For New Readers: What is the Purpose of this Blog?

Every now and then we welcome new readers to the blog. Our statistics are telling us we get a good number of new readers regularly from around the world as this blog now has over 53,000 page views in its history since it began early this year. A question new readers may ask is: What is the purpose of this blog? We try to answer in the Q&A below:

Q: What prompted you to start this blog?

A: Around the first of this year (2014) there was a lot of "buzz" on the internet surrounding the idea of a coming "global currency reset". There were a lot of various credible sources using the term "reset" and talking about what that might mean. Many expected a "reset" to happen this year. So we decided to start this blog based on the idea that monetary system change is coming and follow the related news to see what happens.

Q: What do you mean by "global currency reset" or just the term "reset"?

A: What we mean here is major global monetary system change that results in the US dollar losing its status as sole global reserve currency. The kind of change that comes from a decision to rewrite the "rules of the game" as Jim Rickards puts it. We believe it will happen at some point so that is our bias here. We follow all news we can find that may relate to this coming change and try to present it on this blog.

Q: There are tons of sights that talk about this. Why read this blog?

A: True. This blog may not be needed by many people who already understand the issues we cover here. However, what we see is more and more new people interested in learning about this topic. As they see events take place where they live, they instinctively feel that some kind of major change is coming and want to learn more about it. We hope to provide a site here where they can find solid, credible information and point readers to what we think are some of the best sources of information to do more research for themselves.

We might list our goals as follows:

-provide solid, credible information resource leads on coming monetary system change.

-sift through the large number of articles on this topic for readers who don't have time to do it themselves and present sort of a summary of relevant news and credible opinions.

-try to filter out sources we feel are lower credibility that may have an agenda if possible.

-be viewed as a credible free source of information that people know they can trust to deliver relevant news on this topic (this is hugely important to us).

-build an historical archive of solid information so that as new readers find this blog they can explore the historical posts (linked on the righthand side of the blog) to learn more about various aspects of this topic that interest them. There is a ton of free information there from some of the best sources in the world.

If we can accomplish the above, we have met our objectives here on this blog.

Q: Why should anyone care? Why is this important to the average person?

A: We think this topic is very important because if major change takes place that causes the US dollar to lose reserve currency status it will impact everyone substantially. The dollar will sustain a large devaluation (the dollar will buy a lot less than it does now). Depending upon how the change takes place all kinds of existing investments, retirement plans, and even what we use for money could be significantly impacted. We think everyone should care how this might impact their lives and prepare as they see fit for their circumstances.

Q: So how will this change happen? And in what time frame?

A: We can't answer those questions because we don't know. The information that has been posted to this blog provides solid credible information that change is coming and, in fact, is already underway. The information here provides a variety of credible views on how and when this could happen such as:

- a slow and steady conversion on a global level leading to the IMF becoming a global central bank and using the SDR as a kind of new global reserve currency (slower drawn out process that could take years).

- a rapid change prompted by a major global unexpected event that leads to a new global financial crisis. The IMF steps in as lender of last resort to solve the crisis by global consent (could happen at any time)

- an East/West split unfolds where the BRIC nations leave the existing global framework within the IMF and World Bank. They become a competitor and promote their own new system and currency or currencies to bypass the US dollar system (ongoing right now)

- change takes place in steps on a regional trial basis first which eventually leads over time to a new centralized global system that uses the most successful trials tested in various regions (ongoing right now, could take years)

- a sudden unexpected event takes place that takes down the existing system in a chaotic way such that no centralized authority emerges. Instead change takes place by the world becoming very de-centralized and regional. A lot of competing currencies and trading blocs emerge. (could happen at any time if another crisis unfolds)

We have presented solid credible evidence on this blog that any of the above could happen in the coming months and years. We think the more information readers have the better. We encourage readers to keep an open mind and stay informed as events unfold.

Over time, for those who take the time to stay informed, it will become obvious which of the above scenarios is happening. Our job is to stay on top of events related to all the above and post them here as best we can. In our view, nothing is more important than being informed to deal with whatever does happen.

Q: Will you ever commercialize this site?

A: No. This site will always be free and will not even run ads so that readers can feel confident that there is no commercial interest behind any information presented here. We do not make income of any kind from this site and never will. We have no affiliations with any sites we link to on this blog.

 

Q: How do you make a living?

A: I am employed in the oil and gas industry in accounting and have been for over 30 years and my wife is a former full time teacher who now works part time as a substitute in the local school district. This blog is just a hobby which requires no money to operate. It does require some time to find information and write articles which I am happy to donate if enough people find the information useful.

 

Q: Is this blog widely read?

 

A: Actually it is pretty well read. Articles from this blog have been republished in various other media such as Bitcoin Magazine and Silver Doctors. We were contacted about doing on online radio interview that reaches a large audience, but decided against that (we will stick to writing). Also articles here have been mentioned by popular analysts like Jim Sinclair and Jim Rickards. Our email tells us we get some influential readers from all over the world.

The hope is that this blog can provide educational material and point people to what we think are the best sources of information to stay informed about the financial system and any potential changes coming.

This blog is an effort to provide a public service. If we need good information for our own family decisions, surely others do too.  Any legitimate questions or comments are always welcome via our email:

lonestarwhitehouse@gmail.com .

In addition, relevant articles suggested by readers are very welcome. We have gotten many excellent tips this way and have met some great people who read this site. 

 We have some amazing readers here from all over the world! A big thank you to all readers here!! Help us reach others if you feel the information here is of value!

"No One Could Foresee this Coming"

One of the things I recall very vividly about the financial crisis that hit in 2007-2008 was the phrase "no one could foresee this coming" after the crisis unfolded. Financial officials and financial media repeated that phrase over and over. 

It struck me as odd then because I had been reading several analysts for years who did foresee it coming and predicted almost exactly what happened. I guess this time the financial authorities want to make sure no one can say they didn't warn us. Here is yet another major warning coming from the BIS as reported in this new article in The Telegraph. Below are some quotes from the article and then comments.

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BIS warns on 'violent' reversal of global markets

Investors take zero-rates for granted and unwisely believe that central banks will protect them, says the capital markets chief of the Bank of International Settlements

"The global financial markets are dangerously stretched and may unwind with shock force as liquidity dries up, the Bank of International Settlements has warned."

"Guy Debelle, head of the BIS’s market committee, said investors have become far too complacent, wrongly believing that central banks can protect them, many staking bets that are bound to “blow up” as the first sign of stress." (link to his speech)

"Mr. Debelle, who is also chief of financial markets at Australia’s Reserve Bank, said any sell-off could be amplified because nominal interest rates are already zero across most of the industrial world. “That is a point we haven’t started from before. There are undoubtedly positions out there which are dependent on (close to) zero funding costs. When funding costs are no longer close to zero, these positions will blow up,” he said."

"The BIS warned earlier this summer that the world economy is in many respects more vulnerable to a financial crisis than it was in 2007. Debt ratios are now far higher, and emerging markets have also been drawn into the fire over the last five years. The world as whole has never been more leveraged."

"Debt ratios in the developed economies have risen by 20 percentage points to 275pc of GDP since the Lehman Brothers crash."

"The biggest worry is a precipitous sell-off in the bond markets once the US Federal Reserve and the other major central banks begin to tighten in earnest. Mr Debelle cited the US bond crash in 1994, but warned that it could be even more violent this time with a “fair chance that volatility will feed on itself”.

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My added comment: We are doing everything we can here on this blog to make sure readers are aware of all these continuing warnings being issued. As noted in this article the BIS (Bank of International Settlements) came out twice earlier this year with warnings. The IMF has come out several time including two times just in this past week with similar warnings.

It's almost to the point where I am hesitant to keep posting all these because readers may view this as too extreme with too much gloom and doom. But everything we are posting here are direct quotes coming from the leading financial institutions in the world. These are their warnings. We are just compiling them here so they will be on the record here as an archive. If you go to the right side of this blog and just look at the links over the last several months you will find several links to all these warnings from the IMF and the BIS.

We have noted all this is kind of surreal because at the same time we have all these warnings we get constant financial media reporting that the US is in a recovery and that things are improving. The labor market shows some signs of improvement and the stock market (until this week) was near all time highs. Real estate has recovered to some degree (in some areas more than others). Some economic indicators appear to show some progress while others don't.

But despite all this, there is this nagging feeling that things are not right. This week that feeling got amplified as stock markets fell sharply and suddenly there is new talk of more QE and conerns about the global economy and deflation. And of course, we are getting this constant stream of warnings like the one above from places like the IMF and the BIS. 

What we are encouraging here is to keep alert and stay informed. It is crystal clear that the economy has not yet proven that it can stand on its own feet if the Fed pulls out of QE. It is also crystal clear from all these warning articles we have posted that the financial authorities realize this and are issuing warnings right and left about what may happen without monetary stimulus to act as support (look at the direct quote in the article just above).

We have pledged to follow it here and will try to stay on top of things as best we can. Events can change very quickly as we have seen. But one thing is for sure. Readers here will not be saying "no one could foresee this coming" if these warnings come to pass. It looks more and more like we will get a clearer picture by the spring of 2015. Maybe sooner.

Added note 8-6-15: A full list of systemic risk warnings can be found on this blog page 

Russia - China sign several new deals and a huge currency swap

Chess moves continue all around the global board. With the US still trying to impose sanctions on Russia, China and Russia announce the signing of several new deals and a huge currency swap. Some quotes from this BRICSPost article below.

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"Russia and China have signed several multi-billion dollar deals on Monday, including nuclear energy, finance, tourism, high-speed railways, apart from the agreement on gas deliveries to China via the eastern route."

"Chinese and Russian Premiers Dmitry Medvedev and Li Keqiang have held the 19th Regular Meeting of the Heads of Government in Moscow during which 40 inter-governmental agreements were signed."

"The two allies have also signed a massive currency swap deal worth $24.4 billion. The agreement was inked between the People’s Bank of China (PBOC) and the Russian Central Bank on Monday “to facilitate bilateral trade and investment”.

"The agreement lasts for three years and can be extended if both sides agree, the PBOC said on Monday in a statement on its website."

"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."

"Moscow is looking to increase trade and banking cooperation with Beijing, even as it battles new rounds of sanctions imposed by the EU and US over the Ukraine crisis."

"Putin said, earlier this year, that Russia-China ties “will significantly affect the contemporary architecture of international relations”.

“It is absolutely clear that we will be expanding collaboration with China. Our trade with the United States is 27.5 [billion], but trade with China is 87 billion, and it is growing. And experts will agree that China is gradually becoming the number one economic power. The question is when it will happen: in 15, 20 or 25 years. But everybody understands that it is inevitable,” asserted Putin."

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My added comment: Note Putin makes sure to mention that China will become the #1 economic power and that Russia does much more trade with China than the US. But also note he says it will be a long time before China assumes the #1 position (at least 15 years).

As we watch all these global chess moves the question to keep in mind is: 

Are all these moves by the BRICS nations really designed to pull out of the existing global financial system OR are they just trying to put pressure on the existing global financial institutions to "reset" the voting structure to give them more influence? And to dethrone the US dollar as the sole global reserve currency? Time will tell.

If the Fed has to Revive QE Again

It appears there will be plenty of scapegoats available to blame (instead of admitting that the US recovery is based mostly on Fed stimulus). Fed officials have been busy this week laying the groundwork to prepare the markets for the idea that QE could be revived if need be. But they have made sure to also point the finger other places (Europe) to explain why it might happen. Now China might also be a convenient scapegoat based on this article.

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This has been quite a week so far. The stock market continues a sharp plunge. Oil prices falling sharply. Gold and silver trying to decide what to make of all this. Fed officials quickly coming out to try and calm the markets by saying QE can be revived if need be. The Guardian UK runs this article. Here are the lead paragraphs from this Guardian article:

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"Combined tightening by the United States and China has done its worst. Global liquidity is evaporating."

"What looked liked a gentle tap on the brakes by the two monetary superpowers has proved too much for a fragile world economy, still locked in "secular stagnation". The latest investor survey by Bank of America shows that fund managers no longer believe the European Central Bank will step into the breach with quantitative easing of its own, at least on a worthwhile scale."
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But the US Fed officials say Europe is the problem. Here is a quote from the Bloomberg article linked above:

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"Bullard, who helped lay the intellectual groundwork for the Fed’s quantitative easing program, said U.S. economic fundamentals remain strong, and he blamed recent financial-market turmoil on downgrades in the outlook for Europe.'


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As noted above, there seems to be plenty of available scapegoats around if the Fed has to ramp QE back up again. It's Europe's fault, right?  But wait, the Guardian says its the US Fed's fault (along with China) for "tightening".

The news article linked above says China is preparing for its banks to have a "debt implosion". So there is another available scapegoat the Fed can draw on as well. After all the UK Guardian has already pulled China into the mix for blame. If you can figure out from all that if the US is really in a genuine recovey or not you are a better analyst than I am.

As we sit and watch all this, keep in mind that not that long ago everyone was talking about strong global growth and a strong US recovery that would probably see the Fed raising interest rates sooner than expected. This is why we HAVE to stay on top of all this and keep watching. Things can change quickly as this week has shown.

Bloomberg: World Economy Gives Investors Growth Scare

More of the same from this Bloomberg article. This article specifically mentions both the Eurozone and Japan as areas of economic weakness. It also notes a question we just recently asked here on this blog. Do Central Banks have any ammo left if the global economy starts rolling over again? Below some quotes from the article and a comment.

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"The global economy faces its biggest test of confidence since the European sovereign debt crisis as investors fear it’s running out of engines."

"Japan and the euro area are throwing up fresh signs of weakness by the day and emerging markets such as China are dragging instead of driving growth. The sense of tumult is being exacerbated by war in the Middle East, the standoff in Ukraine, street protests in Hong Kong and the spread of Ebola to Dallas."

"The worry is that five years since the world limped out of recession, central banks have virtually exhausted their stimulus arsenals if activity keeps fading. That leaves the hopes of financial markets riding on the U.S. to resume its historical role as a locomotive robust enough to pull up demand elsewhere."

“Investors have huge questions about the world right now,” said David Kotok, chairman and chief investment officer at Sarasota, Florida-based Cumberland Advisors Inc."

'The latest catalyst for concern was the news that U.S. retail sales dropped 0.3 percent in September and wholesale prices unexpectedly fell for the first time in a year."

"That added to the drumbeat of disappointing data from elsewhere which this week alone included the weakest German investor confidence in two years and Chinese factory-gate prices dropping for a record-tying 31st month."

"Japanese industrial production tumbled 3.3 percent from a year ago and U.K. inflation unexpectedly plunged to its lowest in five years. Prices in Israel and Sweden are even falling in an indication of deflation."

"The epicenter of the economic worries is the euro area, where European Central Bank President Mario Draghi is trying to tackle the weakest inflation in almost five years as investors bet it will deteriorate further amid signs powerhouse Germany is now faltering."
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My added comment: To paraphrase a line from Dorothy in the Wizard of Oz  --- My, how quickly recoveries come and go around here.  Not that long ago the IMF was forecasting strong global growth and the US financial media was touting a US recovery so strong that the question was how much sooner than expected would the US Fed be raising interest rates.

Clearly things have changed pretty rapidly. And right now those forecasting another downturn leading to looser monetary policies are gaining credibility heading into 2015. We pledged to follow it all here and see who does get it right. The next 6-8 months should bring a lot of clarity. They should tells us if the following forecasts we are following will be proven correct or not:

Jim Rickards - Economy will lapse back into recession leading to more QE from the US Fed. Rickards does not think the US ever had a real recovery from the 2008 financial crisis.

Bo Polny - Gold price will make new highs by the summer of 2015 at the latest (aggressive forecast is by the end of 2014). Polny then predicts a massive stock market dive by the end of 2015.

Mainstream Financial media - Strengthening US economy will allow the Fed to raise interest rates by next summer (2015) or perhaps even earlier.

IMF Global GDP growth forecast - this one has already been revised downward once since an earlier rosier forecast. And the IMF is issuing warnings quite often now about all kinds of risks to the financial system as a whole.

US Fed GDP forecast - So far the Fed seems to be sticking to 3% + growth expectations for the US for 2015. But lately, some Fed officials are pointing a finger at "global weakness" as a possible drag on the US. Specifically they are pointing the finger at Europe (which has been hit by the backlash from the sanctions against Russia that the US forced on the Eurozone). 

In addition to all the above, we have a number of other key events coming in 2015 including a deadline from the BRICS nations for passage of the 2010 IMF voting reforms, a review of the SDR in 2015 by the IMF to see if the Yuan should be included in the SDR basket, and a change in the makeup of the voting Board members at the US Fed which will be much more dovish. As Christine Lagarde said recently, 2015 is looking like a "make or break" year.

CNBC Contributor Art Cashin on the Stock Market Drop

In this King World News interview CNBC contributor Art Cashin talks about the drop in the US stock market. He notes that the drop in oil prices is actually something to watch with some concern (even though gas prices will drop some). He says if it drops below $80 it may signal more problems ahead for the markets.

Kind World News does not allow the copying of quotes from their articles so I will just list a few key bullet points from the interview:

- if the 1790-1800 level gives way on the S&P it may trigger another large wave of selling

- the market bounced back at the end of the day because oil managed to stay above $80

- rumors that some hedge funds had to liquidate positions

- drop in the 10 year bond below 2% was one of the "most stunning moves" Art has seen in his 50 years observing Wall Street

- today gold became a safe haven instead of the US dollar for whatever reason

- market may rally now, but Art says to watch oil prices; a break below $80  may signal more trouble ahead.

Readers are encouraged to read the entire King World News interview article.

We have pointed out here quite some time back that we need to watch oil prices (and gold and silver prices) for signs of deflation. Since that time it has become clearer and clearer that the IMF and Central Banks are very concerned about deflation and are in a fierce battle to prevent it. But right now it seems like they are losing the battle. If stock markets keep falling we will probably see some kind of strong reaction from the Central Banks.

Interestingly, gold and silver were up a little while everything else was falling. This situation bears watching carefully. If that trend were to continue it would suggest that investors are losing faith in the system itself and starting to move more money completely out of the entire system despite the fact that gold and silver prices could fall along with everything else if a deflation event takes hold. 

Why would investors do that? Because in a deflationary world gold and silver might actually gain purchasing power if they fall less % than everything else. If they actually go up some even in a deflationary environment, that would be a gigantic flashing red light that the system is in trouble. It would mean huge amounts of money were exiting the system.

If this did happen, it would be a very powerful indicator that the system is in great stress and we would have to watch that very carefully. It's too early for sure to draw that conclusion, but it is definitely something we have to watch closely. If the markets start into a severe decline and oil keeps plunging, events could happen much more rapidly than has been the case up to now. So we will listen to a 50 year veteran like Art Cashin and watch all this very closely.

Update after market close 10-16-14:

Interesting day. Art Cashin says $80 oil is a key and that the stock market was very nervous. Apparently the Fed was a little nervous too as St. Louis Fed Chief Bullard made sure he got out an early morning statement that the Fed just might have to pause its QE tapering. CNBC noted that this "stunning" Fed comment calmed the stock market.

Think about this for a minute. We keep saying here that the markets and the economy need to prove they can stand on their own feet without constant Fed support. Today just continues to indicate that they can't. What does it mean when you can sit and watch the Fed react to a stock market drop in real time? It did keep oil above $80 and stocks from continuing to fall sharply. But how long does it last? What happened to the discussion about the Fed raising interest rates early due to the strong economy?

Also note that the Fed again used Europe as the scapegoat for why they may have to go back to QE again. But yesterday this article in the UK Guardian blamed the US Fed for tightening too early. And it says the Central Banks may have to have "permanent QE". If true, what happened to the recovery everyone was touting just a few weeks ago? So strong the Fed might raise interest rates early.

We intend to track these kinds of things here and hold people accountable for what they say and predict. So which it is it? The US economy is doing well, but being dragged down by Europe as the Fed is saying?   OR  The Fed tightening too early is dragging down the US recovery as the UK article says? Both cannot be right.

Update 10-17-14: Art Cashin provides this update after a market rally today. He says the bounce today may not last.

Fed Official: We Might Consider Another Round of QE

Score another one for Jim Rickards. He predicted that the Fed would be willing to reverse course and go back to QE by early next year. Most have assumed that would never happen. But, the San Francisco Fed Chief confirms Rickards is correct in this CNBC article. Below are a few quotes from the article and then a comment.

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"The head of the San Francisco Federal Reserve Bank on Tuesday said he would be open to another of round asset purchases if inflation trends were to fall significantly short of the U.S. central bank's target."

"Although he said it would take a big shift in the U.S. economic outlook for the Fed to restart its bond buying, John Williams said the possibility of a new downturn in Europe and other global economic woes pose a risk to the United States."

"If we really get a sustained, disinflationary forecast ... then I think moving back to additional asset purchases in a situation like that should be something we should seriously consider," Williams said in an interview with Reuters."

"Europe, which faces an elevated risk of a new recession and, according to the International Monetary Fund, a significant chance for an outright bout of deflation, has emerged as a central concern at the Fed."

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My added comment: Recall  a phrase we use here on this blog. A problem anywhere can lead to a problem everywhere. San Francisco Fed Chief Williams shows that this phrase is absolutely correct (downturn in Europe poses risk to the US). Note also this very dovish statement coming from a Fed Governor as the US stock market has taken a nose dive and fell through some key support levels. 

As we have noted here, the IMF has been issuing a number of warnings about lack of GDP growth and the threat of deflation as can be seen in the links to the right on this blog. Here are two recent ones:

IMF Warns Global Economy at Risk

IMF Report - Rising Financial Risks in the US

We also have oil dropping like a rock and gold and silver still at lows. Wages are not increasing either. The US dollar is moving higher. All these are "disinflationary" signals to the Fed.

Udpdate - Added note:  This morning several economic reports add to the evidence of "disinflation" and a possibly slowing US economy. Here are the links:

Empire State Manufacturing Index Falls

Retail Sales Fall

PPI Index Actually Falls

Fed's Hawkish Bias Completely Unwound

Falling Oil Prices Complicate Central Banks Fight Against Deflation

Update 10-16-14: Fed's Bullard Says they may need to delay ending QE

Added Update: Jim Rickards mentions our blog post here on his Twitter today (10-15-14).
Thank you Jim!

IMF Report: Heat Wave - Rising Financial Risks in the US

It seems like almost every day now the IMF is issuing another warning of some kind. This time we have this IMF report titled "Heat Wave - Rising Financial Risks in the United States".

I have not seen this report mentioned much anywhere in either the mainstream or alternative media blog sites. But the report once again lists the concerns about whether the stimulation policies of the Fed are leading to an unsustainable buildup in financial assets. This report even provided a "heat wave" graphic which the report says "shows that financial risk taking in corporate debt markets is rising and markets have begun to overvalue many assets".

Below are some quotes from the report, then a comment.

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"The heat map shows that financial risk taking in corporate debt markets is rising and markets have begun to overvalue many assets. Spreads in the high-yield and leveraged loan markets are not far from levels seen before the financial crisis. The quality of new loans issued is also declining, especially in the leveraged loan market where the amount of leverage in new deals is rising. The number of “covenant-lite” deals which give lenders less control over issuers has increased. For example, many new deals allow borrowers to issue more debt in the future without obtaining prior permission from lenders."

"Meanwhile, the risk that many investors could sell their holdings all at once is now even higher than before the crisis. Mutual funds, exchange traded funds, and households hold about 30 percent of corporate bonds as of the end of June 2014.The worry is that such “retail” investors could start selling suddenly if the value of their assets deteriorates unexpectedly."

"For example, high-yield corporate and emerging market bond markets saw large retail outflows in May and June 2013, when investors panicked during the “taper tantrum” episode. That event was relatively short-lived and did not involve institutional investors."

"A more severe episode of flight from risk by retail investors could lead to even greater financial volatility with wider systemic repercussions than were suffered during the 2013 event."

"The United States is getting closer to ending six years of policies designed to stave off the worst effects of the crisis. The U.S. banking system is now much more resilient, and economic risk taking by households and corporations is taking hold. For the sake of a smooth exit and a durable recovery, not only in the United States but gobally, it is critical that officials continue to respond to rising financial stability risks."

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My added comment:

As mentioned above, this IMF report has not gotten much media attention. By now it should be clear to readers here that financial authorities are concerned about what is going to happen when the Fed ends its current QE program. And well they should be. There is no evidence yet whatsoever that the economy and stock market can stand own its own two feet without all the artificial support from the Central Banks like the Fed. Indeed, in Europe it seems that the evidence continues to show just the opposite. Same in Japan. And maybe in China too.

One gets the feeling the IMF and Central Banks are just keeping their fingers crossed and hoping things will not go south in a hurry once the Fed ends QE. They clearly worry that assets (specifically corporate bonds in this report) are overstated from the effects of the QE stimulus of the last few years. The report says point blank: "The worry is that such retail investors could start selling suddenly if the value of their assets deteriorates unexpectedly." You could apply this same concern to the US stock market and real estate markets as well. They may be "overstated" too due to all the monetary stimulus. These next 6-8 months look to be huge.

All these constant warnings and statements of concern are not particularly confidence inspiring. On the one hand it is good that thought is going into the potential problems and what to do about them. On the other hand, one has to wonder if all these reports are more to cover themselves so they can say they warned us if things do go south. And if they really have any tools left to deal with the problems if that does happen?

  Added note 8-6-15: A full list of systemic risk warnings can be found on this blog page 

Bloomberg: Default Risk on China Credit

One of the key signposts we watch here are any signs of trouble in China since trouble anywhere can lead to trouble everywhere. This Bloomberg article notes some possible coming problems with debt in China.

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"Rating companies say the risk of defaults in China has risen as Premier Li Keqiang pares implicit guarantees for local-government financing vehicles."

"The yield premium over the sovereign for three-year AA corporate bonds, the most common grade for LGFVs, widened 21 basis points from last month’s four-year low to 198 basis points on Oct. 9. The State Council said Oct. 2 that the finance arms can no longer raise funds for local authorities, and that the governments have no obligation to repay debt that wasn’t raised to fund public projects. China International Capital Corp. predicts higher yields for new sales, while China Lianhe Credit Rating Co., a Fitch Ratings joint venture, says it can’t rule out defaults."

. . . . . . . .

“These steps show the central government is really serious about handling the debt,” said Zhang Yingjie, Beijing-based deputy general manager of research at China Chengxin International Credit Rating Co., a Moody’s Investors Service joint venture.“Sovereign credit was overdrawn in an opaque financing system, but from now on the responsible parties will be clearly stated.”

IMF Warns Global Economy at Risk

If we are in any kind of real recovery it is certainly an unusual one. Once again the IMF comes about with another warning that the global economy is at risk in this CNBC article. Below are quotes and then a comment below that.

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"The International Monetary Fund's member countries on Saturday said bold action was needed to bolster the global economic recovery, and they urged governments to take care not to squelch growth by tightening budgets too drastically."

"With Japan's economy floundering, the euro zone at risk of recession and the U.S. recovery too weak to generate a rise in incomes, the IMF's steering committee said focusing on growth was the priority."

"The IMF has flagged Europe's weakness as the top concern, a sentiment echoed by many policymakers, economists and investors gathered in Washington for the Fund's fall meetings, which wrap up on Sunday."

"It called on central banks to be careful when communicating changes in policy in order to avoid financial market shocks. While not naming any central banks, the warning appeared aimed at the U.S. Federal Reserve, which will end its quantitative easing policy this month and appears poised to begin raising interest rates around the middle of next year."

"The Fed has debated a change to its commitment to holding rates near zero for a "considerable time" at its recent policy meetings, but is stepping gingerly to avoid roiling financial markets. It wants to avoid a repeat of the "taper tantrum" it touched off last year when it signaled its easing of monetary policy was drawing to a close."

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My added comment: The above underlined quotes simply illustrate something we have been covering here. There is considerable debate and question as to whether any real recovery is happening. By real recovery we mean the real economy. An uptick in GDP just because of monetary stimulus by Central Banks is NOT a real recovery. The economy has to prove it can stand on its own feet without the support of virtually zero interest rates and never ending new money creation. So far, every time the US Fed tries to wean the economy off QE, it starts to quickly fade and prove that ONLY the stimulus is holding it up. Right now stock markets around the world are hinting possible trouble coming once again.

These next several months are going to be huge. If the economy starts faltering yet again with the ending of the Fed's current QE program, it could get ugly this time. The article above is an open admission that officials are very worried about exactly this problem. The global economy simply has not responded to all the massive low interest rates and enormous monetary stimulus around the world. If it starts rolling over again the Central Banks will be in a very tough spot. If they do nothing, a free fall could start to unfold. If they have to admit the recovery is failing again and ramp up another round of QE, they will probably lose a lot of credibility in the markets (people will not believe they can do anything to solve the problems). Keep in mind Jim Rickards predicts that the economy will falter again by early in 2015.

This article is important because it makes it crystal clear that we are very close to finding out if the economy can hold up without stimulus or not. If it doesn't, things could become volatile fairly rapidly once the markets sniff that out.

One thing for sure, if things go south, the IMF can say they warned us. But very few are paying much attention so far.

Update - added news link:  The Guardian runs this article titled: World Leaders play war games as the next financial crisis looms

Could Ebola Impact the Monetary System?

At first glance this seems like a strange question. How could a disease that has been (so far) mostly contained in one region of the world impact the global monetary system? So long as the disease is contained, it shouldn't. The problem comes when it starts showing up around the world and people began to react in fear. 

The Dallas, Texas area has become a focal point for global attention on this topic. Here is an article in the Dallas Morning News that deals with it. 

Since we live in this area (the DFW metroplex) we can provide a bit of on the ground report as to how people are reacting to the situation. For the most part people are still calm. There is concern of course and people do watch the news daily for updates. But there is no sign of any panic reaction. For the most part people are carrying on their daily routines. An example might be the State Fair of Texas held annually in Dallas. Despite the fact that millions of people from many different places attend the fair (making it a place one might worry about catching a contagious disease), there has been no drop in attendance this year. 

Our family visited this past Saturday (on the day the Texas vs. Oklahoma football game was played). I did not hear a single person talking about Ebola or expressing any concern about it at the fair. The crowd was huge as is typical for this annual event.

The problem might arise if the disease begins to spread and officials cannot explain how it happened. Just this weekend a nurse who attented to the ebola patient who died here in Dallas came down with ebola. So far, there is not an explanation as to how someone who should have been fully protected got the illness. So this will bear watching.

To answer the original question. If the disease starts to spread and people lose confidence that offiicials can contain it, this could start to impact the economy. Obvious places that could get hurt first would be airlines, hotels, restaurants, and any place where the public gathers. But if a real panic took hold, schools could shut down, businesses might have to close etc. We are not near that situation right now in this area.

But you can easily see all this could impact the economy, the financial system, and the monetary system. Even the exchange of paper currency could become suspect since it is a place where germs can circulate. 

Right now it seems unlikely, but the answer is yes. Ebola could potentially impact the system. Let's just hope it doesn't.

US Special Ops worried about terrorist use of Bitcoin

Here is more evidence that Bitcoin is going to have an uphill battle gaining acceptance with the financial establishment (and in this case the US intelligence agencies monitoring terrorists). We have noted on this blog that the lack of ability to track the flow of funds (while popular with those who do not trust the system) causes Bitcoin to be viewed as a potential problem within the system. Below are some quotes from this CNBC article about this. Also, I think this is the same group Jim Rickards met with recently in Florida.

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"The United States military is studying digital currencies like bitcoin to learn if they can be traced and to figure out how they are used by America's adversaries around the world."

"CNBC has learned that the global policy counsel of the Bitcoin Foundation flew to Florida to meet with officials from U.S. Special Operations Command for a daylong discussion Monday on the role of so-called cryptocurrencies—of which bitcoin is the best known—in illicit finance."

"The military's interest in virtual currency is part of an overall effort by special operations forces to understand how their enemies finance themselves, and what intelligence special operators can glean by following the illicit money."

"Among the roughly 100 attendees at the event, said several participants, were business executives and specialists in financial payment processing, experts in bitcoin operations, Silicon Valley executives, representatives from the U.S. Treasury and Department of Homeland Security, as well as members of the U.S. intelligence community."

"A key question for the officers in the room: Can the U.S. military trace bitcoin? "That's a difficult question," said the defense official, "and one we're working through now."

"One attendee characterized cryptocurrencies as "very dangerous stuff" for the U.S. military. "We were brought in [to Monday's meeting] to work on ways to meet the challenge," he said. "I don't want to say what they were."

"Pinguino Kolb, co-founder of the website Spelunk.in which tracks cryptocurrencies, said the digital currency community is largely skeptical of the U.S. government and of U.S. intelligence. News of a meeting between bitcoin advocates and the Special Operations Command may not be taken well in that community, she said. "A lot of people think, 'oh, my God, government—scary," she said. "They wouldn't look at both sides of the story as much as they would kind of just freak out on Reddit."

"Still, Kolb said the broader cryptocurrency community understands the tensions between security and freedom. "Nobody wants the bad guys to get a bunch of money," she said. "But they don't want to lose their freedoms, either." She added that U.S. intelligence would do well to focus less on bitcoin and more on other alternative currencies that are more focused on anonymity, like Darkcoin, which Wired magazine called "the shadowy cousin of bitcoin."

Andrew Huszar: Fed Looking at an Economy that is "Chronically Underperforming"

Yesterday (10-8-14) the Fed released its notes and the market was surprised at how dovish they were given all the media hype about coming rate hikes. Readers here of course were not surprised. In this new interview with King World News, Andrew Huszar talks about the Fed's situation. Andrew Huszar ran the first QE1 program for the Fed and later explained he thinks QE is a mistake.

It's clear from this interview he has not changed his mind about QE as notes that the Fed is watching an economy that is "chronically underperforming". He says the Fed cannot possibly raise interest rates (or really do anything much) because the economy is too weak and the Fed knows that the GDP being reported is mostly due to their bond buying program.

On the other hand he says the Fed cannot do much more to try and stimulate things either. He says the Fed is in a very difficult position and asks "So how radical can the Fed be in this troubling environment".  

The full interview is linked above.

A Major Step Towards Monetary System Change Coming in 2015?

This blog is devoted to covering any and all events that may lead to major global monetary system change. Whether the events are sudden and unexpected (like the global financial crisis of 2008) or slow and steady (like the gradual move towards other global reserve currencies and the SDR at the IMF). This USA Today article is about one of the slow and steady changes. 

At this point there is really not much need to try and convince readers here that change is coming. It is so clear now that no one really questions it. The only question left is over what time frame and under what circumstances the changes take place. And also what the actual final changes are of course. 

Our premise here is that the "reset" to come will involve the loss of sole reserve currency for the US dollar. This USA Today article just confirms that the process is in motion and ready to take another step forward next year. Below are quotes from the article. Everything in this article is what we have  been covering here all year and is exactly what Jim Rickards has been predicting as well (which is why we follow him here). It looks like a lot of things may come to a head sometime in 2015.

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"Protests over democracy in Hong Kong may be preoccupying the Chinese leadership, but a subject of still greater international importance is being played out this week behind closed doors in Washington. China is bidding to enter the heart of global finance by establishing its currency, the renminbi, as part of an ubiquitous monetary unit used in official transactions around the world."

"The issue of whether the Chinese should be part of the International Monetary Fund's Special Drawing Right, the composite reserve currency used in official financing, is highly technocratic, but the political questions at stake go to the core of world money and power – and will be discussed, in the background, at the annual meetings of the IMF and World Bank in Washington this week."

"The decision on a new SDR structure, to be made in the next 15 months, will influence how China and its currency can play a bigger part in driving world trade, investment and capital flows. The renminbi could eventually challenge the dollar and its pivotal position in world money — which is why the U.S. government and Federal Reserve are examining this with intense interest."

"As the world's No. 2 economy after the U.S., China believes it is close to earning the status of a reserve money, the first time that an emerging market currency would attain this position. Chinese entry into the "magic circle" has been advanced by the British government's September decision to issue renminbi-denominated bonds, the first big government to take such a step, and allow the proceeds to be held as reserves by the Bank of England."

"Next year's planned review will touch, too, on the opportunity for the SDR to play a greater role on financial markets, for example in denominating bond issues. The SDR has lost ground as a financial vehicle in the past two decades, reflecting the surging importance of international private sector capital markets. But with the addition of the renminbi, it may be about to make a comeback."

Update: Bloomberg says China is taking steps to make the Yuan more acceptable as reserve currency, probably to get ready for the IMF review noted above.