Sunday, November 9, 2014

Some Post Election Followup Stories

We don't discuss politics here very much because our focus here is on things that have potential to bring about major monetary system change. Politics can have some impact on this obviously. The fiscal policies that countries implement can impact things for example. What we are going to focus on from the most recent US elections though is the possible impact on the US Fed and the outlook for passage by Congress of the 2010 IMF reforms. Below are some post election articles that allow us to touch on these topics. First a few quotes, then a few comments.


"The Republican sweep offers the new Congress a chance to do a lot of good things, but none is more timely or strategic than monetary reform. Of all the things the Democratic Senate was getting in the way of, it’s the most important."

"I’d start with “Audit the Fed.” As recently as September, this passed by an overwhelming bipartisan margin in the House, 333 to 92."
"The idea is not simply to look at the Federal Reserve’s books (they’re audited every year). It’s to find out what the Fed is doing at home and abroad and how it makes its decisions."
"Senate Republicans should resist the temptation to erode Federal Reserve independence after victory in mid-term elections, Dallas Fed President Richard Fisher said."
"Richmond Fed President Jeffrey Lacker today had a similar message as Fisher’s on the importance of central bank independence."
“I’m against compromising that, with bills that would give individual congressmen the right to audit last week’s FOMC meeting,” he said in response to an audience question after a speech in Washington."
"After a night of punishing losses, House Democrats are deeper in the minority than they’ve been in nearly 80 years — and party strategists say it could take years — possibly until after the next round of political map-drawing in the 2020s — to dig out of the hole."
"Heading into this year’s midterm, control of the chamber had never been seriously in question. The realities of redistricting and demographics have created a congressional map that is heavily slanted against Democrats. And that fact, party strategists fear, could make capturing control of the House a very steep endeavor until after the next round of line drawing, which will follow the 2020 election."

"According to the Cook Political Report, 247 of the House’s 435 districts favor the GOP, while 188 tilt Democratic. In 2012, even as Mitt Romney was taking a national drubbing, he managed to win 21 more congressional districts than President Barack Obama."

My added comments: 

There is a lot of important information in the articles linked above. Readers should read the entire articles for full context.  Here are some brief summary points to consider from these articles.
- the NY Post article and the immediate blow back from Fed officials against the idea of Congress doing a full audit of the Fed indicate this issue is probably going to resurface now that the GOP controls Congress. Sen. Rand Paul has carried on the torch on this issue for his father. The House already approved it (on a bi partisan basis). The Senate had blocked it. It is clear from the Fed officials comments they are worried about it passing the Senate now.
-the Politico article points out the potential long term problem for Democrats in the US House. In 2010 the GOP took over many state legislatures which draw the lines that makeup the US Congressional districts. They were able to draw lines that will favor the GOP nationally for many years to come (at least until the next redraw in 2020, maybe longer if the GOP retains control in these states).
Looking at the above facts, how do you think this is going to impact the IMF getting Congress to pass the 2010 IMF reforms which give the BRICS nations more power at the IMF and also gives the IMF more funding

Congress was already not inclined to go along with giving the IMF more money or allowing the BRICS nations more influence. This new Congress is very unlikely to even think about doing that. There is a very large contingent now of Tea Party members in both the House and Senate. They do not trust the IMF, the World Bank, the UN, etc. at all. There is almost zero chance they would allow a vote to approve the IMF reforms to be passed. Internal problems at the World Bank are not likely to inspire confidence from the new Congress either. And, as Politico notes, this is not likely to change anytime soon in the US House. In addition, the Obama Administration has no political capital left to push this project.
This means that the BRICS nations are probably not going to get what they want any time soon. We can expect that they will see this and just continue to build out their Plan B which is their new BRICS bank and new reserve fund. We can expect that Russia, and especially China, will push their own currencies to challenge the US dollar as lone global reserve currency. This is already happening, but expect it to ramp up even more now that reform within the IMF seems very unlikely any time soon.
China is already working hard to get the Yuan adopted as BOTH a trade currency AND a reserve currency. In our next blog post tomorrow we will see several articles pointing this out. In 2015 the IMF will consider adding in the Yuan to the SDR currency component mix. I would expect this to happen for sure now as the IMF will be trying to appease China as much as possible since the 2010 reforms are probably stalled out for a long time. They don't need US Congressional approval to add the Yuan to the SDR currency mix.

Possible Wild Card: What could change the time frame above? 

Answer: Another major financial crisis that spurs major change rapidly could cause Congress to re evaluate things. In a crisis Congress might defer to the IMF to try and fix things if the US Fed cannot respond.

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