Election Impact on Monetary System Change?

This is just a brief news note to say that it does not appear that anything related to the US mid term elections is likely to impact major monetary system change. Below I have listed the potential outcomes and how they might impact things.
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- Democrats take over both the US House and US Senate

This has been touted as a strong possiblity for some time, but more recent polling suggests this is now unlikely. However, this is the scenario that could have the most potential impact. We can assume that if the Democrats take control of the House, they will at a minimum prevent any further major legislation from being passed. At maximum, they will launch an effort to impeach President Trump. All that could certainly create a lot of market volatility and disruption. It is extremely unlikely that this would lead to President Trump being removed from office because that takes a 2/3 vote of the US Senate. The Democrats will not have anything close to that in the Senate regardless of how this election turns out. Also, removing President Trump simply puts in Vice President Pence and likely little to no change in policy from the Executive branch of the government.

- Democrats take over the House, but not the Senate

This is the more likely scenario as of this writing although more recent polling shows that control of the House is probably very tight and could go either way. For our purposes, nothing changes from the above analysis other than it becomes even less likely that President Trump would be removed from office and the Democrats might not even attempt impeachment since they would not have control of the Senate.

- Republicans hold the House and Senate

This scenario leaves things pretty much unchanged from the current situation. It is very unlikely anything major would change policy wise in this scenario. Also, there would be no effort towards impeachment in the House. Markets would probably not be impacted in any way in this scenario. 

Summary: I do not see anything related to the election that is likely to impact major monetary system change. 

I do see a lot articles in both mainstream and alternative media suggesting that markets may be about to roll over into a major correction and there are always lots of people predicting another major crisis at any given point in time. So nothing new there. The continued strength of the US dollar could create some problems and is probably the result of interest rates going higher along with the QT policy of the Fed.

The conditions for this are always present, but so far have not led to any kind of new major crisis. Should a new crisis emerge, President Trump has already made it clear he will blame the Federal Reserve for it and that would probably create some market disruption. An already badly divided nation would probably become even more intensely divided. Trump allies/supporters will go along with blaming the Fed. Trump opponents will blame it on Trump. That much is pretty predictable.

Added note: Here is Jim Rickards take on the upcoming election (and the potential for market impact) for anyone interested.

The Dollar and its Discontents

A thank you to a reader for pointing me to this article by Barry Eichengreen on the Project Syndicate web site. The article is another in a long line that ponders whether or not nations can find sustainable ways to get around using the US dollar. This is a hot topic these days and a lot of people are watching to see how things play out. Below are a couple of excerpts from the article and then a few added comments.

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Having unilaterally reimposed sanctions on Iran, US President Donald Trump's administration is threatening to penalize companies doing business with the Islamic Republic by denying them access to US banks. But that could hasten the dollar's demise as the main global currency.

. . . . .

"If the geopolitical shock of Trump’s unilateralism spurs an institutional innovation that makes it easier for European banks and companies to make payments in euros, then the transformation could be swift (as it were). If Iran receives euros rather than dollars for its oil exports, it will use those euros to pay for merchandise imports. With companies elsewhere earning euros rather than dollars, there will be less reason for central banks to hold dollars in order to intervene in the foreign exchange market and stabilize the local currency against the greenback. At this point, there would be no going back.

One motivation for establishing the euro was to free Europe from excessive dependence on the dollar. This is likewise one of China’s motivations for seeking to internationalize the renminbi. So far, the success of both efforts has been mixed, at best. In threatening to punish Europe and China, Trump is, ironically, helping them to achieve their goals."

Click here to read the full article on Project Syndicate

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My added comments: Thus far, while there have been endless articles about how one thing or another will lead to the demise of the US dollar as global reserve currency, that has not happened. Until it does happen, there is no reason to suggest we are on the cusp of major monetary system reform.

John D. Mueller -- To Bring Back U.S. Manufacturing, Get the World to Dump the Dollar

We have featured John D. Mueller here on this blog previously. Now he has written a new opinion article carried by The Wall Street Journal calling on President Trump to work towards replacing the US dollar as the global reserve currency. 

In this new article, Mr. Mueller says that the US dollar acting as the world's global reserve currency is actually a problem rather than an advantage for the United States. Below are a couple of excerpts from his article and then a bullet point summary of some of the key points.

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"Donald Trump promised to "make America great again," but he might make America Great Britain. To re-industrialize the U.S. economy, President Trump must avoid the mistake that de-industrialized Britain: Namely, he must end the dollar's role as the world's chief reserve currency."

. . . . . 

"French economist Jacques Rueff described the fatal weakness of foreign-exchange reserves in a 1932 lecture. He explained that when a monetary authority accepts dollar or sterling claims for its official reserves rather than gold, purchasing power "has simply been duplicated," so that, for example, "the American market is in a position to buy in Europe, and in the United States, at the same time." In other words, when a foreign nation accepts repayment in U.S. dollars it increases its money supply without diminishing the U.S. money supply, allowing both countries' central banks to lend in dollars.

This credit "duplication" is not only inflationary in the reserve-currency country and any country whose currency is tied to the reserve currency; it also necessarily causes the average price of goods to rise faster in the reserve-currency country than among its trading partners. This is why Britain's and America's manufacturing industries lost their competitiveness as exporters, resulting in deindustrialization."

. . . . . 

"The Triffin Dilemma can't be solved without a monetary reform that ends the dollar's use as the world's chief reserve currency.

Here's a deal that could place Mr. Trump in Alexander Hamilton's league:"

Click here to find the full article in the Wall Street Journal (behind a paywall)

Summary of Key Points

- President Trump should work towards removing the US dollar as global reserve currency

- Using a national currency as global reserve currency leads to the "Triffen Dilemma"

- This very problem contributed to the "deindustrialization" of Great Britian

- the glut of reserve currency leads to inflation and lack of global competitiveness

- Tariffs cannot restore competitiveness

- The Triffin Dilemma cannot be solved without monetary reform ending the US dollar as the global reserve currency

- President Trump should offer a plan to convert all foreign US dollar reserves to long term government to government debt

- This debt should be paid off in gold over a period of 50 years, similar to a plan used by Alexander Hamilton to pay off American revolutionary war debt

The article concludes as follows:

"Like Mr. Trump, Hamilton's contemporaries originally thought his glaring character flaws far outweighed his virtues. But after the formerly penniless immigrant managed to make a fortune for his adopted country, even those who had been his worst political enemies found it in their interest to carry out his plan for decades. Today, young people whistle the songs not from "Jefferson" but "Hamilton." There will be no whistling of tunes from "Trump" if he makes America Great Britain."

IMF - Lagarde Issues Storm Cloud Warning on Global Economy

We have documented numerous warnings here over the last 4 and 1/2 years from both the IMF and the BIS related to potential systemic risks. None of those warnings has turned into another major financial crisis thus far.

Christine Lagarde (IMF) just issued a new warning on the global economy due to ongoing trade disputes, rising interest rates, and an increasing global debt burden. Below are a couple of excerpts from this article in MarketWatch.

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International Monetary Fund chief Christine Lagarde delivered a warning on global growth, saying there are signs major economies such as the U.S. have ”plateaued.”

. . . . . 

"She also warned that some emerging economies will face additional pressure from tighter financial market conditions and a stronger dollar."

. . . . .

Lagarde said growing global debt — in emerging and developed economies — has reached an all-time high of $82 trillion, nearly 60% higher than 2007. 

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My added comments: It is easy to sound like a broken record just repeating systemic risk warnings over and over and yet nothing ever actually happens. That's OK. The risks do exist so it is important to report them even if nothing comes of it. By now, it should be obvious that no one can predict the timing of future events, but it is possible for most everyone to make some kind of plan to deal with a crisis if one did arise.

Added note: This article appearing in ABC.net.au includes this interesting comment from the IMF regarding the next major crisis:

"The IMF also said action by central banks, notably the US Federal Reserve and the European Central Bank, to bail out institutions and stimulate economies through trillions of dollars of quantitative easing would not be possible in managing any new crisis."

I noted these comments because they agree with what Jim Rickards has said for some time and we have reported his view on this here for some time as well.

Way Off Topic - Search for the Good

This post will be somewhat different and certainly way off the main topic of this blog. In trying to cover the topic of potential monetary system reform, you run across a lot of potentially discouraging news and information. It seems that many believe that any major change we might see to our present monetary system will come from the arrival of some new horrific future major financial crisis. There is nothing fun about trying to learn about the potential for such an event and then trying to provide information to help others learn what to watch for and then what solutions might be available to deal with such a crisis if one does arrive some day. 

On top of that, in order to try and stay informed on the relevant issues, you are pretty much forced to follow all the political news that now pours out on a 24/7 basis across all kinds of media formats. The US is more intensely divided now than at any time I can recall in my lifetime. Seeing the non stop fighting that has only ramped up since the election of Donald Trump is truly discouraging. It seems there is no end in sight for all that.

So, for this post, I would like to put all that aside just for a few minutes. If all we ever do is focus on all that, we might miss the fact that despite all the problems and divisiveness we see around us, there is still plenty of good if we just take time to look for it. Below I am going to post two videos that (at least to me) offer hope that despite our differences, people can come together and be touched to see that we do have some things in common even while we may disagree on some issues. I hope you enjoy this little break from all the noise.
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It is once again time for the State Fair of Texas held annually in Dallas. This time of year is always very nostalgic for me as I recall the many years taking my daughter to the Fair and what wonderful memories we have of those times together. When she was very young, one of her favorite shows to see at the State Fair was a dog named Skidboot (he has now passed away). 

Skidboot brought so much joy to so many people that he ended up having a career far beyond the State Fair of Texas appearing on such TV shows as Oprah and The Tonight Show. Near the end of his life, a local TV program called Texas Country Reporter did the feature just below on Skidboot and his owner David Hartwig of Quinlan, Texas. I doubt many can watch this video and not feel something good inside about people (and their best friends), so I present it here. I hope you enjoy it.

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This next video arises out of terrible tragedy that happened in Dallas recently. Many may have heard about it. A young man (Botham Jean) was shot and killed by an off duty police officer in what appears to have been a horrible mistake. The officer stated that she mistook his apartment for her own after coming home from a long on duty shift. Thinking a burglar was in her own apartment, she fired twice killing Botham Jean.

This event came close to home for us. Botham recently graduated from the same university that my daughter attended so she did know him, although not as a close friend. Everyone there knew him because he had a beautiful singing voice and would sometimes lead a daily chapel service held at the school. 

The loss of such a wonderful young life is tragic and the grief of his family and friends is very real and deep. The uplifting part of this story is how that family and those friends chose to react to such a terrible tragedy and to honor his life. His funeral service in Texas was attended by hundreds of people whose lives he had touched from around the world (here is a link to that service for anyone interested - service starts around 2 hour mark). 

You simply cannot watch the video linked above of his funeral service and the video just below and not be uplifted at how people can come together during very difficult times to offer hope and encouragement to one another. This is when we are at our best in my view. I think if we just take a little time now and then to Search for the Good, we can find it even in these times of great division.

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This video is the candlelight vigil held by students at the university where Botham graduated He sometimes led the student body there in singing at their chapel services.

WFAA

467K Views

https://www.facebook.com/wfaa/videos/286999151910490/?t=130

It starts with a solo voice and turns into a chorus.

A large group sings "Love (One Another)" by candlelight at a vigil for Botham Jean at Harding University in Arkansas, where the 26-year-old graduated and was known for his voice.

Vox: How Close Are We to Another Financial Crisis? 8 Experts Offer Their Thoughts

A big thank you to a blog reader who pointed me to this article appearing in Vox that was recently featured in this weekly newsletter from the Cato Institute. Below are a couple of excerpts from the Vox article.

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"It’s been 10 years since Lehman Brothers collapsed, setting off a global financial meltdown that would take years to correct. A decade later, there are some guardrails in place to prevent a Great Recession 2.0 — but another crisis at some point is essentially inevitable.

. . . .

A decade later, there’s been a lot of reflection on what happened in the financial crisis — and whether a repeat could be on the horizon. I reached out to eight experts to ask how far we’ve come, specifically in terms of government policy, in guarding against another financial and economic calamity. Simply put, are the guardrails in place to prevent another financial crisis like what happened in 2008?"

Here are some of the comments of one of the eight experts interviewed as an example of the type of input they offer:

Bill Emmons, assistant vice president and economist at the Federal Reserve Bank of St. Louis:

"The guardrails are not in place to prevent another crisis like 2008. However, I don’t think another crisis like that is likely anytime soon. The underlying conditions in the economy and financial markets are very different today, in large part because the crisis occurred and left lots of damage in its wake. . . . . "

Click here to read the full article in Vox

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Added note: Claudio Borio offers these comments in the most recent quarterly update from the BIS (Bank for International Settlements):

"If we take a further step back, the bout of volatility engulfing EMEs should not come as a surprise. As noted in the BIS Annual Economic Report, these developments are symptoms of a broader malaise. The highly unbalanced post-GFC recovery has overburdened central banks. The powerful medicine of unusually and persistently low interest rates has served to boost economic activity, but some side effects were inevitable. The financial vulnerabilities that we now see are, to some extent, one such example. The market ructions are akin to a patient's withdrawal symptoms.

What happens next is, as always, hard to tell. Will the patient continue to mend, as looked likely until the first quarter of this year, or will there be a relapse? What one can say is that the patient's full recovery will not be smooth. On the financial side, things look rather fragile. Markets in advanced economies are still overstretched and financial conditions still too easy. Above all, there is too much debt around: in relation to GDP, globally, overall (private and public) debt is now considerably higher than pre-crisis. Ironically, too much debt was at the heart of the crisis, and now we have more of it - although, fortunately, banks have reduced their leverage thanks to financial reform. With interest rates still unusually low and central banks' balance sheets still bloated as never before, there is little left in the medicine chest to nurse the patient back to health or care for him in case of a relapse. Moreover, the political and social backlash against globalisation and multilateralism adds to the fever.

Policymakers and market participants should brace themselves for a lengthy and eventful convalescence."

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My added comments: The comments in this Vox article are pretty much in line with what I have heard from other experts. The thinking seems to be that the potential for another major crisis does exist, but most do not see any signs that one is on the near term horizon. The most frequently mentioned potential triggers for another crisis I see mentioned are:

- trade wars & currency wars leading to actual wars

- shadow banking where regulators are not able to assess systemic risks very easily

- derivatives within a highly interconnected banking and financial system

- emerging market problems with a rising US dollar

- consumer debt and student loan related debt (too high a default rate)

Why Hasn't Debt Collapsed the System? -- Some Experts Offer Some Thoughts

In 2008 the world was rocked by what is now called the Great Financial Crisis (GFC). The crisis brought down some banking institutions, prompted emergency action by the US government, and triggered an unprecedented reaction from central banks around the world led by the US Federal Reserve. New and never before tried monetary policies were implemented and literally trillons of units of various fiat currencies were created in a global effort to keep the system from imploding due to contagion.

Now, its 2018. So far a systemic collapse has been avoided and most people have slowly released concerns about the stability of the system from their minds. Despite this, there is a nagging problem that most everyone acknowledges; and yet nothing serious is done about it. We are talking the huge debt burden that overhangs both the US and the world. The National Debt clock is still documenting the ever expanding US debt burden (now over 21 Trillion and don't even ask about unfunded liabilities).

As noted above, virtually everyone describes this growing debt as a true systemic risk. Not only for the US, but for the world as well. Just this year both the IMF and the BIS repeated warnings on debt as a systemic risk for the world in general. A chart from the World Ecnomic Forum captures the total global debt picture as of early 2018.

For years and years now, these kinds of warnings have been issued not only by the IMF and the BIS, but also policy makers, politicians, think tanks, and various organizations concerned about the issue (here is one example and here is another). In the US, politicians from both major political parties speak in dire terms about how awful the debt problem is, especially when the other political party is in power. All this, and yet no serious efforts are undertaken to actually do anything about the problem.

It's not hard to understand why. The policy decisions required to contain debt (raising taxes or cutting spending or both) are essentially political suicide at this point. People have a sense of entitlement now that says no one will ever have to make any sacrifices. Central banks stepping in to create all the money needed to prevent widespread economic contraction after the last crisis has simply re enforced that sense of entitlement.

None of this is ground breaking news. Most people kind of know instinctively that the above is basically true and just don't think about it much since the system still rocks along and their daily lives are not disrupted.

This situation creates a couple of key questions in my mind:

1) Given the above situation - how has the US (and by extension the world) been able to avoid a systemic crisis resulting from the overhang of outstanding sovereign debt?


2) How long can the US (and by extension the world) avoid a debt related systemic crisis?

a) less than two more years?
b) two to ten years?
c) more than ten years?
d) a new international system (a reset if you will) will emerge on its own before we get a major systemic crisis (debt related or otherwise)
e) none of the above or a different answer

These are the key questions to consider in my view. If no new major systemic crisis is coming for years and years, not much is likely to change very quickly. If a new major systemic crisis arrives in the not too distant future, all kinds of potential for highly disruptive change (good and bad) will exist. The latter impacts everyone in their daily lives, the former probably goes mostly unnoticed.

I decided to put these two questions to some experts to see what their thoughts are on it. Below are the unedited comments they sent me.
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From a reader who works in this arena who prefers to be unattributed:

To respond to your question (#1) ...

"Over the past decade, many boundaries of sound monetary management have been crossed, with favourable marketing (of the lipstick-on-a-pig variety) working its charm to drown out the protests of those who would have respected the rules.

Many monetary system-level changes since 2007 have been clever 'back room' sophisticated survival methods that are typically rather difficult to describe. 

An interesting paper by Philip Bougen and Joni Young called "Fair value accounting: Simulacra and simulation" explains: "Values are being assigned to financial instruments which do not reflect some external accounting reality that is ‘out there’ merely awaiting discovery. Rather this reality is being imagined and might be reimagined in a multiplicity of ways at the intersection of different calculations and different assumptions. ... ... it is precisely because of their application in an accounting context categorized as fair value accounting, one with a market focus, yet one with an absent market reality, that the use of simulacra need to be highlighted. Reference to an absent market as an authoritative basis for simulation, invests the market (albeit absent) and the associated simulacra with a reality they do not possess. Indeed, many of these instruments have never actually been traded on an organized secondary exchange. ...  ... the construction of a reality of various clearly delineated levels of inputs and a stylized market focus for valuation purposes evaporated as quickly as it was formulated, as ‘anomalous’ circumstances and considerations intervened, requiring connections between the various levels of inputs. Given the brokered transaction basis of OTC derivatives we suggest that the anomalies associated with ‘market prices’ might in the future prove more common than previously considered." (pg 399)

Source: https://pdfs.semanticscholar.org/480b/de2ba0a2dda42ff4cc914bc81d5e9fdeb547.pdf

Here also is a good explanation of one of the methods, called a "Currency Swap Line":

https://www.ecb.europa.eu/explainers/tell-me-more/html/currency_swap_lines.en.html

Presenting this method in a formal respectable article from the ECB (etc) makes it seem entirely coherent. Well, it is. But one can also readily imagine a Monty Python skit called "Currency Swap Line" which would equally reveal it for what it is: a system-level hack. Perhaps one should rewrite the words of "I'm my own grandpa" into a song about this method of monetary system management. For some detail on how things have come about, see this paper from the Federal Reserve Bank of Cleveland -- and the references therein. Some choice phrases are...

• "Increasingly controversial, the Exchange Stabilization Fund is used to influence the international value of the U.S. dollar.
• "This impedes an informed public discussion of ESF operations.
• "...explicitly authorized it to operate without congressional oversight and accountability.
• "...the Fed warehousing arrangement allows the ESF to take a leveraged position in foreign assets that is not reflected on the ESF’s balance sheet.

Swaps are not new, nor are they 'bad'. Back in 1990 the World Bank funded development of  methods for the valuation of "Debt-for-Nature Swaps". That was a clever (fully transparent and within-rules) bankruptcy-management arrangement for massively indebted governments, led by some bright people at the World Wildlife Fund and the Natural Resources Defence Council. They thought up a way to adapt the currency swap method. Bad debt title in USD was sold to environmental organizations at hugely discounted rates, and payment of the remainder was carried out in local currencies to fund large-scale ecological protection through counterpart organizations in those countries." 

In response to Question #2

A little like (d) but rephrased as (e): a new international system is continually emerging by fits and starts through a combination of hasty patch-ups and thoughtful novel designs, as we lurch along from crisis to crisis, with a bright idea here and a bright idea there. Economies as a whole (like ecosystems as a whole) don't really die; they just rot. See Joseph Schumpter's work on creative destruction.

From Dr. Warren Coats (former IMF Assistant Director):

"My comments on your two questions are that I don’t think the U.S. will ever be driven to default on its debt for three reasons.  First, our financial markets are so deep and broad that they will take a lot of stress. Think of Japan with a much higher debt burden than we now have. Second, we have no foreign currency debt as we are able to borrow in our own currency. Third, we almost always wake up and fix problems before they destroy us. On the other hand we have also gotten used to big deficits and don’t take them as seriously as we should so we might stay asleep too long. If we reach the tipping point, the rapid evaporation of confidence would be almost impossible to stop or reverse.

If the U.S. federal government ever defaults (not likely as I argued earlier), it will most likely take the form of inflation. While inflation is a tax, unlike other taxes it reduces the real value of existing debt public and private. Other forms of default and the resulting  financial restructuring would reduce the real value of specific, targeted debt such as federal bonds etc."



From Robert Pringle (former Director - Group of 30)

"I just keep on thinking of what Adam Smith said when somebody came to tell him that the American colonists had defeated the British army and that this would be the ruin of our nation:  “Young man,” said Adam Smith, “there is a great deal of ruin in a nation.” The US of A ain’t ruined yet. "

From Joseph Potvin (Executive Director -  Xalgorithms Foundation)

"You never can tell what types of events might conspire to become the change, or when these might occur. System-level transformation can go unrecognized even by attentive participants within, until it's effectively the norm. The following is from a paper I did a quarter century ago on investment appraisal criteria (extending a list by systems design engineer Dr. James Kay, U Waterloo):

"Complex systems are: 

• Unique - Each evolves through distinctive physical and historical circumstances;
• Nonlinear - Several controlling variables interact through multiple feedback loops;
• Discontinuous - Catastrophes and irreversible bifurcations can be internally generated;
• Not Predictable - Pivotal phenomena may not always be statistically significant;
• Pluralistic - At any moment several succesional configurations coexist;
• Fickle - From any state there are innumerable alternative developmental pathways; and,
• Self-Organizing -  An open system enduring a persistent but moderate disturbance can, under some conditions, respond by establishing new stable structures to accommodate it."

From Dr. Leanne Ussher (Affiliate Scholar -  Institute for Advanced Sustainability Studies)

"I actually don't agree with your premise.

 I believe it is extremely important that there to be a clear distinction between US Federal government debt, and private debt (especially emerging market debt, which could be both private and sovereign). The fact that the federal government is NOT going to default on its debt (banning a political hijacking from the tea party) means that its debt excesses do not have the same impact as private debt. (Even US state debt and government sponsored enterprise debt could be easily taken over by the Federal Government in an emergency – e.g. the bailout  of Fannie Mae).   US Federal debt is quite different than private debt, since ultimately they can monetize their debt.

Federal government debt if used correctly can even save a financial crisis from escalating. It is true that this may cause moral hazard, or inflation, but this is something quite different from what you are inferring in your blog: excess US sovereign debt and a portending financial crises.

Conflating private debt with Federal Debt is a common mistake – and I believe it is common due primarily to ideological reasons.  The famous ‘debt clock’ that you cite, only concerns itself with government debt, and was switched off when the national debt was decreasing in the Clinton years. Highlighting its ideological motivations. 

The rising debt I’m concerned about is the rise in emerging market corporate debt, emerging market US dollar carry trades being reversed, and potentially private student debt, corporate debt, and financial corporation procyclical capital  requirements.

The US is still currently the issuer of the world's reserve currency. What was of concern in the 2008/09 crisis was US private debt of financial firms, household mortgage owners, and a few non-financial firms. Too big to fail among private financial institutions (which to bail out -- not GSEs which were always going to be bailed out), and contagion across the national and international financial community.

The Federal Reserve was and will be rescuing private markets in the next crises (or overseas governments and their central banks extending USD swap lines). The Fed was not rescuing federal US debt markets, which is where everyone was running to, and they will run there again. Not until there is an alternative will the US suffer from its exhorbitant debt privilege, and even then it will be a slow burn (like Japan).

The US Federal government (like any federal government that issues debt in its own currency) can readily monetize and deflate its debt. This may cause inflation, and I’m not arguing for inflation. But inflation is a tax like any other. It is often levied on the poorest in a society, those holding assets or wages that are not indexed to inflation, and not  debtors. But it is across the board.

I think, if you really want to blame Federal Debt for our next financial crisis, you would need to build a much more systemically related story of twin deficits, but even then I don't think I would be there.

US Federal debt and inflation is not going to be the next financial crisis. Rather, the debt deleveraging spiral that brings down private entities and their counter parties, across international borders, especially in the emerging markets, and here at home, will be a problem, but they will be running into US Treasuries when the crash occurs, not out of it."

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Added note: Recently, former Bear Stearns Director  Nomi Prins wrote this article in which she attributes what she calls "dark money" from the Fed and other central banks as helping to prop up the system and avert collapse. Here is the concluding statement from her article:

"Dark money rules the world, and it could keep the bull market running longer than most people expect, even though the eventual turnaround could be ugly."

It appears that our panel of experts mostly agree that central banks can and do use the tools available to them to keep the system afloat and can do this much longer than many people would expect. The first comment in the list above provides some specific examples of some of the tools available. Dr. Ussher makes a distinction between privately held debt and sovereign debt and feels the former is where the most risk lies in the financial system. 

If the consensus of the views above is correct, it seems that what we should watch for is if the transition from the system we have today into whatever evolves in the future can be managed in an incremental way to avoid the sudden collapse so many watch for and expect at some point in the future (whether from sovereign debt or from private sector debt). Of course, only time will provide the answer as to what actually happens.

News Note: Turkey Issues Gold Backed Bonds

Dr. Judy Shelton points to this article on her Twitter page informing us that Turkey plans to issue gold backed bonds. This is something worth noting. Below is an excerpt from the article.

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From AA.com

"The investors will be paid Turkish lira denominated 1.20 percent semi-annual (2.40 percent per annum) returns indexed to gold price."

The ministry noted that the new securities will be issued with a two-year maturity.

"On maturity, investors may request the principal payment as one kilogram of gold bar (produced by refineries) or 'Republic Gold Quarter Coins' printed by Turkish State Mint," it added."

editors note: One kilogram is about 35 ounces

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Added notes: This news ties in with efforts by Keith Weiner in the US to get the state of Nevada to issue gold backed bonds which we covered here. In some additional news on gold, a Congressman from West Virginia (Alex Mooney) has introduced a bill that would eliminate all federeal income taxation of gold and silver coins and bullion.

Here is an excerpt from the article in Moneymetals.com:

"The battle to end taxation of constitutional money has reached the federal level as U.S. Representative Alex Mooney (R-WV) today introduced sound money legislation to remove all federal income taxation from gold and silver coins and bullion.

The Monetary Metals Tax Neutrality Act – backed by the Sound Money Defense League, Money Metals Exchange, and free-market activists – would clarify that the sale or exchange of precious metals bullion and coins are not to be included in capital gains, losses, or any other type of federal income calculation."

Hidden Gems from Experts on Monetary Policy and System Reform

Over the past few years this blog has endeavored to explore the potential for monetary system change that could impact the daily lives of all us. This whole topic arose due to the last great financial crisis of 2008. That crisis took most of the mainstream experts by surprise and resulted in a mad scramble by central banks (with some assistance from the IMF) to stabilize the current monetary system.

Now we are a decade removed from 2008. There is still much debate about whether or not the unprecedented and experimental monetary policies employed by central banks around the world have been successful or not.

On the one hand, they did manage to prevent the system from imploding and the world from falling into complete chaos economically. Some view that as success. On the other hand, skeptics and critics say that the policies adopted only delayed the crisis and the asset bubbles that have arisen from those policies insure that when the next crisis does arrive, it will be much bigger than 2008 and likely will take out the present monetary system during the fallout.

All of this is why this blog was launched. The average person who is simply working hard to make a living and provide for a family does not have the time and the expertise to try and keep up with all the various views on the stability of the present system or the odds for a new major crisis. Beyond that, it takes time to try and understand the ideas and proposals out there to fix the mess if we do get "the big one" that so many people from all across the spectrum of views still think is coming some day.

This blog was started in an effort to better understand these issues and to try and assess what the risks to the present system are and to learn what ideas and proposals exist to "fix the mess" if and when we do get the mess. Along the way, an opportunity arose to get direct input from some of the leading experts in the world on this whole situation. That input has been documented here over the last few years, but time has passed. The articles are now what I would call "hidden gems" of information that most people probably won't know about, but I think would find interesting.

This article reviews some of those "hidden gems" so that new readers will know about them and because the input given is still quite relevant today. Below is a summary of some of these gems and bit of background about the experts who offered them.

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Jim Rickards - Jim is probably the most well known expert who has managed to reach the largest audience of people on these issues. Jim has maintained for years that when the next big financial crisis arrives (and he believes it will arrive), that it is likely that a proposal to replace the US dollar with the SDR issued by the IMF will be put forward to "fix the crisis". This thesis is what started the effort here to learn as much as possible about the SDR and any proposals on the table to use it as the new global reserve currency. Here are some articles from this blog where Jim offered direct input for readers here:

Jim offers a comment on the IMF becoming the global central bank of last resort

Jim discusses what he calls the "civil war" going on in Wasington DC

Jim suggests an SDR peg to gold may be in play

Dr. Warren Coats (former IMF - Head of the SDR Division) - There has been lots of discussion in recent years about the prospects for the SDR to eventually become the new global reserve currency. As noted above, Jim Rickards has really brought this issue into public view. But what is the SDR? How could it replace the US dollar? My thinking was that if you want to understand the SDR and how it functions, why not just ask one of the leading experts in the world about it? So, that is what we did here. Below are articles featuring Dr. Coats explaining both the SDR and his "Real SDR" proposal to use as a global reserve currency. You simply are not going to find a better expert on the SDR than Dr. Coats. Here are some articles with his direct input for readers here:

Dr. Coats provides his first insight here on this blog on the SDR

Dr. Coats provides more input in a Q&A style interview

Dr. Coats answers questions from blog readers

Dr. Coats says an SDR proposal is important in case we do get a another crisis

Dr. Coats comments on Cladio Borio (BIS) speech related to SDRs

Dr. Coats explains why allocating SDRs to finance development is a bad idea

Dr. Coats presentation at the Kemp Forum on Exchange Rates and the US dollar

Robert Pringle  - (former Director for the Group of 30) - Robert Pringle is to central banking as Dr. Warren Coats is to the IMF and the SDR. One of the leading experts in the world without question. As Founder of Central Banking publications, he knows and has known central bankers from around the world and written extensively on the subject. After the 2008 crisis Robert, like many, had concerns about policies being implemented to deal with the crisis. He published his book The Money Trap to express his thoughts on the problem and his ideas for solutions. He has been kind to share his wealth of experience and knowledge here from time to time. Here are some articles with his direct input for readers here:

Robert Pringle on why he felt recent monetary policies are immoral 

Robert Pringle offers a proposal for a new global reserve currency - The Ikon

Robert Pringle and Allan Meltzer debate monetary system reform - Part I  --- Part II

Robert Pringle on -- The Necessary Illustionists

Dr. Lawrence White - We happen to share the same name, but Dr. White is the expert on economics and monetary policy. He is a Senior Fellow at the Cato Institute and Professor of Economics are George Mason University. He is also widely respected as a student of the classical gold standard. Here is an article where he pointed me to his work on the gold standard:

Dr. White on Experts and the Gold Standard

Dr. White on how Bitcoin is Like and Unlike a Gold Standard

John D. Mueller - a blog reader connected me to John D. Mueller. Mr. Mueller is the Lehrman Institute Fellow in Economics at the Ethics and Public Policy Center in Washington DC. He offered some direct input for readers on the gold standard and on Lewis Lehrman:

John D. Mueller on Lewis Lehrman and the Gold Standard

Dr. Judy Shelton - Dr. Shelton is currently US Director for European Bank for Reconstruction and Development (EBRD) having accepted that appointment from President Trump. She has long been an advocate for monetary system reform and also has spoken favorably towards the classical gold standard. She recently offered her thoughts on the potential for monetary system reform to readers here in the article linked just below and recently called on President Trump to work towards a new international monetary system:

Dr. Judy Shelton on The Potential for Monetary System Reform

Dr. Shelton Calls on President Trump to initiate a new international monetary system

Dr. Shelton's presentation at the Kemp Forum on Exchange Rates and the US Dollar

Keith Weiner - CEO of Monetary Metals - Keith has proposed a new kind of gold standard that he calls an "Unadulterated Gold Standard". We covered it here and he added some additional thoughts for readers on why he thinks it is realistic that we might see something like this emerge in the future. Keith is also working with the State of Nevada on the idea of issuing gold backed bonds payable in actual gold.

Robert Bell, Founder and CEO of KlickEx - Robert Bell is a widely respected expert on Fintech innovation as it relates to both central banking and the potential to use technology to reform the monetary system. In the fall of 2017, he announced that he was partnering with IBM and Stellar to implement what he called the first institutional scale blockchain based payments system in the South Pacific. Robert has provided ongoing input and acted somewhat as a mentor over the past few years. He has shared his knowledge and experience picked up directly on the front lines of what his happening currently with regards to Fintech. Here is a recent interview he did for readers here with thoughts on the both the current monetary system and what its future may look like:

Robert Bell Comments on the Current and Future Monetary System

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My added comments: There you have it. Direct input from experts on the monetary system we have and ideas on how it could be reformed or even replaced eventually. I will add that I have also gotten of lot of direct input and feedback by email from these experts not intended for use in a public article, but very valuable to me in helping to understand these issues. Hopefully, it has helped me improve the quality of the information presented here.

There are truly some hidden gems of wisdom and information in these articles from some of the leading experts in the world on the topic of monetary policy and the potential for monetary system reform. I would challenge readers to try and find a better collection of experts on these issues anywhere. I don't think it exists and it is my hope that as many people as possible will find this information and share it with anyone interested. 

Readers who want to explore these idea further should go to our market place of ideas for monetary system reform page. It contains all the articles linked above along with some articles with input from some additional experts. There are articles that take a deeper dive into some of these issues there as well.

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Added note - 9-4-18: Today CNBC runs this article saying the the "top quant" at J.P. Morgan (Marko Kalonovic) is warning that in the next financial crisis we will see:

"Sudden, severe stock sell-offs sparked by lightning-fast machines. Unprecedented actions by central banks to shore up asset prices. Social unrest not seen in the U.S. in half a century." 

Mr. Kolanvic is quoted in this article as saying the chances of such a crisis happening are "low until at least the second half of 2019."

I forwarded this article to one expert to see what he thought about this article. He agreed with the magnitude of the crisis talked about in this article, but felt that no one could predict timing and also that the crisis will be too big for the Fed and other central banks to control. He said there is no reason to assume we are "safe" until the second half of 2019.