Wednesday, December 31, 2014

Wishing Everyone a Happy New Year!

Enjoy this classic tune!

Bean Wishes Everyone A Happy New Year!

(& volunteers to stay on the lookout in 2015)

(photo by Julie Anne White)

Fearless Forecasts for 2015

One of the guiding principles of this blog is that I don't make forecasts about how or when monetary system change will take place. I believe it will take place, but don't claim to know the timing or exactly how the change will unfold. I leave those opinions to the experts who are featured here on the blog like Andrew Huszar, Jim Rickards, Nomi Prins, and others.

Just for fun, since we are at the end of 2014 now, I will throw out some "fearless forecasts" for 2015 admitting they could be completely wrong. We'll check back at the end of 2015 to see if I got any right. So, here we go:


1- The IMF will include the Chinese Yuan in the SDR basket of currencies (if I miss this one I will probably have a pretty bad year forecasting wise as this one should be a cinch)

2- The situation in the Ukraine will ramp back up as a focal point of crisis in early 2015 (say by March). The IMF needs $15 billion to keep the Ukraine from defaulting and right now they don't have it. Russia is being pressured at home economically so expect them to make it as hard as possible for the Ukraine to avoid default (to embarass the west). This one should get interesting soon. The threat of a larger military war could increase adding to uncertainty.

3- Some time by late 2015, the threat of another global financial crisis will surface in the media. The threat may or may not be real, but people will think it is real. Media and political pressure will be put on the Republican Congress to do something about it. That something will be to allow reforms at the IMF to give it more funding and ability to respond to the perceived threat. (If this does not happen by late 2016, I think it may not happen at all because the Republican Congress is well setup to take the blame up until the next election).

4- The IMF will hold more meetings to come up with some way to re-balance voting power and influence at the IMF without having to go through the US Congress. (Congress reaction to this will be interesting if the IMF bypasses them by changing the IMF voting rules).

5- Market volatility will go higher in 2015. Stock markets, gold, silver, oil  etc. will have very wide swings up and down. The US stock market will top out for now some time in 2015. This market volatility will lead up to the perceived crisis mentioned in #3 above; perhaps by the fall of 2015 (enough time to establish the Republican Congress as the entity to blame in the mind of the public, but this could easily spill over into 2016).

6- Both the IMF and the BIS will continue to issue warnings about the stability of the financial system and the need for more global oversight and funding at the IMF to deal with "the next crisis". They will have warned us they will say. And they will have. It's just that no one is paying any attention to them.

7- Gold will continue to be controversial. There will be a louder call for gold to return as money by gold advocates, but that won't happen. Gold will still be the ultimate hedge for nations, but not for the public. The general public will view gold as too expensive. If the general public opts to buy precious metals, they will mostly buy silver. If there is no crisis in 2015, the western public will not be interested in gold at all. Silver will still have a chance to do OK due to industrial demand increase for solar power, etc. Either way, silver outperforms gold in 2015. I feel good about getting this one right, whether the price goes up or down :)

8- China and Russia will form an even closer alliance in an effort to diminish US global influence and power. How this turns out will be interesting as the US Congress now is much more nationalistic and potentially confrontational with those countries. Russia and the US will both pressure the EU to be on their side. 

9- Seattle repeats as Super Bowl Champs? We'll see. Just for the record, I am not a Seahawks fan. Just an observer :). I actually like college sports better.

Even if none of the above happen and nothing major happens related to monetary system change in 2015, we will cover what happens here. There is no magic date for major change to happen. It could start happening in 2015 or much later. Time will tell. I do think  #1 above will happen for sure though in 2015. And I feel good about #7 too.

Added note: 

A question I get here is how can the average person prepare for change given that so many different future scenarios are possible? On January 1st 2015 I will have an in depth article that talks about this. It will give the history for why this blog was started, what it hopes to do, and offer some common sense ideas that anyone should be able to use to prepare for whatever happens. This article will also be provided as a Google document in Word format so that it can be easily printed and given to anyone interested. Of course it will be free to anyone who can use it. Please do hand it out to anyone you think can use it.

Tuesday, December 30, 2014

Why Silver Works Best for the Average Person

This blog is directed towards the average person like myself. People and families that just want to make a decent living, give their kids a fair start in life, and be able to retire some day with dignity. Most readers here will probably not be wealthy or have huge investment portfolios to manage. Many will have limited savings to work with. For these reasons, I think silver is the precious metal that works best for long term insurance for most people. Let's discuss it further.

Our main theme here is to watch for signs of major monetary system change that we think are coming in the future. We don't know when the changes will come, but we do think they will involve a loss of purchasing power for the US dollar eventually. If there is another financial crisis, the hit to the dollar could come more quickly and sharply. But if another crisis does not emerge any time soon, the global movement towards a new multi-lateral monetary system will slowly and steadily decrease the role of the US dollar as sole global reserve currency. This in turn will steadily decrease the purchasing power of the dollar while the Yuan rises in influence around the world and in the IMF currency basket for the SDR.

Either way, we need a plan to be insured against the devaluation of the dollar that is reasonable and does not involve too much risk. This is where silver works very well for the average person.

There is no question that gold is the precious metal of choice for central banks, nations, and high net worth individuals. They can allocate a portion of their savings/reserves to gold as an insurance hedge because they have huge pools of savings to work with. Most average people don't have that kind of savings to work with. But most can afford to allocate some savings to silver as an insurance hedge without taking too much risk. 

If there is a big shock to the monetary system that causes people to lose confidence in it and buy precious metals, gold will no doubt go much higher. This is because the demand for it by central banks and high net worth individuals will go up faster than the available supply. But the same should be true for silver. 95% of the global population is going to feel like gold is too expensive for them, but silver will look like a bargain (even at twice the current price for silver). 

Right now silver is an especially attractive buy versus gold because the gold/silver ratio is 75:1 which is way above the historic norm that is closer to 50:1. At times this ratio has fallen as low as 30:1. It is estimated there is only 15 times as much silver on the earth (in the ground) as gold. So gold priced at 75 times the price of silver is very expensive from a both a historical perspective and in terms of the in the ground supply. Click here to see a short video analysis that illustrates this point very well on the charts.

The point is that silver is setup to outperform gold regardless of how prices move. I think this makes it the lower risk metal to hold as long term insurance for the average person who cannot afford to take much risk.

But what if there is no new crisis anytime soon? Most people who follow this topic don't think this is likely. They are convinced another crisis is coming soon. But they also have felt that way now for several years and have been wrong so far. It is entirely possible that a crisis will be avoided for much longer than people expect. This is where silver really shines versus gold for the average person.

Most people simply cannot tie up a big part of any savings they have into something they may have to hold on to for years before they need it. But they can risk putting some of their savings into silver because silver is already at a fairly low price. In a worst case where they were forced to sell it to meet their needs, the risk of taking a big loss is reduced with silver. 

Silver is also in position to hold up and even appreciate decently in price even if there is a real global recovery. This HSBC forecast for silver supports this view. In a real global recovery industrial demand for silver will go up and help support the price. Tax revenues would rise temporarily reducing the strain of the global debt overhang on governments (we saw this in 2014). This would postpone another crisis further into the future. Gold would likely fare poorly in this scenario as confidence in the system would remain high and gold would simply look expensive to the average person. Demand for a crisis hedge by the general public would drop off.

On the other hand, even if silver did fall in price temporarily, it would not need another crisis to rebound in price more quickly. This is due to the industrial demand for silver increasing as the supply levels off and actually falls. This is the current HSBC forecast for silver as things stand today. The demand for gold is more closely tied to something bad happening.


Silver works best as the precious metals hedge for the average person. As an example, let's take someone who has $25,000 in long term savings to work with. That person could acquire about 300 ounces of silver today as a long term insurance hedge with $5,000 of their savings (as opposed to only 4 ounces of gold). In a true crisis where the dollar is losing a lot of value quickly, 300 ounces of silver would be huge because most people will have little or none (sadly to say). Four ounces of gold would have great value as well, but might be harder to use to acquire what you need. A larger number of ounces with a lower price per ounce might actually be more helpful in the real world if you are trying to buy food for example.

Using falling prices for this same example, if silver dropped another 20% in price to $13 an ounce, the loss would only be $1000 of the total $25,000 savings pool (4%). And the price would be more likely to rebound back up more quickly than gold if there was no crisis environment because silver cannot even be mined now for less than $15 an ounce at most mines around the world (even with lower energy prices). 

But if we get big moves up in gold and silver prices and the gold/silver ratio returns to norms (50:1), silver could easily generate double or triple the returns of gold from current prices. (eg. gold @ $2500, silver @ $50 = 100% return for gold and 300% return for silver). From a risk/reward point of view, silver has a downside of perhaps 25% vs. a potential return of 300% using reasonable numbers. $50 only takes silver back to its old highs. $75 silver is not unreasonable at some point in the future based on just normal supply and demand fundamentals over the next 10 years.

All of this suggests that silver is the lower risk precious metal for the average person to hold as a long term insurance hedge for the future. It's also why we believe silver will outperform gold from here regardless of what scenario unfolds in the global monetary system. Acquiring some silver is something reasonable the average person can do to prepare without taking too much risk. The numbers speak for themselves.

Update 12-31-14:  CNBC runs this article on why you should view gold like insurance. It's a good article and goes along with what we have said here on the blog. But, we do think silver will work better for many people. So just substitute the word silver for gold in this article to get the same idea.

Added note: 

A question I get here is how can the average person prepare for change given that so many different future scenarios are possible? On January 1st 2015 I will have an in depth article that talks about this. It will give the history for why this blog was started, what it hopes to do, and offer some common sense ideas that anyone should be able to use to prepare for whatever happens. This article will also be provided as a Google document in Word format so that it can be easily printed and given to anyone interested. Of course it will be free to anyone who can use it. Please do hand it out to anyone you think can use it.

Monday, December 29, 2014

What's Your Plan? A Plea to Readers Here

This blog has a number of goals. First and foremost is to provide the best quality information we can find on the topic of monetary system change for readers. If change comes, good information and an understanding of what is happening is the most valuable thing you can have. It is absolutely impossible to make good decisions without it. So that is first priority.

Another almost as important goal is to encourage readers to think ahead and have a plan in mind for whatever change may be coming. This is a much harder goal to achieve because none of us know for sure what the future will bring. We can't know if or when major change will happen. We can't know if the system will just continue to limp along for several more years, actually have a real recovery, or sink into another major crisis when we least expect it. 

A strong case can be made that the world could sink into another global depression at any time if volatile markets trigger unknown derivatives into default at too big to fail banks. At the other end of the spectrum, easy money policies by central banks could lead to very high inflation at any time if the velocity of money suddenly picks up. And then the ongoing forces of inflation and deflation might just continue to balance each other out for some time to come, creating a sense that things are stable. But who knows for how long?

Living in a world with this much uncertainty and potential for sudden, unexpected change means we must stay informed and have some kind of plan in mind in the event a worst case scenario does unfold at some point. Waiting until after a crisis unfolds to think about what to do will simply be too late. On the other hand, we cannot live life on edge every day worried about all these problems. That does not work either. 

Having now covered all these issues for nearly a year on this blog I feel more than ever that people need the information here. They need to take it seriously. They need to think about having a plan. It will vary for each situation of course. But there are a few common sense steps almost everyone can take that would improve their situation no matter how things unfold. Things they can do without going overboard if not much changes for a long time, which is also possible.

On January 1st 2015, I will publish a more in depth article than usual which covers how this blog got started, what its goals are, and also offer a few simple common sense ideas on how to make a reasonable plan to deal with whatever might happen. The article will be a Google document (in Word format) linked here. This way you can open the article and print it out if you like.

You can give it to anyone you know or care about that needs to consider these issues (which is everyone in my opinion). 

The article will not be overly complex or of a "doom and gloom" nature. It is designed to reach out to the average person who probably has not given all this much thought, but needs to. It will of course be free to anyone who wants it. I hope readers here will feel free to hand it out if they think of someone who would be interested in the information. 

I don't know what the future will bring or when change may come. What I do believe is that the more people who have thought about these issues and made some kind of plan, the better off everyone will be. I feel like we have a duty to each other to try and help out. This blog is the only way I can do anything to try and contribute to my neighbors out there. Please do what you can in your area to be a source of good information whenever the opportunity arises. I hope everyone has a wonderful Holiday Season as we get ready to see what 2015 will bring. A new year is always a good time to think about having a plan.

Added note: I love to hear from readers so always feel free to send an email here at:  if you have a comment or question. Let me know if the blog is providing useful information when you have a chance. That is the intent here.

Sunday, December 28, 2014

Taking the National Debt Personally - How Do You Plan to Pay Your Share?

This article is directed towards US citizens because it deals with the enormous debt overhang that the US now has to deal with in the future. But any country with large debt to GDP problems could apply this article to their situation. Here we will try to take a complicated subject and simplify it in a way that perhaps the average person can relate to. 

When we hear about trillions in debt, it seems like something detached from our daily lives. We know it exists, but so far no one has asked us to pay it off. In fact, lenders seem willing to keep funding whatever amounts we want to borrow. Let's take the actual numbers and make them personal to try and bring the topic more into the real world for "we the people".


For this article we will use the National Debt Clock (numbers as of the day this article was written) as the factual basis for the numbers we will look at. Instead of looking at the giant national number, we will break it down on a very personal level and ask: How much do you owe? and How do plan to pay for your share? We will try to keep it is as simple as possible.

Question: How much do you as a US citizen owe for your part of the national debt?

Answer: As of right now the National Debt clock says you owe $56,401 as your share.

Question: Is that all I owe right now?

Answer: No, you also owe whatever your personal private debt is (home, auto, credit cards, etc) . As of today the average per citizen is another $52,317.

Question: That doesn't sound too bad. If I pay that off over time in the future am I out of debt?

Answer: No, unfortunately you have promised to help out with the payment of social security and medicare forever into the future. Those programs are building up debt faster and faster, so your share of what is owed to pay for that will actually get much higher in the future even if you paid off what you already owe now. 

Question: How much am I on the hook for with these future obligations?

Answer:  As of right now your share of that is a little over $363,000. But that amount is still growing and continues to grow faster than what you are paying off. 

Question: How do you plan to pay off your share?

Answer: That sounds impossible to pay off. I will never make enough money to pay all that off. I have to eat you know. By the way I am only 5 years old. How do you expect me to come up with all that money? My Dad can't pay off his share so how is he going to pay for mine?

That's a fair point. Really, we can only expect that people who have an income and pay taxes could make payments on their share of all this debt. So let's relook at the numbers using the share of debt for each person who could actually make any payments on it (taxpayers).

Current debt per taxpayer: $154,000 

Share of future unfunded future promises (social security & medicare) per taxpayer: $989,000

Share of private personal debt per taxpayer: $142,000

Total share of all projected debt per taxpayer:  $1,285,000

So I will ask you the question again now: How do you plan to pay your share?

Say what? I am not in the 1%. I can't pay off my share if I give everything I make for the rest of my life since my share just keeps getting bigger faster than my income goes up. I can't even pay what I already owe now. How do you expect me to ever pay all this off?

Answer: No one does. These numbers show you on a personal level why everyone who understands the situation knows that the present system is unsustainable. For now, you can keep getting by because people will continue to let you borrow at very low interest rates so you can keep making a "minimum payment" on your share. That is all you are doing. You are not even paying off your existing balance due. Your minimum payment is just keeping your total balance due from growing quite as fast. Meanwhile, your future debt obligations are growing rapidly, even as you cannot even pay off what you already owe today. 

The point is, from a pure math standpoint, this cannot go on forever. No one knows how much longer it can go on, but at some point something has to give to get rid of or reduce the debt you cannot repay and will never be able to repay. According to the debt clock, your share of all future projected debt exceeds the total of all your assets and is growing faster than your assets (the very definition of insolvency)If interest rates on your debt start going up, the day you can no longer borrow what you need will arrive even sooner. It will probably arrive for sure when your minimum payment you are making only covers the interest on all the debt you owe (if not before).

Question: Why are people still lending me money?

Answer:  Because if they stop you will immediately be unable to make even the minimum payment. This will cause the entire system to collapse quickly. Your lenders prefer to keep you afloat for now because they are not ready for the major changes required to the system to deal with your default. So for now, they will continue to restructure your debt and loan you enough to continue to make your minimum payments. This may continue for awhile longer, but not forever.

Concluding comments: 

The point of this exercise was not to depress you. The point is to convince you that the issues we are covering here on this blog are serious. At some point major change is going to happen because it has to. The present system cannot be sustained long term. It may be able to hang on longer than you would expect because change is painful and will be put off as long as possible. But change is coming at some point. How that change takes place and when is going to impact everyone one way or another. That is really the most important point to keep in mind.

Your debt will eventually have to be dealt with. Either by outright default or by devaluing the US dollar (inflation) so that you can continue to make debt payments using more dollars that are worth less. Also, it may be that some of your future promises to pay for social security and medicare will get cut, but that decision will set off a wave of civil unrest from those who are counting on you to pay for it.

There is no easy way out now. Your debt is already too big and growing too fast. Change is coming some day in the future. What the average person needs to do is stay informed and be ready to adapt to whatever form the change takes. Understanding the issues is the first key step. Having a plan in mind to deal with change is the next step.

Added note: 

A question I get here is how can the average person prepare for change given that so many different future scenarios are possible? On January 1st 2015 I will have an in depth article that talks about this. It will give the history for why this blog was started, what it hopes to do, and offer some common sense ideas that anyone should be able to use to prepare for whatever happens. This article will also be provided as a Google document in Word format so that it can be easily printed and given to anyone interested. Of course it will be free to anyone who can use it. Please do hand it out to anyone you think can use it.

Saturday, December 27, 2014

BIS Releases Document on Minimum Capital Requirement for Banks

On Christmas eve we published a post with a tongue-in-cheek "legal" version of 'Twas the Night before Christmas'. We compared it to trying to read an IMF or BIS (Bank of International Settlements) work paper. This week the BIS releases a new document that perfectly illustrates this concept. It is called a consultive document and the title is 'Capital Floors: the decision framework based on standardized approaches'. Normally I suggest you read the full linked article, but you can skip this one if you like :) 

I'm sure if you are a banker this document is an easy read. But for the rest of us I will just try to focus on the key point for us to consider from it. The key point is that the BIS is still quite concerned about the risk of another banking system crisis. They have been working for quite some time on new rules for banks that require them to keep enough liquid capital on hand to deal with a situation where the bank sustains large losses (think derivatives here).

Basically, they are trying to come up with a minimum level of capital that banks need to keep on hand and are working through various formulas and ratios they want banks to use. We won't focus on that (your welcome). Instead let's look at why they think all this is needed. This is a direct quote from the new BIS document:

"Capital floors are an integral component of the capital framework. The objectives of capital floors include:

preventing undue optimism in bank modelling practices, thereby ensuring that modelled capital requirements do not fall below a prudent level;

mitigating model risk due to such factors as incorrect model specification, measurement error, data limitations and structural changes that may not be captured in historical data;

addressing incentive-compatibility issues, as banks face incentives to use overly optimistic internal models to reduce risk-weighted assets and thereby maximise return on equity;

improving comparability by providing a standardised assessment of risk which can be compared against internal model-based outcomes; and

constraining variation in model-derived risk-weighted assets (RWAs) that arises from differences in bank and supervisory practices, thereby improving the comparability of RWAs across banks and over time."

If you look at the list above of the objectives of the capital floor (minimum capital a bank needs to keep on hand), an obvious concern jumps out. We don't have to be bankers or understand all the jargon to get it. Just look at the phrases "undue optimism in bank modelling practices","incorrect model specification", and "incentives to use overly optimistic internal models" in the objectives.

Translation into english: They are concerned that banks are using forecast models for their investments that may be "overly optimistic". They want some kind of standard that forces all banks to hold enough capital to withstand a situation where their losses exceed their "overly optimistic models" forecasts (hold enough cash to prevent a bank default).

If too big to fail banks holding trillions in derivatives are using "overly optimistic" models, it creates a risk to the entire banking system. That is what this BIS project is all about. 

The question remains: In a world where big banks hold trillions in these derivatives and many are not transparent to the public, how do we know if any minimum level of capital they come up with will be enough?   

Answer:  We don't and they don't. They just know that they don't like the way things are now and some minimum standard (capital floor) is better than none. But this BIS document shows that the concern is there. And it implies they think banks have incentive to use overly optimistic forecasting models to "maximize return on equity".

Added note:

Here is a related story:

A reader at Jim Sinclair's blog site alerts him that the US Office of the Comptroller of the Currency has just issued a new warning about credit risk at US banks. You can access the OCC report directly here. The OCC is part of the US Treasury Department.

Friday, December 26, 2014

China steps into the spotlight as we head into 2015

We have covered the efforts of China to get more international respect for the Yuan as an alternative reserve currency. Recently we posted an article about how getting the Yuan included in the SDR basket at the IMF might be the most important (yet under the radar) story related to the global monetary system in 2015.  It looks like the issue is moving onto the radar more and more all the time.

Now we see a number of recent articles about how China is stepping up to help out Russia and also using the situation to expand the use of the Yuan. All this certainly ties in to our view that China expects to get the Yuan in the SDR basket next year. Below are links to some articles with a brief quote from the article just below the link.


Bloomberg: China offers Russia Help with Currency Swap Suggestion

"Two Chinese ministers offered support for Russia as President Vladimir Putin seeks to shore up the ruble without depleting foreign-exchange reserves. China will provide help if needed and is confident Russia can overcome its economic difficulties, Foreign Minister Wang Yi was cited as saying in Bangkok in a Dec. 20 report by Hong Kong-based Phoenix TV. Commerce Minister Gao Hucheng said expanding a currency swap between the two nations and making increased use of yuan for bilateral trade would have the greatest impact in aiding Russia, according to the broadcaster."

BRICSPOST: China Must Mediate Between Russia and the US

"Chinese state media has said Beijing must offer to act as a “mediator” between the US and Russia, even as it slammed Western sanctions on Russia that can have an adverse impact on “Russia’s morale and unity”.
The mouthpiece of the ruling Communist party, Global Times, said in an editorial on Monday that Chinese efforts to help Russia will have limited impact if the Russian economy does not diversify and remains heavily dependent on oil exports.
China must act as an active mediator between Russia and the US, or it will have to face unavoidable geopolitical risks if their conflict spirals out of control,” it said.
Global Times, a newspaper owned by China’s Communist Party, is known for its strident editorials.
The editorial added that the ineffectiveness of sanctions was evident from the fact that, “Russia’s annexation of Crimea only left the US and Europe impotent earlier this year”.
“Western sanctions cannot be the straw that breaks the back of Russia. This old trick has proven much less effective even in smaller countries like Cuba and Iran. That is why Russia’s annexation of Crimea only left the US and Europe impotent earlier this year,” said the editorial.
The ongoing crisis engulfing Russia in the wake of plummeting oil prices and the ruble depreciating is probably not what the US had planned. For Washington, what is happening in Russia is more or less unexpected,” it added."

Bloomberg: Ruble Swap Shows China Challenging IMF as Emergency Lender

"China is stepping up its role as the lender of last resort to some of the world’s most financially strapped countries."
"Chinese officials signaled Saturday that they are willing to expand a $24 billion currency swap program to help Russia weather the worst economic crisis since the 1998 default. China has provided $2.3 billion in funds to Argentina since October as part of a currency swap, and last month it lent $4 billion to Venezuela, whose reserves cover just two years of debt payments."
"By lending to nations shut out of overseas capital markets, Chinese President Xi Jinping is bolstering the country’s influence in the global economy and cutting into the International Monetary Fund’s status as the go-to financier for governments in financial distress. While the IMF tends to demand reforms aimed at stabilizing a country’s economy in exchange for loans, analysts speculate that China’s terms are more focused on securing its interests in the resource-rich countries."
My added comments:

These articles kind of get more interesting as you move down the page (please read the full articles). The first one just explains that China has offered to step in and help out Russia with its problems with the ruble falling. Note that China suggests "increased use of the Yuan in bilateral trade" is another goal for their proposal along with helping out Russia.

The second article comes from the BRICSPOST and is interesting as well. China clearly is concerned that things between the US and Russia may "spiral out of control". That is a sobering thought. China usually likes to stay out of the spotlight so being this aggressive about getting involved as a mediator suggests they truly are concerned. It also implies they see this as a potential opportunity for China to gain respect on the world stage. It can help them promote the Yuan. More positioning for inclusion in the SDR basket in 2015?

The last article actually talks about China taking over from the IMF as global "lender of last resort" for troubled nations. I find this article the most interesting because here we have a western media source touting China as becoming more influential than the IMF on the global stage. This may well be intended to put pressure on the US Congress to pass the IMF reforms that are currently stalled in there. The article almost sounds like it is hinting that Congress better pass the IMF reforms or else US influence around the world (and at the IMF) will take a beating. China will become the world leader when it comes to being there for countries in need.

All of this suggests that in 2015, there is likely to be a big push for monetary system change that involves more influence for China and the BRICS one way or another . Also, a push to try and increase the stature of the IMF. With the new US Congress not really interested in advancing either China or the stature of the IMF, it will be interesting to see how all this turns out next year.

Added Update 2pm: BRICSPOST runs these two related articles today.

China launching forwards swaps with Ruble

Gazprom mulls issuing bonds in offshore Yuan

Thursday, December 25, 2014

Wednesday, December 24, 2014

Twas the Night Before Christmas - Our Version

After nearly a full year of reading IMF workpapers and attempting to translate them into actual english here for readers, this seems appropriate for our "Night Before Christmas" blog post. Below is the timeless classic "Twas the Night Before Christmas" in its legalized version (somewhat like an IMF workpaper reads). After that we will attempt to make some sense of it in real english  :)   Merry Christmas!


Whereas, on or about the night prior to Christmas, there did occur at a certain
 improved piece of real property (hereinafter "the House") a general lack of
 stirring by all creatures therein, including, but not limited to a mouse.

 A variety of foot apparel, e.g. stocking, socks, etc., had been affixed by and  
 around the chimney in said House in the hope and/or belief that St. Nick a/k/a/  
 St. Nicholas a/k/a/ Santa Claus (hereinafter "Claus") would arrive at sometime  
 The minor residents, i.e. the children, of the aforementioned House, were  
 located in their individual beds and were engaged in nocturnal hallucinations,  
 i.e. dreams, wherein vision of confectionery treats, including, but not limited  
 to, candies, nuts and/or sugar plums, did dance, cavort and otherwise appear in  
 said dreams.  
 Whereupon the party of the first part (sometimes hereinafter referred to as  
 "I"), being the joint-owner in fee simple of the House with the parts of the  
 second part (hereinafter "Mamma"), and said Mamma had retired for a sustained  
 period of sleep. (At such time, the parties were clad in various forms of  
 headgear, e.g. kerchief and cap.)  
 Suddenly, and without prior notice or warning, there did occur upon the  
 unimproved real property adjacent and appurtent to said House, i.e. the lawn, a  
 certain disruption of unknown nature, cause and/or circumstance. The party of  
 the first part did immediately rush to a window in the House to investigate the  
 cause of such disturbance.  
 At that time, the party of the first part did observe, with some degree of  
 wonder and/or disbelief, a miniature sleigh (hereinafter the "Vehicle") being  
 pulled and/or drawn very rapidly through the air by approximately eight (8)  
 reindeer. The driver of the Vehicle appeared to be and in fact was, the  
 previously referenced Claus.  
 Said Claus was providing specific direction, instruction and guidance to the  
 approximately eight (8) reindeer and specifically identified the animal  
 co-conspirators by name: Dasher, Dancer, Prancer, Vixen, Comet, Cupid, Donder  
 and Blitzen (hereinafter the "Deer"). (Upon information and belief, it is  
 further asserted that an additional co-conspirator named Rudolph may have been  
 The party of the first part witnessed Claus, the Vehicle and the Deer  
 intentionally and willfully trespass upon the roofs of several residences  
 located adjacent to and in the vicinity of the House, and noted that the Vehicle  
 was heavily laden with packages, toys and other items of unknown origin or  
 nature. Suddenly, without prior invitation or permission, either express or  
 implied, the Vehicle arrived at the House, and Claus entered said House via the  
 Said Claus was clad in a red fur suit, which was partially covered with residue  
 from the chimney, and he carried a large sack containing a portion of the  
 aforementioned packages, toys, and other unknown items. He was smoking what  
 appeared to be tobacco in a small pipe in blatant violation of local ordinances  
 and health regulations.  
 Claus did not speak, but immediately began to fill the stocking of the minor  
 children, which hung adjacent to the chimney, with toys and other small gifts.  
 (Said items did not, however, constitute "gifts" to said minor pursuant to the  
 applicable provisions of the U.S. Tax Code.) Upon completion of such task, Claus  
 touched the side of his nose and flew, rose and/or ascended up the chimney of  
 the House to the roof where the Vehicle and Deer waited and/or served as  
 "lookouts." Claus immediately departed for an unknown destination.  
 However, prior to the departure of the Vehicle, Deer and Claus from said House,  
 the party of the first part did hear Claus state and/or exclaim: "Merry  
 Christmas to all and to all a good night!" Or words to that effect.


Now let's see if can simply and translate the above:

Late on the night just before Christmas Day, the house was quiet. We hung some stockings up on the mantle to be ready for whatever might happen (we were prepared). Everybody put on their pajamas and went to bed and the kids dreamed about all kinds of good things.

Suddenly, my wife and I heard some loud noises out on the lawn. We didn't know if it might be some kind of crisis coming, but we did not panic because we were prepared for whatever it might be. Knowing it was important to stay alert and be informed, we looked out the window to find out what was causing all the noise.

What we saw surprised us. It was a very nice sleigh driven by Santa Claus and powered by 8 reindeer (is that an R-8 engine?).  It had a very cool glowing red nose for a hood ornament. It was filled to the brim with toys and packages. Kind of like the great low interest rates and rising stock market we have been enjoying.

Santa Claus jumped up on the roof and then came on into the house through the chimney. While this all seemed great, we continued to monitor events and stay alert. We watched as Santa Clause placed gifts under the Christmas tree and in the kids stockings. Things seemed to be going well.

When Santa Claus finished the job he flew right back up the chimney, hopped into his sleigh, cranked up the reindeer and took off. As he flew away he joyously called out "Merry Christmas to all and to all a Good Night".

Reflecting on these events, we were thankful that this event was not any kind of crisis and turned out fine. But we made a pact between us that we would continue to stay alert in 2015. Because who knows if the next noise out on the lawn will be Santa Claus?

Tuesday, December 23, 2014

CNBC: Could Russia Back its Currency with Gold?

This CNBC article raises the question: Could Russia Back its Currency with Gold? This follows recent reports last week that Russia might sell some gold due to its current economic problems and falling ruble. Later, the rumor was put to rest when news was released that Russia has been adding more gold reserves instead. Below are some quotes from this article and then a comment.


"Russia's government could still be pushed into using its gold reserves to bolster the falling ruble, currency experts have forecast. Rumors last week that Russia was on the verge of selling its gold reserves were quashed with the news on Friday that it has continued to add to its holdings. However, John Butler, chief investment officer at Atom Capital, and Alasdair MacLeod, the head of research at online bullion exchange GoldMoney Foundation, believe that Russian President Vladimir Putin could bring the country onto some sort of "gold standard" to try to shore up its economy."

"It was (and still is) in Russia's power to adopt a gold standard," MacLeod told CNBC via email."

"Whether Russia would actually decide to do it was another matter, said MacLeod, and expected the country's central bank to the lack the courage to act. However, he said that if Putin is "provoked sufficiently" he may judge it to be in Russia's best interests and could overpower any reluctant officials at the bank."

. . . . .

"Russia has been aggressively buying the commodity in recent years and has formed closer currency ties with neighboring China in the process. Russia's gold holdings rose to 38.2 million ounces as of December 1, according to a statement by the central bank on Friday. This was a rise from a figure of 37.6 million from the month before, and allayed fears that it had sold the precious metal for dollars so it could further rebalance the ruble."

"Jim Rickards, the senior managing director at Tangent Capital and who has written extensively on the subject, told CNBC via email that Russia will move to a gold-backed currency but believes that such a move could be a long way off."

My added comment:

We covered the Alisdair Macleod article linked above earlier this month here on the blog. Now CNBC has picked it up. I note that Macleod says in this article that he does not think Russia's central bank will have the nerve to make such a bold move as to back the ruble with gold. Also, the article quotes Jim Rickards as saying "such a move could be a long way off".

If Russia took a step like this in 2015 we can conclude it means they are reaching a crisis point and are willing to ramp up open confrontation with the western banking establishment. A move like this would be a direct attack on the US dollar, especially if the other BRICS including China were to come in behind Russia. We can expect that this would generate a response from the west to put even more pressure on Russia.

For now, it seems like that the odds are against such a move. What happens to the Ukraine in early 2015 may provide a hint because the situation is coming to a head soon. The Ukraine is getting close to running out of money and facing potential default. The IMF says it needs at least another $15 billion more than it had expected to keep the country afloat and right now the money is not available and the IMF has not indicated it is interested in pouring more money into the Ukraine either. Russia is being heavily pressured by a combination of sanctions and crashing oil prices. So both sides are ramping up pressure on each other and something has to give in early 2015. Russia would probably like to see the Ukraine default to embarass the western banking establishment. That's a key to watch in early 2015.

If Russia "wins" this skirmish, I doubt they would be desparate enough to move to gold backing for the ruble any time soon. If they lose and conditions get worse in Russia, they might be more willing to take the risk. I doubt Russia will make the move unless China and the other BRICS nations signal they will have their back. We'll see how it goes in 2015.

Jim Rickards Recent Interviews and Articles on Current Events

As usual Jim Rickards is staying busy doing interviews and articles. He covers such a broad range of topics in these latest interviews, we will just list the links below and readers can go to them as they choose. Everything from the recent Fed statements to the Russian economic situation is covered. One thing we do note is that his latest time frame for another round of QE from the US Fed has been moved back to early 2016, suggesting he thinks the Fed will wait longer than he had previously thought.

"Jim Rickards, Chief Global Strategist at West Shore Funds, says the Russian central bank may not have enough reserves beyond 2015 to pay off its corporate debts."

On today’s “The Roundup,” James Rickards, author of “Currency Wars,” Bloomberg's Trish Regan, Lisa Abramowicz and Douglas Lavanture break down some of the day’s top market stories on “Street Smart.”

This is a lot of information. But we always recommend listening to Jim Rickards when he
does interviews and articles if you have a chance. He covers a lot of topics in real time that will be of interest to most people. So consider this post some Christmas gifts you can enjoy over the Holidays!

Added note: 

A question I get here is how can the average person prepare for change given that so many different future scenarios are possible? On January 1st 2015 I will have an in depth article that talks about this. It will give the history for why this blog was started, what it hopes to do, and offer some common sense ideas that anyone should be able to use to prepare for whatever happens. This article will also be provided as a Google document in Word format so that it can be easily printed and given to anyone interested. Of course it will be free to anyone who can use it. Please do hand it out to anyone you think can use it.

Monday, December 22, 2014

Bloomberg: Bitcoin Bears Say Told You So

Bloomberg runs this update article on Bitcoin and its struggle to gain wider acceptance. This article attracted our attention not because it is negative towards Bitcoin, but because it talks about something we have talked about here on the blog related to this subject. We had felt that Bitcoin would run into problems attracting mainstream users because it creates problems for regulators in the current banking system trying to track transactions. Below are some quotes from this article and then a few comments.


"If you think oil had a rough 2014, consider bitcoin. The digital currency has plunged 54 percent since the beginning of the year. By contrast, Brent crude has fallen 44 percent; the ruble is off some 46 percent against the dollar."
"Bitcoin’s collapse comes as governments around the world consider regulating or prohibiting the virtual currency to prevent criminals from using it to trade contraband. Meanwhile, bitcoin is facing competition from a slew of rivals striving to be more palatable to regulators."
"Bitcoin proponents like the relative anonymity afforded by the virtual currency. Because users can register for bitcoin wallets without disclosing their identity, they can buy and sell stuff without the government looking over their shoulder."
"Regulation could end that. A proposal under consideration in New York State, for example, would require companies that store or exchange virtual currencies to obtain licenses and verify customers’ identities and addresses. Ukraine has banned bitcoin altogether, China has prohibited banks from clearing bitcoin transactions and Russia is considering fining users."
My added comments: 
This Bloomberg article goes on to discuss the fact that over over 500 alternative cryptocurrencies are vying for acceptance now and many are working to try and comply with existing banking regulations. 
It is understandable why people are interested in alternative forms of currency because of the volatility and instability of various currencies in use around the world. Even the US dollar still has potential problems despite a strong rally lately. With central banks all over the world trying to devalue their currencies (at a controlled pace) to try and boost their economies (see Jim Rickards Currency Wars), people naturally seek out alternatives. Older folks are likely to think of precious metals for this while many younger people are attracted to things like Bitcoin. 
As Bitcoin gained popularity, it seemed like it was only a matter of time before regulators got involved. Because Bitcoin is outside the system and harder to track, you could pretty easily guess that regulators would have problems with it. It seemed likely that taxing authorities would also have concerns of course. Sure enough, we have seen tax rulings and efforts to increase regulation that only make it harder for Bitcoin to gain mainstream use.
This is why we have covered the GSD (Global Stability Dollar) currency technology that Klickex has been working on for some time now. This is a technology designed to meet all existing banking regulations. It has the potential to offer some of the benefits of a globally used currency that is not a debt based currency and still have the approval of the existing banking system. Central banks can adopt it without concerns which is why we follow it here. It has potential in our view that alternatives outside the system like Bitcoin do not have. 
We'll continue to try and follow both in 2015 to see how things unfold in this area.

Sunday, December 21, 2014

Nomi Prins: Holiday Book Recommendations

Nomi Prins lists her Holiday Book Recommendations. You can see the list here. It's also pasted just below. She was too modest to list her own best selling book, but here is an info page on her blog site about it.  Her list includes a broad spectrum of authors coming from several different points of view.

Below are the top 6 on her Holiday Book list. You can see the whole list at the link just above.


Nomi Prins Holiday Book Recommendations, December 2014

Here are some of my picks for 2014's thought-provoking books from a political, financial, economic and environmental standpoint. They are available at Indiebound, Amazon, and Barnes and Noble. I’m sure you all have great additions of your own. Enjoy and happy reading!
1) The Death of Money: The Coming Collapse of the International Monetary System by James Rickards, Portfolio Hardcover; 1st edition (April, 2014)
In clear, accessible prose, Jim Rickards dissects the precarious state of money at the hands of the world’s governments, multinational institutions, and central banks.  He reveals the extent of damage prevailing polices have already done to the global economy, what will happen if we continue on this path, and what ordinary citizens and small investors can do to protect themselves from the economic onslaught.
2) Unstoppable: The Emerging Left-Right Alliance to Dismantle the Corporate State by Ralph Nader Nation Books; First Edition (April, 2014)                  
Unstoppable is even-handed, erudite, practical and necessary. Ralph Nader harnesses his lifelong crusade on behalf of the public interest over the corporatist agenda into a treatise that is optimistic and patriotic. He shows that effective Left-Right political alliances aren’t pipe dreams, but historic realities in need of strategic cultivation, for the sake of all of our futures.
3) The Fight for the Four Freedoms: What Made FDR and the Greatest Generation Truly Great by Harvey J. Kaye (Simon & Schuster; First Edition (April, 2014))
In The Fight for the Four Freedoms, professor, historian and patriot, Harvey J. Kaye pens an inspiring account of a critical time in American history, inspired by the FDR’s premise that: “Freedom from want and from fear; Freedom of speech and religion” were crucial principals for all Americans. Comparing the strides that FDR made for the country with the anti-visionary maneuvers of more recent presidents Kaye shows that the way out and upward for the population lays in our past.
4) How America was Lost: From 9/11 to the Police/Warfare State by Paul Craig Roberts (Clarity Press (March, 2014))
In How America Was Lost, Paul Craig Roberts focuses his keen eye and sharp mind on the deterioration of government accountability and morality amidst the rise of hypocrisy and recklessness in the wake of 9/11. Through the tangle of wars, aggression, decimation of privacy, Wall Street protectionism and debt creation since, Roberts is relentless in his well-reasoned criticisms of US leadership from an economic and military standpoint.
5) Bad Paper: Chasing Debt from Wall Street to the Underworld by Jake Halpern (Farrar, Straus and Giroux (October, 2014))
6) The Divide: American Injustice in the Age of the Wealth Gap by Matt Taibbi (Author) Molly Crabapple (illustrator) (Spiegel & Grau; First Edition (April, 2014))

Added note: 

Earlier in 2014, Nomi Prins did an in depth online interview about her most recent book you can listen to here. In this interview she says that the influence of the banking industry on the US government stays the same regardless of which political party is in power at the time.