A major piece of the POM analysis has fallen into place. As has been predicted here for the last two years, the Chinese renminbi has been added to the Special Drawing Right basket of the International Monetary Fund. This fundamental change in the composition of the SDR will allow for a more sustained and balanced adjustment to the international monetary system.
This first step towards stabilizing the global system will spur renminbi liquidity growth and begin the process of foreign exchange reserve diversification. This diversification will ease the international pressure which has been fostered upon the US dollar in its role as primary reserve currency.
Though it will still take years for RMB denominated reserves to equal USD denominated reserves, the process itself will proceed at a faster pace than many other analysts and economists will predict.
For the last few years many expressed their conclusion that the RMB would not be added to the SDR composition. Now that it has been added these same analysts and economists are attempting to minimize this change by stating that it will take years for the renminbi to equal the dollar in both trade and reserve accumulation.
The growth in RMB liquidity will likely surprise many as massive infrastructure investment projects are funded by the Asian Infrastructure Investment Bank and BRICS Development Bank through loans denominated in yuan.
On top of that, it is now being reported that the US will be setting up a yuan trading and clearing facility which will allow US institutions to make yuan payments. This action is being supported by all the major players in American banking, business, and other financial institutions.
This integration between international reserve currencies will allow for the further stabilization of the monetary system. As Managing Director of the IMF, Christine Lagarde stated today:
“The Executive Board’s decision to include the RMB in the SDR basket is an important milestone in the integration of the Chinese economy into the global financial system. It is also a recognition of the progress that the Chinese authorities have made in the past years in reforming China’s monetary and financial systems. The continuation and deepening of these efforts will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy.” Continue reading
Chinese stocks “unexpectedly” plunged last week in a fit of stormed selling that reminded of August rather than the placidity that has been claimed of China since. By mainstream account, China has fixed its bout of “selling UST” and “outflows” while also providing two double doses of “stimulus.” The PBOC had even taken to a higher fix in the middle rate, the policy setting that defines the RMB trading band. In light of all that, the 5.5% crash Friday seems so out of place.
That is why, it appears, commentary has focused upon government investigations into certain large brokerage firms and their “practices.” Like the June peak in Chinese stocks, then blamed on margin rules proposals from CSRC, there seems a bit more to it than that. For all the talk about normalizing financial conditions in China since August, there is very little that actually supports such a conclusion. Again, even the conventional assessments regarding the most visible difficulty are flawed by their cursory nature, and that “outflows”, which are nothing more than shorthand for “dollar” difficulties, remainthe baseline of Chinese financial existence.
“I can prove anything by statistics except the truth” – George Canning
Canning’s aphorism is as valid today as when he was Britain’s Prime Minister in 1817. Unfortunately, his wisdom is ignored completely by mainstream economists. Nowhere is this error more important than in defining economic activity, where the abuse of statistics is taken to levels that would have even surprised Canning.
Today we describe the economy as being in one of two states, growth or recession. We arrive at a judgment of its condition by taking the sum total of the transactions selected by statisticians and then deflating this total by a rate of inflation devised by them under direct or indirect political direction. Nominal gross domestic product is created and thereby adjusted and termed real GDP.
The errors in the method encourage a bias towards a general increase in the GDP trend by under-recording the rate of price inflation. From here it is a short step to associate rising prices only with an increase in economic activity. It also follows, based on these assumptions, that falling prices are to be avoided at all costs.
Assumptions, assumptions, all are assumptions. They lead to a ridiculous conclusion, that falling prices are evidence of falling demand, recession or even depression. Another of Canning’s aphorisms was that there is nothing so sublime as the truth. There’s no sublimity here. If there was, the improvement in everyone’s standard of living through falling prices for communications, access to data, and the technology in our homes and everyday life could not possibly have happened.
Well, they have happened, and the falling prices of the products of the greatest private sector corporations on earth are proof that they are both popular and good for business. Furthermore, the either/or condition of inflation/deflation firmly believed by macroeconomists would logically rule out the impoverishment of people in hyperinflations. If rising prices are good for the economy, how come everyone was so unhappy in Germany’s Weimar Republic in 1923, or in Zimbabwe fifteen years ago? Surely, as inflation accelerates the happiness level should rise…… Continue reading
Submitted by James Howard Kunstler – www.kunstler.com
Sometimes societies just go crazy. Japan, 1931, Germany, 1933. China, 1966. Spain 1483, France, 1793, Russia, 1917, Cambodia, 1975, Iran, 1979, Rwanda, 1994, Congo, 1996, to name some. By “crazy” I mean a time when anything goes, especially mass killing. The wheels came off the USA in 1861, and though the organized slaughter developed an overlay of romantic historical mythos — especially after Ken Burns converted it into a TV show — the civilized world to that time had hardly ever seen such an epic orgy of death-dealing.
I doubt that I’m I alone in worrying that America today is losing its collective mind. Our official relations with other countries seem perfectly designed to provoke chaos. The universities have melted into toxic sumps beyond even anti-intellectualism to a realm of hallucination. Demented gunmen mow down total strangers weekly in what looks like a growing competition to end their miserable lives with the highest victim score. The financial engineers have done everything possible to pervert and undermine the operations of markets. The political parties are committing suicide by cluelessness and corruption.
There is no narrative for our behavior toward Russia that makes sense anymore. Our campaign to destabilize Ukraine worked out nicely, didn’t it? And then we acted surprised when Russia reclaimed the traditionally Russian territory of Crimea, with its crucial warm-water naval ports. Who woulda thought? Then we attempted to antagonize them further with economic sanctions. The net effect is that Vladimir Putin ended up looking more rational and sane than any leader in the NATO coalition. Continue reading
Submitted by Mark O’Byrne – GoldCore
While gold prices continue to languish in the doldrums and are on course for their worst month since 2013, global demand and especially Chinese retail, investor and official demand continues to remain very robust. Indeed, China looks likely to see a new record demand for gold annually again in 2015.
Shanghai Gold Exchange (SGE) deliveries as reported last Friday were again very robust with another 54.063 tonnes of bullion deliveries for the week ending November 20th. Shanghai Gold Exchange (SGE) deliveries remain the best indicator or proxy for actual Chinese demand and appear to show Chinese gold demand is heading for a new record in 2015 (see charts below).
China added another 14 tonnes or 450,000 troy ounces of gold bullion to its foreign exchange reserves in October.
Gold reserves rose to 1,722.5 metric tonnes or 55.38 million troy ounces at the end of October. This was up from 54.93 million at the end of September, data from the People’s Bank of China (PBOC) showed today. Continue reading
Politicians are faced with quite a dilemma over the refugee crisis in Europe: on the one hand, no-one wants to simply send back people fleeing from a brutal civil war or let them freeze to death in the coming European winter. On the other hand, it is crystal clear that many so-called “economic refugees” – which include numerous people who simply want to avail themselves of the welfare state goodies on offer in Europe – are exploiting the situation by riding piggyback on the stream of genuine war refugees.
Refugees crossing fields in Slovenia on their way to the Austrian border
Photo credit: Darko Bandic / AP
As Mish has correctly pointed out, the political leadership of Germany (and this holds for Sweden as well) has made a major mistake by telling asylum seekers to “just come”, in the process ignoring agreements on asylum policy laid down in the EU treaties. What many people apparently heard was: Welcome to our welfare state goodies, whoever you are!
Not surprisingly, this has not only attracted a huge wave of migrants to Europe, but has made choosers out of beggars. These days migrants tend to be picky about where they want to go. Naturally, they prefer the lands of milk and honey they have heard so much about. Who wouldn’t want as much free stuff as possible?
It is equally unsurprising that other European countries – which haven’t been consulted about this approach – are extremely reluctant to agree to the quota system for resettling refugees across Europe that has been proposed by Germany and the EU bureaucracy in Brussels. They accuse Germany of having exacerbated the crisis by advertising its open borders policy, which is undoubtedly true.
By now another thing has become clear: the welcoming culture is not only clashing with the wishes of an increasingly resentful and restless electorate, but also with economic realities. The countries that are most popular with asylum seekers have reached, or are close to reaching, the limits of their capacity to accommodate refugees. Continue reading