of US Dollar holdings as China, and few have as good a ratio of holdings to required US Dollar finance demands (0.52. for China, or 52 per cent). Switzerland has 0.48, Russia has 0.36 and Saudi Arabia has 0.69. (Taiwan with 0.51 is too small an economy to have that much global impact.) Russia has far greater resilience in my view than most other countries, because it also holds Euros and Gold, and has swap arrangements with various countries. It is also able to source most of its raw materials within its own borders, can feed its own population and has sufficient reserves to pay off all government and corporate debt immediately on demand – or did until the COVID-19 pandemic and the oil price war with Saudi Arabia and the USA forced it to start selling foreign exchange within the last few weeks. (The amount of such recent sales is not known.) But the currency swap deals will make it easier for it to keep its international trade going better than most countries.
However, such Russian currency swap deals must pale into insignificance in relation to the easy swap deals that the Fed has engaged in, and these have been ramped up in volume and now include additional countries. As Michael Every explains:
“The Fed has, of course, stepped up. It has reduced the cost of accessing existing USD swap lines–where USD are exchanged for other currencies for a period of time–for the Bank of Canada, Bank of England, European Central Bank, and Swiss National Bank; and another nine countries were given access to Fed swap lines with Australia, Brazil, South Korea, Mexico, Singapore, and Sweden all able to tap up to USD60bn, and USD30bn available to Denmark, Norway, and New Zealand. This alleviates some pressure for some markets – but is a drop in the ocean compared to the level of Eurodollar liabilities.”
He goes on later:
“Yet despite all the Fed’s actions so far, USD keeps going up vs. EM FX. Again, this is as clear an example as one could ask for of structural underlying Eurodollar demand.”
He shows this with a graph of the US Dollar holdings within European Markets’ Foreign Exchange holdings [EM FX]:
He then quotes the Bank of International Settlements [BIS] where in a recent report the BIS argued that:
“…today’s crisis differs from the 2008 GFC [Global Financial Crisis], and requires policies that reach beyond the banking sector to final users. These businesses, particularly those enmeshed in global supply chains, are in constant need of working capital, much of it in dollars. Preserving the flow of payments along these chains is essential if we are to avoid further economic meltdown.”
“In other words, the BIS is making clear that somebody (i.e., the Fed) must ensure that Eurodollars are made available on massive scale, not just to foreign central banks, but right down global USD supply chains. As they note, there are many practical issues associated with doing that – and huge downsides if we do not do so. Yet they overlook that there are huge geopolitical problems linked to this step too.”
This clearly implies that the Fed has had a green light from the BIS to lend to companies, as I suggested near the beginning of my commentary on Mazaheri above. I mentioned some of the possible geopolitical problems then. But Michael Every spells out the logical endpoint of such an approach. He had earlier mentioned this as one of three outcomes that were possible in principle, while now pointing out that recent policy changes make this outcome the logical one, even if we have not yet reached it:
“Notably, if the Fed does so then we move rapidly towards logical end-game #2 of the three possible Eurodollar outcomes we have listed previously, where the Fed de facto takes over the global financial system. Yet if the Fed does not do so then we move towards end-game #3, a partial Eurodollar collapse.”
Even a partial Eurodollar collapse would do serious damage to those countries (more than half) which have sought emergency IMF support, and so this new power gives the Fed enormous political leverage over most major economies and over multilateral agencies such as the IMF, the World Bank or even the European Union [EU]. Given that Trump sees the EU as a potential competitor to the USA, and given the low proportion of US Dollars that its major economies have in relation to their trading needs, the EU is very vulnerable to US economic pressure in the present circumstances.
Since the US Dollar is used for about 80 per cent of global trade, then even the fact that the Euro is a fairly substantial international trading currency and forms part of the FX holdings of various non-EU governments such as Russia counts for relatively little. All it could be used for is to buy some time to trade when the global economy slowly pulls out of the COVID-19 recession/depression. A similar argument applies to non-Dollar currency swap arrangements between, for example China and Iran or Russia and Venezuela. All four countries could be potential targets, given that China is seen as the major economic competitor to the USA and the others have important oil and/or gas reserves while the US shale industry is now in deep trouble and will cost billions to keep in business. It should not be surprising that the USA is keeping up the military pressure on Venezuela:
Turning to the EU in more detail, it is clear that the Euro currency itself is under stress as it has led to increased economic inequalities between EU Member States. In addition, political solidarity with the EU has declined partly owing to these growing differences and the austerity policies of the European Commission [EC] and the European Central Bank [ECB]. The ‘bailout’ of Greece was really a bailout of French and Italian banks that had made loans to Greece, and the Greek economy has shrunk enormously since 2008. Now Italy is feeling the pinch as it finds itself constrained by EC/ECB policies in its attempts to kick start economic growth. A recent opinion poll shows that 49 per cent of Italians favour leaving the EU and only 40 per cent want to remain in it. Budgetary problems for the EU will increase after the UK leaves it since the UK is only one of about three net contributors to the EU budget and the tensions over the next EU budget are very visible.
The EU has again very recently failed to agree to ‘debt mutualisation’ whereby the richer economies such as Germany and the Netherlands would also take responsibility for the debts of others, mainly the southern European economies, especially the debts of Italy which is the third largest Eurozone economy. The latest attempt to reach this agreement though the issuance of common EU bonds meant that these proposed EU bonds were relabelled ‘coronabonds’ in the hope that the COVID-19 pandemic would concentrate minds. Despite a public apology from the head of the European commission for the EU’s failure to help Italy after the coronavirus outbreak there, the electorates of the northern EU countries will not accept what amounts to a fiscal union within the EU. No wonder the Italian Prime minister stated that the EU now faces an “existential crisis”. Trump (advised by Mnuchin) may see this as an ideal opportunity to undermine a competitor. It is not at all certain that the EU institutions themselves would survive the collapse of the Euro currency, even though some Member States still have their own currencies.
It may not be well-known worldwide, but it is well understood within the EU that most of the global trading in the Euro currency takes place in London, even though the UK stayed outside of the Eurozone when it was created. Paris, Frankfurt and Amsterdam would love to take over this trading market which amounts to trillions of Euros daily, but for practical reasons (well-established institutional expertise and even sheer amount of office space) this cannot happen in the near future, even though the UK is scheduled to leave the EU at the end of this year. Because of the importance of the Euro trading to the UK economy, the UK government is keeping a very close detailed eye on global financial flows, and is increasing its capacity to do so.
So if the Euro collapses as a currency in the coming depression, apart from causing a further bout of economic contraction in the EU, it would cause serious damage to the UK economy, thereby rendering the UK even more subservient to US interests than it is now. Doubtless the Fed and the Trump administration would take full advantage of this in any trade deal negotiations. [These have already being going on behind the scenes and it does not look good for important sectors of the UK economy including farming.]
So could the EU turn to the Eurasian Economic Union [EAEU] to retain some measure of independence from the USA and keep its economy growing? This would require a major cultural change within the European Commission and in some Member States which harbour hostility to Russia, and which may not see Central Asian markets as having much growth potential. Even China has not invested as much in Central Asia as those countries would like. That might change if economic relations between China and the USA become even worse, and China decides to invest more in countries where the Belt and Road Initiative has already provided infrastructure that is less susceptible to foreign military intervention. Yet the population sizes of the Central Asian countries place a limit on how quickly demand for Chinese and other foreign products can be fostered.
While the standoff between Russia and Saudi Arabia would have sounded the death knell for the US shale oil industry in normal circumstances (and it was dying anyway because US capital markets had effectively stopped lending to this sector) there is now a distinct possibility that it will be kept going by the Fed as part of a strategy to keep up pressure on economic competitors. Whereas I recently saw the declining price of oil as loosening US dominance of the global economy by reducing its means of influencing the price of oil, it now appears that giving the Fed unlimited powers to finance companies as well as financial institutions has so changed the global economic landscape that the USA may well emerge from the incipient global depression in a position whereby it remains dominant, albeit in a much smaller global economy.
In such a scenario, and given the inevitably increased dependence of developing countries on the US via the IMF, then the policy options for the Russia-China ‘helix’ will become more constricted as the BRICS group (Brazil, Russia, India, China and South Africa) becomes weaker owing to the probable increased dependence of India, Brazil and South Africa on USD funding. This inevitably raises the profile of the EAEU as a possible source of continued growth despite the fairly limited consumer power within this bloc at the moment. While Russia has managed more or less to stabilise its population and has reduced inflation, thereby easing pressure on living standards, China has been unable to turn round the effects of its earlier policy of limiting child birth. While China has been moving from an export-oriented growth strategy to one promoting rising living standards within its own borders, the ageing population (which like that of Japan has a high propensity to save) means that this strategy will run into limits if China cannot rely on exports to maintain its growth rates through what was intended to be a transition period to the new growth strategy. This implies that the EAEU becomes much more important to both Russia and China, although it would be prudent for China to use institutions such as the Asia Infrastructure Investment Bank to try to sustain the EU as a source of demand for its exports. It will have to do this at a time when it is possibly going to be under legal attack from the USA for what some in the USA are claiming is China’s legal responsibility for the COVID-19 pandemic.
Yep. Sound monetary policy, along with power of the purse, are absolutely essential for any living nation of Mankind to have and keep its soveregn power and authority over itself, in our world at this time.
The ‘funny money cartel’ is well overdue for a few ‘bad hair days’.
Many thanks for your kind praise regarding my article, Mr. Littlejohn!
I’m quite happy to see you have apparently expanded upon and surely improved some of the ideas I brought up. I quite look forward to reading your article very soon.
Many thanks again!
Please tell me why this subject is not discussed?? WRT to the holy USD.
Nobody will take USD or any foreign currency here in SE Asia going on six weeks. First the call went out late February 2020 by Bank-of-England that all cash ( mostly USD ) should be considered infected. Then 1st of March all banks in SE-ASIA quit accepting USD ( and all foreign currency )
All borders are closed. So even the black-market is non-operational, as nobody can carry cash to black markets over the border, which is how normal cash is exchanged worldwide, as banks never give the favorable or realistic rate.
The banks will not accept the currency, they say its dirty and/or contaminated.
They have no plans in the future to accept USD.
Nobody wants to get caught holding USD. The Forex offices in Asia, which normally take-in currency, and process it and forward it back to home-country’s, are all closed, they’re non-essential operations ( cleaning, packing, and shipping cash ).
The most $100 USD bills on earth, are outside of the USA, so that makes since to shutdown that cash first, then shut it down in USA.
The USA is going to issue a new currency post COVID-19, and nobody abroad wants to get caught holding the old currency.
Good article, thanks.
What you said reminded me of something Ramin wrote:
How does the US define “US dollar share of global reserves”? If global reserves include the dollars held by US entities, wouldn’t Quantitative Easing (which presumably gives dollars mostly to American entities) automatically increase the US dollar share of global reserves?
Thus, depending on a single definition, the reserve status of the US dollar may or may not be so healthy.
Some evidence that the status of the dollar as reserve may be cracking: in 2017, the dollar was used in less than 40% of international settlements (this document is in PDF format). Note that the document is on SWIFT’s website. The less use of the dollar for international settlement, the less need to keep dollars in reserve.
So I think we really need the following cleared up: are dollars held by US entities counted in the world’s reserves?
Usually international statistics on gold and currency reserves refer to official government holdings in their own central banks. So it will not include US entities. You are doubtless quite right that an increasing number of settlements through SWIFT are not in dollars. They will be in Euros and other currencies, but a lot of trading settlements are not made through SWIFT, so the overall figure of 80 per cent for global trading payments being in US Dollars is almost certainly correct. The use of SWIFT may itself decline as a proportion of total international payments because both Russia and China have now created their own SWIFT-compatible international payments systems.
The figure of 62 per cent of reserve holdings being in USD refers to the official central bank holdings averraged across the world. Some of the remaining 38 per cent will be in gold, and the rest will be in various other currencies, some of which will be holdings for the swapp agreements that I mention in the article.
You are doubtless quite right that an increasing number of settlements through SWIFT are not in dollars. They will be in Euros and other currencies, but a lot of trading settlements are not made through SWIFT, so the overall figure of 80 per cent for global trading payments being in US Dollars is almost certainly correct.
According to the SWIFT report I cited, in 2017 less than 40% of international settlements (presumably those that use SWIFT) use the US dollar. However, you believe that 80% of global trade uses USDs.
The implication is, according to you, only half of international settlements go through SWIFT. In that case, I don’t understand why in 2019, Russia reacted to the threat of being cut off from SWIFT by saying that “Restricting Russia’s access to the SWIFT international banking payment system would virtually mean a declaration of war, Prime Minister Dmitry Medvedev has warned”.
If it’s been so easy to avoid SWIFT that half of all international transactions do so, why would Russia react so angrily to the mere threat of being cut off from that telecoms channel?
The likely answer is that far more than half of international transactions use SWIFT. So the SWIFT report I cited is correct about the USD being used for less than 40% of international settlements (at least in 2017).
This means that in 2017 the US dollar (and therefore the Fed) was far less influential than you seem to think. And three years later, the dollar’s influence is likely even lower.
Cyril, I tend to agree with you. The Moneymasters may attempt to further their Dollar dominance, but they will fail. No currency has ever survived money creation on the current scale. The Dollar is no exception.
Just weeks ago I read ‘Russia just killed the Dollar’.
Now it looks like the Dollar just killed: BRI, SCO, Double-Helix, BRICS, EEU…
And the winner will take all! Remember ‘Make China pay for it’
Will Russia and China just roll over and aceept?
I am afraid the dollar will in the end kill it’s self. The well known Dr.Paul Craig Roberts has recently stated that additional printing of the dollar can only lead to it’s collapse. As other analysts have repeatedly said, you cannot ‘kick the can down the road permanently’, ie. have a gigantic debt and print worthless money at the same time.
I doubt that Russia and China will just roll over and accept, which is why I briefly discussed what they might do, but in the short run there is not much that they can do about the Fed printing money. Paul Craig Roberts is almost certainly right that ‘printing’ money on the scale done since 2008 will lead to collapse, and that scale has just increased enromously. The most recent measures are signs of desperation and kicking the can down the road in an unexpected way by breaking long-standing regulatory procedures that are precisely designed to avoid overdoing expansion of the money supply. It makes the global financial system even more fragile and more likely to collapse.
For that reason it is important to recall that the then Governor of the Bank of England Mark Carney proposed the idea of a global digital currency at an international meeting of bankers in Jackson Hole last summer. It looks like there is a post-collapse recovery plan already beeing worked on. No doubt such discussions have continued at the monthly meeting of the Bank of International Settlements in Geneva but we won’t get to know much about that.
Interesting …. so some kind of new global digital currency replacing the dollar post-collapse ?
It would be an interesting option to circumvent the dollar, much has yet to be done to tie all the roads of financial transactions in a timely manner, the trigger to be used could be the credibility of the rating agency’s themselves. If they tow the line here (and personally I dont see how they cant), then they will be much like the fed, independant of politics in name only, it works at home, abroad, not so much.
Not sure what “kind” of currency it will be, but if history is any guide the English will want to call it the “bancor”.
Well that’s what they’re saying here in SE-ASIA, nobody (bank) will accept USD, and they don’t plan on accepting in the future.
There is a new currency coming out, and the old currency will not be exchanged. Think about this, the majority of USD cash is held worldwide outside of the USA, and overnight it will be declared without value.
Once the INTL black-market value of the USD goes to zero, then it will have no value in the urban jungles of the USA.
All can see that this ‘virus’ plan-demic was setup to reset the global economy into a cashless system.
Except cashless doesnt work for the poor, and we are about to expodentially increase the class of poor peoples, it will be a good long while before crypto and coin meet eye to eye on the street and space.
I’ll never understand how the majority of the posters her continue to fall for the Anachronistic “Red team” vs “Blue Team” crap, as seen by the fact that most here believe that “Red” China is a “Socialist superpower” challenging U$ hegemony. As much as I wish this wasn’t true as a Marxist-Leninist, I accept the painful fact that since the fall of the Soviet Union (due to its revisionist leaders desire for the “good life” of western consumerism, causing them to sell their citizens out for 240 billion dollars in “Project Hammer”), their are no Socialist superpowers challenging U$ hegemony, with China now a Neoliberal Capitalist Sweatshop for Wall Street/Silicon Valley, and Russia at the mercy of Zionist Oligarchs that have raped the country since 1991 (they were the beneficiaries of the CIA/Mossad “Project Hammer”), and have reduced most of its formerly proud citizens to Drunkards and Prostitutes (I write this with tears in my eyes, as a Communist proud of their Russian ancestry), with Putin doing some good things (Annexing Crimea and saving Assad for now), but failing to prevent the long, slow, painful death of his country. In reality, the vast major of the worlds countries ware infiltrated/controlled by the forces of Neoliberal Capitalism (including China and Russia), with the exception of 5 rogue states (the last two Socialist states, Cuba and North Korea, along with 3 Anti-Imperialist, though Non-Socialist states, Iran, Syria, and Venezuela), which are to weak to defend themselves, and are doomed to be picked off every few years due to sanctions, embargoes, and “humanitarian” aid campaigns.
In conclusion, it is remarkable that more people at this purportedly “alternative” blog realize that this “Coronavirus” crisis (it really doesn’t matter what the truth is or isn’t about the origin and virulence of the virus, because the international Bourgeois will make it whatever they want it to be), is meant to accelerate the economic “tends” of E-commerce and Automation that are beneficial to the long term agenda of the international bourgeoisie elite, the complete
elimination of the proletariat (they will be replaced by technology and given UBI crumbs to placate them) and the creation of a One World Government in which the only people left are Transhumanist Bourgeoisie pigs (I believe this outcome must be stopped by all means possible, even global thermonuclear conflict). In the short term, the Coronavirus crisis also helps the agenda of regime change in Iran, Venezuela, and Syria (through crashing Oil prices, and having Iran get hit with a deadly “Coronavirus” outbreak), and furthering the implosion of the dilapidated Post-Soviet Russia, while offering the masses worldwide (including the fools in this website), the choice to cheat for either the U$ and “red” China in the escalating fake wrestling, kabuki theatre, puppet show.
The FED may well bail out shale, but it will be an on-going bailout since a cost of minimum $45 to produce it is noncompetitive. It will be a continuing drag on the US economy making the general economy noncompetitive in world terms, if the economy must absorb high internal energy prices. The bullying by the US use of the dollar as a weapon will act as a spur to encourage countries off the dollar, a trend that is already happening. Voodoo economics that makes no logical sense except to a bully must fail, or the world has no future. There may well be 2 world economies emerging: one on the Russia-China axis, and one on the US axis. The former will be much more efficient. As an example, just look at what Russia can achieve in terms of military technology with “an economy the size of Texas” – though of course GDP figures are as bogus as the economies that produce them.
There are some problems with the logic of the article, first if the U.S. oil industry is in such bad shape, why are all the stock piles full and oil now at $18/bbl. Seems to me a good part of the industry can pump oil for quite a long time and how much they make (or dont make) is the question.
Plus in a “albeit in a much smaller global economy” many country’s (and even many company’s) debts will soon become unserveable and need to be addressed, if the fed were to backstop everything in a preferred manner, the bernake to many dollars means each one has less value will quickly lend its self to many unaffordable products for those with scarce dollar holdings.
If food production were to drop this year from a lack of labor, a streak of famine along with reduced income would throw another dollar straw on the back of the fed.
There are too many hedge links in this article and they are somewhat of a suspect site when it comes to veracity on the ground, dont lead yourself astray and find the boat to heavy to float. I’m not saying there arnt many potential problems on the horizon, but dont think that the fed riding to the rescue is the final solution, if china russia saudi and a few different country’s negotiate some liquidity solution of their own, the fed will be an island looking for a ship after a 3 day cruise, and we all know how well that worked out.
There is a glut of oil with plunging prices per barrel because the economy of the world was already in serious decline. If production drops, travel drops. This is not even to mention that shale oil has been a losing proposition from the start. The deposits themselves are quickly depleted forcing companies to move on and find yet another location where they can use precious freshwater to extract more oil hidden in some rock layers. Capitalism at it’s finest.
Many smaller countries and companies debts will become unserviceable and need to be addressed? You need to read the article again and understand what criminal organization we are faced with. The Fed is becoming the buyer and lender of last resort. The central bank of the world. They are in effect buying up and nationalizing huge corporations, states, cities, even countries. They are choosing the winners and losers! Do you think they care about the little pipsqueak, starving proles? They are sending trillions to some, no questions asked, but to send $1200 to each American in a one time allowance? Congress has to vote on that! They don’t give a crap about you. And it is a fearful thing to fall into the hands of this financial mob. Because they will force countries to go into debt and then they will take their resources, pollute and pillage the land and leave the people impoverished and dead.
I believe the greatest threat to the race of men is occurring right now. A very great depression is likely to occur, fully expected by the Bank of the New World Order. How odd that the Davos boys and girls were involved in the pandemic plan Event 201 in mid-October. If they manage to get control of everything, everywhere, they can set all the terms and values as they like. As they have said, there is no limit to the amount of funding they can provide.
On the one time $1200, how many families currently spend far more on their usual monthly expenses?
They have rent or a mortgage, credit card debt, food, clothing, auto payments, student debt, utilities, health care, child care and taxes. Did I forget anything? Any two of these items can easily exceed $1200.
Meanwhile, our great newspapers publish columns on how to disgorge our checks from the Treasury.
It should make everyone angry Bart. They have to vote on whether to provide the people with a ‘bailout’ of less than $20 per week? They may as well provide a bag of free Oreo cookies, wish you well and say how much they hope this will tide you over for a while.
I wish I could say for once, finally, that Trump is trying to work for the people. Look who is on his panel to relaunch the economy. Most are connected to Bill Gates, George Soros or Eli Lily and it is my understanding that their plan does not involve going back to a normal life.
Okay, I’ve finished reading the article. One point really struck me, namely that you wrote twice that the US dollar is used in “80% of global trade”.
This appears to be contradicted by the SWIFT document I linked to above, which states that ths US dollar is used in less than 40% of international settlements. Perhaps one figure counts the number of distinct transactions, and the other is for total monetary amount? I don’t know. Can you clear this up, please?
If the world has less need to use the dollar for its international settlements, then clearly there will be less demand for dollars, and the Fed will have less influence. (China’s need for dollars may be brief: they have to buy food for a few years due to the many agricultural infections — bird flu, swine flu, army worms, another bird flu — afflicting the country since the trade war started.)
It is important to remember why the FED is offering all this liquidity (swaps). It is to stave off the collapse of the global financial system which runs on virtual dollars. What would happen if the liquidity is not enough to keep the game going? Massive defaults, triggering massive dislocation in the derivative markets, collapse of global interconnected money center banks, etc. It is not clear that the US$ would benefit in the aftermath … it is in fact completely unclear what would arise from the ashes, which would reduce all wealth to the value offered for the “cash” flow of physical assets, leaving aside what “cash” that would be.
Liquidity can’t run out. It’s virtual. Confidence can run out.
The SCO has very large economic upside. Far more important potentially as the core of Eurasian Integration. With China under heavy pressure from the US and vassal states, it is natural for SCO to be where China can grow its markets and trade.
• the SCO comprises eight member states, namely the Republic of India, the Republic of Kazakhstan, the People’s Republic of China, the Kyrgyz Republic, the Islamic Republic of Pakistan, the Russian Federation, the Republic of Tajikistan, and the Republic of Uzbekistan;
• the SCO counts four observer states, namely the Islamic Republic of Afghanistan, the Republic of Belarus, the Islamic Republic of Iran and the Republic of Mongolia;
• the SCO has six dialogue partners, namely the Republic of Azerbaijan, the Republic of Armenia, the Kingdom of Cambodia, the Federal Democratic Republic of Nepal, the Republic of Turkey, and the Democratic Socialist Republic of Sri Lanka.
Can somebody tell why a steadily growing economy like Vietnam which has also a large border with China isn’t part of one of the three strategical classifications
Well, having just been to Vietnam I can suggest that it might have something to do with the Vietnamese having a visceral dislike of the Chinese. Reciprocated in kind, apparently.
— quote: Vietnamese having a visceral dislike of the Chinese
According to this logic they should have much more of a visceral dislike of the USA. But they happily deal with Trump’s America
I think condition that the fed is becoming the largest investor in every monopoly powered corporation in the world, may soon backfire? The Eastern side of the Middle East will begin to trade in petro backed Iraqi Dinars. Iraq’s central authorities are becoming independent. and its oil reserves will once again fund its economic needs as the USA is pushed from Iraq, Syria and Yemen. I predict the Dinar to become the float that sustains trade between Iran, Iraq and the Brics nations .. and if allowed to grow, the Iraqi Dinar will substitute in an unaccountable way, the western Federal Reserve currency in the East.. I predict despite the pain, China is going to refuse to trade with the USA. It only takes the itty bitty little bit too much restrictive pressure to set the Iraq Dinar in motion in the middle east, and the Yaun will trade on par with it. Yes its not big enough to finance the world, but for the BRICS it is not likely the world is the target of interest any more.
Also developing is bit coin strategy that is not controllable by private banking central banks or nation state authorities. I just don’t see the dollar getting stronger without adequate income from International trade.. Inside the USA multitudes of small businesses are already broke, even the bail out money will not fund their existing bills, so they are accepting the bailout money, to even their debts and shut down. end of 3 employees average * 2000000 small business =6 million jobs. Its cheaper to put this people on welfare and unemployment insurance than fund the small business .. Technology not manpower will take up the slack as house, home, car and bank account disappear into the can’t find afford able food to eat, clothes to wear, and money to pay the doctor.
Monetary policy will not work as these things come into being. IMO.
Seems like monetary policy is not working right now.
What I find interesting is the amount of work being done that is non-essential as is being proven out by this coronavirus thing. What is happening is that all kinds of work is being done not because society needs the resultant product, but rather because people need the money. One sees this everywhere in almost all industries. People are simply chasing after money; the actual work is irrelevent, and in many cases nothing is being produced. What this phenomeom shows is there are some very basic structural faults in our economy. The crux of the problem is not the dollar, but the manner in which money in general is doled out to the masses; that it is given out for a unit of “work” or “product”. The effect is the demise of our society, our environment, and everything else around us. The current economic problem triggered by the coronavirus is not the imposed medical solution, but rather the inabilty of our western economic structure to cope with the situation. What is most saddening is that all economies are just human created conventions, and can easily be changed.
Murder or salvation? Southern US states to relax Covid-19 lockdowns amid outcry
Given: “the Fed, which has actually been privately owned since 1913 but is allowed unconstitutionally to act as the US Government’s central bank”
“Remember that corporate bond buying is itself against the Fed’s own rules.”
Is it reasonable to expect that the Fed obeys any rules, except the prime directive to generate profits back to the private owners?
They were born to privatize the profits and socialize the losses, the ultimate money middleman.
Interesting how the military and foreign policy arm of the US reinforces the financial / economic arm and vice versa. The Dollar is reinforced by the IMF, World Bank and BIS.
The Dollar is used to keep pumping money into the US military to sustain military hegemony in order to enforce Dollar compliance.
Interesting read on “monetary hegemony”:
Micheal Hudson’s Super imperialism: The origin and fundamentals of US world dominance
There has always been a fundamental incompatibility between the attainment of global economic stability and having a single national currency perform the role of the world’s reserve currency.
Belgian born American economist Robert Triffin first highlighted this incompatibility in the 1960s. He observed that having the US dollar perform the role of the world’s reserve currency created fundamental conflicts of interest between domestic and international economic objectives.
On the one hand, the international economy needed dollars for liquidity purposes and to satisfy demand for reserve assets. But this forced, or at least made it easy, for the US to run consistently large current account deficits. These deficits were necessary to provide liquidity to the rest of the world.
Triffin argued that such persistent deficits would eventually put pressure on the dollar and lead to the demise of the Bretton Woods system of international exchange which of course happened in 1971.
The Triffin Dilemma, therefore, argued that the demands on an international currency meant that excess supply would eventually undermine its value.
After WWII the Bretton Woods international monetary system came into being. This was a fixed rate currency regime with the dollar as the global reserve currency. But to ensure stability and financial discipline, the major currencies were fixed to the dollar and the dollar was fixed to gold at the rate of US$35 an ounce.
Enter the Triffin Dilemma:
The US soon understood that reserve currency status allowed them to run large deficits. The deficits were ‘paid’ for by issuing dollars. When the excess dollars began showing up in global central banks, in Europe and East Asia, the holders began converting their dollars into gold. This lowered the value of the US dollar in relation to gold.
At first the authorities tried to manage the Dilemma. In 1961 they established the ‘London Gold Pool’ in an attempt to keep the dollar price of gold to $35 an ounce. This system worked for a while but fell apart by 1968 when France withdrew from the Pool
The various nations then attempted to preserve the Bretton Woods system by maintaining a two-tiered gold market; one operating at the official $35 an ounce price while another traded gold at the market price, which was well above $35. Of course such a policy was completely unsustainable and it too failed.
Bretton Woods was on its last legs. President Nixon ended the system once and for all when in August 1971 he suspended the convertibility of dollars into gold. From that point on, the dollar was without an anchor and the global monetary system went from a fixed to floating regime. What followed was a decade of monetary instability and record high inflation
And this was when all the trouble started. A pure fiat global system based upon the Kingpin US$ has from the outset had a stormy past which if anything seems to be not storms but Hurricanes, firstly 2008 and now 2020.
Perhaps surprisingly, the dollar maintained and still does its role as the world’s reserve currency throughout the ensuing decades. Due to its economic and military might, the reserve currency status of the dollar actually grew in acceptance throughout the next few decades. But the imperial hegemony is showing distinct signs of old age.
But Triffin’s Dilemma never went away. It did remain out of sight though as parties on both sides of the equation enjoyed the mutual benefits of the dollar’s reserve status.
The US benefitted by paying for imports with essentially costless dollars. In turn, the US’ main trading partners enjoyed robust demand for their products, creating employment and income growth. This ‘exorbitant privilege’ a term coined by the French politician Valery Giscard De’taing as it was called was not to the liking to the rest of the world.
The huge deficits brought about by excess US consumption produced a massive amount of liquidity throughout the global economy. While Triffin’s Dilemma would have predicted a collapse of the dollar because of the glut of dollars in the system, such an outcome didn’t eventuate.
The great free lunch led to the Americans reinvesting their excess dollars back into US asset markets, notably US Government debt. Such actions supported the dollar, kept interest rates low, and perpetuated the imbalances.
The underlying conflicts identified by the Triffin Dilemma, however, always remained. The ease with which the US could borrow and create debt was tolerated for decades. No doubt such tolerance was due to gold no longer being a monetary anchor.
But in 2007 it reached a point where it could no longer be tolerated. Not because investors decided to be prudent, but because the market structure could no longer cope with more debt.
At this point, the end of the decades long US driven credit expansion turned abruptly into a contraction and asset markets collapsed. Amongst the carnage, the dollar was about the only asset to increase in value relative to everything else. This was because previously abundant global liquidity rapidly evaporated and returned to the source, pushing up the value of the dollar.
The point here is that in times of crisis, the US dollar trades as the world’s reserve currency, not based on its domestic fundamentals, which are just as bad as other countries. That’s what you saw in late 2008 early 2009.
So the Triffin Dilemma is beginning to rear its head again. The US domestic political preference is for a weaker dollar to stimulate exports and create employment. But the international situation, being market driven, is more powerful. The dollar is therefore strengthening relative to other currencies while the U.S. economy is still weak.
In the past the US response to this currency strength would have been to lower interest rates and turn on the liquidity taps. Which is exactly what is happening at present.
Everyone is crying out for dollars, except that is the domestic US market which needs a cheaper dollar, and the US is not alone in this respect. But the problem is that a global reserve currency operates under different rules to ordinary currencies. In times of global uncertainty, like now, the US dollar will be strong regardless of its fundamentals. So that the dollar is being pulled in opposite directions, strong internationally, but needing to be weak domestically.
The inherent conflicts in the global monetary system that led to the great financial crisis have not been addressed. The dollar has served as the world’s reserve currency, without being linked to gold, since 1971.
Since 2008 the surface the experiment has met with some success, the legacy is a huge build-up of debt. The need for global liquidity creates an incentive for the US to live beyond its means and run up debt levels. Perversely, the debts sit in the vaults of foreign central banks and masquerade as assets. (It is from this asset base that domestic banking systems generate their own credit growth).
Gold will be one of the major beneficiaries of the ultimate end to dollar hegemony and the ‘exorbitant privilege’. Back in the 1960s Robert Triffin warned about the dollar glut and the fact that it would bring the Bretton Woods system undone. He was right.
The rising gold price which was kept down by the government shorting of gold in the Comex futures market. This was the first warning sign of the system’s weakness.
Now tell me a return to the gold standard is out of the question.
I would like to expand on this, when the dollar went off the $35 gold std, it actually went on the oil std, unofficially, with the blessings of the saudi kingdom, as the price of oil rose, so did the value of the dollar as the consumer picked up that tab and the treasury had plenty of kingdom dollars to conduct its business. If more dollars were needed (for the gvt) they would be taken by raising the prime rate as volker did to the tune of 21% at its height.
Many gvt bonds were bought at 14-15% rate and those started coming due in 08 contributing to the liquidity crisis which lead to the banking and others bailouts.
So the price of oil was always a key to dollar health as a hefty fee could always be leveraged on each transaction just as gold was the anchor mechanism used as dollar health prior to 71. But today the price of west texas sits at a meager $11/bbl and as such, if the health of the dollar is or was attached to it structurally, some financials should be feeling rather sick this morning.
Now I also take note that the credit system is also based on a full faith and credit of the fed reserve, which is a good phrase to pump to country’s and consumers, but if one day these same people begin to lose full faith in the fed, they are pretty much out of faith bullets and all that is left is the printing press and food production to back a currency, if the latter should wane I dont see how this is not the beginning of a weimer germany playback and the house of fed cards (which can be shook from quite a few different sources) is teetering on a collapse moment that wont be admitted to (or administered) until an (or the) alternative is presented and regretably accepted by default.
I predict a lot of financial pain is ahead for the American consumer who wont see or understand how and where all the problems came from, nor the out of the blue solution to the problems.
Iam sorry alabama but the petro dollar was used and introduced as a tool to devalue the dollar against oil. Since oil wanted gold to protect itself the price rose from what was it? $41 to $850 in a few years the same time oil went crazy in Dolars? The currencies based on the dollar had to devalue with it and thus pay lots more for oil. Just as the US had to do. The US had the printing press and the rest of the world had to produce more real goods and services to obtain them dollars. The European currencies back then were based on the Dollar. They had no choice. Guess what they did? Create the Euro, based on a free floating price of gold. Gold standard without price fixing. Way better. Many counties in the world followed suit. Never being blackmailed by the US again on that massive scale. Seems they found a way anyway.
This new world was used to replace the gold stuff. The peak oil argument was there to raise the price of oil so the dollars find use. That is part of the reason why Iraq, Iran and Venezuela happend. All to delay the invetable.
Not sure I get your drift.
No sovereign nation today would back its currency with gold. It’s irrational, but the idea is hoary with age. Why be crucified on a cross of gold?
Securing trade with certifiable gold as trade security is possible.
Sovereign nations can secure the welfare of of their people by financially fostering tangible wealth production. Build, baby, build.
B/c w/physical gold can come new laws that stabilize a country’s future welfare, and can also be used as an international exchange of not only trade but intentions too, that’s why
What I see is an “invisible enemy” manipulating the totality of humanity as it has….. for thousands of years.
Within the totality of humanity, all the diverse parts, and particularly the most powerful parts that are not virtually helpless and “along for the ride”…first and foremost must “look out for # 1” whether Number One is China, The United States of America, Russia, India, IRAN, Brazil, Germany, France, the United Kingdom or wherever.
Most individuals within these more powerful players, if they can rise above the “Number One” being just their person, their spouse (maybe ??? lol) and their blood relatives perhaps have not expanded their thinking much beyond their nation borders at all.
Because of past flawed leadership in every nation on earth, the majority of all persons, including perhaps most persons here easily fall into the trap (currently, within the US especially) of blaming 1.4 billion chinese….or if they say..”not the people, but the CCP ‘dictators’…” …whereas their first duty ought to be to get their “own house in order”.
The least “in order” since Nov 2016 has been the USA.
However, I am of the opinion that the current disorder and ongoing attempted coup…… Russia-gate followed by Corona-Gates and the dangerous attempt by the REAL “invisible enemy” (which is not Covid-19 folks…..that is just a new factor to change the topography of the old battlefield of the Empire System…”Globalism”….Empire…. vs A Multi-polar World of Sovereign Nation States) to turn the USA Dumb Giant and Europe to focus against 1.4 billion Chinese, actually (despite disavowals…saying “No, I just mean the CCP”) is now the strategic focus of the REAL Invisible Enemy…..thus “China, China, China” to the forefront of the minds of the frightened, manipulated western masses.
The “China-gate” phase of global divide and conquer by the real, although “invisible” to most, Enemy of All Mankind.
The most effective defense against this Fear Attack on the Mind of all Mankind???
The LPAC lead this morning: “China’s Message to the U.S.: ‘Never Too Late To Join Hands in Fight against Real Enemy”:
If you are entirely without poetry, imprisoned within the bounds of Empiricism and formal mathematics and Deductive Logic…there is no metaphor allowed there…..and your mind is trapped into conflict against a perceived enemy (1.4 billion Chinese…or 330 million Americans) instead of against the Real Enemy that the China Daily headline speaks of…..which, me thinks….IS known to some in leadership of the CCP to be more invisible to most humans than “The Virus”.
That enemy may not be so visible to Rudy Giulani right now….but believe it or not….the evidence exists that that invisible enemy is quite well understood by his boss. who has repeated the “invisible enemy” METAPHOR, I would add, over and over and over again…in recent days.
That fact may not yet be on your radar…but consider tuning your “settings” a little bit.
Meanwhile, this from that lead the China Daily headline comes from:
“As Schiller Institute founder Helga-Zepp LaRouche stressed in her April 15 weekly international webcast: “They (China) have offered cooperation on the basis of a win-win cooperation. They have offered the United States a special great-power relationship. And it is an absolutely absurd idea that one can prevent a country of 1.4 billion people, which has determined that it wants to go forward on the road of scientific and technological progress—and has proven that that method functions, by lifting 850 million people out of poverty, and then, is starting to offer the advantage of such an approach to others through the Belt and Road Initiative—that you can stop that, other than by nuclear war! And that is, obviously, unfortunately, what some people are willing to toy with.”
“This campaign is absolutely led by British intelligence,” Zepp-LaRouche stressed. “I think it’s very dangerous, and it’s very stupid. ”
entire Lead here: https://larouchepac.com/20200420/china-s-message-us-never-too-late-join-hands-fight-against-real-enemy
What’s also not too bright is to think that 330 million Americans are The Enemy…… and to refuse to even consider the fact that it might be possible for DJT to sidestep the NWO China-Gate Trap….just like he’s managed to sidestep ever other trap set for him……and you…so far…at least in terms of fatal, irreversible consequences.
Meanwhile in terms of the FED…there are encouraging signs that it is being nationalized, merged with the US Treasury …which will give other even less sovereign nations than the US…..a great opening to shed the shackles of their central bankers (a large component of the Real Enemy)….as well.
More on that hopefully after breakfast, attending to chores…and studying the author’s important article more closely.
Yeah that invisible enemy is Avarice.
Or perhaps debt.
You’ll be having to nationalize the banks too in order to confiscate all that wealth that’s in the works. No one in their right mind would willingly agree to such a manuevor aside from a desperate bankrupt industry.
I noticed oil was around $10, then $7. My wife just chirped that it is currently -$0.15. Something bad is about to happen, and it isn’t a virus. At least not this one.
The negative prices for crude oil can come about in the futures market. For example, speculators and hedgers buy or sell for three months ahead on margin. When the contract matures after three months, the buyer on margin has two options; take delivery of the physical crude by paying the full contractual price prompt net cash, or by selling the the oil for prompt delivery, which is where the problem lies; there is nowhere left to store the physical oil , because the refineries’ storage tanks are already full, so the seller has to pay someone to take it away.
The other problem that arises in the physical market is that if crude oil in a ship tanker is unsold upon arrival at the destination port and there are no buyers, the costs of demurrage begin to mount up, including finance charges, putting financial pressure on the owner of the oil. If nothing is done the ship owner will take possession of the cargo and sail away.
But sail away to where? Why wouldn’t they sail away w/a small profit for the oil company before paying for storage with the dim hopes that the economy will recover, could it be no one is accepting oil for dollars?
As long as the owner of the oil tanker is paid the demurrage charges by the owner of the cargo, then the tanker owner can wait it out, but once the the shipping contract goes into default, then the tanker owner is free to do as he sees fit to reduce his risk/expenses as best as the market can offer. Of course this should be a mutually agreed arrangement to minimize the losses of both parties.
That’s what i’m saying, why isnt the owner of the cargo prepared to sell to china the same cargo he is now paying to store said same oil, did he not see the cliff ahead as he barreled forward towards it?
What kind of people do we have at the helm of this oil ship anyhoos?
US oil benchmark goes NEGATIVE for first time after 300% price plummet
“Vanishing demand and a glut of supply have combined to heavily impact the US benchmark fuel, with prices dropping from $18.27 to close at -$37.63 a barrel on Monday – down over 300 percent from the previous day’s close. It’s the first time the oil futures contract has ever traded in the negative since the New York Mercantile Exchange (NYMEX) started trading crude oil futures in 1983.”
WTI market crashed, shale industry is probably doomed for significant time, US deficit is extremely huge, FED is printing money like crazy ….
And dollar is still strong and entire world still use dollar …
(deleted. please keep it civil. thank you. mod)
Interesting things are being reported about parts of the worlds banks that are no longer accepting dollars in exchange for local currency, people are left holding $100 bills that they can no longer find a local exchange for.
This would lend creedence to a strengthening of the dollar here at home b/c of fewer dollars being a liquid asset.
We are probably currently in a transition stage for competition of reserve currency, ergo, for a period of time, as was most likely the case in the past, there is no reserve currency, we are in a currency war.
Nice start to a comment, bad ending.
Check out whether China has just dropped the dollar to yuan peg and now pegging everything to yuan??? ? Rumours via twitter……
If the effects of this coronavirus is bad on oil prices (mixed in with the ongoing oil war), just wait until the “global warming” problem takes off. The world ain’t seen nothing yet. The oil market for all practical purposes is already dead. And with negative oil prices, the next thing to expect is negative interest rates on dollar reserves. As Mr. Littlejohn points out there are some serious transnational actors interested in keeping the dollar in dominance, but when interest rates go negative, who in the world is going to want to hold on to them? And with nobody going to the stores to do much shopping, no amount of bailout money is going to revive the economy. The world is awash with oil, money, and junk goods that nobody is going to need.
With current U.S. monetary policies preoccupied with gangster economics, I think we are headed for a big time global economic meltdown that nobody is going to stop. Question is where will we be in the next few years, and what am I going to do with me 401K?
A very insightful article. It will be interesting to watch these predictions attempting to come true.
Given the United States propensity for falling foul of unintended consequences, following the tactics suggested which seem like a clever plan to coerce the rest of the world, will most likely create blowback that as yet is not foreseen, ie the unknown unknowns. We do indeed live in “interesting times”.
This is all very well and good, and I’m sure the arguments presented are sound.
I do seem to recall that the Pound Sterling was regarded as the reserve currency for a century up through to the first half of the 20th century, only to be dethroned within three weeks at the Bretton Woods Conference.
Seems to me that the only thing holding up a reserve currency is confidence in that currency, and everything else is just a rationalization for why that confidence should be eternal.
Yet history has shown that confidence can go in the blink of an eye, after which all the IMFs and World Banks (both products of that same Bretton Woods Conference, if I’m not mistaken) and Feds won’t be able to put it back together again.
The Fed could be dissolved and a new American gold backed dollar introduced, but a lot of long heart ache for the American citizens would be included with this transaction, leaders dont yield their positions w/o first seeing their followers going down financially first. And it appears that some are tilting in that direction.
Not just the federal reserve that is the bankers’ bank needs “adjustment”. The whole system of fractional reserve banking, whereby private banks create the US money supply ex nihilo as debt needs to be “revised”.
HR 2990 a Bill before Congress lays out this proposal, such that it would be the US Treasury, who create the US money supply free of debt, saving the taxpayers huge sums of money, that otherwise goes to the banks.
I wouldn’t count on todays congress presenting any bills to create money that would make any difference than the troubles they have already created. Big banks would be gone, small mom and pops springing up in their place.
Who would believe an American gold backed dollar Alabama? In the 1930’s the US government defaulted for well over 60% of its gold backed debt to all holding it. Americans were even made into criminals holding gold. The rest of the world could at least still buy it with their devalued dollars. Then Nixon came. Sorry guys (rest of the world), no gold again. A 100% default. I surely would not trust it one bit. Would you alabama? Rather have the gold or that so called gold backed dollar as your savings method?
If you are in debt and getting deeper into debt as the US governement is you cannot fix the price of gold and thus not have a gold standard even for a short period. The price (note, not value I mean) of the US stock pile of gold is less then a trillion. WIth multiple trillion in debt each year…….. Not even viable in the well under a year stop gap measure. In the long(er) run price fixing never works. That is why all gold standards have failed. Not because of that for the rest useless piece of metal (mostly useless) but because of human nature.
Those were some desperate financial times, the fed after being formed to prevent financial crisis’s, was smack dab in the middle of big players who took their money out the system after losing out on a trust they were convinced they could control.
So the gvt did what gvt must do, liquidate all gold except gold treasury notes, today we have a crisis of confidence in gvt, that with a gold std would bring the things gvt was not able to achieve b/c of bad behaviors mostly. Those days and monies would be gone with this new environment and a different form of trusted value placed into the hands of responsible talented peoples, along w/new education, which brings lower health care costs and lower costs all around.
You wouldn’t really need to save so much b/c things wouldn’t cost as much, with the new gold std would come responsibilities based on the laws of nature that do not fail, but reform, so in essence not really useless, but a regaining of confidence in gvt.
What would Russia/China/ Iran’s chances be as a self-contained system if they were locked out of the dollar?
They seem to have everything they need.
Russia must get rid of its dependence on oil. It must be achieved at all costs
The US emerged from WWII as the world’s leading military and economic power. Since that time US hegemony has been predicated on: 1) unrivaled military power, 2) control of world’s energy reserves (primarily in the ME) and 3) maintaining the dollar as the world’s reserve currency, established at the Bretton Woods conference in 1944 (See- What is a Reserve Currency? By Justin Kuepper Nov 17, 2019; Link: http://www.thebalance.com/what-is-a-reserve-currency-1978926). All of the pillars supporting US power are now threatened by decades of neo-liberal economic policies and Coronavirus Pandemic, spending large sums of money on the Pentagon and war and more recently, attainment of economic/military parity by Russia and China. While the US Dollar remains the worlds reserve currency, this does not last forever.
The US confronts major economic structural problems. Some of these include-
1) The Coronavirus pandemic has starkly revealed the fragility of the post-2008 financial ‘recovery’, as FED- created financial bubbles in all asset catagories are all on the edge of blowing up, were it not for continuing multi- $ trillion bailouts from the Treasury/FED.
2) The Pentagon confronts astronomically expensive, looming strategic debacles in Afghanistan (longest war in US history), Iraq, Libya, Syria and Yemen, which have permanently undermined US national and economic security (Cost > $6 trillion; See: watson.brown.edu/costsofwar). Indeed, despite committing huge amounts of human and financial capital towards these conflicts, the US has been unable to extract any imperial rent. This is vividly seen with China aggressively working out energy deals with Iran and more recently Iraq.
3) Increasing defaults on the $16 + trillion US residential mortgage debt and dollar-based emerging market debt.
4) Crashing oil prices, a reflection of continuing economic weakness in the global economy, are going to bankrupt unprofitable US shale producers along with increasing bankruptcies in the industry and increased financial stress within financial firms providing loans and credit to the shale industry.
5) The 3 largest banks in the US- JP Morgan Chase, Bank of America and Citigroup have $ trillions of toxic assets on their books. These Banks have been backstopped by $ trillions from the Treasury/FED. (See- wallstreetonparade.com).
Wild cards. It is not clear how much longer the US Treasury/FED can continue their orgy of printing money and debt creation, ongoing since 2009. Increasing unemployment/austerity in the US is going generate more social opposition to US economic policies which since the Great financial collapse of 2008, have overwhelmingly benefitted the wealthiest segments of US society (proverbial ‘1%’). The continuing slowdown of global capitalism is increasing the chances of major conflicts erupting between the global powers. It appears that Trump is committed to regime change in Iran, Syria and Venezuela.
For America and its oligarchical elites, the Coronavirus panic-demic serves as a convenient “external event” to explain away the implosion of the Wall Street Bubble Economy and rationalize the subsequent trillion-dollar bailouts (aka CARES Act) to maintain this bubble.
The United States is also deploying the Coronavirus panic/psyops to ratchet up the hybrid war campaign against China (see American-led coronavirus allegations against and demands for financial “compensation” from China), as well as regime change threats against Iran, Venezuela, and Nicaragua.
Economic collapse is driving America’s descent into (world) war.
Not trying to be a spoil sport but what about:
– The Asian Infrastructure Investment Bank (AIIB);
– The New Development Bank (NDB), formerly the BRICS Development Bank
– The Islamic Development Bank, major contributor the Saudis (US ally)
and this just in (as an example):
France’s Finance Minister to ‘Tighten Control’ on Investments in French Firms From Outside EU
Do you think that will diminish the impact the US Treasury & the Fed will be able to have on taking over other nations’ corporations and national economies?