The title is not too far off. I suspect it has been the plan all along to diminish the dollar and the U.S. Now the IMF is calling for SDRs to replace the buck and take control of the world monetary supply. Unfortunately, the folks running that operation are not the good guys!
Not only are the elites calling for the demise of the dollar but our own elites here in this country are actively engaged in devaluing our currency through the debt…or the monetization thereof…just print more money and we will be just fine…NOT!
IMF calls for dollar alternative
By Ben Rooney, staff reporterFebruary 10, 2011: 4:37 PM ET
NEW YORK (CNNMoney) — The International Monetary Fund issued a report Thursday on a possible replacement for the dollar as the world’s reserve currency.
The IMF said Special Drawing Rights, or SDRs, could help stabilize the global financial system.
SDRs represent potential claims on the currencies of IMF members. They were created by the IMF in 1969 and can be converted into whatever currency a borrower requires at exchange rates based on a weighted basket of international currencies. The IMF typically lends countries funds denominated in SDRs
While they are not a tangible currency, some economists argue that SDRs could be used as a less volatile alternative to the U.S. dollar.
Dominique Strauss-Kahn, managing director of the IMF, acknowledged there are some “technical hurdles” involved with SDRs, but he believes they could help correct global imbalances and shore up the global financial system.
“Over time, there may also be a role for the SDR to contribute to a more stable international monetary system,” he said.
The goal is to have a reserve asset for central banks that better reflects the global economy since the dollar is vulnerable to swings in the domestic economy and changes in U.S. policy.
In addition to serving as a reserve currency, the IMF also proposed creating SDR-denominated bonds, which could reduce central banks’ dependence on U.S. Treasuries. The Fund also suggested that certain assets, such as oil and gold, which are traded in U.S. dollars, could be priced using SDRs.
Oil prices usually go up when the dollar depreciates. Supporters say using SDRs to price oil on the global market could help prevent spikes in energy prices that often occur when the dollar weakens significantly.
The dollar alternatives
Fred Bergsten, director of the Peterson Institute for International Economics, said at a conference in Washington that IMF member nations should agree to create $2 trillion worth of SDRs over the next few years.
SDRs, he said, “will further diversify the system.”
Dollar firms after starting 2011 weak
The dollar has been drifting lower so far this year as the global economy improves and investors regain their appetite for more risky assets such as stocks and commodities.
After rising above 81 in early January, the dollar index, which measures the U.S. currency against a basket of other international currencies, eased below 77 earlier this week.
However, the dollar was higher Thursday against the euro, pound and yen as disappointing corporate results weighed on stock prices following several days of gains on Wall Street. The rally in the commodities market also cooled, with the price of oil and metals backing off recent highs.
In addition, renewed concerns about the debt problems facing troubled European economies put pressure on the euro and supported the dollar. The yield on Portugal’s benchmark bond rose to a record high Wednesday, and borrowing costs for Ireland, Spain and Greece remain elevated.
“The market is shedding risk, with equities and commodities weakening and the U.S. dollar broadly stronger” said Camilla Sutton, currency strategist at Scotia Capital.
Traders were also digesting comments from Federal Reserve chairman Ben Bernanke, who told Congress Wednesday that despite a strengthening economic recovery, the unemployment rate remains high while inflation is “still quite low.”
Those remarks reaffirmed the view that “the Fed would be very slow to tighten policy given its dual mandate of price stability and employment,” analysts at Sucden Financial wrote in a research report.
Bernanke also urged lawmakers to come up with a “credible plan” to bring down “unsustainable” federal budget deficits.
“We expect that the outlook for the U.S. fiscal position will weigh heavily on the U.S. dollar in the quarters ahead,” said Sutton. In the near-term, however, she said “a strengthening growth profile” could help provide “a temporary period of dollar strength.” To top of page
One way or another the dollar is doomed…
David Chu, engineer and author, has some pretty dire predictions although they are not really extraordinary when you consider the global financial situation and what the potential scenarios could be.
I think that the predictions listed here are certainly valid and have very solid foundations in our current reality.
As always, if you stay around long enough you will find out what is true!
Nine 2011 Predictions
By David Chu
1. The U.S. will implement QE3/4 when the $600 billion of QE2 is not enough (already it is not enough as admitted by the Fed’s chairman Benjamin Shalom Bernanke recently on CBS’ 60 Minutes). Except it won’t be called as such in the lamestream media. QE3/4 will be in the trillions of U.S. dollars (USD) of quantitative easing, i.e., fake digital money printing from the Fed to sop up unwanted U.S. Treasuries. The unstated and ONLY purpose of QE2 and QE3/4 is to buy up all of the U.S. Treasury debts that the foreign nations are beginning to refuse to buy while they are quietly dumping what they possess on the U.S. and world markets in exchange for real and tangible assets and resources.
2. The major export nations like China, Russia, Brazil, India, Argentina, and others will engage in and increase their non USD-denominated trading among themselves, as exemplified by the recent China-Russia trade agreements whereby they would start trading in Rubles and Yuans, and not use USD as is typically transacted in international trades for commodities and oil. This will put increasing devaluation pressures on the USD. So, look forward to the US Dollar Index to drop further from the low 80s now to the low 70s or even lower in 2011.
3. Retail food prices in the U.S. will increase in the low to medium DOUBLE digit ranges (10% to 40%) for everything from the junk/GMO “foods” served by corporations like McDonald’s to healthy/organic foods supplied by companies like Whole Foods Market. This will take place noticeably in the first half of 2011.
4. The real estate market in Canada will finally begin its collapse suddenly after the new year celebrations are over, mimicking the real estate crash of the U.S. that began in late 2008. Over heated markets like Vancouver will suffer the most as the average house price there is around $1 million Canadian (the Canadian dollar is almost on par with the USD). The average homeowner in Vancouver is spending about 70% of its BEFORE-tax income on paying mortgages. This financial situation is totally unsustainable. To illustrate a parallel, past example why it is going to be the case: In 2005, the “median” California family spent almost 73% of their AFTER-tax income on their “median” California house ($477,700), and look what happened to the real estate market in California. A 50+% devaluation of the Vancouver real estate market is very likely over the next 1-3 years. But the crash will begin in early half of 2011.
5. The Chinese real estate market, the last investment vehicle in China for those Chinese with money, will also begin its collapse suddenly, hitting hard cities like Shanghai, Beijing, Fuzhou, etc. According to a very recent article by UK’s Daily Mail Online, there are as many as 64 MILLION empty homes in China with no one occupying these brand new homes! This China real estate crash will have serious implications for the real estate market in Vancouver. There won’t be m/any Chinese millionaires plunking down $1+ million CASH for buying real estate in Vancouver, as has been the case over the recent years.
6. Inflation will run rampant in China as it is already doing so with retail food prices. See my recent article (www.rense.com/Currency%20Wars%20For%20Dummies.pdf) as to the real causes of huge inflation in China. Unless China allows its Yuan to appreciate (increase in value) against the ever falling USD, rampant inflation in China will continue its course unabated. If China allows its Yuan to appreciate by any significant amount (7% or more), such an action will DECIMATE its export industries and manufacturers, because of the extremely thin profit margins that their exporters have to work with. China will raise its interest rates to try to stop inflation but that will not do the job. In fact, raising interest rates will only cause more foreign currencies to go into China in search of higher yields, unless China imposes strict restrictions on the importation of foreign currencies and investments.
7. The EU will continue its financial collapse, as nations like Spain, Portugal, and Italy will join Greece and Ireland in facing the stark choice between (Option 1) bailing out THEIR banksters or (Option 2) having THEIR nation go bankrupt. The IMF/World Bank model of “rescuing” these EU nations were perfected on the so-called Third World nations such as Argentina (viz., John Perkins’ book, “Confessions of an Economic Hitman”). In 2001, Argentina defaulted on its IMF loans, i.e., it was forced to take Option 2, and its people suffered tremendously as the majority of its middle class was literally wiped out overnight. The Banksters in Argentina (with such strange and exotic names like JPMorgan Chase, Citibank, etc.) were able to fly out their billions of USD on private jets before the forced conversion and devaluation of the Argentina pesos/savings were implemented on the masses. Millions of Argentineans keep their savings as USD in their banks before the collapse. When the forced conversion and devaluation of those USD savings were imposed on its citizens, the banks were closed and ATMs withdrawals were limited to a few hundred pesos (less than $50 USD) per person per day. Overnight, Argentineans saw their savings lose over 75% in value (the peso went from 1:1 to 4:1, requiring 4 pesos to buy 1 USD overnight). And then the multi-national corporations came in like financial vultures and bought up the natural resources and public utilities for pennies on the USD. THAT is IMF’s Option 2 for Spain, Portugal, and Italy. Option 1 is long term financial servitude and slavery for the citizens of the bankrupt country as is happening to Ireland.
8. Silver and gold will continue to climb in 2011. Silver will increase much more than gold in 2011, as the “Crash JP Morgan, Buy Silver” viral campaign started by Max Kaiser in early November will take off exponentially in 2011. Silver will breach $50 per ounce in 2011.
9. A major war will break out somewhere in the world in 2011 (if not in 2011 then definitely in 2012) involving the U.S. and/or one of its proxy allies, i.e., Israel, South Korea, etc. The very recent massive war exercises conducted by South Korea and the U.S. were meant to provoke a military response from North Korea. Fortunately, the North Koreans didn’t take the bait. This will be the final American Bubble to inflate as the U.S. will try to use “shock and awe” on either North Korea or Iran or even maybe a country in Africa in a futile attempt to bypass and cover up the greatest economic and financial collapse in world’s history.
David Chu is a professional engineer who has worked throughout the United States for over 19 years. In 2008, he wrote the book, NO FORECLOSURES!, to help Americans fight the Banksters by delaying and stopping foreclosures. For more information on his book, please go to www.no2foreclosures.info or you may email him at email@example.com.
I for one am buying commodities as part of our ongoing business and would love to buy more silver and will funds permitting.
As the dollar rises and gold falls in the face of yet more bad news for the EC, Spain is in danger of losing a notch in their credit rating. This coupled with the fact that Germany is pushing back against ‘expanded’ bailouts for the peripheral countries of the EU is wrecking havoc in the currency markets. The dollar is up vs the Euro…
Japanese manufacturers are pessimistic, entire cities are missing payments on their Muni Bond Debt, the entire EU appears to be disintegrating and still the dollar looks better than the euro…at least right now.
What happens when the trading sharks lose faith in both currencies? Euro goes down dollar goes down while the Aussie dollar rises…Canadian loonie also up. Of course the yuan remains strong as well as Indian rupees.
Here we go…again folks. Buckle up and try to enjoy this Christmas.
Spain’s Aa1 Debt Rating Put on Review by Moody’s
Spain’s credit rating may be cut from Aa1 by Moody’s Investors Service on concern about rising borrowing costs, potential losses in the banking system and deficits in the country’s regions.
“Spain’s substantial funding requirements, not only for the sovereign but also for the regional governments and the banks, make the country susceptible to further episodes of funding stress,” Kathrin Muehlbronner, an analyst at Moody’s, said in a report today. At the same time, Spain’s rating will probably remain in the “Aa” range and the “base case” assumption is that the country won’t need a bailout.
European governments are struggling to stop contagion spreading from Greece and Ireland to the rest of the euro region. The extra yield that investors demand to hold Spanish 10-year bonds over German bunds touched a euro-era closing high of 283 basis points on Nov. 30 amid speculation Spain will also need a European Union-led reacue.
The announcement comes at a day before Spain’s last scheduled bond sale of the year.
The euro dropped 0.5 percent to $1.3315. The risk premium on Spanish bonds over German equivalents was at 249 basis points yesterday. Moody’s said that Spain’s position is “much stronger” than “other stressed euro zone countries.”
The ratings company lowered Spain to Aa1 from Aaa in September. Spain lost its top grade at Fitch Ratings in May and at Standard & Poor’s in January 2009. S&P currently rates Spain AA while Fitch has a AA+ grade.
A one step cut to Aa2 by Moody’s would leave Spain in line with Italy’s Aa2 rating and two above Portugal.
“The news is another negative for Spain, and only makes tomorrow’s Spanish bond auctions even more tricky,” said Niels From, chief analyst at Nordea Bank AB in Copenhagen. “Spain is already struggling to convince market participants that the country can put its own house in order by itself.”
Moody’s said it expected lenders to need a total of 25 billion euros ($33 billion) in recapitalizations, of which 10.5 billion has already been provided by the state bailout fund. In a more stressed scenario that could rise to between 80 billion and 90 billion euros, it said.
To contact the reporter on this story: Paul Tobin in Madrid at firstname.lastname@example.org
Again, has anyone listened? Anyone better prepared today than they were 6 months ago?
These emails from Jim Sinclair have been very enlightening about the international financial movements and gold. Jim is a highly respected businessman/mine owner/CEO/trader that has been exceptionally accurate for the past several years.
I urge you to sign up for his periodic emails.
The train wreck of Western finance is no longer the slow train wreck you witnessed watching Freddie and Fanny come apart. It is therapeutic, as Dean Harry Schultz instructs us, to travel enough so you can look back at your Motherland and see things clearly.
It is my belief that the relative lack of success in the recent attack on the euro – at least compared to the earlier effort – could well presage the inevitable attack against another monetary union currency, the United States dollar.
Market commentary here in Dubai by so-called experts universally proclaims a sudden concern that the US is mishandling its debt. All of this has been explained to you before in the context of down cycles which at some point move to a zero equilibrium – baring some enlightened intervention which is highly unlikely.
Intervention between 2008 and 2010 missed by a country mile but somehow managed to enrich the dastardly “banksters” who created this mess in the first place. The cause of what is now semantically presented as the “Great Recession” is no more than demons dancing on the head of a pin. The cause of all this mess is singular and so large that it defies conceptualization.
The cause of the Great Recession is the damned OTC derivative manufacturers and distributors. It is called a “real estate collapse” but again this is a semantic message for the OTC Derivative Securitized Mortgage Debt debacle.
The OTC derivative market has continued to grow, with Credit Default Swaps, another fraud, having a snowball in hell’s chance of functioning when the spectre of default again threatens Western finance.
As soon as the sharks finish their feeding frenzy on the euro, the dollar will come up next in their crosshairs. It looks to me as if the minor euro nations do not offer large enough opportunities for the destroyers of wealth that Greece did.
Mark my words when I say that gold will reach for the stratosphere, trading at $1,650 and above sooner than many people think.
Being in gold and avoiding the US dollar no longer just constitutes a trading situation but a financial survival exercise.
Stay the course and win. Vacillate and you join the sheeple.
I have not strayed once from the course of owning hard and now soft commodities. Are you prepared for an economic meltdown?
This is yet another article pointing out the symptoms or signs of the ongoing meltdown of the U.S. and global economies. I can’t say that I would disagree with any of the facts or predictions that I have been reading about over the past several months.
Take a look at the previous article/video put out by Stansberry Research. Hey they got me to buy their reports, I will let you know what I think of them later.
The Breakdown of the Monetary System Will Be Chaotic – Got Gold?
November 30, 2010 by Editor · Leave a Comment
World’s Monetary System In the Process of Melting Down
We have entered the endgame for the dollar as the dominant reserve currency and most investors and policy makers are unaware of the implications – but those who are will have positioned themselves in the one asset most likely to be left standing when the dust settles – gold. Here’s why. Words: 1003
So says John Hathaway (www.tocqueville.com) in an article* which Lorimer Wilson, editor of www.munKNEE.com, has reformatted and edited [...] below for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.) Hathaway goes on to say:
The only questions now are:
1. how long will the denouement of the dollar reserve system last and
2. how much more damage will be inflicted by new rounds of quantitative easing and/or more radical monetary measures to prop up the system.
Whether prolonged or sudden, the transition to a stable monetary system will become possible only when the shortcomings of the status quo become unbearable. Such a transition is, by definition, nonlinear [and, as such,] central-bank soothsaying based on the extrapolation of historical data and the repetition of conventional wisdom offers no guidance on what lies ahead.
Editor’s Note: Don’t forget to sign up for our FREE weekly “Top 100 Stock Market, Asset Ratio & Economic Indicators in Review”
It is amazing that there is no intelligent discourse among policy leaders on the subject of monetary rot and its implications for the future economic and political landscape. Until there is fundamental monetary reform on an international scale, most economic forecasts aren’t worth the paper on which they are written.
Telltale Signs of Future Monetary Trouble Very Evident
Only a few months ago Federal Reserve Chairman Ben Bernanke and a chorus of other high-ranking Fed officials were talking about exit strategies from the U.S. central bank’s bloated balance sheet and the financial system’s unprecedented excess liquidity. Now, those same officials are… pumping more money into the system to stimulate growth… [and] they are not alone. Six months ago, the chief economist of the International Monetary Fund, Oliver Blanchard, suggested that raising inflation targets to 4 percent from 2 percent wouldn’t be too risky… [Furthermore,] bickering among central bankers over currency manipulation and rising trade tensions don’t exactly reinforce one’s confidence in a scenario of sustained economic growth and a return to prosperity.
The prospects for an orderly unwinding of the extreme posture of global monetary policy are zero. Bernanke, and Jean-Claude Trichet and Mervyn King, his counterparts in Europe and the U.K. respectively, are huddling en masse upon the most precarious perch in the history of monetary affairs. These alleged guardians of monetary stability, in their attempts to shore up the system, have simply created the incinerator for paper money. We are past the point of no return. Quantitative easing may well become a way of life.
Monetary Policy Has Painted Itself Into A Corner
The consensus investment view seems to be that the credit crisis of 2008 was a freak occurrence, unlikely to repeat. That is wishful thinking. Based on our present course, there will be more bubbles and more monetary meltdowns.
Financial markets and institutions sense trouble, as reflected in the flight to supposedly safe assets such as Treasuries and corporate-debt instruments with paltry yields as well as the reluctance to lend by commercial banks. We are stuck in an epic liquidity trap. The irony is, if global central banks succeed in creating inflation, the value of these safe assets will be destroyed. It is a slaughter waiting to happen.
In the pedantic mentality of central bankers, their playbook creates just the right amount of inflation. As inflation accelerates, consumers will spend to get rid of their dollars of diminishing value and spur the economy. Once consumers start spending, it will be time to raise interest rates because a solid foundation for prosperity will have been established, they say. Whatever the playbook promises, [however,] the capacity of financial markets to overshoot can’t be overestimated. The belief among policy makers and financial markets in the possibility of this sort of fine-tuning is preposterous, but it is the slender thread on which remaining investment and business confidence rests.
Breakdown of Monetary System Will Be Chaotic and Gold Will Be the Place to Be
monetaryWhen inflation commences, it will be highly disruptive. The damage to fixed-income assets will seem instantaneous. Foreign-exchange markets will become dysfunctional. The economy will become even more fragile and unpredictable.
Gold is an imperfect but comparatively reliable market gauge for the extent of current and future monetary destruction [as evidenced by] the recent acceleration in gold’s price [in conjunction with the recent] new round of quantitative easing and highly visible discord among major nations on trade and currency-valuation issues.
Naysayers point to gold’s price and see a bubble without understanding that the only acceleration that is taking place is in the rate of decline of paper currency. The Fed is organizing an attack on the dollar’s value, believing that this is the most expedient way to defuse deflationary market forces. The man in the street is unaware which is a perfect setup because inflation can only be successful when the public doesn’t see it coming.
The recent torrent of “bubble” commentary by anti-gold pundits provide a great service to those who grasp this historical moment. They are facilitating the advantageous positioning of the one asset most likely to be left standing when the dust settles – gold!
*http://www.bloomberg.com/news/2010-10-29/gold-will-outlive-dollar-once-slaughter-comes-commentary-by-john-hathaway.html (John Hathaway is a managing director of Tocqueville Asset Management LP in New York.)
The Real Asset Bubbble is the hard core belief that the criminals in charge a. want us to get out of this economic mess and b. that they have a plan to get us out if they wanted that to happen! When that bubble pops watch out….martial law, riots, hyper inflation could be almost immediate!
I have posted the video from Stansberry Research, a financial management firm, because he goes over again what I have been saying for over a year now. He has several facts that he bases his opinion on, all of which I have previously expounded upon in this very blog.
Please take the time to watch this video by clicking here, it will take 20 or 30 minutes. I don’t recommend any management firm nor will i ever. This video, while they want you to sign up for his newsletter is very well done and I think it will open your eyes.
Pay particular attention to what he calls ‘the normalcy bias’. Are you suffering from this? Know anyone that might be suffering from this bias?
Take a hard look and then see where your finances are right now and think about gold and silver. Think about enough food stores for a year. Think about EnerFood and the herbal remedies…you will need them.
Folks this is not good news. Many of us knew this day would dawn we just didn’t know when and now it is here! The dollar is cooked and will be worthless shortly. I hope that you have taken appropriate precautions.
Unfortunately, many people are going to be left out in the ‘cold’ literally and figuratively. The world economic situation is going from worse to catastrophic. My only hope now is that this situation does not lead to all out war…an invasion of the U.S. cannot be ruled out now. The entire EC and now China and Russia are totally done with us.
Su Qiang and Li Xiaokun
November 24, 2010
Su Qiang and Li Xiaokun
St. Petersburg, Russia – China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.
Chinese experts said the move reflected closer relations between Beijing and Moscow and is not aimed at challenging the dollar, but to protect their domestic economies.
“About trade settlement, we have decided to use our own currencies,” Putin said at a joint news conference with Wen in St. Petersburg.
The two countries were accustomed to using other currencies, especially the dollar, for bilateral trade. Since the financial crisis, however, high-ranking officials on both sides began to explore other possibilities.
The yuan has now started trading against the Russian rouble in the Chinese interbank market, while the renminbi will soon be allowed to trade against the rouble in Russia, Putin said.
“That has forged an important step in bilateral trade and it is a result of the consolidated financial systems of world countries,” he said.
Putin made his remarks after a meeting with Wen. They also officiated at a signing ceremony for 12 documents, including energy cooperation.
The documents covered cooperation on aviation, railroad construction, customs, protecting intellectual property, culture and a joint communiqu. Details of the documents have yet to be released.
Putin said one of the pacts between the two countries is about the purchase of two nuclear reactors from Russia by China’s Tianwan nuclear power plant, the most advanced nuclear power complex in China.
Putin has called for boosting sales of natural resources – Russia’s main export – to China, but price has proven to be a sticking point.
Russian Deputy Prime Minister Igor Sechin, who holds sway over Russia’s energy sector, said following a meeting with Chinese representatives that Moscow and Beijing are unlikely to agree on the price of Russian gas supplies to China before the middle of next year.
Russia is looking for China to pay prices similar to those Russian gas giant Gazprom charges its European customers, but Beijing wants a discount. The two sides were about $100 per 1,000 cubic meters apart, according to Chinese officials last week.
Wen’s trip follows Russian President Dmitry Medvedev’s three-day visit to China in September, during which he and President Hu Jintao launched a cross-border pipeline linking the world’s biggest energy producer with the largest energy consumer.
Wen said at the press conference that the partnership between Beijing and Moscow has “reached an unprecedented level” and pledged the two countries will “never become each other’s enemy”.
Over the past year, “our strategic cooperative partnership endured strenuous tests and reached an unprecedented level,” Wen said, adding the two nations are now more confident and determined to defend their mutual interests.
“China will firmly follow the path of peaceful development and support the renaissance of Russia as a great power,” he said.
“The modernization of China will not affect other countries’ interests, while a solid and strong Sino-Russian relationship is in line with the fundamental interests of both countries.”
Wen said Beijing is willing to boost cooperation with Moscow in Northeast Asia, Central Asia and the Asia-Pacific region, as well as in major international organizations and on mechanisms in pursuit of a “fair and reasonable new order” in international politics and the economy.
Sun Zhuangzhi, a senior researcher in Central Asian studies at the Chinese Academy of Social Sciences, said the new mode of trade settlement between China and Russia follows a global trend after the financial crisis exposed the faults of a dollar-dominated world financial system.
Pang Zhongying, who specializes in international politics at Renmin University of China, said the proposal is not challenging the dollar, but aimed at avoiding the risks the dollar represents.
Wen arrived in the northern Russian city on Monday evening for a regular meeting between Chinese and Russian heads of government.
He left St. Petersburg for Moscow late on Tuesday and is set to meet with Russian President Dmitry Medvedev on Wednesday.
Agencies and Zhou Wa contributed to this story.
Have you prepared yourself for the cold? How about drinking water and food? Enerfood will make your dried foods last up to 33% longer AND you will have better nutrition.
The article inserted below is not bad, considering it comes from Bloomberg. The author has most of this right in my opinion, especially the parts about the way in which entire economies have been structured so that a certain elite group of people can accumulate great, unheard of wealth and the the same ‘elites’ are transferring their debts to the public at large en masse.
The current replay of EC countries debt woes, is nothing more than another ‘kick the can’ down the road a bit while the governments try to prepare for what might become total anarchy as the entire world economy breaks down.
As I have said many times, the entire dissolution of the current system is most likely the ONLY way to begin again and on a much different footing. Has anyone been able to think about what a completely new system might look like?
I urge those that still have 2 working brain cells to begin this thought process.
Ireland Crisis Might Give China Break It Seeks: Simon Johnson
By Simon Johnson – Nov 18, 2010 7:00 PM MT
There will be many twists and turns as the Ireland debt crisis unfolds and there’s a chance a resolution might just lead to Asia.
Here’s how I see it playing out. Ireland will accept a modest package of support from the European Union, presumably with International Monetary Fund involvement. At the same time, investors are coming to realize that Ireland’s future debt path is, beyond a reasonable doubt, unsustainable.
But a modest package will make very little difference. Ireland and its EU partners will have to resolve the underlying issues, including a restructuring of banking and sovereign debt.
We’ll get to that point because, absent a global growth miracle, the numbers are stacked too high against Ireland. But there won’t be any quick jump to a solution; it will be slow, painful-to-watch chess match in Dublin, Brussels and around the IMF headquarters in Washington, with obvious and costly spillovers to Portugal, Spain and perhaps other countries.
Why does it have to be this way? Delay and prevarication at this stage have nothing to do with any of the key players being taken by surprise. The writing has been on the euro-zone wall for at least two years.
In late October 2008, Peter Boone, James Kwak and I suggested that some European countries had given taxpayer-backed pledges to banks that had liabilities that were larger than their own gross domestic products. We also proposed the creation of a European Stability Fund with at least 2 trillion euros ($2.7 trillion) of credit lines guaranteed by all EU member nations as well as Switzerland, Sweden and the U.K. to buy time for dealing with the underlying issues of solvency in Ireland and elsewhere.
The euro zone belatedly acted on that piece of advice, but the politicians in charge, both at the core and on the periphery of Europe, have refused to take responsibility for what they allowed to happen in the run-up to 2008. Europe’s leaders have told themselves and their voters that most of the world’s problems are due to the meltdown of the U.S. housing market and the way in which America’s mega banks went mad.
There is, of course, an element of truth to this. But it also misses the bigger European picture and what is blocking progress even today. The main proponents of unconstrained financial globalization may have been U.S. Treasury officials in recent decades, but it was European banks that really became too large relative to their economies. Along the way, they captured their regulators and engaged in incredibly irresponsible behavior.
‘Ship of Fools’
Ireland may be an extreme in this regard. It’s worth checking David Lynch’s perceptive new book, “When the Luck of the Irish Ran Out,” (disclosure: I provided a dust-jacket blurb) or the even more scathing “Ship of Fools: How Stupidity and Corruption Killed the Celtic Tiger,” by Irish journalist Fintan O’Toole. Both lay out the web of connections between politicians, bankers and real-estate developers that accounted for the frenzied growth and subsequent crash of the Irish economy.
In “The Quiet Coup,” published in Atlantic magazine in May 2009, I compared the U.S. economic boom-bust-bailout cycle to what has become typical in emerging middle-income countries such as Russia, Argentina or Indonesia. Just don’t think these problems are limited to emerging markets.
There is a much more general or global phenomenon in which powerful people cooperate to build an economic model that provides growth based on a great deal of debt. When the crisis comes, those who control the state try to save their favorite oligarchs, but there aren’t enough resources to go around.
Pushed From Lifeboat
Even after social spending is cut and taxes are raised, shifting as much of the costs from the elite to ordinary citizens, some of the rich and powerful — think Lehman Brothers — still need to be pushed from the lifeboat.
Here is the present problem: It’s not just the Irish elite that is under pressure and struggling to sort out who should be saved. It’s also the European bankers who funded them.
Under justifiable public pressure, the German government has taken up the theme of burden sharing, meaning that creditors must face losses in future crises. Chancellor Angela Merkel and her colleagues haven’t thought through the signal this sends to the markets today, which is “Get out of Irish banks, now.”
Presumably about now, big German and French banks are pointing out to their governments that when Ireland defaults, they will face big losses too. In turn, problems will spread to Portugal and probably Spain, thus taking some of the spotlight off Irish politicians.
Incentive to Delay
In fact, the Irish leadership has every incentive to delay until other countries can be dragged into turmoil. The crisis will become euro-zone wide, at which point all eyes will turn to some combination of the European Central Bank, the German taxpayer, and the IMF. But the ECB can’t pay and the German taxpayer won’t pay. Does the IMF have the resources to tackle Spain, let alone a bigger country like, say Italy or even France?
The U.S. could add sufficient funding to the mix — this is what it means to be a reserve currency — but the mood in Washington has shifted against bailouts.
As an alternative, Europe could place a call to Beijing to find out if China would like to commit some of its $2.6 trillion in reserves to keep European creditors whole. This would be an enormous opportunity for China to vault to a leading global role. Perhaps it was a good idea to place Min Zhu, a top Bank of China official, in a senior position at the IMF.
If China offered to recapitalize the IMF, become the largest shareholder, and move the organization to Beijing (according to the Articles of Agreement, the IMF’s headquarters should be in the capital of the largest shareholder), wouldn’t that make for an interesting chess game?
(Simon Johnson, co-author of “13 Bankers: The Wall Street Takeover and the Next Financial Meltdown,” is a professor at MIT’s Sloan School of Management and a Bloomberg News columnist The opinions expressed are his own.)
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Again, if anyone out there is reading this and has 2 working brain cells, you might want to start thinking about the phoenix you would want to see rise from the ashes of the current world economic system. I would start at the community level and work up. This is just practical since a total meltdown will be just that and people would necessarily be more concerned with day to day survival and would look to the immediate community for their needs. Then one can follow the ripples outward.
The only thing holding the dollar value vis a vis the euro is the current panic over Ireland, whether they will be able to meet their debt obligations or not. The answer seems to be that the EC will follow the American lead and ease quantitatively, thus monetizing that debt.
It appears now that there is a race to see which currency will be debased quicker and the winner will have a stronger currency. This is an instant replay of the dollar/euro action of the summer where the dollar became stronger for a very short period of time versus the euro. Then cam QE2 and the dollar just fell like a stone. It is now recovering from that precipitous fall. I personally have little hope that the recovery will last…actually I know have little faith that the current monetary system will survive as we know it.
A meltdown seems to be approaching, when it will occur is anyone’s best guess but given the current conditions anytime might be one’s conclusion.
By Bradley Davis
Of DOW JONES NEWSWIRES
WORLD FOREX: Euro Falls Vs. Dollar On Sovereign-Debt Worries
NEW YORK (Dow Jones)– The euro dropped against the dollar Monday as concerns continued over the long-simmering crisis of sovereign debt in the euro-zone periphery.
Investors speculated Ireland might soon request a European Union lifeline, and worries over the situation spreading throughout the region again came to the forefront, analysts said.
“Contagion is definitely back on the table,” said Brian Dolan, chief currency strategist at Forex.com in Bedminster, N.J. “For the time being, it’s looked at as containable,” Dolan said of worries the sovereign-debt crisis could spread. But if much-larger Spain, whose slipping economy has also been under the microscope, succumbs to the sovereign-debt contagion, “that is of much greater consequence for the euro, given its size,” he said.
Late Monday morning, the euro was at $1.3600 from $1.3693 late Friday, according to EBS via CQG. The dollar was at Y82.92 from Y82.43 after ticking as high as 83.28. The euro was at Y112.75 from Y112.86. The U.K. pound was at $1.6055 from $1.6136. The dollar was at CHF0.9855 from CHF0.9803.
The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 78.519 from 78.103.
A revised budget deficit figure for Greece–another member of the euro-zone periphery that has kept the region’s debt crisis simmering–weighed on the euro. Greece’s budget deficit in 2009 reached a revised 15.4% of gross domestic product, almost two percentage points more than previously forecast.
“The euro continues to wobble over uncertainty about periphery’s fiscal woes,” said Brown Brothers Harriman analysts.
The Irish government has come under pressure from some euro-zone national governments to seek a bailout, but Ireland hasn’t requested financial aid from the European Union, the European Commission said Monday, adding that the country’s funding needs are covered until next summer.
“The risks that face Europe are serious and could create near-term downward euro pressure,” said Camilla Sutton, currency strategist at Scotia Capital in Toronto.
After dealing earlier in the year with a boiling point in the debt crisis, and then in response creating a backstop for its most stressed members, the E.U. is better prepared this time around to handle any more serious problems that emerge from the current bout of worry, Sutton said, meaning the euro’s weakness is likely to be temporary.
For now, though, investors have left the euro behind, trading in similar patterns as they did at the height of the debt crisis–when the dollar gained at the expense of stressed Greece, according to a UBS analysis of recent trading.
“Last week our clients switched tactics, leaving behind the Fed’s quantitative easing theme,” which had seen investors flee the dollar based on the Fed program’s likely knock-on effects on the dollar, “and focusing instead on the sovereign risk crisis within the euro zone,” said UBS strategists in a note to clients.
The dollar also gained against the yen after Japan reported its economy grew faster than expected in the third quarter. The better-than-expected figures dented demand for the safe-harbor yen, to which investors oftentimes turn when the global picture darkens.
Better-than-expected U.S. retail-sales figures, which showed their best month in October since March, helped the dollar tick to its highest level since Oct. 5, at Y83.28.
Rising U.S. Treasury yields also boosted the dollar’s prospects against the yen.
The dollar could further its gains against the yen, analysts said, if U.S. data continue to show positive signs, leading some investors to believe the Federal Reserve could temper its recent bond-buying program, which has weakened the dollar.
Another gauge of the U.S. economy, though, the New York Fed’s Empire State survey, showed New York-area manufacturing activity deteriorated in November, keeping the dollar’s gains in check.
Are you prepared for a meltdown of the world economy? Do you know what that might mean for you and your family? Will you be able to take care of yourself and family if this occurs? I urge you to ask these questions of yourself. You might want to engage your neighbors as well in this conversation. A neighborhood prepared is a secure one.
Is anyone out there hearing us on the trends in the U.S. and world economy? We have been saying for several years now that Gold and Silver were the best places to be…and now we are at 1290 in gold and 21.00 in Silver. Gold is most likely headed to 1650…
The Fed cannot continue to create money out of thin air and sustain the U.S. dollar. Of course, theoretically a cheap dollar means greater exports…but what do we make now?
Gold Climbs to Record as Dollar Weakens Following Fed Statement
By Anna Stablum – Sep 22, 2010 5:41 AM MT
Gold climbed to a record in London and New York after the Federal Reserve said it was willing to ease monetary policy further to boost the U.S. economy, triggering a slump in the dollar.
The dollar declined as much as 1 percent against the euro today, after the Federal Open Market Committee said yesterday in its statement that it’s “prepared to provide additional accommodation if needed to support the economic recovery.” Silver reached the highest price since March 2008 and platinum hit a four-month high.
“If and when this ‘additional accommodation’ discussed by the FOMC occurs, the reasoning will be more about a stealth devaluation of currency than a boost for consumer spending,” Brad Yim, a New York-based analyst at Castlestone Management Ltd., said by e-mail. The Fed wants a lower dollar to stimulate exports, he said. “A move like this should provide further support for gold in the near-to-medium term.”
Bullion for immediate-delivery rose $5.47, or 0.4 percent, to $1,292.63 an ounce in London at 12:08 p.m., after earlier today rising to a record $1,295. Gold for December delivery was 1.6 percent higher at $1,294 an ounce on the Comex in New York, after touching an all-time high $1,296.50.
The metal rose to a record of $1,291.75 an ounce in the morning “fixing” in London, used by some mining companies to sell output, from $1,275 at yesterday’s afternoon fixing.
The dollar fell to the lowest against the euro in almost five months after Portugal sold 750 million euros ($1 billion) of bonds and investors bought the maximum amounts offered at Spanish and Irish debt sales yesterday.
Gold and Inflation
Gold, up 18 percent this year, is heading for its 10th consecutive annual gain, the longest winning streak since at least 1920. Bullion has outperformed global equities, Treasuries and most industrial metals, prompting record investments in gold-backed exchange-traded products. The metal rallied as central banks and governments maintained low borrowing costs and spent trillions of dollars to stimulate their economies.
Global holdings of gold by ETPs gained 1.01 metric tons to a record 2,089.5 tons yesterday, according to Bloomberg data from 10 providers. Holdings are up 16 percent this year.
Prices have gained this year even as U.S. inflation slowed. Bullion is traditionally bought as a hedge against rising consumer prices. Inflation expectations, based on the 10-year U.S. Treasury breakeven rate, have fallen to 1.82 percent from 2.19 percent six months ago.
The FOMC said in a statement after its meeting yesterday in Washington that “inflation is likely to remain subdued for some time before rising to levels the committee considers consistent with its mandate.”
“I don’t think many people are actively trading gold based on a view that inflation is likely to accelerate in the near- term,” said Tom Kendall, an analyst at Credit Suisse Group AG in London. “Certainly some people are concerned about the longer-term impact of current monetary policy on inflation.”
Silver for immediate delivery in London gained 0.4 percent to $21.0625 an ounce, after earlier today reaching $21.1263, the highest price since March 17, 2008. The metal is up 25 percent this year.
Platinum rose 0.6 percent to $1,633.85 an ounce, after reaching $1,634.25, the highest level since May 19.
“Both metals look also well supported and silver remains in its uptrend,” said Alexander Zumpfe, a precious-metals trader at Hanau, Germany-based Heraeus Metallhandels GmbH. “However, we think that despite its own technical bullish picture the latest move was currency-driven with the dollar losing ground after yesterday’s Fed comments.”
Palladium gained 1.5 percent to $542.75 an ounce.
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At this point the best buy is silver…and food.