Monday, November 28, 2016

Trump Wildcard Likely Slows Down Change

Monetary system change. It is what we watch for here. Even before the surprise election of Donald Trump it was increasingly apparent that no major monetary system changes were on the immediate horizon unless some kind of new major global crisis arose. 

This article on CNBC just points out the fact that the unexpected Trump win will only slow down potential changes as everyone adapts to the surprising election outcome. Below are a few excerpts from the article.


"As the annual U.S.-China Joint Commission on Commerce and Trade (JCCT) gets underway in Washington D.C., the backdrop could hardly be more different from a year ago.
In 2015, each side in the series of annual meetings that cover everything from agriculture to cybersecurity had its own policy advantages, and policy continuity was the result of years of work by both sides.
Just a year ago, enthusiasm for the Trans-Pacific Partnership (TPP) also remained strong, with an official signing ceremony in Auckland, New Zealand, just months away. The agreement was positioned as America's last, best hope to stay relevant in Asia's economies.
And by design, the agreement positioned China as an outsider in its own neighbourhood, instead lining Asian countries up behind aging American assumptions around trade, intellectual property and services in the world's fastest-growing region.
Also around the same time, the International Monetary Fund (IMF) announced China's inclusion in the Special Drawing Rights (SDR) basket, an exclusive reserve status that the IMF had previously conferred only on the dollar, euro, pound and yen. Through SDR status, the IMF granted the renminbi a legitimacy coveted by many central banks, but seemingly necessary for the world's second biggest economy. In short, it helped to transform the renminbi from a transactional currency for global trade into an investment currency.
Much of the past year seemed to imply a smooth glide path for both the TPP and the renminbi."
. . . . 
"The Chinese government expected a Clinton presidency as a fait accompli and is ill-prepared for the policy priorities of a Trump administration. Small progress will be made, but the Chinese delegation understands the incoming administration will decide anything of substance. There is, clearly, a new sheriff in town and U.S.-China policy continuity be the first casualty."

Friday, November 25, 2016

Fox Business: Fed's Kashkari Says U.S. Faces Another Financial Meltdown

Since we watch for things like this here, we take note of these comments by Minneapolis Fed Chief Neel Kashkari on Fox Business News. He is proposing a plan to reduce the odds of a too big to fail bank bringing down the entire system. Below are a few excerpts.
"Banks are still too-big-to-fail according to Minneapolis Federal Reserve Bank President Neel Kashkari. He told the FOX Business Network’s Maria Bartiromo there’s a high probability of another financial crisis and bailout.

“I’ve heard from senators and congressmen and women on both sides of the aisle who are concerned that the biggest banks are too-big-to-fail. We analyzed the history of financial crises: we’ve now got a 67% chance today of another financial crisis in the next century and another bailout,” he said."

. . . . 

'While responding to JPMorgan (JPM) CEO Jamie Dimon’s argument to keep big banks, Kashkari compared the institutions to nuclear power plants.

“If his customers are actually better off for his scale and scope, he can afford to hold enough capital that the rest of the economy is not at risk. If he can’t then that means his business doesn’t work and then that’s not a public policy problem… It’s like a nuclear power plant. Nuclear power plants are devastating to society if they melt down. So we don’t ban nuclear power, we regulate them so much they virtually can’t fail,” he said."
My added comments: How the Trump Adminstration relates to both the Fed and the so called "Too Big to Fail" banks will be closely watched. So far, those expecting much major change from the Trump Administration may be disappointed. He reportedly asked JP Morgan CEO Dimon to consider the Sec. of the Treasury position and has shown no interest in confronting the too big to fail banks. His other potential candidates for Sec. of the Treasury also have strong Wall Street connections.

Meanwhile, conspiracy theorists are already speculating that global elites actually wanted Donald Trump to be elected so that they can blame the next major global financial crisis on him and tie the failure to the more conservative Republican Party. These kinds of speculations will only increase if we get a huge major crisis a year into the Trump Administration

Here on this blog, it is pretty clear that we don't have much more to do except to monitor events and see if we do get a new major crisis. Without it, it is very doubtful that much major change in the monetary system will take place any time soon and we will not have much to report. There is no sense of urgency for major changes as things stand right now and all the predictions for such a crisis to happen during 2015-2016 have failed to unfold so far.

If we do get a new major crisis, then we have to see how Donald Trump will respond and if there is a major mainstream media effort to blame him for the crisis. How would the public react? Will they blame Trump and the Republicans in Congress or would they distrust the media as they did during the 2016 US election campaign? Lots of hypothetical questions with no answers for now. And again, if we get no crisis, it's all a moot point.

Tuesday, November 22, 2016

East Asia Forum Article - Calls for IMF Reforms to Give More Power to the IMF

Jim Rickards has predicted that in the next major global crisis, the world will turn to the IMF (and the SDR) to deal with the crisis. We watch for any signs that may indicate movement in that direction (even if it is gradual movement). In this article in the East Asia Forum, there is a call to give the IMF increased power to deal with a crisis and to expand the use of the SDR in doing so. Below are some excerpts and then some added comments.


. . . .

"While the dollar remains the system’s principal reserve asset, US authorities are displaying little interest in mitigating capital flow volatility, short of an extreme systemic crisis. The Federal Reserve’s unwillingness to countenance credit or legal risk has stalled promising ideas to expand the global liquidity safety net for emerging economies. These include an International Monetary Fund (IMF) centred multilateralisation of currency swaps, US Federal Reserve-central bank bilateral swap arrangements and cross-border collateralised lending arrangements. The Federal Reserve won’t engage in such operations for lack of guarantees that potential losses on swap transactions will be indemnified. Besides, its mandate is domestic. The US Treasury, meanwhile, will not allow such financial resources to flow to or be provided by the IMF."

. . . .

"Going forward, the BRICS should press the IMF to introduce a ‘Very Short-Term Liquidity Line’ that can disburse the entire amount of approved access upfront to pre-qualified countries and with no ex post policy conditionality attached. The BRICS countries should concurrently convert, and enlarge, their Contingent Reserve Arrangement into an Emerging Market Crisis Prevention Fund that is large enough to lean against during sharp swings — and self-fulfilling market panics — in an emerging market index of targeted bond prices such as EMBI+ (Emerging Market Bond Index Plus)."

. . . .

"Over the medium-term, the BRICS should aim to institute a broadening of existing Special Drawing Rights (SDR) arrangements within the monetary system, making their issuance automatic and regular. They should also establish modalities to enable the IMF to guarantee SDR allocations to central banks on short notice, or to borrow from capital markets to fund liquidity provision operations during periods of heightened market stress. IMF-provided guarantees of new sovereign debt issuance and automatic purchase of secondary market bonds of pre-qualified countries should also be put on the table."

. . . . 

"In the long-term, the BRICS countries must aim to return the IMF’s machinery for collaboration on global monetary problems to its formative Bretton Woods design as a non-politicised, technocratic — not shareholder-run — institution. Its crisis prevention operations should tilt in the direction of automaticity rather than discretion and conditionality. The IMF’s single greatest intellectual failing at the time of its founding — the inability to factor the role played by private capital movements — must also be remedied by amending its Articles of Agreement to grant the IMF explicit jurisdiction over members’ capital accounts, including over source country flows.
The promotion of international financial stability, like infrastructure development, is a global public good."
. . . .
My added comments: A couple of points to make here. 
1- The article appears to call for some more significant reforms at the IMF that would give the IMF more power to deal with crisis situations. (see this related article)
2- The article calls out the US for blocking these kinds of changes and urges the BRICS nations to step up pressure for the changes since the US will not.
This is very much in line with Jim Rickards forecast that increase authority to deal with a crisis would be given to the IMF. Also, it is very much in line with input I have gotten from a variety of credible sources that the US is not enthusiastic about these kinds of changes at the IMF at this time. See Harald Malmgren here for example.

Sunday, November 20, 2016

Dan Popescu - Gold and Deflation

In this article Dan Popescu lays out his argument as to why gold will work as an insurance hedge in either a major inflation or major deflation scenario. This is an ongoing topic of discussion by those interested in things that could bring about change in the global monetary system. Below are a couple of excerpts from the article.


"Since the start of this gold correction in 2013, the most bearish argument I hear is that there is no risk of hyperinflation or even high inflation, but rather a risk of deflation (or a negative inflation rate, not to be confused with a lower rate of inflation increase, or disinflation).        What to make of it?"

. . .  .

"How did gold react in prior periods of deflation? Roy Jastram, author of an excellent book on gold, The Golden Constant, has identified three major periods of deflation: 1814-1830 (16 years), 1864-1897 (33 years) and 1929-1933 (4 years). The only monetary parameter that stayed constant throughout those periods has been gold. A given quantity of gold would have been traded for 80% more commodities in 1896 in the United Kingdom than twenty years sooner. Between 1920 and 1933, prices fell to their lowest level in British history. Gold reacted by increasing in price at the same time as commodities until it peaked in 1920. The gold price index stayed constant, within one decimal, for 90 years. Then, between 1918 and 1920, it jumped by 33%.

Roy Jastram concludes that, during periods of major deflation, the operational value of gold increases. He also concludes that gold maintains its purchasing power over long periods of time (half-century intervals), not because gold moves toward commodity prices, but because commodity prices return to gold.

"By de-stabilising the banking system and the monetary system, deflation creates a period of chaos and uncertainty, which is quite positive for the price of gold."  

 . . . .

"In conclusion, in a hyper-inflationary period gold will reflect the devaluation of paper/electronic money while in a deflationary period it will reflect the collapse of the banking system and people will resort to gold as in extremis money again."

Friday, November 18, 2016

Otmar Issing - Central Banks and the Revenge of Politics

Otmar Issing, former Chief Economist and Member of the Board of the European Central Bank, is President of the Center for Financial Studies at Goethe University, Frankfurt, and the author of The Birth of the Euro. In this article on Project Syndicate, he says central banks should abandon inflation targeting. Below are some excerpts. 

"The reputation of central banks has always had its ups and downs. For years, central banks’ prestige has been almost unprecedentedly high. But a correction now seems inevitable, with central-bank independence becoming a key casualty."

. . . . 

"On the contrary, a period of low and stable interest rates may even foster financial fragility, leading to a “Minsky moment,” when asset values suddenly collapse, bringing down the whole system. The limits of inflation targeting are now clear, and the strategy should be discarded.

. . . . .

"The failure of elected politicians to act appropriately – particularly in some eurozone countries – has turned central banks into the “only game in town.” And this is turning out to be less a boon to their prestige than a threat to their independence."

My added comments: A thank you to Robert Pringle for alerting me to this article. It does illustrate that a number of experts are concerned about the sustainability of current monetary policies in use by many central banks. I noted the comment in this article about the potential for a sudden collapse in asset values in bold type because the source of this statement is a highly respected former central banker. Another former central banker, Richard Fisher has also made comments critical of the monetary policies being used

Tuesday, November 15, 2016

How Will Trump Win Impact US Relations With the IMF? IMF Responds to the Question

It looks like we are not the only ones wondering how the election of Donald Trump as President might impact US relations with the IMF going forward. IMF spokesman Gerry Rice was hit with a barrage of questions along these lines by the media. Here is the link to the press conference where he mostly answers: "It's too early to speculate." Below are some excerpts and then some comments.


QUESTIONER: "I had a question about the election of -- actually I have two questions. So, do you feel that that opens a period of uncertainty for the U.S. economy and the global economy? And do you see the election as a rebuke of the policies that the IMF has been advocating for many years? And so do you think it should push the IMF to rethink its action and its policies? Thank you."

QUESTIONER: "Yeah. I'm with Reuters. Do you have concerns about the level of the U.S. commitment to the international institutions going forward given Mr. Trump's America-first policies, and a general sort of rejection of decades of trade liberalization policy?"

MR. RICE (IMF): Okay. Let me -- let me try and take these, and then we can move on to other things. We issued a statement yesterday. Let me repeat that for you. The IMF looks forward to working with the next U.S. administration, to help the challenges facing the U.S. economy and the global economy.
You know, beyond that, clearly in terms of, you know, specific questions about policy directions, and it's really just -- it's too early to speculate. We need to see how the new U.S. administration defines its policy priorities and related actions once it takes office before we would make any assessment of specific issues.
That said, let me try and respond to a couple of the issues that you’ve raised. On the financials and the markets, there was some volatility yesterday, but markets this morning seem relatively calm from what we can see there. I think there was a question about, does this signify a repudiation of IMF policies or, you know, does it entail a rethink on how we are approaching things. Again, I think it's too early to speculate on any specific policies, but we have been saying now for quite some time, including at the most recent Annual Meetings, that there needs to be, of course, a focus on increased growth. But we've also been emphasizing equally the need for inclusive growth.
There was this phrase at the Annual Meetings that growth has been too low for too long for too few. So, we've been doing, I think as you know, those who watch us, we've been doing a lot of work, in fact, over the last number of years on issues such as inequality, for example, and how to make growth more inclusive. So, that’s something to which we are committed and in that respect, if you will, a rethink has already been well underway, as I say, for several years.
In fact, the annual economics conferences that we've been running have often been titled Rethinking Macroeconomic. So we are committed to helping our membership promote more inclusive growth. You know, I think the same applies on the whole issue of globalization, and some of the policies related to that, you know, openness, trade and so on.
Again this was a big discussion point during the Annual Meetings again recently, that for many countries around the world and for many people, especially poor people around the world, those policies have delivered many benefits. A lot of people have been lifted out of poverty over the last generation. But we have added and emphasized that clearly the negative side effects of some of these globalization policies need to be taken into account more. And again, that’s something we've been emphasizing now for some time. So, it's not just the -- it's making globalization work better and work for everyone. Again, that was a big discussion point during the Annual Meetings.
On the other questions, some of your other questions, do we anticipate difficulties to emerge with other countries? Again, no, at this point no, I do not see that. But again, I think we have to wait and let the new administration take office and see what the specific policies might be. There was a question about the U.S. level of commitment to the IMF and, you know, there are just a -- the U.S. was a founding member of the IMF. The U.S. is the leading shareholder in the IMF. We have an excellent relationship with the U.S. authorities, and we would expect that to continue into the future.
On certainty and uncertainty, again, I think it's the early days -- too early to speculate. Clearly, as a general principle, certainty is a good thing. Policy certainty is a good thing. But again, we need to wait and see. Remember we are barely 24 hours away from the election decision.

QUESTIONER: "Yes, please. If I may follow up regarding the trade agreements and the international trade agreements like NAFTA, which is already in a certain place, and also TTIP, and TPP. The Fund has been -- if I'm not mistaken -- promoting those agreements in the process of opening up and reducing barriers to trade. But the current, the president elect seems to be saying that he wants to stop them or change them significantly. So can you, please, comment on that? I mean, have you -- I'd like some clarification on your point. Thank you."
MR. RICE (IMF): So, again, I think it's just too early to speculate. I think we need to let the new administration take office. Let the new administration establish its policy priorities and the actions related to that, and then we can make an assessment. Separate from that on trade, we have said that we believe that trade has been an engine of growth for the global economy and holds great potential in the future in terms of growth for the global economy.
So, I'm not referring to specific agreements here. I'm not getting into that level of detail, but as a general principle, the Fund takes that view. We have also said though, and again this was another major part of that discussion during the Annual Meetings, that clearly the more negative side effects of trade need to be taken more into account for those who feel left out or left behind. We need to have more policies that help to mitigate the negative effects and help address the concerns of those who feel left behind. So that's an important part of the narrative on the overall, you know, view that trade helps the engine of growth.
My added comments: Clearly the IMF prefers to avoid conflict with the incoming new Adminstration. The tenor of these comments sounds like the IMF will likely do what Jim Rickards suggested in his article we featured here. That being, to "keep their heads down, make friends, and not pick fights" as Jim put it.
So, how will this eventually play out? There are two main schools of thought on Trump that I see out there. 
One is that he really does intend to disrupt the present system and remake it along the lines of his "America First" campaign talk. Those who take this view will probably point to his selection of Steve Bannon to his White House staff. 
The other view is that Trump is much more pragmatic than he came across during his campaign and will look to compromise quite a bit to move forward with the main goals of his overall agenda (use "the art of the deal"). Those who take this view would probably point to his selection of Reince Priebus to his White House staff.
Are there hints Trump has given us about which path he may take? Perhaps. It should be noted that all along Trump has called for a massive infrastructure spending program to give a quick jump start for jobs. This is actually in line with what the IMF has called for as well (see fiscal policy paragraph). Also, Trump has already softened his tone and talked about areas he could compromise on such as keeping portions of Obamacare and that it may not be necessary to have a full scale wall along the US southern border (he says a fence might be OK for some areas). He has dropped his call to deport all 11 million immigrants living in the US illegally and now says he will focus on those who have criminal records.
On trade, Trump actually does not talk about being against trade. He talks about using negotiations to get what he calls "fair trade deals" (note the statement above by Gerry Rice that the IMF thinks trade policy should "address the concerns of those who feel left behind"). 
But how will the Trump Administration view global institutions like the IMF? Are they interested in giving the IMF more resources? How do they feel about the IMF stepping in as a global lender of last resort if a major global crisis were underway? In the words of IMF spokesman Gerry Rice, "it's too early to speculate"; and that is all we could do right now since this question has never been raised to Donald Trump as far as I know.

Added note: (formerly run by Trump adviser Steve Bannon) ran this article about the IMF in October. The article provides no clue as to what Donald Trump thinks about the IMF, but does attempt to say some recent IMF statements actually support Trump's views even though the IMF was actually warning against "protectionist policy approaches." 

The article says the IMF low growth projections agree with Trump's view and that at least the IMF talks about the need to take into account those who feel left out by the globalization process. But again, it's too early to speculate how Trump and the IMF will get along with each other.

Friday, November 11, 2016

How Will Trump Win Impact US Relations With the IMF?

If Hillary Clinton had won the election, we could assume that not much would change in terms of US relations with the IMF. But now we have a new world with an incoming Trump Adminstration. It's reasonable to ask how this might change things. In this article by Jim Rickards published in August, he looks at this very question. This article gains quite a bit of relevance post election. Below are some excerpts and then some added comments.


So What Does The IMF Do In The Face Of A U.S Election?

"They hunker down.
When looking into Donald Trump and his positioning on the IMF – it appears he has a limited scope on the Fund. That’s not a direct criticism of Trump.
The IMF is something that very few people know about. They like it that way.
Currently, the U.S maintains the number two guy at the the Fund.
His name, David Lipton.
David Lipton is America’s inside guy at the IMF. Lipton is Harvard trained and serves as First Deputy Managing Director. The current IMF Chairman is Christine Lagarde of France. She is the first female head of the Fund and the fifth from France following Dominique Strauss-Kahn’s disastrous exit. Per customary tradition over the past seventy years, Europe holds the reins at the IMF and the United States keeps leadership at the World Bank.
With brief historical context, I do not anticipate Trump gaining overnight interest in the Fund. He is, most likely, not going to change the U.S approach.

Much of the IMF agenda, from a U.S standpoint, will depend on who is the incoming Secretary of the Treasury is for 2017. The Secretary of the Treasury typically guides the presidential appointment of who will be the eyes and ears at the IMF. They will report directly back to the White House."

The IMF And The 2017 White House.

"For a potential incoming Trump administration, expect an overload of appointments to navigate through. With the Trump campaign launching an internal project to purge the bureaucracy you can estimate that the IMF will not be high on the purge list.
As it stands now in government, there are an estimated 4,000 jobs in the federal bureaucracy that are vital positions, not including cabinet appointments. These people are distributed throughout the bureaucracy. They have been carefully selected by the Obama Administration and when the next U.S president comes in it will go two ways.
In a potential Hillary Clinton administration, she won’t be acting with urgency. She will be comfortable working through those who are currently in place. In essence, carrying the baton.
In contrast, Trump is out to make a significant purge. These types of “cleaning house” activities will take years and the IMF is not an immediately task. Expect the IMF and its associated U.S bureaucrats to keep their heads down, make friends and not to pick fights."
. . . .
"If we have a panic like 2008, that’s when they act. This is called the shock doctrine. The shock doctrine is the idea that I’ve got an agenda and I recognize it’s unpopular. But once a panic hits, those in power are going to be so scared that they’ll do whatever is proposed. That’s what we could see, as this is specifically when a big SDR issuance will be executed.
It’s not on a sunny day, but in a panic, the White House will be just as nervous."
My added comments: Some bullet points from this article -
- Trump is not likely to make a change in US relations with the IMF high priority
- The IMF is likely to simply keep a low profile and look to stay out of Trump's way
- Where things could get interesting is if we get the huge new global crisis Jim Rickards predicts during the next four years. This is when he expects the IMF to step forward as global lender of last resort using the SDR. How would a Trump Administration react to this situation?
That last question has injected huge uncertainty into an already complex system. At this time, because nothing was asked of either Presidential candidate about this kind of situation during the campaign, we truly have no idea what to expect from a Trump Administration. We would have expected a Clinton Administration to work hand in hand with the IMF and take a "globalist" point of view. All we know at this point from Donald Trump is that he has said the following:
- he has said he thinks we are in a "bubble" at least partially created by US Fed  monetary policies that will eventually burst. He has basically predicted a crisis somewhat like Jim Rickards has talked about sometime during his term of office.
-he has sharply criticized the US Fed and some people think he will replace Janet Yellen at the first opportunity. He has also called for an audit of the Fed. Would he partially blame the Fed for any new major financial crisis?

- he has repeatedly pointed a finger towards China for currency manipulation and unfair trade practices. Would he blame China for any new major global financial crisis?

-he has said almost nothing on the record that I can find about the proper role in the future for the IMF and always talks about being against "globalism" and putting America first. The IMF seems to not be too excited about him. Same thing at the UN.

You tell me what to expect if we get the kind of crisis Jim Rickards predicts while Donald Trump is President. Jim says under such crisis conditions even a Trump White House would cave in to pressure to let the IMF step in. But would he really do this with a Republican controlled Congress not likely to be willing to give up US control to a global institution like the IMF? I have no idea. All we can do here is follow events and see what actually happens. If Trump is right about us being in a bubble, we may get the chance to find out sometime in the next fours years what he would do.

Wednesday, November 9, 2016

Financial Times: Central Banks Explore Digitial Currencies

This is a topic we have covered here extensively. For some time now, we have said that we believed it would be possible someday to have a global digital currency issued by perhaps the IMF that everyone could own and use (not just IMF members and central banks). While this article in the Financial Times makes it clear we are likely still many years from such a thing, it is now being reported in the mainstream media as something likely to happen eventually. Below are a few excerpts from the article.


"Countries around the world — the UK, Russia, Canada, Australia, China and many more — are examining how they might mint their own digital currencies and put money on the blockchain. Efforts have intensified this year, although research is still at an early stage and many puzzles have yet to be worked out. But most agree on one thing: that the world is moving towards use of digital currencies.

Within the Bank of England, a team is already considering what a central bank-issued digital currency could mean. “The technology is moving quickly,” says Victoria Cleland, chief cashier, in her glassed-walled office inside the fortress-like Bank. “A lot of people think central banks are very risk averse, but we are thinking, ‘Are there opportunities to grasp innovation ourselves?’”

. . . . .

"There is an unresolved tension between blockchain libertarians who support open-source, decentralised networks, and those who seek closed, controllable databases."

. . . . . 

"At the Bank of England, radical options are being discussed. One scenario even involves the blockchain being used to bypass high-street banks, with individuals holding accounts directly with the central bank, cutting out the commercial banks’ role as middleman in the circulation of money. One person familiar with the process says that high street banks have been privately pushing against this model."

. . . . .

“It’s inevitable there will be a government digital currency, eventually,” says Kenneth Rogoff, a professor at Harvard who studies the concept of a “less-cash” society. He believes that cash will never disappear, and that there will always be a role for small notes.
“Eventually, there will be government digital currencies that ordinary people have access to at very low cost.”
But he warns: “A government digital currency could be many decades away, and there are all sorts of security and regulatory issues that have to be navigated first. That said, many central banks are already thinking about it.”
My added comments: We have covered this concept about as extensively as any media source I know of. Below are links to previous articles related to this idea.
The KlickEx virtual currency concept as envisioned by CEO Robert Bell (Mr. Bell is a very creative thinker who first introduced me to this concept)
Interview with Dr. Warren Coats on his Real SDR Proposal (see my closing comments on the idea of a global reserve currency based on modern technology)
It should be said that these are all early concept studies. If one or a few central banks were to adopt a central bank digital currency with the ability for individuals to hold accounts directly with the central bank, that is still not a global version of such a currency. And it does not address the issue of what would anchor such a currency.
However, once the concept is adopted and proven out by a real central bank, it could then eventually be applied to a global version such as a global digital SDR for example issued by the IMF. By no means is there any indication that the IMF is looking into this right now. But what we are trying to present here is the concept itself and evidence that it could eventually become a reality over time.

note: Dr. Warren Coats previewed this article and offered this comment to help clarify what the Bank of England is looking at:

"It is always important to clearly distinguish between a currency and various means of delivering (paying) it. The Bank of England is not contemplating a new currency but rather a new delivery system. A central registry at the central bank already bypasses the high street banks with out the need for blockchain approaches. The same is true for SDRs or IKON."

What Dr. Coats is pointing out is that even though this article talks about a "central bank issued digital currency" as if this is something new, in the case of the Bank of England for example, it is just the existing British Pound managed in a new way. 

The key point for me in this article is the idea of regular citizens having an account directly with the central bank which I do view as a significant change from the present and a possible baby step towards an actual global digital reserve currency like I am asking readers to imagine in the future. 

People my age (60) recall when Star Trek came out and they were talking to each other on these strange hand held devices with no cord attached. The devices seemed like pure fiction at that time and something you could only imagine. The same way a global reserve currency issued by the IMF that everyone can hold in a private account at a central bank and use for transactions with a mobile phone might seem like pure fiction today.

What Does the US Election Say?

Just a short followup post now that we have the results of the 2016 US election. These results are quite consistent with what I have seen over the past couple of years doing research for blog articles here. The only question was whether the discontent that was obvious in the general public was widespread enough to elect a candidate like Donald Trump running on a "Drain the Swamp" platform. 

This result also adds on to the Brexit vote in the UK earlier this year and to the clear movement globally to express discontent with what is perceived by many as a ruling class that has little concern for the average person. 

The question now is where do things go from here? Does this mean that a new major financial crisis is more or less likely? What would the US position be now on things like US Fed policies, the status of the US dollar, and what role should be played by institution like the IMF?

Jim Rickards (who accurately predicted this election result when almost no one else did) believes that the election of Donald Trump will actually speed up the process he has predicted. For the first time in quite a while we will have the potential to unlock gridlock politically in the US. Donald Trump is promising a huge infrastructure program which many feel is designed to try and get the US moving away from the deflationary trend it has been in. There is nothing in these results that suggests the US debt will be going down any time soon. Donald Trump himself has predicted we will endure a major financial crisis (even if he were elected). So, we will continue to stand watch here and see what actually does happen.

Tuesday, November 8, 2016

Election Day Humor & A More Serious Note

Since this blog is dedicated to avoiding any kind of political agenda, I will just offer a little election day humor below. I suspect most of us will be glad the election is over no matter who wins.


On a more serious note, CBS 60 minutes ran this segment on this past Sunday, It shows pretty clearly how divided the US is right now and how high emotions are running. This is why this blog does not promote any kind of political agenda. The problems we must deal with in the financial arena are serious and can certainly impact all of us regardless of our views. The hope here is that people will realize the importance of learning as much as possible, listening to various points of view, and trying to discuss our views with others in a respectful way. If we cannot do this as a nation, we will all eventually lose quite a bit.

Update 11-9-16: Comment on election results 

This election result with Donald Trump doing far better than most expected is not surprising to anyone who has much contact with the general public. The disenchantment with those running the present system was very clear. So, how might this impact what we watch for here?

The "surprise" results will most likely roil the markets somewhat. Whether that is just a temporary thing or the start of a more situation is what should be monitored. There are all kinds of theories out there as to how something like this might lead into a new major crisis. It's always possible, but for now we just need to monitor markets like stock markets and gold.

Friday, November 4, 2016

The IMF Launches Advisory Group to Study Expanded Role for the SDR

A thank you to Jim Rickards for posting this link on his twitter feed. It is to a release from the IMF announcing they have now started the project to look at a possible expanded role for the SDR in the global monetary system. Of course, Jim has long predicted that there will be an expanded role in the future for the SDR. Below I have pasted in the full IMF release and then some added comments.

The International Monetary Fund (IMF) started discussions on the role of the Special Drawing Right (SDR) and its potential contribution to strengthen the international monetary system with an External Advisory Group (EAG) last week.
The discussions—held via conference call—centered around identifying weaknesses in the international monetary system that the SDR could help address through any one of its three functions—(i) the official SDR, the reserve asset issued and administered by the IMF; (ii) SDR-denominated financial market instruments, which could be both issued and held by any parties; and (iii) the SDR as a unit of account.
The EAG was established by the IMF as it undertakes an assessment of whether and how a broader role for the SDR could contribute to the smooth functioning of the international monetary system by helping address gaps or market failures. The EAG is convened by Maurice Obstfeld, the Economic Counsellor and Director of Research at the International Monetary Fund, and includes:
  • Claudio Borio, Head of the Monetary and Economic Department, Bank for International Settlements;
  • Barry Eichengreen, George C. Pardee and Helen N. Pardee Professor of Economics and Political Science, University of California, Berkeley;
  • Yiping Huang, Professor, National School of Development, China Center for Economic Research, Peking University;
  • Isabelle Laurent, Deputy Treasurer and Head of Funding, European Bank for Reconstruction and Development;
  • José Antonio Ocampo, Professor of Professional Practice in International and Public Affairs, Columbia University;
  • Hélène Rey, Professor of Economics, London Business School;
  • Zoeb Sachee, Head of Euro Government and SSA Trading, Citigroup;
  • Catherine Schenk, Professor of International Economic History, University of Glasgow;
  • Edwin Truman, Nonresident Senior Fellow, Peterson Institute for International Economics, and;
  • Beatrice Weder di Mauro, Johannes Gutenberg Chair of International Macroeconomics, University of Mainz and Distinguished Fellow in residence, INSEAD Singapore.

My added comments: I have featured articles and presentations by the people noted in bold type above here on the blog. Claudio Borio (BIS) has been an outspoken advocate of the need to look at possible changes in the global monetary system. Catherine Schenk authored this paper in 2011 which looked at the idea of adding gold to the valuation basket for the SDR. Jim Rickards has spoken of Edwin Truman as being a key expert on the SDR.

With the inclusion of Catherine Schenk and Yiping Huang from Peking University, I suspect there will be speculation about this group looking at some kind of gold backing for the SDR. However, the stated objective for this group is to look at whether the current role of the SDR can be expanded with no mention of any change to the valuation basket being considered.

Added note: SWIFT announces improved tie to the Chinese Renminbi

Tuesday, November 1, 2016

Monthly Crisis Watch

This month I will just provide a link to this recent interview with Jim Rickards. In it, he talks about his new book which directly predicts the kind of crisis we watch for here. He suggests that it will happen by 2018, but says the conditions exist for it to happen at any time before then as well. Below is the summary of the interview done by Oxford Club radio.


"This week on Oxford Club Radio, Marc interviews gold expert Jim Rickards. He’s the editor of the Strategic Intelligence newsletter and author of a new book that has already topped several Amazon charts. It’s called The Road to Ruin: The Global Elite’s Secret Plan for the Next Financial Crisis.

As Rickards explains, the '90s were a period of risk and instability for hedge funds. Eventually, Wall Street had to bail out hedge fund managers. Then, in 2008, central banks had to bail out Wall Street.
In both instances, global financial markets nearly ground to a halt. They were rescued at the last minute by government and banking interventions. And the underlying problems that cause these crises were never solved.
Rickards points out that it has been about eight years since the last financial crisis. These events tend to reoccur in eight- to 10-year intervals. Until now, the government has intervened during crashes by printing money. This provides liquidity and prevents bank runs.
However, after the 2008 crisis, the Federal Reserve’s balance sheet ballooned from $800 billion to more than $4 trillion. And they’ve made very little effort to bring it back down to a normal level.
Rickards believes that this policy of printing more money is ultimately not sustainable. If the Federal Reserve allows its balance sheet to pass $8 trillion or $12 trillion, people may start to lose faith in our currency system.
Check out the clip above to see why Rickards says, “We’re only one phone call away from martial law.”
My added comments: Obviously everyone would like to know the timing for the kind of crisis Jim predicts if we are to get one. Jim consistently says he cannot know the timing and almost always projects it out into the future at some unknown point in time. 

Here he actually mentions 2018, but I don't think this means he believes he knows the date. I think he is just suggesting that the odds are it will happen by then. He does point out that the systemic risk conditions are such that it could happen at any time. Here is another similar interview that also includes some comments on the upcoming US election (pre bombshell from the FBI). 

Jim sent me a note to say that he has done some later interviews with more up to date comments such as these two:

Dan Popescu Interview

Interview with Rogue Money

Interview with Greg Hunter

Interview with Ron Paul

Jim will post all new interviews to his twitter feed here

Added notes: In October we also got comments by highly respected expert Otmar Issing suggesting he does not see a bright future for the EU as we reported in this article here. After his comments appeared, Robert Pringle told me he takes these comments very seriously.

It should also be noted that a number predicted dates for a major crisis once again passed by this year and were proven to be incorrect. By now, it should be apparent that all these specific date forecasts are virtually useless. 

Here, we think the wiser course is to stay alert and keep informed understanding that the conditions for crisis do exist, but they have existed for some time without such a crisis. This can continue well into the future or a crisis could arise at any time. That is just the reality of the situation and why holding long term insurance is also a wise choice.

Late breaking events: It's reasonable to wonder if the events going on in the US Presidential election will impact the financial system/markets etc. I will just admit that I have no idea. It could range anywhere from virtually no impact to a substantial impact on the markets. I think most markets had priced in a Clinton win, so a surprise Trump win would be more likely to create an impact. Of course, if the current investigation of Hillary Clinton were to lead to some kind of indictment (especially if she were elected President), we can assume there would likely be a substantial impact on markets. 

Added note 11-3-16: Fox News issued a report indicating that sources close to the FBI have said an indictment related to the Clinton Foundation is "likely" and that the private email server owned by Hillary Clinton was hacked by at least 5 foreign governments. If these reports turn out to be true, we will need to monitory the political situation more closely in terms of it potentially impacting markets. If the FBI is planning an actual indictment and that does not happen until after the election, things are going to get messy in the US. The uncertainty around such a situation (especially if Hillary Clinton is the President) will very likely create havoc in both US and global markets.