Dollar Dissonance And The Remonetization Of Gold

Submitted by John Butler  –  AMPHORA Commodities Alpha 

Two years ago, prior to travelling to Sydney to present at the Annual Precious Metals Symposium, I prepared an article for the Gold Standard Institute Journal titled Cognitive Dollar Dissonance: Why a Global De-Leveraging Requires the De-Rating of the Dollar and the Remonetisation of Gold (see here). This article highlighted the growing inconsistency between those arguing on the one hand that the dollar’s role in international trade and finance was clearly diminishing; yet denying that it was in any danger of losing the near-exclusive monetary reserve status it has enjoyed since the 1940s.

This apparently contradictory yet mainstream thinking about the future of the international monetary system continues to the present day. Indeed, earlier this month the Economist magazine ran a special feature on fading US economic power replete with dollar dissonance.[1] The experts cited note the accelerating trend towards bilateral trade settlement, say between Russia and China, who plan to finance their multiple ‘Silk Road’ infrastructure projects using their own currencies and their own development bank (The Asian Infrastructure Investment Bank or AIIB: Seehttp://www.aiib.org/). They also observe that Russia, China and the other BRICS are no longer accumulating dollar reserves (although curiously overlook that they continue to accumulate gold). They acknowledge that not only the BRICS but many other countries have repeatedly expressed their desire that the current set of global monetary arrangements should be restructured in some way, although they are not always clear as to their specific preferences.

Note the sharp contrast in these two paragraphs, both on the very same page of the Economist feature:

“This special report will argue that the present trajectory is bound to cause a host of problems. The world’s monetary system will become more prone to crises, and America will not be able to isolate itself from their potential costs. Other countries, led by China, will create their own defences, balkanising the rules of technology, trade and finance. The challenge is to create an architecture that can cope with America’s status as a sticky superpower.”

And:

“Today’s world relies on a vastly bigger edifice of trade and financial contracts that require continuity. Trade levels and the stock of foreign assets and liabilities are five to ten times higher than they were in the 1970s and far larger than at their previous peak just before the first world war… China and America are not allies. The greater complexity and risk involved in remaking the global order today create a powerful incentive for current incumbents to keep things as they are.”

Does anyone else hear the clear dissonance, confusion even? On the one hand we have a complex system prone to debt and currency crises, a growing lack of cooperation between the two largest players and a need for a ‘new architecture’. Yet on the other we are supposed to accept that there is sufficient common incentive to cooperate in monetary matters? Really?

Now consider the developing global economic context. Although the mainstream tend to be quiet on these issues, they cannot possibly fail to notice that, seven years on from the 2008 global financial crisis, following unprecedented economic and monetary policy intervention, dollar interest rates are still zero; quantitative easing has failed to achieve its stated objectives; global imbalances have risen to record levels; emerging market balance-of-payment crises are springing up all over; leading indicators in every major global economy have rolled over; and financial markets, in particular the credit markets, are beginning to tell you that another major crisis may lurk in the near future. It is thus entirely reasonable if unfashionable to hold the view that the dollar monetary reserve system has become unstable and is overdue a fundamental restructuring or reset of some kind. None other than IMF Managing Director Christine Lagarde has hinted at this in multiple speeches over the past two years. [2] Continue reading

How Our Aversion To Change Leads Us Into Danger

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth


BIS/OWI Battle of Britain. Children in an English bomb shelter 1940/41

The deeply embedded, genetically determined aversion -or resistance- to change that we are all born with is an important survival tactic. Since change equals potential danger, our aversion to it keeps us out of danger.

We are ‘programmed’ to prefer familiar surroundings, to first look at what we recognize, and to ignore what we do not until we feel comfortable enough about what we do know.

Ironically, though, the aversion to change can also lead us into danger. Because it prevents us from preparing for change, and therefore preparing for danger.

Yes, people can adapt, they have that ability too, but we don’t fully adapt to change until and unless we’re forced to. And while it may not be too late then, it certainly tends to make adaptation much more difficult.

We prefer to focus on those things that stay the same, or seem to stay the same, ignoring those that don’t, even if they change in -comparatively- radical ways, until we no longer can. But by then we have most often missed a significant part of the time and the opportunity to adapt to them. Our resistance to change causes us to miss those changes that happen despite our efforts at keeping things the same. Continue reading

Faith in Central Banks Dwindles

Submitted by Pater Tenebrarum  –  The Acting Man Blog

Even Bloomberg Notices that Something is Amiss

As anyone who hasn’t been in a coma knows, assorted central bank interventions have failed to achieve their stated goals over the past several years. A recent article at Bloomberg focuses on their failure to reach their “inflation” targets.

Of course, this particular failure is actually reason to celebrate, as it means that consumers have at least been spared an even sharper decline in their real incomes than has been underway in spite of relatively tepid increases in consumer prices (whereby it should always be kept in mind that whether or not such price increases are considered “tepid” depends on on the composition of the basket of goods and services relevant to each individual).

inflation expectationsMarket-based inflation expectations in the major currency areas have crashed again – click to enlarge.

Of course central banks have succeeded in blowing up the money supply at truly astonishing rates since 2008, so prices in the economy have certainly been vastly distorted. The devastating effects of such price distortions are currently being visited on the oil patch, where credit-financed malinvestment on a stunning scale has occurred as a result of an erroneous appraisal of future oil prices. A slowdown in money supply growth in the US and China between 2011 and 2014 was all it took to take the wind out of the sails of this particular collective hallucination. Continue reading

Better Hope It Really Was ‘Speculators’

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

Even a quick glance at recent t-bill rates commands further attention. There is obviously a lot going on in the bills market just in the past few months, which may only be unexpected in the sense that there isn’t a plain connection between US government bills and the fireworks elsewhere. T-bills used to be, however, the primary source of repo collateral and do function as an almost “risk-free” alternative to interbank cash holdings, so there are still tangible and direct connections to the outer “dollar” world.

ABOOK Oct 2015 China UST bills

While your attention is assuredly drawn to the prominent lump in the middle, the right hand “tail” is no less of significance particularly given a plausible (even likely) relationship between what appears to be opposite conditions. The first, occurring in the middle of August, is clearly China and its “dollar” run. We know that the PBOC and various other Chinese government (and government-connected) financial firms have been “selling” UST “reserves” though most commentary cannot grasp the full meaning and significance of why that would be. They talk about outflows and “hot money” without penetrating into the full extent of the wholesale “dollar” universe.

That is important not only because being comprehensive in analysis is necessary to understanding then and now, as there are innumerable subtleties that exist wholesale unexamined by “hot money” or bland, generic “outflow.” One of those is certainly a closer understanding of what exactly “selling UST” actually meant(s). It seems that mainstream commentary pictured bonds and notes being bid out in secondary markets but scant attention and appreciation has been paid to the bills market. Given the chart above, I think it more than reasonable that the steady climb in the bills yield (meaning, specifically, a larger discount to the price) traces to China’s attempts at managing the “dollar” run while maintaining the appearance of a steady yuan exchange. Continue reading

Why a Gold Standard?

Submitted by Guest Contributor – Dan Popescu

Keeping it Simple

In this article I want to approach the idea of a gold standard from a more “regular people” perspective rather than from a “high academic” economic/finance and, sometimes, legalistic perspective. I constantly read books and articles full of mathematics written by the economic academia, trying to show why a gold standard is a relic of Antiquity, unsuitable for the modern world.

Still, as a physicist, I would like to remind economists that they would not be able to write their papers on a PC, communicate with an iPhone, drive a car or fly on a plane, if it weren’t for two relics of Antiquity essential to scientists and more than 3,000 years old that have barely changed since then: algebra and geometry.

gold-ingots-1-gramGold prepared for small-scale transactions.

When I was a child, my father, an engineer, used to tell me over and over again, “If you can’t explain it in simple words, it’s because it makes no sense or you don’t understand it yourself”, and “keep it simple”.

Recently, while doing research for an article on the gold standard, I stopped and thought about a “new” (not from Antiquity) standard: the metric system. I realized how exceptional and how humble those scientists were when they created it. I just couldn’t believe it.

Here is a system designed to correct a problem faced only by scientists, which is to measure quantities at the angstrom level (10−10) and at the astronomical level (1010) that the old system couldn’t handle. They could have designed a system that only they can understand. Who cares if the common people don’t? Too bad for them… They will have to hire us to do the calculations.

However, look at the system they designed. It allows those highly educated “rocket” scientists to work in fields like particle physics and astrophysics but at the same time is so simple that even an illiterate person can learn it fast. They used the base 10, which is the easiest to learn and use. One doesn’t need a diploma to multiply or divide by 10. For temperature, they chose as limits the freezing point as zero and the boiling point as 100. Again, base 10 and the range humans deal with most of the time. No need to do sophisticated calculations to understand it. Continue reading

Bundesbank “Reassures” Re. Gold Bullion Reserves as Deutsche Bank Shocks With €6 Billion Loss Warning

Submitted by Mark O’Byrne  –  GoldCore

The German Bundesbank released an inventory of its gold reserves yesterday in order to quell ongoing public concerns about the true amount of actual unencumbered reserves and the location of the reserves stored in vaults in Frankfurt, London, Paris and particularly in the New York Federal Reserve.

GoldCore: Bundesbank Gold Reserves
(Photo: Reuters)

The central bank said its gold reserves amount to 3,384 tonnes of gold worth just €107 billion at today’s prices.

The move is the latest by the central bank, which is in the process of trying to move its gold reserves back to Germany after the eurozone sovereign debt crisis broke out in 2012 and led to public concerns and questions about the safety of Germany’s gold reserves.

Germany’s gold reserves are the second biggest in the world after those of the U.S. but Germany has been struggling to repatriate its gold reserves from the U.S. Federal Reserve in recent years. This has created wider concerns about the U.S. own gold reserves.

GoldCore: Bundesbank Reserves
Continue reading

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

IMF: Next Financial Crash Inevitable, With Same Flaws As Last Time (Guardian)
IMF Warns Emerging Market Companies Have Overborrowed $3 Trillion (Reuters)
Banks’ Exposure To Glencore Is a $100 Billion ‘Gorilla’: BofA (Bloomberg)
Deutsche Bank Sees $7 Billion In Q3 Losses, Writedowns (NY Times)
Germany’s Exports Plunge 5.2% In August, Most Since January 2009 (Bloomberg)
Once the Biggest Buyer, China Starts Dumping U.S. Government Debt (WSJ)
Powerful Democratic Senator Launches Inquiry Into Bank Misconduct (WSJ)
Four Ways the Oil Price Crash Is Hurting the Global Economy (Bloomberg)
For Volkswagen, New Questions Arise on US Injury Reporting (Bloomberg)
Apple’s Real Cash Pile Is 99% Smaller Than You Think (MarketWatch)
Brazil President Dilma Rousseff Loses Legal Battle, Faces Impeachment (Guardian)
The World’s Silliest Empire (Dmitry Orlov)
EU Court Dismisses Investors’ Claims Against ECB Over Greek Debt (Reuters)
40% EU Budget For Greece Migration Goes To Security, Border Control (Fotiadis)
Merkel Rules Out Freeze On Refugee Intake (DW)
Monsanto To Cut 2600 Jobs, Lose $500 Million, Shares Down 24% In 2015 (Forbes)
St. Louis Girds For Catastrophe As 5-Year Underground Fire Nears Nuke Waste (AP)
World’s Oceans Facing Biggest Coral Die-Off In History (Guardian)
Coral Reefs Worth Four Times As Much As UK Economy: Earth Index (Guardian)

Read much more here: Debt Rattle October 8 2015 – TheAutomaticEarth.com