Welcome to New Blog Readers!

We are at the end of May for this blog which began at the first of this year. I started the blog for a couple of reasons. One is that there was a lot speculation/buzz at the first of this year that some type of "global currency reset" would take place in 2014. Secondly, I wanted to collect articles relevant to the topic of major monetary system change in one place as an archive (see the right hand column for list of prior posts).

Now we are nearly midway through 2014 and as events have unfolded, it appears less likely that anything major will change in 2014 even though a sudden global financial crisis is still possible to arise at any time. This is because of the inherent instability of the system itself. Jim Rickards uses his "snowflake" analogy to explain that when a system is unstable any new snowflake could be the one that triggers an avalanche. But he points out that no one can know which snowflake will be the trigger (no one can know precise timing).

With all that in mind, we have continued to capture what we feel are the major news articles and events around the world that are leading to eventual major monetary system change. We don't try to force a conclusion or predict timing here. We go where the available evidence leads us.

Right now it suggests that major change is NOT imminent this year, but events unfolding this year seem to be setting up 2015 as a year where significant changes could begin because of actions in motion by the BRIC nations (Brazil, Russia, India, China and South Africa). They are increasingly moving away from the IMF and World Bank and working on serious projects to by pass those institutions  and also the US dollar as global reserve currency. We follow those events closely and if you read through the linked articles here you will see it plainly.

If a crisis suddenly arises or events quickly change, we will try to be on top of that as quickly as possible and will post that information here for readers as quickly as we can (this blog is a hobby and not my source of employment).

Reviewing the stats for this blog we see that we continue to get a lot of new readers here from all around the world. The blog now has over 25,000 page views and regular readers from over 20 countries around the world. More than anything we ever imagined. We thank our readers and hope you find the information here useful and will recommend it to others. 

This site is free and will always be free. We don't even allow ads to run on this site. The purpose of this site is to be a free resource for everyone interested in this topic.

We also are happy to post articles submitted by readers so long as they relate to our topic here. We have a number of high profile readers who do send us articles to look at. They also give us some updates on things happening behind the scenes (some of which we cannot publish at their request). But this information does factor in our view that major change is not imminent this year. However, we do think a lot of things are in progress that will lead to major changes eventually.

We are very picky as to what articles we will post here. We try to avoid hype and speculation that we see around the internet quite a bit.

We will post some speculative theories if we think the author has presented a solid factual basis for the theory. That is why we post a lot from Jim Rickards here. We feel he is the best source right now for fact based information on this topic along with a few others. Rickards tries to minimize speculation and emphasize factual data and analysis.

For the next week I do not anticipate running as many articles unless some news breaks that changes our view on current situation as I will be tied up on some other activities the next week or so. 

If you are a new reader, I suggest looking at our most recent posts below  related to the May Bretton Woods annual Meeting. They explain why we think major change is not imminent right now. This can change at any time and if it does, we will post that here as soon as possible.

Paul Volcker's speech to the Bretton Woods Committee - Part II

In Part II we will paste some of the key comments from the Volcker speech and attempt to make some observations on how all this could impact the timing for any major monetary system change.

In the opening part of his speech, Mr. Volcker provides some history and background to Bretton Woods. He interestingly titles the speech "A New Bretton Woods???" suggesting perhaps one might be coming soon. But as we read the whole speech, we actually see quite the opposite coming through. Here are the opening paragraphs:

"Weeks ago, Dick Debs overcame my reluctance to participate 

in still another public meeting. And once that commitment was 

made, the inevitable question followed: ”Paul, we need a title 

for your remarks”. 

Well, what could I say that could be new or provocative 

amid all the conversations about the markets, financial reforms 

in all their variety, or even the Volcker Rule itself? 

Well, given the sponsorship of this meeting, what popped 

out of my mouth was, “What About a New Bretton Woods???” – with 

three question marks. 

The two words, “Bretton Woods”, still seem to invoke a 

certain nostalgia – memories of a more orderly, rule-based world 

of financial stability, and close cooperation among nations. 

Following the two disasters of the Great Depression and World 

War II that at least was the hope for the new International 

Monetary Fund, and the related World Bank, the GATT and the 

OECD." 

Volcker goes on to say to give a summary of history of the monetary system and some major points of change such as when the dollar went off the gold standard in 1971 and currencies "floated" against each other in value. He says things went pretty well under the existing monetary system after the stagflation in the 1970's up until the global financial crisis in 2007-2008. 

He then shifts gears to ask if the existing monetary system (because of lack of global oversight) may have contributed to the problems we are still dealing with now. He begins to suggest that lack of global oversight of the monetary system allowed for bad national economic policies to be put in place. He seems to be suggesting that more global institutional oversight is needed

(like a bigger role for the IMF).

He goes on to question how large trade imbalances such as the one between the US and China have been allowed to build up to excess and also questions if there should be just one national currency (the US dollar) as global reserve currency. Here are those comments:

"Where was an effective adjustment mechanism? (for the trade imbalances) Was the “exorbitant privilege” of the dollar as a reserve currency also a “dangerous temptation” to procrastinate - an impediment to timely policy adjustments, risking eventual breakdown?"

Later he adds this:

"Nor would I reject some re-assessment of the use of a 

single national currency as the dominant international reserve 

and trading vehicle. For instance, do we want to encourage or 

discourage so important a development as regional trade and 

currency areas?"

Here he seems to suggest multiple reserves currencies and regional trade groups (think BRICS here) should be encouraged rather than discouraged? This would lead away from a global currency centered at the IMF.

Volcker concludes the speech by making a plea for a new and improved monetary system:

"That is all a long introduction to a plea – a plea for 

attention to the need for developing an international monetary 

and financial system worthy of our time."

At this point the reader suspects he is about to lay out a scenario for sweeping change that might perhaps be coming soon. Instead here are some of his concluding remarks:

"Well, even if you agree with my concerns, you will 

reasonably ask where the analysis leads. What is the approach 

(or presumably combination of approaches) that can better 

reconcile reasonably free and open markets with independent 

national policies, maintaining in the process the stability in 

markets and economies that is in the common interest? 

 That is a question I cannot answer today with a sense of 

conviction and practicality."

And then he adds this:

"The creation of the G-20 at the exalted level of Presidents 

and Prime Ministers has been a political accomplishment. The 

agreed changes in IMF governing structure are important in 

achieving a sense of political legitimacy for its governing 

structure and decision-making. But that is not enough – it means 

little without substantive agreement on the need for monetary 

reform and practical approaches toward that end. 

We are a long way from that. . . . "

And here is more:

"A new Bretton Woods conference? We are long ways from 

that. But surely events have raised, whether we want to admit it 

or not, some fundamental questions that have been ignored for 

decades."

And finally this last paragraph:

"Can we not, in approaching that challenge, restore 

something of the spirit and conviction that characterized the 

planning, the negotiation and the management of the Bretton 

Woods System that I once knew 50 years ago? Our host today, the 

Bretton Woods Committee lights the candle, but we have a long 

way to go."

My concluding comments: 

Mr. Volcker makes it clear he is a strong believer in a global approach to managing the monetary system and makes several arguments as to why the IMF and other global institutions are important. However, what I get from this speech is a sense of frustration that things appear to be stalled and meaningful change is "a long way off".

Notice how many times he says "we are a long way from that" or "we have a long way to go".  All this seems to confirm that things have stalled out at the IMF for now. The BRIC nations seem to be going their own way. In the US and EU political winds seem to be favoring those who oppose global institutions rather than support them. 

The US and Russia are at odds and nations seem to be taking sides rather than coming together on a global basis. None of this suggests the IMF is about to step forward to lead global monetary system reform. Instead, an East versus West divide seems to be widening. 

All this is why we think unless there is some sort of major global crisis that pulls all these factions together, the trend seems to be moving away from global cooperation through the IMF. We will continue to keep an eye out for any such global crisis or change in the trend. 

But for now, it seems like change is more likely to come from the BRIC alliance working on its own to bypass the US dollar. They have stated 2015 is their target date for getting this going in a serious way. They seem to be laying the groundwork this year. 

So, perhaps the Volcker speech gives us a hint that nothing is imminent for major change within the IMF for now. Perhaps a "reset" is not imminent. Things seem a lot different than when Christine Lagarde was talking about a "reset" at the start of this year and rumors abounded that a "currency reset" was imminent.

Paul Volcker's speech to the Bretton Woods Committee - Part I

Here is a link to the full text of the keynote speech  given by Paul Volcker at the Bretton Woods Committee Annual Meeting held on May 21st. Interestingly, the title of this speech is "A New Britton Woods???" Let's take a look at it.

First some background. Here is a section from the "about us" section of the Bretton Woods Committee:

"The Bretton Woods Committee is the nonpartisan network of prominent global citizens, which works to demonstrate the value of international economic cooperation and to foster strong, effective Bretton Woods institutions as forces for global well-being.

The Committee was created in 1983 at the suggestion of two former Treasury officials - Secretary Henry Fowler and Deputy Secretary Charls Walker, a Democrat and a Republican - who saw the need for an organized effort to ensure that leading citizens spoke about the importance of the international financial institutions (IFIs).

Committee members are leaders at the top of the business, finance, academic, and non-profit sectors, including many industry CEOs, as well as former presidents, cabinet-level officials, and lawmakers who share the belief that international economic cooperation is essential and best served through strong and effective IFIs. Through the Committee, they champion global efforts to spur economic growth, alleviate poverty, and improve financial stability.

The Committee organizes frequent conferences, seminars, and educational activities. Many of these events are designed to reach a broad public audience, while others offer members the opportunity to provide important advice, support, and constructive criticism to the management of the IFIs. Working closely with successive U.S. administrations, the Committee also reminds elected leaders that global economic prosperity and lasting national security are closely tied to continued progress on multilateral issues.

The Committee relies solely on the funding of its members and does not accept funds from governments or the multilateral institutions."

Some well known members are:  Zbigniew Brzezinski, Mohamed El-Erian, Lee Iacocca, Henry Kissinger, Walter Mondale, Ross Perot, Jr. , Colin Powell, David Rockerfeller, Nouriel Roubini, General Brent Scowcroft, George Soros, and Paul Volcker. Here is a full list of members.

The Committee is made up of influential people from all areas of society and favors global institutions like the IMF and World Bank. Clearly this group influences the international monetary system which is why they are of interest to us here on this blog.

What is striking about the speech given by Paul Volcker at this latest annual meeting is how seemingly pessimistic he is about mutual global cooperation as it relates to the international monetary system. In my next post I will paste some quotes from the speech to illustrate what I mean. 

This is interesting in light of the many analysts who are expecting some kind of imminent change in the system (even as early as this year). Many were expecting some kind of "reset" that might include a currency "reset" of some kind this year. They cited remarks by Christine Lagarde of the IMF and others that seem to suggest a reset was coming soon.

But Volcker's comments seem to suggest the opposite. When we also look at the recent EU elections we see a sharp rise in influence for the political parties that are opposed to giving the EU more political power (and are opposed to global institutions in general for the most part). 

This is just the opposite of what would be needed to increase the influence of the IMF over the monetary system. The political winds in the US suggest a possible strong showing by Republicans this fall. Again, this seems like a headwind to approval for the IMF reforms in the US Congress for the next several years (at least until 2016).

Perhaps all this is the reason for Mr. Volcker's comments and the overall theme of disappointment expressed at the annual meeting this year. In the following post (Part II) I will paste some quotes from the Paul Volcker speech and add a few concluding comments.

Bretton Woods Committee Annual Meeting Summary

The Bretton Woods Committee held its annual meeting this past week and has posted a summary here. I will have an indepth review of the Paul Volcker keynote address for this meeting tomorrow. I think Volcker left us some key hints about the timing of where things stand in his speech.

I will have more to say about this tomorrow, but it seems evident that things have bogged down in terms of the IMF moving forward to become a major player in re-shaping the international monetary system. 

Sen. John McCain spoke and was disappointed the IMF reforms were not passed.

"McCain called for stronger Executive leadership on international economic issues – in particular regional trade agreements – and expressed disappointment that Congress did not pass the IMF quota reform legislation earlier this year, blocking the Fund’s efforts to reform its governance and undermining its legitimacy."

Mohamed El-Erian (formerly of PIMCO) spoke and was clearly let down at how the world is moving further apart rather than closer together. 

"Mohamed El-Erian spoke about shifting global economic trends and their implications and risks. He raised concerns about the structural issues of high unemployment and inequalities across the world to warn that we are missing the opportunity to prepare a better future. He noted that at a time when we need multilateralism and strong U.S. global leadership the most, we have the least: “We have come from a world of ‘Gs’ (e.g. G-7, G-8, G-20) to a world of G-0,” he said. He commented on the incredulity among other countries caused by America’s failure to pass the IMF quota reform legislation, but concluded that the United States should not be the only country to be blamed for the current IMF status quo because European countries are also not willing to give up their current position."

This was the recurring theme of the meeting. Disappointment and frustration that things are stalled and global cooperation seems to be breaking down. I will cover this more in depth and also tie in all the recent elections in the EU. Several things happening right now are moving away from global cooperation and towards self interest by nations and regions. 

CNBC: What Russia-China Relations mean for the Dollar

CNBC joins the media chorus questioning how much longer the US dollar will retain global reserve currency status. The status of the dollar is called into question throughout this article.

Here are some quotes from the article:

" While the United States can't claim that it might be losing a friend with Russia's pivot east, it might be a different story for the dollar, with the alliance having the potential to undercut the domination of the U.S. currency."

"Taken alone, these actions do not mean the end of the dollar as the leading global reserve currency. But, taken in the context of many other actions around the world including Saudi Arabia's frustration with U.S. foreign policy toward Iran, and China's voracious appetite for  gold, these actions are meaningful steps away from the dollar," Jim Rickards, portfolio manager at West Shore Group and partner at Tangent Capital Partners, told CNBC via email."

"Despite the details for the deal being scarce, many analysts predict that the oil exports would mean Chinese yuan being exchanged directly, into the Russian ruble. Thus the two countries would bypass the U.S. dollar - the traditional currency used in oil trades and considered to be the international reserve currency of choice."

"With the two developing nations trading outside of the U.S. dollar, many questions are being raised about what this would do for the greenback and for the U.S. The dollar's status as the global reserve currency has allowed the U.S. to borrow large sums of money, effectively living beyond its means, because there is always a demand for its currency."

A couple of gold related news items

First, this article says Central Banks continued heavy gold buying in Q1 of 2014 at 122 tons purchased.

Here is the article:

"NEW YORK (Scrap Register): Net purchases of gold by global central banks reached 122.4 tons in the first quarter of this year, comfortably within the range of buying that has been in place for the last three years, said World Gold Council (WGC).

According to WGC, the biggest surprise of the quarter was the announcement in March from the Central Bank of Iraq that it had recently increased reserves by 36 tons. This follows comments in January by Muneer Omran, general manager of investments, that “Iraq has no plans to sell gold from its reserves”; although it was reported in April that it would mint 11t for sale domestically.

The announcement of a substantial increase in Iraqi reserves, along with continued buying from countries such as Russia (6 tons) and Kazakhstan (5 tons) in the first quarter, demonstrates the continued desire among central banks to accumulate gold for diversification purposes. Gold holdings in the euro area also increased by 7.7 tons in Q1 2014, as Latvia joined the currency union at the start of the year (1.1 tons of which was transferred to the ECB).

Germany remains the only active signatory of the Central Bank Gold Agreement (CBGA), owing to its coin-minting programme. During the first quarter it reduced its holdings by less than a tonne for this purpose."

Next: China invites foreign banks to gold exchange.

"BEIJING (Scrap Monster):  China has added more glimmer to its dignified gold aspirations by inviting foreign banks and gold producers to take part in a global gold exchange in Shanghai that could challenge the dominance of New York and London in precious metal trade and pricing.

"China wants to have more voice in gold prices," said Mr. Jiang Shu, an analyst with Industrial Bank, one of 12 banks allowed importing gold into China. "The international exchange is the first step towards gaining a say in gold pricing."

According to the media report, China's central bank last week gave the Shanghai Gold Exchange (SGE) has approached Australia and New Zealand Banking Group, HSBC, Standard Bank, Standard Chartered and Bank of Nova Scotia.

"If you don't allow foreign players to participate in your market actively, or do not push Chinese financial institutions to participate in the international market, then China's strong gold demand is only a number, not a power," Shu added.

Last year China overcame India as the world's top gold importer and gold jewelry and investment demand, rising to a record 1,065.8 tons."

added note: some sources estimate that as much as 2000 tons of gold may have been imported into China last year. The exact figures are difficult to pin down because China does not disclose the information on total imports.

Huffington Post - Birth of a Eurasian Century

The Huffington Post runs this article by Pepe Escobar which talks about the emerging relationship between Russia and China and a coming end to the Petrodollar.

Here is a quote regarding the petrodollar from this article:

"Exit the Petrodollar, Enter the Gas-o-Yuan

And then, talking about anxiety in Washington, there’s the fate of the petrodollar to consider, or rather the “thermonuclear” possibility that Moscow and Beijing will agree on payment for the Gazprom-CNPC deal not in petrodollars but in Chinese yuan. One can hardly imagine a more tectonic shift, with Pipelineistan intersecting with a growing Sino-Russian political-economic-energy partnership. Along with it goes the future possibility of a push, led again by China and Russia, toward a new international reserve currency -- actually a basket of currencies -- that would supersede the dollar (at least in the optimistic dreams of BRICS members)."

And Putin continues to hint that gold seems to be important for the future in this article.

Here is this full short article:

"Russia May 24 (Reuters) - Russia and China need to ensure their gold and currency reserves are secure, Russia's President Vladimir Putin told foreign journalists at the St Petersburg International Economic Forum.

"For us (Russia and China) it is important to deposit those (gold and currency reserves) in a rational and secure way," he said. "And we together need to think of how to do that keeping in mind the uneasy situation in the global economy."

Putin also said China and Russia will consider further steps to shift to use of nationalcurrencies in bilateral transactions. (Reporting by Alexei Anishchuk and Paul Ingrassia, writing by Jason Bush)"

Russia also recently sold off a substantial amount of US bonds and then turned around and bought nearly 1 million ounces of gold. Russia continues to rapidly build its gold reserves as does China. China has also stopped buying US bonds leaving Belgium (of all places) to have to step in to buy huge amounts of US bonds. Some believe the Belgium buying is actually funded by Central Banks such as the ECB. 

Summary of the above: 

Russia and China are steadily reducing their paper US bond reserves and building up gold reserves. They are also working to bypass the US dollar everywhere they can in trade agreements and energy deals. It's really not even a question any longer as to what they intend to do. They are working to get out from under the US dollar as global reserve currency. They are hedging their current US dollar holdings while they work on it. If the IMF will not change to accomodate what they want, they intend to eventually be in position to do what they want regardless of what the US and IMF do.

Jim Rickards forecasts the next FED moves

In this article in his hometown paper Jim Rickards lays out his forcast for the next year.  On his twitter account yesterday, Rickards says that in February of this year two Central Bankers he knows "gave me Yellen's playbook". So he uses this to project what he thinks the FED will do over the next year.

Basically, he says the July meeting of this summer will be the key meeting to determine if the FED will pause its QE tapering program. He says if they do not pause in July they will complete the tapering by the end of this year. If they do pause, they will likely reverse course and start a new QE program by early next year. He has been saying all year this is what he expects to happen. But I note in this article he seems less sure the FED will pause this summer.

He notes that whether the FED starts to reverse course in July or not, he still expects them to revert back to QE again sometime in 2015. So he essentially thinks the only difference will be the timing of when the FED starts up another new QE program next year. Here is a quote from the artice:

"The showdown comes in July. If the data between now and then are uniformly bad, the Fed will pause and then increase money printing in 2015. If the data are mixed, the Fed will finish the taper this year. But this does not alter the fact that the fundamental economy is weak and the taper is exacerbating the weakness. If the Fed does not pause in July, they will revert to money printing in 2015 to offset the weakness. Either way, look for QE4 in 2015."

This will be interesting to watch because someone has to be wrong here. The FED keeps sending out signals that they expect the economy to continue to recover so that they can end QE. They always leave open the door to reverse course, but they are clearly promoting the idea that a recovery is underway despite a very poor first quarter GDP number. They still are forecasting 3% or better GDP this quarter.

Rickards and others say the economy is not recovering and expect further weak GDP numbers to come (forcing the FED to pause its taper and eventually go back to more QE).

The markets seem to be taking the FED (and the financial media) at its word that a recovery is underway and will continue. Every economic number released these days is closely watched and debated. If a good number comes out, skeptics say the government has manipulated the numbers. If a bad number comes out, the FED and financial media say it is because of the bad weather this winter. It is obvious the markets react quickly and with a lot of volatility these days so managing expectations is very important.

With the weather no longer a factor, the 2nd quarter numbers will be huge in determining what happens next in the short term and we can expect markets to react strongly.

In terms of impact on monetary system change, if a recovery is really underway, we would not expect much to change. After all, if things are getting better, there is no crisis and no reason to make changes. It is our view that only in a major crisis would the public possibly be willing to accept major monetary system changes. You can't tell people everything is getting better and we are on the way to 3% plus GDP, but we need to make drastic changes that will directly negatively impact you at the same time.

By August, we should know how things will look for the short term based on what the FED does in July. The Q2 number for GDP will be watched by everyone.

Media Coverage of Energy Deal between Russia and China

Now that the $400 billion energy deal is done, below are links to various media reports on the deal and also another agreement to bypass the US dollar in trade. It is interesting to note how different media sources cover it and what they emphasize. Some mention the fact the US dollar will not be used and some don't.

From the BRIC's post

Here is the last paragraph from this article.

"Earlier on Tuesday, Russian bank, VTB, signed a currency swap deal with Bank of China to bypass the US dollar."

From Russia Today  - no mention of US dollar


Voice of Russia  - no mention of US dollar


Al Jazeera  - whole article is about bypassing the US dollar

"In a symbolic blow to U.S. global financial hegemony, Russia and China took a small step toward undercutting the domination of the U.S. dollar as the international reserve currency on Tuesday when Russia’s second biggest financial institution, VTB, signed a deal with the Bank of China to bypass the dollar and pay each other in domestic currencies."

China Daily   - no mention of US dollar


Forbes  - talks about the Yuan competing with the dollar


"China wants the renminbi to become a truly international currency, and needs foreign centres for this to happen; and CIC has previously bought a stake in Moscow’s stock exchange. The RMB is already used to settle cross-border trade transactions between the two countries, and has been serving that purpose since 2010. If Russia becomes an instrument through which RMB internationalization can happen, then a mutually beneficial arrangement may be struck: a more international Chinese currency, and a diversity of foreign exchange sources for China."


Bloomberg - no mention of the dollar

John Williams - Dollar on the Brink of Disaster

John Williams of Shadowstats.com does a new interview with former CNN reporter Greg Hunter. In the interview he makes some pretty discouraging comments about the state of the economy and the future of the US dollar. Is he right or wrong?

I will paste some of the key comments below. John Williams is a well respected publisher and analyst. He clearly feels the economy is going downhill, the debt problem is going to get worse, and the US dollar will take a big hit. 

But on the other hand, we have daily reports in the mainstream media saying we are in the midst of a recovery. FED officials are talking about an unemployment rate below 6% and that interest rates might be moved higher sooner than expected. This, of course, implies the economy is improving enough to allow for the FED to reduce easing and let rates rise.

Obviously someone is way off target here. Both of the above scenarios cannot be accurate. If things are improving as the FED and financial media say, there is no reason to expect any kind of major monetary system change (what we watch for here). Why would any major changes be made if things are good and getting better?

If John Williams is correct things are totally different. If we get a lousy 2nd quarter and sharply rising US debt and a stock market decline, the markets will feel that the FED is out of touch with things and confidence will take a big hit. The dollar probably will too. Then major change does not seem so unlikely. 

So, who is right is important. At least for the short term. We can't possibly know here. All we can do is keep a watch on things. But the 2nd quarter GDP will obviously be a key piece of information because the weather will not be viewed as a factor for that quarter.

Below are some comments from Williams interview. There is also a video of it on the linked page above.

"Economist John Williams has a dire prediction for the U.S. dollar.  Williams says, “I don’t see what will save it at this point."

"Williams also contends, “The way I see it, the dollar could go to zero in terms of its purchasing power.  You don’t want to have your assets in U.S. dollars.”   How are we going to get there?  Look no further that the dismal first quarter gross domestic product (GDP) numbers that officially only eked out .1% growth."

"Williams goes on to say, “We’re turning down a new.  The first quarter should be revised to negative territory, and I believe the second quarter will be reported negative as well.  That will happen by July 30 when you have the annual revisions to the GDP.  In reality, the economy is much weaker than that . . . . Generally, when you adjust for inflation and you use too low of a rate for inflation, that overstates the economic growth.” 

"On the budget deficit, Williams predicts an explosion of U.S. debt.  He says, “All the projections on the budget deficit are based on positive economic growth going forward.  With the ongoing contraction, you’ll see a much worse budget deficit.  It’s going to do bad things to the banking system."

Way off topic - Proud Dad Here

This is way off topic, but I have to take a minute to congratulate my daughter on her first job as a journalist. She is home for the summer from college (journalism major) and landed her first "real world" job as a reporter for our local town online news publication (the Rockwallnews.com).

Here is her first byline.

She will get to do some investigative reporting over the summer for this publication which prefers to cover mostly "hard news" in our area along with some features. For example, we have a 10 year old in our town who is already a champion drag racer having won several events. She will be doing a feature story on him later this week. 


It will be a great learning experience and a great summer job. Just had to say congrats!!

Update: 5-29-2014: Here is the article on the 10 year old drag racing champion.

Bloomberg Article Laments Stalled IMF Reforms

This Bloomberg article provides some insight on how things are going for the IMF lately. Liberal college students and conservative politicians are both down on the organization these days. Not something that suggests the IMF is about to become a major global player for monetary system change.

While this article does not provide any new information, it does illustrate how far away IMF reforms seem right now. While there has been lots of talk about change and currency resets, etc. the reality right now seems to be that no major change is imminent.

The failure to get the reforms approved clearly shows how difficult it would be for the IMF to start making some major real monetary system changes that people would notice. If they can't these relatively minor reforms approved, imagine what would happen if the IMF tried to do a major reset of currency values.

This is why we say we believe only a new major global crisis would prompt major change coming from the IMF. For 188 nations to agree to allow the IMF to take over and manage a crisis, it would have to be a very big event in our view. And the US would, of course, still hold veto power. It would have to be much bigger than the 2008 crisis.

This is also why we think the odds now favor the BRIC nations just moving on to bypass the IMF. They are growing more and more influential globally. They are becoming less and less dependent on the US (and US dollar) as time goes by. If they get to the point where they can withstand a crisis without any need for the IMF, they have less and less reason to stay engaged there.

Some events that could change the equation quickly might be:

- major bank failures anywhere in the world
- a sudden sharp rise in interest rates that triggers interest rate related derivatives
- a major energy supply disruption 
- a major war (which could also cause a major energy supply disruption)
- some event that triggers a massive selloff in the equity markets
- an event that causes a sharp and severe drop in the US dollar index and sharp rise in gold

Because everything these days is so globally interconnected, any of the above anywhere in the world can happen at any time. So we can't rule out imminent change, but right now there is nothing to suggest we are close to it. We'll keep watching though.

addendum:  Bloomberg also covers the upcoming energy deal between Russia and China

Any Reset in Sight? - Where do we stand?

It has been an interesting year so far. There has been a lot of speculation that some kind of currency reset could be imminent this year. The term "reset" has been seen popping up everywhere including in talks made by Christine Lagarde of the IMF. But so far, not much has really changed. So where do we stand at mid year 2014?

Regular readers here will already know that the view here is that any imminent monetary system change that might be coming would likely have to come through the IMF. The IMF is the existing global institution where most nations of the world meet to discuss things related to "the rules of the game" for the monetary system. No other institution exists right now with the framework to implement global changes.

There is an ongoing effort to adopt reforms in the voting stucture of the IMF (started in 2010) that would give more influence to the so called BRIC nations due to their increased share of global GDP. The reforms are stalled however because the US has yet to approve them and it does not seem likely it will this year (and perhaps not any time soon after this year).

In reaction to this situation, the BRIC nations have moved forward with their own plans for a development bank which could start out regionally; but could also become somewhat of a competitor to the IMF and World Bank as things unfold. Russia, China, and India are also buying huge amounts of gold. Most believe this is to hedge their exposure to their US dollar holdings and to be ready to back an alternative global reserve currency at some point in time if the US dollar loses that status. These plans seem to be targeting 2015 as a starting point based on various news articles we have posted here. But they don't appear to be ready to make major moves in 2014.

So, overall, things seem somewhat stalled for now in 2014 in terms of any imminent major system change.

This could change at any time though. Any kind of major global crisis that triggers another economic crisis could quickly alter the situation. It could lead to sudden cooperation within the IMF to empower it to deal with the crisis or it could lead to alternative currencies around the world, possibly backed by gold. In addition, the IMF could put foward a gold backed SDR as the global reserve currency. All these are possibilities as we wait to see how things unfold.

There are a variety of views on how things will unfold. Probably the most prominent advocate that major change is coming is Jim Rickards. He has a new book out predicting it. He basically says the existing system is unstable and at any time events could trigger a "collapse" leading to a global meeting of the minds to rewrite "the rules of the game". He does not predict the timing other than to say he expects it sometime within the next 5 years.

Others think things will unfold much quicker and as early as this year, but no one can be sure of course. This is how Jim Rickards puts it: No one can be sure which snowflake will trigger an avalanche.

Bill Holter of Miles Franklin is another respected analyst expecting a "reset". He has recently written a 2 part article on it which is worth reading because he lays out a pretty detailed explanation of how he thinks it will happen. 

Here are his two articles:

Part I

Part II

Most everyone anticipating these monetary system changes believes that precious metals will be important for people to own as the change takes place as a form of insurance against any major changes in valuation for the US dollar. Suggestions are anywhere from 10% to 30 % of investment funds. Some (like Jim Sinclair) are advocating people get almost completely out of the existing system because they expect another major failure and all "paper" assets to be at risk at some point.

This is where we stand at this point. We have pledged to continue to cover this as long as it takes to find out how it will be resolved. We remain committed to that goal. We will look for all relevant information on the topic and continue to post it here as we find it. We don't try to predict timing here or exactly how things might happen. We try to provide a broad range of reasonable views and the information that supports why we think major change is eventually coming. We also welcome all tips from readers on relevant news articles that fit into our theme here.

End of the Petrodollar coming?

More and more publications are looking for this event.

So let’s say the U.S. is really not importing much Arab oil anymore,” says Erik Townsend in a thought experiment. “Well, if that were the case, it’s really hard to see why the Arabs would continue to price their oil in dollars, especially at that point; their biggest customers would be China and Brazil and countries that have no reason to deal in dollars.”

We’re in debt to Mr. Townsend for helping us tease out the petrodollar’s endgame here. Erik parlayed the fortune from his first career as a software entrepreneur into a second career as a hedge fund manager who knows the oil futures market inside out.

Think about it, he says: Where’s the incentive to keep pricing oil in dollars and maintaining large dollar reserves if the U.S. is no longer your biggest customer?

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This is something everybody is watching because the deal made years ago to price oil in dollars has been a huge support to dollar demand around the world. If demand for the dollar drops while supply keeps increasing the result will be obvious.

Some think this event will take some time. Others are looking for it as early as later this year.

note: Thanks to a blog reader here for sending us the link to this article.

China Daily - China Trims US debt holdings and seals energy deal with Russia

Here are a couple of news items from China Daily of interest:

China slightly trims US debt holdings by $800 million

China-Russia gas deal set to be signed

Some points of interest from these articles:

-China cut its US bond holdings a little, but Japan and Russia sold off over $35 billion in US bond holdings. Russia sold nearly 25% of its total holdings. Certainly this is due to the Ukraine situation

-Belgium is listed as buying over $40 billion in US debt becoming now the 3rd largest foreign holder of US debt at nearly $400 billion total. Since Belgium is too small to be buying this many US bonds alone, it is certain that these funds are coming from some other source but are showing up as purchases in Belgium for whatever reason. Former US Assistant Treasurer Paul Craig Roberts believes the US FED may be funneling funds to Belgium to help buy these bonds. If so, it means they are concerned about the perception that real demand for US bonds is falling leaving the FED as the main buyer left

-Putin will be in China next week and is expected to sign this huge gas deal along with a reported 30 plus other agreements between the two nations. The Asian and Russian media are playing up this as a big event so there should be a lot of news articles on it next week. We will follow it. We have already noted that these new deals will bypass use of the US dollar which is a significant event related to what we follow here on this blog.

-Jim Rickards tweeted today that this big energy deal and Putin's visit to China next week are siimilar to what he and others simulated in a "war game" for the Pentagon a few years ago. Part of a strategy to weaken the US dollar. He says this is an important event in that process.

Summary: Lots going on for us to follow next week. Lots of chess moves being made on the international game board for us to try and keep up with.

Note: Here is Rickards tweet today.

"China investing in Crimea. Putin's on his way to Beijing for non-USD mega-gas deal. Like we told Pentagon in '09"

Rickards speaks at The World Bank on the Death of Money

Here is the video of his presentation at the World Bank regarding his new book, The Death of Money.

While Jim Rickards has presented his views on this many times recently, he adds some history and quite a bit of detail in this talk. Perhaps as interesting as anything he says is the concept of the World Bank inviting him to talk about the coming collapse of the International Monetary system.

Here on this blog we obviously cover this topic constantly because our whole point here is to watch for any signs of major monetary system change. But it seems a little surreal that things have come to the point where Jim Rickards is invited to speak at the World Bank on why the global monetary system will eventually collapse and the rules will have to be rewritten.

Not that long ago it would seem absurd for anyone to talk about this and be taken seriously by the existing financial establishment. But here we are.

Just another example of why we must keep watch here. We have to take the idea seriously given all the mountain of evidence that keep piling up suggesting some kind of major change is coming.

When it comes and how it will unfold are unknowns. But it is clearly taken much more seriously now even within the existing financial establishment. If and when it comes, it will impact everyone in some way. Change might come quickly or slowly. It might come within the IMF or outside the IMF (from the BRIC nations).

We really have no choice but to keep watching. We will continue to do that here as best we can. 

Addendum 5-16-14:  

In the very last part of this video during the Q&A session, a woman from Africa asks Rickards if he would comment on "the gobal currency reset". (see the top of our blog)

Rickards answer:

I expect a reset to involve the IMF SDR or a gold backed SDR. It was interesting that Rickards knew exactly what the lady meant when she asked about a "global currency reset".

Voice of Russia: A "De Dollarization" meeting was held on April 24th in Russia

This article could be of signifigance.

We will have to monitor events and see how this plays out. The article claims that on April 24th a meeting was held by the Russian government to "find a solution for getting rid of the US Dollar in Russian export operations."

We already knew that the energy deal with China would likely bypass US dollars. However, this is the first report we have seen of an official government meeting to attack using the US dollar. 

Here is the full article linked above:

"Russian press reports that the country's Ministry of Finance is ready to greenlight a plan to radically increase the role of the Russian ruble in export operations while reducing the share of dollar-denominated transactions. Governmental sources believe that the Russian banking sector is "ready to handle the increased number of ruble-denominated transactions".

"According to the Prime news agency, on April 24th the government organized a special meeting dedicated to finding a solution for getting rid of the US dollar in Russian export operations. Top level experts from the energy sector, banks and governmental agencies were summoned and a number of measures were proposed as a response for American sanctions against Russia.

The"de-dollarization meeting” was chaired by First Deputy Prime Minister of the Russian Federation Igor Shuvalov, proving that Moscow is very serious in its intention to stop using the dollar. A subsequent meeting was chaired by Deputy Finance Minister Alexey Moiseev who later told the Rossia 24 channel that"the amount of ruble-denominated contracts will be increased”, adding that none of the polled experts and bank representatives found any problems with the government's plan to increase the share of ruble payments.

It is interesting that in his interview, Moiseev mentioned a legal mechanism that can be described as"currency switch executive order”, telling that the government has the legal power to force Russian companies to trade a percentage of certain goods in rubles. Referring to the case when this level may be set to 100%, the Russian official said that "it's an extreme option and it is hard for me to tell right now how the government will use these powers".

Of course, the success of Moscow's campaign to switch its trading to rubles or other regional currencies will depend on the willingness of its trading partners to get rid of the dollar. Sources cited by Politonline.ru mentioned two countries who would be willing to support Russia: Iran and China. Given that Vladimir Putin will visit Beijing on May 20, it can be speculated that the gas and oil contracts that are going to be signed between Russia and China will be denominated in rubles and yuan, not dollars."
Read more: http://voiceofrussia.com/2014_05_13/Russia-strives-to-exclude-the-dollar-from-energy-trading-5138/

Russia - China to seal energy deal next week

China and Russia will seal a deal for 38 billion cubic meters of natural gas per year for 30 years next week. The deal will not be priced in US dollars.

Meanwhile Russia is looking to expand its market for gas sales to other parts of Asia as its relationship with the EU becomes more questionable.


"Even as Moscow’s ties with the US and traditional energy partner EU remains strained over the Ukraine crisis, Premier Dmitry Medvedev said on Monday that Russia will step up its presence in energy hungry Asian markets.

“It is possible to improve the conditions for cooperation with these countries, which we have been building up for years,” Medvedev said at a meeting on the development of cooperation with the region.

He stressed that although China remained Russia’s key partner in the region, it was necessary to pay attention to other countries.

“We need to have a close look at what potential possibilities for cooperation have not been exploited yet,” the prime minister said.

“I think it is rational to elaborate a portfolio of specific projects which will take into account specific aspects of these countries and specific features of our own territories that will take part in these projects, to diversify our economic activity to the fullest extent, engage all possible partners and investors in cooperation. This is even more efficient given some difficulties we now face at other markets,” he added.

Russian energy giant Gazprom is currently negotiating a long-term agreement with China to supply it with an annual 38 billion cubic meters of natural gas. Earlier on Monday, Russian Deputy Energy Minister Anatoly Yanovsky announced that the contract was almost finalized."

BRIC Nations eye July as key date for new Bank

This article notes that the BRIC nations have set a July meeting for taking the next steps forward for their Development Bank. The article also clearly shows how prospects for global cooperation within the IMF are looking dim.

Here is the full article linked above with some key parts in bold. Notice that the Ukraine situation is mentioned as speeding up the process. This is why we think it will take some kind a major change in events now to pull all these countries back together in regards to a monetary system.

The divide seems to be large and growing at this point.

Quiet revolution of the emerging countries

"As the Ukraine crisis heightens, the so-called BRICS countries - Brazil, Russia, India, China and South Africa - are becoming less willing to accept US world supremacy.

The goal of the emerging countries is clear - to change the global order with the United States as the hegemonic power. "The BRICS countries are a group of nations unsatisfied with the international order," said Peter Birle, head of research at the Ibero-American Institute (IAI) in Berlin. "The importance of BRICS could rise if Russia remains permanently excluded from the G8," he added.

According to Birle, the five emerging countries seek to permanently upend the power constellations established in 1945 and relativize the US position. "All these countries view themselves as emerging powers with a great future ahead of them," he said at the 15th Stuttgarter Schlossgespräch, an annual conference involving a panel of international social science, culture and politicis expert. This year's talks focused on the relationship between Brazil and Europe.

Flexing muscle

In particular, Brazil is looking to growing cooperation among the five emerging countries. Directly after the World Cup soccer tournament and three months ahead of the presidential elections in October, the country will host the next meeting of BRICS countries in Fortaleza on July 15 and 16. The key issue on the agenda is the establishment of a joint development bank with capital stock of US$100 billion (72 billion euros).

The Brazilian Foreign Ministry welcomes the idea. "The development bank is a sign of the economic power of the BRICS countries and their willingness to advance financial cooperation with each other," said a senior diplomat, who collaborated on the founding text for the development bank at the previous BRICS summit in Durban in March 2013.

The most recent conflict between the BRICS countries and the United States was at the spring meeting of the International Monetary Fund in Washington in April when an agreed reform of the IMF failed because of a veto by the US Congress.

In 2010, IMF members had agreed to shift voting rights by 6 percent in favor of the developing and emerging countries. The reason: over the past 10 years, BRICS countries increased their share of global gross domestic product from 18 percent to 28 percent.

Counterweight to US dominace

In Brazil, the veto by the US Congress caused an outcry, further deteriorating the already strained relations between the two countries. Following the surveillance scandal revealed by former NSA contractor Edward Snowden, Brazilian President Dilma Rousseff distanced herself from Washington, promptly cancelling her planned meeting with US President Barack Obama in September 2013.

Rousseff's predecessor Luiz Inacio Lula da Silva, in office from 2003 to 2011, had established a counterweight to the political dominance of the US in Latin America by expanding the so-called south-south cooperation. Growing trade among emerging markets resulted in China replacing the US as the primary buyer of Brazilian products in 2009. Since 2012, the Chinese have also been Brazil's most important import partner.

For Rousseff, the political and strategic cooperation with China is even more important than the growing trade between the two countries. Brazil views the participation of Chinese President Xi Jinping at the BRICS summit in Fortaleza as an absolute priority. His official visit is the first of a Chinese head of state in Brazil and in the region. After the BRICS summit, a meeting is planned with the heads of state of the Community of Latin American and Caribbean States (Celac).

The Ukraine crisis is accelerating the strategic orientation of Brazil toward Asia and Africa. It appears the greater Moscow's isolation, the better the coordination among the BRICS members. Neither Brazil nor China, India or South Africa have commented on the events in Kyiv or Crimea. The principle of nonintervention has clearly welded the otherwise heterogeneous countries together.

"For Brazil, the BRICS countries are a platform to benefit as a mediator and reformer on the international stage," said Cristina Pecequilo, a political scientist at the University of Sao Paulo, adding that she doesn't view Russia's G8 exclusion as so tragic. "The emerging countries are better represented by BRICS than by the G8."