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Forget Russia Dumping U.S. Treasuries … Here’s the REAL Economic Threat

George Washington's picture




 

Russia threatened to dump its U.S. treasuries if America imposed sanctions regarding Russia’s action in the Crimea.

Zero Hedge argues that Russia has already done so.

But veteran investor Jim Sinclair argues that Russia has a much scarier financial attack which Russia can use against the U.S.

Specifically, Sinclair says that if Russia accepts payment for oil and gas in any currency other than the dollar – whether it’s gold, the Euro, the Ruble, the Rupee, or anything else – then the U.S. petrodollar system will collapse:

Indeed, one of the main pillars for U.S. power is the petrodollar, and the U.S. is desperate for the dollar to maintain reserve status.  Some wise commentators have argued that recent U.S. wars have really been about keeping the rest of the world on the petrodollar standard.

The theory is that – after Nixon took the U.S. off the gold standard, which had made the dollar the world’s reserve currency – America salvaged that role by adopting the petrodollar.   Specifically, the U.S. and Saudi Arabia agreed that all oil and gas would be priced in dollars, so the rest of the world had to use dollars for most transactions.

But Reuters notes that Russia may be mere months away from signing a bilateral trade deal with China, where China would buy huge quantities of Russian oil and gas.

Zero Hedge argues:

Add bilateral trade denominated in either Rubles or Renminbi (or gold), add Iran, Iraq, India, and soon the Saudis (China’s largest foreign source of crude, whose crown prince also happened to meet president Xi Jinping last week to expand trade further) and wave goodbye to the petrodollar.

As we noted last year:

The average life expectancy for a fiat currency is less than 40 years.

 

But what about “reserve currencies”, like the U.S. dollar?

 

JP Morgan noted last year that “reserve currencies” have a limited shelf-life:

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/10/Reserve%20Currency%20Status.png

 

As the table shows, U.S. reserve status has already lasted as long as Portugal and the Netherland’s reigns.  It won’t happen tomorrow, or next week … but the end of the dollar’s rein is coming nonetheless, and China and many other countries are calling for a new reserve currency.

 

Remember, China is entering into more and more major deals with other countries to settle trades in Yuans, instead of dollars.  This includes the European Union (the world’s largest economy) [and also Russia].

 

And China is quietly becoming a gold superpower

Given that China has surpassed the U.S. as the world’s largest importer of oil, Saudi Arabia is moving away from the U.S. … and towards China. (Some even argue that the world will switch from the petrodollar to the petroYUAN. We’re not convinced that will happen.)

In any event, a switch to pricing petroleum in anything other than dollars exclusively – whether a single alternative currency, gold, or even a mix of currencies or commodities – would spell the end of the dollar as the world’s reserve currency.

For that reason, Sinclair – no fan of either Russia or Putin – urges American leaders to back away from an economic confrontation with Russia, arguing that the U.S. would be the loser.

 

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Fri, 03/21/2014 - 22:21 | 4579352 Son of Loki
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oi vey!

Fri, 03/21/2014 - 22:13 | 4579342 Gadfly
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We've made this bed, and now we're going to sleep in it.

Sat, 03/22/2014 - 13:58 | 4580544 Ifigenia
Ifigenia's picture

Just put the sellout politicians and their bosses 1% on those beds. Are theirs not mine.

Sat, 03/22/2014 - 12:40 | 4580402 scraping_by
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Who's 'we', white man? I've never voted for a platform of world domination by a financial elite.

Sat, 03/22/2014 - 12:03 | 4580323 Citxmech
Citxmech's picture

If you like your bed, you can keep your bed.  

Fri, 03/21/2014 - 21:59 | 4579316 Psquared
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Of everything I have read I think this is both the biggest danger to the US and also the motivation behind some of the strange things that have been happening - including NSA spying. It sin't about keepng us safe from terrorism. And our aid to countries is not humanitarian; rather, it is to financialize their economy to make them dependent on the dollar. It is happening right now and the competition is between the Euro, the dollar and the Ruble. (and maybe the Renminbi) It isn't about terrorism, or territory, or democracy or ethnicity anymore. Maybe it never really has been about anything other than economics.

http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&I...

 

Sat, 03/22/2014 - 17:34 | 4580899 Rafferty
Rafferty's picture

"It isn't about terrorism, or territory, or democracy or ethnicity anymore."

 

True.  Apart from one particular ethnicity!

Fri, 03/21/2014 - 21:32 | 4579254 tony bonn
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"..For that reason, Sinclair – no fan of either Russia or Putin – urges American leaders to back away from an economic confrontation with Russia, arguing that the U.S. would be the loser..."

i may be misreading putin's embracement of christian orthodoxy, but even if he is half sincere, he is not the ogre sinclair thinks he is....

the problem in the usa is that we have frat boys and infantile homosexuals in charge of foreign affairs, who have been nothing but raving old women (mccain) while putin has been the model of decorum and constraint.

the americans wanted a totalitarian bush replacement, and they got one. part of understanding who is running the white house is understanding that michelle obama is a man! once that is understood, it is so easy to see how bush crime syndicate totalitarian agenda and its project for a new american century continue to prosper. the ziocons are the most evil murdering freaks in the world.

ukraine has every potential to ignite ww3 along, with the terrorist state israel's attack on iran guaranteeing 20 dollar a gallon gasoline.

http://www.youtube.com/watch?feature=player_embedded&v=fVAXqKugXkg

 

Fri, 03/21/2014 - 21:31 | 4579252 Sokhmate
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This interview is prize of the year.

Fri, 03/21/2014 - 21:34 | 4579250 shinobi-7
shinobi-7's picture

This is of course the ultimate weapon. But since, against the US, it is almost "nuclear", Russia alone cannot pull it up. They'll need the support of China and China is not ready yet. There is still the possibility that if we push too hard against them now, it could become the real black swan the market fears but the probability is still low... for now.

Give it another year of acrimony, a global recession in the second half of 2014 plus a major gas deal between Russia and China and we might be there as early as 2015.

Sat, 03/22/2014 - 01:17 | 4579663 yatikto
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not sure,  i think the wheels are already in motion.  after O's pivot to asia, china containment, etc.

they also got screwed in libya.  

Fri, 03/21/2014 - 20:57 | 4579176 kurt
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Here's the problem:

The number of dollars in circulation are sufficient to cover the demand for petroleum for the entire f'n world by virtue of the historical role in being the petro-dollar. When people don't have to obtain said dollars to buy "petro" then the holders of those dollars will exchange them for something else more useful. They will do so in a faster and faster rate, as the relative value of said dollar decreases as the concensus builds against its valuation.

There will be measures taken to assure the continental Americans that they can halt this sliding devaluation, this is NOT going to work: they won't be able to halt the slide but they will be able to convince many to fail to protect themselves.

Then, 10 to 1 you will get the Peso. The problem is the banks will revalue your mortgage in a "basket" of currencies. Thus you will owe MUCH MORE to pay off your house, and you won't be able to if you are in or near retirement. 

It would help if the neocons hadn't successfully caused the world to HATE OUR GUTS. So expect no compassion. And no you didn't bring this on yourselves, it was done TO you.

Fri, 03/21/2014 - 20:46 | 4579142 q99x2
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The End of the Globalists is Nigh.

Long live the revolution.

Keep track of Dimon and Blankfein for when the SHTF. Don't let them get away.

Fri, 03/21/2014 - 21:21 | 4579240 robobbob
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Long before the death of the petro dollar, the real TPTB will have already moved their assets into the next new thing. After the collapse, look at which bankers are selling apples on the street corner, and whos buying everyones mortages for pennies on the renimbi, then you'll know who the real insiders are.

Sat, 03/22/2014 - 07:56 | 4579915 fijisailor
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I'm no insider but am expecting a nice real estate value per gold ounce when the dollar breaks down.

Sat, 03/22/2014 - 12:01 | 4580315 Citxmech
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A nice stack of Au might also become one of the only sure ways to secure venture capital in the future (whatever form that may take).

PS  Anybody else notice the steady decline in BTC lately?

Fri, 03/21/2014 - 20:28 | 4579092 Seeking Aphids
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Despite all the push back from GS et al gold continues its seemingly relentless upward climb...and why not? The debt has not been dealt with in any meaningful (or non-meaningful) way and the global economy is mired in unemployment and currency debasement. Not sure what wouuld motivate anyone not to invest in gold stocks or gold at this point in time. Mainstream media? Masochism? Brain death? All of the above? Gold doesn't need crises, movement away from the $US or towards a gold standard. We just need to stay on the current path and gold's ascendancy is assured....imho.

Fri, 03/21/2014 - 20:35 | 4579114 Winston Churchill
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Miners will be nationalized in the event of the dollar being dethroned asd GRC.

Be your own miner, buy phyz, and a shovel.

Sat, 03/22/2014 - 16:27 | 4580793 FinalEvent
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Damn, I just spent my money on a boat.

Fri, 03/21/2014 - 20:52 | 4579168 Bastiat
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What miners will be nationalized?  By what countries?

Sat, 03/22/2014 - 11:58 | 4580311 Citxmech
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One of my bigger "Canaries in the Coal Mine" in terms of where we are on the road to collapse are the airlines.  When the US essentially is down to one national carrier through mergers and bankruptcies, I think that the JIT delivery system, which is foundational to our current economy, will be ready to crumble. 

Fri, 03/21/2014 - 20:26 | 4579088 logicalman
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Said it berfore.

I'll likely to say it again.

It's ALL BULLSHIT.

How can we let these few psychopathic, narcissistic fucks get away with playing games where the rest of humanity are the pieces.

WAKE THE FUCK UP, PEOPLE!

Fri, 03/21/2014 - 21:15 | 4579222 War_is_Peace
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Try explaining this or anything else that plagues this country to someone outside the ZH community, or other like minded sites, and you can almost pinpoint the moment the dazed and confused look sets in. People are too comfortable to care, for now.

Somewhat off topic, but I work for a commercial bank (to say I'm conflicted with my profession would be an understatement and am working on an exit strategy). When I tried explaining that the FRB has worse capital ratios than a bank we recently recapitalized (sub 2% tier 1), the response I got was "well I'm sure other central banks have worse ratios. This is the US; things are different for us." My point is there is a deep rooted belief, even amongst those who should know better, that the path we are on can continue unabated, despite the glaring evidence and historical examples that suggest otherwise.

My concern is if Russia tightens the screws on the US, as this piece suggests, and things here unravel at a much quicker pace, the ignorant masses will experience a very unpleasant awakening. I just hope once they are inconvenienced enough to care that they will listen to those who saw it coming when the time comes to rebuild.

Sat, 03/22/2014 - 17:40 | 4580915 Rafferty
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"Try explaining this or anything else that plagues this country to someone outside the ZH community, or other like minded sites, and you can almost pinpoint the moment the dazed and confused look sets in. People are too comfortable to care, for now."

 

The problem fully explained in one succint paragraph.  That's why we need a dollar collapse.

Sun, 03/23/2014 - 12:35 | 4582479 TheMerryPrankster
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Need is the wrong word, "will have" is correct, Need has nothing to do with what is happening.

Need implies desire, when all can be explained with math. The dream goes on as long as the dream box sings, when the power goes off, the dream box dies or cries.

The electrical grid is critical for keeping the masses hypnotized, if the power goes off, it means they are killing the dreamers.

Who will win American Idle this week, how about that big game, did you see who she is sleeping with, etc,etc,etc, until suddenly its dead air and they have to think about the world they live in, not the dream world painted into their consciousness with the dream box.

Tv,food stamps, credit, - any one of them stops or even slows down and the whole thing tumbles. We are in a corner and surrounded by wet paint and our bellies are growling, at some poing we must move and when we do we will incur a cascade of problems.

The current stasis is not tenable, what can't go on won't go on. The cracks in society are visible, the fear is palpable and the questions only remains when does the pain become so large, it becomes a topic of discussion in the popular press.

They have been tasked with hiding it as best they can, there job is to ignore the news until it can't be ignored and then preted they were all over from the start.

If we can't ignore, we'll report it, we are the news.....

Fri, 03/21/2014 - 22:09 | 4579335 Psquared
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Exactly. 4 years ago I had dinner with a group of my cousins who are all "movers and shakers." (I am not.) I made the ZH argument that banks were essentially insolvent and were saved only by the change in accounting rules and by ZIRP. These are all highly educated and intelligent people who have a vested interest in the status quo ... in believing that we are following the correct policy and it can and should continue just like it is (or was at the time) forever and that the US would be fine. One of my cousins even said, "changing the accounting rules was the best thing to happen to banks in a generation." You can't change someone's mind with facts even their livelihood (and world view) depends on them believing otherwise.

Fri, 03/21/2014 - 23:54 | 4579588 Freddie
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As long as their big salaries are coming in or business is doing weel - they don't care.  They will lie to themselves until it all falls apart.

Fri, 03/21/2014 - 21:48 | 4579291 shinobi-7
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It is likely that more than half the people writing on this site have a major internal conflict of interest between what they do to make a living and what they really think. This is also my case and the case of many people I know. But not all of them. Most just don't want to think about it. Que sera, sera! 

Don't put any hope into the "masses". Their thoughts are more or less well "managed" and you wouldn't in any case like any of the solutions they entertain in their feeble minds!

Sat, 03/22/2014 - 11:46 | 4580287 Citxmech
Citxmech's picture

I keep my confliction to a minimum by hoping for the best and preparing for the worst.  It's taken me years to get as prepped as I am - and I've still got years to go at the current rate.  The longer things hold together, the more resilient I become. 

I think a key strategy is to constantly evaluate your position, global/national/local trends, and try to always maintain as strong a position as possible in terms of both the basic necessities and being positioned to take advantage of opportunities as they arise.

Sat, 03/22/2014 - 10:55 | 4580186 Absinthe Minded
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I work for a Fortune 500 building industries company. We are experiencing a bad start to 2014. I knew it was coming but everybody keeps saying, it's just the weather. No, it is just that nobody has any disposable income right now. I have a feeling we are really in trouble this year. Nobody is doing well except for some tech companies, but that is not enough to keep the whole mark levitated. I don't think Yellen has a clue.She is going to slip up or get caught saying something stupid which will rattle the markets. Just a feeling.I do believe I will keep adding to the PM stack.

Sat, 03/22/2014 - 00:10 | 4579609 TahoeBilly2012
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I climb ladders and even I am conflicted.

Fri, 03/21/2014 - 20:18 | 4579059 essence
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Analyzing this depends on what 'level' one chooses.

Are you on the MainStreamMedia level.
Are you on the Zerohedge level.
Are you on the more cutting edge level.
Are you on the "OhMyGod  aliens are everywhere" level.

I came across a curious post today on a website that managed to be lucid for once.

The claim that the western (and possibly Eastern) Powers were about to declare unmined/in the ground gold as a tier 1 asset. This in order to underwrite a new monetary system.

Sure I've read Jim Willie and his thoughts, but I'll admit ... this in the ground varporware was a new twist and it sure would be the style of the western PowersThatBe. How much of a stretch would it be for them to go from paper IOUs and paper gold to a ...  "here's a claim to gold in the ground" and it's our own new, asset backed currency. All in the name of introducing a 'commodity backed' monetary system `into a world grown cynical of paper and demanding confidence.

The question is, could Russia & China be persuaded to join this? How far does the BIS have its hooks into those two?

Yeah, I know, pretty wild stuff.  But I don't see too much original thinking these days, and with all this talk of global resets, this is one semi-plausible theory on how the desperately broke western establishment that has pissed away their gold could seek to have their cake and eat it too.

We now return you to your regularly scheduled programming.

 

 

Sat, 03/22/2014 - 21:52 | 4581441 klockwerks
klockwerks's picture

You sir are spot on. Each country will have their currency revalued based upon asset. Since the US no longer has physical gold and paper is worthless, "look over here, it's in the ground". If you follow this Global Currency Reset it all comes together like a puzzle. Really interesting stuff going on and it is going to start soon, very very soon. Prepare as it is going to be a rough ride. Planned for a long time now and D's and R's are both doing it.

Sat, 03/22/2014 - 14:20 | 4580567 tip e. canoe
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shit, Joyful used to write that Barrick and the Morgue have been doing a beta test on this for decades. 

not sure if his posts are still viewable here though.   they seemed to have been purged.

too bad, the guy was an amazing storyteller.

Sat, 03/22/2014 - 09:00 | 4579967 Drifter
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Resource-in-the-ground based currency backing idea will be the laughing stock of the planet and proof western bankers (and IMF) have gone insane.  It'll trigger the new BRICS system (if it doesn't get triggered sooner).

 

Sat, 03/22/2014 - 14:23 | 4580570 tip e. canoe
tip e. canoe's picture

dude, what do you think the Petrodollar is built upon?

goodwill?

Sat, 03/22/2014 - 13:25 | 4580491 Stanley Lord
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I agree with you, but Trade With Dave does not.

http://tradewithdave.com/?p=20594

Commodity resources in the ground? Talk about peek a boo.

Sat, 03/22/2014 - 11:14 | 4580233 nowhereman
nowhereman's picture

Just think, Afghanistan would rule the world!

Sat, 03/22/2014 - 12:20 | 4580359 viahj
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my claim on asteroid FHu0-U2 is valued by a trillion in gold, half a trillion in platinum and lesser amounts of improtant elements.  so give me my digital credits!  if you don't believe my claim, go see for yourself.

Fri, 03/21/2014 - 23:55 | 4579590 Dickweed Wang
Dickweed Wang's picture

The claim that the western (and possibly Eastern) Powers were about to declare unmined/in the ground gold as a tier 1 asset.

Uh, the USA is already doing that . . . . .

Fri, 03/21/2014 - 23:46 | 4579576 kchrisc
kchrisc's picture

"Well Mr. Bankster, there's gold, gold I tell you, under my condo. So why don't you just print up another $million or so for me so I can keep up appearances and things."

 

"I just checked, and there's gold under my guillotine. Damn thing get more valuable every day."

Sat, 03/22/2014 - 03:18 | 4579742 quikwit
quikwit's picture

"You want confirmation? Just stick your neck in through here to see it..."

Sat, 03/22/2014 - 07:29 | 4579893 WTFx10
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NEXT, step right up.

Sat, 03/22/2014 - 12:18 | 4580357 RafterManFMJ
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A gold mine is a hole in the ground with a liar on top - Samuel Clemens.

Fri, 03/21/2014 - 20:31 | 4579104 SpanishGoop
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And how are they going to back that claim up, with paper surveys ?

If you can not touch it.....

But if they go that road i have some swamp land for sale  with (and this is new) the possibility of gold underneath it.

 My paper survey says so.

 

Fri, 03/21/2014 - 21:10 | 4579206 SpanishGoop
SpanishGoop's picture

Russia accepting a paper gold payment from Germany saying that the real stuff is somewhere in a vault or in the ground in the US but they have to get it themself.

Mmmm.

 

Sat, 03/22/2014 - 08:57 | 4579965 dizzyfingers
dizzyfingers's picture

SpanishGoop

"somewhere in a vault or in the ground in the US"

It is said that China has bought the building that contains that vault. Game, set, match?

Fri, 03/21/2014 - 22:36 | 4579389 essence
essence's picture

In response to your remark, no one mentioned that only the gold under U.S. soil would be the sole extent of those tier 1 assets. Likely it would include any countries above & below ground holdings. It's just that leveraging in-the-ground gold to expand the asset pool would be  consistent with the modus operandi of the status quo. A virtually real asset as wealth repository --- with the Bitcoin blockchain keeping track of all movements from the golden wealth tier down into the digital 'street' currency of the masses. They love that sort of shit.

Look at the actions of someone such as Merkel. She has controlled written all over her just as much as Obama. The puppets in politics and Central Banks will do as they're told and the MainStreamMedia will give it the necessary cover spin to fool the masses. Seriously, Germany had the Fed essentially tell them to 'fuck off' in regards to their gold and the Bundesbank & Merkel just turn the other cheek. Doesn't that spell out that those german leaders are bit players following instructions.

As I stated above, this is a fetching theory ... but to me at least, it seems to hinge on whether Russia & China would go along. That is turn depends on the degree their leadership is controlled by whoever is behind the BIS.
I'm just a low-level observer and not privy to inside information, hence the need to engage the collective mind to vet these ideas.

Sat, 03/22/2014 - 04:32 | 4579778 Boxed Merlot
Boxed Merlot's picture

I'm just a low-level observer and not privy to inside information, hence the need to engage...

 

 

The term "proven and probable" are part of the mineral industry terminology.  These are typically the most conservative of estimates of a mineral resource and are in fact the collateral a miner would use to acquire financing to pay for extraction.  The claim I'm familiar with would have an immediate "cash out" value of between 2% and 10% of "gold in hand" value of it's P&P, depending on the necessity of liquidation, demand for "tangible" assets, i.e. successful marketing.  The marketing may include adding "inferred" information, which would appear to be less valuable, but depending on the claim, size, historical data and other considerations, could be of even greater "immediate" value.

The techniques for determining in ground reserves are fairly strenuous and typically require some decent investment in drilling, assaying, etc.  The greatest risk to proven and probable reserve values would be soveriegn authority, or the likelihood the local government will honor rights of ownership.  This is why the US would fall in the more valuable category at this time.  However, with the way we've been mortgaging our foundational tenets of personal property rights, it would appear this particular risk is increasing.

 

jmo.

 

Sat, 03/22/2014 - 12:32 | 4580381 scraping_by
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You'd be spot on if the financial elites were reality-limited. But recall that one of the techniques they used to get themselves out of the 2008-2009 hole they dug was revaluing useless instruments (MBS and other CDOs, derivatives, etc.) at face value.

The mark-to-fantasy technique can be applied to real assets, as long as the regulators remain compliant and nobody calls bullshit.

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