China Daily - China Trims US debt holdings and seals energy deal with Russia

Here are a couple of news items from China Daily of interest:

China slightly trims US debt holdings by $800 million

China-Russia gas deal set to be signed

Some points of interest from these articles:

-China cut its US bond holdings a little, but Japan and Russia sold off over $35 billion in US bond holdings. Russia sold nearly 25% of its total holdings. Certainly this is due to the Ukraine situation

-Belgium is listed as buying over $40 billion in US debt becoming now the 3rd largest foreign holder of US debt at nearly $400 billion total. Since Belgium is too small to be buying this many US bonds alone, it is certain that these funds are coming from some other source but are showing up as purchases in Belgium for whatever reason. Former US Assistant Treasurer Paul Craig Roberts believes the US FED may be funneling funds to Belgium to help buy these bonds. If so, it means they are concerned about the perception that real demand for US bonds is falling leaving the FED as the main buyer left

-Putin will be in China next week and is expected to sign this huge gas deal along with a reported 30 plus other agreements between the two nations. The Asian and Russian media are playing up this as a big event so there should be a lot of news articles on it next week. We will follow it. We have already noted that these new deals will bypass use of the US dollar which is a significant event related to what we follow here on this blog.

-Jim Rickards tweeted today that this big energy deal and Putin's visit to China next week are siimilar to what he and others simulated in a "war game" for the Pentagon a few years ago. Part of a strategy to weaken the US dollar. He says this is an important event in that process.

Summary: Lots going on for us to follow next week. Lots of chess moves being made on the international game board for us to try and keep up with.

Note: Here is Rickards tweet today.

"China investing in Crimea. Putin's on his way to Beijing for non-USD mega-gas deal. Like we told Pentagon in '09"

Rickards speaks at The World Bank on the Death of Money

Here is the video of his presentation at the World Bank regarding his new book, The Death of Money.

While Jim Rickards has presented his views on this many times recently, he adds some history and quite a bit of detail in this talk. Perhaps as interesting as anything he says is the concept of the World Bank inviting him to talk about the coming collapse of the International Monetary system.

Here on this blog we obviously cover this topic constantly because our whole point here is to watch for any signs of major monetary system change. But it seems a little surreal that things have come to the point where Jim Rickards is invited to speak at the World Bank on why the global monetary system will eventually collapse and the rules will have to be rewritten.

Not that long ago it would seem absurd for anyone to talk about this and be taken seriously by the existing financial establishment. But here we are.

Just another example of why we must keep watch here. We have to take the idea seriously given all the mountain of evidence that keep piling up suggesting some kind of major change is coming.

When it comes and how it will unfold are unknowns. But it is clearly taken much more seriously now even within the existing financial establishment. If and when it comes, it will impact everyone in some way. Change might come quickly or slowly. It might come within the IMF or outside the IMF (from the BRIC nations).

We really have no choice but to keep watching. We will continue to do that here as best we can. 

Addendum 5-16-14:  

In the very last part of this video during the Q&A session, a woman from Africa asks Rickards if he would comment on "the gobal currency reset". (see the top of our blog)

Rickards answer:

I expect a reset to involve the IMF SDR or a gold backed SDR. It was interesting that Rickards knew exactly what the lady meant when she asked about a "global currency reset".

Voice of Russia: A "De Dollarization" meeting was held on April 24th in Russia

This article could be of signifigance.

We will have to monitor events and see how this plays out. The article claims that on April 24th a meeting was held by the Russian government to "find a solution for getting rid of the US Dollar in Russian export operations."

We already knew that the energy deal with China would likely bypass US dollars. However, this is the first report we have seen of an official government meeting to attack using the US dollar. 

Here is the full article linked above:

"Russian press reports that the country's Ministry of Finance is ready to greenlight a plan to radically increase the role of the Russian ruble in export operations while reducing the share of dollar-denominated transactions. Governmental sources believe that the Russian banking sector is "ready to handle the increased number of ruble-denominated transactions".

"According to the Prime news agency, on April 24th the government organized a special meeting dedicated to finding a solution for getting rid of the US dollar in Russian export operations. Top level experts from the energy sector, banks and governmental agencies were summoned and a number of measures were proposed as a response for American sanctions against Russia.

The"de-dollarization meeting” was chaired by First Deputy Prime Minister of the Russian Federation Igor Shuvalov, proving that Moscow is very serious in its intention to stop using the dollar. A subsequent meeting was chaired by Deputy Finance Minister Alexey Moiseev who later told the Rossia 24 channel that"the amount of ruble-denominated contracts will be increased”, adding that none of the polled experts and bank representatives found any problems with the government's plan to increase the share of ruble payments.

It is interesting that in his interview, Moiseev mentioned a legal mechanism that can be described as"currency switch executive order”, telling that the government has the legal power to force Russian companies to trade a percentage of certain goods in rubles. Referring to the case when this level may be set to 100%, the Russian official said that "it's an extreme option and it is hard for me to tell right now how the government will use these powers".

Of course, the success of Moscow's campaign to switch its trading to rubles or other regional currencies will depend on the willingness of its trading partners to get rid of the dollar. Sources cited by Politonline.ru mentioned two countries who would be willing to support Russia: Iran and China. Given that Vladimir Putin will visit Beijing on May 20, it can be speculated that the gas and oil contracts that are going to be signed between Russia and China will be denominated in rubles and yuan, not dollars."
Read more: http://voiceofrussia.com/2014_05_13/Russia-strives-to-exclude-the-dollar-from-energy-trading-5138/

Russia - China to seal energy deal next week

China and Russia will seal a deal for 38 billion cubic meters of natural gas per year for 30 years next week. The deal will not be priced in US dollars.

Meanwhile Russia is looking to expand its market for gas sales to other parts of Asia as its relationship with the EU becomes more questionable.


"Even as Moscow’s ties with the US and traditional energy partner EU remains strained over the Ukraine crisis, Premier Dmitry Medvedev said on Monday that Russia will step up its presence in energy hungry Asian markets.

“It is possible to improve the conditions for cooperation with these countries, which we have been building up for years,” Medvedev said at a meeting on the development of cooperation with the region.

He stressed that although China remained Russia’s key partner in the region, it was necessary to pay attention to other countries.

“We need to have a close look at what potential possibilities for cooperation have not been exploited yet,” the prime minister said.

“I think it is rational to elaborate a portfolio of specific projects which will take into account specific aspects of these countries and specific features of our own territories that will take part in these projects, to diversify our economic activity to the fullest extent, engage all possible partners and investors in cooperation. This is even more efficient given some difficulties we now face at other markets,” he added.

Russian energy giant Gazprom is currently negotiating a long-term agreement with China to supply it with an annual 38 billion cubic meters of natural gas. Earlier on Monday, Russian Deputy Energy Minister Anatoly Yanovsky announced that the contract was almost finalized."

BRIC Nations eye July as key date for new Bank

This article notes that the BRIC nations have set a July meeting for taking the next steps forward for their Development Bank. The article also clearly shows how prospects for global cooperation within the IMF are looking dim.

Here is the full article linked above with some key parts in bold. Notice that the Ukraine situation is mentioned as speeding up the process. This is why we think it will take some kind a major change in events now to pull all these countries back together in regards to a monetary system.

The divide seems to be large and growing at this point.

Quiet revolution of the emerging countries

"As the Ukraine crisis heightens, the so-called BRICS countries - Brazil, Russia, India, China and South Africa - are becoming less willing to accept US world supremacy.

The goal of the emerging countries is clear - to change the global order with the United States as the hegemonic power. "The BRICS countries are a group of nations unsatisfied with the international order," said Peter Birle, head of research at the Ibero-American Institute (IAI) in Berlin. "The importance of BRICS could rise if Russia remains permanently excluded from the G8," he added.

According to Birle, the five emerging countries seek to permanently upend the power constellations established in 1945 and relativize the US position. "All these countries view themselves as emerging powers with a great future ahead of them," he said at the 15th Stuttgarter Schlossgespräch, an annual conference involving a panel of international social science, culture and politicis expert. This year's talks focused on the relationship between Brazil and Europe.

Flexing muscle

In particular, Brazil is looking to growing cooperation among the five emerging countries. Directly after the World Cup soccer tournament and three months ahead of the presidential elections in October, the country will host the next meeting of BRICS countries in Fortaleza on July 15 and 16. The key issue on the agenda is the establishment of a joint development bank with capital stock of US$100 billion (72 billion euros).

The Brazilian Foreign Ministry welcomes the idea. "The development bank is a sign of the economic power of the BRICS countries and their willingness to advance financial cooperation with each other," said a senior diplomat, who collaborated on the founding text for the development bank at the previous BRICS summit in Durban in March 2013.

The most recent conflict between the BRICS countries and the United States was at the spring meeting of the International Monetary Fund in Washington in April when an agreed reform of the IMF failed because of a veto by the US Congress.

In 2010, IMF members had agreed to shift voting rights by 6 percent in favor of the developing and emerging countries. The reason: over the past 10 years, BRICS countries increased their share of global gross domestic product from 18 percent to 28 percent.

Counterweight to US dominace

In Brazil, the veto by the US Congress caused an outcry, further deteriorating the already strained relations between the two countries. Following the surveillance scandal revealed by former NSA contractor Edward Snowden, Brazilian President Dilma Rousseff distanced herself from Washington, promptly cancelling her planned meeting with US President Barack Obama in September 2013.

Rousseff's predecessor Luiz Inacio Lula da Silva, in office from 2003 to 2011, had established a counterweight to the political dominance of the US in Latin America by expanding the so-called south-south cooperation. Growing trade among emerging markets resulted in China replacing the US as the primary buyer of Brazilian products in 2009. Since 2012, the Chinese have also been Brazil's most important import partner.

For Rousseff, the political and strategic cooperation with China is even more important than the growing trade between the two countries. Brazil views the participation of Chinese President Xi Jinping at the BRICS summit in Fortaleza as an absolute priority. His official visit is the first of a Chinese head of state in Brazil and in the region. After the BRICS summit, a meeting is planned with the heads of state of the Community of Latin American and Caribbean States (Celac).

The Ukraine crisis is accelerating the strategic orientation of Brazil toward Asia and Africa. It appears the greater Moscow's isolation, the better the coordination among the BRICS members. Neither Brazil nor China, India or South Africa have commented on the events in Kyiv or Crimea. The principle of nonintervention has clearly welded the otherwise heterogeneous countries together.

"For Brazil, the BRICS countries are a platform to benefit as a mediator and reformer on the international stage," said Cristina Pecequilo, a political scientist at the University of Sao Paulo, adding that she doesn't view Russia's G8 exclusion as so tragic. "The emerging countries are better represented by BRICS than by the G8."

Voice of Russia Attacks IMF loan conditions

This article clearly shows that virtually all hope of finding agreement within the IMF has broken down.

It appears to us that the breakdown in relations between Russia and the US is becoming so deep that any chance for the IMF to become the place where all the parties come together is evaporating. 

We have been following news story after news story where we see the BRIC nations moving forward with their own version of the IMF and World Bank. The stalled IMF reforms were one thing motivating them. But now it seems like the conflict over who will gain influence in the Ukraine has removed any chance for cooperation within the IMF. 

Below is a quote from the final paragraph of the article linked above:

"The Fund's action highlight the need to establish a new, BRICS-sponsored financial institution that could provide a viable alternative to the IMF and also explains why Washington does its best to keep the IMF under its full control. The Fund pays for war crimes and should be therefore considered a criminal organization. The IMF has crossed the ultimate red line."

We now have an article in the Voice of Russia stating the IMF "pays for war crimes and should therefore be considered a criminal organization." and "The IMF has crossed the ultimate red line."

I don't see much chance of a happy ending between the BRIC nations and the US led western nations within the IMF with that kind of rhetoric. Unless something dramatic changes, it appears the BRIC's are just going to move forward on their own as quickly as they can. 

And things could certainly ramp up and get worse based on how things are headed right now.

Not that long ago Putin was calling on the IMF to help resolve the Ukraine situation.

How this turns out will clearly impact the US dollar at some point and is the most critical thing we have to keep watching here. 

Read more: http://voiceofrussia.com/2014_05_07/The-IMF-is-a-sponsor-of-Ukrainian-civil-war-0384/

Slow and Steady erosion for US Dollar

China and Russia keep working on this at a steady pace. Here is the article link and the article is pasted below. And India becomes another BRIC nation to openly stand with Russia regarding sanctions.


"Top officials from China and Russia met on Thursday in Beijing to prepare for RussianPresident Vladimir Putin’s strategic trip to Shanghai next week even as the European Union prepares to initiate a fresh round of sanctions against Moscow.

Chinese Vice Premier Zhang Gaoli held preparatory talks with his Russian counterpart Igor Shuvalov in the Great Hall of the People in Beijing.

Zhang told Shuvalov that China would stress on increasing the already vibrant bilateral investment between the two nations. China is Russia’s fourth largest source of foreign direct investment.

“Financial cooperation between China and Russia is growing as local currency settlement in two-way trade increases and consultations on a package of currency swaps are on-going,” said Zhang. This would remove the necessity for transactions to be settled in two foreign exchange trades via the US dollar.

Beijing is keen on substituting the US dollar with the yuan in all of China’s trade with other countries. The Chinese currency now trades directly with the Japanese yen, the Australian dollar, the Brazilian real, the EU’s euro, the New Zealand dollar and many other currencies.

China will aim to boost investment via the China-Russia Investment Fund, singling out greenfield investment, equity investment, bond issuance and mergers and acquisitions, Zhang said.

Zhang asked the Russian Deputy Premier to aid Chinese enterprises in investing in special economic zones in the Far East region of Russia.

Large and medium sized Chinese firms have invested in such sectors as energy, chemicals, mining and agriculture in Russia’s Far East.

Russian Premier Dmitry Medvedev had said in October last year that Moscow would protect foreign investors in the region.

“Russia and China have already become partners in the Russian Far East,” Medvedev said.

President Putin is slated to attend the 4th Summit of the Conference on Interaction and Confidence Building Measures in Asia (CICA), on May 20 and 21 in Shanghai.

Deputy Premier Shuvalov said on Thursday Putin’s China visit will be of “great significance” for the two countries even as Moscow is battling Western sanctions over the Ukraine crisis.

The European Commission has prepared a third round of economic sanctions against Russia, European Commissioner for Trade Karel De Gucht said Thursday.

Foreign ministers of EU member states will meet on May 12 to discuss sanctions against Russia and Crimea-based companies.

Moscow’s BRICS allies, Beijing and New Delhi have both asserted that they are opposed to the Western sanctions against Russia.

Will IMF loan to Ukraine go to Russia?

It will be interesting to watch the trail of how the money moves in the Ukraine. Just after the IMF released a statement saying its loan might have to be re calculated due to ongoing issues in Eastern Ukraine, today it is announced that a first payment of over $3 billion of the loan has been issued.

This raises some questions. 

Why was the loan payment made if the IMF was not sure about the problems with eastern Ukraine? Those problems are not resolved. If anything they seem even more confused and unstable.

Per the article linked above, Russia wants $3.5 billion it says is overdue for natural gas deliveries already made to the Ukraine. Will this new loan money go to Russia to pay for gas?

In addition, where is the new loan money going to go overall? The Ukraine has lots of old debt already. This article says the new loans will go to pay some of the old loans? Who owns those loans? I have seen reports that some of the old debt is actually old IMF loans. If true, this means the new debt goes to keep the Ukraine from defaulting on old debt to the IMF? If they can't pay the old debt, how will they pay the new debt?

This whole topic is a muddled mess in our view. It is not clear if the new loans are going to be enough. It is not clear if the country breaks down into civil war how the new debts will get paid.
It is not clear who the Ukraine already owes and who will get paid on old debt. And what if a major war breaks out? How will any of this new debt ever get paid?

It is hard to understand how the IMF can start sending this kind of money over there with so many unknowns and risks. And if a big chunk of the money goes to pay off Russia how will that go over in the US?

Still a big mess in our view. And nowhere near close to being resolved.

Keeping an eye on the US dollar index

One of the sign posts we watch here is the US dollar index. This index (monitored in the upper right portion of this blog) tells us if the dollar is gaining or losing value in relation to other currencies.

Most forecasters predicted the US dollar index would strengthen in 2014 due to the announced QE tapering from the FED and the expectation that a recovery was underway. Others like Jim Rickards said that a recovery was not sustainable and forecasted a pause in the tapering by this summer.


This CNBC article notes that so far the expected recovery in both the US economy and the US dollar index have not happened and offers some reasons why.

Jim Sinclair occasionally posts technical updates from Bo Polny (technical analyst) on his site related to both the US dollar and gold. Polny is on record stating the dollar will weaken this year and gold will rally. Here are the latest charts published by Jim Sinclair from Polny who is carefully watching a key support level for the US dollar index around the 79.30 level.

http://www.jsmineset.com/wp-content/uploads/2014/05/clip_image002.jpg

http://www.jsmineset.com/wp-content/uploads/2014/05/clip_image004.jpg

A break below 79 would be a negative sign. A rally above 80 would be a positive sign for the dollar.

Since this is a key sign post, we will monitor it and post updates from time to time on how the US dollar index is doing. Of course, you can easily follow it at the top right of this blog.

The Ukraine continues to be a mess

This article illustrates how messed up everything is right now.

The US says that the Ukraine revolt started from protestors who were unhappy with the existing government. Russia says the revolt started due to encouragement from the US and has now broken down into chaos. Since everyone involved has intelligence agencies whose job it is to spin events in their favor, it is impossible to know the truth.


But whatever started this problem, it continues to drag on and the the threat of military conflict is still quite possible. The IMF attempted to get Western influence over the new government by approving a $17 Billion loan. Russia wants the US/IMF to stay out but does want the Ukraine to pay for debt it owes Russia for gas deliveries. So they want any IMF loan to pay the over $3 Billion debt due Russia.

But now this article shows that even the approved IMF loan is in question now. With the latest events in the Ukraine, the IMF says the approved loan will have to be changed if parts of Eastern Ukraine break away from the central government.

Here are some quotes from the article:

" Ukraine's loss of its territory in the east would force the International Monetary Fund to re-design its $17 billion bailout of the country, and would require additional financing, the Fund warned on Thursday."

"A long-lasting disruption of relations with Russia that depresses exports, investment, and growth, or a loss of economic control over the East that reduces budget revenue would require a significant recalibration of the program and additional financing, including from Ukraine's bilateral partners," the IMF said in a staff report released on Thursday."
We keep an eye on this situation as it relates to possible monetary system change. So far, nothing has happened that would trigger that. However, if the situation drags on and gets worse, it could lead to problems that could impact global financial stability. 

Obviously a war involving major players would cause problems. Ramping up of sanctions and retaliation for sanctions could cause problems. If the Ukraine had to default on debt, that could cause problems.

All we can do is just continue to monitor events and see where they lead.

China and Russia Partners in new Crimea Project

It is becoming clearer and clearer that China is standing beside Russia despite attempts to appear nuetral. Here is another article describing yet another joint project.

"China and Russia are expected to sign an agreement during President Vladimir Putin’s visit to Shanghai next week for joint construction of a $1.3 billion transport corridor to Crimea via the Black Sea’s Kerch Strait.

State-run China Railway Construction Corporation (CRCC) and the private investment fund China International Fund Ltd. (CIF) will participate in the Kremlin-backed project, say Russian media reports."

Gold vs. Bitcoin - Competitors or Partners?

This interview of James Turk and Jim Rickards by Jan Skoyles covers a lot of ground. 

All three of them are expecting major monetary system changes like we are watching for here.

In this discussion, Turk and Rickards are asked their views on Bitcoin vs. Gold as currencies to fill a void if and when the US dollar loses it sole reserve status.

Both participants make some good points and agree on several aspects of this topic. In the last five minutes or so of the discussion Rickards again brings up the idea of a gold backed SDR and repeats his view that gold could be used to back Bitcoins in the future. James Turk does not see any need for gold backing of Bitcoins and is generally more favorable in his view towards Bitcoin's role in the future.

The session is well done and well worth time to listen to as the future role for cryptocurrencies is discussed in depth from several different angles.

It is our view here that a new digital cryptocurrency concept may very well play an important role in coming years. However, we think that an asset backed version such as Klickex unveiled last year is more likely to emerge as the cryptocurrency of choice. This is because Klickex is going through the long and difficult process of getting systemic approval for its cryptocurrency.

While Bitcoin will most surely appeal to those who prefer to work outside the existing banking system, we think the Klickex version of its asset backed cryptocurrency is well positioned to gain acceptance within the system. And we think the majority of people will prefer to use a cryptocurrency that is system approved and allows for immediate transfer of funds (and virtually immediate currency exchange) anywhere at anytime. 

Keep in mind that Klickex is already a global leader in mobile money transfer and currency exchange right now. They have a well proven system that has been in use and growing now for years. We think it will position them very well for the future.

Ross Peat of Klickex explains how it works in some detail in this video.

Ross comments on Bitcoin in the last 6 minutes of his talk. He does not go into the GSD asset backed cryptocurrency. This is a new product that is still in progress for now. But you can see how Klickex already has the structure setup to accomodate its new currency when the time is right.

More Evidence of an alternative to the IMF being constructed

In this article from Russia Today we see the same theme we have been following here for awhile now.

Everything happening right now indicates the West (the US/UK/EU) and the East (the BRIC nations) are moving further apart rather than closer together. We have all the following going on:

- dispute over the Ukraine with the West and Russia competing to control that nation

-China and the US finding themselves at odds over more and more situations (South China Sea, sanctions against Russia, sanctions against Iran, etc.)

-IMF reforms that would give the BRIC nations more influence stalled while the BRIC nations move forward with their own competing financial institutions (BRIC bank, etc)

-China and Russia becoming more and more aligned in terms of both trade agreements and military joint training, more and more trade bypassing the US dollar

In this article from Russia Today we find this quote:

"Thus the BRICS (Brazil, Russia, India, China and South Africa), fed up with ongoing American stalling at reforming the voting system in the IMF, have been working their way towards a genuine new world order. Pivoting away from the influence of the US-centric Western financial system, it makes sense to create a counterweight to the IMF; a supranational bank for the emerging east. "

"Naturally this is likely to cause it to run up against the IMF for as long as the US and EU insist on making the established supranational financial institutions vehicles for managing decline in the eurozone and elsewhere as opposed to actually imposing policies to repair failure governments and re-establish growth."

We see more and more areas of conflict and ramped up rhetoric on each side. This is why it seems unlikely to us that all of a sudden all those nations will come together at the IMF to agree on a new monetary system and/or reserve currency. We'll continue to track it.

Jim Rickards: Interesting tweet on commodity based SDR

Today Jim Rickards tweeted the following on his twitter page:

"Best part of travel is serendipity. In DC, I met past chief of SDR Division at the IMF. Doesn't want fiat SDR, agrees commodity backing is key."

This comment catches my attention because I have been told by sources I view as credible this same thing. Please keep this in mind as we follow this over time. The SDR is an internal unit of exchange that cannot be used by the general public or regular banks. 

However, it may be possible to connect the "inside" SDR to an "external" currency that could be used by banks and regular people. This currency could be a digital cryptocurrency and be asset backed (or commodity backed as Rickards mentions).

It's still to early to comment further on this topic, but we will follow it over time and if information becomes public regarding this concept, we will publish it here.