Monday, July 30, 2018

News Note: CNBC - Here's Why Social Security is Falling Behind

CNBC runs this article which describes what is happening to seniors trying to make ends meet mostly on their Social Security benefit. This is already a growing problem and will no doubt only get worse in coming years since the US is projecting massive deficits with no end in sight. Below are a couple of excerpts from the article and then a few added comments. I added the underlines below for emphasis.


"If you've been thinking that your Social Security check doesn't go as far as it used to, you're likely not imagining it.

Since 2000, the buying power of monthly benefits has fallen by 34 percent, according to a recent report from the Senior Citizens League, an advocacy group based in Alexandria, Virginia.

In other words, the collective cost of goods and services common among retirees has risen faster than the cost-of-living adjustment, or COLA, that Social Security recipients get every year.

"People who recently retired might have seen only a [small] decrease in buying power," said Mary Johnson, a policy analyst for the league. "But those retired for a long time are feeling the cumulative effect of this."

. . . . .

"It's not a pretty picture," Johnson said. "It's difficult when costs are increasing so much more quickly than COLAs."

My added comments: While this problem grows slowly over time, there will come a point in time when it reaches a point of critical mass. This is because the median age of the US population continues to climb as the baby boom generation moves more and more into the Social Security system. Attempting to do anything about Social Security until it reaches a crisis point is viewed as political suicide so it is unlikely anything will be done until it has to be done.

Meanwhile, more and more of the US population will find it harder and harder to make ends meet. In the past normalized interest rates made it possible for those in retirement to better supplement Social Security with interest earnings on savings. But the monetary policies of the central banks led by the US Fed after the 2008 financial crisis kept interest rates pushed way too low to help out those who needed it most.

Now, we have a system that is somewhat dependent on very low interest rates to remain stable. Debt levels built up by just about everyone (governments, individuals, companies, etc) when rates were artificially suppressed by monetary policy are so high now that a return to normalized interest rates could certainly be viewed as a very real systemic risk. It seems that after decades of pushing forward these problems instead of actually solving them, both central banks and politicians are finding themselves painted into a smaller and smaller corner as time goes by. The public knows this, but prefers to put it out of mind so long as the crisis has not yet arrived.

The question is how much longer can they stave off the problem before it reaches a true crisis point. The answer has huge implications both politically and and for what we watch for here. If a major crisis does arise, the conditions for major change will arise with it. Whoever is in political power at that time will very likely lose power (politicians in both major political parties know this). It could happen sometime during the Trump Administration or once again be pushed forward beyond that time frame. It will be a problem that built up over decades with virtually everyone sharing some responsiblity for it. But political reality dictates that whoever is in office at the time usually pays the price. And we can expect a lot of finger pointing at the US Fed as well from all sides of the political spectrum.

If and when a crisis does happen, a disgruntled public will likely demand someone "fix" the problem. At that time many people will want to become more informed about what ideas exist to fix things. That is why we documented a variety of proposals for monetary system change from a range of experts here on this page of the blog. As far as I know, nothing like this exists elsewhere on the internet all on one web page. It is available here and free to anyone interested in using it. We will update that page ongoing as we find any new proposals we have not yet covered to add to the list that we think could be viewed as credible by the general public.
Added note: Tomorrow (8-1-18) we take a look at four different ventures around the globe that are working to get people to use gold like money. We have featured two of them already. This article includes a recap of those two plus a look at two others.Later in August we will look at the issue of Russia and China's efforts to bypass the US dollar and we hope to have an interview with KlickEx Founder Robert Bell regarding his thoughts on the future of the global monetary system.

Tuesday, July 24, 2018

Glint Moves Forward with Plan to Reintroduce Gold as Money

There are a number of initiatives moving forward around the globe that are working towards the goal of encouraging people to use gold like money once again. Last fall we featured Glint as they launched such an initiative in the UK. Glint CEO Jason Cozens was gracious to participate in a Q&A session for readers here that described the launch.

Now, it seems that Glint is ready to expand and move forward with some new initiatives. Jason Cozens has kindly agreed to do a followup Q&A style interview to provide some insight into where he sees Glint going in the future.

Jason Cozens - Glint CEO

Q: I see that Glint is raising 1.25 million pounds in a new crowdfunding effort. What prompted you to go this route to raise these funds?

A: Everything we do at Glint ( is about ​working towards helping everyone get the same opportunity to prosper​, no matter their financial status​ . That’s why we ​are attempting to ​"fix​"​ money, the fuel on which capitalism runs, in order to make it reliable, fair and not prone to depreciate in ways outside of our control. Rich or poor we want to have a level playing field.

We launched our £15m Series A funding round so we could expand Glint to a wider audience ​overseas. The participants in this financing are mainly funds and ultra-high net worth individuals. We were amazed that ​clients were ​requesting to invest in the business as soon as we started opening accounts for them and to avoid being exclusive,​ our crowdfunding campaign at ensures everyone has the same opportunity to invest and join us on our journey. They can invest from as little as ​£10  to £100,000 ​'​s although in the US, Canada and Japan only sophisticated investors investing more than £10,000 can participate. ​ At this point I should mention that of course investing puts your money at risk but I’m really pleased to announce that we smashed through our £1.25m target with over 400 investors in the first 72 hours. It’s still open for the next 27 days (as of 7-20-18).

Q: Last November Glint launched in the UK. Can you give us some key events that have taken place since the launch that have you excited?
A: There are so many! I’ll name some:

  • ​We couldn’t have hoped for a better response from the press.
  • The robust processes that we had built stood up to our expectations and ensured everything went to plan.
  • Th​e team that ​my ​co-founder Ben Davies and I have the privilege of working with ​has ​now reached 50 strong. ​We are working with ​an amazing  group of talented people with experience in product development, software engineering, banking, security, investments​, marketing, client services, macroeconomics, trading, currencies, payments and gold.
  • Launching our Android App and adding USD and EUR accounts to​ our iPhone App.
  • Recently winning the PayTech award for best new payments initiative.
  • But the best has to be the 16,000 (​and counting)​ clients who have registered for accounts. It’s a great feeling to see clients ​actually ​saving and spending in Gold.  ​My dream ​many years ago has become a reality, and that's pretty awesome to witness.

Q: It looks like Glint is ready to move into the US. Can you give some insight into what will be happening in that regard and the time frames involved?

A: We built our technology to scale and we’ve been working on expansion outside of the UK and Europe for some time. US residents can actually buy, save and sell physical gold and other currencies on the Glint App right now but we will be bringing the full solution with the ability to spend in Gold using the Glint debit card later this year. We already have our ​US ​office in place and are building out our US team.

Q: One hurdle that gold faces is the tendency for people who own gold to hold it rather than spend it. How does Glint encourage users to spend gold rather than just to hold it more like a long term investment?

A: If all you can do is hold gold then that’s what you are going to do, you’ve never been able to do anything but save and trade in and out of it so that’s where the ‘tendency’ comes from. The mere fact that, for the first time, Glint clients can now spend their gold at the electric point of sale, in real-time without selling it in advance, means that clients can and are spending their gold.

There is an education taking place  for some about the benefits of a gold ​currency​ and a behaviour change for others​,​ but the Glint App makes that very easy. People are starting to realise that saving and spending from their Glint gold account insulates them from inflation, protects them from banking and systemic risks​ (​let's hope we ​don't ​have another financial crisis) and allows them to move to one Global Currency that transcends all others.

Q: As I understand it, Glint wallet owners will be able to hold both Euros and US dollars as well as gold. Why will you offer users the ability to hold fiat currencies in addition to gold in their wallets?

A: This ties into one of our core goals we have,​ which is giving people choice. Sure​,​ we believe that gold is the ultimate form of money but there are plenty of scenarios where it makes sense to exchange in and out of, save and spend in government issued currency. We also don’t think people should be charged 5 or 6% just to exchange into a foreign currency when using their ​national bank ​ account or transferring money overseas. Glint only charges 0.5% to buy gold or national currencies (Although we’ve currently launched a promotion that gives free purchase and spending for the next 12 months for clients who have bought at least £1,000 or €1,000 of gold).

The other benefit of having multiple currencies alongside gold is that it reinforces by association the fact ​that gold is now another currency.

Q: What kind of demand are you seeing so far for the services that Glint provides and where do you see that demand growing in the future?

A: There is an obvious product market fit with those who have large amounts of money​ and as such we have a very high proportion of High Net Worth individuals who are very keen to have a reliable alternative to banking and hard money ​to protect ​for their hard ​- earned savings. However​,​ we also have a cohort who ​aren't necessarily sitting on large savings, but who ​believe in ​Glint's ​philosophy and ​the ​right to have an independent form of money that is free from government interference. So we’ve built Glint for everyone, enabling you to buy as little as 1 cent or pennies worth of gold to millions of dollars or pounds of gold.

Our clients also range in age from 18 to 90 years’ old, so we have both those blessed with the benefit of hindsight and fresh, idealistic and mobile-first millennials.

Q: How do users access Glint to manage their funds and spend their funds? Where will Glint users in the US be able to use the Glint card in the US?

A: Clients can manage their funds through our​ secure iPhone or Android App and spend their funds using the Glint debit card anywhere ​that ​ Mastercard is accepted​;​ so that’s not just at merchants and ATMs in the US but across the world. I’ve spent my gold in California, Mexico, Tokyo, Mumbai and across the UK and Europe ​- ​ using it to pay ​for​ taxis, hotel​s​, ​flights and restaurant meals.

Q: What world events do you see taking place that would be favourable towards increased public demand for gold?

A: We are already living in uncertain times and it’s not clear to people what the world is going to look like in the short term,​ never mind the long term. Uncertainty is all around us and trade conflict, the potential break-up of the European Union, wars and high levels of personal, corporate and government debt mean that people are looking for reliability wherever they can find it now.

I’m not an economist, but​ whichever way I look things don’t look ​too ​good. Many companies won’t survive the next downturn in the economy ​. We are ​two​ months away from the longest post-war economic expansion,​ which alone tells me that the writing ​may be ​on the wall ​and another recession or financial crisis around the corner​. I’m just glad that we have brought people a solution ​in time.

Q: What else should readers know about Glint's future plans?

A: The first step was to give people the ability to​ spend ​in whatever currency they choose,​ including gold. By enabling this we are building one side of a very big network​,​ but ​for now,  merchants ​are ​ still receiving funds in their currency of invoice (USD, GBP, EUR etc). We will continue to focus on quality and great client services but one of the next steps is to build up the other side of the network by enabling clients and merchants to receive payment​s​ in Gold. Watch this space!

My added comments: Lately, there is quite a bit of news related to efforts to get people to use and spend gold like money. We'll continue to follow these and report back to readers on them over time (a followup article is planned for early August on four of these ventures).

Just for the record, I do not have any financial interest or affiliation with any of the entities featured here on the blog (including Glint). Information presented here is intended to be educational for readers about various efforts to reform the monetary system or offer new alternatives to it. Gold being used like money falls into that category, so I try to cover that as news when I get information related to it. This blog does not offer investment advice and is not intended for that purpose. Articles featuring products or services are not intended to be endorsements.

Thursday, July 19, 2018

Keith Weiner Proposes - The Unadulterated Gold Standard

Recently, we covered the efforts of economist Keith Weiner to work with the State of Nevada on a bill that would allow that state to issue gold and silver bonds. While researching this news, Keith introduced me to his proposal for what he calls an "Unadulterated Gold Standard".  He explained that  this proposal differs from the classical gold standard used in the past. Keith has this to say about it near the conclusion of Part V of his five part series of articles:

"To conclude this entire series on the Unadulterated Gold Standard, it is fitting to provide the formal definition now that the reader has sufficient understanding of the concepts and ideas.

The unadulterated gold standard is a free market in money, credit, interest, and discount based on the right of the people to hold and use gold coins, and which includes Real Bills and bonds."

One of our goals here is to make readers aware of various proposals for monetary system reforms that we find so that readers can learn more about them.  As you can see from the excerpt above, Keith lays out a full detailed explanation in a five part series that walks the reader through an understanding of his concept of a new kind of gold standard. Below are a few excerpts from the five part series followed by some questions I sent to Keith and his replies by email.


From Part I

"The choice of the word “unadulterated” is not accidental.  There were many different kinds of gold standard, including what we now call the Classical Gold Standard, the Gold Bullion Standard, and the Gold Exchange Standard.  Each contained flaws; each was adulterated."

From Part II

"Despite some government interference, the Classical Gold Standard enabled a Golden Age of prosperity and full employment that is totally out of reach today (not to be confused with the rapid development of technology).  This is not to say there were not business failures, bank failures and panics – what were later called depressions and now recessions.  A free market does not attempt to guarantee that no one can ever lose money.  It is merely an environment in which no one is forced to subsidize someone else’s risks or losses."

From Part III

"If the government had fixed a mandatory computer standard in the early 1980’s (some governments considered it at the time), we would still be using floppy disks, we would not have folders, and most of us would not be using any kind of computer at all, as they were not user friendly.  When something is fixed in law, it is no longer possible to innovate.  Instead, companies lobby the government for changes in the law to benefit them at the expense of everyone else.  No good ever comes of this."

From Part IV

"In Part IV, we discuss the problem of clearing. The problem of clearing arises when merchants deal in large gross amounts, on which they earn small net profits. They would not typically have the gold coin to pay for the gross value of the goods they purchase. This is an intractable problem in a strict gold-coin-only system and it only grows if specialized enterprises are added. We considered the mechanics of Real Bills. It is interesting that goods flow from raw material producer to the consumer but the money flows from consumer to raw material producer. Without government involvement, and without banks, Real Bills circulate spontaneously."

From Part V

"The unadulterated gold standard is a free market in money, credit, interest, and discount based on the right of the people to hold and use gold coins, and which includes Real Bills and bonds."

My added comments: In this series, Keith Weiner talks about a new and different type of gold standard that operates completely free from government and central bank intervention. It is even different than the kind of gold standard that was once used in the United States.

The first questions that entered my mind after reading the proposal was how likely is it that a gold standard like this might emerge in the future and what evidence is there that public demand for such a system may exist. Keith addressed those questions by email with permission to publish here for readers as follows:

Hi Larry,

Realistic is an interesting question. Are the American people agitating to bring Uber under the taxi regulations? Would they protest that gold 2.0 companies aren't controlled by the government? I don't know, but I think there are two trends right now which contradict one another. One is growing distrust of government. The other is a desire for regulation of business.

What I do know is that government interference in money, currency, banking, and finance have caused immeasurable hardship to Americans who suffer the consequences.  This has been happening since the Founding. We have to fight for a better way, for free markets and freedom.

As to evidence, none direct, but several indirect cases. Americans have done the right thing, and ended several bad legal institutions. They did this, despite entrenched special interest groups who were profiteering on it. And despite moralizers who gave it a veneer of goodness. I refer to slavery, Prohibition, and Jim Crow. Now it appears to be happening with right-to-try and marijuana. And behind those movements, gold legal tender is making its way through a growing number of states.

The fact is that the irredeemable dollar is not serving many people. More and more people realize it. With zero interest, it's impossible to save for retirement and it's impossible to live on one's savings in retirement. 

I can offer no guarantees, but I can offer some hope. As with Uber, people are excited by what we are offering at Monetary Metals--a yield on gold, paid in gold(R).

Best Regards,
(comments received 7-8-18)

Added note: This article is added to our Marketplace of Ideas for Monetary System Reform page. As far as I know, nothing else like this page exists where readers can look at a wide variety of ideas proposed for monetary system reform by various experts. Many of the articles include comments given for blog readers here directly from the experts involved. These experts are able to provide somewhat of an inside view that is hard to find in most regular media that I follow, so I collected them here on one page of the blog to make it easier for readers.

BIS Agustín Carstens - "My Message to Young People - Stop Trying to Create Money"

In this recent interview, the head of the Bank for International Settlements (Agustin Carstens) repeats that he sees no future for cryptocurrencies to be used as money. Below are some selected questions and answers from the interview.


Q: In the wrong hands, monetary policy can be something destructive?

A:  "That's also my view. Monetary policy determines the level of purchasing power, wealth and pensions. There's no disputing the fact that monetary policy can also have far-reaching social repercussions. In my experience, it is always the poorest who suffer the most from inflation. It is therefore the duty of central bankers to ensure that purchasing power is maintained. Moreover, there has to be a guarantee that money is able to fulfill its important role in the economic system and that monetary policy can help growth and income distribution."

Q: Don't you think it's a positive side effect that Bitcoin has got many young people thinking about money, money creation and the financial system?

A:  "Glance back into the past and you will see that creating gold or money from nothing has been a regular obsession. It never worked. Even the great physicist Isaac Newton was at one point in his life obsessed by alchemy and the idea of making gold. He was very successful in a number of fields, but in this one he failed. Newton ended up as head of the British Mint. Why? Because he could detect at once if a coin was counterfeit. After he failed in his attempt to make gold, he switched sides and sent counterfeiters to prison. So my message to young people would be: Stop trying to create money!"

Q: What's the main thrust of your argument?

A:  "Central banks are trusted, and that trust is something they have built up over decades and for which there is no substitute right now. Trust is a valuable commodity. It is easily destroyed, but winning it takes time. Money has become established. Young people should use their many talents and skills for innovation, not reinventing money. It's a fallacy to think money can be created from nothing."

Q: A well respected book about the BIS made reference to the "secret bank that rules  the world". How secret is your bank in actual fact?

A:  "Well, here you are sitting inside it, so - so much for secrecy! But seriously- We have made it our goal to present a more diverse and more human picture of the BIS - among other things, in our Annual Report and through our internet presence. We want to become more approachable. Much of what we do here is public. The bulk of our research, for instance, is public. Obviously, there are some activities, also discussions, which by their nature are subject to confidentiality. But I can assure you that such business is less exciting than some people imagine - and as for ruling the world: hardly! In two years' time, we'll be celebrating the 90th anniversary of the Bank's founding. We want to use the occasion to better explain what we do here and how important our activities are."

My added comments: During the time I have published this blog I have had some input from time to time from some well known BIS economists (off the record). The email exchanges have always been courteous and have answered the questions that I have asked. I get the monthly BIS newsletter and alerts which is available to anyone who asks for it.

BIS recently alerted me to this press release which asks if prolonged low interest rates may impact global financial stability. We have also documented numerous systemic risk warnings from the BIS (go here) over the years.

BIS and central bank critics will likely find this statement in the above interview ironic:

"It's a fallacy to think money can be created from nothing."

They of course believe that this is exactly what central banks do and that very belief is one of the reasons for various efforts to try and create alternative currencies and alternative monetary systems.

Sunday, July 15, 2018

Dr. Warren Coats - Shrinking the Fed Balance Sheet and The Chicago Plan

Dr. Warren Coats, former head of the SDR Divsion at the IMF, sent out this message by email today (7-14-18).

"This coming week Chairman Powell will testify on the Hill re the Fed’s new operating strategy and whether to shrink its balance sheet. It is a good time to raise the prospects of introducing the Chicago Plan (100% required reserves). I set out the case for doing so in the following article: A Proposal for the Fed's Balance Sheet"

Below are a few excerpts from the article just released.


"To save financial institutions from the collapse that threatened them after the bankruptcy of Lehman Brothers in September 2008, the Federal Reserve purchased government securities and Mortgage Backed Securities (MBS) sufficient to increase the size of its asset holdings from $0.9 trillion to $4.5 trillion by the end of 2014.  These large open market purchases were not meant to increase the money supply, the traditional purpose of such operations, which after a sharp drop followed by a sharp increase in the growth rate of broad money (M2) has grown at its historical average rate of around 6% per year. Rather they were to support the market prices of government debt and hard to price MBS in the face of market panic (at least initially).

The Fed accomplished this trick (large increase in the Fed’s asset holding with only modest increases in the money supply) by paying banks to keep the proceeds of their sales of securities to the Fed in deposits with the Fed, so called “reserves,” in excess of what is required, so called “excess reserves.”    . . . . .

My added comments: Dr. Coats points out in this article that bank lending based on the issuance of equity by the bank would shift the risk of defaults to stock holders and away from regular depositors.

"Adopting the Chicago Plan would prevent banks from on lending our checkable deposits.  At the moment they are not doing that anyway. This raises the question of where banks would get the funds (our savings) to on lend in their financial intermediary role?  In an extreme version of the Chicago Plan (100% required reserves against all deposits and deposit like bank liabilities) all bank lending would be financed by equity rather than debt.

. . . . . . 

Equity rather than debt financed bank intermediation is a more stable structure as a result of shifting the risk of loses (loan defaults) from banks to the ultimate public investors.  The Federal Deposit Insurance Company would stop insuring 100% reserved deposits and its bank resolution functions would be moved to the Office of the Comptroller of the Currency (OCC) in the U.S. Department of the Treasury."

Thursday, July 12, 2018

US - China Trade War - A Big Show or a Serious Threat to Stability?

With all the news coverage now being devoted to the apparent startup of a huge "trade war" between the US and China, we need to examine this situation to see if there really is a serious threat to the stability of the current global financial system and/or monetary system. That is what we try to do here.

First, below are a few excerpts from a recent article appearing in the South China Morning Post which pretty clearly lay out the position of those who oppose the Trump Administration's handling of this issue. Then some added comments.


"The fact that currencies continually fluctuate against each other in value means it is almost as meaningless trying to “balance” trade in value terms as it would be to insist that equivalent volumes of goods be traded.

This is not an attempt to embark on an economic dissertation, but to point out that under balanced or “managed” trade of the kind that United States President Donald Trump appears in intent on securing with his trade wars, the incentive to manipulate currency values to achieve balance can only increase."

. . . . . 

"Now, China has vaulted over Japan to become the world’s second largest economy behind the US, and again America finds itself unable to compete and get rid of its pesky trade deficits.

Enter Trump’s tariffs war.  . . . . "

. . . . .

"One way that Beijing could hit back is by dumping part of its US$1.2 trillion of US Treasury securities, and President Xi Jinping has hinted just such a tactic."

. . . . .

"But Xi may be playing a clever double game, since the resulting dollar depreciation would help boost the dollar value of US exports and thus provide a face-saving way of allowing Trump to go easy on China over deficits.

It all comes back to the futility of trying to balance external accounts. . . . ."

My added comments: As with most everything related to the Trump Administration we have to toss out the conventional wisdom in trying to analyze what is actually going on. This article in the South China Morning Post clearly attempts to paint President Trump as a naive rookie in terms of understanding a complex global economy to make the case that his attempts to use trade war tactics are a waste of time.

Supporters of President Trump will counter that he knows exactly what he is doing and is not naive. They will say he is using his unconventional "art of the deal" technique to extract better trade terms for the US and is actually fully supportive of "free trade" without tariffs.

By now, we should all be used to the fact that President Trump is not going to operate according to traditionally accepted norms of behavior and has no problems trying new approaches to what he views as old continuing problems that no one else would solve and have been left for him to deal with. Disruption of the norm does not bother him.

So, all this raises a few questions that we should think about in terms of where all this is headed and does it pose a systemic risk to stability of the current financial and monetary system. Below I will try to raise those questions and provide the best answer I can based on the information we have available at this time (my best guess). Reader and expert comments are certainly welcome on this.

Q: Will there really be a serious long term trade war between the US and China or are we just seeing a lot of manuevering by both sides leading up to a new trade deal?

A: It is clear that President Trump believes all this is simply pre deal positioning. We know this because he has stated it clearly in various interviews. What is less clear is whether China views things the same way. We won't know the full answer until it plays out and we either get a massive ongoing full blown trade war or both sides simply negotiate some kind of new deal.

Q: Is the Trump Administration naive and ill informed about the way the global financial system works as is claimed in the South China Morning Post article?

A: I doubt it. While President Trump himself may not be informed on some nuances of how things work, there are plenty of people in his Administration who would fully understand the points made in the SCMP article. It is more likely that they simply believe that they can use brute force to alter the playing field more in favor of the US and don't believe that the potential problems described in the article will ever really happen because a new deal will be agreed upon before that happens. Again, only time will tell us if that attitude is correct or not now that the opening battle of the trade war has begun.

Q: Will this situation lead to the following consequences mentioned in the SCMP article -- trade wars >>>> economic recession>>>>depression>>>>real wars?

A: We can't rule out anything as impossible. But readers need to understand that politics and rhetorical hyperbole are rampant these days from all ends of the political spectrum. Special interests do a lot of public polling and know what issues and key rhetorical phrases get people stirred up. Both sides of the political spectrum will try to use this information to gain political advantage. So, it is almost impossible for the average person to distinguish between what is a true serious threat from hyperbole being used in an attempt to manipulate public opinion. All we can do is keep alert to actual events and watch for signals that would indicate serious actual threats are in play.

Q: What signals can we watch to see if some kine of serious threat to systemic stability is in play?

A: For me, there are three important signals to monitor. 

1- US and other major global equity markets
2- the US dollar index 
3- the price of gold

If we see red flags going up on all three of these signals, it should have our full attention. 

If we see:

1- equity markets diving sharply and far beyond normal corrections (much more than just 10-15% pullbacks)

2- a sharply falling US dollar (or conversely a US dollar moving way too high)     and

3- a sharply rising gold price (beyond normal market moves)

we have real world signals that systemic stability may be at risk.

Another signal that might be a leading indicator to these three would be one or more major financial institutions becoming insolvent very rapidly and unexpectedly. If this were to set off a chain of derivatives defaults, things could escalate pretty quickly and trigger the reg flags in our list just above.

However, my best guess at this time is that until we see these markets giving off these kinds of red flags, there is no reason to think that there is a serious threat to the stability of the present system. We can assume that a lot of hyperbole and dire rhetoric will continue to unfold as different interests (and nations) attempt to gain an advantage. 

But if the markets continue to yawn, it is a good indication that they just see it as political noise, business as usual and that the players involved accept this is as just the "art of the deal" being applied by the Trump Administration. Mohamed El-Erian seems inclined to take this view of things in this CNBC article.

On the other hand, if we see the red flags show up for real in the markets listed above, it will be pretty obvious that a genuine systemic threat may exist. Jim Rickards has just released this new article that says pending legislation before Congress increasing US power to sanction China could in fact trigger a severe negative market reaction, so we can keep an eye on that.

Only time tells us the answer and we will have to monitor events for ourselves in a highly charged political climate.

Added footnotes: I need to add that there are analysts who believe that the markets I have listed above are so heavily manipulated by things like central bank intervention (QE, low interest rates, etc), that the normal red flags or warnings we should see ahead of a major crisis are being hidden or suppressed in order to create a false sense of stability.

I have no way to assess how valid that may be, but let's allow it as a valid assumption for this part of the discussion. If this is true, so long as the relative stability of these markets is maintained (no matter what is causing it), it means that control of the existing system is being maintained. It would not be possible to manipulate prices if control over them was lost assuming central banks even have the power and resources to do that for years at a time. So, I believe my analysis is still valid even granting that assumption. If we see these major markets spinning out of control, it implies that any ability to stabilize the system using any form of manipulation is no longer working by anyone trying to do so. 

Going even further, if you take the view that stability of the existing system might be given up intentionally (as some people do believe) in order to allow the existing system to fail and be replaced with something new (for example the US dollar replaced by the SDR), you would still see the distress of the existing system show up in these market red flags and would need to try and take whatever personal actions you can to weather the storm (no matter what caused the storm). By no means am I suggesting this assumption is true. I have no way to know and have received no expert input that would indicate this is the situation. But I do understand there are some who do believe this to be the case.

The question of who is to blame for the next major global crisis if we have one is really another topic. The public will decide who is to blame and who they think they should trust to try and solve the crisis if one does arrive some day. I do think the better informed the public is, the better off we would be in such a circumstance. 

All that is far beyond the scope of our ability here to discern. What we try to do here is provide high quality information to help people understand these issues better if they have interest in dong so. That involves understanding what are the true systemic risks to the present system as well as proposed reforms to the present system that may be put forward to resolve a crisis and restore public trust. If no crisis arrives, it involves understanding that the current US dollar based system is very firmly entrenched for now and likely to stay in place for some time. Change would take place more gradually.

We have tried to document all of that here in great detail based upon extensive research and direct input from some of the leading experts in the world on these issues. We have attempted to do this with no agenda of any kind other than trying to provide useful information and a variety of credible views from highly credible sources. I am very grateful to those sources who have helped me with direct input and pointed me to key resources. They have helped create a wealth of valuable information that is now archived here on this blog. I encourage readers to utilize the information to become as informed as possible.

All the information here is free and will remain online for anyone who can use it and I will continue to add information if I think it can be of service to anyone who happens upon this blog. Relevant questions and comments are always welcome.

Wednesday, July 11, 2018

News Note ---- Bloomberg: China's Silk Road Isn't So Smooth

A lot has been written about the Belt and Road Initiative coming from China. Some observers have said this is the visible proof that China is on a path to surpass the US. In this opinion article appearing on Bloomberg, the author suggests that things are not going as smoothly for China as it would have hoped. Below are a couple of excerpts.

"You may not have noticed, what with the outbreak of trade war with the U.S. and all, but China’s economic diplomacy has had a bad few weeks. The country’s flagship Belt and Road Initiative is dealing with ever-greater resistance, slowing a momentum that once seemed unstoppable. In fact, I’d argue that the BRI is stalled."

. . . . .

"When the Belt and Road was first announced, it must have felt like a gift from heaven for embattled governments trying to raise money for the infrastructure their voters wanted. But, the truth is that China’s cash came with onerous conditions  high interest rates, procurement guarantees for Chinese companies, imported workers. Nor was China really prepared for the hurdles faced by big-ticket investments in countries with messy, more accountable politics."

Saturday, July 7, 2018

Jim Rickards: The Global Monetary Reset is Already Underway?

Jim Rickards has released a new article (featured here on Goldcore) that is now available in the public domain. In this article he suggests that the global monetary reset (GMR) that so many people have watched for is actually already underway now.  Of course we also watch for that here on this blog so this article gets our attention.

He supports this surprising observation by taking a deep dive into the world of cross rates between currencies including the exchange rate between gold and SDR's. Jim states that only recently has he thought about the significance of the exchange rate between gold and the SDR so this is a new take on things.

Below are a few excerpts from the article followed by a quote from Jim Rickards that he provided for readers here regarding the information in his new article.


This may be the most important commentary I’ve ever written. Here’s why.

"For years, financial analysts have discussed what’s called the Global Monetary Reset, or GMR. Expectations of a GMR stem from the fact that monetary policies around the world are unstable and unsustainable.

There is no anchor to the system. There is no limit on money printing. There is no limit on debt creation.

Such a system grows exponentially based on the false belief that governments can spend as much as they want and central banks will pick up the tab or bail out the system as needed.

Politicians love the system because they can buy votes from their citizens. Central bankers love the system because of the power and prestige it brings them. Citizens love the system because they get handouts, bailouts, pumped-up asset values and other goodies seemingly for free."

What’s not to like?

The problem, of course, is that the system is unstable and unsustainable.  . . . ."

. . . . . .

"What if I told you the GMR already happened and no one noticed?"


My added comments: Before I decided to feature this article, I reached out to Jim Rickards to make sure he was OK with featuring it on a public forum since this article first appeared in a newsletter to his paid subscribers. Jim gave permission to feature it and also provided an additional quote to include with this article for readers here:

"The evidence for a new gold standard pegged at SDR900 = one ounce of gold is compelling. However, this standard is new and informal and bears watching.  Further research is needed before reaching definitive conclusions. This standard itself could be abandoned by the sponsors if it proves unworkable in the future."  ---  Jim Rickards (7-3-2018)

The article is a pretty detailed deep dive into currency exchange rates that ends up pointing out that there is some evidence that gold has now been "pegged" to the SDR as follows:

"In short, world money has now been pegged to gold at a rate of SDR900 = 1 ounce of gold. It’s a new gold standard using the IMF’s world money."

Readers here will want to read this article to see how Jim supports this conclusion, keeping in mind the quote he provided us just above. This is a new take on things that Jim says only recently came to his attention based on some research he received from a source in Switzerland. 

If this pans out, it is a situation we will need to follow over time since Jim believes this could be a "clear short-run signal that China is betting on the SDR and gold, not the yuan or the dollar." 

Added notes: Jim mentions in the article that he will delve deeper into all this in a new book to be release this October. The title is -- Aftermath   (see info on that book here)

Jim has also released two new articles on what he sees as a building new crisis related to the US dollar and emerging markets.

Additional added notes 7-8-18: This article by Jim has stirred up more reader interest than anything I have seen for some time (pro and con). There is clearly a lot of interest in the possibility that some kind of peg may in place between the SDR and gold and that China could be involved in that process. 

I have also heard from a variety of experts on other issues mentioned in Jim's original article. For example, one expert pointed out to me that for the IMF to issue trillions of new SDRs, an 85% vote of the IMF members would be required (with the US holding the veto power of a 16.52% vote). So we need to keep that point in mind. Another expert wondered how the SDR/gold peg is able to be maintained over a long period of time. Another reader forwarded me a link to this article which looks at Jim's article and asks if China may be pegging their own currency (the yuan) to gold?  

My view on all this reaction is that it is a good thing. Most people have never heard of an SDR or know anything at all about it. Yet, understanding it better is something I believe is important. Articles like this one from Jim attract interest from the average person like myself to learn more which is a good thing. I'll add that Jim Rickards has probably raised more awareness that the SDR exists and prompted more curiosity about it than anyone else who talks about these issues because he reaches such a large audience. I first learned about the SDR from his articles and interviews; as well as how to research it to learn more about it. He also answers any questions I may have by email without asking for anything in return. All that is much appreciated here.