Monday, June 18, 2018

2018 Mid Year Review - Little Significant Monetary System Change So Far

Mid year of 2018 means this blog has now been online for about 4 1/2 years now. The blog started out attempting to watch for any signs that the monetary system we have had for some time now based on the US dollar as global reserve currency might be headed for major change or even a full monetary system reset. 

Literally thousands of hours of time have been spent here reading relevant news articles from both mainstream and alternative media sources. Official publications from organizations like the IMF, BIS and major central banks have been reviewed and monitored for signs of potential major change. In addition, extensive effort was made to document a list of systemic risk warnings that have been issued during these past few years by various credible sources (see that list here). 

On top of all that, efforts were made to reach out to highly qualified global experts with expertise on global payments systems and monetary systems. These efforts led to another page documenting a variety of serious proposals for possible significant monetary change for the future (see that list here).

I have been extremely blessed to get direct input from a wide variety of experts coming from a wide range of views on these issues. A group of expert economists who routinely discuss ideas for potential monetary system change sometimes copy me on email discussions which provides me with great insight into how these issues are discussed and debated. 

With all that background, I have concluded that at this time significant monetary system change is unlikely to happen soon unless some kind of new very big global financial crisis arises to disrupt the present system to the extent it cannot continue to function. Many systemic risks that could lead to such a disruption have been identified and discussed here in great detail. Some of these risks have subsided while others remain. The list of risks changes from time to time with new events popping up while others drop off the list. 

Below I will use a Q&A style format to provide a 2018 mid year update and explain why I have decided to further reduce blog articles and move into monitoring mode sometime this fall. Basically, it is because I cannot identify any systemic risk at this time likely to so disrupt the present system as to force significant changes to it.


Q: What systemic risks exist right now that could lead to disruption of current monetary system and force major systemic changes?

A: Events related to the ongoing "slow motion civil war" in US politics and some of the global geopolitical events (North Korea, Middle East, etc) are the ones I can identify at this time. Some also suggest that a major trade war could become a systemic risk. However, none of those appear to be an imminent threat to the stability of the monetary system as of the date of this update.  (Added note 6-19-18: Trump ups the ante in Trade Battle)

Q: What about Russia and China and their obvious ongoing efforts to undermine the US dollar as the global reserve currency?

A: That process is ongoing, but moves very slowly. At the pace that these changes take place it could take several more years or even a decade before the US dollar is seriously threatened as the global reserve currency. As we have stated many times, a new major global crisis could alter the timetable, but at this time there is no indication of that on the near term horizon. One expert I hear from by email sent me a link to this article on the dollar which pretty well sums of what I see quite a bit lately. Lots of people have incentive to bypass the US dollar, but no viable alternative seems ready to do that right now.

Q: What about the massive US debt problem, the global debt problem, global derivatives, interconnected financial institutions, and so called "Shadow Banking"?

A: Those are all potential systemic risks we have documented and discussed in detail. They remain out there as risks, but have been risks for years. They could simply continue to lurk in the background as risks or something could arise suddenly to trigger them. But there is simply no way to know ahead of time when such a sudden event might arise. That is what I will continue to monitor when I move into "monitor mode" this fall. But there is no point writing endless articles about these issues that have already been covered until something actually happens. 

Q: What about central bank digital currencies? Aren't we on the verge of major historic change by central banks in this regard that could lead to major monetary system changes eventually?

A: Perhaps. There is certainly no shortage of position papers, panel discussions, and in depth studies by central banks, the IMF and the BIS on this topic. It is possible that a few smaller central banks might adopt CBDC's experimentally in the next year or so. But every indication I have from published information and also direct input from experts suggests that momentum for this has stalled quite a bit. I don't see any indications that major central banks like the Bank of England or the US Fed are close to moving in this direction at all. Also, I have no indication from any source that the IMF is in the process of moving towards a digital SDR on some kind of blockchain platform. 

Q: What about Bitcoin, cryptos, and commodity backed currencies in the private sector? Are they about to supplant the existing monetary system or at least force it into major changes?

A: This is an area that I have explored in depth and attempted to follow quite a bit. There are certainly a wide variety of would be alternative monetary systems out there now that would aspire to disrupt the official monetary system and/or force it to make some major changes. However, I do not see any that are anywhere close to having that kind of impact at this time. Bitcoin is the most well known crypto, but it is still miniscule in terms of public adoption. There are several gold backed currencies (and one full scale gold based alternative monetary system) out there in the startup phase. But again, the public adoption so far is tiny compared to the official monetary and banking system we have now. This is an area worth following over time, but progress seems very slow and all of these alternatives have the enormous hurdle to overcome of not being legal tender currencies. Also, as more than one of my experts told me recently, the US is still the most powerful force in the world in defending the US dollar as global reserve currency and forcefully resists any kind of major change to the present system. I don't see that changing soon unless some kind of new major global crisis forces the US to accept major changes. Another expert reports that momentum for using blockchain for payments systems and digital currencies within the current banking system has stalled as the limitations and long term costs of public distributed ledgers have become more apparent.

Q: When should we expect to see a new major global crisis that you keep talking about as the primary catalyst for major change?

A: This is the key question for this entire topic. It is simply impossible to answer. This blog is proof that hundreds of dire predictions for systemic disruption or collapse can come and go for years without it happening. It could go on for many more years or some unexpected trigger (or snowflake that causes the avalanche as Jim Rickards puts it) could arise within the next month. Anyone who tells you they can predict the timing of the next major financial crisis is misleading the public in my opinion based on all the research I have done here on this topic. Almost everyone agrees the present system is not sustainable over the long term, but no one can pin down when it might falter.

Q: What impact has the election of Donald Trump had on this situation?

A: In some ways the election of Donald Trump has probably had some impact. However, so far the overall impact does not appear to be all that significant. Trump campaigned on a platform of putting US interests first so we can assume he is not interested in proposals coming from institutions like the IMF and The World Bank for major changes. Especially if they involve displacing the US dollar as global reserve currency. But the US has really had this same position all along for the most part for a long time. Trump talked a bit about the idea of a gold standard, but that has gotten no visible traction in his Administration that I am aware of so far. 

The ongoing "slow motion civil war" between the pro Trump forces and the anti Trump forces inside the beltway in Washington could potentially cause disruption in the markets and even threaten systemic stability, but so far the key markets (stocks, US dollar, gold) have yawned about all that and pretty much dismissed it as political noise. At this point, the civil war seems more like a stalemate with neither side gaining any substantial political advantage and markets are indicating they do not seem to think this is likely to change. So while the Trump era is good for TV ratings and lots of "drama" back and forth from both sides on the news networks for him and against him, the public has pretty much now dismissed it all as politics as usual (recent polls say 70% of the public is tired of hearing about it) and moved on with life At this time, this does not seem like a potential trigger for major changes. 

The recent release of the IG report just further confirms nothing significant in terms of legal action is likely to happen to anyone significant involved in all the TV drama live from Washington DC. It simply admitted a lot of corruption and sleaziness inside the government which most people already know is embedded in government agencies here and there. It seems like business as usual and the markets are confirming that.  

Q: Can you provide anything new to talk about that relates to major monetary system change?

A: Not in terms of something likely to trigger it any time soon. I have enjoyed the process of hearing about and learning about a lot of different interesting proposals that are out there for monetary system change and even complete monetary system reform. There are a lot of very intelligent and creative minds that do think about how to improve things or what we might need as a replacement system if the one we have does eventually go under. Just a few interesting ideas I have seen discussed by experts I hear from are:

- using a new version of the SDR (with a hard anchor) issued under Currency Board rules for the global reserve currency. IMF or BIS could issue it. (see details here)

- using a new global reserve currency that is anchored to a stable global equity index 

- a new "Commodity Reserve Currency" concept 

- a new global currency backed either fully or partially by gold. The latest versions of this now also include running this on blockchain based platforms. There seems to be more interest in this possibility in the eastern part of the world right now

There are also other projects being worked on by experts I hear from attempting to make cross border payments easier and less expensive and to establish an "Internet of Rulesto make it easier for businesses engaged in global commerce to apply various rules and regulations related to their line of business and to better hedge foreign currency transactions against volatile exchange rates. 

The goal of these proposals and the related discussions around them is to try and find a monetary system that is stable, fair and best supports the global economy. Some of these proposals are relatively new while others have been around for some time. What I have learned from my own journey on this is that it is good to keep an open mind and try to learn as much as possible about serious potential monetary system change proposals that are out there.

What will matter to most people who will live under whatever monetary system emerges is what actually happens and how that will impact their personal financial decisions. Whatever system is used must have the public trust and confidence or it will not be sustainable. In the event of a major crisis that leads to major change, I believe who the public blames for the crisis will be the key factor in determining who they will listen to for proposed system changes. If no crisis emerges any time soon, the status quo with the US dollar as global reserve currency is firmly entrenched at this time.

It will continue to be interesting to me to follow this and see what happens over time even if the process drags out over many years rather slowly. But I have reached the point in time where producing regular articles on an event that has not happened for 4 1/2 years (major monetary system change) does not seem necessary or of any substantial benefit to readers.

It makes more sense to just monitor things and cover something significant if and when it happens or feature something educational if it seems particularly valuable for readers. If an expert points me to something I usually try to feature that. But I also try to feature anything that any reader feels may be of interest that is relevant to the main topic. The blog will continue to remain online and all archived information will be available to anyone who can use it. Relevant questions or comments are always welcome.

Added notes: Below are some links to some recent articles and discussions from alternative media that may be of interest. I am just passing along the info links without comment for anyone interested:

Article that proposes that China is slowly working towards a gold backed system
(suggests China is covertly moving towards returning gold to their system)

Jim Rickards monthly interview with Alex Stanczyk (he refers to his recent discussion with former IMF John Lipsky)

Interview with former Dallas Fed Adviser Danielle Di Martino Booth (talks about the prospects for another major financial crisis impacting the current system)

Kinesis Money CEO explains the goals for the Kinesis monetary system in webinar
(this is an example of a proposed alternative monetary system based on gold running on blockchain that intends to launch this fall)

These will give you a feel for some things being talked about in alternative media and not covered in mainstream media that could impact the present monetary system. However, I do not have any information at this time that suggests any of the things discussed just above are likely to impact the present system any time soon.

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