Wednesday, July 29, 2020

2020 Mid Year and Pre Election Analysis on the Status of Major Monetary System Change

We are now past the mid way point of 2020 and just a few months away from the US elections. Our goal here to monitor events and attempt to identify any trends that may lead to major changes in our present monetary system. So, it's time to offer up a mid year and pre-election analysis to try and assess where things stand. 

The analysis below is based on my best efforts to monitor current events from both mainstream and alternative media and from input from experts that I get from time to time that I view as highly credible. I'll use a Q&A type format.

Q: What are chances we will see any major changes to our present monetary system before the upcoming US elections?

A: I believe the odds are slim that we will see major changes before the elections. Unless some kind of major systemic collapse took place literally forcing major changes to take place urgently, we are unlikely to see much change from what we see right now. We are already in the middle of a major financial and economic disruption due to the earlier shut down of the US and global economy. At this point, it is crystal clear that the same tools that have been used since the 2008 crisis will just continue to be employed in an effort to stave off a major recession or depression event. As we see every day, unlimited monetary liquidity will be used to try and at least get through the upcoming election cycle. There is no reason to think that will change unless some kind of uncontrolled event forces things to change from that path.

Q: Ok, what about after the elections?

A:  Surprisingly, I also don't expect to see major changes to the existing monetary system any time soon after the upcoming elections. This is why. No matter who wins this election, there will be hesitation to move away from the existing US dollar based system as currently administered by the US Treasury and the Federal Reserve. While we may certainly see vastly different fiscal policies and other significant changes depending upon who wins, there is no reason at this time to think that either side is in a hurry to do away with a system based on the US using its exorbitant privilege from the US dollar to maintain global economic power.

Q: What do you base that statement on?

A:  The US is able to wield substantial power globally using the present system. There is no reason at this time to think that the US will want to disrupt that system so long as they can continue to keep it alive. That should be pretty clear by now. The US has now had two golden opportunities (the 2008 GFC and now the current crisis) to pro actively push for a some kind of major change to the monetary system. I believe if that were going to happen, we would have seen it happen by now already. Instead, it appears that it will take some kind of outside force to prompt any major changes. We know that many countries (led by China and Russia) would love to see the present US dollar based system replaced with something else that denies the US its exorbitant privilege. That has been true for a long time and yet we have seen no such change take place. And most analysts continue to say they don't see anything replacing the US dollar any time soon, including those from Russia and China. The best speculation I would offer at this time is that the US will continue to try and preserve the current system as long as they can, or saying it differently, until they can't.

Q: Would there by any difference on this issue if Trump wins or if Biden wins?

A: It's possible that a Biden Administration would be more open to some changes to the monetary system quicker than a Trump Administration would be. However, there was no urgency for any such change during the Obama Administration when Joe Biden was Vice President. It is true that that the support base of the Democratic Party is much more progressively left now and we can expect that a number of progressive economic policies would emerge in a Biden Administration. It is less clear that one of those policies would be a major push to move away from the present US dollar based system. The proponents of Modern Monetary Theory don't suggest anything other than the US dollar would be part of their policy proposals. Basically, they want economic policies similar to what we are seeing right now in response to the virus pandemic to greatly expand and some different priorities for where the money goes. We are already doing that now under the Trump Administration, just  not they same way the progressives would do it. My best guess at this time is that either a Trump or a Biden Administration would try to hold on to the present US dollar based system as long they could. The current trajectory of the US debt along with the current ongoing massive expansion of the balance sheet at the Fed suggest that we are likely to arrive at a point in the future where they simply cannot continue to sustain the present system. The only difference perhaps being the speed at which we arrive at that point in time. It does not appear that anyone in either political party intends to even address this issue at all until forced to do so.

Q: So, what differences would there be if events unfolded that forced the present system to change?

A: That is where we are more likely to see some bigger differences in my view. In a Trump Administration, we can reasonably expect that some kind of 'America First' policy would be implemented. The primary goal would be to protect the specific interests of US citizens and the US interest as a nation in whatever policy was adopted to deal with monetary system change. In a Biden Administration, it is reasonable to expect that a more 'globalist' approach would be taken. A Biden Administration is more likely to reach out to global institutions such as the The World Bank, the IMF, and the UN. I'll try to illustrate the potential difference with an example. If the present system failed and a global monetary conference were held (a new Bretton Woods let's say), we would expect such a conference to by US led and with a priority towards support of US interests in a Trump Administration. Such a conference in a Biden Administration would be more likely to be led and directed by the IMF with the US more just a participant than the leader and more willing to compromise on protecting strictly US interests. We can use the climate change issue as a kind of example. Under the Obama Administration, the US agreed to the Paris Agreement on climate change. President Trump pulled the US out of that agreement believing it was not in the best interests of the US or was unfairly weighted against the US in its implementation procedures. It's reasonable to expect a similar kind of difference in approach if any global monetary conference were held in the future to deal with a failed monetary system.

Q: What is your opinion as to how all this will turn out?

A: My opinion is that it is unlikely we will see any major changes before the US elections as this issue is not on the radar for either side at all. So, they won't even talk about it unless some kind of major crisis collapsed the present system ahead the election and they were forced to deal with it. At some point in the future (timing unknown to me), I believe the present system will fail due to loss of credibility in the markets in the value of the US dollar and US dollar denominated assets. When that day arrives, what happens will depend upon who is in power. Therefore, I view it as impossible to predict what reforms of the system will be promoted or adopted. We can safely assume however, that the US dollar will have suffered a significant loss of purchasing power no matter what the new system looks like. I would add that I am not alone in this view with even highly credible experts like Ray Dalio talking about the same future prospects for the US dollarThis is why it is wise for anyone who can to diversify your assets now and hedge against this possibility. In addition, this blog has attempted to document a number of ideas and proposals for major monetary system reform which can be found here. Many of these are based on direct input from credible experts from around the world. It is possible one or more of these ideas may be looked at and more than one may have to be tried to restore public confidence in money and the monetary system.

Q: When will this happen?

A: I don't believe anyone can answer that question with precision. We are now deep into our second major global economic crisis in the last ten years. Thus far the response by those in power is to just create any amount of money required to prevent some kind of major deflationary collapse. There is no indication that anyone in power now or after the US elections plans to alter this course until they are literally forced to do so. It is clear that they have unlimited faith that public confidence won't be lost no matter what they do

So, really, the question becomes how long will the markets and the general public continue to believe in the present monetary system and the US dollar

The only answer I can offer is that they will continue to believe in it up until they day they don't --- based on future events and confidence in systemic institutions that cannot be predicted with any certainty at this time. I think it is obvious that political division in the US is at an all time high and whoever is elected and holds power will have to contend with that problem. There is no indication whatsoever that one side or the other winning the election will make that problem go away. So again, hedging against a very uncertain future in any way you can is a wise course of action.

Sunday, July 26, 2020

News Note: Jim Rickards on Gold Soaring to All Time US Dollar High Over $1921 - Ray Dalio on US Dollar

This is a news note due to events unfolding this Sunday evening. At the time of this writing, gold has clearly gone well above the old all time high price in US dollars at around $1921. Right now, spot gold is quoted on Kitco just above $1930 per ounce.

Earlier today, Ray Dalio issued comments on Fox Business  about his concerns over how all these current events may impact the US dollar and economic stability. He specifically expressed concerns about the "soundness of our money" (see excerpt below).


"The biggest issue Dalio is worried about is "the soundness of our money."

"You can't continue to run deficits, sell debt or print money rather than be productive and sustain that over a period of time," Dalio said."

Go To Fox Business to find the full comments by Ray Dalio
(note- Fox Business does not permit direct links to articles - search for Ray Dalio)

My added comments: Obviously, we have a lot of potential stressors going on in various markets alongside a pandemic, the economic fallout from a pandemic and now also geopolitical tension. It pretty much goes without saying that readers need to monitor events closely with all this going on at the same time. I quickly asked Jim Rickards if he would like to offer some thoughts on the events we are seeing tonight. He kindly replied with the email comment below for readers here:

"This new price spike emerged in Asian trading on July 27 before London or New York had opened. Given the deteriorating state of U.S.-China relations and the potential resort to financial warfare, including the possible seizure of China's Treasury note holdings as compensation for victims of China's criminally negligent handling of the initial outbreak, it could well be the case that China and its people are flocking to gold as an alternative to dollar-denominated holdings such as Treasuries."  - James Rickards    (7-26-2020 10:30 pm cst.)

Added note on Jim Rickards - Jim has a new book coming out in October with an update on his most recent analysis as to where he sees things headed. Pretty sure this will be another best seller.

Below is the Kitco quote at 10:18 pm central standard time. Silver also sharply higher.


"A record high price for gold, known as the currency of last resort, is raising questions about the U.S. dollar's future as the world's reserve currency, according to a Goldman Sachs research note published Tuesday."

Saturday, July 25, 2020

Jim Rickards -- "The US Dollar Has Already Collapsed"

With all the monetary stimulus now in play, debates are breaking out everywhere as to what this will mean for the future of the US dollar versus other currencies and gold. In this recent discussion on Incrementum on these issues, Jim  Rickards says the US dollar has already collapsed. He adds that the US is currently in a depression and not a recession. So this discussion may be of interest to readers here. Below is an excerpt related to Jim's comment on the dollar. I added the underlines for emphasis.


Jesse Felder:   "At some point almost anything could look better than dollars."

Jim Rickards:     "I'll give you an answer, Jesse, and this will actually prove your point. The inflation is already here and the dollar has already collapsed, but no one knows where to look. And you look at gold; you have to stop thinking about gold as a commodity, and start thinking of it as a form of money. The cross-exchange rate between dollar and gold – the dollar has already collapsed and the inflation is already here. But it's in gold, and gold is the best and longest-horizon leading indicator of just about everything. 

People say that the stock markets look forward and discount to the present value - that's fundamental analysis. I get it, but stock markets usually get it wrong. If you get the forecasts wrong, you're going to get discounting wrong. The stock market did not see the 2008 crash; did not see the 2020 crash; they're not going to see the next crash. They try - I give them credit - they try, but they do a really, really lousy job. But the one cross rate that does a really good job - in fact it looks so far ahead that people don't even pay attention to what it's saying - is gold. So, your inflation and your collapse have already happened, but they've happened in the gold space - that's your metric."

Jesse Felder: "I agree with all of that; I think the only thing that I disagree with is that I don't think the Fed can monetize the debt indefinitely, or infinitely, without it affecting the currency."

Jim Rickards: "I agree with infinitely, but it could be a long time between here and there."

Click here for a visual chart of the dollar index vs. gold since 2001


Thursday, July 23, 2020

Gold and Silver Markets Reflect Significant Surge in Demand - Some Reasons Why

While this blog is not investment related and does not claim any special expertise in precious metals, we do monitor these markets because they tend signal when there is a general feeling of uncertainty about economic conditions. Lately, both gold and silver have moved up more sharply in price. Silver has also now begun to "catch up" with gold as reflected in the sharply falling gold to silver ratio.

Rather than try to provide any in depth analysis, we will just list some bullet points below as potential reasons we have seen offered for the recent strong moves higher. Following that are a few links to recent articles noting what is going in these markets.


- fundamental demand  vs. supply issues - falling supply due to mine closures during the pandemic at the same time as global demand picked up for physical gold and silver

- general uncertainty surrounding the impact of the virus pandemic on the stability of the economy and financial system

- a general perception by investors that the increased monetary stimulus from global central banks in response to the virus pandemic will tend to devalue fiat currencies (the US dollar is certainly reflecting that lately). 

- the markets anticipating possible future inflation because of all the money creation

- possible tightness and/or stress in the Comex futures exchange for both gold and silver that is demanded for physical delivery. Again, reflecting tight supply vs. demand.

- a surge in retail demand for gold and silver coins that is drawing in a broader group of buyers than is the norm for these markets. See video below asking if millennials have "discovered" gold and silver.

-an increasing number of investment advisers recommending clients allocate %5 or more to gold and silver in their portfolios. As noted below, Ray Dalio was advising this a year ago. Of course, Jim Rickards who we have covered here quite a bit, has long advised a 10% allocation to precious metals.

- low real interest rates (or negative real interest rates) make gold more appealing

- some central banks around the world continue to add physical gold to their reserves

Here are a few articles and videos that talk about various aspects of what experts in these markets are seeing in these markets:

At the time of the writing of this article, spot silver is $22.51. Here is a sample of what various dealers want for a one ounce silver eagle at this same point in time. Not much available under $30. This suggests there is still a market imbalance in demand for silver eagles vs. available supply as this is a much higher premium over silver for these coins than we usually see in more normal circumstances.

Added note: Coming in the next few weeks will be an interview I did with my own daughter who is 25 years old on what she thinks about money and some monetary systems issues. She provides an interesting sample of opinion and some of her comments echo what I see quite often from millennials. After the interview article, I will post a followup article based on her comments on the issues involved. The goal of that article is to try to ask some thought provoking questions about concerns millennials have for the future. I did run this interview by some experts who told me that the interview answers were interesting and provide some useful insight into current thinking in that age group.

Tuesday, July 21, 2020

BIS Innovation Hubs to Expand in Europe and North America

We have reported on central bank efforts to study innovations such as central bank digital currencies for some time. We have noted that movement by central banks tends to be very gradual and that most are very reluctant to make major changes very quickly. 

This trend continues, but we do see more efforts by central bank friendly organizations such as the OMFIF and the Bank for International Settlements to try and spur some innovation in fintech. Below are some excerpts from a recent new BIS announcement that it will open new innovation hubs in Europe and North America. I added underline below for added emphasis.


"The Board of the Bank for International Settlements (BIS) today announced the expansion of the BIS Innovation Hub with the establishment of new Hub centres across Europe and in North America in cooperation with member central banks.

In the next two years, the BIS will open centres in collaboration with the Bank of Canada (Toronto), the Bank of England (London), the European Central Bank/Eurosystem (Frankfurt and Paris) and four Nordic central banks (Danmarks Nationalbank, the Central Bank of Iceland, the Central Bank of Norway and Sveriges Riksbank) in Stockholm. The BIS will also form a strategic partnership with the Federal Reserve System (New York)."

Statement From BIS General Manager Agustin Carstens:

"The BIS Innovation Hub is an investment in the future of central banking and the financial system. These new centres will expand our reach significantly and help create a global force for fintech innovation."

Click here to find the press release

Added note: The BIS also releases its 2020 Annual Report which you can find here. The report this year recaps the massive central bank efforts around the world to respond to the economic slow down caused by the COVID-19 pandemic. The question going forward is what will be the longer term impact of the massive liquidity injections on systemic stability. This topic will be hotly debated in the coming months and years.

Meanwhile ---

Unrelated news note: This news came out yesterday on King World News which covers the precious metals markets. Eric Sprott, a well known as a major precious metals investor, has apparently filed notice that he intends to acquire $1.5 Billion worth of physical silver. If so, this comes when there is already a tight market for actual physical silver. It is unlikely that he could source this much silver very quickly even if he is willing to pay somewhat higher prices for it. Mr. Sprott did mention his intention to acquire physical silver in one of his recent weekly podcasts, but did not indicate the amount. This filing will probably allow him to buy the silver over time and may put a demand floor under the silver market until he completes this purchase, assuming he raises the full $1.5 Billion. This agreement I found dated back in 2018 which sounds similar covered a 25 month time frame. So, this is a market you should keep an eye on to see if his physical silver buying increases demand enough to move the silver price higher in the weeks and months ahead. Update: Here is the new filing which confirms the time period will cover the next 25 months as was the case with the previous filing. This appears to be a time extension from the prior filing allowing the trust to buy up to $1.5 Billion in physical silver over that time frame.

Sunday, July 19, 2020

OMFIF - Update on Central Bank Digital Currencies

New OMFIF update is posted below

        Updates on efforts to implement central bank digital currencies are discussed

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LinkedIn  Twitter      YouTube
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Podcast: CBDC is a public good, not a private
business case 

Wolfram Seidemann, chief executive officer of G+D Currency Technology, joins David Marsh, chairman of OMFIF, to discuss how central bank digital currency has gained traction among public and private sector institutions and if Covid-19 is a motivating factor for central banks to adopt digital currency. They also discuss the state of blockchain technology, privacy concerns and the benefits CBDC may offer to society during the pandemic.

Listen to the recording, or search 'OMFIF' on your smartphone's podcast app.

Commentary: Cambodia edges towards digital payments

By Bhavin Patel in London

Serey Chea, director general of the National Bank of Cambodia, talks to Bhavin Patel, senior economist and head of fintech research at OMFIF, about the country's soon-to-launch mobile payments platform, Bakong. With this new system, the NBC hopes to improve financial inclusion and promote the use of Cambodia's local currency over the dollar.

Read the full commentary

Meeting: Bank of Thailand’s wholesale CBDC

London, Europe
Wed 22 Jul 2020 10:00 - 11:00

Virtual roundtable with Kasidit Tansanguan, Sarun Youngnoi and Vijak Sethaput, Bank of Thailand

Leaders of Bank of Thailand’s Project Inthanon discuss how distributed ledger technology could enhance the country’s financial infrastructure and pave the way to a decentralised real-time gross settlement system using a wholesale central bank digital currency.

Register your interest to attend.

Monday, July 13, 2020

What Went Wrong in 1971 Authors Say This Explains Wealth Inequality

Income and wealth inequality has become a huge issue in the United States. There is no doubt that this issue will be a factor in the upcoming US elections. Most everyone agrees that a gap exists and that the middle class has been under pressure for some time. The debate centers around what conditions have led to the gap and what are the best policies to try and reduce the gap.

Recently, the authors of a new theory on this issue did an interview with Jan Nieuwenhuijs of Voima. They argue that events you can trace back to 1971 have had a major impact on our monetary system and have greatly contributed to the wealth gap the most everyone agrees exists today. Does their theory have merit? Readers can assess that for themselves by reviewing this interview. Below are some excerpts.


Jan: "The “Nixon Shock”—as the unilateral suspension of Bretton Woods is often referred to—brought about a sea of change in economies and societies around the world, because from that moment on all national currencies stopped having an anchor. Fiat currencies could be created boundlessly. To get an understanding of the changes since 1971, I decided to interview the gentlemen behind the website “What Happened in 1971?

. . . .

"Jan: What do you say are the most significant developments that have occurred since 1971.

Collin: Monetary expansion—but we get a lot of criticism on this. People say, “oh you're not taking into account many of the regulatory changes, or the socio-cultural changes that happened around that same time period, that caused some of these second and third order effects that you attribute to this one 1971 data point.” If you were to sit down and talk with us, we'd tell you that the story goes back much further. We would trace it back to 1944 and 1933, and we would look at the Great Depression in America in 1929. We'd look at the creation of the Federal Reserve in 1913, and then ideally, we'd go all the way back to the birth of fiat currencies in the United States before the U.S. was even a country. We'd look at the early fiat experiments, we'd go back to the bi-metal standards, we'd look at the process of coin clipping under the feudal lords. The story obviously doesn't start in 1971, but certainly that's when there's an interesting inflection in the data that you can point to and say: “look what happened here, everything went crazy.”  

My added comments: The issue of the the wealth gap is a major issue for millennials who are directly impacted by this phenomenon. The authors of "What Happened in 1971?" say they can explain what led to this problem. Their views are a legitimate contribution to this discussion, so we are happy to feature them here.

Added related news note: Reuters - Fed's $3 Trillion Virus Rescue Inflates Market Bubbles

Saturday, July 11, 2020

South China Morning Post - US Coronavirus Stimulus Reignites China's Criticism of US Dollar

This article in the South China Morning Post once again outlines how the present monetary system is still very much US dollar based. The article notes that all the massive money creation of US dollars by the Federal Reserve is generating concerns within China about the future prospects for the US dollar. China is said to hold at least $2 Trillion in assets denominated in US dollars. 

However, the article also points once again that no viable alternative to the US dollar seems anywhere on the horizon. Below are a couple of excerpts with my added underlines for additional emphasis.


"The US economic policy response to the coronavirus crisis and the threat of financial sanctions on China have reinvigorated criticism in Beijing over the US dollar hegemony, but few analysts see a viable alternative currency emerging any time soon.

Chinese officials have recently taken aim at the unprecedented coronavirus stimulus in the United States, which has seen American debt levels balloon and stoked concern in Beijing about the devaluation of the US dollar assets held by Chinese financial institutions."

. . . .

"China has long had an issue with the perceived “exorbitant privilege” of the US dollar, which is the bedrock of the global financial system and underpins the lion’s share of international trade and cross-border financial transactions."

. . . . 

"Though the attitude in Beijing may be increasingly wary, few Western economists believe Washington is abusing the power of the US dollar with its coronavirus response. Others point out the impact on exchange rates has so far been relatively mild."

. . . . 

“Given the US dollar shortage that emerged with Covid, a weaker dollar is still good for the world, relieving funding pressures in both developed markets and emerging markets,” said Steve Englander, global head of North America macro strategy at Standard Chartered Bank.

Reform of international monetary policy is likely to take a back seat to efforts to stabilise the global economy from the coronavirus pandemic. But even in the long-term, it is not clear what shape that would take.

“In fact, the Fed’s apparent magnanimity in allowing other countries to have access to dollar financing collateralised by their holdings of US Treasuries will pull countries even deeper into the clutches of the dollar,” Prasad said."

My added comments: My key takeaway from this article is that once again, while many people are unhappy with the present US dollar based monetary system, the current monetary system authorities don't see any thing on the immediate horizon likely to change the situation any time soon. Also, this article quotes Steve Englander (Standard Chartered Bank) as saying a weaker US dollar is a good thing and that Federal Reserve policy likely to result in a weaker dollar should be welcomed around the world. Lately, the US dollar index has been falling. Of course a US dollar systemic failure would change things at any time that were to happen.