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Guest Post: How Much Longer Will the Dollar Be The Reserve Currency?
Nothing lasts forever... (especially in light of China's earlier comments)
Submitted by Patrick Barron via The Ludwig von Mises Institute,
We use the term “reserve currency” when referring to the common use of the dollar by other countries when settling their international trade accounts. For example, if Canada buys goods from China, it may pay China in US dollars rather than Canadian dollars, and vice versa. However, the foundation from which the term originated no longer exists, and today the dollar is called a “reserve currency” simply because foreign countries hold it in great quantity to facilitate trade.
The first reserve currency was the British pound sterling. Because the pound was “good as gold,” many countries found it more convenient to hold pounds rather than gold itself during the age of the gold standard. The world’s great trading nations settled their trade in gold, but they might hold pounds rather than gold, with the confidence that the Bank of England would hand over the gold at a fixed exchange rate upon presentment. Toward the end of World War II the US dollar was given this status by international treaty following the Bretton Woods Agreement. The International Monetary Fund (IMF) was formed with the express purpose of monitoring the Federal Reserve’s commitment to Bretton Woods by ensuring that the Fed did not inflate the dollar and stood ready to exchange dollars for gold at $35 per ounce. Thusly, countries had confidence that their dollars held for trading purposes were as “good as gold,” as had been the Pound Sterling at one time.
However, the Fed did not maintain its commitment to the Bretton Woods Agreement and the IMF did not attempt to force it to hold enough gold to honor all its outstanding currency in gold at $35 per ounce. The Fed was called to account in the late 1960s, first by France and then by others, until its gold reserves were so low that it had no choice but to revalue the dollar at some higher exchange rate or abrogate its responsibilities to honor dollars for gold entirely. To it everlasting shame, the US chose the latter and “went off the gold standard” in September 1971.
Nevertheless, the dollar was still held by the great trading nations, because it still performed the useful function of settling international trading accounts. There was no other currency that could match the dollar, despite the fact that it was “delinked” from gold.
There are two characteristics of a currency that make it useful in international trade: one, it is issued by a large trading nation itself, and, two, the currency holds its value vis-à-vis other commodities over time. These two factors create a demand for holding a currency in reserve. Although the dollar was being inflated by the Fed, thusly losing its value vis-à-vis other commodities over time, there was no real competition. The German Deutsche mark held its value better, but German trade was a fraction of US trade, meaning that holders of marks would find less to buy in Germany than holders of dollars would find in the US. So demand for the mark was lower than demand for the dollar. Of course, psychological factors entered the demand for dollars, too, since the US was seen as the military protector of all the Western nations against the communist countries for much of the post-war period.
Today we are seeing the beginnings of a change. The Fed has been inflating the dollar massively, reducing its purchasing power in relation to other commodities, causing many of the world’s great trading nations to use other monies upon occasion. I have it on good authority, for example, that DuPont settles many of its international accounts in Chinese yuan and European euros. There may be other currencies that are in demand for trade settlement by other international companies as well. In spite of all this, one factor that has helped the dollar retain its reserve currency demand is that the other currencies have been inflated, too. For example, Japan has inflated the yen to a greater extent than the dollar in its foolish attempt to revive its stagnant economy by cheapening its currency. So the monetary destruction disease is not limited to the US alone.
The dollar is very susceptible to losing its vaunted reserve currency position by the first major trading country that stops inflating its currency. There is evidence that China understands what is at stake; it has increased its gold holdings and has instituted controls to prevent gold from leaving China. Should the world’s second largest economy and one of the world’s greatest trading nations tie its currency to gold, demand for the yuan would increase and demand for the dollar would decrease. In practical terms this means that the world’s great trading nations would reduce their holdings of dollars, and dollars held overseas would flow back into the US economy, causing prices to increase. How much would they increase? It is hard to say, but keep in mind that there is an equal amount of dollars held outside the US as inside the US.
President Obama’s imminent appointment of career bureaucrat Janet Yellen as Chairman of the Federal Reserve Board is evidence that the US policy of continuing to cheapen the dollar via Quantitative Easing will continue. Her appointment increases the likelihood that demand for dollars will decline even further, raising the likelihood of much higher prices in America as demand by trading nations to hold other currencies as reserves for trade settlement increase. Perhaps only such non-coercive pressure from a sovereign country like China can wake up the Fed to the consequences of its actions and force it to end its Quantitative Easing policy.
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"Suspicion towards a currency, once awaken, develops insomnia." - James Dines
It will prevail until the centurions come home and the aircraft carriers are converted into public housing.
"until ... the aircraft carriers are converted into public housing"
Sunken vessels always make good public housing for marine life.
How much longer?.....a few years at best!
It has already been agreed upon and planned for many years.
http://twoshortplanksunplugged.blogspot.com.au/2013/08/chinese-gold-accumulation-and-bis-hksar.html
And China's a lot further ahead than everyone thinks (except for Jim Willie perhaps).
http://twoshortplanksunplugged.blogspot.com.au/2013/06/chinas-goldreserves-how-big-is-elephant.html
TSP
Arrr fuck it; let's just Blog it.
Occam's Razor in the Gold Space
http://twoshortplanksunplugged.blogspot.com.au/2013/10/occams-razor-in-gold-space.html
If the idiots in DC don't get their act together, I give the USD about 3 days before it is de-throned as the world's reserve currency.
Until the first aircraft carrier sinks.
An excuse for war or yet another false flag will not save the USD this time. The gig is up when your largest investor calls for the de-Americanization of the world and for a new reserve currency to be created.
As for the down arrow I got for my post above, it appears someone can't handle the truth. If the US defaults on it's debt, the game is over.
Decommissioned capital ships were used as prisons in England for many years. That is a more likely use for the aircraft carriers.
For the present geopolitical US$ reserve currency to work without escalating into a hyperinflation the excess/printed US$ must be removed from circulation. It is accomplished by Brazil, China, Japan, Russia, India, etc., buying the US Treasury papers, therefore, reducing the amount of US$ in the circulation.
The problem is that Brazil, China, Japan, Russia, India, etc., and the other countries cannot forever keep their own people starving so the USA and EU have the present high standards of living. So far, the elite of these countries were willing and/or forced to play this game. Just look at the communist China hypocrisy where former chairman Mao family members are US$ multi-billionaires and hundreds of millions Chinese have just a daily ball of rice. The Chinese, Russian, etc., elites are terribly corrupt having major problems controlling their citizens.
It is important to understand that the USA has no desire to pay back their international debt. This is just another form of the old colonial system. However, the pressure is building up in these countries. The US and EU elite arrogance and reckless behavior have made this system very unstable. Internet also has revealed that this system is very unfair to everybody outside of the US and few EU countries and local elite mafia running these countries.
Consequently, the Chinese elite is starting to look for ways to change the present situation.
Now about Gold. As long as China, Russia, etc., will not substantially reduce their US Treasury obligations buying the system will continue to function with gold staying in a doghouse.
Other than prestige, it only matters a little bit if any country's currency is NOT the reserve currency. I believe that losing that status for the US$ would only raise our transaction costs (converting to Yuan or Euros) some 1%.
Save in gold. Conduct business in FIAT$.
What if you want to leave the country with your gold? How would you get through the checkpoints?
Legally.
Declare it, do the paperwork that comes with it, and smile as I wave "adios"...
Well, the safest way is to move family first, then shipped the declared gold to said family, then wave as your jetliner takes off wisking you to safer havens.
Never leave at the same time as your gold. The TSA may want to see your gold member.
Then Gold rare coins in plastic slab by PCGS or NGC in high grade will do the trick: you can leave the coutry with lot of whealth in your pocket that way...
Normally we concur but on this topic we are at opposite ends of the spectrum.
If America was STILL a manufacturing superpower, your assertion would likely prove true.
If America was the LEAD source for high end electronic components, your assertion would likely prove true.
If our debt ceiling was HALF of what it is now, your assertion would likely prove true.
If the American President was STILL seen as the pre-eminent world leader, your assertion would likely prove true.
Loss of the USD as the world reserve currency, given the current FACTS ... will push the American economy into third world status.
I don't think it will take too much longer to find out when we become a third-world country.
Agreed, public denunciation today by China (see below) sets the stage for more open disagreement.
If Europe has a harsh winter, will Gazprom miss the opporunity to restrict the flow of natural gas to the EU because they are being paid in USD?
Meanwhile, the Kabuki on the Potomac will blind the sheeple that sometimes you are better off taking the pain NOW than waiting until some other entity can choose for you.
Indeed Just who is this mystic country who will selflessly stop inflating it's currency before the US? China? Hell, they are pegged to the dollar. EU? Wrong again. Japan? Give me a break. The reserve charade will continue just as long as every other ponzi scheme on the planet tries to kick the can faster than the benchmark.
You didnt take your meds today, did you?
If you wish to take issue with the original post - try finding someone who is supporting the point you want to take issue with - it's just that simple.
FYI, when ANY ponzi scheme starts inflicting real PAIN on the participants, the ponzi scheme is doomed. The schedule may be sooner or later but the outcome is a foregone conclusion.
The direct currency exchange idea is a NEW ponzi scheme with the sadistic twist of promising the countries that "get in on the ground floor" the opportunity to FUCK the countries not in on the scheme.
"If there must be trouble, let it be in my day, that my child may have peace."
-- Thomas Paine
"If there must be trouble, let it be the problem of YOUR children & grandchildren."
-- Ben Bernanke & the Elites
This is a ridiculously stupid comment.
I should have been clearer: I do not think that losing US$ Reserve Currency status would, on its own, make America a poor country.
We can do that even with reserve status. Once we are poor, we can then figure what happened.
My only comment is that all intents and purposes, the US is already a 3rd world country by virtue of emmigration. Millions of immigrates have come to the US in the last two decades and for the most part, they brought their culture with them and have not assimilated. I know latinos that have been in the US for 25 years and still don't speak a word on English. Hell, in the city where I live, there is a section of town where the street signs are in Chinese. I shit you not.
When I was a kid in the Military, the first thing they taught us was "The USA is a 3rd world country with nukes", and that was almost 50 years ago.
The USA was a failed penal-colony, that went plantation slavery, and then industrial slavery, and now information-slavery, and but it was ALWAYS a slave-colony, aka 3rd world nation.
Some people use BTC in place of fiat $ (as medium of exchange) for doing business, and save in PM.
DCRB
true but if there is no purchase of bond (or a selling) the USG will immediately be seen to be printing naked! They need to borrow 40% of what they spend a year and even though in reality we are close to 'just printing money' now we are at least clothed by the fig leaf of treasury sales.
All true, lasvegas! But, I assert that we would not suffer horribly if we lose our reserve status for the dollar. Suffer some? Yes. But 1% or so seems about right.
I did not claim that there would not be other effects (incipient hyper-inflation if they DO print vs. borrow).
Peru has no trouble importing & exporting with dollars (their currency is the sol). Just a little conversion at the bank, and off the $$$ go to Korea. I suspect that is the way it is for many hundreds of other Peruvian businesses.
The sad thing is, most Americans won't believe it until it actually happens.
GOLD & SILVER Bitchez...
I own PM's BOP, but put me in the camp of not believing it until I see it happen. This artice is big on fluff and light on facts.
I wasn't referring to this particular article fonz. Fact is, the BRICS are, and have been, moving away from the USD in regard to international trade.
It also appears the FED is well on its way of destroying the USD all on it's own anyway. Yellen is the worst of all possible worlds for USD holders.
Agreed BOP. That's the thing that I find interesting. It is the BRIC countries that end up having currency crisis and starved of dollars. Not the other way around,
The fed has made it clear that they have every intention of owning the bond market to anyone who is not brain dead. In effect severely cutting down the opportunity of a bond vigilantee showing up a little more each day. While that has happened the price of gold has gotten killed. I see some vault red meat articles on here and elsewhere, but nothing that ends up having any real impact in the way ZH would want it to.
All I see is the banks getting money piled onto their books and the ability to pick and choose what assets they want to own while the wages and quality of life for the rest of us goes down the toilet.
6 months ago there was a hundred cash for gold places within 10 miles of my house. I see more and more closing each week that goes by. So I guess something is up, i'm just not sure what.
(Fonz) ... 6 months ago those cash for gold places started closing where I live as well and I see more and more closing each week just like you. Maybe no one is willing to sell any of their gold especially at these artificially low prices. I don't see a decrease in gold demand that's for sure.
I think it is safe to say that the knockdown did a good job of getting a lot of weak hands to part with their stash, and now it is just a matter of who has the means to hold it and is willing to deal with watching the stock market go up while PM's get the shit kicked out of them daily. I also wonder if, like the bond buying program, the more gold the fed has taken out of circulation, the firmer their grip on the price movement has become.
So that leaves China etc. to try to pull the plug on the dollar. So I ask myself, how are the 1% in China doing under our current system? Because is they are doing pretty well, I'm not sure I see an incentive for them to attempt to throw the world into chaos
I think your train of thought here Fonz is right on. It isn't the Chinese 1%'ers that want this party to end. The rhetoric speaks volumes to me. Any real moves of significance are going to happen behind closed doors and we will find out in afterwards.
I mean shit Centerline, it's possible that move has already been made, and this horseshit theatre we are watching right now is China just allowing the politicians script the ending. I just doubt it. I think if China made that bold call and relayed it to the U.S we would just drone someone's ass to send a message. If China had the balls to do it, they better not telegraph it.
So like you say, it's not the Chinese 1%ers or the U.S 1%ers we are talking about here. It's the U.S midle class and the chinese middle class. I just would not put too many chips on them, although everytime I look at my little stash, I am reminded that I have.
Fonz,
The first article with the piece from xinhou-----I read as a light hint that China is preparing a bigger annoncement, but i don't see any market action yet that lead to such a conclusion. Maybe, they don't need to DO a thing---they already have the currency swaps and bi-lateral trade agreements with all of their major trading partners-----
The 1%ers are in every nation---they might be behind the scenes, but this is too good of an opportunity to pass up for those who think the US presidency is what it is and that the US is weak-----even the vets are marching on crutches against the status quo
does any of the above make sense? I feel like I am in the same damn only on a different day---can't make sense of anything
I mean this politely but I think you are reaching here. I hear you though. Who really knows?
Fonzannon:
Thanks for putting some ground under my feet----I am reaching.
Paraphrasing here and invoking King David who said, "Almighty, bless me sufficiently with talent by which I may earn my daily bread such that I may provide for my daily needs. Bless me that I not earn through coercion but by free will offerings in the markets with my fellow man. Watch over me that I obtain through peaceable and manly means and not through extortion or oppression."
Modern economic theory is now infested with the supposition that economies can be made and maintained by coercion of law, extortion by command, compulsion through threat and menace.
It is a time of sackcloth and ashes, universal mourning for a misspent republic and a people that might have been.
http://www.biblegateway.com/passage/?search=psalms%2037&version=KJV
" The wicked plotteth against the just, and gnasheth upon him with his teeth. The Lord shall laugh at him: for he seeth that his day is coming.
The wicked have drawn out the sword, and have bent their bow, to cast down the poor and needy, and to slay such as be of upright conversation.
Their sword shall enter into their own heart, and their bows shall be broken. What little that righteous men hath is better than the riches of many wicked."
Amen, brother. I am thankful to God that I learned about Austrian economics and 'woke up' to what is going on, let alone at a relatively young age (22 right now). I'm thankful He has given me discernment and the conviction to speak truth to power in these PC environs at the university and in society in general.
Despite the 100,000+ boomer doomer posts on ZH no, it isn't in anybody's interest to throw the world into chaos. Interestingly, chaos typically arises out of large seemingly controlled systems ;)
Your wording of the mind and throating of conventional ideas is definitely very much something, very crusty, but assuredly not very mattering. Make me laugh.
I am glad that you are following what I say, unlike the majority of the boomer doomer's on here it's not too late for you to figure things out.
Bed time though big guy.
Sweet dreams.
Chaos isn't the goal, (usually) it is the unintended consequence.
Hey what happened?,,, It wasn't (supposed) to be like that,,now what do we do?
...and gold should have taken off on Yellen's appointment, which is backdoor evidence that gold is manipulated on a massive scale. Well, "backdoor" and "Yellen" should never appear in the same sentence. Forgive me.
Gold should have went parabolic when Ben doubled down to 85 bil a month and never looked back. Since that point it's been going in the other direction....and has not looked back.
(Caveat: This is NOT an argument in favor of fiat currencies. This is a discussion of the physical limitations gold suffers from as a currency baseline.)
I have suggested before that gold needs to be put in perspective to the objective trade levels when considering it as a "currency" or backing for a currency.
At known resource levels of gold, there simply is NOT enough physical gold available to sustain current world trade levels without pushing the value/ounce into stratospheric levels
Purely as a reference point see this link for A number saying there is $ 6.5 trillion USD gold in the world - http://www.onlygold.com/TutorialPages/All_The_Gold_In_The_World.asp
Total Global GDP = $ 71.7 trillion USD See link: https://www.google.com/#q=Global+GDP
Just to cover global GDP - every ounce produced would have a notional value of ~ $ 14,000 USD/ounce - except this does NOT cover the shadow banking system & derivatives
Before blithley saying, "To HELL with the derivatives and the scum that spawned them!" - thos scum control the people who control the presstitutes, the politicians, the militaries and the ability to start WARS.
Let's just ADD another order of magnitude to our working number - NOW every ounce produced would have a notional value of ~ $ 140,000 USD/ounce
And then there is the fact that regardless of how many ounces HAVE BEEN MINED throughout history - How many ounces will be acknowledged by their "owners" with a base price TWO orders of magnitude above current value?
Here's where the time honored tradition of the FUDGE factor comes into play - we'll justy make a conservative guess of BEGINNING spot price of $ 250,000 USD/ounce
When 4 troy ounces makes someone a millionaire, how many GOVERNMENTS are going to start CONFISCATING gold under the reason of "preserving public peace"?
[Which isn't far off the mark, who WON'T dig Grandma up for her fillings when they'll pay for a new car?]
The Point of all of this - We don't need a new reserve currency or a gold backed currency ...
We NEED a SET of BASELINE Trade Exchange Rates CONVERTIBLE INTO DIFFERENT COMMODITIES on a SPOT BASIS.
BEFORE we get to that point ... there are going to be some NASTY wars fought.
I just try to simplify it all. If the 1% that control each country out there are completely taken care of under the USD system while at the same time they occasionally get a glimpse of what happens (Libya etc) when you attempt to go off that system...it seems to me they would be hard pressed to change the status quo.
So it's not exactly like the world standing up and punching the bully in the mouth. It's more like the biggest bully paying the other smaller bullies to keep taking everyone else's lunch money.
The opening moves against the staus quo are well under way. Today, China fired a new broadside, widely ignored by the Western punditocracy, laying out some of their chief complaints:
"Instead of honouring its duties as a responsible leading power, a self-serving Washington has abused its superpower status and introduced even more chaos into the world by shifting financial risks overseas,"
With the real money quote highlighted for the casual reader of our discussion.
The schism over USD world reserve currency status has been brought out for public purview by the sheeple.
My take on it is the direct currency exchange aggreements will enable the lesser bullies to knee-cap the big bully and then begin a full out shakedown of the of all the countries NOT party to the direct currency exchange agreements.
Screw lunch money ... the lesser bullies are going to be taking the figurative "first born child."
P.S. For the casual reader, QE-Forever and Yellen's nomination to head the Federal Reserve were informally objected to by today's statement from China ... on behalf of the world.
I hear ya, but what happens when people want to shed dollars (sounds like a disease) because they're just not worth a damn any more. Losing reserve status means, by implication, that the dollar is worthless and therefore nobody wants them...then at that point Hell comes to dinner and never leaves.
Malcolm X in the 1960's said "Your giving whitey way too much credit to say he rules the world"
Rich like Gates, ... can lose their money much quicker than they made it, ... or SOROS with all his wealth can do very little, HL Mencken wrote much about what 'rich' men can really do in this world.
The USA is in complete dysfunctional mess at home with FBI, CIA, DHS, ... FEMA all fighting for TURF, and you have MIL, NAVY, NSA all fighting for information.
If the USA can't even control the USA, how in the HELL can anyone control the world? They don't.
But let's cut the shit, we're talking about PAPER-MONEY here backed by human feces,
Sure in recent years the USA has killed innocents to protect the Petro-Dollar, but Syria was the last play and it failed, so all can see now that the USA is a GIMP without a dick.
"there's not enough gold"
It's sad to see this argument made on this site.
Do you know what the pound sterling was? At one point it was a full pound of silver with .925 purity, about 13.5 troy oz. of pure. Now it's a buck fifty. It's lost 99.5% of its purchase power.
The problem isn't too little gold, it's too much fiat. Period, full stop. What used to cost 3 cents now costs closer to a dollar, and the item costs a third as much to produce. We should all be working twenty hours a week and be awash in plenty, but the lack of hard money has made us tax donkeys.
Gold is as suitable as money as it's ever been - arguably moreso because only hard money can check government predation and looting, which have now been refined to a science.
Read the rest of his sentence, I believe he means not enough at these low prices. I quote (italics mine):
"there simply is NOT enough physical gold available to sustain current world trade levels without pushing the value/ounce into stratospheric levels"
I got that, DC, but it isn't an argument against hard money. If it is an argument against hard money, then doesn't it become an even better argument the more fiat they produce? If so, you can see how it has to be wrong.
You are making the mistake of presuming the only choices are gold or fiat currency. You are also making a demonstrably false to fact statement:
"Gold is as suitable as money as it's ever been - arguably moreso because only hard money can check government predation and looting, which have now been refined to a science."
Gold has ALWAYS been confiscated by governments given any reason, plausible or fictitious, to do so. Gold as currency has NEVER checked government predation and looting - as an example, think of Henry VIII's confiscation of the gold held by the Catholic Churches.
Gold as a STANDARD had the requisite characteristics - it was in limited supply, extemely difficult to counterfeit and provided portability to wealth due to its near universal appeal across civilizations.
My first post with its caveat was to submit GOLD's limitations with regard to the growth of trade - just as any fiat currency is limited to the wealth & stability of its originating country - gold has its own limitations which would be likely to cause LESS global stability than the rapidly diminishing USD.
The other reality facing the world is a massive global contraction in trade will bring massive socioeconomic instability. QE-Forever presumes the disruptions caused by the Fed's policies will ALWAYS be seen as preferable to the risk of the dropping the USD as the world reserve currency. China is serving notice they view that assumption as fatally flawed - which is an accurate statement.
China will face insurmountable near to mid term obstacles in trying to estalish the yuan as the new world reserve currency. direct currency exchange agreeements, which China has beeen heavily involved in setting up, provide a near term opportunity to DROP the USD as world reserve currency and push inflation back inside the U.S. while reducing the socioeconomic stability risks for our trading partners.
They WIN, we LOSE - in the near term.
There are a host of problems going down the path of direct currency exchange agreements - with the essentail worthless nature of fiat currencies leading the list.
The desire for and accumulation of physical gold has increased. What is confusing is that gold is priced in the futures, Forex and ETF markets and is really not impacted by the sale of physical gold...and the Forex market is HUGE! A slight up-tic in AUX/USD will change the POG more than the sale of tons of physical (not that anyone could actually get tons of physical).
This will only change when someone important does not get the delivery they were promised. At that point the forces that were behind that promise will be forced to take action. That action willl be swift and startling, gold will shoot up in price overnight, paper gold markets will fail and all the world will have their balance sheets restored (all those that have physical gold). The Euro will look like cake with their gold holdings right there on the balance sheet and the dollar (the Fed) with 11.5 billion in 'certificates'...well...that won't look too good.
This is true unless there are sources of new gold that we don't know about. If I were running the USG, I would want to secretly develop new gold deposits not known to the public, and use the Military to do the mining if necessary. Perhaps there are very deep sources that are only accessible by drilling, or secret mines outside the US. Just a thought.
The sad thing is, most Americans won't believe it until it actually happens.
Yeah but what do you think will happen when USD gets bucked from the top spot? Last I checked the pound was still a reserve currency.
From the article:
In practical terms this means that the world’s great trading nations would reduce their holdings of dollars, and dollars held overseas would flow back into the US economy, causing prices to increase. How much would they increase?
How much indeed, US has how many military bases?
Would you care to explain that rather cryptic non-sequiturd?
I wasn't trying to be crytic, I'm saying US has a lot of leverage to 'encourage' countries to continue with the USD, it's not like the USD would go down without a massive fight (and hasn't).
When you think about it honestly if you had to choose between the US and some other country as foreign reserves - if it could actually be done today - would you really go with China?
Why do you assume the false dichotomy of having to choose ONLY between Fiat Toilet Paper #1 and Fiat Toilet Paper #2 (no pun intended)?
As I have told you before, you are a prisoner of your own limited conformist thinking and of the failing paradigms of a failing status-quo.
Why do you assume the false dichotomy of having to choose ONLY between Fiat Toilet Paper #1 and Fiat Toilet Paper #2 (no pun intended)?
I'm not talking personally, I'm saying hypothetically if you were calling the shots at the top (specifically in terms of foreign reserves, which is what the article is about). And also consider the biggest economies in the world - Euro union, US, China, Japan etc. and then consider their foreign reserves / debt. You think there's a big incentive among them to dump fiats and lock to a gold standard? Pretty unrealistic to think that's within the realm of possibility.
Yes, of course a system which worked eminently well for millenia, and which was in place only 100 years ago in a world which was, per-capita, even MORE globalized in terms of trade than is today's, is according to James Cole 'outside the realm of possibility'.
Oh, but I forget --- "this time is different"
Again, James, your arguments (such as they are) only serve to demonstrate your blinkered, conventional, conformist mental slavery to the status-quo establishment power structure. I both pity and despise you.
Yes, of course a system which worked eminently well for millenia, and which was in place only 100 years ago in a world which was, per-capita, even MORE globalized in terms of trade than is today's, is according to James Cole 'outside the realm of possibility'.
What you're suggesting is that instead of continuously doubling down on stupidity the leaders of the world will suddenly come to their senses and accept real fiscal pain. I typically bet on politicians choosing the easiest path, regardless of the insanity involved.
" I typically bet on politicians choosing the easiest path, regardless of the insanity involved."
This round goes to "James Cole", (He NEVER underestimates human stupidity!)
akak
I disagree that the gold standard worked well.
It froze the POG to the exchange rate! That allowed governments to print away as long as the fractional reserve system worked for them.
Consider that gold outside the monetary system, priced only by the markets, could restrain the printers of the world. If they over print then the POG in that currency would rise and the printer would be called to task. This system, currently best seen in the Euro with gold on it's balance sheet MARKED TO MARKET, would be far superior to any system that has governments telling the world what gold is worth, because they have great motivation to lie and manipulate that price.
I say keep governments far removed from pricing gold, all that is required is the failure of the gold derivatives market...and it is failing as we speak.
Wait, are you saying lew and yellen wouldn't have integrity as their chief priority under a gold standard?
@ lasvegaspersona
Correct, we do not need any governments trying to price gold via "Reverse Polish Notation" (a gold standard). Just let gold go..., it will do just fine on its own...
It wasn't a real gold standard, nor is what you're suggesting a gold standard. A gold standard doesn't peg the price of gold to fiat. A true gold standard uses gold bonds instead of currency, bonds always redeemable in gold or silver. Gold and prices are measured not in dollars and cents but in grains. Gold IS the measure. It's not marked to market, it defines the market.
james, it will be the markets that force the overlords to replace the dollar with sdrs. it will a quick bretton woods conference called in reaction to a collapse. this isnt about a rational,calm change of guard.
Yeah possible, but would still be messy.
very messy. however thats how it will be.
well I am glad we got this sorted out.
FX? Cause bonds and stocks are not going to blow their brains out, much to everyone's chagrin.
Give it some time fonz. Should be enough blood n guts to go around.
Take a step back boyz and look at the big picture, its just a pie, and right now the biggest slice of the pie goes to the USA, in terms of trade using US Dollars.
Hell its not clear why the JPY, or AUD, or INR stay but they do, momentum is a hard thing to change, ... its a big ship that takes lots of years to change course.
But the BIG elite have always diversified, and they always will, there will always be say 4-5 BIG currencies of course what count's is rating, and now what is CHF, and SGD are like the only AAA, all else are toilet paper, but the CHF/SGD aren't big enough to carry world trade.
We all knew it would take 10-15 for an orderly move away from the US Dollar, and Chinese telegraphed such some 10+ years ago, and slowly but slowly they're building up their trade in CNY.
My bet is the USA in the future will be a tier 4 or 5 player, not unlike the JPY, it will still be traded, and their people will just muddle on with their 20 year downturn that never ends. The best for the USA is long over. In fact if you didn't already bail, its too late for you.
In summary the USA will not go to ZERO, but it will no longer be #1 either,... once the USA is seen as a 3rd world toilet-paper currency, then they'll have to pay HUGE interest rates, and the USA will suffer much, ... and the rest of world smile with satisfaction;
But these things are slow, ... and these shutdown's everytime make people think 'end of world', and as we always know they are theatre, ... but the world is slowly un-winding from the US dollar as quick as it can, ... if your a little guy that still own's USD's, ... your fucked.
Me thinks CNY#1, EURO#2, ... USD? Probably between mexico and CANada, but closer to Mexico.
A penal colony that goes back to penal colony isn't offering the world much either than housing for criminals. Certainly smart folks aren't going to let criminals manage their money.
Why do you think Iran wants nuclear weapons and why do you think the USA and Israel sabotage them every step of the way? As long as the dollar's convertibility into oil is maintained by brute force, the petrodollar regime, and thus $ reserve status continues. The moment US force can be truly deterred by a regional power, the petrodollar regime ends overnight.
akak, I have fried a few brain cells in the past trying to reason with James Cole, here. But on this point we (he and I) agree. Since before I was born, the US has maintained dollar hegemony primarily by brute force. I'll bet you know that, already though.
Where I take issue with JamesCole here, and the others like him who make the same lame argument, is in his naive and short-sighted belief that the US armed forces can "defend' the US dollar, or, to put it more simply, that "might makes right". In fact, US military hegemony is as much a result of US dollar hegemony as it is its cause. Should there be a sudden repudiation of the US dollar worldwide, or any significant monetary upheaval, all those minions of empire and their much-vaunted (and astronomically expensive) military hardware will in large measure be nothing more than mulit-trillion dollar paperweights.
Yes to replenish force strength in the event of a military conflict in the short-term and replenish/maintain existing units and add additional units over time but this notion that the current US force strength level and capabilties don't matter and would suddenly be negated in an economic conflict is a foolish one. If push came to shove, the US still has a lot of impressive toys to destroy convetional economic infrastructure.
I realize that you fancy yourself akak but you really have no idea how the real world works. Here's a tip to set you on your way, try not to use the word paradigm around successful people -- they will see you for the idiot you truly are.
FYI, even as an ideslistic term paper your understanding of America's military and reserve currency relationship gets you a D.
You should stop stesling the talking points of others, Teddy, or you will have to pay the orice.
It's o.k. big guy you'll figure it all out some day.
peace
Respectfully sir, methinks you have the cart before the horse. It started with Hamilton, and went downhill from there. I'll leave you to ponder that simple premise.
Well most people cannot handle the truth. But look at the facts.
1.) The CIA has ONE mission to make sure the world black-market trades in USD, that's why the CIA is in afghan to control opium, and columbia to control cocaine, so long as you use USD your protected by the mafia.
2.) The US-MIL makes sure that all OIL country's trade in USD, otherwise all that country's children die. World USD power comes from NUKES.
3.) In the USA the US Treasury has BATF under its wing, that agency that control's bomb&guns, and having the best inventory in the nation, there is a reason that US-Treasury is armed to the teeth. Many people don't realize that all MONEY-POWER in the USA comes from the GUN.
So hell yes the Power of the USD comes from the power of the gun, hell Chairman Mao said that years ago "All power comes from the barrel of a gun", all financial power comes as well, ...
But that said, its a well know fact that over time a MIL-NATION will not invest in itself and run's out of folks to plunder, as seen recently in Syria, ... the world has now stopped the USA, whom is broke, and and no longer has a manufacturing base.
But make no mistake for a short time the USD was the 500LB gorilla, but no longer, the next super-currency also can only be kept in power by force, ... this is the story of human power, but more about the cyclic nature of mercantile economy's that trade in paper-money, ... many books have been written for 100's of years on these cycles, but the USA came closest to ROME, in terms of its broad MIL command over the world, but ROME eventually became ruled by the MERCENARY, and of course good people fled, ...
Why should we hold USD, Ben?
Tradition, I suppose.
it's long overdue, the fall of the dollar as a reserve currency, the US gov vis a vis the Fed Res, has been bad stewards to the rest of the world including the citizens of the US. I see this as a positive to continue on the road to destruction as this will continue the fast approaching NWO.
All these world reserve currencies have one thing in common... They start off being redeemible in gold or silver after the paper gets all debauched and fowled up and looses all trust.
Until the day that OPEC accepts payments in Euros or Yuan.
There is no way that Chinese article was not sanctioned at the highest level.
Therefore OPEC has already been tied into a new/old system.Just not announced.
I'm pretty sure it will be gold settlement cash ,and carry to start.
A combination of Sun Tzue, and a GO encirclement has been achieved in front of our eyes.
Obozo has been playing petty politics while Pax Americana burns.
Gold is now prolly the new reserve currency.As it was always supposed to be.The world
will not accept another dervative fiat of gold for years because of the US abuse of its
exhorbitant priviledge.
The US military better hope there sre more than IOU's in Ft. Knox,otherwise they might be
stranded in situ.
The US MIL is the largest user of OIL in the world.
When the USD toilet paper no longer 'buys' oil, how many hour's will the US-MIL remain on life support?
Not for fucking long.
Reminds me of that movie 'mad max', "A nation had built itself on a foundation of sand", ...
And not one mention of effing 'doves' or 'hawks' ... whatever the hell that MSM promoted gobshite lingo is supposed to signify ... I like it ...
How long will it retain reserve currency status?
Depends on when the rest of the world wakes up and makes sane choices.
Having said that, the crucial aspect is what happens with the sale of oil. As long as the Arabs do not make any noises the game still has some feet left to it. Minus that and even Monopoly money will have greater value.
Until China says so.
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013...
Looks like they be saying.
800 first year and 1300 the second. I say that is a speech.
China is preparing for the collapse of its own housing bubble
China needs the USA, like fleas need a dog.
China is largely becoming #1 because they play the game 'fair', ... well at least in HK, and its getting better in the mainland.
The USA largely lost because they let the criminal elite take over the banks, and the world lost 'trust' in keeping their wealth in the USA, ... so the rhetorical question is given all that is left is HK and Singapore,... how long will it be ruled by 'intelligent men'...
Certainly the USA criminal class ( gangs aka goldman-sachs, or AIPAC ) have place 'idiots' in public posititions in the USA.
***
China doesn't want to see the USA die,... just become humble and silent.
If you actually read the xinhua, you'll see the #1 complaint is the HYPOCRISY, ... yes the USA Hypocrisy is truly the biggest fucking problem with the USA.
US hypocrisy? methink this is too harsh. it might look like hypocrisy, it might be felt as hypocrisy, yet imho it's just a jumble of conflicting goals. just look at the articles and comments in ZH
every ideology has pure goals, and dirty consequences
become rare that I can up arrow Ghordius but this is sweet" every ideology has pure goals, and dirty consequences"
Pladizow is right. The USD will indeed prevail until there is a viable alternative. In other news, the sun will rise in the east until one day it doesn't. The best protection we peasants can take against a collapse of the dollar is to be invested in one of those viable alternatives. I blogged about this 18 months ago - see link below. Gold (one of the alternatives) has come off its price at the time of my post, but the principle still holds. http://barlowscayman.blogspot.com/2012/03/gold-and-other-currencies.html
It is misleading if not outright specious and dishonest to speak of 'reserve currencies' prior to the early 20th century (the start of the benighted Age of Fiat Currency), as it was actually GOLD and SILVER which were the real 'reserve currencies', the coinage of any particular nation mattering very little as to exactly which forms of those metals were held as reserves. To talk about and make comparisons between 'reserve currencies' pre- and post-WWI is to compare apples to oranges.
Shame on you for spreading such garbage, Von Mises Institute.
Even Tyler posted about past reserve currencies, but you also may be right akak.
Maybe before Bretton-Woods, there was a difference between "reserve currrency" and "reserve money".
Didn’t we just hear about China, Mainland saying they want a New Currency under some New World Order mumbo jumbo?
MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt
Treasury alarmist Lew, party of one.. Your table is now ready.
But Jack Lew has interesting signature, and, hell, for all I know he may have stayed at a Holiday Inn Express once...
Hahahaha. That was excellent. +100
Shotgun Tyme:
meanwhile, people are waking up en masse thanks to ZH and so many other platforms and Zbig can't explain to his fellow superclass c3po's what the implications of a global political awakening are. damn the torpedoes - full speed ahead.
crossed my mind that if a default is required (which it is) and if the remedy is a devaluation (which it is) a scapegoat would be required
a devaluation would likely be needed before or soon after 2016, so if that process could be accelerated by a default and the blame layed at the feet of the "exteremists", Barry could secure his legacy and pave the way for the second coming of the Clintons
I don't get it. How does a US President appoint the head of a private company like the Federal Reserve? Does he choose who runs GM, Ford, IBM or Walmart? Of course not, so what's with him appointing Yellen?
Let's say it was Jamie Dimon and J.P. Morgan Chase.
If Obama "gets" to appoint the CEO of J.P. Morgan Chase it creates the appearance of "Federal" - as if you can vote for the person that appoints the CEO - even though the it is the CEO who tells the President what to do because they hold the real power.
Add one level of separation.
Now call the robber of taxpayer money and creator of debt on the backs of future generations run by private banks the "Federal Reserve" when there is not one single thing "Federal" about it.
Now pretend that it matters who the President elects to chair the "Federal" Reserve when whoever is appointed will do the bidding of the banks and bankers.
News Headline: "President 'X' appoints 'Y' to Chair of the Federal Reserve."
News Headline: "CONgress votes to 'approve' Chair 'Y' of the Federal Reserve."
Gives the sheeple that "I have a choice and power" warm fuzzy feeling.
Doesn't matter that it is all a big fat lie, it's how you "feel" that counts.
Bread and Circuses my fellow New Romans! Bread and Circuses!
" Does he choose who runs GM"?
ah, I think he has a track record in that department
You didn't choose that.
A talking head on Bloomberg said a bit ago that a currency first needs to become a Trade currency, then Investment currency, then Reserve currency.
It seems that the Yuan and Euro could/will be more widely used as Trade currency with OPEC and with Russia and Iran for gas/oil. If other G20s join in, the dollar falls fast -- because it is set up for the perfect storm, due to its debts and current politics.
Oh Lord please...not the Euro!
ebs sorry but yes the Euro
"The dollar is very susceptible to losing its vaunted reserve currency position by the first major trading country that stops inflating its currency."
The Euro has ONE mandate...keep inflation low (the Germans have a keen eye for over printing)/
The Euro is tanned rested and ready.
I'll take gold. it's been money throughout history, and there is no such thing as a free lunch. A cheap currency makes it easier to sell exports in some cases but the price of imports goes up. And work is a means to an end. Purchasing power is what matters. So what if everyone has a job but they earn their income in a currency that is worthless?
Considering how Washington has sold out us citizens to Wall Street and anyone else, the sooner the Dollar dies the better.
One thing is certain, when the USD loses it's world reserve currency status, our living standard will be significantly reduced. The money men at the Fed, and big spenders in government, have been very irresponsible custodians of the dollar. The only thing keeping the USD afloat is lack of a realistic alternative for world trade at present, but that is changing and our competitors are eager to get into the reserve currency game.
I give it 17 days
The US and it's inept leadership is doing it's best to fuck up it's priveledged position as RC but the USD will remain the predominant reserve currency until such time as their is a suitable replacement. China is stacking but they have a long way to go in order to be a contender for THE reserve currency. Let's assume that China is able to triple their gold holdings over the next few years. Would the world trust a communist nation to be the predominant world reserve currency? I say HELL NO.
A nice stat to see would be China's gold imports since Lehman.
Replaced by Obamabux, which you earn by using your Obamaphone, or else no soup for you.
I think we have already solved this puzzle. America has crumbled, China is now the hot shit of the day. The wrangling in congress will be used as headlines stating that a national currency can't be trusted and they will propose an internationally administered globo-bux system. The end.
China as an exporting nation cannot possibly want an overly strong currency.
I see them preparing for a currency reformulation along the lines of the Euro (gold on the balance sheet marked to market). This would be strong and respected but would also allow them to create as much money as they need to grow their economy.
+ 1
That would be my best guess as well.
Then they will just either ridiculously increase the price of gold to cover their printing or begin making the gold backing a smaller and smaller percentage as the money supply expands. If they own all of it what difference does it make?
So if the Treasury holds as much gold as they say they hold and they bump the price up to $5000 to cover all the QE shit, everything is ok? A crook is a crook. Gold may be resistant to inflation but it is not at all immune to thievery.
This is why they will add the "extra layer of protection" called the UN etc. to supposedly make it harder to act unilaterally. We are supposed to trust an international globo bank organization to be fair, honest and accountable. Many will though..in the beginning at least...... and then the cracks will start showing eventually. Same cycle, different epoch.
The only way this has a remote chance of working is if they actually come out and openly tell people that "MONEY IS EVERYTHING" forget democracy and all the song and dance horsheshit. Therefore, anything and everything will be done to preserve the currency at the extreme discomfort of the populace. Until people (Joe six-pack) fully understand what's going on, this cycle will never be broken.
The emperor has no clothes
http://www.youtube.com/watch?v=6OdGlsYQ_WU
Well if "dollars" do come flooding back into the US then why not just delete them? After all, they were created by computer, it should be just as easy to delete them and maintain price stability.
There are signs that China might have a cultural revolution 2.0 in the near future with Xi JinPing suddenly embracing Maoism due to CCP's power starting to get decentralized like Qing Dynasty and all of the unsolvable issues like muni debt exploding/shadow banking/factories going to ASEAN/corruption/housing bubble etc.
Don't be surprised to see China going back to its communist ways in the next few years if the Shanghai free trade zone experiment fails.
If that really happens, good luck with America finding another country like China to buy its debt......maybe this is the black swan event that everybody is waiting for?
Asia's richest man selling Chinese assets like crazyhttp://www.zerohedge.com/contributed/2013-10-12/why-institutional-money-...
China’s Xi “Lurches” to the Left, Promotes Maoist Revivalhttp://blogs.the-american-interest.com/wrm/2013/08/17/chinas-xi-lurches-...
If I were the richest man in Asia (LOL) I would be selling Chinese assets like crazy as well. China has many, many big problems, I sure would diversify.
A very interesting post, ALL of it news to me.
+++++
actually, it is not just Li ka shing, almost all of 1% wealthy class in hong kong are selling chinese assets like theres no tomorrow, that really freaks out a lot of people in hong kong/china/taiwan since most of the 1% in hong kong have ties to the communist government,.....
Also see the pics of Li meeting past Communist Leader: http://ww3.sinaimg.cn/large/53ae506dgw1dtewylhag2j.jpg
So....Li Ka Shing, the richest man in Asia who has always have a good relationship with the Chinese Communist Party, has decided to completely pull out of China to invest in Europe(which still has many political and financial uncertainty, with higher taxation and stricter anti-monopoly laws compared to Hong Kong), that really says something about the future of China
Mish (Mike Shedlock) often quotes from Michael Pettis, apparently a well-known Western expert on China. Pettis has a lot of problems with the whole "China is going to take over" meme...
Here's Pettis' blog:
http://blog.mpettis.com/
heh.. who's the richest man in Asia?
Ka-Ching!
https://www.youtube.com/watch?v=mID5B2MNmoY
it won't be china by iteself. listen to putin when he talks about china's role, he's acknowledinig they are the money, but russia has oil ans gas and many customers, including china, so it woll be china, russia, s. america and others lined up to take it over.
All of those countries will cooperate in unison and not cheat/backstab one another? Russia and China are allies of convenience not much more. There is a reason why Russia continues to heavily invest and has continued to do invest heavily in its Strategic Rocket Services and Sergevev made them a real priority in '97 through present date. Not the Americans those missiles are intended for but to keep the Chinese ground forces in check as the Russian Siberian and Trans-Baikal Military Districts have been greatly amalgated and no where near the force strength they had during the late 80s.
MeBizarro wrote:
"Russia and China are allies of convenience not much more."
Very true. Russia and China are neighbors with historical enmities, and their long-run national interests conflict...
Each of them have enormous challenges (environmental, demographic, political, ethnic...) that will hold them back as well.
Do i completely miss the point,or is it not the fact that without the ability of the FED to print,and thus finance .GOV,the current game in the US would be over?
And that the planetary reserve currency status is the main factor which gives $US it's remaining credibility.
The fact that $US/Petrodollar is the bulwark that maintains that reserve currency status,surely means,that unless,and it's a big unless,there is already a replacement world currency(SDR's/?)waiting in the wings,TPTB/MIC will do,literally,whatever it takes to maintain $US/Petrodollar/planetary reserve currency status.
The chart conveniently overlooks the simple fact that the reserve currency changes hands due to military-related conflict with the reserve currency holder nation/nation-state losing a war and being forced to abdicate the reserve currency status or winning a large scale-conflict which exhausts and largely bankrupts its role as the reserve currency.
We havne't had that spark yet and the US certainly isn't going to give up its throne without throwing its weight around.
@Andrewp111.
Agree on both counts.
Interesting that coincident with Germany being told,.."you can have your several hundred tons of gold back..a few years from now.."
France/NATO/Call them what you like, basically invaded Mali,Africa's third biggest gold source,under the usual pretext,(haven for Al Ciada)
The MSM ignored this,as usual
Yeah, no soup for you today, Germany!
And remember that several hundred tons over seven years is only 20% of what the NY Fed is "holding" for Germany. No comment on the remaining 80%.
Funny how the nation with the world reserve currency also has the strongest navy. Coincidence? I don't think so.
Funny how the nation with the world reserve currency also has the strongest navy. Coincidence? I don't think so.
Gold became a barbarous relic once the money lenders discovered fractional reserve banking. Digging holes in the ground to find precious metals, only to bury it back in the ground (bank vaults) is a form of madness. At least adorning the body and surroundings with a bright alluring metal makes sense, but basing a system of exchange backed by such a thing is unnecessary. A promissory note backed by trust is the most efficient form of exchange. It is trust that is lacking. Money lenders holding gold does not increase trust /honour, never does, never did. You can't eat gold, and there's not that many uses of it outside electronics and decoration. Even then there are alternatives.
The system is f***ed because there is greed, and insufficient honour and trust... Not lack of gold (to go around!)
The gold owning Money lenders were the first to understand the system of exchange did not require gold, unfortunately they were the worst people to trust with the money system. Nothing has changed. The model was flawed from the get-go, but the ride was enjoyable while it lasted!
A few years back I remember hearing about a new world currency called "Bancor" to replace the dollar. Haven't heard anything recently. Is that dead?
I know some say the Iraqi Dinar will become the world RC, not putting to much wait behind it. Supposedly there is a growing underground movement, that the US holds enough to wipe out it's debt. Makes one think, like I smell a rat.