Reserve Currency

UPDATE: He's back - GEITHNER: YUAN CAN BE SIGNIFICANT RESERVE CURRENCY IN LONG TERM

As everyone opined on China's 'goldilocks' GDP data all day long, perhaps the biggest news this evening was US Treasury's softer stance towards China's currency 'manipulation', as we noted earlier, saying Yuan is merely "below appropriate medium-term valuation," and sure enough offshore Yuan has strengthened since the report. China's 'official' mouthpiece Xinhua told the people it is "unnecessary to be anxious about China's economic growth." And finally, for the 8th straight day, Chinese margin debt rose today to its highest in over a month. This is the longest stretch of releveraging in 4 months - since the peak of the bubble. "Will they never learn?"

There is a war, a currency war, and the war is, ultimately, on Americans. Rather than living under a sound currency, modern Americans live under an economic despotism. There are monopoly men who tightly control the money, and are all the more insidious in their subtlety, and quietness in the shadows. In many respects, Americans have fallen far, and hard, from the liberty they once had.

It was clear what was about to happen in Syria only because we understood one important fundamental – that there are no “sides” in any modern conflict, only proxies fighting on a global chessboard controlled by the same elitist interests. Syria represented a perfect catalyst for a planetary scale conflict triggered between East and West in a way that could divert attention from internationalists. Modern war, whether through kinetics or economics, is almost always theater designed to distract and terrorize the masses, which are the true target of any conflagration.

AsiaPac stocks are extending losses in early trading asit appears our fears about the Chinese coporate bond market bubble are also on the minds of Chinese regulators as they look to "boost reforms." After the PBOC has fixed the Yuan stronger for 8 straight days, the onshore and offshore Yuan has weakened appreciably in the last 24 hours and PBOC has devalued Yuan by 177pips  - the biggest in 2 months (as PBOC researchers push to "speed up Yuan internationalization" and implicitly inclusion in the SDR basket).

The US is in decline. The US government is overloaded with debt. The US financial system is losing is dominance. And even the banking institutions themselves are losing relevance. This isn’t bad news. It’s tremendously exciting.

According to the WSJ, the Pentagon is offering "condolence payments" to the civilians injured and the families of those killed by a U.S. airstrike that destroyed a hospital near Kunduz, Afghanistan. Because, the thinking probably goes, human lives are like any other commodity and can be measured in reserve notes. However, what is more disturbing is that since the US prints the world's reserve currency, should Obama proceed to exterminate countless other "collaterally damaged" civilians, all that the US will need to do is print a few more million to wash its - and that of the "free and democratic world" - conscience, and all shall be well in all future cases.

“Capitalism is not primarily an incentive system but an information system.” Prices are the information. And the price of time itself is the single most valuable piece of information. Time, as we intuitively know, is money; they are two sides of the same coin. Mess with time and money, and you mess with everything else. Yet as with central planning in general, the central planning of either money, or time, cannot possibly work. Hayek warned the economics profession of precisely this in the 1970s. They didn’t listen, ensconced as they still remain within their interventionist Keynesian paradigm. Well that paradigm is about to be blown apart, time and money are about to return to the market, where they belong, and real, sustainable economic progress is about to restart once again.

The phrase “crossing the Rubicon” has stuck for more than 2,000 years, signifying a risky and dangerous point of no return. This week, the United States government crossed the Rubicon. In a fit of complete arrogance, a federal judge ruled that he has ‘jurisdiction’ over one of the biggest banks in mainland China, Bank of China (BOC), and demands that the bank turn over financial records to his court.

Forget Norway. Japan. Iceland. Switzerland. Or any of the other places around the world that are notorious for being painful on the wallet. Venezuela is now the most expensive country in the world, hands down. To give you an idea, the cost of a 15-minute taxi ride to the beach yesterday afternoon totaled an eye-popping $158.

"The data are positive for the probability of the yuan getting into the SDR basket. It shows that the so-called devaluation in August, which wasn’t massive in value, hasn’t driven people away from using the yuan."

"This is a monetary moment... we are looking at the beginning of the world’s reappraisal of the words and deeds of central bankers like Janet Yellen and Mario Draghi. You see monetary disorder manifested in super low interest rates, in the mispricing of credit broadly and you see it in the escalation of radical monetary nastrums that are floating out of the various central banks and established temples of thought: Negative real rates, negative nominal rates and the idea of helicopter money. So you need some hedge against things not going according to the script and that makes gold and gold mining equities terrifically interesting now."

"... this time we would see deeply negative interest rates in the US (and Europe). Sweden has led the way, dipping their toe below the water line with their current -0.35% policy rates but there will be more, much more along these lines. For if -0.35% is possible, why not - 3.5% or less? It goes without saying that deeply negative interest rates would be accompanied by a massively expanded QE4 in the US. The last seven years of exploding central bank balance sheets will seem like Bundesbank monetary austerity compared to what is to come."

And just like that Weimar 2.0 is born.

After 35 years of falling and now zero rates, the direction is only up for the cost of money, as is the cost to service debt, along with the burden to those who are most indebted (i.e. the U.S.). What should no longer be unthinkable is that the clock is ticking on America’s status as the holder of the reserve currency. If you still doubt this proposition, consider that China is in the process of setting up a third benchmark for oil, along with Brent and West Texas Intermediate, for trading oil futures contracts. And unlike the existing contracts, these will be traded in Renminbi. Who needs the dollar?