Friday, August 1, 2014

That's a Wrap for July - A Review of the Month

At the first of July we wondered if July would be a lazy summer month or would there be events that might trigger the monetary system changes we watch for. Because IMF Chief Christine Lagarde made a speech early in 2014 using an odd reference to numerology, many thought she may have been issuing a signal that major events impacting the monetary system would happen in July (she made numerous comments about the number 7 and its signifigance in her speech). While there were several key events in July that might have triggered systemic change, none of them actually did so. At least not yet. Let's review the key events for the month of July.

-Bank for International Settlements issues a warning that "asset bubbles" were forming

-Tensions between the West and Russia ramped up over the Ukraine. Before the BRICS summit Russian officials were making statements that Russia had to attack the US dollar based monetary system

-the BRICS summit was held in Brazil and a formal announcement was made to start up a reserve fund and new BRICS Development Bank

-after the BRICS summit, BRICS officials and Western officials downplayed the new BRICS Bank as a threat to the IMF and World Bank. Instead they talked about how they "would complement each other"

-military conflict ramped up around the world. ISIS in Iraq. A jetliner shot down over the Ukraine. Isreal and Hamas erupt into fighting. The Middle East in general feels like a tinderbox.

-the BIS issues a second warning that another financial crisis was possible and it could be worse than the first one in 2008

-the IMF joins in late in July and cuts its forecast for global growth and warns of risks to growth

-Argentina finishes out July by defaulting on its sovereign debt for the second time in just 13 years

Whew! Wars, Warnings, Threats to take down the US dollar based system, a jetliner blown out of the sky, and a major nation defaults on its debt. What a month! Not a lazy summer month for sure!

And yet, none of this led to any major change in the global monetary system. At least so far. The US dollar index is about the same. Gold and oil prices are about the same. The US issues a GDP for the second quarter that exceeds forecasts (although cynics question the numbers as usual). At least on the surface, all seems to remain steady.

This is what is so eerie about the situation. Everyone knows that the global financial system is fragile. Monetary officials even issue warnings about it constantly. Everyone knows that any sudden "black swan" event could trigger another GFC (Global Financial Crisis).  And yet, when these kinds of events do happen, markets seem to yawn. There are no widespread indications of panic. No bank runs. No major market moves in any of the key indicator markets.

I'm not sure what all that means. Maybe a calm before the storm. Maybe apathy is so strong that most people are not aware of the potential problems. Maybe the system is stronger than it would seem and more able to withstand shocks when they do happen.

Whatever the case, we will continue to follow things here. Until there is an event which triggers a systemic crisis, we continue to see change taking place on a slower, steady pace. We have covered how that change is already underway. Change is happening more on a regional basis where new ideas are being tested for broader implementation (like the Klickex GSD concept which we will continue to follow). 

We believe the global monetary authorities (like the IMF, BIS. World Bank, Central Banks, etc) think the problems are manageable over time. Even the massive debt problems. We think they believe they have a time frame of at least 2 years and perhaps as many as 10 years to "reset" the system to deal with the problems and be more stable in the future. This comes to us from sources working on the problems from the inside.

If they are right, expect change to continue on a slower, more controlled basis. If they are wrong, expect some unexpected "black swan" event to trigger another global financial crisis. If that happens, this one will be bigger and harder to deal with. Jim Rickards and many other credible analysts are forecasting it will happen and the IMF will introduce the SDR as a global solution to the crisis. This will be an ongoing drama to follow over time.

Here, I just admit I don't know. All I can do is follow events and try to report them. I think everyone needs to stay informed and prepare as best they can for whatever does really happen. The goal here is to try and stay on top of the news and summarize what I think is important for readers here to know about. Keep in mind this is not my means of employment. This blog is a hobby done in my spare time. So I might not catch everything I should. But I will give it my best effort for readers here. 

Added note: Another big thank you to readers here! 

This little blog has now had over 36,000 page views since it started in January. Readers have come from over 25 different nations around the world. Readers here come from all kinds of various viewpoints as I see when I get feedback and emails, etc. Some very high profile and well connected readers also provide me with great insights into what is happening inside the system to work on the problems. Some other readers are very skeptical of organizations like the IMF and Central Banks in general. It's all good because this is the real world. A variety of views competing in the marketplace of ideas.

I have even been approached about doing an interview for a national online radio broadcast about some of the articles written here. Something I won't try for now because I feel more comfortable writing than talking:). And I am not really an expert like most of the guests they have on that program. I am just the average guy out here trying to understand what is going on and help anyone else interested to do the same.

I never dreamed any of this would happen when this little blog was started. The original intent was to just have a place to keep track of key news events and archive them for myself and a few friends and relatives that were interested in this topic. What I have learned is that more and more people are becoming interested which I think is good. They want and need the best information possible to make decisions. This has caused me to view this blog differently. I now take it very seriously in terms of trying to provide the best sources of information I can find. I feel accountable to the readers who come here from everywhere. I owe them my best effort.

I'll do my best and ask your help in getting others interested in reading the blog here and staying informed. Hopefully, the news and links provided here will stimulate readers to do their own research. It is important to verify information yourself rather than just accept what someone else claims. Test out those who make forecasts to see who gets things right more often.

All input is welcome here!. The better the information I get, the better the information readers will have to make decisions. I will work hard to leave out my opinions which don't really matter. What matters is what actually happens. Bad information leads to bad decisions. Good information leads to good decisions.

Update: This article on former Fed official Andrew Huszar gets us off and running for August!

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