The View From Our Whitehouse - Monetary System Reform Watchdog

Wednesday, September 22, 2021

Fed Continues To Evaluate a CBDC

Not much new here, but Fed Chairman Powell again states the Fed will continue to look at a central bank digital currency (CBDC) and decide whether one seems useful or not. He made it clear that the Fed is in no hurry and does not feel any pressure to move forward on any particular time table.

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from the CNBC article:


"Powell noted the dollar’s position in the world and said the Fed is “in a good place” to make a decision on whether to implement its own digital currency. He expressed some concern about the regulatory landscape and said the Fed likely will need congressional permission should it decide to proceed."

Wednesday, August 4, 2021

Dr. Warren Coats (former IMF) Proposes "A Future Digital SDR"

Readers here know we have long covered monetary system reform proposals from Dr. Warren Coats. Dr. Coats is formerly the head of the SDR Division and is in my view a leading expert in the world on the SDR along with IMF rules and regulations. So we feature him here as the best source of information on this topic. 

Dr. Coats recently sent me his new article, The IMF's $650bSDR Allocation and a future 'digital SDR' recently published on centralbanking.com (8-3-2021) that outlines his proposal for the IMF to promote a broader adoption of the SDR as a globally used form of currency. It's important to note that Dr. Coats proposal includes issuing SDR's under currency board rules

In this article, Dr. Coats is responding to the current proposal to issue a new $650 billion (SDR) allocation of SDR's in response to the Covid pandemic as one way to assist developing nations. Below I have selected a few extracts from the article and then a few summary comments.




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"While a strong case can be made for financial assistance by high-income countries to low-income ones to combat the Covid-19 pandemic, an SDR allocation cannot properly be justified on that basis. This link is unfortunate, and mixes the monetary contribution of SDRs to the stock of international reserves with the case for aid to developing countries. Such aid, while potentially justified, is a fiscal issue – and should be addressed as such. The case for a new allocation must be based on “the objective of meeting the long term global need to supplement existing reserve assets”

. . . . . 

"As indicated in the opening paragraphs, the case for expanding the role of SDRs in international payments is strong. But, in fact, their role has been very limited beyond the IMF. To become a serious supplement to, if not replacement for, the US dollar in the international monetary system, the SDR would need to be usable for payments by private-sector parties. This would require the creation of private or market SDRs. Following the model of national currencies in which central banks create base money that backs the deposits created by banks (broad money), the IMF’s ‘official’ SDRs could back private digital SDRs.

Article XXII of the IMF’s Articles of Agreement provides that: “In addition to the obligations assumed with respect to special drawing rights under other articles of this agreement, each participant [in the SDR department] undertakes to collaborate with the fund and with other participants in order to facilitate the effective functioning of the special drawing rights department and the proper use of special drawing rights in accordance with this agreement with the objective of making the special drawing right the principal reserve asset in the international monetary system.”

In support of member obligations to make “the special drawing right the principal reserve asset in the international monetary system” the IMF needs to facilitate and encourage the private-market uses of the SDR for pricing and paying for globally traded goods, as well as for denominating financial assets. The breath, depth and liquidity of such uses of the US dollar are important factors in the dollar’s widespread use in international payments and as a reserve currency."

. . . . 

Digital SDR currency 

"As with national currencies, the internationally issued SDR needs a central issuer of the base money version of market SDRs (M-SDRs). The IMF should oversee the development of a procedure for issuing M-SDRs following currency board rules and backed 100% by official SDRs or by an appropriate mix of sovereign debt of the five basket currencies."

. . . . .

"Banks offering M-SDR deposits/currency to their customers would hold an SDR reserve backing with the IMF SDR trust fund. The base money M-SDRs issued by the IMF trust fund would perform the same payment settlement function as do central banks for the base money they issue, with the critical difference that depositors/participants would be global, rather than national. This would enable virtually instantaneous final settlement of M-SDR payments globally."

Find the full article on centralbanking.com here

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Added comments: These proposals may sound as if we are about to see some major changes to the present global monetary system which is what this blog was created to monitor. However, a question that I always ask Dr. Coats when this topic arises is if he sees any signs of movement towards this kind of change. I am quite confident Dr. Coats would know that. I asked him that again and here is his reply to that:

"The IMF has no plans for a digital SDR and they say they are too busy with the allocation itself and related covid lending to focus on my other private SDR promotion suggestion though they might in the future."  

This reply is in line with what we have reported here for some time. If anything changes in this regard and I am aware of the change, I will report it here. But I continue to see no indication that this kind of major monetary system change is on the near term horizon. There is no better source on this than Dr. Coats in my view.

Friday, July 16, 2021

Fed's Powell -- Proper Reaction To Surging Inflation is a "Challenge"

In comments to the US Senate, Federal Reserve Chairman Jerome Powell admitted inflation is running higher than they expected and that how to react to that is a "challenge". His comments are reported in this article on Kitco. Below is a couple of excerpts from the article and then a bullet point list of his key comments.

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"We don't have another example of the last time we reopened a $20-trillion economy with lots of fiscal and monetary support," Powell said. "The challenge we are confronting is how to react to this inflation, which is larger than we expected. To the extent it is temporary, it wouldn't be appropriate to react to it. But to the extent it gets longer and longer, we" have to continue to revaluate the risks that would affect inflation expectations, and that is what we are monitoring."

. . . . . 

Debt was another issue discussed during the testimony, with Powell highlighting that the U.S. is not on a sustainable path.

"Debt is growing substantially faster than the economy. In the long run, that is not sustainable. The laws of gravity have not been repealed. We'll need to get back on the sustainable path at some point. The time to do that is when the economy is strong — unemployment is low, taxes are rolling in. That is the time to do it."


  • Inflation is way above the Fed's 2% target - they are "not comfortable" with that
  • Current inflation problem is "unique" in history recovering from a pandemic shutdown
  • Higher Inflation expectations can lead to higher actual inflation
  • Fed will discuss reducing QE if high inflation persists
  • Fed will use its tools to fight inflation if necessary
  • The laws of gravity have not been repealed
  • US debt is growing faster than the economy which is "not sustainable"
  • Fed will continue to study a central bank digital currency - not sure if it is needed
  • Cyber risks of ransomware attacks is what Powell worries about the most
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My added comments: In these comments Chairman Powell outlines the problem facing the Fed which we have long reported here. The Fed is in a potential no win position. If they continue intervening in the interest rate market to keep rates suppressed, the risk of way too much inflation is clearly present and now the Fed is finally admitting that. However, despite the assurance that the Fed has "tools" to fight inflation (which would mean allowing interest rates to rise), if they take that route they speed up the explosion higher of US debt which Chairman Powell just described as "unsustainable".  Higher interest rates means US debt grows faster and quicker towards unsustainability.

It is impossible to believe the Fed is surprised by this situation. Economists and analysts have been predicting this situation for years and almost anyone who understands math can easily figure out propping up a debt dependent system with ever expanding money creation and even more and bigger debt cannot go on forever without consequences. 

The problem is that no one has the courage to step up and be honest about how these policies create this kind of problem because the solutions involve inflicting pain and accepting a share of blame for creating the problem. Politicians love spending money because it buys them votes and funnels money to the special interests that fund their campaigns. They want the central bank to just keep bailing them out with more and more new money so they can keep spending without having to pay for it with much higher taxes on the middle class (where all the votes are). Politicians do not like being honest about the mess all this eventually creates and certainly don't have any interest in accepting any share of the blame for their role when problems arise from these policies. The public just mostly ignores the situation until some kind of real world consequences show up in their daily lives. They instinctively know something is wrong about piling up more and more debt and creating money out of thin air to paper over problems, but don't really want to believe a price will ever have to be paid for it and their leaders assure them it's all under control. It's easier to just accept that and ignore reality.

Bottom line: So long as all the parties involved in this process (central banks, politicians, and the general public) refuse to be honest and transparent about how these policies lead to an "unsustainable" system, we can expect that nothing will change and the same policies will continue anyway (even as they admit it's not sustainable) until something forces them to change (the system cannot function). It appears no one is really interested in proactively reforming the policies of the present system leading to unsustainability and accepting any share of blame for them. We can reasonably expect that the various parties involved will all point fingers of blame to someone else if the day of unsustainability does arrive. Politicians out of power will blame the political party in power at the time (too much debt). The political party in power will blame the Fed (too much easy money). The Fed will blame the politicians in both political parties (too much debt). None of that will solve the problem of course, but will just create confusion in the hopes the public will blame someone else for the mess. So we are all reduced to just hoping it doesn't come any time soon, even though Chairman Powell just told us once again it is unsustainable.

Monday, June 28, 2021

Fed Official Skeptical of the Need for a "FedCoin" CBDC

 We have reported here for some time that despite constant speculation about the Fed moving towards a so called FedCoin CBDC (Central Bank Digital Currency), we did not see any evidence such a thing was on the horizon any time soon. Now we have a Fed official questioning why they need one at all as quoted in this article in Yahoo Finance. This fits with all the other evidence we have seen and direct input from experts in the field. Below are a couple of excerpts from the article.

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"A top Federal Reserve official on Monday advocated against creating a digital version of the U.S. dollar, questioning the use cases and security of a Fed-issued digital currency.

“The potential benefits of a Federal Reserve CBDC [central bank-issued digital currency] are unclear. Conversely, a Federal Reserve CBDC could pose significant and concrete risks,” Randal Quarles told the Utah Bankers Association Monday."

. . . . . 


Click here to read the full article


The Bank for International Settlements (BIS) recently issued this update on global efforts to move forward on CBDC's. While it tries to paint a positive picture about a future for CBDC's, it also lists lots of obstacles and notes that only a handful of central banks have moved beyond just studying the pros and cons. The BIS report also states there are no plans to replace cash and it's just as likely central banks might try using a wholesale version of CBDC's which the public would never see or use just to move money between banks easier. While there is lots of speculation about CBDC's, if you read the actual reports and studies on them, they always list lots of obstacles to overcome and always talk about them as a long term horizon event. Here, the Fed indicates they haven't even decided if they even want a CBDC.


Added note: CNBC offers this more detailed article on these comments. Here is an excerpt:

“First, the U.S. dollar payment system is very good, and it is getting better. Second, the potential benefits of a Federal Reserve CBDC are unclear. Third, developing a CBDC could, I believe, pose considerable risks,” he said. “So, our work is cut out for us as we proceed to rigorously evaluate the case for developing a Federal Reserve CBDC.”


Sunday, June 20, 2021

Dr. Warren Coats on Bitcoin

Former IMF official Dr. Warren Coats offers a new article on the prospects for Bitcoin to function as a currency. He also describes what he believes would an "'ideal monetary regime" in the article. Below is an excerpt from that part of the article.

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"The ideal monetary regime is to fix the value of currency to something (such as gold, or a basket of currency as in the case of the IMF’s SDRs, or a small basket of widely traded commodities) and then allow the public to adjust the supply to match its changing demand for that fixed value. Such a system follows currency board rules. The central bank passively supplies or redeems its currency in response to the public’s demand at the fixed price. Such a system has been adopted by several countries as is described in detail in my book on the creation of the Central Bank of Bosnia and Herzegovina.  [“One Currency for Bosnia-Creating the Central Bank of Bosnia and Herzegovina”]"




Tuesday, May 18, 2021

OMFIF Article - Digital Renminbi is No Threat to the US Dollar

The OMFIF publishes this article which argues that the US dollar will not be significantly impacted by a so called "digital renminbi".   Below are a couple of excerpts. I added underline for emphasis.


"More than 50 years after ValĂ©ry Giscard d’Estaing lamented the dollar’s ‘exorbitant privilege’ and two decades after the euro’s launch was seen as a threat to dollar domination, the latest mutation has hit – will the digital renminbi surpass the dollar? Adding to the fog are errant questions about whether the dollar’s demise will be fast and furious, and whether it is a winner takes all hegemonic proposition.

Those arguing for a surge in the digital renminbi’s global role seem to view digitalisation as a revolution in the international currency landscape. But large global trade and capital flows already predominantly take place in digital form. Digitalising a central bank currency is not a game changer. But that doesn’t mean that the US doesn’t have much needed work to do in strengthening its payments systems."

......

"The question facing the US is not how to protect the dollar’s global role. Rather, the US should focus on maintaining a healthy economy. Promoting strong economic performance, restoring buffers after the pandemic, tackling challenges and buttressing robust institutions and openness will ensure that the dollar’s vibrant global role is maintained."

Please click here to read the full article

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My added comment: While the US has vast political differences, one thing has remained constant so far. No matter who has political power, the US does in fact make every effort to "protect the dollar's global role". So far that seems to remain unchanged with the new Administration. Time will tell us if any real change does take place in that regard.

Wednesday, May 5, 2021

IMF - US Dollar Share of Global Foreign Exchange Reserves Drops to 25-Year Low

This new report from the IMF confirms a long term trend of gradual movement away from the US dollar continues. At the same time, the report also confirms what has been reported here for many years in that monetary system changes tend to move slowly unless something unexpected forces more rapid change. Below are some excerpts from the report.

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"The share of US dollar reserves held by central banks fell to 59 percent—its lowest level in 25 years—during the fourth quarter of 2020, according to the IMF’s Currency Composition of Official Foreign Exchange Reserves (COFER) survey. Some analysts say this partly reflects the declining role of the US dollar in the global economy, in the face of competition from other currencies used by central banks for international transactions. If the shifts in central bank reserves are large enough, they can affect currency and bond markets."

. . . . 

"Turning to this past year, once we account for the impact of exchange rate movements (orange line), we see that the US dollar’s share in reserves held broadly steady. However, taking a longer view, the fact that the value of the US dollar has been broadly unchanged, while the US dollar’s share of global reserves has declined, indicates that central banks have indeed been shifting gradually away from the US dollar."

. . . . 

"Despite major structural shifts in the international monetary system over the past six decades, the US dollar remains the dominant international reserve currency. As our Chart of the Week shows, any changes to the US dollar’s status are likely to emerge in the long run."

 


Wednesday, April 7, 2021

Former IMF Dr. Warren Coats on the New Proposed Allocation of SDR's

The IMF is considering a proposal to issue as much as $650 Billion (US) in a new allocation of the SDR. We have covered the SDR extensively here over the years since many have predicted the SDR could some day be a key part of a global monetary reset. One thing that becomes clear if you research the SDR is that there are a lot of misconceptions about the SDR the rules that govern them at the IMF. Here, our approach was to simply find one of the leading experts in the world on the SDR to explain the SDR and how it actually works. 





Dr. Warren Coats was the head of the SDR Division at the IMF and there is no better expert on things SDR related. Dr. Coats recently posted this article on his blog to both explain the new SDR allocation proposal and offer his take on it. Below are a couple of excerpts from the article.

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"The IMF’s Articles of Agreement require a long-term global need for additional reserves to justify an allocation. Thus, the Managing Directors call for a new allocation is “based on an assessment of IMF member countries’ long-term global reserve needs, and consistent with the Articles of Agreement and the IMF’s mandate.”  “IMF Executive Directors discuss new SDR allocation”  While I think an allocation is justified and useful at this time, the underlying motivation of aiding IMF members to fight the economic impact of the Covid-19 pandemic is unfortunate."

The aid motivation is revealed in a Wall Street Journal editorial on March 24, 2021, which unfortunately misrepresents important features of the SDR. “Special dollars for dictators”

Setting aside for a minute that I have long proposed replacing the SDR allocation system described in this article with issuing SDR under currency board rules (i.e., only and to the extent demanded by the market and purchased by the market at market prices), there are a lot of mistakes in this article."

. . . . .

"The IMF Articles of Agreement in which SDRs and the rules for using them are established are not the legislative product of the U.S. Congress (though the U.S. is needed to support the adoption of these Articles) and thus these rules cannot be changed by the U.S. Congress as suggested by the WSJ."

Please Click Here to Read the Full Article by Dr. Coats

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My added comment: If you you want to have an understanding of how the SDR and the rules governing it actually work, the best source available is Dr. Coats.




Wednesday, March 31, 2021

Kenneth Rogoff - The Dollar's Fragile Hegemony

In this article appearing on Project Syndicate, Kenneth Rogoff (Harvard) revisits a question that has been raised for many years. Will another currency (in this case the Chinese Renminbi) eventually dethrone the US dollar from its role as the major global reserve currency? Professor Rogoff notes that "it seems to be an article of faith among US policymakers and many economists that the world's appetite for dollar debt is virtually insatiable."

In this article, Kenneth Rogoff suggests that China may take some actions that could eventually disrupt the present US dollar based monetary system. Below are some bullet points from the article:

  • the US Dollar currently continues to reign supreme in global markets
  • the dollar's dominance could be more fragile than it appears
  • Chinese authorities could shift to an inflation targeting regime 
  • They may allow the exchange rate against the US dollar to more freely fluctuate
  • The US relies on the "exorbitant privilege" from the dollar to fund massive borrowing
  • Chinese authorities face obstacles to making these changes, but are making gradual changes
  • The US dollar eventually eclipsed the British Pound
  • The Renminbi won't become the global currency overnight
  • It took decades for the Dollar to replace the Pound
  • First we may see three major currencies - Dollar, Euro, Renminbi
  • US public and private borrowing rates would be impacted


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My added comments: There is not much new here. Speculation about the dollar being replaced has been going on for a long time. This article talks about how it could happen, but once again describes the process as gradual and perhaps taking decades to unfold. So, no near term horizon major change is predicted in this article. This is in line with what we have reported here now for years. The conditions for potential rapid monetary system change exist all the time if public confidence in the present system wanes for any reason. However, the global monetary authorities and the Federal Reserve in the US have shown no inclination to make any major rapid changes to the present monetary system unless they are forced to do so by events out of their control.


Thursday, March 18, 2021

FT - Time for a Great Reset of the Financial System

The Financial Times publishes this article calling for a great reset of the present monetary system. Just about every issue raised in this article has been covered here for years, so there is nothing new or surprising in the article for readers here. Below is a brief summary of bullet points from the article and then an added comment.

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  • On average monetary systems last 35-40 years before a new system is required
  • The Bretton Woods system based on the gold standard broke down in the 1970's
  • The replacement system based on an unanchored US dollar has "reached the end of its usefulness"
  • The current system is plagued by a 30-year debt super cycle and "unending liquidity created by commercial and central banks"
  • The massive increase in mortgage debt has driven up housing prices and contributed to income inequality
  • Now is a good time to devise a new monetary system to replace the current one
  • Included should be "widespread debt cancellation" and perhaps even a "debt jubilee"
  • Policymakers should negotiate some form of "anchor" to the currency or currencies
  • The easy money policies of the present system have created asset bubbles that are not sustainable
  • Growth should become less reliant on debt creation and more on productivity and innovation
  • A new monetary system with an anchor and not based on ever expanding debt can restore fairness
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My added comment: I am pretty sure that on this page and this page of this blog we have tried to cover just about every issue in the bullet point list above for many years. I would wonder if those running the present system agree with the premise of this article in the FT that their policies are the big reasons why the present system "has reached the end of it's usefulness" and now must be replaced with a new system. 

If they do agree, it's fair to ask why they have allowed this to go on and on for years all the while assuring the public these kinds of problems are not really problems we need to be concerned about and everything is under control. If they do not agree with this premise, why should the author of this article expect any of his proposals to go anywhere as everything is fine and those in charge have done a great job, right?

Here is another question for all of us to ponder. If those running the present system have implemented such poor policies that we must admit defeat and replace the current "unfair" and "unsustainable" system as described in this article, why should we just blindly trust those whose policies created the mess to fix it? Maybe someone else should get a chance to offer up some new ideas. Just a thought.

Thursday, February 25, 2021

Jim Rickards on The Great Reset

Jim Rickards has a new article out talking about The Great Reset. This is the type of monetary system change this blog watches for. Right now Jim is saying some of the initial steps for the SDR to eventually replace the US dollar are in progress. Below are a couple of excerpts and then an added comment.

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"For years, commentators (myself included) have discussed the next global monetary realignment, which is sometimes called The Big Reset or The Great Reset.

Now, it looks like the long-expected Great Reset is finally here.

Details vary depending on the source, but the basic idea is that the current global monetary system centered around the dollar is inherently unstable and needs to be reformed."

. . . . .

"On January 7, 2011, the IMF issued a master plan for replacing the dollar with SDRs."

. . . . .

"In July 2016, the IMF issued a paper calling for the creation of a private SDR bond market. These bonds are called “M-SDRs” (for market SDRs), in contrast to “O-SDRs” (for official SDRs).

In August 2016, the World Bank announced that it would issue SDR-denominated bonds to private purchasers. Industrial and Commercial Bank of China (ICBC), the largest bank in China, will be the lead underwriter on the deal.

In September 2016, the IMF included the Chinese yuan in the SDR basket, giving China a seat at the monetary table.

So, the framework has been created to expand the SDR’s scope."

. . . . .

"Now all of the pieces of the global elite plan are converging.

The IMF SDR issuance will reliquify global central banks that cannot print dollars. Then CBDCs (Central Bank Digital Currencies) will be used to eliminate cash."

Please click here to read the full article

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My added comment: Jim has talked about this for a long time and lately there has been some renewed interest in issuing a new allocation of SDR's at the IMF. The Biden Administration looks to be more inclined to support this than the previous Administrations have been in recent years. For now, this is still just in the discussion phase, but it certainly bears monitoring.

Jim does point out in this article that all this may unfold over a period of several years, so it is something to watch over time to see if it leads to the kind of major monetary system change we watch for here. Any change where the US dollar is replaced as the global reserve currency would qualify as major systemic change in our view here that would impact all of us directly in our daily lives. 

Friday, February 12, 2021

Update Note - New Blog Created

There is nothing new to cover related to major potential monetary system change at this time. Bitcoin has made some news with its rise in price, but there is nothing to suggest that it will cause a major monetary system change. Monetary authorities are still mostly negative about Bitcoin and it's still not widely used for daily business transactions. There is some discussion of the IMF possibly issuing some new allocations of SDR''s, so we will see if that emerges over time and how big the allocation might be.

The recent news in the silver market caused me to create a new blog that is focused on tools and information for people who may be new to the gold and silver markets. It emphasizes silver since that metal could be a key to the future in terms of expanded silver use in green energy. This new blog is a bit more commercial since it covers gold and silver in terms of their role as investments as well. I have followed those markets now for years doing research for this blog, so I have a lot of resources and tools for analysis of gold and silver that I use myself. I just collected them all in one place on the new blog to make it easier for someone new wanting to learn about gold and silver. There has definitely been an upswing in interest in those markets recently. If you have interest in those markets, you can find the new blog at this link and this is a link to one of the first articles posted there.


Tuesday, January 5, 2021

Jim Rickards - The New Great Depression

I was privileged to get an advance copy of Jim Rickards new book  - The New Great Depression. Followers of Jim Rickards won't be surprised that this new book has the same high quality of in depth analysis that is a hallmark of Jim's previous books. As the title suggests, Jim takes a deep dive into the potential long term impact of the Coronavirus pandemic on the economy. 


Jim takes on this topic with no partisan political agenda which is what makes his analysis valuable to me. A search for the best information without regard to any political agenda is what is needed and Jim delivers that in this book in my view.


While the book delves into the economic impact of both the pandemic and the response to the pandemic, readers may be surprised at the amount of time Jim devotes to the virus itself. Like most people who have followed this pandemic since it showed up on the radar in early 2020, I have seen lots of "experts" offering a wide variety of information and recommendations on how we should deal with this virus. Along with that has come some contradictions and confusion as we discovered the "experts" don't always agree.


This book has the best collection of both pure information on the actual virus as well as a summary of the various "expert" theories about it I have seen so far. Putting all this information together in one book is a valuable service to anyone who wants to understand this virus and the related pandemic. Since it is possible that your life could be at stake some day during this pandemic, knowing as much as possible about the actual virus is a goal everyone should have.


Below I have listed the six Chapter Titles in the book and the Conclusion. For each chapter I listed some of the key questions Jim answers with the best information he had at the time of the writing of this book. This should give you a feel for what is covered and how it might be beneficial to your own understanding of this virus and all the related impacts we will see from it in the years to come, both medical and economic.


          The New Great Depression

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Chapter One - A New Virus From China to a Town Near You

What is the Coronavirus? 

What do we actually know about it? 

What is still unknown about it?

How did the Coronavirus actually get started? 

What responsibility does China bear related to this global pandemic?

Chapter Two - One Hundred Days - Chronicle of a Lockdown

The lockdown response to the virus:

The correct response?    or

One of the greatest blunders in economic history?

Chapter Three - The New Great Depression

What is a depression?

Did the pandemic and lockdown response start a new depression?

If so, how long might it last?

Chapter Four - Debt and Deflation Derail Recovery

Is the biggest challenge for the Fed going forward inflation or deflation?

Does the Fed prefer inflation or deflation?

Is money printing stimulus?

Is MMT (Modern Monetary Theory) already the unofficial US monetary policy?

Chapter Five - Civilization's Thin Veneer

What are the psychological impacts on society from a global pandemic and the related economic fallout?

What are two kinds of mental health damage potentially caused by COVID-19?

How long can an orderly society be maintained during periods of prolonged severe distress?

Chapter Six - Investing in a Post Pandemic World

How can the average person outperform the markets?

What portfolio is best right now to hedge against both deflation and inflation?

What asset offers the most flexibility in this uncertain pandemic and post pandemic environment?

Conclusion

Which two Presidents attempted to use gold to deal with economic problems?

Which of the two used gold more successfully?

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Added comments: In this book, Jim lays out three possible paths forward the virus might take based on similar pandemic events from the past. It is important to understand the worst case scenario in case that one does unfold (for both medical and economic reasons). We all hope we do not get the worst case scenario and that vaccines will reduce the impact of this virus as much as possible. But even a vaccine that is effective against the current version of the virus does not mean we are out of the woods. This is why I feel it is important for everyone to learn as much about this virus as possible. We are all impacted in one way or another and will have to make important decisions going forward on how to deal with it.

Note to readers: Unless something very dramatic happens that could actually change the present monetary system in a significant way, I do not have any further posts planned for the blog going forward at this time since I do not foresee any such events on the near term horizon.

Added note 1-20-2021; Now that a new Administration is in office, a question may arise as to whether we will see any significant change in our monetary system as a result? At this time my answer would be no -- so there is no need for further analysis or articles at this time. Only if something truly significant arose that would impact everyone directly in their daily lives would I see any reason to cover it here. At this time, I see nothing along those lines on the near term horizon. The most likely scenario is simply a continuation of the same system we have now unless it cannot continue to function, as we have said here many times. The most intense part of the US political drama has past now and nothing about all that suggests any major changes in the system are coming soon.

Friday, January 1, 2021

South China Morning Post - How China's Digital Currency Will Thwart the US Dollar Trap

The South China Morning Post runs this interesting new article that argues that China will use its lead in "blockchain technology" to implement a new "digital" renminbi. The article goes on to further say that China will use this new system to avoid US sanctions and bypass the SWIFT system. It also predicts that by 2028 China will surpass the US economically and this new digital currency system will be a key part of that. 

I sent this article to a leading global expert on Fintech who knows where things stand around the world in terms of the potential use of blockchain technology for digital currencies by central banks. He has worked in this arena every day for years with banks, central banks, and private companies exploring the potential use of blockchain technology. I view him as without question one of the leading experts in the world on this topic. 

Below are three key points I felt were stated in the SCMP article and then the response to those three key points by this global expert. He offered these comments exclusively for readers here, but prefers them to be unattributed.

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1-China is by far the global leader in "blockchain technology" which will support the new "digital" Renminbi system China is building.

Response:

"It is an interesting claim to fame: there is not much to be had in the leadership of blockchain technology - it is a relatively simple technology, with a lot of complicated moving parts that don't particularly add a lot of value in the real world. As such, there are not a vast array of levels of competence possible in the field - you either know what it is, or you don't - and you either use a distributed system, or you do not. My comments would be on this topic, that even if leadership in blockchain was such that it could be distinctive, and thereafter, emphatic - it is still by all accounts, at this time, inconsequential to hold leadership in this expertise. If China believes it has something of an accolade in proclaiming this - it is an odd misunderstanding of technical capacity, or of prowess."


2-This system will allow China to bypass SWIFT and US sanctions and eventually dethrone the US dollar a global reserve currency in years to come.

Response:

"Any system can bypass SWIFT or the US Sanctions if it is independent of SWIFT or the USD. Obvious examples to date are Ant, WeChat, and any other payment platform not used by an institution that also uses USD. Just like the Brazilian local payment system is independent of the Chinese political sanctions lists. It is again - a very poorly developed claim and the SCMP should know a lot better - as should whoever called for this article's existence. 

There's no real link to the claim that distributed ledgers can cause or catalyze any form of technical incentive against Dollar superiority - Dollar superiority is legislative and economic. The US is an innovative, rule of law, consumer protection, and thought leading superpower. China is a constantly moving bureaucracy of personal political connections. As we've seen with Jack Ma, say the wrong things at the wrong time, and your business evaporates. 

As a place to park your money.... I don't see China's brand, or economic stability, being sufficient to challenge even the GBP or the Yen, as a reserve currency yet. Chinese "banking assets" are still around the USD 2 trillion mark - the US is almost 10 times this (according to the Central Bank of each nation).  The US is a reserve currency because it is large, very predictable, and most of the time (more than most) very rational. And that's not the nature of the Chinese system yet".


3-China is in the process of surpassing the US and will do so by 2028 using this new system as a key part of that accomplishment.

Response:

"The link made here is not a logical statement. The simple rebuttal to this claim is -- what if the US got a similar new system, tomorrow? Nothing would change in the US, nor the rest of the world really - in terms of US dollar sovereignty. The US has had one of the world's worst payment systems for 30-40 years - and still does. Blockchain does not automatically bring any additional technical capacity to an economic system - and there are better systems out there than blockchain platforms for this purpose (from Mexico's SPEI, to Tonga's NPS) - so the premise of the understanding conveyed in this article is not factual. 

What blockchain does do - and may do - depending on the exhaustive list of well known options available to the any blockchain program (Chinese or otherwise) is give limited or unlimited access to review every single payment, partial payment, and balance, of anybody - and any party who has ever received or sent payment to any other affiliated party. 

Do you want to make a political donation? The system operator will immediately know. Your friend from school who you once gave Y50 to cover a pizza order at university, who then went on to be a radical dissident - or agitator - 30 years later? Guess who's on their way to your house?

Until this is desirable - it would stand to reason that China would decrease its standing of its chances to offer the world a unified, suitable means of exchange, if the authoritarian government was to announce any form of financial surveillance platform, like the one they claim this might be." 


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Added comments: This expert also offered this general editorial comment:

"Without wanting to be too harsh on the Chinese - I guess that from their perspective - blockchain holds a certain amount of logic, to a mid-level, technology-promoting party official. Like communism itself, blockchain appears to be an ideal or simplistic system to run or use for certain purposes. In reality it becomes incredibly complex and burdensome to manage at scale, or beyond theory. 

The claims here are very similar to a claim that China has found a new economic system that is more useful and better than the simplistic systems used in the West, and in adopting this new concept of self verifying (but ultimately unstable) record keeping software, it will enable China to out perform the West (specifically the US) economically. 

Claiming that their blockchain leadership is an asset, is again, so similar to claiming that their newest version of communism is far superior to everyone else's communism, that they will rise to the top of the economic food stack because of it. I have a lot of respect for parts of China's miracle - but I don't see their next wave of advancement being linked to the claims of this article, in any way. Although we do wish them luck with their research!"