The Redback Revolution

Economics, Premium POM80 Comments

How China Is About to Flip from Trade Exports to Trade Services

By JC Collins

The Made In China label became a symbol of economic production lost in the western world alongside the rise of cheap labor and goods from the emerging economies.  The cultural meme of "everything made in China" became common and could be heard at any given moment, anywhere in the developed world.

Whole industries and business models were built around the economic methodology of exporting cheap goods.  Such as numerous chains of dollar stores, and brand name clothing outlets, which manufactured products in the Chinese provinces with the lowest labor costs, and then sold the goods at inflated prices to the developed world.

China now has the largest economy on Earth, and the monetary structure which made the USD the center of the solar system is shifting towards a multilateral framework.  The Chinese currency, renminbi (RMB), or otherwise yuan, which is the unit of measurement, (such as the relationship between the British sterling and its unit of measurement the pound), will soon no longer be taking a subservient position against the American dollar.

The yuan, in both its on-shore and off-shore variations, has also been called the redback, drawing on the nickname of the USD, and it's civil war version, the greenback. For years the redback has maintained a managed currency peg with the USD.  This exchange rate regime has been managed by the Chinese government and the People's Bank of China at an undervalued false exchange rate.

Over the last 5 years the redback has become more widely used for global payments, financial investments, and reserve management.  The large amount of Bilateral Swap Agreements, BSA's, and broader acceptance, has not yet been priced into the valuation. Nor has the growing status of the Chinese economy itself.  Read more in the post Renminbi Is Already A De Facto Reserve Currency.

One of the main reasons for the internationalization of the RMB is directly related to the multilateral supra-sovereign reserve asset called the Special Drawing Right.  The SDR is the unit of account used by the International Monetary Fund and is being re-worked as the global reserve unit of account which will replace the USD in the coming months and years.

The SDR basket is currently based on the valuations of the USD, the yen, pound, and euro. Every 5 years the basket is adjusted and currencies are included or removed.  This the year the basket will again be adjusted and the redback will be added.

There are a number of reasons supporting this measure, but none more so than the need for stability in global liquidity. The growing sovereign debt crisis which is spreading from country to country will require large scale debt restructuring on a level that no one economy or domestic currency can handle effectively and efficiently.

The optimization of sovereign debt restructuring will take place through multiple methods, such as the SDRM process of the IMF, or Sovereign Debt Restructuring Mechanism. Other methods will be CAC's, or Collective Actions Clauses.  The CAC process will be initially, and primarily, used as a method of incorporating into the issuance of RMB bonds - which will be used in a broader array of debt instruments and bank loans - the methods to address the sovereign debt issue.  This process will be used in Greece and the Eurozone as the multilateral develops further into its broader global framework.  See post BRICS SDR to Bailout Eurozone.

The RMB CAC and BSA dual machinations will build upward towards the SDRM and the utilization of SDR denominated bonds to address global liquidity concerns.  These bonds will be issued through the BRICS Development Bank and other financial institutions as the process is expanded internationally.

The inclusion of the redback in the SDR basket is required to bring broader stability to the SDR before the debt restructuring can begin in both CAC and SDRM methods. This stability can only be realized if the RMB ends its managed peg to the USD and is allowed to free float on the forex markets.

The yuan is significantly undervalued and needs to be strengthened before its inclusion into the SDR basket.  The initial IMF meeting to discuss the SDR is in May of this year, with the actual adjustments taking place in the fall months. This means that sometime in the next few months Chinese authorities will have to end the managed peg and allow the redback to become more market oriented.

There is a concern amongst economic analysts that China is headed for a "soft landing' or a "hard landing" as it's credit markets contract and economic growth slows alongside the global deflation which is worming its way through the sinuses of the existing international system.  This line of thought continues into the managed float regime as conclusions are made and published that China will not allow the redback to float freely on the forex markets because it could lead to a devaluation.

This simply will not happen because the actual real world value of the RMB has not been priced into the managed regime. Once the managed peg is ended and the currency free floats, the yuan will experience strong real exchange rate appreciation as the existing BSA's and foreign reserve amounts increase dramatically alongside the further internationalization and inclusion into the SDR basket.

The argument which is made against the appreciation of the yuan is that it would destroy China's trade exporting economy.  As such, it would further reduce economic growth and deepen the contraction of credit markets in the country.

What isn't widely accepted is that the appreciation of the RMB and a move away from the existing trade exporting model is exactly what China wants.  Not only do they want it to happen, but they have taken strategic and necessary steps to ensure that it happens.

Over the last 10 to 15 years China has continued to modernize along with the flow of economic growth.  At one point, China was building the equivalent of three Chicago's every year.  The construction of these ghost cities, which have remained relatively empty, created a world wide shortage of iron and rubber.

Many analysts assume that since these cities have sat empty all this time that it was a clear sign of a real estate bubble in China.  But nothing could be further from the truth.

China Ghost CityThe engineering of the ghost cities were a part of the National New Urbanization Plan which intends to move 100 million people from the rural population into the cities by 2020.  The intent is to increase the urban population of China by 60% and create a larger consumer class as the economy shifts away from the exporting model.

This will be the largest human migration in the history of the world. The economic strategies and cultural engineering used to accomplish it will be studied for generations to come.

China is about to create a middle class.

In its efforts to regain the superpower status which it had previously held three times in the last 2000 years - the Han Dynasty, the Tang Dynasty, and the Qing Dynasty - China has developed an urbanization plan which is meant to attract "elite human talent" to the "elite cities" which will be structured under strict population controls and citizenship will be based on a point system.

As the old world USD based system recedes into the shadows of yesterday, (like the British Empire before it) we can determine that the National New Urbanization Plan of China will become, under the emerging multilateral framework, the Global Urbanization Plan of the United Nations.  See post Development Goals of the New World Order and The Globalization of Central Banks.

For all the GDP growth and opportunity to modernize which the exporting model afforded China, it came with some increasingly apparent downfalls.  First, the trade exporting model creates massive inequality within the population, which is being addressed by increasing the percentage of urban population and decreasing the percentage of rural population.

Secondly, it contributed directly and indirectly to under-consumption and over-investment. This will be reversed by shifting the Chinese economy from the existing trade exporting model to a trade services model.

The exporting model is self-explanatory but the trade services model may need some further review.

As the redback appreciates and is added to the SDR as one of the reserve currencies making up the basket, China will be looking at ways of expanding existing services and creating new ones. These services consist of financial services (think Eurozone bailout and McDonald's bonds), communications, transportation into international markets and regions, promoting tourism, and the exporting of media and traditional Chinese values and heritage.

Chinese economic strategists have a set a target of reaching $1 trillion of Trade Services by 2020, the same year in which the urbanization plan is set to include 60% of the population.  This is a dramatic shift away from the policy of exporting goods which carried the growth of the Chinese economy for decades.

When China ends the managed peg to the USD, other ASEAN economies will follow.  As a broadening of the Chiang Mai Initiative Multilateralization, member countries such as Vietnam, Malaysia, and Indonesia, amongst others, will also end existing pegs and establish floating pegs with the RMB. The strong economies amongst the group will see currency appreciations alongside the redback. See posts Why the Vietnamese Dong Will Reset, The Dongs Revaluation is Imminent, and Dong & the Pan-Asian FX Trading Center.

The geopolitical tension which is taking place in the world is symptomatic of this transition away from the unipolar USD based system towards the framework and macroprudential policies of the multilateral SDR based system.

The USD, which has held the position of the Sun in the solar system since 1944, will soon be relegated to the position of a Jovian Giant, alongside the redback, as the SDR moves into the center position, from which all other currencies and commodities will both define, and maintain, their orbits.

The greenback, like the redback, are both about to go through some dramatic adjustments and re-engineering as the multilateral continues to emerge.  - JC

 

80 Comments on “The Redback Revolution”

  1. Hi JC,

    Great article!

    1.RELATED FINDS & RELEVANT ARTICLES

    The managed exchange rate has served its purpose (as you have termed the yuan the “mule” carrying the multilateral process toward its integration).

    “What many people don’t understand is that to maintain the pegged value of the currency, the central bank must effectively ‘print’ yuan to swap for dollars.”

    I agree the yuan will appreciate.

    I disagree with what the below article [which is a great read] from dailyreckoning supposes, the yuan is to the contrary undervalued as you have correctly stated, and coupled with the required disclosure of its gold reserves as part of the IMFs disclosure requirements (which I am expecting will be much larger than predicted approx. 6000-7000 MT) there will be increasing faith in its future store of value, especially when it becomes the 5th currency entered into the SDR basket:
    “But maybe the damage done by China’s credit bubble — the malinvestment and the huge amount of bad debts created — means that the yuan will actually fall, not rise against the US dollar, if left to market forces.
    If confidence in the Chinese economic miracle starts to wane, then the currency will decline whether China runs a healthy trade surplus or not. Look at Russia — their trade surpluses haven’t stopped the ruble from taking a beating recently. It’s all about confidence.”
    http://www.dailyreckoning.com.au/yuan-dollar-currency-peg-ends/2015/01/20/
    I mentioned in the prior essays forum:
    “By depegging from the USD, the undervalued (some may disagree on this) yuan can float and appreciate to a realistic value.
    An appreciating yuan would strengthen the SDR vs the USD and provide further diversification to the basket.”

    The projection figures and scenario analysis in this paper by CEPII will help give further clarity to our forum members.
    http://www.cepii.fr/PDF_PUB/wp/2011/wp2011-19.pdf

    2.US VETO & 2010 REFORMS UPDATE

    On a separate note as per the attached article by the fiscaltimes, on April 17-19 2015 the IMF and World Bank spring meeting will discuss “which...options to pursue…before settling on a plan, according to people who were not authorized to speak publicly” [how to move forward with the 2010 reforms and US veto]

    http://www.thefiscaltimes.com/latestnews/2015/02/10/IMF-weighs-dropping-US-veto-over-delayed-reforms
    https://www.imf.org/external/spring/2015/index.htm
    It seems things will come to light quickly with the timeline standing at:

    3. CURRENT CALENDAR FOR TRANSITION TO MULTILATERAL

    April 2015 – IMF & World Bank meet to discuss US veto and 2010 reform options
    May 2015 – Informal SDR basket review
    May – June 2015 – Yuan depeg initiation + Gold reserves announced to the IMF
    June 2015 – Greece extension expires
    Sep/Oct 2015 – SDR basket review formality
    Nov 2015 – G20 meeting in Turkey

    4. TWO QUESTIONS

    Finally, just hoping to pick your brain on two things:

    With regards to sovereign bonds related to the QE programs of the FED, BOJ, ECB and BOE, a large majority of such bonds are held by these central banks, key insider banks, or even government departments.

    If yields significantly rise on these sovereign bonds in a crisis manufactured in Europe (and that spreads around the world), these central banks or key stakeholders in the new system being the FED, ECB, China, Bundesbank, BOJ, BOE, JPM, GS, will suffer tremendous capital losses.

    The IMF would also incur tremendous risk and losses under an SDR bond substitution model with Chinas USTs (or any bond exchange that occurred under a SDR bond creation to liquidate the system) if such a yield spike occurred over the next 6-18 months after the IMF took them on their books.

    This cost would be on top of the exchange rate and yield differentials of USD vs SDR and UST vs SDR bonds in the substitution account.
    At the moment the FED for instance has made great capital growth on the treasuries purchased in the QE programs with the 10 yields dropping to under 2%.

    Q1: Is there a way that the “crisis” used to transition to the multilateral SDR system will effect the retail investors, and leave the central bank bond assets relatively unscathed? Or are central bank losses not a concern to them in the scheme of things?

    I can see the stock market having a 20-30% correction (or 40 – 60% correction in useless tech stocks) at the expense of the retail investor (to be picked up after the correction by insiders and smart money on the cheap) & I imagine a bank crisis could be limited to the banks themselves (see that european banks currently hold large exposure to other European bank bonds), with the ESB and FSB taking control of the banks (at the expense of the shareholders/creditors), recapitalising them, and selling them back into the market at a profit.

    http://ftalphaville.ft.com/2014/09/30/1983062/who-likes-european-bonds/

    Q2: Do you see the SDR basket nation bonds/currency (and Gold) being pushed as the only safe havens in the upcoming crisis, as despite their large debt/GDP, the SDR bonds issued for liquidity will keep ie teh UST, JGB respective yields low, thus having retail, bank (and non SDR basket nation) capital pour into such bonds and currency from the stock, property and bond markets of Canada, Australia, Korea et al emerging markets (which will take the brunt of the losses)?
    Thanks again for your great work

    Matt

    1. Matt, as always, thanks for the comment and expanding on the posts content. You're doing us all a great service. I figured this one would initiate a detailed response from you.

      In regards to your questions, I'm beginning to think retail investors are going to be left on their own. The approaching bond crisis will be something of a head fake as the SDRM process, and substitution accounts which will freeze rates, are utilized effectively. The reduction in risk will create a flood of capital from stocks and into bonds. And as you have stated, non-production based tech stocks will be hit the hardest.

      Does that answer your questions? I hope so because I'm tired now.

      Thanks again for all the additional information. Great contributions my friend.

      1. Thanks for the response and the kind words.

        Ah ha. I did not consider the rate freeze for the SDRM and SDR substitution 🙂

        The head fake will screw the retail investors bond value (as yields sky rocket in temporary panic). Many will panic and take losses as they bail on bonds for cash/gold/stocks etc. Martin Armstrongs 2015.75 big bang is only partially right (because it will be in fact only a head fake).

        The yield freeze and SDRM/substitution process will allow the bulk of the sovereign bonds (held by central banks and key inside banks) to avoid losses on the head fake movement (due to their knowledge), and successfully liquify the system with new low cost SDR bonds...confidence will return to sovereign debt and the volatile stock market will continue to drain malinvested capital to the more stable SDR bonds, or resources priced in SDRs.

        You have helped me complete the final gap in my knowledge of how this will likely play out.

        ...I forgot the time difference between Aus and Canada.

        wǎn ān (mandarin for good night)

        ps A "redback" is one of Australia's most deadly spiders.

    2. Matt, your projections of troubled Central Banks are quite interesting.
      It's not hard to imagine, how a global Central Bank crisis would benefit consolidation into regional CB's and eventually one global CB.

      We might be observing a Central Banking crises being slowly engineered by ways of the QE programs. Though I guess it won't mature before another decade (or two) has passed.

  2. So basically it's going to comes down to timing. I'm sorry I'm completely in the dark when it comes to investments but anyone who's invested in Bonds should stick with them in the long term? Right now my investments in my brokerage link fidelity account are in GLD, PALL, SGOL, and TSO (precious metals). When this "head fake" occurs I should see a significant rise in my investment value correct?

  3. JC,
    Perhaps the globalization of China’s National New Urbanization Plan should be understood as a part of Agenda 21, with China’s plan being a regional development of this massive reorganization of global resources under the rubric of sustainable development. Thoughts?

  4. "This process will be used in Greece and the Eurozone as the multilateral develops further into its broader global framework. See post BRICS SDR to Bailout Eurozone."

    On schedule:
    This was never said officially before! “They gave money to save German and French banks, not Greece,” Paolo Batista,one of the Executive Directors of International Monetary Fund....He urged Greece to directly negotiate with the IMF and favored the restructuring of the Greek debt that is been hold by the European partners.

    http://www.keeptalkinggreece.com/2015/03/04/imfs-director-batista-greek-bailout-was-to-save-german-french-banks-video/

  5. If China is going to grow its middle class then all those folks are going to want to eat more meat and drink more wine. So since we average folks are not in the boys club of wall street why play in their casino. Take the money out and exit the game that's rigged. Get a nice farm somewhere and live a better life without all this time spent worrying about complicated things we have no control over. The soul prefers a lifestyle of reflecting on matters that make the soul grow not digits on a screen.

    1. You are reading my mind speed spirit. Had a great conversation with a client of mine yesterday who is a sales executive for a large agricultural company. Both of us are typically middle/upper middle class people and both of us are feeling pretty "burnt out". We both agreed that we are feeling like there is something more to this life than simply chasing (and never quite grasping) the almighty dollar/success (whatever that looks like). We are like hamsters on a wheel that can never get off for fear of what may happen if we do.

      The older I get the more I realize what I'd really like to do is just grow/create things and reflect. Sounds kind of corny but the more I think about it the more at peace I tend to feel. There is something about this corporate/hamster like existence that is not healthy for the soul. Somehow I get the feeling that the life/existence we have created for ourselves in our societies is not how we were intended by our creator to exist.

      PS - JC - interesting explanation of the ghost city phenomena. It will be very interesting to see how it plays out over the next few years. Has been a hot topic of conversation at my dinner table more than once.

      1. Nanook/Speedspirit, I completely agree. In the word's of the great/funny songwriter, John Prine, "Blow up your TV, throw away your paper, move to the country, and build you a home. Plant a little garden, eat a lot of peaches, try and find Jesus, on your own." Great song...no i didn't blow up my TV, but I don't have cable/satellite in my dwelling. And instead of the papers, i come to POM. I haven't built my cabin yet, I'm still living on a converted old school bus until I have sufficient funds to build that cabin. I did plant a little garden, but no peaches as they don't grow so well in Alabama. And after shaking the cobwebs of Jesus' dogma, I began looking for the Christ inside. So you know... gettin there LOL.
        But in all seriousness after my departure from the city and making the "scary leap" to moving to a rural area on the goold ol', but at one time abandoned family land, my life has improved ten-fold. Obviously, as we all are (well most I think anyway), I still use, and "work" for, those silly green pieces of paper, however my needs/wants are now in a healthier perspective. And while I do not truly live a self-sufficient life-style (obviously, here I am using a computer), I feel I am on the cusp of finding what I deem to be a healthy balance between living in the artificial/technocratic world and the Natural/divine.
        Everyone's path is different and each soul has its own aspirations, but I whole-heartedly believe that each Man craves and needs a constant connection with Nature (in-turn: the Creator/Source/God/Us).
        Nanook, I personally know how seemingly frightening the idea of "getting off the hamster wheel" can be. And I, by no means, am in a position to say that you can easily do without money altogether, but if I can use personal experience as an axiom, I can say with utmost confidence that anyone can feasibly lessen the extent of influence the Beast/System has on them when they "put their mind and heart to it."
        Have you ever heard of the Science of Imagery, also known as the Law of Attraction? I suggest you research it (start by maybe Googling Law of Attraction), or possibly read the book, The Art of Soaring. If you have any questions, I am here for ya.
        Discussions such as these are what keep me coming back to this site. The external problems are numerous and complex, but I believe that we individually, and thus collectively, may provide the simplest yet most profound of solutions.

        As always, thank you JC, and POM members.

        -Clayton

  6. How do you avert war with a side that is hellbent on having it, more specifically with a side that has decided its viability is premised on the necessity of war? If we can't precipitate Russia into war in the Ukraine, then we will park NATO forces on its borders. This is tantamount to lighting a fuse and then blaming the other side when the bomb explodes.

    Yes of course, some will argue the elite is creating the fearful prospect of war in an effort to press an otherwise unpalatable economic agenda. Perhaps. Occam's Razor suggests simpler answers. 1) The world looks chaotic because it is. 2) The appearance of war is not a cunningly devised diversionary projection. Rather, it looks like the start of war because it IS the start of war.

    In a well-written Hollywood script, a series of disparate loose ends tie up into a nice and clever bow at the end. We applaud at the end of the movie. Ingenious! What if world affairs is not a tightly orchestrated script and everything is not moving along just the way 'they' want it to? Yes, we say there is flex in the script of life. I agree the overarching plan must be adaptable in its finer points. When something doesn't fit the guys at Veterans Today have a handy catch-all: psych-ops.

    http://rt.com/news/237977-nato-russia-border-diplomacy/

    The need for an all-knowing elite is palpable, though few would admit it. The most terrifying prospect of all is that no one is running the joint.

  7. Mr. Collins:

    Although the planned collapse of the $USD is expected to occur soon, I was curious to know your thoughts as to whether the $USD will collapse before or after the renminbi is depegged from the $USD. Your thoughts.

    Oz

    1. The United States remains the most powerful nation in the history of mankind. It is impossible for the USD to collapse as long as this is true. Money is the projection of sovereign power. It does not collapse until the sovereign authority that issued it collapses.

  8. I'm thinking an ETF that tracks the SDR/USD 80% & OUNZ 10% & IXC 10% maybe of interest over the next 2 years.

    I would just have to guestimate what the new SDR basket allocation % will be once the yuan is included to mirror the SDR using FX trades on the underlying currencies.

  9. The Chinese have put out billboard ads announcing the renminbi as the new world currency
    bySimon BlackonMarch 4, 2015

    Share on Facebook Twitter
    China-rmb-world-currency
    March 4, 2015
    Bangkok, Thailand

    When I arrived to Bangkok the other day, coming down the motorway from the airport I saw a huge billboard—and it floored me.

    The billboard was from the Bank of China. It said: “RMB: New Choice; The World Currency”

    Given that the Bank of China is more than 70% owned by the government of the People’s Republic of China, I find this very significant.

    It means that China is literally advertising its currency overseas, and it’s making sure that everyone landing at one of the world’s busiest airports sees it. They know that the future belongs to them and they’re flaunting it.

    And it’s true. The renminbi’s importance in global trade and as a reserve currency is increasing exponentially, with renminbi trading hubs popping up all over the world, from Singapore to London to Luxembourg to Frankfurt to Toronto.

    Multinational companies such as McDonald’s are now issuing bonds in renminbi, and even sovereign governments are issuing debt denominated in renminbi, including the UK.

    Almost every major global player out there, be it governments or major multinationals, is positioning itself for the renminbi to become the dominant reserve currency.

    But here’s the thing. Nothing goes up and down in a straight line. And China is in deep trouble right now. The economy is slowing down and the enormous debt bubble is starting to burst.

    A lot of people, including the richest man in Asia, are starting to move their money out of the country.

    So while the long-term trend is pretty clear – China becoming the dominant economic and financial superpower – the short-term is going to look incredibly rocky.

    We talk about this in today’s short podcast with Sovereign Man’s Chief Investment Strategist, Tim Staermose, which includes a few ways to actually make money from China’s short-term unwinding.

    Have a listen here: http://www.sovereignman.com/podcast/034-heres-exactly-how-you-can-profit-from-chinas-short-term-unwinding-16312/

    Our goal is simple: To help you achieve personal liberty and financial prosperity no matter what happens.

    If you liked this post, please click the box below. You can watch a compelling video you’ll find very interesting.

    Will you be prepared when everything we take for granted changes overnight?

    Just think about this for a couple of minutes. What if the U.S. Dollar wasn’t the world’s reserve currency? Ponder that… what if…

    Empires Rise, they peak, they decline, they collapse, this is the cycle of history.

    This historical pattern has formed and is already underway in many parts of the world, including the United States.

    Don’t be one of the millions of people who gets their savings, retirement, and investments wiped out.

    http://www.sovereignman.com/trends/the-chinese-have-put-out-billboard-ads-announcing-the-renminbi-as-the-new-world-currency-16318/

    1. "Our goal is simple: To help you achieve personal liberty and financial prosperity no matter what happens."

      This is the Luciferian fiction. There is no liberty. We are all bound by the rules of nature and God, and for the human being - it is our dependence upon others from the moment we are born.

      History is replete with fools who wished to challenge the fates. What you propose is pure hubris on a personal level, and it is a dangerous path.

  10. "Don’t be one of the millions of people who gets their savings, retirement, and investments wiped out."

    Nope, I wouldn't want to be one of those people. Is the Sovereign Man engaging perhaps in a little hyperbolic sales talk?

  11. JC How about your predictions for the next 12 months? Things like the economy, price of Gold and Silver, the stock market. Two years out? Your grasp should lead to some interesting forecast?

    My prediction is a head fake dip in the markets. But the real economy stumbles along. Technology will improve but no real production of goods for the USA.It will become an economy of those who have and those who do not.
    Middle East troubles especially Israel. I have to believe they will eventually get permission to rebuild that Temple at some point. They are just flush with cash and want to spend it.
    Gold and Silver see new once in a lifetime lows. People just do not have the mentality to seek truth until its about to run them over. Then we will see new highs and rather quickly. Nothing astronomical but with war their time to peak will be at hand. Figure 2020.

    1. The Triffin Paradox, which is the imbalances created when a domestic currency is used as the primary reserve unit of account amongst countries. This "paradox" is the fundamental reason for the multilateral.

      1. I'm assuming this same Triffin dilemma applied to the British Pound prior to it's fall from reserve grace. Of course the US dollar emerged with a covertly controlled central bank. New boss, same as...

        Is the central bank of China also a BIS et al tool?

  12. Thanks so much JC,
    Without this sight I would be lost. Although I don't understand very much, I do read all of your blogs and I am learning way more than I ever imagined. I think I am understanding that the yaun will increase in value but should I assume that this may not happen before China will take some losses? I invested in this currency some months ago however I read just the other day that wealthy businesses and investers alike are bailing out for fear of economic lost I'm concerned that I may have missed something.

    1. Investors are more seeking higher gains as opposed to bailing out. Losses and gains are somewhat subjective. It's like a real estate bubble. A homeowner sees a doubling in valuation, and then 3 years down the road the price drops 25%. Not really a loss. But not good if he took out an equity loan on the property.

      It is expected that some GDP growth constriction will take place in China as the switch to trade services take place.

      Additionally, there is loads of propaganda out there, and not just the geopolitical kind. As a personal rule, I try not to focus on inflammatory comments that use emotionally loaded words. Using buzz words is a basic sales technique. As they are in business propaganda. Things are way simpler than we are conditioned to think they are. Trust your own reasoning and heart.

      Glad to hear you're finding value in the site. That makes me happy.

      1. JC ,
        I so appreciate hearing that because I give thanks often for you and your sight.
        Thank you also for taking the time to respond to my questions. I understand what you mean and I will continue to study and to trust.

  13. United Nations - Five options for the orderly restructuring of sovereign debt [Excerpt]

    Option B: Statutory solution to address holdouts by minimizing litigation risks in the Eurozone

    A recent proposal was made for the European context by a committee of experts and academics which suggests that the Treaty establishing the European Stability Mechanism (ESM) could be amended so that the assets of a sovereign located within the Eurozone would be immunized from attachment by those creditors not participating in the sovereign’s debt restructuring where that sovereign was benefitting from a financial assistance program from the ESM. This approach might be a model for a global policy.

    Option D: A statutory regime

    c) Sovereign Debt Adjustment Facility
    This would be a facility at the IMF which would combine IMF lending with debt restructuring. A set of pre-defined criteria would need to be developed to access this facility. The proposal envisages an amendment of the Articles of Agreement of the IMF to shield countries undergoing a restructuring from holdout creditors when decisions had been reached by a super-majority of creditors.

    http://www.un.org/esa/ffd/wp-content/uploads/2014/12/9Dec14_debt_programme-and-briefing-note.pdf

  14. JC you make this statement below but what does it mean? Define (adjusted and re-engineered). You have written and made the argument concerning this macro shift of economic authority away from the dollar to the SDR and China, but what does adjusted and re-engineered mean? How will it domestically affect peoples lives financially in the US and Canada. If the dollar turns into a regional currency how will that impact our domestic economy. Example If the US govt. can't get other countries to buy it's debt how will it fund it's huge military? There are going to be several aircraft carriers and the flotillas accompanying them coming home to park. The US is presently so economically influential in the world that a sift of the magnitude you are writing about cannot just have everything domestically continue as status quo. By only writing about this shift to the SDR without measuring the impact to the US, since it is so financially influential in the world, is like trying to complete an algebraic equation without looking at what goes on the other side of the equals sign. Words like adjusted and re-engineered concerning the magnitude of the world and domestic economic shift you are writing about are just to loosely defined to be really meaningful. Understand I'm not attacking your articles I find them very compelling, but some statements are just to broadly stated and being without real meaning.

    JC Collins
    MARCH 6, 2015 AT 6:20 PM
    I agree with this statement. The USD will not collapse. Though it will be adjusted and re-engineered to fit within the multilateral.

    1. The US military is being reduced to it pre-WW2 levels by 2020. The USD will still be one of the main currencies in the SDR. Much of this info has already been covered many times here in other blog posts and comments. And there will be additional information and analysis in future posts. Feel free to seek more meaningful info elsewhere if you are unsatisfied with the free service I'm providing here.

  15. This new multilateral currency needed to bring stability to global liquidity is a FARSE. "They" went in to Ukraine and stole all the Gold reserves because this is what is really going to back global liquidity down the road when this SDR program fails. Get Gold and Silver while you can.
    From the Wealth Watchman

    In the dead of night, at 2 a.m., a mysterious convoy of black trucks, and several minibuses arrived at the Kiev airport with all their tags missing. Whereupon at least 15 men, wearing Kevlar, black masks, and armed with machine guns, loaded up a nearby, unmarked plane, with over 40 heavy boxes they’d transported to the site. Once the plane had been loaded with these boxes, it immediately took off from Borispol airport, in Kiev, and the unmarked cars left without a trace. At first, folks wondered what that ordeal could’ve been about.

    Shortly afterward though, it was revealed that one of the first orders of the brand, spanking-new bankster regime, had been to send “all the gold reserves of Ukraine to the United States.”….for the “people’s own good”, of course! As usual, the alternative media led mainstream outlets in providing this news, as it the Ukraine central bank finally made their shocking admission:

    “In the vaults of the central bank there is almost no gold left. There is a small amount of gold bullion left, but it’s just 1% of reserves.”

    The Ukrainians now have less purchasing power, and a lower minimum wage than even 3rd world countries like Zambia or Ghana! One consumer good at a time, is now slowly disappearing, hiding away within the pantries of citizens who’ve lost all confidence in their government. In some instances, people are having to wait in line for hours, at ATM’s, and grocery lines, to get whatever’s left.
    This is the fate of EVERY country that falls prey to the IMF and SDR solution. It will come to the USA and Canada get your insurance NOW.

    1. Interesting that the theft of Gold continues despite the disparagement and manipulated lowered prices of this archaic relic.

      As the reserve currency is prepared for multilateral devaluation someone apparently still sees value in Gold and is stealing just as much as their black ops swine can grab.

      Perhaps the castle dwellers and the captains of finance still want Gold hoards along with their art and wines and various collectables.

      Fill the vaults boys we're the world's police!

  16. I find it serendipitous speedspirit that you would belabor the they with " " lol:

    "“They” went in to Ukraine and stole all the Gold reserves because this is what is really going to back global liquidity down the road when this SDR program fails. Get Gold and Silver while you can."

    What 'they' do you mean? What 'they' does anyone mean? My sense has been for some time that most people invoke that pronoun carelessly. By the way, we give more power to the 'they' when we have them appearing everywhere once like an ubiqutious god. I've never been a rabid goldbug. And yet...in a word parched for monetary meaning and desperately seeking the terra firma of sanity (we actually live on a planet that boasts a dervative complex notional value of $1.2 quadrillion), gold is one very strange thing. Okay, points for it being 'merely' notional...let me suggest a synonym for quadrillion: 'yeah right'. When someone mentions quadrillion in terms of currency and with a straight face, it's time to close your ears. Because there is no rational discussion that can be hung around that number.

    The intended SDR scheme is exactly more of the same. I think JC has said as much. It continues an age-old plan to expand the denominator of real stuff so that imaginary stuff has an extended field of play. Eurasia has real stuff, Iran, Afghanistan, etc. They are the 'missing denominators' that the numerator class needs desperately. Remember a zero denominator is 'undefined'... If there's no stuff underneath, the justification for any numerator collapses.

    There is a group on this planet that has watched fiat currency fulfill its 100% failure rate time and again. In fact I have a more cynical definition of fiat currency: It is a scheme designed by Old Money to build a reservoir of Labor trust in a phantom called 'store of value' only to pull the plug at the zenith of this misplaced trust. The chips always end up back in one pocket. This SDR thing is not a grand climax though. It is an attempt to prolong the confidence game on a global scale, sort of sliding the pea under a different shell.

    Let me toss out my equally cynical definition of prosperity. Those were the token chips we were handed so we would stare at our 401k plans while they build the surveillance state over our heads. It will all be gathered back in time once they complete the control paradigm. Let me add that I think it all worked rather swimmingly for them.

    The misdirection campaign against gold has a purpose. If 'they' can chase you from the real (leaving you with really nothing), then their imaginary numbers, when they collapse, will swallow the REAL world because those imaginary numbers have the power of law behind them. Am I banging the table for gold? Well first, I'm not in the business of offering investment advice. Gold could yet get caught up in a massive deflationary swoon because, well, part of its complex identity is as a commodity. But I'm fascinated that gold even EXISTS. What a weird fly in the ointment! And I'm equally fascinated at how powerful interests, whenever they get a chance, have a habit of STEALING it.

    So, back to your 'they'. I was all over that yesterday, oddly enough.

    https://fullspectrumdominoes.wordpress.com/2015/03/07/the-janus-class/

    1. I use the pronoun "they" not carelessly but as you state who are "they". Is it the whole Elite the 1%, or is it the chief Zionist priest, or is there multiple warring factions of power. I do not really care who "they" are anymore. I do not care to differentiate for trying to decipher the tangled web of dark organizations one can lose sight of the goal of becoming free.

      And as far as Gold it is caught in the deflationary cycle and should see lower prices. But buy it while you can. By the time you or anyone else is finally convinced to get some it could be too late and very difficult to get in quantity. Secondly the premiums could be expensive enough to offset any sale price. And Gold could get revalued at some much higher value overnight so much so that you should also have silver for buying everyday items. Much better than those digits on a computer screen. Which will still have value on your new digital currency card but try buying Gold and Silver then without a setting off the NSA. I see the point of studying this paradigm shift is to be ahead of the crowd not lost in it.

  17. In 1944 at Bretton woods, the world filed in line and order to rally behind one nation and one currency the dollar because it was exchangeable in gold/silver. Today we see the push for a rally behind global institutions like the IMF and UN for the SDR which will be made up partly of gold. The US has served its function with its military might to ensure no competition for the monopoly on creating debt based currencies(central banks). The US will fade from the limelight to normalcy. 2016 could be like 1944 all over again, but it will not be of benefit of the whole but a small group. Perhaps when the whole debt edifice falls to tethers in the future this will awaken man to look within and fix then externalize that which is moral and right. Interesting times we live in... I think choosing equity(tangible) over debt(illusionary) instruments for preservation of wealth would be wise for those looking to maintain.

    1. Max, as has been proposed here before, we are seeing the slow dissolution of the nation state.

      The national political, military and financial bodies seem first to be consolidated into regional supra-national institutions. I predict each of the BRICS countries will function as a core of its region (South America, Eurasia, The Indus Region, East Asia and Africa). The two Arabian regions lag a bit behind, but seem to be vacuumized. It will be interesting to see where border nations like Mexico, Indonesia, Ukraine Syria and Pakistan will fall into.

      Part of the proces of regionalization, is the introduction of regional military institutions. In that respect, the proposition of a European military force is right on cue.

  18. FOFOA posted rumor that "The Chinese government itself has identified nine key sectors that are now operating at a loss in China just to service their debt, some with the help of government subsidies. Those nine industries are steel, aluminum, rare earths, cement, electronics, pharmaceuticals, autos, shipbuilding and industrial agriculture."

    So much for A Redback Revolution if this is true or how long can they prop up these industries hoping for change. Oh wait the USA did that. Hope for change what a crook.

  19. Governments trying to control society always fails. Governments right now can dream of borrowing to create control but what happens when interest rates rise? If they do not have a real economy that built a need for a service economy then it will fail. You cannot turn millions of poor farmers into the middle class by mountains of debt. Sure short term but the only thing holding up the global economy is this farce of the USA. Once the US turns down game over. The Euro is going to fail, period. A Marxist government like China cannot survive alone in a sea of turmoil. Ghost cities, government subsidies, no clean water, pollution so out of control they put images of the Sun on big TV's so people know it's morning. That is not progress.

    1. What governments can claim control when they themselves are being controlled?

      "You cannot turn millions of poor farmers into the middle class by mountains of debt."

      You don't have to. The parents will stay behind unchanged tending the farms while the kids will grow up and out of the farm and into the urban developed "cool" cities. Then they have to have a better car than their friend and so on and so forth, Its peer presure at its infancy.

      "A Marxist government like China cannot survive alone in a sea of turmoil."

      They don't have to survive alone. They and everyone is moving to a multilateral system. Thats teamwork not individuality.

      "no clean water, pollution so out of control they put images of the Sun on big TV’s"

      We should not forget that a lot of this damage was to feed our US wants and it was US owned companies that fled to China long ago for cheap labor. Remember the exporting of labor issues from times past here in the states? Cheap labor can also equate to avoiding policies (a self limiting system of sorts) for protecting the environment.

      Today China owns plenty of business here in the US and Walmart is pushing I can't remember a "2 billion dollar" campaign to sell American products. Looks like a role reversal could be in play. If you add the legalization of illegal immigrants (cheap labor) you can begin to form a clearer picture of what could be.

      So how will Chinese companies rally the American people behind them? Simple by exploiting that they are willing to pay American taxes where current American businesses aren't. Has anyone else perceived something like this yet?

  20. It seems to me, perhaps naïvely, that there are not enough resources on the planet to have a Chinese middle class, so the idea will falter before it gets going.

    Unless, of course, there really are hidden technologies that will change the way we live on this planet.

    1. Susan, we are going to experience a re-allocation of resources as the multilateral transition continues. This is why we are seeing proxy resource wars in Ukraine, Syria (and the broader Middle East), and now escalating tension in Venezuela. The argument can be made that there are plenty of resources available, but it hasn't been allocated based on population growth and economic indicators.

      The waste in the western world has to change in order for the necessary balance in the international system to be effective. I don't think anyone in the western world would feel great about throwing out food when others across the seas are starving. The overabundance that many have taken advantage of will slowly give way to the sustainability of new structures and cultural concepts.

      And don't let the knee jerk conspiracy reaction to the word "sustainability" skew your thoughts away from the logic and humanity of what I'm saying. Sustainability is the only way the world will avoid a depopulation. The same ones that scream out against the sustainability concept are the same ones who scream out against depopulation. The madness of the contradiction is a product of innocent ignorance.

      The system is attempting to balance, but there will always be the wealth transfer between the demographics which we call the disorganized masses and rent seeking elite. That is a somewhat different issue.

      1. Well stated JC,

        One void is filled by another. Same ole song n dance w re: to U.S. policy. Time is running short n countries r seeing the light n tire of the Bully mentality.

        Look at the game in the Congo, Nicaragua, ISIS, Venezuela, Iran, Russo, China, Ukriane, etc...

        Time will certainly tell soon enough...

        U.S. is in for more than they can chew...

        Look at the idiots running the U.S., they still fail to study n learn from Sun Tze.

        Food for thought

  21. I am quite sure the Chinese urbanization enterprise will work just fine. It qill create seveeal hunderd million new urban dwellers, most of which will promise to pay off their newly acquired mortgage (and consumer) debts, creating a vast new sea of liquidity.

    The 'empty' cities are in fact brand new rechargabke batteries, waiting to be charged by fresh mortgage promises from the soon to be new middle class. The Chinese rural citizens will endebt themselves into the middle class just like their Western predecessors did. And it will create a global investment hausse in new transportation tech and nano tech. Just like transistor revolution 60 years ago.

  22. I believe we are two paradigm shifts away which may be one too many. 2008 was a tragic lost opportunity to make a systemic shift. We all know what happened. To reach sustainment, you have to kill the extractive-driven Ponzi, not prolong it. Nobody's kidding themselves that the IMF/SDR monetary transition is anything other than a prolongation. Yes, some mal-investment and waste may be squeezed out in the shift from the old to the new regime. America's decades of false prosperity borne of the petrodollar's 'exorbitant privilege' will disappear, re-incentivizing and realigning productive economies with prosperity that they rightly earn. So there is a modicum of equitability in this shift. However this monetary transition is not 'structural enough' in its ambitions. We need a paradigm-shift. We're getting, best case, incrementalism.

    To kill the Ponzi, mankind has to weather WW3 because the bankers will not relinquish the model willingly. The nature of monstrous and habitual greed is such that it will squeeze blood from a stone first before it admits to the self-destructiveness of that approach. Greed is blind, as they say.

    This is where the Martin Armstrong thesis holds credence. Governments around the world will clamp down on their respective societies, in effect hunting for quarters between the sofa cushions. Their ravenousness for new revenues will kill the golden goose. Remember too, the governments are essentially owned by the banking class. So they are naturally inclined to criminalizing the debtor class. The rapid onset of the surveillance state is a tool that will be deployed again to the wrong segment of society. The bankers are digging in for a far more adversarial relationship with their afflicted host-populations.
    For a time there, I coopted your 'rent-seeking elite' phraseology JC knowing that I was contorting it a bit. So respectfully, I'm returning it back to its original owner. Pardon the dings and thank you for the use of it. I’ve launched what I'm calling the Janus Class. They are the caretakers of two contrary narratives, i.e. their purpose is to hold up institutionalized duplicity. They do the bidding of the upper elite, yet democratic pretensions still oblige them to pay lip-service to we, the underclass. This is why we continually scratch our heads at the shameless hypocrisy we hear out of their mouths. They are not built, generally speaking, for the multi-generational long haul (apart maybe from the occasional dynasty forming, the Clintons for example). The surveillance state will mitigate the need even for lip service. For the moment, they must continue a charade that is looking ever more threadbare by the month.

    So, here are the two million dollar questions as I see it:
    1. Will the monetary regime change with its re-balancing of debt, resources etc. be enough to ameliorate the powerful global deflationary pressures we are seeing around the world? Or will we be compelled instead into the profound and climactic supply/demand destruction that only a large-scale global conflict can deliver? Remember, the twin benefits of a war is that it blows up overcapacity (i.e. a deflation-killer) while affording the opportunity to capture Eurasian resources for more Ponzi fun. That’s what I call two bangs for your bullet. The downside? Oh yes, the cessation of mankind, but let’s not dwell on the fine print.
    2. In this age of thermonuclear escalation, will the Upper Elite shift from their traditional dialectical/Darwinian repose and actively intervene to control the boisterous children down below? WW1 was a slow-motion meat-grinder. The hoi polloi could afford a leisurely pace and the common man carnage wasn't exactly bad for business either. Unless the top elite are sitting on a cure-all for leukemia and radiation sickness, they better get off their asses and inject some discipline into the equation. I am not so morose that I can bring myself to embrace the Joel Skousen scenario that a first strike has been strategically embraced and our leaders will emerge godlike from bunkers to rescue a handful of traumatized proletariat. I note that Skousen sells disaster products. Let's hope he's engaging in a macabre marketing campaign.
    Sorry, that might have been three questions.

    The locus of this parental intervention will emanate from the BIS, if it emanates at all. The top elite need to hurry up and earn their money --for all of us.

  23. Nice thought; that the "Upper Elite" might save us from the warmongering insanity of the "Janus Class".

    But for the depth of avarice which is ingrained in both groups and long inbred in the former. The latter is just getting a feel for the pleasures of pillage.

    Looking for the castle dwellers to act to prevent WW3 is a lovely thought, but I'm afraid, one of desperation. A conversion to benevolence for this rabid group is without precedent.

    More likely the extraterrestrials will help mankind..

    Or JC will show up and take out the trash.

  24. The point is, two things are happening at once, Roger. You have horizontal struggles between competing second-tier (Janus Class) elites. The important thing to understand here is that all parties in this tier are not fully apprised of the manipulations of the tier above. They are in many cases unwitting puppets who are fully invested in their horizontal disputes. In the US, committed Red and Blue partisans are genuinely fighting for power and their careers. After all, real power --their power-- is at stake. But there is a compartmentalization and a 'need to know' dynamic at-play.

    Furthermore we can infer from trickle-up wealth redistribution that power and money is consolidating vertically. Less and less people are getting more and more wealthy.

    All of this is an affirmation of the Quigley Principle:

    “The argument that the two parties should represent opposed ideals and policies, one, perhaps, of the Right and the other of the Left, is a foolish idea acceptable only to doctrinaire and academic thinkers. Instead, the two parties should be almost identical, so that the American people can ‘throw the rascals out’ at any election without leading to any profound or extensive shifts in policy”

    The horizontal conflicts are not entirely artificial in that they could conceivably press a red button. As human lethality increases, this danger has to have been considered at the highest levels.

    1. Koos, the following link contains some pertinent information on COFER reporting requirements. It is discussed how both allocated and unallocated reserves may have to be used in order to support a broader stability in the IMS. Gold is often represented in the unallocated reserves, as are a certain percentage of SDR. The unallocated data will likely become a part of the mandatory reporting moving forward.
      http://www.imf.org/external/np/pp/eng/2011/092311.pdf

  25. JC Is it not energy as a product that has backed the ability to grow debt in the world? And if oil has peaked, ore has peaked and soil has peaked then what is going to supply the any new debt? This is what I cannot understand. Please explain if you can.

    1. Energy has not been used to back the growth of money creation. Human time and labor have been used, which is reflective in the rise of world debt alongside the population growth. There are other factors of course, but debt needs to be serviced, which is why modernization and urbanization plans in the emerging economies is a necessary step in maintaining and expanding global liquidity. This could be debated many different ways, but population numbers, both growth and reduction, will be reflected in the demand for liquidity, with lag built in at the beginning of movements in either direction. We haven't seen population reductions, nor have we seen a reduction in serviceable debt. Which contributes to the growth of the other is debatable. Perhaps they both work in symbiosis.

  26. Thanks for your opinion. I understand that populations grew according to more abundant energy. Back in the old days of candles and wood a family went to bed early. Then comes along electricity and mom and dad stay up making babies.

    1. Why not use the abundance of food as well? The agricultural revolution changed the course of human history. Yet, nobody would say that abundance of food has backed the international monetary system. Agriculture, energy production, mining, fishing, etc., are all ancillary and complimentary to human time and labor. Time and labor are what produce the other resources. Time and labor are the baseline. Without it energy would not be harnessed.

  27. China is going to need a lot of energy to fuel a middle class explosion which means either new technology Tesla type I suspect. Back in the beginning of the American Industrial Revolution JP Morgan and friends were convicted on conspiring to destroy the railroad business so they could profit from the auto industry, this is fact. So all the stories about suppression of Free Energy devices are likely true for the same reason of oil industry profits. And now here we are with fracking, wars and nuclear accidents destroying the quality of life for the benefit of who. All the puzzle pieces all fit together to indicate a much darker agenda. This trail of evidence that leads to self regulating is just a distraction while the true agenda lurks.
    Yes the third world nations are an abundant human resource for propelling this debt machine deeper into the abyss. And out of necessity are born new ideas and technology. If Free Energy technology develops then the average man can escape debt slavery and evolve to a higher conscious being. So this then is the solution to money, debt, too big of Government and the reason why the technology has been suppressed all these years. "They" have become trapped in their own trap.

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