Friday, July 31, 2015

Repost - Mid Summer Review

This is a repost of a previous article for new readers who may have missed it

We are now in mid summer so it's time to take a quick look at where we stand on the two big questions we are following here on the blog. They are:

1) Will we get another major global financial crisis anytime soon?

2) Will the SDR used at the IMF eventually be the basis for a global reserve currency?

How these questions are answered will determine if we will really see major monetary system changes that impact the daily lives of all of us. While there may be other interesting questions to look at, the focus here is on these two. Here is why:

If we do not get another major global financial crisis any time soon, the odds of any kind of sudden major monetary system changes drop significantly. Having followed this topic for quite a while now, what I see is that change actually happens very slowly. To get major change at a global level is very hard. There are all kinds of roadblocks to cooperation at the global level. Without a crisis, those roadblocks tend to just stay in place and prevent or drastically slow down change. Especially significant change.

Let's use what just happened in Greece as an example. Did you notice how nothing happened until the people in Greece felt as if a real crisis was about to take place? Lots of drama and talks took place, but nothing was actually being done. When the banks were closed and people suddenly had to live in fear of what might happen next (experienced what felt like a real crisis), they quickly caved in to all kinds of changes they had refused to accept for months. This is a perfect example of now human nature really works. Therefore, absent another major global financial crisis, we can expect change to happen very slowly if at all.

In regards to the second question, a crisis could bring it into play as well. If there is another major financial crisis bigger than 2008, Jim Rickards predicts that the IMF will step forward in that crisis and become the new "global central bank" using the SDR as a global reserve asset replacement for the US dollar. Obviously, if Jim is right, the SDR will be a part of major monetary system change in the future.

I do see another way forward for this to happen though even if there is not another major crisis. There is already a movement underway to get the Chinese Yuan accepted as a global reserve currency. Over time, the currencies in the SDR basket will likely slowly reduce the priority status of the US dollar. Eventually, we might see the SDR rules changed such that the SDR could be tied in to a global reserve currency that everyone could own and use if they wanted to do so. I can see this being a digital currency as well and perhaps with an asset backing to add confidence and stability to it. Without a crisis this process might take years to decades to emerge, but it would be major monetary system change from where we are today and would impact our daily lives eventually.

Being honest, right now I have no hard evidence that another major crisis is coming any time soon or that we will see the SDR emerge as a global reserve currency any time soon. There are still plenty of credible analysts predicting we will get a major crisis this fall. Other credible analysts predict a crisis, but without a definite time frame. Then we have other likely sincere people who think very hard times are about to hit the US and the world (here is an example of the that view)

So far, the most accurate forecaster I have here is a high level reader here who prefers to remain anonymous. This reader has very accurately predicted the US dollar rise, what is happening now in Greece (fall in credibility of the Greek government), the problems that Bitcoin would encounter (here is just one example), and that another crisis was not not likely to happen soon despite risks that exist. The feeling inside the system is that we are not on the verge of another major systemic crisis.

The truth is that none of us knows for sure what will happen in the future. Jim Rickards gets a lot of predictions right, but also misses one now and then. The important one we follow here is his prediction of another major global crisis, which is yet to be determined.

The summer looks like it will come and go without any major crisis. We know the conditions for one exist all the time, but there is nothing suggesting that one is imminent right now. Of course, if Jim Rickards is right, none of us (including himself) will see it coming ahead of time. This is why it is wise to already have a backup plan and emergency fund in place that you hope you never need to use.

What we will do here is continue to follow news and events that could impact our two big questions. This fall we will find out how things go with the IMF decision about adding the Yuan into the SDR basket . This by itself is not a big deal. But it is another step on the path towards bigger monetary system changes in the future. 

If we get past October without a major crisis, a lot of those predicting that event will have been wrong on their timing. All we can do here is follow events and see what actually does happen. We make no claim to know the future here. 

Most places that cover the topics we cover here have a point of view that they push. Mainstream sources tend to take the view that another crisis is nothing to worry about and things are fine. Those predicting a crisis pretty much stick to that view no matter what happens. Their timing varies, but most expect one for sure within the next 2-3 years.

Readers here get to see a wide variety of credible views and information that you are not likely to find collected in one place elsewhere, so whatever happens should not come as a big surprise. We just try to report all credible views we can find and let you decide.

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