The Monetary End Game

Economics, Geopolitical, Premium POM20 Comments

The Division in America on the Middle East and Monetary Reform

By JC Collins

As the value of gold continues its wild ride of increases and decreases, the latest US jobs report is less than stellar.  A lower amount of jobs were created than expected, and wage growth is almost non-exist.

What this means for interest rate increases is anything but good.

There is a very real possibility that the Fed missed the best opportunity it would have had last month when it declined to raise rates a miserable quarter of a point.  But to think that rates will never increase again is delusional.

The problem the Fed, and other central banks are now facing, is a growing risk of a loss of faith in fiat currency.  The aging structure of the current monetary framework, based on the supreme unipolar role of the USD, has ran its course, and will soon be replaced with a multilateral framework which will more equitably represent the economic realities of the financial world.

The reluctance of the US to ratify monetary reforms which were agreed upon back in 2010, and the on-going geopolitical tension in the Middle East has a very problematic and consistent undercurrent of similarity. The Republicans in Congress have refused to ratify the IMF 2010 Governance and Quota Reforms.  It is also the Republicans who have been vocally speaking out against the Iranian nuclear deal, and pushing for the complete overthrow of Assad in Syria.

Considering it is the Democrats, supported by the Treasury and the Executive Branch, who have been pushing for the ratification of the reforms, as well as the peace deal, is likely not a coincidence.  Add to that the growing awareness that the Obama administration has willingly lost the Middle East to Russia, and it becomes painfully obvious what is playing out on the theatrical political stage.

The political spectrum is always dominated by two opposing spectrums.  The engineered opposition between both parties, and in some countries three main parties, the disorganized masses are herded and corralled on socioeconomic mandates.  The conditioning is emotion based, such as the use of terms like freedom and family, while anything but those ideologies are actually what is considered in the overall conditioning.

The socioeconomic balance between the classes is maintained through multiple levels of control and influence.  There is always some flex built into the system, but the cyclical wealth transfers from the bottom to the top take place at frightening, and obvious, intervals.

The good cop bad cop script works on any domestic population like a charm.  The disorganized masses have not yet found an effective way to psychologically and emotionally defend themselves against this powerful dialectic.

But we will in time.

Obama has not been a big supporter of Israel, and as such, considering the shared vision and goals of both Israel and Saudi Arabia, we can determine, based on a full understanding of what is taking place, and correct understanding of the actions of the main players, that the US Executive Branch, along with the Treasury, are supporting the recent moves by Iran and Russia in Syria to turn the tide and sway the balance of the power in the Middle East from Saudi Arabia and Israel towards a more balanced representation.

The role of Saudi Arabia in the petrodollar scheme is extremely representative of the need to shift this balance of power in order for the US dollar to be depreciated in order to make room for alternative reserve currencies, such as the Chinese renminbi and the euro.

Perhaps there are some reluctant American partners who do not wish to see their economic leverage be diversified amongst others, such as large oil producers like Iran.

There is no doubt that the geopolitical tension taking place in the world is directly connected to the monetary transition which is beginning.  What is not so obvious is the division within the United States on this transition.

The division becomes somewhat consolidated when we consider that the Republican candidate Donald Trump is running his highly successful campaign with the slogan “Make America Great Again”.

As I’ve covered in previous post the only way to make America great again is to depreciate the dollar and increase American exports.  This will create new domestic jobs and allow for interest rates to begin the needed increases.

The catch right now is that if the Fed increases rates it will cause turmoil for the emerging markets, like China.  If they continue to delay the increases, the loss of confidence will grow and so will market volatility, like were seeing in gold.

If they raise rates there will be a negative reaction.

If they don’t raise rates there will be a negative reaction.

This is why I continue to promote the concept of reserve diversification as a viable solution, and one that is growing in probability.  This diversification of US denominated reserves around the world is something all countries want, including the United States.

Without the structural changes to the SDR to accommodate a more operational reserve status, reserve diversification through sovereign wealth fund investment is becoming the more probable path forward.  There could of course be a onetime massive issuance of SDR through substitution account diversification.

This could be coordinated with the interim 2010 reforms which increase the quota amounts of the emerging markets, which would essentially bypass the American veto and allow for the funding required to address the growing financial crisis, and any deepening of the crisis which would follow the normalization of monetary policy in the United States.

We’ve laid out a few different scenarios on how this could play out in the coming months.  There could only one of these which is implemented, or a combination of these.  Perhaps there will be a solution which we haven’t even thought of yet.

We have covered the possibility that China could transfer gold reserves to the IMF in exchange for additional reserve diversification through SDR substitution, and to support a larger issuance of SDR, like the one in 2009 in response to the financial crisis of that time.

Whatever the cause of this division within America, the rest of the world is beginning to move forward without them.  This is apparent in the forward movement on monetary reforms without the US, and the sudden change in momentum in the Middle East.  - JC

20 Comments on “The Monetary End Game”

  1. http://orientalreview.org/2015/10/01/putins-global-game-changer/

    The USA and Russia have cooperation on the Middle East and the Ukraine, where events of the last few days indicate the USA has accepted Ukraine is within Russia's sphere of influence according to analysis by the Oriental Review.

    Perhaps, the geo-political events of the last few days in Syria and Ukraine support JC Collin's view that monetary reform is immanent. It is not clear to me that the SDR solution proposed to resolve the world debt crisis can avoid liquidating the massive world sovereign debt by default or by hyperinflation.

    The IMF SDR solution resolves the exorbitant privilege of the USD as the world reserve currency among the world elites, but it does not resolve the problem of usury crushing the aspirations of 99% of humanity.

    1. Very true. Would this play into the responsibility of the 99% to also find within themselves the strength to sustain from the lures of want, debt and greed? It just seems that the 1% plays us like puppets and the strings are our psycological weaknesses.

      1. I agree with you Dane, we are responsible for ourselves and the role we play in perpetuating our own suffering and struggle. Our values and moral code are different than the "Elites" (who are more like 0.01%) because as the disorganized masses with thousands of years of programmed slave mentality, we have taken on a different belief system to justify our enslavement and create a sense of morality around having less while being small and powerless. The biggest difference the Elites have besides money and resources is how they were taught to think.

  2. Great article JC ... Truly exciting times, a dawning of a new monetary age.

    I'm wondering if you think the CAD will fall with the USD or will the USD need to fall considerably vs everybody else to fix the debt and balance of trade? If the CAD is stronger than the USD our economy will suffer greatly and now that I think about it ... that's kind of the idea isn't it LOL. For Canadian's invested in America's stock markets the pain could be considerable!

    If you're predicting a 20-30% fall in USD do you think the CNY will need to go up by the same amount to balance the system?

    Thanks!!!

  3. Regarding future actions by The Federal Reserve, what are the prospects of them continuing to play kick the can and institute QE4 and minus interest rates?

  4. It has occurred to me that JC your analysis is not an account of their plans but a prophetic explanation of where we are headed because of past actions. And not just a single decision but how it interacts with the whole decision making process of the human race. I just have not been able to give those in government enough credit to be guiding the human masses in the direction you indicate. What I can believe is you understand it better then them as a outsider looking in. That you see the bigger picture. And you can analyze if that decision then this must occur.

    Those in power are obviously blinded by the money and cannot act but in favor of retaining their positions and blaming someone or something else for the life's of other less fortunate then theirs. The mass consciousness is an energy that does influence matter and if this energy is directed towards a greater good then a more fair system may manifest. But not from the likes of those in government guiding us in this direction but from the energy of the mass consciousness asking for it. Does this make sense?

  5. Taking the knowledge from PoM and researching "rebalancing ASEAN exchange rates" I found this white paper from the Asian Development Bank Institute submitted back in 2010 the same year as the IMF Quota Reforms. Reading the working paper was like reading a PoM analysis:

    Investigating the Effect of Exchange Rate Changes on Transpacific Rebalancing
    Abstract
    This paper investigates the role that exchange rate changes can play in rebalancing transpacific trade. It presents evidence from a gravity model indicating that the exports from the People’s Republic of China (PRC) to the United States (US) are a key outlier in the global economy and that imbalances between the PRC and the US have remained large during the financial crisis that began in September 2008. It then reports that an appreciation of the yuan against the dollar would be required to rebalance bilateral trade between the US and the PRC. In the case of multilateral trade between the US and the rest of the world, on the other hand, the evidence indicates that a depreciation of the dollar would not substantially reduce the US global trade deficit. In the case of Asia’s exports, results presented here and elsewhere indicate that: (i) sophisticated exports produced within regional production networks depend on exchange rates throughout the region; (ii) labor intensive exports from developing Asian countries are strongly influenced by each country’s own exchange rate; (iii) developing Asian countries compete extensively with each other in exports to third markets; (iv) a currency appreciation in developing Asia would increase capital and consumption goods imports; and (v) exchange rate volatility deters parts and components trade in Asia. These findings imply that Asia and the rest of the world would benefit if East Asian currencies could appreciate together against external currencies while maintaining relative currency stability within the region.

    Another interesting search is global rebalancing of exchange rates

      1. Here is some more material that continues with the Transpacific Rebalancing theme. Again this whitepaper is from the Asian Development Bank Institute and was submitted back in March 2011.

        Trans-Pacific Rebalancing: Thailand Case Study
        Abstract
        Since the Asian financial crisis in 1997, Thailand has become highly dependent on export as the engine of economic recovery and growth. In 2008, the ratio of export to gross domestic product (GDP) was 76.5%. The global economic crisis triggered by the sub-prime loans debacle in the United States has prompted Thailand to rethink her export-led growth strategy. Year-on-year export growth plunged from a positive 22.7% in the third quarter of 2008 to a negative 7.75% in the fourth quarter and remained negative for another four quarters, leading to a negative growth of GDP for five consecutive quarters.

        This paper examines the options for external and internal economic rebalancing strategies for Thailand. External rebalancing will require Thailand to rely less on the US market for her exports. The paper thus examines the possibility of promoting greater regional trade by means of trade agreements and exchange rate coordination. As for internal rebalancing, the paper emphasizes the need to boost domestic public and private investment in terms of both quantity and quality in order to narrow the current savings–investment gap, bearing in mind the need to ensure fiscal sustainability. Finally, the paper examines broader rebalancing strategies that will help Thailand to become less dependent on exports. These include the need to (1) improve productivity by means of technological acquisition, innovation, and skills development; (2) increase economic efficiency by exposing the non-traded sectors, in particular the service sector, to greater competitive pressures; (3) deepen the production structure and create new dynamic industries; and (4) generate new growth poles.

        All this material is supporting the PoM Analysis. You'll find that the authors of the above two whitepapers are also contributors amongst many others for the following book (looks like a good read):

        http://www.adb.org/sites/default/files/styles/medium/public/publication/160594/cover-cover-adbi-book-transpacific-rebalancing.jpg
        This book, Asian and American economists explore the central questions on the issue with a view to achieving sustained rebalancing.
        Contents
        Overview of Issues, Challenges, and Policy Directions
        Exchange Rates and Global Rebalancing
        The Effect of Exchange-Rate Changes on Transpacific Rebalancing
        Rebalancing the U.S. Economy in a Postcrisis World
        Japan’s Current Account Rebalancing
        The Role of Factor Market Distortion in the People’s Republic of China’s External Imbalances
        The Asian Tiger Economies’ Choices
        ASEAN’s Need to Rebalance: More Regional than Global?
        Crisis, Imbalances, and India

        The contributors of the above whitepapers and book include: Hwee Kwan Chow, Susan M. Collins, Barry Eichengreen, Joonkyung Ha, Yping Huang, Ginalyn Komoto, Jong-Wha Lee, Rajiv Kumar, Deunden Nikomborirak, Gisela Rua, Lea Sumulong, Chalongphob Sussankam, Kunyu Tao, Willem Thorbecke, and Pankaj Vashisht, and perhaps would be interesting individuals to research.

  6. Some analysis from BofA regarding US rate hikes:

    Capital Market Outlook
    September 28, 2015

    FOREIGN EXCHANGE (FX) QUESTIONS AND ANSWERS (Q&A)
    The dollar has lost some momentum since the spring, and now the market is not pricing in Fed rate hikes until next year. Is the dollar bull market over?
    A number of fundamental macroeconomic factors still favor the dollar over most currencies, but in our view dollar gains will be smaller and choppier going forward...
    ...The Fed’s actions are most important to FX markets, in our view, and our base case is the international environment stabilizes enough and/or domestic inflationary forces accelerate enough that the Fed will have the confidence it needs to raise rates in the next few months.

  7. Breaking Geopolitcal Economic News

    Ukraine officially defaults on 500 million debt unanimous votes from creditors

    Each of the following resolutions is subject to the condition precedents that (i) a Potential DC Issue relating to a Repudiation/Moratorium Credit Event and/or a Failure to Pay Credit Event with respect to the Republic of Ukraine has been received on Monday 5 October 2015 in accordance with the DC Rules; and (ii) the DC Secretary receives confirmation from a member of the EMEA DC that such member is a holder of the USD500,000,000 6.875% Notes due 2015 issued by the Republic of Ukraine (ISIN: XS0543783434 (Reg S) / US603674AB86 (Rule 144A)) and such holder has not received the redemption payment due on 23 September 2015 in respect of such bonds on or before Sunday 4 October 2015.

    Full article:

    http://dc.isda.org/documents/2015/10/emea-dc-decision-02102015-2.pdf

  8. Did anyone see this? I think they passed the TPP this morning. Its kind of hard to believe as its only 9am EST here in the states.

    "Deal reached on Pacific Rim trade pact in boost for Obama economic agenda"

    The article reads

    "ATLANTA — The United States, Japan and 10 other Pacific Rim nations reached agreement Monday on the largest free-trade accord in a generation, an ambitious effort led by the Obama administration to knit together economies across a vast region."

    But it seems its not quite a done deal just yet.

    "Even if the deal is completed, Obama’s work is not yet done, however. Though he won new “fast-track” trade powers from Congress in the spring to help smooth negotiations, the president still must get the final pact ratified by a vote in Congress, which probably will take place early next year."

    http://www.washingtonpost.com/business/economy/deal-reached-on-pacific-rim-trade-pact/2015/10/05/7c567f00-6b56-11e5-b31c-d80d62b53e28_story.html

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    Here's a slightly different American perspective on China in regards to the TPP.

    "A sweeping trade deal concluded on Monday marks a victory for Japan and other U.S. allies in the battle with China over shaping the future of global commerce.

    The 12-member Trans-Pacific Partnership, which doesn’t include China, highlights the price that Beijing is paying for delaying overhauls as other countries write a new rule book for trade across 40% of the global economy, experts say."

    If this article is accurate it makes China (Beijing) sound like the US congress..."delaying overhauls".

    http://www.wsj.com/articles/trade-deal-a-setback-for-china-1444046962

    It kind of makes sense with the POM thesis in that if China needs to lower their exports this sounds like it would do that and then it would also increase the US exports. I'm not looking further into it due to the inherent emotion surrounding this topic but at this stage of simplicity it seems to ring true.

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