Heading into Labor Day

This has been a very busy news week with the situation in the Ukraine escalating even further, the situation in the Middle East still very volatile and uncertain, and news that IMF Chief Christine Lagarde might have some legal problems in France.

If that's not enough we have Foreign Affairs running an article calling on Central Banks to give out free cash directly to the people because the economy is not responding to current monetary policy. 

If current policy is not working now, what will happen to the economy if sanctions are ramped up even more against Russia and Russia retaliates? We also have Russia talking about moving away from the US dollar again and news that Russia is adding tons and tons more gold reserves to diversify away from the US dollar.

With so much happening we will not attempt to do an indepth article on all these news items. Instead we will list some links below readers can use to get various takes on all this news. Any of these news items could end up impacting the monetary system so we will need to follow all of them this fall. We will let readers take their time looking over these links this holiday weekend and then be back for more after Labor Day.

Russia and Ukraine - various news reports (some Russian, some Western)

Russia Today - Putin compares bombing by Kiev to Nazis in WWII

Russia Direct - How the Russian Media reacted to the "Invasion" of the Ukraine

USA Today - US Says Russia has "outright lied" about Ukraine

Another Rickards prediction coming True? Russia hacking US banks?

IMF - Christine Lagarde

Yahoo News - IMF Chief charged with Negligence

France24- IMF's Lagarde Investigated in French Corruption Case

Recall our article about the Foreign Affairs article (linked above) on free cash from Central Banks directly to the people? Here is another take on that article:

Another view on the Foreign Affairs article calling for free cash from Central Banks

If all that is not enough to tide you over until after Labor Day,

Here is a transcript of Jim Rickards latest in depth interview with Anglo Far-East

One thing I have learned following news and doing research for this blog is that while things can seem quiet with little change for a long time, there are events happening all the time that could lead to major monetary system changes. It's why I need to follow all this for myself and our family. Since I have to do the research anyway, it is not much extra work to just publish it here on the blog for others to use as well. And it gives us all an archive in one place to refer back to.

We can all use this blog as a free resource not only for following news and opinions, but also to track various forecasts over time. We will continue to do that into 2015 and see where things stand then. Change might happen slowly or rapidly, but we will follow it either way.

I hope everyone has a safe and pleasant Labor Day weekend!

Tracking Bo Polny's forecast

Earlier this month we ran this article on a bold market prediction that Bo Polny has made for 2015 (a severe stock market drop).  We noted that if Mr. Polny hits his gold price forecast of $2000 by the end of 2014, it would add a lot of credibility to his stock market projection. And if he hits both forecasts, it likely means that something is happening that could lead to monetary system change.  But recently gold dropped below the summer low he called on 8-1-14. So, does that change his overall forecast? Let's see.

I asked Mr. Polny this question and he replied that gold dipping a little below his summer low price of $1281 on August 1st did not impact his overall forecast. Today he published an in depth public update where he explains how he derives his forecast and why the recent dip below his summer low price does not change his big picture outlook. You can read that update here. Below are some quotes from his public update article:

"On August 11, 2014 public post was made on SilverDoctors titled ‘A 3-Year Gold BEAR Market Ends & a 7-Year Gold BULL Market Begins’ calling August 1, 2014 a summer cycle low at $1281. That call was premature and YES the $1281 cycle low call BROKE on August 21, 2014 as Gold fell to a low of $1273. Did the $1281 break change anything? Absolutely not! Why? 

The 7-year historic tidal wave cycle indicates that the summer 2014 low MUST be a higher degree low relative to the June 2014 low at $1240, so Gold breaking $1281 and falling to $1273 changed absolutely NOTHING within the overall 7-year tidal wave cycle."

Get Ready for a Fall 2014 World Commodity Bull Market Breakouts!

"Cycle analysis indicated the next 7-year tidal wave Gold Bull Market cycle began this past July 2014; Gold has been consolidating in the 7th year of sabbatical rest within a Symmetric Triangle and one final push lower is still possible before a breakout arrives this fall 2014 that lead to World Commodity Bull Market Breakouts! There remains a very probable possibility of a commodity inflationary price spike and should this inflationary spike occur, Gold would easily achieve $2000 by year end. If no inflationary spike arrives in 2014 (as cycle analysis favors it will occur) expect Gold to still close the year closer to $2000 than $1300."

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My added comments: Readers should take time to read the entire public update as it provides an in depth explanation as to why Mr. Polny feels this forecast will hold up. For those who have interest in technical analysis and cycles for markets, the article will be especially interesting.

We will continue to track this gold price forecast into the end of this year. As we have said, for gold to reach that price point (or a price close to $2000) that quickly would imply that something is happening that would be heavily impacting the monetary system. And it would lend credence to the view that in 2015 we could see a sharp downmove in the stock market. 

All of this would tie in to the forecast by Jim Rickards and others that in 2015 we will see clear evidence that QE has not been successful and Central Banks will react with another round of QE. And this recent article in Foreign Affairs is supportive of the idea that Central Bank policies of QE and low interest rates have not worked to establish a sustainable economic recovery. We will follow all of it and see how it turns out into late 2014 and 2015.

Update 9-8-14: Bo Polny has issued a new public update which we cover here.

New Article Encourages Central Banks to give People Cash

Here is an article so interesting we just cannot pass up posting a link to it here. This is an article appearing online in Foreign Affairs published by the Council on Foreign Relations (CFR). The authors are encouraging Central Banks to try something new. Giving away free cash to people to stimulate consumer spending and demand. Let's look at this article to see if it provides any insights into the status of the current monetary system and if it provides clues change might be coming.

The first thing to say about this article is that is that this will not be an analysis of the ideology behind this proposal or whether it would work or not. At first glance some readers will think this is a crazy idea and others will think they like the sound of the idea of getting free cash from their local Central Bank.

But the premise behind this article is what interests us here. The article is basically saying that current Central Bank policies are failing. It openly admits that the various efforts by the US FED to stimulate the economy and stave off recession and/or depression are not working. For example, here is a quote from the article:

"Today, most economists agree that like Japan in the late 1990s, the global economy is suffering from insufficient spending, a problem that stems from a larger failure of governance. Central banks, including the U.S. Federal Reserve, have taken aggressive action, consistently lowering interest rates such that today they hover near zero. They have also pumped trillions of dollars’ worth of new money into the financial system. Yet such policies have only fed a damaging cycle of booms and busts, warping incentives and distorting asset prices, and now economic growth is stagnating while inequality gets worse."

And we have this quote:

"To some extent, low inflation reflects intense competition in an increasingly globalized economy. But it also occurs when people and businesses are too hesitant to spend their money, which keeps unemployment high and wage growth low. In the eurozone, inflation has recently dropped perilously close to zero. And some countries, such as Portugal and Spain, may already be experiencing deflation. At best, the current policies are not working; at worst, they will lead to further instability and prolonged stagnation."

So the solution according to authors Mark Blyth and Eric Lonergan is:

"It’s well past time, then, for U.S. policymakers -- as well as their counterparts in other developed countries -- to consider a version of Friedman’s helicopter drops. In the short term, such cash transfers could jump-start the economy. Over the long term, they could reduce dependence on the banking system for growth and reverse the trend of rising inequality. The transfers wouldn’t cause damaging inflation, and few doubt that they would work. The only real question is why no government has tried them."

We encourage readers here to read the entire article. The authors really are promoting the idea of simple direct cash transfers to individuals as better policy than the existing policies of zero interest rates, QE, etc. which they argue are inefficient tools that are not working anyway. So why not try something new?

Readers can decide if they think this proposal could really work or not. That is not our purpose here. Our purpose is to note that this article in a leading global establishment publication is stating that current policies are not working and that they believe they are not going to work in the future. This is the reason they are calling for a radical new approach to the problem.

This article is therefore supportive of people like Jim Rickards, Peter Schiff, Micheal Pento, Andrew Huszar, Jim Sinclair and others we have cited here that the economy is not in true recovery. It supports their view that this will lead to a new round of money easing next year by the FED.

The article points out all the obstacles in the way of implementing their proposal including ideology. But one of the bigggest obstacles they mention is the FED itself as we see in this quote:

"The most powerful sources of resistance to cash transfers are political and ideological. In the United States, for example, the Fed is extremely resistant to legislative changes affecting monetary policy for fear of congressional actions that would limit its freedom of action in a future crisis (such as preventing it from bailing out foreign banks). "

What can we take from this article?

If the authors are right, it means that current Central Bank policies are not working and we will not get a true economic recovery (just some asset bubbles like stocks). They want the Central Banks to admit this and adopt their idea of just giving people direct cash transfers. But they admit the FED itself is a leading opponent of this idea and there is no reason to think right now this will actually happen.

All this suggests that those calling for weakening in the economy by next year may be right. And that could lead to more easy money policies by Central Banks including the FED. And that could be a trigger that leads to monetary system change which is what we watch for here.

Update: In an effort to be fair and balanced, here is a review of this article which takes an opposite view.

Washington Post: IMF Chief Lagarde Under Investigation in France

Things have been pretty quiet with the IMF lately. Ever since they were unable to get the US to pass the reforms that would increase the influence of the BRICS nations in the IMF, we have not really seen much major news from the IMF. But this story may turn out to be some major news. We'll keep an eye on it.

Christine Lagarde has not been in the news much lately, but today the Washington Post runs the story linked above. Below are a couple of quotes. It is too early to tell if this will lead to any kind of charges being filed. But a shakeup at the IMF will not help its credibility or efforts to move forward the reforms that have stalled.

"PARIS — Christine Lagarde, the chief of the International Monetary Fund, was placed Wednesday under official investigation for negligence in a French corruption probe that dates back to her days as France’s finance minister."

"In a statement after a fourth round of questioning before magistrates, Lagarde said she would return to her work in Washington later in the day and said the decision was “without basis.”

"Under French law, the official investigation is equivalent to preliminary charges, meaning there is reason to suspect an infraction. Investigating judges can later drop a case or issue formal charges and send it to trial."

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As things stand right now, the IMF quota reforms seem unlikely to move forward any time soon. Any trouble for Christine Lagarde as head of the IMF won't help and the upcoming elections in the US appear to indicate that the US Congress will become even less likely to be favorable to approving the reforms. Most predictions are for the Republicans to gain Senate seats and hold the US House of Representatives. The Obama Administration seems to be falling further out of approval and they are the main force in the US that has been pushing for the reforms to be approved.

Since the big BRICS summit in mid July, we have seen very little news on that front either. Up until the summit we saw quite a few articles quoting various BRICS officials about replacing the US dollar as global reserve currency and continued calls to pass the IMF reforms. We even wondered if the BRICS were trying to use their new Bank and reserve fund as a kind of leverage to force the approval of the reforms.

But not much has been in the news lately and events seem to be moving farther away from the reforms being approved right now. We will continue to follow that and watch to see how the BRICS react to any problems Ms. Lagarde might have if those develope. In the world today things can quickly change which is why we have to continue to follow events.

Update: Here is another article that adds a little more info on the story, but it is still hard to tell if an actual criminal charge has been filed yet.

European Central Bank Considering QE?

In what some are calling a possible hint of major policy shift, ECB President Mario Draghi made news with his speech at Jackson Hole, Wyoming. Here are a couple of articles analyzing his comments.

Wall Street Journal - ECB's Draghi Signals Departure from Austerity Focus

Quotes from this article:

"European Central Bank President Mario Draghi on Friday signaled a departure from the austerity-focused mind-set that has dominated economic policy-making in the euro zone since the onset of the region's debt crisis nearly five years ago, as officials struggle with stagnant economies, weak prices and high unemployment."

"The GDP data "confirm that the recovery in the euro area remains uniformly weak, with subdued wage growth even in non-stressed countries suggesting lackluster demand," he said."

"His remarks signaled a new approach to these risks: combining policies to stimulate demand with efforts to make labor markets more flexible. With inflation at very low levels—annual inflation in the euro zone was just 0.4% last month, far below the ECB's 2% target—policy makers should cast aside any fears that stimulus policies may lead to inflation and instead focus on keeping high unemployment from taking root in Europe, he suggested. The euro zone's unemployment rate was 11.5% in June, far higher than in the U.S., U.K. and Japan."

CNBC- Groundbreaking Draghi Brings Cheer to Markets

Quotes from this article:

"European markets cheered dovish words by Mario Draghi at the start of the week, after the president of the European Central Bank (ECB) delivered a wide-ranging speech which many deemed to mark a key turning point in rhetoric."

"Draghi's comments, at the Jackson Hole meeting of central bankers in Wyoming on Friday, raised expectations of further policy easing by the central bank. Hopes of further stimulus pushed stocks in Europe higher on Monday."

"Philippe Gudin, an economist at Barclays, called Draghi's speech a "major breakthrough", and said his comments on inflation were a sign the bank could be readying additional easing measures in the near term, such as a quantitative easing (QE) program."

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My added comments: After reading both of these articles (as readers here should do) a question comes to mind. Are the most recent forecasts by the IMF for global growth going to be too optimistic once again? It is clear from these comments the Europe is not doing well and the threat of deflation is worrying Draghi. Sanctions against Russia are now another added drag on global growth. China is seeming some signs of problems as well. 

All this then raises another question. If global GDP is going to come in below forecasts once again, what about the forecasts for US GDP? How much confidence can we place in those? Will we see the US Fed having to backtrack next year and admit US GDP is coming in below expectations? Will this lead to yet another round of QE in the US as Jim Rickards and many others are predicting?

Right now the weakness in Europe is causing markets to sell the Euro which is causing the US dollar to rally (since the Euro is the biggest currency in the US dollar index). But if the ECB raises the white flag of surrender and starts in QE it may cause IMF forecasts for global GDP to lose more credibility. If the US then falters into 2015, the FED forecasts will also lose credibility. This could start to cause a lack of confidence in ALL fiat based currencies as markets realize that only never ending QE programs are preventing a deflationary collapse.

Obviously, this is all very important and relevant to our theme here of watching for signs of monetary system change. If GDP falls below expectations yet again and Central Banks respond with QE yet again, it could be a spark that leads to major change. We will follow it of course.

World Economic Forum Article calls for New Global Reserve Currency

In case you thought the idea of a new global reserve currency has dropped off the map since not much has happened in that regard so far, here is new article calling for one. And it examines the idea of using SDR's from the IMF as well. Who can we think of that has predicted we will see this concept coming in the future?                             (hint: his initials are JR)

The article linked above appeared in late July on the World Economic Forum web site. It was written by Jose Antonio Ocampo. Who is that you ask? Here is some info on him. Mr. Ocampo qualifies as a global insider who would be a strong supporter of global institutions such as the IMF and the World Bank. So his endorsement of the SDR is not a surprise. Here are some quotes from the article:

"The Bretton Woods Conference marked one of history’s greatest examples of international economic cooperation. And while no one can say yet whether the BRICS’ initiatives will succeed, they represent a major challenge to the Bretton Woods institutions, which should respond. Rethinking the role of the US dollar in the international monetary system is a case in point."

"Dissatisfaction with the dollar’s role as the dominant global reserve currency is not new. In the 1960s, French Finance Minister Valéry Giscard d’Estaing famously condemned the “exorbitant privilege” that the dollar’s status bestowed upon the United States."

". . . . . The solution, however, lies not in replacing the dollar with the renminbi, but in strengthening the role of the world’s only truly global currency: the IMF’s Special Drawing Rights."

"The private use of SDRs could also be encouraged, though that would likely be met with strong opposition from countries currently issuing international reserve currencies, especially the US. Keeping SDRs as pure “central bank money” would eliminate such opposition, enabling them to complement and stabilize the current system, rather than upend it."

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My added comments: As always, readers should read the entire article linked above for full context. The fact that a global insider is promoting the idea of the use of the SDR as a global reserve currency is nothing new or surprising. And it certainly is in line with Jim Rickards prediction that the SDR will be put forward as a solution to the next financial crisis.

What we found new and interesting in this article is the statement in bold underline above, "the private use of SDR's could also be encouraged".  Readers here know we have been following the Klickex GSD (Global Stability Dollar) since it was introduced last year in the fall as a new concept. There is a reason we follow this new concept. The SDR at the IMF cannot be used by private banks and citizens as things stand now because it is an internal unit of account at the IMF. It cannot be used as an external currency by private banks or individual citizens.

It is possible that at some point in the future, the Klickex GSD could be implemented in such a way as to connect it as an "outside" currency to the "inside" SDR unit. A currency that could be used  by private banks and individuals. This is not something that would happen tomorrow for sure. But it is a possibility in the next few years depending upon how the GSD does in its initial introduction for use by real Central Banks (coming soon). The intent would be to add stability to foreign currency exchange and offer a more stable system backed currency to the public as an alternative to their national currency (which might be much more volatile). 

If such a new currency were asset backed and also system backed  (like the FDIC backs bank accounts now, but a much stronger backing), people might find it more trustworthy than their own national currency. If this currency was also digital, it could be used to complete actual financial transactions anywhere in the world in just a few minutes time. Another factor that might make it appeal to many people. 

The key to success would be that the system backed it and approved it (unlike Bitcoin) and that it met their criteria regarding anti-money laundering (so the banks would be OK with such rapid funds transfers around the globe). No technology like this is being used today that is approved by the banking system. If the Klickex GSD currency had such approval, it would have a substantial advantage over other alternatives.

It is something worth tracking in the future for sure as it could dramatically change the way things work in the monetary system in the future. We will follow it here over time and see how things turn out.

Is the Economy Getting Better or Worse?

This is an important question which does relate to our theme here which is to watch for signs of change in the monetary system. If the economy is slowly improving (which is the FED and mainstream financial media view), not much is likely to change anytime soon. If the economy is getting worse, change is more likely at hand. So which is it?

It doesn't look like we learned much about the answer to the question from Janet Yellen's remarks. Here are a couple of links to articles about her comments. Best I can tell, she says things are slowly improving, but there are still problems. She says the Fed will keep interest rates low for quite awhile though because they need more data. 

NYTimes - FED Chief Sees Not Enough Data to Raise Rates

"Janet L. Yellen, the Federal Reserve chairwoman, said on Friday that the economy was improving but that the Fed was awaiting more evidence about the health of labor markets before deciding when to start raising interest rates."

CNBC - Yellens Balanced Approach soothes Doves, Encourages Hawks

"In what arguably was the most anticipated Fed speech of the summer, Yellen carefully constructed a picture of a still poorly functioning labor market that requires easy Fed policy. But she also said the economy is getting closer to the central bank's objectives, and the Fed is "naturally shifting" to the debate on when to raise rates."

So basically the FED says things are getting better unless they aren't which they don't know because they don't have enough data yet. Not much clarity there.

Economic reports that come out seem mostly mixed. Some seem positive, others seem negative. Not much clarity there.

Anecdotal evidence also seems somewhat mixed as well depending on where you live. 

For example, here in Texas the economy seems to be improving. Real estate prices have moved up, there are new small businesses that open, and the oil and gas industry is doing well. In fact, the office building where I work is now fully leased after being almost empty about 2 years ago. A new lunch deli has opened up in the building as well. So things do seem to be improving here in the real economy.

But then you read articles like this one where it appears there are places where things are getting worse, much worse. So again things seem mixed with not much clarity.

We have noted that Jim Rickards is on record with a forecast that the economy is getting worse and will continue on that path into 2015 when he predicts the Fed will reverse course yet again to try and stimulate growth. He was joined this week by Peter Schiff who says much the same thing in this interview with Greg Hunter.  Here is a quote from that interview:

"I think when it dawns on more investors exactly the predicament the Fed is in, that this recovery in the U.S. is a mirage.  It is not real, and rather than the Fed ending QE and raising rates, it will be launching a whole new round of QE.  It will be even bigger than the last one."

We have noted in an earlier post that someone has to be wrong about 2015. Either the Fed is right and we will see slow improvement that leads to not much real change in 2015 or Peter Schiff and Jim Rickards will be right. Then the Fed will have to reverse back to more QE due to a failing economy and take another credibility hit. 

And then we always have the unknown "black swan" lurking out there that might arise at any time, but hasn't so far. Who knows, maybe this former Mafia Boss will be right.  We'll continue to follow it into 2015 and see who ends up getting it right. 

Update on Argentina Debt Default Situation

Here is an update article on the situation involving a debt default by Argentina. It appears that Argentina attempted to sidestep the ruling by the US judge in the case. The judge is unhappy and the situation still seems to be unresolved.

From the article:

"Argentina's plan to pay its restructured debt beyond the reach of U.S. courts is illegal, said the judge overseeing litigation stemming from the nation’s 2001 default, while declining to hold the country in contempt."

"U.S. District Judge Thomas Griesa said in Manhattan federal court today that the proposal, announced Aug. 19 by Argentina President Cristina Fernandez de Kirchner, is “invalid, illegal and in violation of current court orders and injunctions.”

“The thing that is of paramount necessity is to have a settlement,” Griesa said. “There must be a settlement.”

"In her Aug. 19 speech, Fernandez said she was introducing legislation to allow the government to swap its restructured debt for bonds that would be issued under local law and paid through a government-controlled bank. The move would violate orders by Griesa that require Argentina to pay NML and the other holdouts more than $1.5 billion when it pays holders of its restructured debt."

"NML’s request comes as Griesa grapples with the legal fallout from Argentina’s latest default, the second in 13 years. The judge, who has presided over lawsuits springing from Argentina’s 2001 default for more than a decade, had said that any plan to pay investors outside his jurisdiction would put Argentina in defiance of U.S. law."

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My added comment: So far there is no known contagion of systemic fallout from this. If there are related derivative products lurking out there tied to this debt, they have yet to surface.

Jim Rickards - "Disinformation Agent"? - Part II

Jim Rickards just did a new interview with a German media publication. When I saw this new interview I decided to title this article  Jim Rickards - "Disinformation Agent"? - Part II. Part I is just below and can be read here. We can use this new interview to select exact quotes and then compare those to the suggestions being made that Jim Rickards is a disinformation agent for the US government.

The format for this article will be that I will post selected quotes from the interview linked above. After those quotes, I will add some comments to analyze the quotes to see if they fit the suggestion that Jim Rickards is trying to mislead the public and acting as a disinformation agent.



Q: Why are you so concerned with respect to today’s financial markets?

JR: In 1998 Wall Street bailed out a hedge fund. But in 2008 the government bailed out Wall Street. This time it wasn’t a hedge fund that was in trouble, it was all the major banks. We all heard about «Too Big To Fail» – well, those banks that were too big to fail in 2008 are even bigger today. They have a larger percentage of the total bank assets and far more derivatives. This is true around the world. The central banks are bigger, too. The whole system is bigger and more leveraged today than it was in 2008 which is setting us up for the next crisis.

But then again: Without the various rescue packages and the stimulus programs of the central banks the economy probably would be worse off today.

JR: Understanding the global macro economy today in terms of a normal business or credit cycle is not the right way to understand the economy. That is why analysts and observers and policy makers are so confused. They keep waiting for the expansion to become self-sustaining and to growth stronger. But it hasn’t happened and they’ve been wrong with their forecast. If you look at the Fed’s forecast for example, the Fed has been wrong five years in a row and not by a little bit but by orders of magnitude.

Q: So you’re not convinced that the Fed chief Janet Yellen will succeed in making a smooth transition to a more traditional monetary policy?

JR: Not at all. They will finish the taper in October or November. But what they will find between now and the end of the year is that the data will be very weak. Therefore, by early next year, perhaps march 2015, just when people think they’re going to be rising interest rates, they will actually have to start QE4. So the Fed is trying the same remedies: The money printing goes on and the banking system continues to inflate which is setting us up for an even bigger crisis.

On the other hand, the risks of this super easy monetary policy seem to be quite contained. For example, there’s no violent outbreak of inflation so far.

JR: Of course, we haven’t seen that much inflation. A little bit in food and energy, but not that much. To have inflation you need two things: You need the money and that’s where the money supply comes in. A lot of analysts have looked at the expansion of the Fed’s balance sheet and the creation of money in the last five years and how this is going to create inflation. The reason those analysts are incorrect is that money supply alone does not determine inflation. People actually have to borrow the money and they have to use it. That shows up in something called the velocity of money or the turnover of money. I compare that to having a ham and cheese sandwich: You can’t just have the ham, you need the cheese also. If the money supply is the ham, you still need the cheese which is the velocity.

Q: So why is there no cheese in this sandwich?

JR: The problem with velocity is that it is a psychological phenomenon. It depends on how you feel. Keynes called it famously animal spirits. There might be newer ways to describe it, using behavioral economics or sociology. The Fed is trying to change behavior with various forms of manipulation and kind of lying to the public about what’s actually going on. But so far that behavior has proven to be very resistant to change. People don’t want to buy. Therefore, the Fed can print all the money it wants. If people won’t borrow it and won’t use it they’re not going to get inflation. They’re also not going to get the nominal growth that is needed to support the enormous amount of debt that we have.

Q: What are the final consequences of all that?

JR: There are actually three different outcomes. I’m not categorical about which one it will be, but they’re all bad. One possible outcome is that the Fed actually does change psychology and change behavior and we will get inflation. But then it will very quickly morph into something more like hyperinflation. That means you’ll still have your Dollars but the value of the Dollar has been destroyed. Another possibility is that they keep printing money and then the collapse is very sudden and we have another financial crisis, worse than 2008/09. The central banks themselves will not be able to bail out the system again at which point they will require the IMF. The IMF will then have to print world money, so called Special Drawing Rights or SDRs. It will represent a massive money printing exercise which will be inflationary too, but from an entirely new source.


Q: And what about the third outcome?
JR: This includes a scenario where there will be essentially chaos when we have these collapses. And then riots begin because people see their savings wiped out. Broker firms fail, brokerage accounts are wiped out, inflation wipes out the value of savings, the stock market crashes 70 to 80%. This would be already the third time that this happens: People’s savings were wiped out in 2000 because of the dotcom bubble, they were wiped out again in 2008 because of the financial crisis and now they’re wiped out again, except even worse. That might be the last straw. That might lead to rioting. And that will provoke a neo-fascist response. They will try to use police, national guards, executive orders, mass arrests and so forth. Whichever of these scenarios will be happening, they all stem from the same source: Policy makers not understanding what they’re doing whereas banks are becoming too large.

Q: How can investors protect themselves from such an event?

JR: The best thing a small investor can do is to have about 10% of investable money in physical gold. When I say investable assets I would exclude your home equity and any equity in your business. Put that into a separate category and take everything else into the category of your investable assets: Money that you have available to buy stocks or bonds. Put 10% of that in physical gold. Don’t buy paper gold like an ETF because when they close the exchanges your ETF is just a share and the gold will be unavailable to you. Also, put it in a safe place. Not in a bank because the banks may be closed, too. That would be your insurance. So even if you’re losing 60 or 70% on your other investments, gold could be going up three, four or five hundred percent.

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My added comments: As always readers should read the entire article linked above to get the full context. But I selected these quotes to examine the suggestion that Jim Rickards is acting as a disinformation agent for the US government (and/or the FED and big banks).

Please look at the quotes answers above and especially the underlined parts. To believe that Jim Rickards has been sent out to act as a disinformation agent requires believing that he was sent out to:

- place blame on the FED and big banks for the next big crisis

- accuse the FED of lying to the public

- state that FED policy is failing and wrong headed

- promote the idea that using the SDR from the IMF as a new global reserve currency "will represent a massive money printing exercise which will be inflationary too" (my comment: does this sound like an endorsement of using the SDR in this way?)

- suggest that one possible outcome to all the current problems is a complete breakdown in the system where the authorities will "use police, national guards, executive orders, mass arrests, and so forth"  in a "neo-fascist response"

- suggest the above "neo fascist" response will be a direct result of current "policy makers not understanding what they are doing"

- convince the public to buy physical gold (not paper forms of gold) as insurance against all the above and not to trust storing the gold within the current banking system


I am not sure I really need to offer in depth analysis as to whether all that supports the idea that Jim Rickards has been sent out to mislead the public on behalf of the US government and the FED and the present banking system. It seems absurd to me to make that suggestion after reading these direct quotes. But to each his own interpretation I guess.

Added note 01-01-2015:
Added note (1-01-2015): A question I get here regularly is how can people prepare for the upcoming change. On January 1, 2015 I wrote this blog article to address that question.

Jim Rickards - A "Disinformation Agent"?

When you write a blog like this it is necessary to daily review all the sources of information you use to stay informed in case something new pops up. This week I see two alternative media sites running articles suggesting that the US government is sending out "propaganda agents" to mislead the public on how much gold the US really still has in its possession.

 One of the articles mentions Jim Rickards by name in suggesting he is not only misleading the public on the gold question, but is also trying to "sell the idea of using the IMF SDR to the world as a reserve currency replacement for the dollar". Here is a link to that article. This article also refers readers to a King World News article suggesting a similar idea (but does not mention Jim Rickards by name). Readers here know we often cite Jim Rickards interviews and articles. So how do we react to all this? Let's take a look.

I have followed Jim Rickards now for a number of years. The reason I cite his articles and interviews is because his track record on forecasting is very good. In addition, he provides substantial documentation and evidence for his analysis and views. Something I view as very important in presenting information to the public. Especially to people new to all these complicated issues related to the monetary system.

The articles that I noted above that are critical of Jim Rickards make two basic arguments. One is that he is misleading the public on the actual physical gold held by the US in its possession. The other is that he is trying to sell (or prepare the public to accept) the idea of the IMF SDR as a new global reserve currency to replace the US dollar.

Regarding the first criticism, in every interview or article I have seen by Jim Rickards on the US gold holdings he states that he believes there is gold leasing taking place. There is good evidence to support this as we noted in an earlier article we ran on Central Banks and gold. However, there is no evidence that I know of that proves any physical gold is missing that the US reports owning. In the article linked above, we noted the official US Treasury and US House Finance Committee reports that state the official gold holdings. While I can understand why some may be suspicious of those reports since the US is not willing to do a full audit on the gold, suspicion is not evidence. If someone has evidence (proof) that actual physical gold is missing, they should come forward with it. Otherwise, they should state it is their opinion the gold is missing because without proof there is no way for any of us to verify it either way. I don't see how Jim Rickards is misleading the public by simply accepting the reported physical gold inventory issued by the US Treasury. If those figures are wrong, then it is the government reports that are misleading. Again, we cannot know how much leasing has been done because the US Fed refuses to disclose that information. 

Regarding the second criticism, I have heard Jim Rickards discuss the topic of the IMF using the SDR as a reserve currency in the future many times. I have never heard him suggest he favors that. I did not get the impression he is attempting to "sell" anyone on that idea. In fact, in several interviews that I heard, he goes out of his way to suggest that he thinks a fiat version of the SDR will not work and will eventually give way to a gold backed system one way or another. So again, I don't understand why people would suggest he is advocating using the SDR as a global reserve currency. That is not consistent with his comments in the interviews I have heard.

When I listen to Jim Rickard analysis, what I hear is someone trying his best to forecast what he thinks is most likely to eventually happen (whether he agrees with it or not). I do the same thing here. As I have stated on this blog before, my opinions don't really matter. What matters is what actually happens. And people trying to become informed and prepare for whatever happens need to be ready for what is most likely to actually happen. 

I fully support the right of everyone to offer their opinions on these topics and their right to convince others that their view is correct. But I do think that readers here need to listen to various views and then compare opinions and forecasts they see to what actually happens (whether it agrees with their own point of view or not). It is important to make decisions based on the best information available.

I see no evidence that Jim Rickards is trying to mislead people. Rather, it seems to me he is trying to inform and prepare people for what he genuinely believes is going to happen. He may end up being right or wrong. But his track record so far is very strong which is why we cite his work here and will continue to do so as a credible alternative viewpoint. 

Update: Jim Rickards new interview provided an opportunity to explore this topic in more depth so I added a new Part II article which you can read here.

Klickex to Participate in G20 Meeting in Australia in September

We have been following Klickex on this blog for awhile. Last year they introduced a new concept for an asset backed cryptocurrency for use in both Central Banks and by individuals. It appears Klickex is making headway in gaining acceptance for its products as they will be attending an "invitation only" G20 meeting in September in Perth Australia.

The GPFI (Global Partnership for Financial Inclusion) is holding their annual Plenary and Forum in early September in Perth, Australia. Here is a link talking about that meeting that lists Klickex as one of the participating Fintech companies that will attend the invitation only meeting.

Below I have pasted in the article linked above with some additional comments below that:

Technology and Innovation for Financial Inclusion Expo

Date: 8/30/14
Location: Perth, Australia
Attendance by invitation only

Financial inclusion that promotes universal access to appropriate and affordable financial services is crucial to inclusive growth. Nevertheless, over half of the world's poor are un(der)banked and have limited or no access to formal financial services such as savings, loans, credit, insurance, or payments. This prevents them from taking full advantage of economic and educational opportunities, participating in business transactions, and sending and receiving remittances. At the same time, small and medium sized enterprises, an engine for growth and job creation, continue to face impediments, the major one being access to finance.
 
Therefore, the G20 Global Partnership for Financial Inclusion has made technologies and digital finance a key focus of its work. At its recent meeting in Hobart, Australia, 5-6 May 2014, the GPFI discussed new technologies and other innovations that promote financial inclusion in developing countries.

To support these GPFI efforts, the SME Finance Forum is organizing the Technology and Innovation for Inclusion Expo, in conjunction with the Annual GPFI Plenary and Forum 1-2 September 2014, to showcase some of the promising emerging technology solutions that have the potential to accelerate financial inclusion for households and businesses. This event will offer opportunities to fintechs and other participants to interact directly with G20 representatives and for the G20 representatives to gain exposure to the work of a select group of emerging technology companies.

PARTICIPATING FINTECH FIRMS:

Advanced Merchant Payments AMP's small business lending solution offers an efficient and scalable means by which banks can readily originate and manage a broad portfolio of small business loans.
CopSonic proposes a platform and contactless mobile payment technology which is compatible with 100% of the 7.2 billion mobile devices existing worldwide (5.6 billion feature phones + 1.6 billion smart phones).

KlickEx is an automated utility for high frequency immediate payments, in or between banks, consumers, or other actors in G20, OECD and G-77 currencies; serving capital mobility, regulatory compliance, mobile commerce, and financial inclusion at scale.

Mantis provides expert forecasting and risk quantification services in frontier and emerging markets.

Oxigen Services (India) Pvt Ltd was established in 2004 as India’s pioneering venture for a prepaid platform.

Quisk, Inc. is a Silicon Valley-based technology company that digitizes cash and partners with financial institutions and others to provide safe, simple, and secure financial services and cash-less transactions for anyone with a mobile phone number.

Ripple is a payment system that enables fast, secure, and virtually free transactions with no chargebacks to merchants.

Verde International offers a next-gen automated loan-underwriting optimization engine for customers, shareholders, regulators, dealers, and other stakeholders.

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Added comments: So it looks like Klickex will be meeting with a lot of representatives from G20 nations at this conference. Here is a link to the agenda for the conference showing that Klickex will make a presentation at this meeting. The agenda provides this information about Klickex:

"Klickex is an automated utility for high frequency immediate payments—in or between banks, consumers, or other actors in G20, OECD and G-77 currencies—serving capital mobility, regulatory compliance, mobile commerce, and financial inclusion at scale. KlickEx’s pilot facility is currently ranked the most advanced inter-bank and mobile-money integrated real-time multi-currency ACH/RTGS network in Asia. Active across eight countries in the South Pacific, KlickEx’s mobile money deployment is ranked Asia’s number one penetrating and low cost Mobile FX platform by IFAD/UN/CGAP (GFR, 2013). The World Bank also ranks KlickEx as the top cross-border retail inter-bank remittance network in all served markets, and SWIFT recently named KlickEx as the top new financial services technology of 2013 at SIBOS in Dubai."

Here is a link to more information about the GPFI and some of its supporting partners.

We continue to believe that Klickex is well positioned to see its new GSD (Global Stability Dollar) product gain acceptance over time for use by Central Banks. We will continue to follow that story and watch for signs of use for the GSD. Also, we are advised that Klickex is working on the GSD at the request of banks who asked for it to help stabilize foreign currency markets.    

Citi Analyst: Economy has entered "Phase 3" where Bubbles Form

Recently the Bank for International Settlements warned about asset bubbles forming around the world. Now Business Insider runs this article by Citi analyst Bob Buckland on the same topic. 

The reason we have to pay attention to these warnings is that if there are bubbles forming, they may come to an end quickly at some point. This could lead to a crisis situation where monetary system change moves to the forefront. Because the ending of such bubbles is impossible to predict, it is basically something we have to keep in mind all the time.

In this article Citi analyst Bob Buckland offers some things to watch for when the bubbles might end. He does indicate he thinks we may be in the "early stages" of his so called "Phase 3". If he is right, his timing would line up with many who think we will see problems in the economy in 2015. We can follow all this to see if he is right or wrong over the next year.

Here are some quotes:

"Citi analyst Rob Buckland has published this diagram of where he thinks we are in the economic cycle, and it's slightly terrifying. (We first saw the note on FT Alphaville.) Basically, we're in "Phase 3" of a four-phase credit/equity cycle."

"In Buckland’s theory — originally developed by Citi's Matt King many moons ago — that's the phase in which irrational bubbles form right before everything comes crashing down again."

"In Buckland's telling, the economy goes through four cycles.

Phase 1: This begins at the end of a recession, when interest rates have fallen, money is cheap, but stocks are still battered.

Phase 2: A bull market sets in during phase 2, when stocks start to rise as easy credit lubricates the economy.

Phase 3: This is the tricky part. Stocks are still flying high, but credits spreads are widening as investors become increasingly unwilling to finance further risk. Corporate CEOs have now experienced a lengthy period of gains and become risk-happy. (And we'd note that central banks are already talking about tightening credit by raising interest rates.) Bubbles can form in Phase 3, Buckland says, as the high-flying stock market ignores the early warning signs of the deteriorating credit market. Hello, tech startup IPOs!

Phase 4: Stocks react to the lack of available credit by collapsing, and we see the kinds of things you get in a recession: "This is the classic bear market, when equity and credit prices fall together. It is usually associated with collapsing profits and worsening balance sheets," Buckland says.

We're in Phase 3 right now, Buckland says, but we may not be very far into it."

Reader Response to Alternative Views Article

As I review that statistics for this blog I notice that every week there are new readers who visit the blog. About once a month I run an article called "What is the purpose of this blog?" to help readers get a feel for what we are trying to do. A couple of days ago we ran an article about alternative views that we discover while researching for articles to put on the blog here. One reader gave us their thoughts which we are pasting below because it provides a good opportunity to once again explain some of what we try to do here on this blog. Thanks for all the readers who visit and those who take time to comment and email us with their thoughts.

Reader Comment:

"These collective central planners can't even engineer control of smaller economies, much less pull off a coordinated theatrical monetary script that outpaces even the imaginations of Hollywood. It is entertaining to the conspiring mind however."

My reply:  

"So far the information I get does not indicate that we are watching a "scripted" performance. But I decided to go ahead and let readers see some of the various opinions out there. Over time readers can judge who gets things right most often which is one of the goals of the blog. Track various forecasts over time to see who is right more often than not. That is better than me trying to impose a view on the readers I think."

Reader reply: 

"You do a good job. Thanks for posting the alternative views. Even though I find them imaginative, it does show that some have contrary views."

My reply: 

"I will add that I do look for views that differ from the "conventional mainstream view" since readers can find that easily. Where I hope the blog provides a service is to expose readers to credible alternative views which they can compare over time to each other and the conventional mainstream view. It's the process I use for myself as the average person out here trying to understand the monetary system and how it impacts my family. So, hopefully, the same process can be useful to others like me. It just takes some time to sort through a lot of information which many people don't have so in that way the blog can be of service."

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my added comments: 

I felt like the exchange above provided an opportunity to explain what I hope to do with this blog. The "mainstream" view of things is easily available and readers can find that on the mainstream media outlets. While I mostly select news and articles from mainstream sources, I try to select articles that are relevant to the idea that monetary system change is likely to happen in the future. The causes for such change are of course open to various points of view. I try to present the most credible views we can find that are in some ways alternative to the standard views we can find on mainstream media outlets. And I do note the standard views as well of course.

I don't think it is my role to say which views are right or wrong. I think a better approach is to present a variety of credible opinions and then continue to follow events over time. As events unfold, some views and opinions will prove out to be right more often than others. 

This is the process I try to use for my own family to assess what is most likely to happen with monetary system change. Because monetary system change impacts everyone, it is an important topic to be informed about. Change can be good or bad and only time will tell if coming changes will be good or bad. But whatever change takes place, the more informed people are, the better decisions they can make in their own personal financial planning. 

The goal here is to try and be a source of good information and present various credible interpretations of the information. We'll continue to try and provide this service so long as there is a need and the information is helpful to readers. And any reader input that helps us provide good information is greatly appreciated.

Russia, Putin Ramp up Anti US Dollar Talk Again

Before the BRICS summit a number of Russian media outlets were quoting Russian officials as saying they would have to end the US dollar as global reserve currency in response to US sanctions against Russia. That talk had seemingly quieted down even as more and more new trade deals not using the US dollar were announced. Now it seems like President Putin is ready to go on the attack again based on this new article.

Here are the key quotes from this article:

"On Aug. 13, Russian President Vladimir Putin announced that the old petrodollar system of using a singular currency for global energy sales is damaging the economy, and that he intends to pursue using the rouble as an alternative form of currency through which nations can buy oil from the Eurasian power."

"Additionally, Putin in the past has recognized that the use of the dollar as the sole medium for global transactions is a hindrance to free trade by forcing nations to have to buy dollars first before purchasing oil, food, and other commodities on the global market, even if those purchases are being made with nations outside of the U.S."

"President Vladimir Putin said on Thursday Russia should aim to sell its oil and gas for roubles globally because the dollar monopoly in energy trade was damaging Russia's economy."

"We should act carefully. At the moment we are trying to agree with some countries to trade in national currencies," Putin said during a visit to the Crimea region, which Moscow annexed from Ukraine earlier this year. - Reuters"

"Vladimir Putin took several months before responding to U.S. economic aggression after Washington began a series of sanctions directed at the President, and at other Russian oligarchs. But once he chose to act, there has been no stopping the surge of changes he is seeking to impose on the Western system of dollar hegemony. And with several trade partners like China, Brazil, India, and South Africa already on board, Putin appears ready to take on the dollar worldwide by calling for future energy sales from his nation to be done in roubles, and no longer with the petrodollar."

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Added comment: An open attack on the US dollar has always been taken very seriously and we would expect this will be no different. In matters of war and peace, things are either moving towards more or less tension. So far, things keep moving towards more tension, especially as regards the use of the US dollar as global reserve currency. Readers here know this is the main story we are following on this blog. What will happen to the US dollar as global reserve currency and what will replace it if it loses that status?