The Global Monetary Reset Is Under Way

Tyler Durden's picture

Via Zero Hedge comments from AI Tinfoil,

The Global Monetary Reset is under way, but people have not noticed it yet. The key is the move to zero interest rates.

Government debt almost everywhere is too high to ever pay off, let alone pay a traditional rate of interest on.  As debts come due, including as bond issues mature, the only option governments have is to roll over the debt and accumulated interest, and the only way they can afford to do that is if money printing is a continued practice and interest rates are at or near zero.  QE is the latest name for money-printing, inflating the amount of currency available.  Logically, QE dilutes the value of a currency by inflating the number of currency units in circulation, and, theoretically, should lead to price inflation.  However, if all nations engage in monetary expansion, the effects of money printing on exchange rates may be effectively concealed by a balance of expansion.  Or, as in the case of the US dollar, a currency with the status of world reserve currency may be expanded with relative impunity by the nation creating that currency, effectively exporting its inflation to the rest of the world that continues to sell to that nation, or trades in a monetary system based on that currency. Injections of QE into an economy with weak fundamentals is likely to result in speculative bubbles as QE funds show up in investors' hands and not in the hands of general consumers. 

Inflation has become a necessary element of economic life according to the mainstream meme of economists.  Inflation is a key strategy in coping with immense and increasing debts.  Debt so large that it cannot be paid must be inflated away or governments must default.  Deflation makes current debt increasingly difficult to pay or service out of deflating GDP and tax revenue. 

Exporting nations have engaged in competitive exchange rate reductions to gain or maintain competitiveness for their exports.  A strong currency hurts export competitiveness but lowers the cost of imports.  A weak currency raises the cost of living of residents who must buy imports - a common feature for nations that import oil, for example.  There is a necessary balancing act between export competitiveness and consumer price inflation, regulated often through exchange rate manipulation.  Some of the Euro zone nations are learning the painful effects of locking themselves into one currency and losing the ability to use exchange rates to maintain export competitiveness.

The monetary expansions of the past ( done to re-inflate the world economy when it met a crunch - thank you Greenspan and successors) have flooded the world with currency.  That currency has expanded speculation portfolios to the extent that the volume of currency sloshing around in search of returns or safety can quickly overwhelm a country's financial system and trade relations (competitiveness impaired, artificial investment bubbles, sudden debt crises when money is withdrawn, etc.). 

The international trade and financial systems have made most countries relatively defenceless against trade and, more critically, capital flows. Vast sums can flow in or out of a country and its currencies almost instantaneously via computer clicks.  Huge profits and losses can be made betting on exchange rate fluctuations, and on manipulating those exchange rates.  ZIRP and NIRP are now regularly employed, ostensibly to dissuade residents from hoarding cash rather than adding to monetary velocity by spending, but ZIRP and NIRP are also used to dissuade speculators from buying a country's currency and hence raising its exchange rate.

Traditional stores of value and media of exchange among central banks - precious metals- have been debased through price manipulation in paper markets.

The strategies that seem unique and strange, and contrary to tradition - rampant money printing, the monetizing of debt through central banks buying government bonds, ZIRP, NIRP, and the suppression of precious metal prices, are the necessary strategies of a new monetary system set up to cope with the problems arising from monetary excesses of the past.  They are the new normal.  By disabusing the public of the notion that currency should be a stable store of value, that saving is a virtue, and that money borrowers should pay a reasonable rent on the money borrowed, the monetary authorities are conditioning the public to the new normal.  In the paradigm of Modern Monetary Theory, currency creation can continue to infinity without destructive inflation since interest rates and expectation of return on lent money can be maintained at or near Zero.  Any interest rate significantly above zero will crash the system, so do not expect interest rate increases except as a short-term emergency strategy to counter a fall in the exchange rate of a currency.

Necessity is the mother of invention, and the necessity of coping with overwhelming debt and unfunded liabilities has led us to the invention of Modern Monetary Theory.  Add to this the new rule of bank bail-ins, the rule that bank deposits are part of a bank's capital, and the pledging of the public purse to bail out bank losses.  This is the public/government debt side of the strategy.  For those with large sums of currency who wish to continue to speculate, there are the stock and commodities markets, and the casino is open for derivatives bets.  To accomodate the speculators, we have seen the insulation of Wall Street from criminal liability for fraud, the repeal of Glass Steagall, the weakening of Dodd Frank, the delay of the Volker Rule, the use of the public purse to bail out Wall Street losses in 2008, and the recent pledging of the public purse to cover Wall Street losses from any future derivative bets losses - all in the CRomnibus bill.

Welcome to the New Normal.  We shall see how long it lasts.

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max2205's picture

I'll believe it when the 30 year yield is at 0.5%

ThroxxOfVron's picture

I'll wager that you are far more likely to see .5% on the 30yr than 5% on the 10.

winchester's picture
winchester (not verified) Parabolic Dec 22, 2014 4:10 AM

reset is an obvious pilar of the ponzi, consisting of very subtle point of view in which interest rate will never be paid, just coz  at the end of the chain you do not have cashier, but printers.

 

from this point, this make em very relax whatever the situation.

 

reset... lol... why the fuck you wanna reset something that is stable rocksolid....

outamyeffinway's picture

Well this isn't the reset then is it?

Surrealist's picture

Great comments AI Tinfoil! Well done.

ebworthen's picture

Agreed.  0% and QE and bailouts until they have to default on the debt.

Who knows how long it can go on, but as a waning industrial and military superpower - a decade would be optimistic.

Librarian's picture

If default and reset is the goal, then the Citibank budget rider foisting derivitive losses onto the taxpayer as additional debt has made default the only possible outcome.

If you are doing the laundry, might as well throw every dirty little thing that you have into the machine.

In the apropos and immortal words of Buck Henry, "the dirtier the better".

km4's picture

RT @WorldsApart_RT US interventions in Syria & Libya failed, made things worse in Syria: Research Director https://www.youtube.com/watch?v=Gx4ZUQj6GjU&feature=youtu.be&list=UUMItG...

Timmay's picture

Just like my 4 year old daughter, they make up the rules as they go along and no matter what ,they always seem to come out ahead in whatever game they create.

 

How much longer??

Anusocracy's picture

Timmay's Daughter for President 2016

pigs-n-space's picture

Yep , and the funny thing is his daughter will probably be more qualified than the joker we have now. The country will be less devided and the stories the goverment comes up with to cover their crap pile will be much more rational and believable. 2016 it is............  

americanreality's picture

I missed the sarcasm in this. 

noben's picture
noben (not verified) Timmay Dec 22, 2014 12:16 AM

Truer words are seldom spoken. As someone here recently said (Latina Lover, I think), we waited for this for so long, that won't believe it that it's happening until our butts are on fire.

TEOTWAWKI-fatigue eventually sets in with almost everyone, but the most ardent/fervent. Especially if one has missed out on 5 years of a Bull market.

A Realist is as a realist does.

Sages wife's picture

It was NoDebt who said it, and I concur.

no more banksters's picture

"... the reason for this unusual booming was the exact opposite. It happened due to the massive exercise of political power, from an elite thousand miles away. The Chinese government kept the exchange rate of the country at a low level. Therefore, the Chinese products became cheap and flooded America. And to pay for them, the US dollars flooded China. But rather than spend this money for the population, the Chinese leaders loaned them immediately back to America by buying government bonds. It was a perfect system of cheap goods and cheap money inflow in the US, all controlled by the Chinese political power. And that’s what created stability. From this, came an orgy of lending from banks to even most unreliable borrowers in the US. Although this time, the deregulated market had been stabilized thanks to the political intervention of China, the bankers wanted to make more money."

http://failedevolution.blogspot.gr/2012/07/the-illusion-of-self-regulati...

NoDebt's picture

Like I said before, if you can't hit 2% inflation, maybe you can get it done with -2% interest rates on deposits.

One And Only's picture

I really hate to tell you this. 

Adjusted for inflation interest rates on bank deposits are -2%. 

Sorry :(

Good news is if you get 12,000,000 reward points on your credit card you can get a basketball. So there's always that.

runswithscissors's picture

I'm all in when they start offering the Spiderman towels

NoDebt's picture

You're an optimist.  It's worse than -2% until you factor in the cost of energy the last few months (the rest has been going up for decades).  I'm just glad I haven't had a bank deposit in 15 years.  Let the beatings continue.

 

in4mayshun's picture

Negative interest rates will just pump the stock market more. Everyone else will just stuff the mattress.

J S Bach's picture

Can someone please explain to me the "logic" behind negative interest rates?  I mean, doesn't that simply mean we have to PAY the banks for the privilege of depositing our money there?  And if this is the case, what's to prevent the masses withdrawing all that they can from said institutions?

I don't get it.

insanelysane's picture

Debit cards are crack to the American consumer.

BuddyEffed's picture

"Can someone please explain to me the "logic" behind negative interest rates? "

It's this easy :  The business model for positive interest rates, where banking instutions could expect to pay you back your deposit plus some interest (growth) is now broken.   Hence the need to charge fees for everything and to explore Zirp/Nirp/Bail Ins in order to keep the banks on a functioning business mode.

One And Only's picture

You explained it yourself. 

The Central Bank doesn't want you to keep your money in the bank. They create the incentive for you to not have deposits and instead take risks by buying stocks.

Why have a savings account yielding .09% when oil can crash and you can own Exxon at $90 paying a 2% dividend? Buy bonds in bankrupt countries, buy stocks with no revenue that are worth billions upon billions of dollars, fuck...buy stock in Enron, whatever you do DON'T keep your money in the bank. 

Also, fractional reserve banking doesn't really matter with ZIRP and bond buying programs like QE. Credit used to be created when banks loaned out deposits. Now the CB essentially does that, which creates inflation, which allows the government to pay down past debt with inflated currency. Shit if you're Japan the Central Bank buys all the bonds of the country. The reason Walmart supports things like food stamps (provided by government paid for by printed money) isn't because they're altruistic it's because the more people who have food stamps the more people buy their shit. Tax revenue gets recirculated and that's how the ponzi works.

J S Bach's picture

Wow.  More insane than I thought possible.

I, being a more conservative person, don't even think about gambling my savings away in the stock market... especially because it's totally rigged.  For the average Joe just wanting to save his money, there's no intelligent incentive other than to buy hard assets.

I hope I live to see this whole corrupt system burn to the ground and sanity return.

One And Only's picture

"there's no intelligent incentive other than to buy hard assets"

And there ya have it. The central bank has convinced you to spend your money and not keep it in the bank. 

This experiment has been concluded. 

Government needs you to pay taxes's picture

PM or land.  Both can be taxes and/or confiscated.  You can move and hide PM.  But land requires occupation to truly take it away from the private owner.  And that comes with costs and risks.  Food grows on land, and so can businesses.  It's about putting yourself into the best asymmetric risk/reward versus .gov.

the tower's picture

This is only true for large deposits, not for the average Joe.

Since no-one wants their currency to appreciate they implement ZIRP or NIRP.

The average Joe will have the luxury of cash taken away from him soon, so you will be forced to keep your money in a bank (or put it in the stock market).

Greetings from Davos

farmboy's picture

The best you can do is this.

Take your money or deposits from the bank and pay down immediately all debt. That has two effects.

First you receive an interest rate that you will never be able to make on a deposit

Secondly you reduce the balancesheet of your bank by this. They need your deposit as capital and are forced to deleverage.

We are living in one of the sadest times for honest and prudent people caring for their savings. Let them all suffer the fate they try to put on us.

the tower's picture

"pay down immediately all debt"

If people could just pay down their debt they wouldn't be in debt....

Savings? Who still has savings?

The trap has been closed...

Greetings from Davos

Arnold's picture

Many Credit Unions are what Banks used to be.

lameusername's picture

Yes, before the banking coup of 1913. Now all major banks that are part of the Federal Reserve can create money by deposits x 10?. Credit Unions have to operate how people "think" banks work by only lending money they actually have deposits for.

Luckhasit's picture

In the new digital world, they will get you when you have a bill due to someone somewhere.   Hardly anyone takes cash payments.

bluskyes's picture

I thought that if you offer an FRN as payment, that your debt is settled - whether or not the vendor takes it. That's the way "legal tender" works.

Abitdodgie's picture

Most people are to stupid to realise that and so carry on using a bank.

the tower's picture

Already in some countries there are limits to the amount of cash that can be used in day-to-day transactions.

Soon there won't be any cash at all, you will be forced to use a bank.

Greetings from Davos

UselessEater's picture

Already it is viewed as questionable to pay in cash and withdraw cash... heck even a $5K cash withdrawal can be a challenge

armageddon addahere's picture

It's worse than you think. Now that "bail ins" are legal, they don't even have to give back your money if they figure they need it more than you do.

Why would anybody put money in a bank? Tradition.

UselessEater's picture

Also significant misinformation, people are not being told what their 'deposits' really are in a bank, bail in reporting is so propogandized people cannot help but be fooled.

 

gatorengineer's picture

No Debt, your a great poster keep going.  The problem again is in definition.  Inflation relative to what?, price of a basket of food for a family thats at 10% YOY easy, quite possibly more, increase in the price of a 100 ft yacht or a 5 million dollar manhattan apartment....  couldnt tell you.  The market basket being used as a measure is so synthetic is unbelievable.

The issue was that debt was supposed to be inflated away, and tax revenues increase.  What we have in general is a wicked case of stagflation, or biflation (things you need (food, medical care, skyrocketing, things you own Fiat for most of us, houses etc, plummeting).  

The only shot at a way out is isolationism (30% cut (minimum in defense, 90% cut in giveaways to others), 30-40% cut in giverment jobs,  monumental reforms to entitlements, starting with giverment pensions (nice way to say cuts), tax increases, on individuals, tax cuts for corporations (we need to get the corporate centers back, these were high paying white collar jobs), and true enforcement of anti-dumping tarrifs, and securing our borders, to stem the flow of freeloaders.... Medical in this country also needs to be fixed, big pharma is an obvious low hanging fruit.... I could ramble for a while.  its irrelevant as none of it will happen.....

 

Greenskeeper_Carl's picture

yes, you are correct, none of it will happen. there are too many vested interests who each get their little slice of the pie. The crybabying about that bullshit sequestration, which didnt even come close to cutting anything by a meaningful ammount, should answer any questions regarding our ability to make any cuts. Before too long interest on the debt will be taking up half of our tax revenue just like japan, even if interest rates stay low. How long this can continue is anyones guess. I wouldn't have thought japan could go on as long as it has, but I do believe they will be the 'canary in the coal mine'. Once the inevitable default occurs, wiping out one of the largest economies and most traded currencies in the world, it will spread throughout the rest of the developed world.

graveheart's picture

"The crybabying about that bullshit sequestration, which didnt even come close to cutting anything by a meaningful ammount, should answer any questions regarding our ability to make any cuts."

 

True, especially with 'baseline budgeting". Any cut below 7% is still a budget increase.

rwe2late's picture

 gatorengineer,

the neoLiberal program you advocate does not and will not work.

(layoffs, pension cuts, higher taxes on individuals, lower taxes on corporations, more policing, ...)

... except to the advantage of TPTB.

nofluer's picture

Some good ideas Gat... but my prescripton is

1. Default. (Completely)

2. Deflate - Reissue US "Currency" as "New Dollars" currency by doing a "Brazililian reset" - which is to drop about 3 zeroes from the denomination and print new currency with a new design. So a $1 bill becomes $.001. A $10 bill becomes 1 cent. A $100 bill becomes $1, $1,000,000 becomes $1,000, and so on.) Brazil has done this again and again, being a country that never saw a budget it couldn't break, or a currency it couldn't inflate to destruction... which is where we are today.

This would provide an ORDERLY transition to a path to financial reform, and raise the "value" of the US dollar in global trade, putting the US on top of the world trade/exchange markets.Of course, it would help if the new currency had something of value to back it up - like, oh... maybe gold?

As for MMT (mentioned in the thread above?) - it's naught but pure unadulterated BS. It has a fatal flaw - which is yes, a nation can print and print without reatraint or limit - but there is NO REASON for any other nation or business or person to be willing to TAKE your mega-zero currency in exchange for anything of value. (Witness Zimbabwe's unlimited printing and the termination of their ability to buy bank note paper to print on... and their economic/financial crash and burn. Zimbabwe was MMT's poster child - until it CRASHED spectacularly!)

 

 

 

Bryan's picture

Fiat money sucks as a store of value.  ;-)

armageddon addahere's picture

They call it Fiat because it depreciates like a rusty Italian car.