Sunday, May 18, 2014

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.

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