No G20 Stimulus Sets the Stage for Structural Reforms

All Tools Will Be Used as Momentum Builds for Multilateral Framework

By JC Collins

We will not target our exchange rates for competitive purposes.”

The G20 Communique from this weekend’s summit in Shanghai was very clear on the agreed upon multilateral approach which will be required to transition the international monetary framework to a multi-currency system.  The above quote from the G20 statement is one of many straightforward approaches which is being taken by the largest economies in the world to increase global growth and address vulnerabilities.

The statement itself moves away from the anticipated stimulus and more towards structural reforms.  This has been predicted here on POM for over two years as we have previously reviewed that stimulus policies, such as QE, would be coming to an end, and more structural framework changes would be taking place.

One of the repeated themes over the weekend was the fact that multiple rounds of stimulus by central banks and government treasuries are no longer effective.  The need for structural monetary reforms is now a priority and movement towards those objectives should increase in pace over the coming months, and throughout the summer.

Chinese Finance Minister Lou Jiwei said in a news conference that the G20 nations will “use all tools – monetary, fiscal, and structural – to boost growth.”  He went on to say that “what each country does will be dictated by its circumstances.”

As such, some nations can afford further stimulus for a period of time, while others, with high debt, will need to move faster on structural economic reforms. The agreement to not implement across-the-board-stimulus is positive for the future of the global economy.  Stimulus is no longer effective and each nation has different requirements and challenges.

US Treasury Secretary Jack Lew stated the following:

“We need to redouble our efforts to boost global demand, rather than relying on the United States as the consumer of last resort.”

This shows the American willingness to work alongside other G20 nations on implementing structural reforms and moving towards a multi-currency reserve system.  All G20 members agreed to avoid “competitive” devaluations of currency, but we need to remember that any adjustments to the exchange rate of the USD will be considered agreed upon structural reforms. A dollar depreciation is still on the agenda for later this year, as it will mark the next major phase in the multilateral monetary transition.

This point will also be marked by an appreciation of the Chinese renminbi.  POM is one of the only sources predicting this RMB appreciation.

The G20 Communique is what I was expecting.  They have planted seeds for later in the year but have come to a base agreement on structural reforms and the need for the monetary transition.  The full statement can be read here.  Don’t take the doom and gloom interpretation of this communique at face value.  Read it for yourself.  Much more to come.  – JC

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Goldman Sachs to Support BRICS Development Bank

By JC Collins

In a major validation of the POM thesis, it has been confirmed that the BRICS New Development Bank will receive funding for infrastructure development loans denominated in the domestic currencies of the member nations. Based on China’s large foreign exchange position, and growing international reserve position of the renminbi, it can be expected that China will contribute a large portion of this funding.

But that isn’t all.  It has also been stated that both Standard Chartered, as well as Goldman Sachs, are being appointed as international ratings advisors to the NDB.  This is a huge step towards developing the framework of the multilateral monetary system.

In fact, Russian Finance Minister Anton Siluanov, who also serves as the Chairman of the Board of Governors for the BRICS institution, stated the following:

“The NDB will soon become a strong and well-respected international financial institution, playing a leading role in the changing international financial architecture.”

The “changing international financial architecture” will be recognized by POM readers as the multilateral monetary framework which is progressively emerging from the remnants of the old unipolar dollar based system.

Any remaining “analytical” conclusions that the BRICS members would use this institution to take power away from western bankers should now, finally, be relegated to the dustbin of historical fabrication, fallacy, fault-ridden research, and time-wasted reading.

Remember it was Goldman Sachs Executive Jim O-Neill who first coined the term BRIC, in reference to the founding members of that socioeconomic alliance of emerging nations, Brazil, Russia, India, and China.  South Africa was later added.

The first five loans, one issued by each member nation, will be announced in April, and will be focused on hydropower and electricity, with a priority on green energy projects.

There is a lot happening as I type.  Over the next few days I will be providing additional articles on the coming commodities boom, as it appears a corner may have been turned, an article on the possibility of China signing on with the TPP, and the next Federal Reserve rate increase.

Also watch for the next lesson in the Fundamentals of Multilateral Investing series.  – JC

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Regional War, Crude Production, and a Depreciating Dollar (FREEPOM)

How the Collapse of the House of Saud could salvage the Global Economy

By JC Collins

This is a follow up to the article titled “Are We on the Eve of War – Is the US Leading Saudi Arabia down the Kuwaiti Invasion Road?” published on February 9, 2016.

Saudi Arabia could quickly find itself on the wrong side of international geopolitics.  The course which could lead the Kingdom down this path would be a combination of refusing to cut oil production in an effort to boost the value of crude, and the strategy which it has implemented along with Turkey to overthrow the Assad government in Syria.

Dealing with the conflict in Syria first, we see that both Saudi Arabia and Turkey have pushed the world’s powers into a position where war between Russia and NATO has become a real possibility.  Such a conflict must be avoided at all costs.  The regional ambitions of both countries have collapsed in front of the continuous military onslaught from the joint forces of Russia, Iran, Hezbollah, along with the Syrian government forces themselves.

Continue reading Regional War, Crude Production, and a Depreciating Dollar (FREEPOM)

Aloha from the South China Sea (FREEPOM)

Chinese Capital Outflows and the Buying of American Business Interests

By JC Collins

Early last year the Chinese government threatened the United States with funding and arming Hawaiian independence activists who want to restore the islands’ constitutional monarchy.  The story passed with little fanfare until just days ago when the Chinese made a comparison between setting up defensive arms on the man-made islands in the South China Sea, to the US establishing military facilities on the Hawaiian Islands.

Continue reading Aloha from the South China Sea (FREEPOM)

Hate Speech in Alberta, Canada

Here’s an example of the hate speech which greeted the poor Syrian refugees arriving in Alberta. We need to stand with people of all faiths and creeds to promote peace and acceptance. There is no place in the world for this type of self-professed exceptionalism and elitism. The difference between immigration of the past and immigration of today is mainly a lack of cultural and religious acceptance from those immigrating. This type of hate needs to end.  – JC

The Myth of China Dumping US Dollars (FREEPOM)

Why America Has a Strong Position in the New Bretton Woods Negotiations

By JC Collins

This article was originally posted on December 29, 2015.

Understanding how balance of payments work is key to understanding the monetary leverage which one country holds over another.  Based on the modern method of money creation, the functionality of balance of payments is really a zero sum game.

Allow me to explain.

The importance of aligning all nations within the same structural central banking framework becomes obvious when the fiat method of money creation is considered. The intent of this post is not to debate the merits and faults of such a system (eg. Fiat money creation allowed for the expansion of the money supply which funded the industrial revolution, but also indebted nations to each other, and in turn, to an invisible web of international banking interests), but to demonstrate the ebb and flow of wealth as it shifts around the world.

Continue reading The Myth of China Dumping US Dollars (FREEPOM)

A New American Century

How a reduction in China’s reserves will create US Jobs

By JC Collins

The reduction in China’s foreign exchange reserves is a good thing.  In fact, back in 2013 the People’s Bank of China Deputy Governor Yi Gang said, “It’s no longer in China’s favor to accumulate foreign exchange reserves.” This has also been echoed by PBoC governor Zhou Xiaochuan who has previously outlined the banks strategy of ending foreign exchange interventions and allowing the renminbi to float freely on the foreign exchange markets.

This position stands in stark contrast to the loud proclamations of some sites and news sources which state that a reduction in Chinese foreign exchange reserves is proof of an imminent collapse in Chinese markets and banking sector.

Continue reading A New American Century