Friday, August 23, 2019

The Economist Ponders What Will Come After the Present Monetary System

It seems that the primary focus of this blog, watching for major changes in the present monetary system, is no longer just a non mainsream media activity. The very mainstream Economist runs this article wondering how much longer the present system can hold together and what is going to eventually replace it. Below are a couple of excerpts and then some added comments.


History repeats

"A minimally disruptive end to Bretton Woods II remains within the realms of possibility. Its fate might resemble that of Bretton Woods I, especially if Mr Trump loses office in 2020. Democrats are more economically nationalistic than they used to be, but still mindful of the value of global co-operation. President Bernie Sanders or Elizabeth Warren might seek a one-off depreciation of the dollar while recommitting America to a rules-based system of global trade. A recession in China could scare its leadership into offering concessions on trade that America would accept.

But the experience of the 1930s may prove a more apt guide. In the absence of a co-ordinated adjustment to exchange rates and a peaceful end to trade hostilities, the world could stumble into a cycle of competitive devaluations and tariff rises. As trading relationships unravel, countries may organise themselves into rival economic blocs. It is hard to imagine the world repeating such an ugly era of history. But not as hard as it used to be."

My added comments: I am struck by how much the last paragraph quoted above sounds like something Jim Rickards would say. If you have followed these issues for a long time, you realize that the world is simply moving in an unpredictable fashion in ways that what we might call "the establishment" never likely imagined possible not too long ago.

The political landscape has been significantly altered in the last 3-4 years such that it now seems more likely that the world is moving in this direction stated in the article above:

"In the absence of a co-ordinated adjustment to exchange rates and a peaceful end to trade hostilities, the world could stumble into a cycle of competitive devaluations and tariff rises. As trading relationships unravel, countries may organise themselves into rival economic blocs."

A few years back we talked about this being one of the very real potential outcomes back in a time when many were expecting some kind of a new one world global currency issued by some kind of global central bank to be the future. Now, that seems like a very remote possibility any time soon as achieving any kind of political consensus nationally or globally has disappeared.  

As hard as we try to stay out of any political discussions here, we have to admit that political agendas are clearly driving the world forward. Using the US as a major example, it seems clear that US voters are going to be offered a choice to continue on with President Trump or move hard left to a very different kind of more socialistic economic agenda that is now controlling the Democratic Party. The idea that somehow these opposing forces will join together in some kind of middle of the road compromise seems completely unrealistic. No matter who wins the next election, the US is badly divided politically and that is not going to change.

So, in attempting to provide an analysis for readers here, what should we watch for heading into the 2020 elections which are obviously going to suck all the oxygen out of the room from now until they are over. Here are some thoughts:

1- The most important factor to watch closely is the health of the economy, period. This is most likely going to be the biggest factor in determining the outcome of this election which will then determine what happens going forward in the economy and eventually our monetary system. 

2- If there is an economic downturn, how severe will it be? This is the huge question in my mind. Continued growth (even mild growth) will most likely favor President Trump because most people are not anxious to roll the dice on major change so long as things seem reasonably stable. Even a mild recession may not have much impact. But if we get another big crisis (like the 2008-2009 GFC), the door opens wide for all kinds of unpredictable election outcomes. To me, it's a fairly simple analysis. Who will the majority of the voting public trust if we get "the big one" between now and November 2020?

 a) President Trump? - We know his loyal base will stick with him and will simply ignore any effort to blame him for any crisis as a "deep state" project to get rid of him. Trump will clearly blame the Federal Reserve and probably even call for major reform of it if we get a huge crisis (see this article - Former Fed Pres fires back). His followers will accept that as most of them already distrust central banks. They will believe him over his opponents without any doubt. But how big will that loyal base be and will it include enough independents to insure his re election? Maybe. I don't know. We'll see.

b) The Democratic Opposition to President Trump? - We know the loyal base of voters on this side will blame President Trump for any economic crisis period. They will say that the global economic order which they will say has built global prosperity for decades was ruined by President Trump's sanctions, tariffs, and trade wars. The more progressive wing of the party will probably say the major crisis proves capitalism has failed and now socialist style policies are required to solve the problem. Can they convince enough of the people "in the middle" that Trump is to blame to get him out of office?  Maybe. I don't know. We'll see.

In my mind, the above is pretty easy to predict if you are paying any attention at all to what is going on politically in the US and around the world for that matter.

In my view, what is missing from this shallow "debate" (that actually is just an effort on each side to divert blame to the other side to gain political advantage from any crisis that arises) is the transparent telling of the truth to the general public. Really, until that happens, it seems very unlikely that any kind of reasonable consensus to fix the problems in the present system can ever happen. 

Unfortunately, it seems that a transparent telling of the truth is viewed as political suicide by the leaders on all sides of the debate so it just is not going to happen. We have wanted to create the impression for a long time that we can go on forever by expanding an economy based on explosive ongoing debt creation with no long term consequences. We have somehow convinced ourselves that if a major problem does arise, we can just print our way out of it and keep stumbling forward. If trillions won't cover up the problem, I guess the thinking is that we just move on to quadrillions. It never matters how big the debts get so long as we can pay the interest, right? So long as the US can create unlimited amounts of "the global reserve currency", all is good, right?

So far, that has been right so no one wants to rock the boat and suggest this might not be sustainable forever. That's political suicide, right?

I honestly hope it somehow could be right. So long as everyone just keeps pretending no amount of additional creation of money and debt will ever matter, I guess the game can just keep rolling along. Right?

But, we are beyond foolish if we don't ask ourselves these honest questions:

What if some day people don't keep believing? What if markets don't keep believing? What if we finally do cross the threshold where all confidence and trust in the system is lost? What if central banks lose all credibility with the public as they create trillions in new money and push for negative interest rates around the world? Nothing to worry about and everything is great, right?

We have to ask these questions because it is clear that our leaders on both sides of the political aisle will not ask them, because it is political suicide to ask them. They are trapped into perpetuating a system that everyone instinctively knows is NOT sustainable, but we we just cannot afford to acknowledge that fact because the ramifications are so serious and troubling. We all have to hope they can just keep kicking the can down the road forever and it is now pretty clear that is the only plan of operation left for the present system. Even The Economist runs an article saying the present monetary system is breaking down.

So, our job here is to monitor what really does happen with no political spin if possible. We must ask people to raise these kinds of honest questions and also to think about what they should do to try and prepare if some day this current system just cannot continue to function for any reason. There are two levels to this to think about:

1- The Macro Level - what will the US and the world do to fix things if the present system does go under at some point? We have devoted literally years here trying to research that and provide some ideas and concepts that many very bright people have suggested. You can look over those ideas on this page of the blog. New ideas are always welcome and I appreciate it when readers point me to them. The more you study various ideas, the better you can voice an informed opinion on what should happen if the present system does indeed fully "break down".

2- The Personal Level - what can I do for myself and my family to try and weather the storm if we do get "the big one" some day? - We have tried to offer suggestions here realizing that every situation is unique and there is no one size fits all answer to this problem. But simple common sense says that everyone should try to the extent they can to have some kind of emergency savings that is diverse as they can make it. Some kind of emergency cash reserve. If possible, a portion of that held in physical precious metals that might be usable if the local national currency fails completely where you happen to live. Don't tell me it can't happen because it already has in some places in the world and everyone who talks about money in any way always lists trust in it as the most critical aspect money must have going for it. 

Beyond this, all we can do is try to stay as informed as we can and monitor what actually happens. At the end of the day, what actually happens is what matters, not what someone believes is going to happen (or thinks cannot possibly happen). This blog has been devoted to trying to research these issues honestly, look for creative ideas and proposals that have been put forward to try and improve things, and to offer the best analysis we can based on the information we have. That will continue to be the goal here so long as I am able to produce articles for this blog. 

Added notes: Here is an interesting article that is somewhat along the same lines as this blog post which may be of interest.

Added 3pm (CST): And now Mark Carney (BOE) joins the chorus saying that the current US dollar based system "won't hold".  Here is an excerpt from a Reuters article quoting him at Jackson Hole Wyoming:

“Even a passing acquaintance with monetary history suggests that this centre won’t hold,” Carney said. “We need to recognise the short, medium and long-term challenges this system creates for the institutional frameworks and conduct of monetary policy across the world.”

Here is the full text of the speech by Mark Carney at Jackson Hole calling for major changes in the present monetary system. 

Tuesday, August 20, 2019

BIS Newsletter for August 2019 - G7 Working Group on Stablecoins Article

The monthly BIS Newsletter is just below. One article that stands out for me is the one about the G7 working group on stable coins (see some excerpts further below).


August 2019

Group of Seven update on stablecoins

A G7 working group has discussed stablecoin initiatives and identified key issues to be resolved, says Benoît Cœuré, Chair of the Committee on Payments and Market Infrastructures. A full report will be produced in October.

Margin requirements for non-centrally cleared derivatives

The Basel Committee and the International Organization of Securities Commissions extend the implementation of margin requirements for non-centrally cleared derivatives by one year.

Alexandre Tombini to join the BIS

The former Governor of the Central Bank of Brazil will start in his new position as Chief Representative for the Americas on 1 September 2019.

Stronger international bank lending

Global cross-border bank claims posted their largest quarterly increase since 2007 in the first quarter of 2019, boosting annual growth to 4.5%.

William Coen reflects on his years at the Basel Committee

William Coen recently left his job as Secretary General of the Basel Committee on Banking Supervision. In this episode of BISness, he looks back at his years at the helm of the global standard setter for the prudential regulation of banks.

"Within many countries, existing payment systems generally provide for accessible, safe and efficient retail payments for consumers. Nevertheless, access to payment services needs to improve in many regions, and cross-border payments ought to be faster and cheaper. New technologies have the potential to address these shortcomings and deliver greater benefits to users.
Originally envisioned as an accessible and borderless way to pay, crypto-assets have generally suffered from severe price volatility and limited capacity to process transactions compared with existing arrangements. Consequently, they function primarily as risky investments or a shadowy means to pay, and have not achieved a scale that could entail a material imprint on the payments and financial system.
The developers of the crypto-assets labelled "stablecoins" seek to reduce volatility by anchoring the "coin" to a reference asset (eg a sovereign currency) or a basket of assets. While issuance and usage of stablecoins to date have been limited, a number of new stablecoin initiatives backed by large technology companies or financial institutions could have the potential for widespread adoption."
. . . .
"Significant work by stablecoin developers and further engagement with the public and authorities will be required before they can expect approval by relevant authorities, as the above considerations can only be adequately addressed by ensuring transparency and making more detailed information available for proper assessment."

Thursday, August 15, 2019

BRICS Pay - Another Effort to Bypass the US Dollar

A thank you to a reader for alerting me to this article on that explains the new cloud based BRICSPay system. The article points out that this system being installed for use in the BRICS nations is another effort to bypass both the US dollar and also the US banking system. 

Below are a few excerpts from the article followed by a few added comments.

"The BRICS grouping of countries, Brazil, Russia, India, China and South Africa are creating a single payment system, BRICS Pay, as part of the drive to establish a common system for retail payments and transactions between the member countries.

These nations, all among the worlds leading and most powerful emerging markets, plan to introduce a special cloud platform, which will connect their national payment systems. An online wallet will be developed with access to these payment systems, which will also include mobile apps similar to Apple Pay, which can be installed on smartphones for purchases in any of the five BRICS countries, regardless of which currency the payment and the money in the account of the buyer are denominated in.

This means that nationals of Brazil, Russia, India, China and South Africa will be able to use their own national currencies as a direct basis of exchange for external payments. This is being seen as a major step on the path to de-dollarization and a de-coupling from the current US controlled global banking system."

. . . .

"In order for settlements in national currencies to bypass the dollar, the People’s Bank of China will open lines for currency swaps to partner banks to support the exchange trade in yuan in regional currency markets. Similar lines will be opened by the central banks of Brazil, Russia, India and South Africa. In these instances, a settlement mechanism based on a basket of currencies of the BRICS countries and a separate financial infrastructure will appear. This, in turn, will support the diversification of the global financial system and currency multi-polarity. BRICS Pay, as a contactless transfer system, will give the citizens of the BRICS countries a convenient means of conducting transactions."

My added comments: The use of sanctions by the US government has created a predictable response around the world. Nations wary of get caught up in the problems associated with US sanctions are working an a variety of creative ideas to try and bypass the US centered banking system and the US Dollar.

The process so far has been very slow and gradual, but we do see that it continues to grow and there is no reason to think it will not continue to do so. We continue to monitor these kinds of efforts and report on them when information is available.

Added notes 8-23-19: Russia's Rosneft to switch from US dollars to Euros for oil contracts.

"Russia’s Rosneft (ROSN.MM), one of the world’s top oil producers and exporters, has notified customers that future tender contracts for oil products will be denominated in euros not dollars, five trading sources told Reuters."

Also, The Economist runs an article questioning what will come after Bretton Woods II which we covered here.

Tuesday, August 13, 2019

News Note: Followup on Potential for Global Monetary Conference?

Earlier, we posted this article which examined some discussion about the potential for some kind of global monetary conference to take place at some point during the Trump Adminstration. This news note is a brief followup related to that based a new twitter comment appearing on the Twitter feed for Dr. Judy Shelton. Below are the relevant links for readers to look at in regards to this topic.


"Enjoyed reading Barry’s commentary
and appreciate that found it interesting. But on what grounds does Barry assume President Trump would never propose an international conference to discuss monetary arrangements? He is unique in addressing the problem, no?"

She appears to be commenting on this recent article appearing on Project Syndicate by Barry Eichengreen. In that article, Mr. Eichengreen includes this comment:

"Consider Shelton’s call last year for a new Bretton Woods system. The goal, as she described it, would be to establish a “coherent mechanism for maintaining exchange-rate stability among national currencies,” the same goal as the one that was set at the original 1944 Bretton Woods Conference.

But in the absence of a global conference – something that would be anathema to Trump – the way to get there is the same as under the nineteenth-century gold standard. Then, the leading power, Great Britain, unilaterally fixed the domestic currency price of gold. . . . "

So, here again, we seem to have a somewhat cryptic reference to the potential for some kind of global monetary conference at some point in the future under the Trump Administration (although Barry Eichengreen dismisses that as "something that would be anathema to Trump").

All we can do is to continue to monitor events to see what actually does happen and then report on it. Of course, if some day there is a global monetary conference conducted by the Trump Administration (at Mar a Lago or anywhere else), that will be very big news of the kind we do watch for here. Until it happens, we can only assume it remains just speculation of something that could potentially take place.

Other news note: The price of gold continues to surge and that is another thing we do monitor here. There are a variety of possible reasons why the recent upsurge has taken place, but Jim Rickards offers this potential geo political situation as something to keep an eye on in this recent comment on his Twitter feed

Monday, August 12, 2019

Facebook Libra Vs. Central Banks Followup

Recently we published this article that asked if in the future will see a scenario we might describe as "Facebook Libra vs. Central Banks". It appears we are not the only ones to ask this question. In this recent video, precious metals (and crypto) advocate Mike Maloney also looks at this question. You can watch it just below if interested in this topic.


My added comments: One thing is for sure. The announcement of Facebook Libra has immediately gotten the attention of central bankers and government officials around the world. Below are links to some of that reaction:

Saturday, August 3, 2019

Off Topic Note to Readers on Family Health Situation

My goal here is to try and stay up with current events as much as possible to be able to report anything that might be important related to the theme of this blog. A health issue in my family may make this more difficult so I wanted to alert readers to that, if fewer articles are written in the coming weeks. 

My brother has now entered the more difficult phase of liver disease (non alcoholic related) where more serious symptoms can arise. Ultimately, he will need a liver transplant or some kind of new treatment (stem cell, etc) to resolve the problem. 

In recent weeks, he has been struggling with elevated levels of ammonia in his blood that cause significant mental confusion and disorientation when the levels get too high. This is a very unsettling situation because during these episodes he can lose complete mental cognition to the point where he does not know who even his close relatives are (this recently happened to me during one episode). I am learning that this is a common problem for people with liver disease, and that there is no real solution to the risk of the problem arising other than to take a medication designed to bind to the ammonia and get it out of his system. Everyone reacts differently to the medication such that on some days it works well and on other days it may not work as well. This creates an ongoing situation where at any time he can lose mental clarity and become disoriented. The problem can't be solved permanently unless he gets a liver transplant or some other treatment that can heal his liver (not a likely alternative at this time). This will require somewhat of a joint family effort to monitor him daily, help him go to doctor visits, and perform other activities. 

It's possible some readers may want to know if there is something they can do to help. The answer is yes. There are two possible ways to help which I will try to describe below:

1- Help us let people know there is a website where people can sign up to be a living liver donor here:

We understand it is not likely that most people would be able to do something like this, but there may be some people who have interest in it. If so, and they wanted to look into this for my brother, they can email me at -

and I can explain how to fill out the form on the web site above. The site requires that potential donors be below age 50 and have a BMI of 30 or less to start an application. Of course, no one should feel obligated to do something like this in any way. Our family decided that it would be better to let as many people as possible know about the site, in case someone was interested.

2- This is the area where it is more likely someone might be able to help us out. The potential for this situation to become a severe financial strain is pretty high. Depending on what happens in the next few weeks and months, it's possible my brother may need to try and seek out some financial assistance if some is available anywhere. He may be able to qualify for some level of disability income, but that will not be enough to sustain the situation if his condition lingers for many months.  This is very possible because getting on the transplant list can take a long time. If he were to lose his health insurance during that time, things will get even more difficult and problematic.  Our extended family can help some, but not for a sustained period of time lasting many months or possibly years on the waiting list.

So, the way anyone can help us is to let us know if you are aware of any programs, charities, etc. that might help provide some financial assistance to people in this kind of situation. Our family has never needed anything like that before, so we are somewhat ignorant of what may be available. If anyone does know of anything like that, you can email me at the email address above. We certainly will appreciate any tips or leads.

Final comments:

Please do not view this as any kind of effort to make anyone feel any kind of obligation. The odds of anyone being able to do anything listed above are pretty slim and we fully understand that. We know that many people will kindly think of us with compassion, offer prayers, etc. and that is more than enough help if you are able to do that. Please know that those sentiments are greatly appreciated and are helpful in ways you won't really ever fully know. 

This situation may impede my ability at times to stay tuned to current events as closely as I would like and to provide timely articles. We don't really know for sure what is ahead. But I did want to let readers know about this situation, in case articles appear less frequently in the weeks and months ahead.

Thursday, August 1, 2019

JP Morgan: Is The Dollar's Exorbitant Priviledge Coming to an End?

Lately we are seeing a lot of different voices speaking up to suggest the the current US dollar based monetary system may be on the verge of a "paradigm shift" or "reset" or whatever term you prefer to suggest things may be starting to change. Now JP Morgan is out with a new article adding their voice to the growing chorus. 

Since this blog watches for any indications of reset of the present monetary system, seeing JP Morgan talk about things we have talked about here for years gets our attention. Below are some excerpts from the article titled - "Is the Dollar's Exorbitant Priviledge Coming to and End?" After that are a few added comments.


Is the Dollar's Exorbitant Priviledge Coming to an End?

"The U.S. dollar (USD) has been the world’s dominant reserve currency for almost a century. As such, many investors today, even outside the United States, have built and become comfortable with sizable USD overweights in their portfolios. However, we believe the dollar could lose its status as the world’s dominant currency (which could see it depreciate over the medium term) due to structural reasons as well as cyclical impediments.

As such, diversifying dollar exposure by placing a higher weighting on other currencies in developed markets and in Asia, as well as precious metals makes sense today.    . . . ."

. . . .

"In other words, in the coming decades we think the world economy will transition from U.S. and USD dominance toward a system where Asia wields greater power. In currency space, this means the USD will likely lose value compared to a basket of other currencies, including precious commodities like gold.

Recent data on currency reserve holdings among global central banks suggests this shift may already be under way.  As a share of overall central bank reserves, the USD’s role has been declining ever since the Great Recession . The most recent central bank reserve flow data also suggests that for the first time since the euro’s introduction in 1999, central banks simultaneously sold dollars and bought euros.  

Central banks across the globe are also adding to gold reserves at their strongest pace on record. 2018 saw the strongest demand for gold from central banks since 1971 and a rolling four-quarter sum of gold purchases is the strongest on record. To us, this makes sense: gold is a stable source of value with thousands of years of trust among humans supporting it."

My added comments: This article from JP Morgan basically says what we have been saying here for a long time. I suspect that many of the experts we have covered here that are predicting an end to present monetary system based on the US dollar will find it interesting to see JP Morgan now talking about that very thing. Also, it seems that suddenly gold is not a useless relic of the past in the eyes of JP Morgan since they directly recommend their clients add gold to their investment portfolio in this article (they appear to suggest a 10% allocation to gold related investments):

"Given the persistent—and rising—deficits in the United States (in both fiscal and trade), we believe the U.S. dollar could become vulnerable to a loss of value relative to a more diversified basket of currencies, including gold. As we scan client portfolios, we see that many of them have far more U.S. dollar exposure than we feel is prudent. At this stage of the economic cycle, we believe this exposure should be more diversified. In many cases, our recommendation would likely be to place a higher weighting on other G10 currencies, currencies in Asia and gold (see chart). Talk to your J.P. Morgan Advisor to review your portfolio, and for more information on how to diversify." 

Added note for a related article: The South China Morning Post  runs an article titled ----China has 'price to pay' for Cutting US Dollar share of reserves . . . .

Quotes from the article:

“There is no alternative market that can offer China the ease and safety in trading that is as deep and broad as the US dollar market,” Ding said.

. . . .

Safe, an arm of the central bank that reports directly to China’s top leadership, highlighted in its annual report two main strategies used to manage the country’s reserves.

One is “diversification” of assets into multiple currencies, resulting in the sharp decline reliance on US dollar-denominated assets. . . ."