Thursday, September 10, 2015

Dan Popescu: Exorbitant Priviledge - The Dollar is Our Currency, But Your Problem

Dan Popescu has published a new article that touches on many of the themes we have covered here on the blog. Below are some quotes from the article. Readers here will want to read the full article here. The analysis in this article ties in very closely to similar analysis here which I will discuss in some added comments below.
"There is no better way to describe the international monetary system today than through the statement made in 1971 by U.S. Treasury Secretary, John Connally. He said to his counterparts during a Rome G-10 meeting in November 1971, shortly after the Nixon administration ended the dollar’s convertibility into gold and shifted the international monetary system into a global floating exchange rate regime that, "The dollar is our currency, but your problem.” This remains the U.S. policy towards the international community even today. On several occasions both the past and present chairpersons of the Fed, Ben Bernanke and Janet Yellen, have indicated it still is the U.S. policy as it concerns the dollar.
Is China saying to the world, but more particularly to the U.S., “The yuan is our currency but your problem”? China’s move to weaken the Yuan against the US dollar is in fact a huge response to America’s resistance to reforming the international monetary framework. It’s telling American policy makers that the longer they delay acting on reforming the international monetary system, the harder and longer they are going to make it for the U.S. to climb out of their trade deficit and depreciate their currency to where they need it to be.
China has been preparing for this moment for several years by accumulating gold through its central bank but also by using banks/corporations and individuals. It has in recent years signed several international agreements to bypass the US dollar in international trade and use preferably the Yuan. It has created an alternative World Bank (Asian Infrastructure Investment Bank) and a gold fund to invest in gold mining for more than 60 countries. The project is being overseen by the Shanghai Gold Exchange (SGE) and it is likely that the newly mined gold will be either traded on the SGE or be sold directly to the PBoC and other central banks. It has also bought a large amount of gold and kept the exact amount as secret as possible.
The international monetary system is in crisis and ready to collapse. It has been since at least 1971 but it seems we are very close to the end (within five years). The International Monetary Fund (IMF) is working discreetly to have the Special Drawing Rights (SDR) replace the US dollar as the international standard. Since the delinking of the dollar from gold in 1971, the US dollar has been the de facto international standard. The IMF itself makes no bones about its ambition to establish the SDR as the global reserve currency."

My added comments:
This article is interesting to me because it touches on a number of themes we have covered here including the following bullet point list:

- the apparent chess game ongoing between China/BRICS and the US 
- the massive accumulation of gold by both Russia and China
- the Jim Rickards theory that the system is unstable and will eventually collapse (this article suggests "within five years")
- the Jim Rickards theory that the IMF will promote the SDR as the new global reserve currency as a solution to the new systemic crisis
- the question of whether China and the BRICS will continue to work for cooperation within the existing global institutions (IMF and World Bank) or split from it in frustration over lack of changes to their voting power at those institutions
- the question as to whether there will be a "reset" of the monetary system under a cooperative agreement before another crisis or after a crisis under emergency conditions
This article also takes the position that no matter how all the above unfolds, at the end of the day gold will re emerge in some way back into the monetary system to help establish confidence in the system.
All of this relates directly to what we have covered here. I do note that this article suggests it could be five years before a new major crisis threatens the existing system. Recently, Jim Rickards said in a TV interview it could be "three or more" years from now. Jim basically says this every year so that really means that so long as another year passes without a crisis, we could always still be "three or more" years from one.
This timing issue is what is causing me to re think the future of this blog. If we are three years or five years (or more) from a major crisis that could result in a "reset" of the monetary system, it will be hard for this blog to continue to cover this on a daily basis for all that time. A five year time frame would mean writing over 1,800 daily articles. I can't really justify all that time for myself or for readers. Of course, it we go even longer without a crisis, the problem gets even worse.
I have already boiled everything on this blog down to two main questions which are:
1) Will we get another major financial crisis worse than 2008?
2) Will the SDR used at the IMF be used as a new world reserve currency?
If we have to wait 5 years or more for an answer to these questions, I imagine myself and readers here will get tired of reading the 1,800 or more articles necessary to have a daily article here on the blog. 
In addition, all the information I read and the mood I get from readers here who do work inside the system is that there is no feeling at all that any kind of major crisis like this is about to take place. Just the opposite in fact. It seems like there is a high degree of confidence that the system is relatively stable right now and will remain so for the foreseeable future. There is a feeling that tools exist to manage whatever problems do surface. This despite all the dire forecasts and predictions you can read all over the internet right now that we are on the verge a a major collapse (most say in the next two months and certainly by year end).
Based on all this, I have decided that if we do not see another major crisis unfold by this year end, I will at the very least scale back articles on the blog. If something related to our two big questions pops up, it makes sense to cover that. But writing an article every day just to have one on the blog does not really make sense. If three years from now we are still getting a "no" answer to our big questions, it is hard to imagine that readers will stay engaged here with me on the blog. But I will continue to write articles if enough readers feel they are helpful. That is the only purpose for this blog. If the blog is providing helpful information, there is justification to continue it. If it is not, there really is no justification to continue it. Certainly not on a daily basis.
In the meantime, if there are days where I do not post a new daily article, don't worry. It just means I did not feel there was enough news directly related to our two main questions here to warrant posting an article that day. Sometimes I re post old articles as well because this blog still gets some new readers all the time that find it from a google search for example.
Added note:

Just a reminder I will have a two part article coming up this Saturday (9-12-15) on Bitcoin and Blockchain technology based on input from one of the top payment systems experts in the world. 


  1. Sir, these articles are interesting. Before you quit, you may want to wait until at least early next year. Lots may happen before now and then. All this blood moon ans shemetah stuff may be disinfo, but then again maybe not.

  2. Thank you for the comment. I plan to see how things unfold this fall and go from there. I doubt I would stop writing completely, but may just scale back and only write if there is something significant going on. I am just not sure producing an article every day just to have one makes sense if we are not going to see any significant events unfold any time soon. We'll see what happens this fall first. If the articles are helpful to enough people, I am happy to write them.