Reserve Currency

It would appear that French-owned Fitch, following its rating-watch-negative shift on the US credit rating last week, has got a tap on the shoulder from the powers that be. As Hollande complains about Obama's espionage, Fitch has released a statement explaining how the USA can do whatever it wants and not be downgraded. With only the Chinese ratings agency "able" to openly comment on the creditworthiness of the USA, it is no surprise that Fitch gave itself an "out" on the basis of the USDollar's exorbitant previlege.

That Saudi Arabia has been furious at the US for refusing to be the monarchy's puppet Globocop, and in the last minute declining to bomb Syria following Putin's gambit in which World War III seemed a distinctly possible consequence of John Kerry's hamheaded "YouTube-substantiated" false flag campaign, is no secret. However, while the US has largely forgotten this latest foreign policy debacle and the humiliation it brought upon the Department of State, Saudi Arabia is nowhere close to forgetting. Or forgiving. And this time the anger comes from the one man who truly matters, and whom we dubbed several months ago as the puppetmaster behind the Syrian campaign: the man in charge of Saudi intelligence, Prince Bandar Bin Sultan.

It is rare that investors are given a road map. It is rarer still that the vast majority of those who get it are unable to understand the clear signs and directions it contains. When this happens the few who can actually read the map find themselves in an enviable position. Such is currently the case with gold and gold-related investments.

Last month the world witnessed a paradigm shift: China surpassed the United States as the world’s largest consumer of foreign oil, importing 6.3 million barrels per day compared to the United States’ 6.24 million. This trend is likely to continue and this gap is likely to grow, according to the EIA’s October short-term energy outlook. So what does this shift in oil imports mean?

Yes, the United States dodged another bullet with a last-minute deal on the debt ceiling. But, with 90 days left to bridge the ideological and partisan divide before another crisis erupts, the fuse on America’s debt bomb is getting shorter and shorter. As a dysfunctional US government peers into the abyss, China – America’s largest foreign creditor – has much at stake. For more than 20 years, this mutually beneficial codependency has served both countries well in compensating for their inherent saving imbalances while satisfying their respective growth agendas. But here the past should not be viewed as prologue. A seismic shift is at hand, and America’s recent fiscal follies may well be the tipping point. The days of its open-ended buying of Treasuries will soon come to an end.

There can be little doubt from recent actions that China is preparing herself for the demise of the dollar, at least as the world’s reserve currency. Central to insuring herself and her citizens against this outcome is gold. The West selling its stocks of gold has become the biggest strategic gamble in financial history. We are committing ourselves entirely to fiat currencies, which our central banks are now having to issue in accelerating quantities. In the process China and Russia have been handed ultimate economic power on a plate.

If Obama’s budget projections prove accurate, the National Debt will top $20 trillion in 2016, the final year of his second term. That would mean the National Debt increased by 87%, or $9.34 trillion, during his two terms.

While 20-year highs for the CNY may be enough for many to question the USD's ongoing reserve status, it is clear that there are many other plans afoot that undermine the dominance of the greenback. On the global financial stage, China is playing chess while the U.S. is playing checkers, and the Chinese are now accelerating their long-term plan to dethrone the U.S. dollar.  You see, the truth is that China does not plan to allow the U.S. financial system to dominate the world indefinitely. Unfortunately for us, the U.S. debt spiral cannot go on indefinitely.  Our debt is growing far, far more rapidly than our GDP is, and therefore our debt is completely and totally unsustainable. The Chinese understand what is going on, and when the dust settles they plan to be the last ones standing.

The world’s developed countries face growth and employment shortfalls, while developing countries are confronting huge challenges in adapting to increasingly volatile capital flows while adjusting their growth patterns to sustain economic development. And yet America’s political dysfunction has come to marginalize these (and other) crucial issues. It is all very difficult to fathom. The threat of a default on US sovereign debt has been lifted – for now – but the deeper problem persists: For America’s Republicans and Democrats, negotiating a fiscal grand compromise appears to carry higher costs than playing a game of brinkmanship, even at the risk of default. Surely this involves a collective miscalculation of the longer-term costs.

There is nothing any of us can do at this point, except navigate the rapids as well as possible, and to stay out of the way of a dying empire, which is still very dangerous in its death throes.  We are actually very privileged to be alive and witnessing this next transition, to what we do not know just yet.  But what an honor to live at this time, not in ignorance but with an existential resolve to come out of it alive and much the wiser.

While the stock bubble rages, and the E-mini is solidly in green territory, some are wondering why that is the case on a day in which even the hardcore bulls expected a sell the news event. The reason: the dollar has rightfully regained, much to China's delight, its position as the world's whipping currency, on expectations that the Fed will now not taper purchases until Q1 or even Q2 of 2014, coupled with the realization that the debt ceiling fiasco is set to repeat in another three short months. As a result, the prime broker carry traders are having a field day, shorting their USD-denominated excess deposits and ploughing proceeds into risk assets. But not only: as the chart of the 10 Year yield bond shows, there has been a buying spree in the 10 Year since yesterday's deal and moments ago we dipped below 2.6% for the first time in two weeks. So do your patriotic duty: kill the dollar and buy paper assets: after all the country that issues the "reserve" currency has not defaulted! And whatever you do: don't sell. Keith Alexander may be leaving soon but he is still in charge, and is carefully monitoring all those who dare to hit the sell button. For all of them, the NSA has three simple letters: IRS.

Since all US rating agencies (Fitch is majority French-owned) have been terrified into submission and will never again touch the rating of the US following the DOJ's witch hunt of S&P, any US rating changes on the margin will come from abroad. Like China's Dagong rating agency, which several hours ago just downgraded the US from A to A-, maintaining its negative outlook. The agency said that while a default has been averted by a last minute agreement in Congress, the fundamental situation of debt growth outpacing fiscal income and GDP remains unchanged. "Hence the government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future."

Legitimate revolution takes time, patience and fortitude. Unfortunately, this is a strategic concept that is lost on many Americans today who suffer from a now common ailment of attention deficit disorder and an obsession with immediate gratification. Even some who have their hearts in the right place and who work to defend and resurrect our nation’s founding ideals seem to believe that any action to defeat corrupt oligarchy must be effective immediately, otherwise, it’s not worth the attempt. History, of course, teaches us the opposite. As things stand at this moment, though, the death of the system is not something to cheer, no matter how much we might wish it to crumble under the weight of its own criminality. The collapse of the existing system will not be the end of our troubles, only the beginning. Chaos always opens doors for evil men, and they will certainly take full advantage of the chaos triggered by shutdown, default or continued inflationary debt spending. We must make ourselves ready to resist by making ourselves separate from the monster we plan to fight. Crisis waits for no one, and on the path our nation now walks, crisis is assured.

Q. How worried are you that one morning the bond market has moved against the United States?

A. It’s virtually assured, the question is when and how. I don't know if it will be two years of five years but it will happen. It is a matter of time, the United States can’t borrow indefinitely. Over hundred years bankruptcies of country after country who thought they could get away with it because they had the reserve currency and the military power of the world. We are going to have fiscal discipline. It’s imposed upon us or we do the right thing and do it to ourselves the right way.... America knows the way, it doesn't have the will.

Per Sen sources, Boehner has agreed to take up the Senate's plan and allow it to pass with Dem votes.

— Robert Costa (@robertcostaNRO) October 16, 2013