IMF Issues New Debt Warning

The IMF has continually had to redo economic forecasts for the global economy to reflect prospects for lower GDP growth than originally predicted. They continue that trend this week with new warnings about sluggish growth and issue a new warning the debt levels are continuing to rise. Below are some quotes from this Bloomberg article on the latest IMF warning.

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"Global policy makers need to guard against a self-reinforcing “spiral” of weakening growth and rising debt that could require a coordinated response by the world’s major economies, according to the IMF’s top fiscal watchdog.

Most countries are on a higher debt path than they were a year ago, the International Monetary Fund said in its semi-annual Fiscal Monitor report released Wednesday. Fiscal deficits in 2015-2016 in emerging economies are projected to exceed levels during the global financial crisis, as countries struggle with low oil prices, cooling investor sentiment and intensifying geopolitical tensions."
. . . . . . . .

"If a low-growth, high-debt spiral takes hold, the responses of individual countries won’t be enough. Major economies will have to quickly act together to combat the “stagnation forces” through measures to spur both demand and supply, said the Washington-based fund, which was created during the World War II to oversee the global monetary system."

“Our evaluation is that risks are at this point in time more considerable than they were, say, six months ago or one year ago,” said Gaspar, a former finance minister in Portugal. “The expression we use for the way we look at global developments at this time is a state of alert. We are on alert, we’re definitely not on alarm.”

Click here to read the full Bloomberg article

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My added comments: This article is in line with comments made by various officials as the IMF Spring Meeting this past week. The theme right now seems to be "we are on alert, we're definitely not on alarm."

It's interesting to watch the IMF and other officials continue to issue warnings but at the same time make sure they say that there is no sign of a crisis for now. Meanwhile alternative media sites continue to suggest that a major crisis is imminent. This week the recent secret meetings at the FED (and at the White House) along with the startup of the new Chinese gold trading platform that will price gold in yuan (instead of US dollars) has prompted all kinds of speculation that something (not good) is going on behind the scenes. In addition we have the Saudi threat to dump US assets if implicated in the 9/11 report and the Fed issuing a letter to JP Morgan saying their stress Plan B is not adequate. The top of page 11 of the Fed letter says that JP Morgan has risks that, "if not overcome, could otherwise undermine successful execution of the preferred strategy and, more broadly, pose serious adverse effects to the financial stability of the United States."

All you have to do is watch to see what happens in the next few weeks to see if there is any validity to the speculation. So far there are no visible signs that a sudden major crisis is about to emerge.

One thing to add. When we use the term "major crisis" here, we are not just talking about a few down days on the stock market or even a recession. We are talking about an event so severe that life as we know is disrupted in some way for a period of time. An event where we see the President address the nation concerning the crisis. An event where major markets are halted and banks are forced to close for some period of time due to extreme stress in the system.

The conditions for a crisis like this are present all the time due to high leverage in the system and the interconnected nature of the so called too big to fail entities. The letter linked above from the US Fed to JP Morgan clearly states that there are risks that could impact the  "financial stability of the United States" within JP Morgan. But so far, no such crisis like this has emerged. It could happen any time or it could not happen for a long time. It's impossible to know ahead of time unless you are inside the system and aware of the stress points in the system. No one inside the system has advised me that such a crisis in brewing behind the scenes, but who knows if they would even if they were aware of one. This new speech by William Dudley (NY Fed) does not suggest any signs of alarm for example. Of course, it's their job not to alarm the public and it's not as if they have not issued a ton of warnings for years now.

China Repeats call for broader use of the SDR at IMF Spring Meeting

This is basically just China repeating what they said earlier this year at the G20 meeting. But this article does add that the IMF agrees with China and will start a study on wider adoption for the SDR. Below are quotes from the article with some points I wanted to emphasize underlined in bold.

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Chinese central bank governor Zhou Xiaochuan on Saturday called for broadening the use of the International Monetary Fund (IMF)'s basket of reserve currencies to advance the reform of the International Monetary System (IMS).

"The IMS has inherent deficiencies and faces new challenges from globalization, financial innovation, and volatility in capital flows," Zhou said in a statement for the meeting of the International Monetary and Financial Committee (IMFC), the IMF's policy setting committee, on the sidelines of the spring meetings of the IMF and the World Bank.

"The SDR has the potential to resolve the existing deficiencies in the IMS," Zhou said, referring to the Special Drawing Right, an international reserve asset created by the IMF in 1969. The value of the SDR is currently based on a basket of four major reserve currencies: the U.S. dollar, euro, the Japanese yen, and British pound. The IMF decided last year to include the RMB in its SDR basket as the fifth currency, effective October 1, 2016.

"We can start now to gradually broaden the use of the SDR, including using it as a reporting currency in parallel with the USD and exploring issuance of SDR-denominated assets," Zhou said, adding that China has released foreign exchange reserve data denominated in the SDR in addition to the U.S. dollar starting from this month.

Zhou said China will also explore issuing SDR-denominated bonds in the domestic market and look forward to the IMF's further analysis on strengthening the role of SDR this year.

"We support the examination of the possible broader use of the SDR," the IMFC said Saturday in a communique after the meeting of the 24-member committee.

"The IMF will discuss the case for a general allocation of SDRs and the reporting of official reserves in SDR," the communique said.

Click here to read the article directly

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My added comments:

Please note that once again China talks about "gradually" broadening use of the SDR. What is new here (at least to me) is the IMF statement saying they support "examination of the possible broader use of the SDR." Now we have more than just China talking about the idea (see point #5 in official IMF communique).

Added note: Here are two more articles on China's call for more use of the SDR:

BRICSPOST - PBOC Calls for Broader Use of SDR

South China Morning Post - China's Obsession with IMF's Accounting Unit (SDR)

Some quotes from the South China Morning Post article just below:

"The SDR, a weighted average of various currencies, was created half a century ago as an alternative medium to the US dollar for governments and central banks to use to hold international reserves, but it never really gained momentum.

Now, with six months to go until the yuan is included in the IMF’s basket of currencies – alongside the US dollar, the euro, the British pound and the yen – China is reviving the earlier attempts."

. . . . .

"Measuring foreign exchange reserves using SDR could reduce valuation fluctuations and strengthen the role of SDR as an account unit, China’s central bank said in a one-paragraph statement. Alan Wheatley, an associate fellow of international economics at the British think tank, Chatham House, said the central bank’s move showed two things.

“First of all, they are playing the game as a serious member of the IMF, and secondly, it underlines, perhaps, that it is now tracking the basket, rather than the dollar.”

The idea of China issuing bonds denominated in SDR was “very interesting and potentially significant”, he said. “The SDR has been a failure – the SDR never took off as a private sector asset … but if China is doing that, then it could be different.”

David Marsh (OMFIF) on Why China is Promoting the SDR

David Marsh of the OMFIF writes this new commentary on why China would like to see broader adoption of the SDR. As we have noted here, he says the process will take some time. Below are some quotes from his new commentary. This article is further confirmation that we can expect change to take place gradually unless a crisis were to speed things up.

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"China’s utterances over the years on the International Monetary Fund's special drawing rights confirm the Beijing authorities’ delphic reputation for long-term thinking. The mystery is starting to look a little less obscure. China is embarking, pragmatically but steadily, towards enshrining a multicurrency reserve system at the heart of the world’s financial order.

Although it accepts that many years will elapse before the dollar can be dethroned from its No.1 role, Beijing favours a ‘4 plus 1’ system: the euro, sterling, yen and renminbi, co-existing with the dollar. These are the five constituents of the SDR, which the renminbi formally enters in October, following a US Treasury-endorsed IMF decision in November.

Beijing has upgraded the role of the IMF’s composite currency by starting to publish its foreign reserves total (the world’s biggest) in dollars as well as SDRs. As the People’s Bank of China said on 7 April, this ‘help(s) reduce valuation changes caused by frequent and volatile fluctuations of major currencies, hence providing a more objective measurement of the overall value of the reserves.’

. . . . . . . . 

"The statement was prefigured a few days earlier by Zhou Xiaochuan, the PBoC governor, in Paris reporting that Beijing had decided to publish the SDR reserve data, and intended issuing domestically orientated SDR-denominated bonds, promoting the composite currency’s capital markets use.

Among other initiatives, we can expect SDR pricing for some commodities, bond issues by governments outside China, and improved clearing and settlement for SDR currencies, where Beijing may co-operate with the Belgium-based Society for Worldwide Interbank Financial Communications (Swift) network."

Click here to read the full article by David Marsh

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Added note: Here are two more recent articles on SDR's that you might find of interest. The first sent to me by a reader here.

The IMF's Special Drawing Rights, the Renminbi, and Gold

This article notes that the SDR has lost over 80% of its value over time against gold.

SDR Does not stand for Secret Dollar Replacement

This article states the case that the recent statement from China about broader adoption of SDR's is more PR than real substance.

These articles continue to suggest that any replacement of the US dollar by the SDR would most likely be a very slow and gradual process unless another major financial crisis unfolds. The article comparing gold versus the SDR over time suggests that some form of asset or gold backing might be necessary to gain public confidence if the SDR was eventually put forward as a replacement for the US dollar as the leading global reserve currency.

The "New Case for Gold" Stirs Old Debates and Offers up New Ones

Best selling author Jim Rickards is at it again with a new book on gold. For some reason gold seems to stir up debate and emotional reactions in people for and against it as a form of money. In "The New Case for Gold", Jim takes on the age old criticisms against gold and offers a new reason why people need to consider owning some gold today. 

Below are some questions related to gold that Jim answers in the book.

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- Is gold really money?

- Why did the gold standard go away?

- Is it possible to return to a form of a gold standard today?

- Isn't there too little gold in the world to use it as backing for currency?

- Isn't there not enough new gold mined to allow for an expansion in the money supply?

- What price would gold need to be in order to back the money supply currently?

- What is the "Shadow Gold Standard"?

- What future monetary event could lead to increased demand for gold for wealth protection?

- Why are Russia and China buying so much gold?

- What is a new reason people need to own some gold in a modern technology world?

- What is the best way to own gold in a portfolio and how much is enough?
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Jim explains why he wrote this book in this video

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My added comments: If you want to look into the subject of gold without being bombarded with emotional arguments for and against it, this book will be for you. Jim provides a fact based analysis in support of gold as form of wealth protection without any hype. Since Jim does not sell precious metals, he can approach the subject in a purely analytical way. Readers can do their own fact checking and decide if Jim makes his case.

I will add that one question I get here is what the average person can do who might want to follow Jim's advice on acquiring gold, but cannot afford gold. I would say that you can apply much of what Jim says about gold to silver. There are differences in that silver is less regarded as a monetary metal and is also viewed as an industrial commodity more so than gold. However, in a crisis situation like Jim is predicting, silver could certainly function somewhat like gold for those who cannot afford the higher priced metal.

We have long said here on this blog that precious metals should be viewed like an insurance policy and that the emotional reactions surrounding gold seem silly when looked at in this way. "The New Case for Gold" seems to take the same approach.

Added notes:

CNBC Interview with Jim Discussing The New Case for Gold

In depth discussion of gold and the new book with Greg Hunter

Followup on SDR's: Dr. Warren Coats Says the World Needs a Reserve Asset with a "Hard Anchor"

Our article featuring the video discussion about the future potential for the SDR as a global reserve currency has generated a lot of interest and some good questions from readers around the world. Some readers here are advocates of a monetary system backed by gold so they wonder why the world would be better off using the SDR as a global reserve currency as Dr. Coats has proposed.

These are all good questions and encourage me that this blog is reaching one of its goals. A goal here is to present a variety of credible views on the important issues that relate to future potential monetary system change. In this case we have featured a presentation on how the SDR might eventually replace the US dollar as the world's global reserve currency and thoughtful readers raised some questions about why Dr. Coats thinks this is a good idea (see example here).  

In this followup article we will direct readers to a paper written by Dr. Coats where he explains in more detail why he thinks his proposal would make things better. Below I have pasted in the Conclusion section of his paper titled "Why the World Needs a Reserve Asset with a Hard Anchor". It may provide more insight into Dr. Coats thinking for readers here. Of course, you need to read the full paper to get the proper context. You can download the full paper here. Items that are underlined below are points I felt should have extra emphasis.

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from the Conclusion section of "Why the World Needs a Reserve Asset with a Hard Anchor":

Conclusion 

Since the collapse of the Bretton Woods/Gold standard system, the impressive growth of cross border trade and finance has been restrained by costly exchange rate volatility. An expensive industry has developed to hedge the related risks. Exchange rate manipulation, if not out right currency wars, have created political tensions and produced large international payments imbalances. Given the size of the U.S. economy and the depth and breadth of its financial markets, the use of the dollar has remained and even grown as the world’s primary reserve asset. But the continued failure of the U.S. government to address its unfunded liabilities, the traditional lack of concern by the Federal Reserve for the monetary needs of foreign users of the dollar, and faltering American leadership of the post WW II world order have increased discontent with and reduced confidence in the current arrangements. While gaining the exorbitant privilege of borrowing abroad in its own currency and the seigniorage from foreign holdings of its currency, the U.S. incurs the cost of deindustrialization caused by the chronic balance of payments deficits needed to supply the world’s demand for its currency, and the entire world incurs the cost of weakened monetary and fiscal discipline and hard to predict exchange rates. 

A much better system would replace national currencies for pricing and settling cross border transactions with an internationally issued currency, whose value was anchored to a small basket of real goods, and to which the exchange rates of all or most national currencies where firmly fixed. In 1969 the IMF created the Special Drawing Right (SDR) to supplement or replace the U.S. dollar in international reserves. Initially its value was fixed to gold but after the closing of the U.S. gold window, its valuation was fixed to a basket of key currencies. The Second Amendment to its Articles of Agreement obligated Fund members to make the SDR “the principal reserve asset in the international monetary system” (IMF Article XXII). 

However, the SDR suffered from several deficiencies and never caught on. The initial failure (since corrected) to charge interest for using SDRs (and to pay interest for holding them) tainted the SDR as a development aid instrument rather than a reserve asset. More importantly, the regulation of the supply of SDRs via the approval of periodic allocations to all members in proportion to their IMF quotas made it very unlikely that their supply would match their demand at their officially fixed value (based on a basket of key currencies). This necessitated administrative rules for their use, which seriously undercut their attractiveness as a reserve asset. 

While many simple and practical steps can and should be taken to promote the use of the existing SDR as proposed by one of us in many earlier articles and by Governor Zhou in his speech in 2009, we believe (along with Governor Zhou) that the SDR could be made a much better (and less political) unit of account by replacing its valuation basket of currencies with a basket of goods. All of this could be done under the IMF’s existing Articles of Agreement. 

However, with an amendment to the Articles of Agreement that replaced the allocation of SDRs with issuing them under currency board rules, the attractiveness of SDRs could be dramatically transformed. Rather than buying and selling SDRs for the items in its valuation basket (ala the gold or other traditional commodity standards), the IMF would sell and redeem these “real SDR” for the basket indirectly (against government or other AAA financial assets of equivalent value). Such an SDR, with a relatively constant real value, is likely to be adopted as the anchor currency for fixing the exchange rates of many if not most national currencies and to augment or replace the U.S dollar and Euro in countries’ foreign exchange reserves. The entire existing stock of central bank FX reserves could be swapped (substituted) for real SDR in one go.

So why haven’t such reforms been embraced? The United States is thought to want to hang on to the seigniorage it earns from supplying its currency to foreign holders while indulging in its exorbitant privilege despite the instability of its exchange rate as capital flows in and out in response to Federal Reserve monetary policy and world developments plus the growing risk of a Triffin Dilemma like loss of confidence. We argue here that the U.S. has not given enough weight to the cost of supplying its currency in the form of deindustrialization nor the cost in the form of global financial instability from excess leverage encouraged by unanchored monetary policies.

Claudio Borio and Piti Disyatat “have argued that the fundamental weaknesses in the international monetary and financial system stem from the problem of “excess elasticity”: the system lacks sufficiently strong anchors to prevent the build-up of unsustainable booms in credit and asset prices (financial imbalances) which can eventually lead to serious financial strains and derail the world economy. Reducing this elasticity requires that anchors be put in place in the financial and monetary regimes, underpinned by prudent fiscal policies.”  Our real SDR currency board proposals could remedy this excess elasticity. 

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My added comments: 

If you are interested in getting a better idea for Dr. Coats thinking you can do so by reading his papers written over the years which you can find here. Also, we have covered Claudio Borio (BIS) that Dr. Coats mentions above here on this blog. Readers might find this paper by Mr. Borio of interest as well.

Repost: Dr. Warren Coats Answers a Blog Reader's Questions on SDR's

One of the goals of this blog is provide the best quality information we can find for readers representing a variety of credible viewpoints. The article we published this weekend with the video presentation on the potential future for the SDR has generated a lot of reader interest and some great questions. One reader sent me three questions he would like to ask Dr. Coats about the video. I asked Dr. Coats if he would be willing to provide answers to the questions and he was happy to do so. 


Below I have posted the questions sent in by email by reader John Y. Below that is Dr. Coats email reply he sent me listing the three questions and his answer to each one. This is great information for readers here and it helps this blog serve the purpose I intended for it. A big thank you to both reader John Y. and Dr. Coats for the questions and the answers!

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First, here are the questions as I received them in the email from reader John Y:

"Larry, thank you for posting the video on the SDR discussion at the IMF. I watched it last night and found it very interesting. I'm hoping you can help clear up something that Dr. Coats said during the discussion. Around the 42:02 mark, the moderator asks whether the reforms needed to implement the SDR as a global reserve currency would tie the Feds hands in terms of monetary policy. Dr. Coats responded (42:18) that this would happen "only if the Fed, in its great wisdom would decide to fix the US dollar to the SDR." Do you think Dr. Coats was sincere and honestly meant the Fed should peg the dollar to the SDR or that this was more of a tongue-in-cheek, sarcastic respond? At first I thought he was sincere, but after re-watching it a few times, I'm thinking he was being sarcastic. What do you think? 

The reason I'm asking, is because if he was sincere then I think this would come into conflict with the Impossible Trinity concept, and I would like to ask him about this conflict. In case you're not familiar with the Impossible Trinity, it basically states that a country can't have free capital controls, an independent monetary policy, and an unpegged, free-floating exchange rate all at the same time. Long-term, you can only have 2 of the 3."

This is the second email with the last two questions:

"Along those lines,two other questions arose from watching the video. If you think they're worth passing along and/or posting, then please do so.

1. During the initial discussion of the SDR and why it should take on the role of global reserve currency instead of a national currency, I think both Dr. Coats and Dr. Krueger (sp?) were alluding to the idea of Triffin's Dilemma. Is that correct? Does this paradox help support their reasoning for why the SDR should take on a larger role in the international financial system?
2. When Dr. Coats talked about private SDRs, how exactly does a bank set them up? So if I'm a bank and want to start issuing SDRs, what are the steps that I need to setup in order to do so? Do I start accumulating reserves (assets) in whatever currencies (US Dollar, Pounds, Euros, Yen, Yuan) that make up the SDR basket and then loan out SDRs (liabilities)?"

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Below is the reply Dr. Coats sent me with the three questions listed and his answer to each one:

Question: Should the U.S. fix its exchange rate to the Real SDR and would that violate the impossible trinity?

Answer:  I have attempted to lay out gradual steps toward what I think is the optimal international monetary system. Replacing national currencies (the U.S. dollar) in international reserves with an internationally issued currency (the SDR) would be a very major accomplishment.  National central banks would be free to fix the exchange rate of their currency to the SDR or not.  However, the fully optimal system in my view is one in which all central banks fix the exchange rates of their currencies to the SDR. This would essentially be the one world currency we had under the gold standard of the late nineteenth century.  So yes, I would like to see the U.S. dollar fixed to the SDR.  That would mean (as indicated by the impossible trinity, which the questioner misstated) that the U.S. could not have an independent monetary policy.  The money supply would always be what ever the public wanted to hold at the official value of the SDR following currency board rules.

Question: Is there something similar to the Triffin Dilemma supporting the argument for replacing a national currency in international reserve with an international one?

Answer:  The Triffin Dilemma was that under the gold standard, when U.S. dollars were redeemable for a fixed amount of gold, increases in international holdings of dollars could grow so large that its redeemability for gold would loose credibility, causing something like a run on the bank.  The dollar is no longer redeemable for gold or anything else at a fixed price, but as international dollar reserves are generally held as U.S. treasury securities, the size of the U.S. government’s public debt could grow so large that foreign owners of that debt could loose confidence in the ability of the U.S. government to repay it (or even service it) thus causing them to dump the dollar.  This is similar to the Triffin Dilemma, which could be avoiding using an internationally issued currency (SDR).

Question: How would a bank create private SDRs?  What are the steps?

Answer: Where no private SDRs exist, a bank customer (e.g. the AIIB) would ask its bank to credit the SDR equivalent of a dollar (Euro or whatever) deposit to a new SDR deposit account of the customer.  The bank would determine the SDR amount applying the official SDR exchange rate to the currency presented and record that amount in the customer’s SDR account.  That creates SDR deposits.  The next issue is what assets would the bank keep against these SDR deposit liabilities?  It could hold assets (loans, securities, etc.) denominated in the national currency the customer brought if it was prepared to accept the exchange rate risk of a mismatch between its assets and liabilities (a so called open FX position).  Or it could balance its exposure by converting the dollars into the appropriate amount of each of the five currencies in the current SDR valuation basket.  Or if there are financial assets denominated in SDRs it could acquire and hold those, or denominate its loans in SDRs etc.

Repost: IMF SDR - An Emerging Global Currency? IMF Officials Discuss on Video

We featured an interview with Dr. Warren Coats here on the blog in January. Dr. Coats has a proposal designed to encourage adoption of the SDR used at the IMF as a true global reserve currency. In February Dr. Coats and current IMF official Dr. Thomas Krueger were the featured speakers at a presentation on SDRs sponsored by the Chicago Economics Society in Washington, DC. You can watch the presentation on the video embedded just below. Following that is a brief summary of the contents of the presentation.

This presentation along with the Q&A session that followed with the audience has a wealth of important information about the prospects for the SDR some day becoming a true global reserve currency that could even replace the US dollar. This is a must see video for readers here and anyone you know who may have interest. Also, please note the quote Dr. Coats provided us to use for this article below.

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Here is a brief summary of just some of the important information covered in this video:

- introduction to IMF official Dr. Thomas Krueger who works with SDRs currently

- introduction to former IMF Head of SDRs - Dr. Warren Coats

- some history and background on SDRs

- an explanation of the distinction between official SDRs used at IMF and "private SDRs"

- Dr. Krueger talks about some realistic ways SDRs could be more widely used while also noting some of the factors inhibiting broader use of them (mainly the dominance of the US dollar)

- Dr. Coats reviews his "Real SDR" Currency Board proposal to explain how the use of private SDRs could expand the role of SDRs as a global reserve currency

- both speakers discuss the process in detail of various ways the SDR could gain broader adoption both within the existing IMF rules and with some changes to those rules

-the potential timing for adoption of the SDR as a global reserve currency is discussed (the time frame may surprise you)

- Dr. Coats notes that some changes to increase adoption of the SDR just require the "political will" to make some changes. He hopes that China might be willing to look at broader SDR adoption by issuing SDR bonds in the AIIB. Looks like China was paying attention in this Wall Street Journal article.

- The speakers (Dr. Krueger and Dr. Coats) were followed by a very interesting Q&A session with the audience where some excellent questions were raised and answered

- In the Q&A session (around the 1 hour mark in the video) Dr. Coats notes that Donald Trump is attracting support in his campaign by expressing concern over the offshoring of US manufacturing jobs. He adds that perhaps public concern with the loss of manufacturing jobs could lead to more interest in the future in the US for an international reserve currency. Dr. Coats feels that the loss of these jobs is tied in part to the US dollar being the global reserve currency (leading to payments imbalances globally over time)

-at around the 57 minute mark in the Q&A session they are asked what "event" could trigger the use of the SDR as a global currency. In the answer Dr. Coats explains how the issuance of private SDR's by banks could be done. Both Dr. Krueger and Dr. Coats agree that a major crisis involving the value of the US dollar (and loss of confidence in it) would have to take place for the SDR to step forward as a viable alternative

In addition we asked Dr. Coats if he had any thoughts on this presentation and any progress he sees towards broader adoption for the SDR as discussed in this video. He offered us this comment:

“In this presentation we were able to outline why it would be a good thing to replace national currencies as international reserves with an international one such as the SDR and to outline some steps toward that goal. It is generally believed that only an international financial crisis will precipitate a change in the international monetary system. Perhaps, but if so it is important to have a strong SDR waiting in the wings to take on that role when the crisis hits.”

Added notes: Dr. Coats answers some questions on this video presentation from a blog reader here.

Dr. Coats explains why he thinks the world needs a reserve asset with a "hard anchor" here

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My added comments:

Having covered SDRs here on this blog now for quite some time we know that there are a couple of huge questions in the minds of people all over the world on this topic. They are:

1) Will we get another major financial crisis worse than 2008 as predicted by Jim Rickards and other credible analysts in the next few months or years?

2) If we get the crisis, will that event lead to a more prominent role for the SDR in replacing the US dollar as the leading global reserve currency.?

I feel we have covered these questions here on this blog as well as any media publication on earth. We have dug into everything we can find to help readers learn more on this. Our search has led us to some of the leading experts in the world bar none. Included is Dr. Warren Coats featured in this video. This video will provide you with answers to many questions directly from an IMF official who works with SDRs currently (Dr. Krueger) and the former head of the SDR Division at the IMF (Dr. Coats). 

There is simply no better information available on this topic anywhere in our view here. It is important that more people learn about these issues and gain an understanding of the SDR because it could play a much more prominent role in the global monetary system in the future. Especially if we do get another major crisis. We have said that here on this blog for quite some time primarily based on Jim Rickard's work on this topic along with the work of Willem Middelkoop. (Dr. Coats mentions Jim Rickards at around the 59:30 mark in the video above). 

Now we have direct confirmation from a current and a former IMF official who are experts on SDRs related to what we have been covering here (see Dr. Coats quote he provided us above). Please take time to watch this video and encourage anyone interested in these issues to do so as well. It is loaded with valuable information.

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Below is a picture of a theoretical 100 SDR currency note used as a backdrop at the SDR discussion meeting. No such notes actually exist at this time. During the discussion Dr. Coats explained the difference between official SDRs issued at the IMF and private SDRs. This is a complex topic and it's hard to find high quality information on it anywhere, especially from experts like these.

One other added note: China gets a mention of the SDR into the recent G20 communique as this Wall Street Journal article notes. They call for broader use of the SDR.

SDR talk/UC alums Dr. Krueger & Dr.Coats w/@pdacosta Career trek, connecting to Alums @ChicagoHarris #ChicagoHarris

Wall Street Journal - China will consider issuing bonds denominated in SDR's

This is an article that does have some relevance to what we follow here which is the potential for major monetary system change. This Wall Street Journal article says that China will at least consider issuing some of its bonds in SDR's. We have noted here that this is a key step to the SDR gaining broader adoption as a true global currency. Below is the key quote from this article. Here is the official statement on the PBOC web site (use Google translate to read in english). The statement confirms what we have published here about the potential for the SDR in the future, but also confirms that the process make happen very slowly.

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"Mr. Zhou (PBOC) said China will use both the U.S. dollar and the special drawing rights when reporting the country’s reserves of foreign currencies in the near future, according to transcripts of his remarks posted on the central bank’s website Friday.

The government will also consider issuing bonds denominated in SDR in China, he said at a briefing after meeting with officials of the Group of 20 major economies in Paris on Thursday.

The central bank chief said last month that as the host of this year’s G-20, China will push for a gradual increase in world-wide use of the IMF’s SDR as a way to improve management of financial risks."

Click here to see full WSJ Article

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Added comments: In line with what we have said here, please note that China will consider issuing SDR bonds (which means they have not decided to do so yet) and that China will "push for a gradual increase in world-wide use of the IMF's SDR." 

China tends to move very slowly so a gradual increase implies a lengthy period of time. Again, we have more evidence that there is not a grand plan to suddenly convert the world to a new global reserve currency unless a new major crisis were to unfold forcing action more quickly. Keep in mind that the IMF will not even actually add the Yuan to the SDR basket until this October.

In other news, here are article links readers may find of interest:

Recent interview with Jim Rickards and Paul Buitink

Recent interview with Jim Rickards and Dan Popescu

In the second interview linked above, Jim says the same thing I have concluded here on this blog. He says that any plan to try and change the global monetary system is likely to unfold gradually over time without a major crisis to motivate change more quickly. He then adds that he is watching to see if the change will come at that pace or if the current system will collapse before major change can take place. This is exactly what I concluded here after two years of in depth study on this topic. It's the reason why I say that really the only thing left to watch for here is whether we do get another major crisis any time soon or not. Otherwise, I do not expect to see any major monetary system change happen quickly.


Added note: Whenever the subject of a crisis comes up, you always have some who wonder if the crisis is real or contrived in order to get the public to accept conditions they would not normally agree to. This article on Zero hedge claims that Wikileaks released a transcript of a discussion by IMF employees to essentially create a crisis in Europe this summer. I don't know if there is validity to this report or not (Christine Lagarde denies it here), but it does illustrate what we have said here many times. It usually takes a crisis for any kind of significant change to take place. Without one, things tend to stay in mostly status quo. 

Additional added note: A thank you to a reader for forwarding these two article links:

Plan B for the Global Economy

http://www.brettonwoods.org/sites/default/files/publications/Paul%20Volcker%20final%20Remarks%20June%2017.pdf

Crisis Watch - Latest Array of Information

We have concluded here on this blog that really the only thing left to watch for is another major financial crisis so large that it could lead to major monetary system change. Because such an event is impossible to predict from a timing standpoint, I decided to end daily articles here since it could be a long time before another crisis unfolds. 

On the other hand, we have established from many highly credible sources that the conditions for another major crisis do exist and are pretty much present all the time. There are many credible analysts who expect this kind of crisis, but we have just listed many of the warnings issued by both the IMF and the BIS here on this blog. You can see that list here. Most people accept these as highly credible sources.

This creates a dilemma for me in trying to serve readers here responsibly. I need to make sure readers are aware of the legitimate warnings and forecasts of credible sources that believe another major crash is either possible or will actually happen. At the same time, I need to make sure that I am not presenting fear based hyperbole if no new major crisis arises any time soon. It's the most difficult issue I struggle with here on this blog.

I have given this problem a lot of thought and my solution is to try and do periodic updates I will title as "Crisis Watch". I will provide a brief summary of all the primary sources of information I follow as to what they are saying regarding the prospects for a new major crisis/crash/collapse. This will hopefully assist readers in a responsible way without me having to make any kind of prediction myself because I freely admit that I have no way to forecast a major event like this unless someone inside the system gives me direct input that they see such a crisis ready to unfold. So far, no one inside the system has done so.

With all that said, here is the rundown for April on what I see from a variety of sources on this issue.
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Jim Sinclair/Bill Holter - These two have begun a subscription service that I won't have access to so all I can do is present what I can see from any public comments they make. I believe both Jim and Bill still firmly believe we will see the kind of major crisis we have talked about here this year. In fact, I think Bill Holter thinks it is actually underway now, but is simply unfolding in waves over time rather than in one big sudden event.


Jim Rickards - Jim still believes we will see a major crisis that will lead to a big monetary system change (the SDR replacing the US dollar as global reserve currency). However, it is virtually impossible to get Jim to commit to any kind of hard time frame for the crisis. He has said for a couple of years now that it can happen at any time or could take several years, but has always indicated he felt it would not be later than the 2018-2020 time frame. Jim is doing a ton of free interviews now in promotion of his new book on gold so I have heard him quite a bit lately. He has clearly hedged on the timing for the crisis, saying in some interviews it could still be years away, but he is still always warning it could also happen much sooner than people expect. Basically, Jim admits he cannot predict the precise timing so he advises people to prepare as soon as possible because once such a crisis did unfold, it would likely be too late to take any meaningful actions to help weather the storm. Jim says everyone should try to own at least some physical gold. For those who cannot afford gold, I think he would advise them to try and own some physical silver.

Various precious metals advocates - Here we include a number of analysts who regularly do interviews on alternative media sites such as King World News. This group remains virtually unanimous that a huge crisis is coming and most think it will be sooner rather than later. They all advise people to acquire physical precious metals as insurance against such a crisis. In this group would be people like Eric Sprott, John Embry, James Turk, Egon Von Greyerz, Andrew Maguire, David Morgan, and many others. We can assume this group will not change their view.

Bo Polny - Bo is a cycles forecaster who uses methods some find questionable to try and predict future market highs and lows. He has a mixed track record having made some remarkably accurate forecasts while also missing on some major forecasts (which to his credit he admits). In this recent interview with Greg Hunter he puts everything on the line by forecasting that we absolutely will see a major financial crisis by this fall which will see the US stock market take an enormous dive downward and will see gold and silver prices sky rocket higher. Bo has missed on similar calls for gold in both 2014 and 2015, but admits that in this interview and makes his case as to why he thinks he will be right this year. I don't know if Bo will be right or wrong, but if he is right, it will be important to start thinking about some kind of backup plan right away. If you are considering acquiring any precious metals as an insurance policy and Bo is right, you only have a few weeks to months left at most. Jim Rickards basically says that same thing, but is not suggesting that he thinks a crisis will emerge this year. This interview is a perfect example of how hard it is to try and decide what to present to readers here. If Bo is off base, his forecast will seem like needlessly worrying people. But if he were to be right, people would ask why no one one gave them the opportunity ahead of time to try and make some preparations. All I can say is I don't know at all, but I do know that having some kind of insurance plan is wiser than assuming nothing could ever happen. That's just common sense.

Donald Trump - Here is a fascinating new forecaster to consider. Trump is proclaiming he thinks we are in a bubble and about to enter a "major recession". He says many of the same things that those predicting a major crisis above are also saying. In his case, this is a major gamble because if we arrive at November 2016 and no major crisis or recession has happened, he will look really off base and will no doubt take a huge political hit with voters who will assume he is unable to assess things properly. On the other hand, if we do get a crisis like Bo Polny (above) is predicting by this fall, Trump will look like a genius and will no doubt reap gigantic political benefit. I believe he would be elected President if such a thing did happen. Based on that, we must assume that Janet Yellen and the Fed have a vested interest in doing everything in their power to avoid such a crisis event happening this year. The very last thing I suspect they would want is Donald Trump as President. He has already announced he favors a full audit of the Fed and would certainly blame the Fed heavily for any major crisis that unfolded this year and of course would take credit for predicting it ahead of time. Most of the Ted Cruz and Bernie Sanders followers also are skeptical of the Fed. If we get a big crisis this year, expect major political fireworks. If we don't I expect the next President will likely be the Democratic nominee.

Sources who have connections inside the system - These are sources I cannot name because comments they give me are off the record. I hate to do that, but there is no choice. If you promise someone you will keep a comment off the record, you must honor that for moral and ethical reasons. What I can say here is that no sources like this have indicated to me that they see the kind of crisis we are talking about here happening this year. In fact, all the evidence I have from these kinds of sources indicates that they feel pretty good about the stability of the system right now and don't see any reason to make any kind of major changes to it any time soon. Of course, if a crisis did happen, I'm sure they would change their view on making major changes to try and deal with the crisis. But every indication I have is that if there were a major crisis this year, these sources would be surprised by that.

Mainstream media sources (CNBC, Bloomberg, etc) - The overwhelming majority of these kinds of sources are not expecting a major crisis or forecasting one any time soon. If that changes, you probably won't need my blog to know about it.

Summing Up: Pros and Cons for a Major Crisis Event

Pros:

- virtually all the sources I follow agree a major crisis is possible at some point in the future unless somehow the current unsustainable debt growth in the US and globally is dealt with. Their time frames vary a lot.

- the IMF and BIS have issued numerous warnings about systemic risks that exist.

- many credible experts from a variety of sources genuinely believe a crisis is coming. They vary on the timing for such a crisis.

- the law of averages - since we know that a major crisis has happened in the past and that they tend to happen in somewhat regular time frames (cycles, etc) it's only common sense to assume we will get another one at some point. The question remains when and how severe.

Cons:

- we can assume the US Fed and US government will do everything in their power to avoid a major financial crisis during an election year which would help their adversaries make a case against them with the general public.

-while the IMF and BIS have issued many risk warnings, neither is forecasting a crisis event at this time. Both have only expressed concern over slow global GDP growth. Christine Lagarde says this:

"She (Lagarde) said the world economy isn't in a crisis but that slow growth risks becoming ingrained as a "new mediocre." She noted the outlook for the next six months has weakened, suggesting the IMF may be revising down its forecasts."

- people have been forecasting a big crisis now every year for the past several years and have been wrong so far. This tends to lead to what I call "crisis fatigue" for the average person who quits listening to such forecasts because nothing major ever seems to happen. Another year of no crisis will just reinforce this feeling.

- mainstream media and mainstream financial analysts continue to see no major crisis coming even though there are some exceptions here and there. 

Conclusion: I will try to do an update like this every so often (at least once a month). If events indicate something significant might  be happening I will try to jump in with an article at that point. Otherwise, this will hopefully provide some useful information to readers without beating this topic to death every day.

Added note:  In April I will re-post some key articles from March so the links to those articles will show up on the right side of the blog during the month of April. The three articles with Dr. Warren Coats will be re-posted every month as they are some of the best information you are going to find on the prospects for the SDR replacing the US dollar anywhere in the world that I know of. 

Here are those links:

SDR - An Emerging Global Currency (Video)

Followup - Dr. Coats Answers a readers questions

Why Dr. Coats thinks the world needs the SDR with a "hard anchor"


List of all articles here on SDR's