Saturday, February 15, 2014

The $64,000 Question - When is a "Reset" Coming?

At the top of this blog it says "Global Currency Reset Coming? - We'll keep an eye on it". So the idea of some kind of major reset is the entire purpose of this blog. Questions like "What is a currency reset?" and "When will a currency reset happen?" are obviously the big questions to ask.

On this blog a "currency reset" means an event takes place that causes the US dollar to lose a significant portion of its value very rapidly. The dollar has been slowly losing value for decades. Here we are talking about something happening to speed that process up dramatically. This interview between former CNN reporter Greg Hunter and John Williams of is excellent if you want some background on how a dollar crisis might unfold (Williams believes it will start sometime this year). If you are short of time just listen to the segment between the 8:30 mark and the 21 minute mark.

There are many other credible voices saying that in 2014 we will see a sharp devaluation of the US dollar. Voices like former Assistant US Treasurer Paul Craig Roberts, former OMB Director David Stockman, and many others. Other respected voices like Jim Rickards and Jim Sinclair allow for a time range starting as early as this year through the next 2-3 years.

 We don't have a crystal ball here. We don't know. What we do here is take the question seriously and then compile evidence related to it. What we do know is that IF such an event happens, it will have a major impact on everyone. It will not be something that people will be able to just ignore. It will impact jobs, incomes, interest rates, life savings, pensions, social safety net programs and on and on. There are many who believe a dollar crisis will lead to an announcement by the IMF of a "global currency reset". This would involve a reset of the relative values of the currencies of over 200 nations all at once. We don't think something like this will happen unless there is a crisis event to trigger it. We will watch for news items that might indicate an event like that here. 

With all the above said, this is why we watch news related to the IMF. If any kind of "global reset" ever happens, it will come from the IMF. This is where the nations of the world meet to try and reach agreement on monetary policy. For global reset to take place, all the major players including the US (who has veto power at the IMF) would have to be in agreement. So we can watch IMF related news and use common sense to see if anything like a reset looks imminent.

Here are a couple of articles that show that right now there is NOT agreement at the IMF. We have posted several articles on this showing that the BRIC/emerging nations want more voting power at the IMF. In 2010, a proposal to do that was approved by other nations but has NOT been approved by the US Congress. We don't think any kind of global reset or major monetary system change will come until after these reforms are in place. If major change happens before the reforms are approved, it will have to come OUTSIDE the IMF. 

We think this is why we have seen Christine Lagarde pleading for "cooperation" between nations. As long as they are going their separate ways, a global agreement at the IMF is not going to take place.  At some point the BRIC/emerging nations may just give up on the IMF and move forward with plans to bypass the US dollar. All of this is easy to follow if you watch the news articles related to it. That is what we will do here.

So, here is an article from the point of view that the proposed IMF reforms don't go far enough and we need "major reforms" there. It is by Mohamed A El-Erian  (formerly of PIMCO). In the article he states that a new more powerful reform to give more voting power to emerging nations will "take longer and be much more complicated to implement". He says many countries need parliamentary approval and "the process of getting there is bound to require difficult negotiations and hard compromises". Not something we can expect to be happening right away for sure.

Then we have this article from the other side of the political fence  by John Taylor of the Hoover Institute at Stanford. He points out why Republicans in the US Congress are not interested in giving more money or power to the IMF unless the IMF makes changes to their liking. So clearly US politics are in play here. We know how that normally goes in terms of anything happening quickly.

Both sides here want the IMF to make changes in opposite directions. Not a situation indicating everyone is on board with a plan to globally reset all currencies by any means. This is what we mean by using common sense to interpret the news.

This situation is fluid. It can change at any time. A financial crisis could lead to rapid movement to agree on some kind of "solution". The BRIC/emerging nations could decide to just forge ahead on their own with some kind of new global central bank and currency if they cannot get what they want at the IMF. And then we have the new world of cryptocurrencies. Bitcoin challenging the existing financial system. A hint of a possible new global asset backed cryptocurrency from Klickex coming in the future? All these things could come into play over time. 

That is why we are here to keep an eye on it all. Whether change happens next month, next year, or in 2-3 years. We do think we will see major changes within 2-3 years.

1 comment:

  1. I'm inclined to agree. There has to be a catalyst. They wouldn't just spring the reset on us, especially when economic figures are improving somewhat and stockmarkets are near record highs.

    I saw this article today and thought this is possibly the only other way to do it without some sort of catalyst/crisis: